<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 2000
REGISTRATION NO. 333-90359
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
SCG HOLDING CORPORATION SEMICONDUCTOR COMPONENTS INDUSTRIES, LLC
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified
DELAWARE in its charter)
(State or other jurisdiction of incorporation or DELAWARE
organization) (State or other jurisdiction of
36-3840979 incorporation or organization)
(I.R.S. Employer Identification No.) 36-4292817
(I.R.S. Employer Identification No.)
5005 E. MCDOWELL ROAD 5005 E. MCDOWELL ROAD
PHOENIX, AZ 85008 PHOENIX, AZ 85008
(602) 244-6600 (602) 244-6600
(Address and telephone number of principal executive (Address and telephone number of
offices) principal executive offices)
</TABLE>
AND THE GUARANTORS IDENTIFIED IN FOOTNOTE (1) BELOW
(Exact name of registrant as specified in its charter)
3674
(Primary standard industrial classification code number)
------------------------
GEORGE H. CAVE, ESQ.
SCG HOLDING CORPORATION
5005 E. MCDOWELL ROAD
PHOENIX, AZ 85008
(602) 244-5226
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES OF CORRESPONDENCE TO:
STEPHEN H. SHALEN, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON
ONE LIBERTY PLAZA
NEW YORK, NEW YORK 10006
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
- ------------------------
(1)The following domestic direct subsidiaries of SCG Holding Corporation, each
of which is incorporated or organized in Delaware and has the I.R.S. employer
identification number indicated, are guarantors of the notes and are
co-registrants: SCG (Malaysia SMP) Holding Corporation (36-4307329), SCG (China)
Holding Corporation (36-4265717) and SCG (Czech) Holding Corporation
(36-4292303). The following domestic direct subsidiaries of Semiconductor
Components Industries, LLC, each of which is incorporated or organized in
Delaware and has the I.R.S. employer identification number indicated, are also
guarantors of the notes and are co-registrants: Semiconductor Components
Industries Puerto Rico, Inc. (36-4304551) and SCG International Development, LLC
(36-4292819).
------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE AMENDED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE RELATED REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY APPLICABLE STATE SECURITIES
COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 27, 2000
PROSPECTUS
EXCHANGE OFFER FOR
$400,000,000
[LOGO]
12% SENIOR SUBORDINATED NOTES DUE 2009 OF
SCG HOLDING CORPORATION
AND
SEMICONDUCTOR COMPONENTS INDUSTRIES, LLC
GUARANTEED BY
SCG (MALAYSIA SMP) HOLDING CORPORATION,
SCG (CHINA) HOLDING CORPORATION,
SCG (CZECH) HOLDING CORPORATION,
SEMICONDUCTOR COMPONENTS INDUSTRIES PUERTO RICO, INC.
AND SCG INTERNATIONAL DEVELOPMENT, LLC
TERMS OF THE EXCHANGE OFFER
- - We are offering to exchange the notes that we sold in private and offshore
offerings for new registered exchange notes.
- - The exchange offer expires at 5:00 p.m., New York City time on ,
unless extended.
- - Tenders of outstanding notes may be
withdrawn at any time prior to the expiration of the exchange offer.
- - All outstanding notes that are validly
tendered and not validly withdrawn will be exchanged.
- - We believe that the exchange of notes will not be a taxable exchange for U.S.
federal income tax purposes.
- - We will not receive any proceeds from the exchange offer.
- - The terms of the notes to be issued are identical to the outstanding notes,
except for the transfer restrictions and registration rights relating to the
outstanding notes.
INVESTING IN THE NOTES ISSUED IN THE EXCHANGE OFFER INVOLVES RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 8.
WE ARE NOT MAKING AN OFFER TO EXCHANGE NOTES IN ANY JURISDICTION WHERE THE
OFFER IS NOT PERMITTED. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THE
EXCHANGE OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL AND COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
The Exchange Offer.......................................... 22
Use of Proceeds............................................. 32
Selected Historical Financial Data.......................... 33
Unaudited Pro Forma Financial Data.......................... 35
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 43
Industry.................................................... 56
Business.................................................... 60
Management.................................................. 78
Ownership of Capital Stock.................................. 86
Relationships and Related Transactions...................... 90
Description of Other Indebtedness........................... 91
Description of Exchange Notes............................... 93
Exchange Offer and Registration Rights Agreement............ 140
Book-Entry, Delivery and Form............................... 143
U.S. Federal Income Tax Considerations...................... 147
Plan of Distribution........................................ 149
Legal Matters............................................... 149
Experts..................................................... 149
Glossary.................................................... 150
Index to Financial Statements............................... F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this prospectus in its entirety.
SCG HOLDING CORPORATION
SCG Holding Corporation, together with its subsidiaries, is one of the
largest independent suppliers of semiconductor components in the world. Formerly
known as the Semiconductor Components Group of the Semiconductor Products Sector
of Motorola, Inc., we recently became an independent company as a result of our
August 1999 recapitalization, which is described below.
We have recently begun marketing our products under our new trade name,
ON Semiconductor-TM-.
The chart below illustrates the ownership and structure of our company and
shows each of our wholly-owned direct and indirect subsidiaries, including
foreign joint ventures in which we have a substantial interest.
[ORGANIZATIONAL CHART]
THE RECAPITALIZATION
Immediately prior to its August 4, 1999 recapitalization, SCG Holding
Corporation was a wholly-owned subsidiary of Motorola. SCG Holding held, and
continues to hold, through direct and indirect subsidiaries, substantially
all of the assets and operations of the Semiconductor Components Group of
Motorola's Semiconductor Products Sector.
The recapitalization comprised several transactions, the most significant of
which were
1
<PAGE>
the following. An affiliate of Texas Pacific Group purchased common shares of
SCG Holding Corporation from Motorola for $337.5 million. Semiconductor
Components Industries, LLC, SCG Holding's primary domestic operating subsidiary,
borrowed $740.5 million under senior secured bank facilities. SCG Holding and
Semiconductor Components issued $400 million of the initial notes, which are the
subject of the exchange offer described in this prospectus. Semiconductor
Components issued a $91 million junior subordinated note to Motorola. SCG
Holding issued mandatorily redeemable preferred stock with a total initial
liquidation preference of $209 million to Motorola and Texas Pacific Group's
affiliate. SCG Holding redeemed common stock held by Motorola for a total of
approximately $952 million.
As a result of this recapitalization, Texas Pacific Group's affiliate now
owns approximately 91%, and Motorola owns approximately 9%, of the voting common
stock of SCG Holding. Motorola agreed to provide transition and manufacturing
services to SCG Holding in order to facilitate its transition into a stand-
alone company independent of Motorola.
THE EXCHANGE OFFER
On August 4, 1999, we issued $400,000,000 aggregate principal amount of 12%
Senior Subordinated Notes due 2009 to Chase Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Lehman Brothers Inc. in private and offshore
offerings. These initial purchasers sold the notes to institutional investors
and non-U.S. persons in transactions exempt from the registration requirements
of the Securities Act of 1933. The notes are guaranteed by all five of our
domestic subsidiaries: SCG (Malaysia SMP) Holding Corporation, SCG (China)
Holding Corporation, SCG (Czech) Holding Corporation, Semiconductor Components
Industries Puerto Rico, Inc. and SCG International Development, LLC.
EXCHANGE OFFER AND REGISTRATION RIGHTS AGREEMENT
When we issued the initial notes, we entered into an Exchange Offer and
Registration Rights Agreement in which we agreed, among other things, to use our
best efforts to complete the exchange offer for the initial notes on or prior to
March 1, 2000.
THE EXCHANGE OFFER
Under the terms of the exchange offer, you are entitled to exchange the
initial notes for registered exchange notes with substantially identical terms.
You should read the discussion under the heading "Description of Exchange Notes"
for further information regarding the exchange notes. As of this date, there are
$400,000,000 aggregate principal amount of the initial notes outstanding. The
initial notes may be tendered only in integral multiples of $1,000.
RESALE OF EXCHANGE NOTES
We believe that the exchange notes issued in the exchange offer may be
offered for resale, resold or otherwise transferred by you without compliance
with the registration and prospectus delivery provisions of the Securities Act
of 1933, provided that:
- you are acquiring the exchange notes in the ordinary course of your
business,
- you are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate in the
distribution of the exchange notes and
- you are not an "affiliate" of ours.
If any of the foregoing are not true and you transfer any exchange note
without delivering a prospectus meeting the requirements of the Securities Act
or without an exemption from the registration requirements of the Securities
Act, you may incur liability under the Securities Act. We do not assume or
indemnify you against such liability.
If you are a broker-dealer and receive exchange notes for your own account
in
2
<PAGE>
exchange for initial notes that you acquired as a result of market making or
other trading activities, you must acknowledge that you will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of the exchange notes. A broker-dealer may use this prospectus for an
offer to resell, resale or other transfer of the exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE INITIAL NOTES
If you do not exchange your initial notes for exchange notes, you will no
longer be able to force us to register the initial notes under the Securities
Act. In addition, you will not be able to offer or sell the initial notes
unless:
- the offer or sale is registered under the Securities Act or
- you offer or sell them under an exemption from the requirements of, or in
a transaction not subject to, the Securities Act.
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m., New York City time, on ,
unless we decide to extend the expiration date.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will accrue interest at 12% per year, beginning on the
last date we paid interest on the initial notes you exchanged. We will pay
interest on the exchange notes on February 1 and August 1 of each year through
the maturity date of August 1, 2009.
PROCEDURES FOR TENDERING INITIAL NOTES
If you wish to accept the exchange offer, you must:
- complete, sign and date the letter of transmittal or a facsimile of it and
- send the letter of transmittal accompanying this prospectus and all other
documents required by it, including the initial notes to be exchanged, to
State Street Bank and Trust Company, as exchange agent. Alternatively, you
can tender your initial notes by following the procedures for book-entry
transfer described in this prospectus.
WITHDRAWAL RIGHTS
You may withdraw the tender of your initial notes at any time prior to
5:00 p.m., New York City time, on the expiration date. To withdraw, you must
send a written or facsimile transmission notice of withdrawal to the exchange
agent by 5:00 p.m., New York City time, on the expiration date.
ACCEPTANCE OF INITIAL NOTES AND DELIVERY OF EXCHANGE NOTES
If all of the conditions to the exchange offer are satisfied or waived, we
will accept any and all initial notes that are properly tendered in the exchange
offer prior to 5:00 p.m., New York City time, on the expiration date. We will
deliver the exchange notes promptly after the expiration date.
TAX CONSIDERATIONS
We believe that the exchange of initial notes for exchange notes will not be
a taxable exchange for federal income tax purposes. You should consult your tax
adviser about the tax consequences of this exchange as they apply to your
individual circumstances.
EXCHANGE AGENT
State Street Bank and Trust Company is serving as exchange agent for the
exchange offer.
FEES AND EXPENSES
We will bear all expenses related to consummating the exchange offer and
complying with the Exchange Offer and Registration Rights Agreement.
DESCRIPTION OF EXCHANGE NOTES
ISSUERS
SCG Holding Corporation and Semiconductor Components Industries, LLC.
3
<PAGE>
NOTES OFFERED
$400,000,000 aggregate principal amount of 12% Senior Subordinated Notes due
2009. The form and terms of the exchange notes are the same as the form and
terms of the initial notes, except that the offering and distribution of the
exchange notes have been registered under the Securities Act. Therefore, the
exchange notes will not bear legends restricting their transfer and will not be
entitled to registration under the Securities Act. The exchange notes will
evidence the same debt as the initial notes and both the initial notes and the
exchange notes are governed by the same indenture.
MATURITY
August 1, 2009.
INTEREST PAYMENT DATES
February 1 and August 1 of each year.
SINKING FUND
None.
OPTIONAL REDEMPTION
At any time on or after August 1, 2004, we may redeem some or all of the
exchange notes at the redemption prices listed under the heading "Description of
Exchange Notes--Optional Redemption." In addition, at any time and from time to
time prior to August 1, 2002, we may redeem up to $140,000,000 of the aggregate
principal amount of the exchange notes with the proceeds of public offerings of
equity in our company.
CHANGE OF CONTROL
Upon a change of control, you will have the right to require us to
repurchase all or a portion of your exchange notes at a price in cash equal to
101% of their original aggregate principal amount, together with accrued and
unpaid interest and liquidated damages, if any, to the date of repurchase.
EXCHANGE NOTE GUARANTEES
Some of our subsidiaries will guarantee the exchange notes. If we cannot
make payments on the exchange notes when they are due, the guarantor
subsidiaries are obligated to make them.
RANKING
The exchange notes will be unsecured and subordinated in right of payment to
all of our existing and future senior debt, including borrowings under our
senior secured bank facilities. The exchange notes will rank equal in right of
payment with all of our existing and future senior subordinated debt and senior
in right of payment to all of our existing and future subordinated debt.
The exchange note guarantees will be unsecured and subordinated in right of
payment to all existing and future senior debt of the exchange note guarantors,
including all guarantees of the exchange note guarantors under our senior bank
facilities. The exchange note guarantees will rank equal in right of payment
with all existing and future senior subordinated debt of the exchange note
guarantors and senior in right of payment to all existing and future
subordinated debt of the exchange note guarantors.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes.
FORWARD-LOOKING STATEMENTS
Information contained in this prospectus, such as information with respect
to our plans and strategy for our business and its financing, includes
forward-looking statements. For a discussion of important factors that could
cause actual results to differ materially from the forward-looking statements,
see "Risk Factors."
PRINCIPAL EXECUTIVE OFFICE
Our headquarters are located at 5005 E. McDowell Road, Phoenix, Arizona
85008 and our telephone number is (602) 244-6600.
4
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act relating to the exchange offer.
This prospectus does not contain all of the information included in the
registration statement. We have filed agreements and other documents as exhibits
to the registration statement. Statements regarding these agreements and other
documents are qualified by reference to the actual documents.
Following the exchange offer, we will be required to file periodic reports
and other information with the SEC under the Securities Exchange Act of 1934, as
amended. In addition, the indenture governing the exchange notes requires us to
deliver to you, or to State Street Bank and Trust Company for forwarding to you,
copies of all reports that we file with the SEC. We will also furnish such other
reports as we may determine or as the law requires.
You may read and copy the registration statement, including the exhibits
thereto, and any reports, statements or other information that we file at the
SEC's public reference room in Washington, D.C. You can request copies of these
documents, upon payment of a duplicating fee, by writing the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings will also be available to the public on the SEC
Internet site (http:// www.sec.gov).
You should rely only on the information provided in this prospectus. No
person has been authorized to provide you with different information. Neither
Motorola nor any of its subsidiaries, nor Texas Pacific Group nor any of its
affiliates is responsible for, or is making any representation to you
concerning, our future performance or the accuracy or completeness of this
prospectus.
The information in this prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this prospectus
is accurate as of any other date.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth our summary historical and pro forma
financial data for the periods indicated. We based this summary historical
financial data on our audited historical combined financial statements for the
fiscal years ended December 31, 1996, 1997 and 1998, our unaudited historical
combined financial statements for the period January 1, 1999 through August 3,
1999 and our unaudited historical consolidated financial statements for the
period from August 4, 1999 through October 2, 1999. See "Index to Financial
Statements." The summary pro forma financial data are based on the Unaudited Pro
Forma Financial Data for the fiscal year ended December 31, 1998 and the
nine-month period ended October 2, 1999. We prepared the Unaudited Pro Forma
Financial Data for the fiscal year ended December 31, 1998 and the nine-month
period ended October 2, 1999 as if our recapitalization had taken place on the
first day of the periods presented to show how our results of operations might
have looked if we had been an independent company for the periods presented. Our
fiscal year ends on December 31st of each year, and each of the first three
fiscal quarters of each fiscal year ends on the Saturday closest to the calendar
quarter-end. As a result, the nine-month period ended October 2, 1999 was longer
than the nine-month period ended September 26, 1998. You should read this
information in conjunction with the financial statements included elsewhere in
this prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
HISTORICAL PRO FORMA JANUARY 1, 1999 AUGUST 4, 1999 NINE MONTHS
YEARS ENDED DECEMBER 31, YEAR ENDED THROUGH THROUGH ENDED
------------------------------ DECEMBER 31, AUGUST 3, OCTOBER 2, OCTOBER 2,
1996 1997 1998 1998 1999 1999 1999
-------- -------- -------- -------------- ----------------- --------------- -------------
(DOLLARS IN MILLIONS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
INFORMATION:
REVENUES
Net sales--trade
(product revenues)... $1,748.0 $1,815.2 $1,493.4 $1,473.8 $894.3 $301.2 $1,195.2
Foundry sales(1)....... -- -- -- 162.3 -- 28.0 119.0
-------- -------- -------- -------- ------ ------ --------
Total revenues......... 1,748.0 1,815.2 1,493.4 1,636.1 894.3 329.2 1,314.2
-------- -------- -------- -------- ------ ------ --------
DIRECT AND ALLOCATED
COSTS AND EXPENSES:
Cost of sales.......... 1,128.8 1,119.6 1,068.8 1,198.0 626.7 241.1 949.0
Research and
development.......... 71.7 65.7 67.5 38.4 34.3 6.9 27.7
Selling and
marketing............ 94.4 110.7 92.4 92.4 39.0 8.8 47.8
General and
administrative....... 150.8 239.8 201.6 193.2 85.0 26.1 123.1
Restructuring and other
charges.............. -- -- 189.8 189.8 -- 6.4 6.4
-------- -------- -------- -------- ------ ------ --------
Operating income
(loss)............... 302.3 279.4 (126.7) (75.7) 109.3 39.9 160.2
-------- -------- -------- -------- ------ ------ --------
OTHER INCOME (EXPENSES):
Equity in earnings from
joint ventures....... 2.4 1.6 8.4 4.7 3.0 0.8 1.0
Interest expense(2).... (15.0) (11.0) (18.0) (132.5) (7.5) (23.0) (100.3)
Minority interest(3)... -- -- -- (6.2) -- (0.3) (1.2)
-------- -------- -------- -------- ------ ------ --------
Other expenses, net.... (12.6) (9.4) (9.6) (134.0) (4.5) (22.5) (100.5)
-------- -------- -------- -------- ------ ------ --------
Revenues less direct
and allocated
expenses before
taxes................ $ 289.7 $ 270.0 $ (136.3) $ (209.7) $104.8 17.4 $ 59.7
======== ======== ======== ======== ====== ========
Provision for income
taxes.................. (14.9)
------
Net income............... $ 2.5
======
OTHER FINANCIAL
INFORMATION:
Depreciation and
amortization......... $ 142.4 $ 144.7 $ 141.2 $ 149.6 $ 77.4 $ 25.3 $ 109.4
Capital expenditures... 190.7 157.8 81.2 126.2 27.5 19.7 47.2
</TABLE>
6
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<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
HISTORICAL PRO FORMA JANUARY 1, 1999 AUGUST 4, 1999 NINE MONTHS
YEARS ENDED DECEMBER 31, YEAR ENDED THROUGH THROUGH ENDED
------------------------------ DECEMBER 31, AUGUST 3, OCTOBER 2, OCTOBER 2,
1996 1997 1998 1998 1999 1999 1999
-------- -------- -------- -------------- ----------------- --------------- -------------
(DOLLARS IN MILLIONS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Adjusted EBITDA(4)..... $ 447.1 $ 425.7 $ 212.7 $ 268.4 $189.7 $ 72.4 $ 277.0
Pro forma cash interest
expense.............. 115.6 87.9
Cash flow from
operating activities,
excluding Motorola
financing and
taxes(5)............. 424.0 307.5 130.3 111.4 --
Cash flow used in
investing
activities(5)........ (190.7) (157.8) (81.2) (27.5) (19.7)
Net financing provided
to Motorola(5)....... 233.3 149.7 49.1 83.9 --
Cash flow from
operating
activities........... -- -- -- -- 7.2
Cash flow from
financing
activities........... -- -- -- -- 119.6
Ratio of pro forma
Adjusted EBITDA to
pro forma cash
interest
expense(6)........... 2.3x 3.2x
Ratio of pro forma
earnings to pro forma
fixed charges(7)..... -- 1.6x
</TABLE>
- ------------------------------
(1) Foundry sales represent products manufactured for other divisions of
Motorola's Semiconductor Products Sector. Historically, Motorola recorded
these foundry sales as an offset to cost of sales at cost. We now record
such sales in a manner consistent with other third-party sales. We and
Motorola have agreed to continue providing manufacturing services to each
other for limited periods of time following our recapitalization at fixed
prices that are intended to approximate each party's cost of providing the
services. Foundry sales increase both revenues and cost of sales in our
unaudited pro forma combined financial statements.
(2) Historically, Motorola had net interest expense on a consolidated basis for
all periods presented. Motorola allocated these amounts to its Semiconductor
Products Sector and in turn its Semiconductor Products Sector allocated a
portion of these amounts to us primarily on the basis of our net adjusted
assets for the years ended December 31, 1996, 1997 and 1998.
(3) Prior to our recapitalization, three of our joint ventures, were accounted
for in our combined financial statements using the equity method and were
financed with equity contributions from joint venture partners and
third-party non-recourse borrowings. In connection with our
recapitalization, the third-party borrowings were refinanced with
intercompany loans from us. The pro forma financial data reflects the
adjustments to consolidate these joint venture investments and to record
minority interests in the joint ventures upon consolidation.
(4) Adjusted EBITDA represents earnings before taxes on income, interest
expense, depreciation and amortization, restructuring and other charges and
minority interests. We are including Adjusted EBITDA data because we
understand that some investors consider such information as an additional
basis on which to evaluate our ability to pay interest, repay debt and make
capital expenditures. Because all companies do not calculate Adjusted EBITDA
identically, the presentation of Adjusted EBITDA herein is not necessarily
comparable to similarly entitled measures of other companies. Adjusted
EBITDA is not intended to represent, and should not be considered more
meaningful than or an alternative to, measures of operating performance.
(5) Motorola's cash management system is not designed to track centralized cash
and related financing transactions to the specific cash requirements of our
business. In addition, Motorola's transaction systems are not designed to
track receivables, liabilities, cash receipts and payments on a
business-specific basis. Given these constraints, supplemental cash flow
information is included in our audited historical combined financial
statements and our unaudited historical combined financial statements to
facilitate analysis of key components of cash flow activity. Net financing
provided to Motorola does not necessarily represent our cash flows, or the
timing of such flows, had we operated on a stand-alone basis.
(6) We have calculated our ratio of pro forma Adjusted EBITDA to pro forma cash
interest expense using pro forma Adjusted EBITDA for the year ended
December 31, 1998 and the nine-month period ended October 2, 1999, divided
by the pro forma cash interest expense for each period, respectively.
(7) We have calculated our ratio of pro forma earnings to pro forma fixed
charges as earnings, which are revenues less direct and allocated expenses
before taxes and before adjustments for income or loss from equity
investments and fixed charges, divided by fixed charges, which are expensed
and capitalized interest, amortized premiums, discounts and capitalized
expenses related to indebtedness and estimated interest included in rental
expense. The pro forma deficiency for 1998 of $206.4 million is primarily
due to the charge recorded in June 1998 to cover one-time costs associated
with a cost restructuring initiated in 1998.
7
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND OTHER
INFORMATION IN THIS PROSPECTUS BEFORE MAKING ANY DECISION TO INVEST IN THE
NOTES.
RISKS ASSOCIATED WITH THE EXCHANGE OFFER AND THE NOTES
TRANSFER RESTRICTIONS--IF YOU DO NOT PARTICIPATE IN THE EXCHANGE OFFER, YOU WILL
CONTINUE TO BE SUBJECT TO TRANSFER RESTRICTIONS.
If you do not exchange your initial notes for exchange notes pursuant to the
exchange offer, you will continue to be subject to the restrictions on transfer
of your initial notes. We do not intend to register the initial notes under the
Securities Act. To the extent initial notes are tendered and accepted in the
exchange offer, the trading market, if any, for the initial notes would be
adversely affected. See "The Exchange Offer."
NO PRIOR MARKET--THERE IS NO PRIOR MARKET FOR THE EXCHANGE NOTES. IF ONE
DEVELOPS, IT MAY NOT BE LIQUID.
The exchange notes are new securities for which there currently is no
market. We do not intend to apply for listing of the exchange notes on any
securities exchange or for quotation through any automated quotation system. It
is not certain that any market for the exchange notes will develop or that any
such market would be liquid.
UNSECURED NOTES--BECAUSE THE NOTES ARE NOT SECURED, OUR ASSETS MAY BE
INSUFFICIENT TO PAY AMOUNTS DUE ON YOUR NOTES.
The exchange notes will be, and the initial notes are, unsecured senior
subordinated obligations of our company, while indebtedness outstanding under
our senior bank facilities is secured by substantially all of our assets and
those of our subsidiary guarantors. In addition, we and some of our subsidiaries
may incur other senior indebtedness, which may be substantial in amount,
including secured indebtedness. See "--Additional Borrowing Capacity."
Because the exchange notes will be, and the initial notes are, unsecured
obligations, your right of repayment may be compromised in the following
situations:
- we or some of our subsidiaries enter into bankruptcy, liquidation,
reorganization, or other winding-up;
- there is a default in payment under our senior bank facilities or other
secured indebtedness; or
- there is an acceleration of any indebtedness under our senior bank
facilities or other secured indebtedness.
If any of these events occurs, our assets and those of our subsidiary guarantors
may not be sufficient to pay amounts due on any of the notes and the note
guarantees.
FRAUDULENT CONVEYANCE--A COURT COULD VOID OR SUBORDINATE OUR OBLIGATIONS UNDER
THE NOTES OR THE OBLIGATIONS OF A NOTE GUARANTOR IF IT FOUND THAT THOSE
OBLIGATIONS WERE NOT PROPERLY INCURRED.
Under federal or state fraudulent transfer laws, a court could take actions
detrimental to you if it found that, at the time the initial notes or the
guarantees of our subsidiaries were issued:
- we or a note guarantor issued the initial notes or a note guarantee with
the intent of hindering, delaying or defrauding current or future
creditors; or
- we or a note guarantor received less than fair consideration or
reasonably equivalent value for incurring the indebtedness represented
by the initial notes or the note guarantees and:
- we or a note guarantor were insolvent or rendered insolvent by issuing
the initial notes or the note guarantees; or
- we or a note guarantor were engaged or about to engage in a business or
transaction for which our assets were unreasonably small; or
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- we or a note guarantor intended to incur indebtedness beyond our ability
to pay, or believed or should have believed that we would incur
indebtedness beyond our ability to pay.
If a court made this finding, it could:
- void all or part of our obligations or a note guarantor's obligations to
the holders of notes; or
- subordinate our obligations or a note guarantor's obligations to the
holders of notes to other indebtedness of ours or of the note guarantor.
In that event, there would be no assurance that we could pay amounts due on
the notes.
Under fraudulent transfer statutes, it is not certain whether a court would
determine that we or a note guarantor were insolvent on the date that the
initial notes and note guarantees were issued. However, we or a note guarantor
generally would be considered insolvent at the time we or the note guarantor
incurred the debt constituting the initial notes or the note guarantees if:
- the fair saleable value of the relevant assets was less than the amount
required to pay our total existing debts and liabilities, including
contingent liabilities, or those of a note guarantor, as they become
absolute and mature; or
- we or a note guarantor incurred debts beyond our or its ability to pay as
such debts mature.
To the extent a court voids a note guarantee of payment of the initial notes
as a fraudulent conveyance or holds it unenforceable for any other reason,
holders of exchange notes would cease to have any claim against the note
guarantor. If a court allowed such a claim, the note guarantor's assets would be
applied to the note guarantor's liabilities and preferred stock claims. We
cannot assure you that a note guarantor's assets would be sufficient to satisfy
the claims of the holders of exchange notes relating to any voided portions of
any of the note guarantees.
LEGAL SUBORDINATION--IN THE EVENT OF A BANKRUPTCY, LIQUIDATION OR DISSOLUTION OF
EITHER OF THE ISSUERS OR ANY NOTE GUARANTOR, THE ASSETS OF THE ISSUER OR
GUARANTOR WILL NOT BE AVAILABLE TO PAY OBLIGATIONS TO YOU UNDER THE NOTES UNTIL
THE ISSUER OR GUARANTOR HAS MADE ALL PAYMENTS ON ITS SENIOR INDEBTEDNESS.
The exchange notes and the guarantees of the exchange notes will be, and the
initial notes and the guarantees of the initial notes are, subordinated to the
prior payment in full of all of our senior indebtedness and all of the senior
indebtedness of the guarantors, respectively, including our senior bank
facilities and any future senior indebtedness we or they incur. See "Description
of Exchange Notes--Ranking."
Because of the subordination provisions of the notes, in the event of the
bankruptcy, liquidation or dissolution of either of the issuers or any note
guarantor, the assets of the issuer or guarantor will not be available to pay
obligations under the notes until the issuer or guarantor has made all payments
on its senior indebtedness. We cannot assure you that sufficient assets will
remain after all such payments have been made to make any payments on the notes,
including payments of interest when due. The term "senior indebtedness" is
defined in "Description of Exchange Notes--Ranking."
As of October 2, 1999, the issuers had approximately $800.5 million of
senior indebtedness (excluding unused commitments), all of which is secured. As
of October 2, 1999, the note guarantors had no indebtedness other than
intercompany indebtedness (excluding their note guarantees, guarantees under our
senior bank facilities and trade payables and unused commitments).
STRUCTURAL SUBORDINATION--THE ASSETS AND EARNINGS OF OUR NON-GUARANTOR
SUBSIDIARIES MIGHT NOT BE AVAILABLE TO SATISFY YOUR CLAIMS.
SCG Holding Corporation conducts all, and Semiconductor Components
Industries, LLC conducts a substantial portion, of their operations through
their respective subsidiaries. Our foreign subsidiaries are not and are
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unlikely to become guarantors of the notes. See "Description of Exchange
Notes--Note Guarantees." Claims of creditors of these non-guarantor
subsidiaries, including trade creditors, secured creditors and creditors holding
indebtedness or guarantees issued by such subsidiaries, will generally have
priority with respect to the assets and earnings of such subsidiaries over the
claims of creditors of the issuers, including holders of the notes, even if the
obligations of such subsidiaries do not constitute senior indebtedness.
The ability of the issuers' and note guarantors' subsidiaries to pay
dividends and make other payments to them may be restricted by, among other
things, applicable corporate and other laws and regulations and agreements of
the subsidiaries. Although the indenture relating to the notes limits the
ability of subsidiaries to enter into consensual restrictions on their ability
to pay dividends and make other payments, such limitations are subject to a
number of significant qualifications and exceptions. See "Description of
Exchange Notes--Indenture Covenants--Limitations on Restrictions on
Distributions from Restricted Subsidiaries."
INABILITY TO REPURCHASE THE NOTES PRIOR TO MATURITY--BECAUSE OUR SENIOR BANK
FACILITIES PROHIBIT US FROM REPURCHASING THE NOTES, A DEFAULT MAY BE TRIGGERED
IF YOU EXERCISE YOUR RIGHT TO REQUIRE US TO REPURCHASE YOUR NOTES IN THE EVENT
WE EXPERIENCE A CHANGE OF CONTROL OR MAKE ASSET SALES THAT DO NOT MEET SPECIFIED
CONDITIONS.
If we experience a change of control, you will have the right to require us
to repurchase your notes at a purchase price in cash equal to 101% of the
principal amount of your notes plus accrued and unpaid interest. In addition, if
we make asset sales that do not meet specified conditions, you will have the
right to require us to repurchase some or all of your notes at a purchase price
in cash equal to 100% of the principal amount of your notes plus accrued and
unpaid interest. However, we are prohibited by our senior bank facilities from
repurchasing any notes. Our senior bank facilities also provide that change of
control events and asset sales that do not meet specified conditions constitute
a default. Any future credit agreement or other agreements relating to senior
indebtedness to which we become a party may contain similar restrictions or
provisions.
If we experience a change of control or make asset sales that do not meet
specified conditions when we are prohibited from repurchasing notes, we could
seek the consent of our lenders to purchase the notes or could attempt to
refinance the borrowings that contain such a prohibition. In the event that we
do not obtain such a consent and do not refinance such borrowings, we would
remain prohibited from purchasing the notes. In such case, our failure to
purchase tendered notes would constitute a default under the indenture relating
to the notes, which, in turn, could result in amounts outstanding under our
senior bank facilities and other senior indebtedness being declared due and
payable. Any such declaration could have adverse consequences both to you and to
us.
In the event we experience a change of control or make asset sales that do
not meet specified conditions, there can be no assurance that we would have
sufficient assets to satisfy all of our obligations under our senior bank
facilities and the notes. If a default occurs with respect to any senior
indebtedness, the subordination provisions in the indenture would likely
restrict payments to you. The provisions relating to a change of control
included in the indenture may increase the difficulty of a potential acquiror
obtaining control of us. See "Description of Other Indebtedness," "Description
of Exchange Notes--Change of Control" and "Description of Exchange
Notes--Indenture Covenants--Limitations on Sales of Assets and Subsidiary
Stock."
RISKS ASSOCIATED WITH OUR BUSINESS
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR
ABILITY TO FULFILL OUR OBLIGATIONS UNDER THE NOTES AND OPERATE OUR BUSINESS.
We are highly leveraged and have significant debt service obligations. As of
October 2,
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1999, we had total indebtedness of approximately $1,293.0 million (excluding
unused commitments) and negative equity of approximately $284.9 million.
Our substantial indebtedness could have important consequences to you,
including the risks that:
- we will be required to use a substantial portion of our cash flow from
operations to pay principal and interest on our indebtedness, thereby
reducing the availability of our cash flow to fund working capital,
capital expenditures, product development efforts and strategic
acquisitions;
- our interest expense could increase if interest rates in general increase
because a substantial portion of our debt will bear interest rates based
on market rates;
- our level of indebtedness will increase our vulnerability to general
economic downturns and adverse industry conditions;
- our debt service obligations could limit our flexibility in planning for,
or reacting to, changes in our business and the semiconductor components
industry;
- our indebtedness may restrict us from raising additional financing on
satisfactory terms to fund working capital, capital expenditures, product
development efforts and strategic acquisitions;
- our level of indebtedness may prevent us from raising the funds necessary
to repurchase all of the notes tendered to us upon the occurrence of a
changes of control, which would constitute an event of default under the
notes;
- our substantial leverage could place us at a competitive disadvantage
compared to our competitors that have less debt; and
- our failure to comply with the financial and other restrictive covenants
in our indebtedness, which, among other things, require us to maintain
specified financial ratios and limit our ability to incur debt and sell
assets, could result in an event of default that, if not cured or waived,
could have a material adverse effect on our business or prospects.
See "--Additional Borrowing Capacity," "--Restrictive Covenants in Our Debt
Instruments," "Description of Other Indebtedness," "Description of Exchange
Notes--Events of Default" and "Description of Exchange Notes--Indenture
Covenants."
ABILITY TO SERVICE DEBT--WE MAY NOT BE ABLE TO SERVICE THE OBLIGATIONS UNDER THE
NOTES IF WE CANNOT OBTAIN A SUFFICIENT AMOUNT OF CASH FROM OUR OPERATIONS AND
OUR SUBSIDIARIES DUE TO FACTORS BEYOND OUR CONTROL.
We obtain money to pay our expenses and to pay principal and interest on the
notes, our senior bank facilities and other debt from our operations and the
operations of our subsidiaries. Our ability to make payments on and to refinance
our indebtedness, including the notes, our senior bank facilities and our junior
subordinated note, and to fund working capital, capital expenditures, product
development efforts and strategic acquisitions, therefore, depends on our
ability to generate cash. Our ability to generate cash is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control.
On a pro forma basis after giving effect to our recapitalization, our
interest expense for the year ended December 31, 1998 and the nine months ended
October 2, 1999 would have been $132.5 million and $100.3 million, respectively.
On a pro forma basis after giving effect to our recapitalization, our fixed
charges for the year ended December 31, 1998 would have exceeded earnings,
resulting in a deficiency of $206.4 million, and for the nine-month period ended
October 2, 1999, our ratio of earnings to fixed charges would have been 1.6x. On
a historical basis, for the year ended December 31, 1998, fixed charges exceeded
earnings, resulting in a deficiency of $144.7
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million. For the period from January 1, 1999 to August 3, 1999 and for the
period from August 4, 1999 to October 2, 1999, our ratio of earnings to fixed
charges was 12.9x and 1.7x, respectively. We need to improve our operating
results from these pro forma and historical results in order to service all of
our indebtedness and to fund other expenditures. Our historical financial
results have been, and we anticipate our future financial results will be,
subject to substantial fluctuations.
We cannot assure you that our business will generate sufficient cash flow
from operations, that we will realize currently anticipated cost savings,
revenue growth and operating improvements on schedule or at all or that future
borrowings will be available to us under our senior bank facilities, in each
case, in amounts sufficient to enable us to service our indebtedness, including
the notes, or to fund our other liquidity needs. If we cannot service our
indebtedness we will have to take actions such as reducing or delaying capital
expenditures, product development efforts, acquisitions, investments and/or
strategic alliances, selling assets, restructuring or refinancing our
indebtedness (which could include the notes), or seeking additional equity
capital or bankruptcy protection. We cannot assure you that any of these
remedies can be effected on commercially reasonable terms, if at all. In
addition, the terms of existing or future debt agreements, including the credit
agreement relating to our senior bank facilities and the indenture relating to
the notes, may restrict us from adopting any of these alternatives.
See "--Substantial Leverage," "--Additional Borrowing Capacity," "--Cyclical
Industry" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
ADDITIONAL BORROWING CAPACITY--DESPITE OUR SUBSTANTIAL LEVERAGE WE ARE ABLE TO
INCUR MORE DEBT, WHICH COULD INCREASE THE EXISTING RISKS RELATED TO OUR CURRENT
LEVELS OF DEBT.
We anticipate drawing down most or all of the $74.5 million of additional
indebtedness available under our delayed draw term facility before the end of
February 2000. We are also able to incur additional indebtedness in the future,
including $135.3 million of additional debt that remains available under our
$150 million revolving facility. See "Description of Other Indebtedness." In
addition, the credit agreement relating to our senior bank facilities, the
indenture relating to the notes and the terms of our junior subordinated note
will allow us to incur further additional indebtedness. See "Description of
Other Indebtedness" and "Description of Exchange Notes--Indenture
Covenants--Limitation on Indebtedness." If we incur additional debt above our
current levels, the risks associated with such levels of debt could intensify.
See "--Substantial Leverage" and "--Ability to Service Debt."
CYCLICAL INDUSTRY--IF OUR INDUSTRY WERE TO EXPERIENCE A DOWNTURN IN THE BUSINESS
CYCLE, OUR ABILITY TO REPAY THE NOTES COULD BE ADVERSELY AFFECTED.
The semiconductor industry is highly cyclical and is generally characterized
by average selling price fluctuations. Since the fourth quarter of 1997, we have
experienced significant declines in the pricing of our products as customers
reduced demand and manufacturers reduced prices to avoid a significant decline
in capacity utilization. We believe these pricing declines were due primarily to
the Asian economic crisis and excess semiconductor manufacturing capacity.
Although the semiconductor market has recently improved, we cannot assure you
that these improvements are sustainable or will continue or that the
semiconductor market will not experience subsequent, and possibly more severe
and/or prolonged, downturns in the future. We cannot assure you that any future
downturn in the semiconductor market will not have a material adverse effect on
our revenues.
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NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE--OUR INABILITY TO INTRODUCE NEW
PRODUCTS COULD ADVERSELY AFFECT US, AND NEW TECHNOLOGIES COULD REDUCE THE DEMAND
FOR OUR PRODUCTS.
Rapidly changing technologies and industry standards, along with frequent
new product introductions, characterize the industries that are currently the
primary end-users of semiconductors. As these industries evolve and introduce
new products, our success will depend on our ability to adapt to such changes in
a timely and cost-effective manner by designing, developing, manufacturing,
marketing and providing customer support for our own new products and
technologies.
We cannot assure you that we will be able to identify changes in the product
markets of our customers and end-users and adapt to such changes in a timely and
cost-effective manner. Nor can we assure you that products or technologies that
may be developed in the future by our competitors and others will not render our
products or technologies obsolete or noncompetitive.
In addition, because our components are often "building block"
semiconductors that in some cases can be integrated into more complex integrated
circuits, we face competition from manufacturers of standard semiconductors,
application-specific integrated circuits and fully customized integrated
circuits, as well as customers who develop their own integrated circuit
products. A fundamental shift in technologies in our product markets or the
product markets of our customers or end-users could have a material adverse
effect on our business or prospects.
COMPETITION--COMPETITION IN OUR INDUSTRY COULD PREVENT US FROM MAINTAINING OUR
LEVEL OF REVENUES AND FROM RAISING PRICES TO REFLECT INCREASES IN COSTS.
The semiconductor industry, particularly the market for general purpose
semiconductor products like ours, is highly competitive. Although only a few
companies compete with us in all of our product lines, we face significant
competition within each of our product lines from major international
semiconductor companies as well as smaller companies focused on specific market
niches. Many of these competitors have substantially greater financial and other
resources than we have with which to pursue development, engineering,
manufacturing, marketing and distribution of their products and are better able
than we are to withstand adverse economic or market conditions. In addition,
companies not currently in direct competition with us may introduce competing
products in the future. Significant competitors in the discrete market include
International Rectifier, Philips, Rohm, Siliconix, ST Microelectronics and
Toshiba. Significant competitors in the standard analog markets include Analog
Devices, Fairchild, Linear Technology, Maxim Integrated Products, National
Semiconductor, ST Microelectronics and Texas Instruments. Significant
competitors in the standard logic product market include Fairchild, Hitachi,
Philips, Texas Instruments, and Toshiba. The semiconductor components industry
has also been undergoing significant restructuring and consolidations that could
adversely affect our competitiveness.
Because our components are often "building block" semiconductors that in
some cases can be integrated into more complex integrated circuits, we also face
competition from manufacturers of integrated circuits, application-specific
integrated circuits and fully customized integrated circuits, as well as
customers who develop their own integrated circuit products.
We compete in different product lines to various degrees on the basis of
price, quality, technical performance, product features, product system
compatibility, customized design, availability, delivery timing and reliability
and sales and technical support. Gross margins in the industry vary by
geographic region depending on local demand for the products in which
semiconductors are used, such as personal computers, industrial and
telecommunications equipment, consumer electronics and automotive goods. In
regions where there is a strong demand for such products, price pressures may
also emerge as competitors attempt to gain a greater market
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share by lowering prices. Our ability to compete successfully depends on
elements both within and outside of our control, including industry general
economic trends.
MANUFACTURING RISKS--IF WE FAIL TO MAINTAIN MANUFACTURING EFFICIENCY AND AVOID
MANUFACTURING DIFFICULTIES, OUR ABILITY TO REPAY THE NOTES COULD BE ADVERSELY
AFFECTED.
Manufacturing semiconductor components involves highly complex processes
that require advanced and costly equipment. We and our competitors continuously
modify these processes 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.
From time to time we have experienced difficulty in beginning production at
new facilities or in effecting transitions to new manufacturing processes that
have caused us to suffer delays in product deliveries or reduced yields. We
cannot assure you that we will not 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 results of
operations 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.
RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS--RESTRICTIONS IMPOSED BY OUR
SENIOR BANK FACILITIES AND THE INDENTURE RELATING TO THE NOTES MAY LIMIT OUR
ABILITY TO FINANCE FUTURE OPERATIONS OR CAPITAL NEEDS OR ENGAGE IN OTHER
BUSINESS ACTIVITIES THAT MAY BE IN OUR INTEREST.
The credit agreement relating to our senior bank facilities and the
indenture relating to the notes contain various provisions that limit our
management's discretion in the operation of our business by restricting our
ability to:
- incur additional indebtedness;
- pay dividends and make other distributions;
- prepay subordinated debt;
- make restricted payments;
- enter into sale and leaseback transactions;
- create liens;
- sell and otherwise dispose of assets; and
- enter into transactions with affiliates.
We cannot assure you that these restrictions will not adversely affect our
ability to finance our future operations or capital needs or engage in other
business activities that may be in our interest. In addition, our senior bank
facilities require us to maintain compliance with specified financial ratios.
Our ability to comply with these ratios may be affected by events beyond our
control.
A breach of any of these restrictive covenants or our inability to comply
with the required financial ratios could result in a default under our senior
bank facilities. In the event of any such default, the lenders under our senior
bank facilities may elect to declare all borrowings outstanding, together with
accrued interest and other fees, to be immediately due and payable, to require
us to apply all of our available cash to repay such borrowings or to prevent us
from making debt service payments on the notes and on our junior subordinated
note, any of which would result in an event of default under the notes and our
junior subordinated note. The lenders will also have the right in such
circumstances to terminate any commitments they have to provide further
financing, including under our revolving facility.
If we are unable to repay any such borrowings when due, the lenders under
our
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senior bank facilities will also have the right to proceed against their
collateral, which consists of substantially all of the assets of SCG Holding
Corporation and each of its direct and indirect wholly-owned domestic
subsidiaries, including Semiconductor Components Industries, LLC, and up to 65%
of the capital stock of each direct and indirect wholly-owned foreign subsidiary
of SCG Holding Corporation. If the indebtedness under our senior bank facilities
and the notes were to be accelerated, we cannot assure you that our assets would
be sufficient to repay such indebtedness in full.
See "Description of Exchange Notes--Indenture Covenants" and "Description of
Other Indebtedness."
LACK OF INDEPENDENT IDENTITY--WE ARE IN THE PROCESS OF ESTABLISHING A TRADE NAME
IDENTITY INDEPENDENT OF MOTOROLA. OUR FAILURE TO ESTABLISH THE SAME LEVEL OF
GOODWILL AS MOTOROLA COULD HARM OUR LONG TERM BUSINESS PROSPECTS.
Our future success and competitive position depend, in part, on our ability
to establish goodwill in our products and services and to associate that
goodwill with our trade name, ON Semiconductor-TM-. In order for us to establish
goodwill, customers must acknowledge the quality of our products and services
and associate our trade name with that quality and those products and services.
Prior to our recapitalization, all of the products and services we offered were
sold, distributed and advertised under the Motorola trade name. Consequently,
the goodwill of the Motorola trade name may have been associated, in part, with
success of those products and services.
We have begun marketing our products under the ON Semiconductor-TM- name.
However, for two years after our recapitalization, an agreement we have with
Motorola gives us the limited ability to use the Motorola trade name in
connection with the sale, distribution and advertisement of some products we
offer. We are presently using our best efforts to cease using licensed Motorola
trademarks as soon as commercially reasonable. If the removal of the Motorola
trade name from any of these products would require the product to be
requalified by any of our customers, we may continue to use the Motorola trade
name for up to two years after our recapitalization, to allow us to continue
selling the product pending its requalification. In addition, for two years
after our recapitalization, we also have the ability to utilize the transition
statement, "formerly a division of Motorola," in connection with the sale,
distribution and advertisement of some products we offer. The impact of our no
longer using the Motorola trade name cannot be fully predicted and it could have
a material adverse effect on our business or our prospects. Although we intend
to establish our trade name and brands independent of Motorola, we cannot assure
you that, prior to the expiration of these transitional arrangements, we will
have established the same level of goodwill in our trade name as Motorola has
established in its trade name.
See "Business--Patents, Trademarks, Copyrights and Other Intellectual
Property Rights."
LACK OF INDEPENDENT OPERATING HISTORY--IF THE ASSUMPTIONS WE HAVE USED TO
ESTIMATE FUTURE OPERATING RESULTS ARE INCORRECT OR IF WE ENCOUNTER UNEXPECTED
COSTS OR OTHER PROBLEMS, OUR PROFITABILITY COULD BE ADVERSELY AFFECTED.
Prior to our recapitalization, Motorola allocated to us, as one of several
divisions within its Semiconductor Products Sector, a percentage of the expenses
related to services Motorola provided to us and other divisions of its
Semiconductor Products Sector. During 1998, we incurred approximately
$294 million in costs for general, administrative, selling and marketing
expenses, of which Motorola allocated to us approximately $119 million for
services shared with other divisions of its Semiconductor Products Sector. As
part of our recapitalization, we identified the specific services that we
believed were necessary to our business and that we would not be able initially
to provide ourselves.
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As part of our recapitalization, Motorola agreed to provide or arrange for
the provision of these services, including information technology, human
resources, supply management and finance services, for a limited period of time
to facilitate our transition to a stand-alone company. We estimate that we will
incur not more than $75 million under these arrangements for general,
administrative, selling and marketing related expenses during the first year
after our recapitalization and that our aggregate general, administrative,
selling and marketing expenses will be less than those directly charged and
allocated in 1998. In addition, Motorola agreed to continue to provide worldwide
shipping and freight services to us for a period of up to three years after our
recapitalization using the cost allocation method Motorola previously used with
us. Under this arrangement, we anticipate paying Motorola approximately
$30 million in the first year following our recapitalization.
We believe that the scope of the agreements we entered into with Motorola as
part of our recapitalization and the time frames, pricing and other terms should
provide us sufficient time to effect our transition to a stand-alone company
with minimal disruption to our business, and that we will ultimately be able to
provide these services ourselves or identify third-party suppliers to provide
such services on terms not materially less favorable to us than the terms of our
arrangements with Motorola. We cannot, however, assure you that we have
correctly anticipated the required levels of services to be provided by Motorola
or that we will be able to obtain similar services on comparable terms upon
termination of our agreements with Motorola. Any material adverse change in
Motorola's ability to supply these services could have a material adverse effect
on our business or prospects.
As part of Motorola, we had a number of formal and informal arrangements
with other divisions of Motorola's Semiconductor Products Sector that provided
us with equipment, finished products and other goods and services. Except as
provided for in the agreements between Motorola and us, which are described
under "Business--Sales, Marketing and Distribution" and
"Business--Manufacturing," future business dealings between Motorola and us will
be on an arm's length basis. There can be no assurance that the arm's length
nature of any future business relationship with Motorola will be as beneficial
for us as our past relationship to Motorola.
See "--Dependence on Motorola and Other Key Customers for Our Products and
Services," "--Dependence on Motorola and Other Contractors for Manufacturing
Services," "--Dependence on Supply of Raw Materials."
DEPENDENCE ON MOTOROLA AND OTHER KEY CUSTOMERS FOR OUR PRODUCTS AND SERVICES--
IF WE WERE TO LOSE OUR LARGE CUSTOMERS OUR ABILITY TO REPAY THE NOTES COULD BE
ADVERSELY AFFECTED.
Motorola has historically constituted our largest customer, accounting for
approximately 7% of our pro forma product revenues in 1998. As a result of our
recapitalization, we are no longer part of Motorola, and our current and future
product sales to Motorola and its affiliates will be on an arm's length basis.
We cannot assure you that we will be able to maintain the level of historical
product sales to Motorola or that we will be able to sell any products to
Motorola or its affiliates. Notwithstanding our broad customer base, the loss of
Motorola or any other sizable customer could harm our results of operations and
could potentially thereby harm our ability to service our debt.
Product sales to three other customers accounted in the aggregate for
approximately 20% of our pro forma product revenues in 1998. Many of our
customers operate in cyclical industries, and in the past we have experienced
significant fluctuations from period to period in the volume of our products
ordered. We have no agreements with any of our customers that impose minimum or
continuing obligations to purchase our products. We cannot assure you that any
of our customers will not significantly reduce orders or seek price reductions
in the future or that the loss of one or more of such customers would not have a
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material adverse effect on our business or our prospects. See
"Business--Customers and Applications."
Prior to our recapitalization, we and other divisions of Motorola's
Semiconductor Products Sector provided manufacturing services to each other at
cost (as calculated for financial accounting purposes). We and Motorola have
agreed to continue providing manufacturing services to each other for limited
periods of time following our recapitalization at fixed prices that are intended
to approximate each party's cost of providing the services. Subject to its right
to cancel upon six months' written notice, Motorola has minimum commitments to
purchase manufacturing services from us of approximately $24.9 million,
$66 million and $26 million in the last three months of 1999, and in fiscal
years 2000 and 2001, respectively, and has no purchase obligations thereafter.
We anticipate that Motorola will actually purchase manufacturing services from
us of approximately $100 million in 2000. We could be adversely affected if
Motorola does not purchase manufacturing services from us at the levels we have
anticipated, cancels these arrangements or discontinues using our manufacturing
services after these agreements expire or if we are unable to find other uses
for, or dispose of, the manufacturing facilities we currently use to provide
these services in a manner that allows us to cover our fixed costs. See
"Business--Manufacturing."
DEPENDENCE ON MOTOROLA AND OTHER CONTRACTORS FOR MANUFACTURING SERVICES--THE
LOSS OF OUR SOURCES FOR MANUFACTURING SERVICES, OR INCREASES IN THE PRICES OF
SUCH SERVICES, COULD ADVERSELY AFFECT OUR OPERATIONS AND PROFITABILITY.
Prior to our recapitalization, we and other divisions of Motorola's
Semiconductor Products Sector provided manufacturing services to each other at
cost (as calculated for financial accounting purposes). In 1996, 1997 and 1998,
the costs charged by other divisions of Motorola's Semiconductor Products Sector
to us for these services amounted to $322.7 million, $310.5 million and $266.8
million, respectively. Motorola manufactures our emitter-coupled logic products,
which are high margin products that accounted for 10% of our pro forma product
revenues in 1998. We currently have no other manufacturing source for these
emitter-coupled logic products. We expect emitter-coupled logic products to
remain one of our single most important product families over the next several
years.
We and Motorola have agreed to continue providing manufacturing services to
each other (including Motorola's manufacturing of our emitter-coupled logic
products) for limited periods of time following our recapitalization at fixed
prices that are intended to approximate each party's cost of providing these
services. Subject to our right to cancel upon six months' written notice, we
have minimum commitments to purchase manufacturing services from Motorola of
approximately $29.5 million, $88 million, $51 million, $41 million and
$40 million in the last three months of 1999, and in fiscal years 2000, 2001,
2002 and 2003, respectively, and have no purchase obligations thereafter. Based
on our current budget, we anticipate that we will actually purchase
manufacturing services from Motorola of approximately $150 million in 2000. We
could be adversely affected if Motorola is unable to provide these services on a
timely basis or if we are unable to relocate these manufacturing operations to
our own facilities or to other third-party manufacturers on cost-effective terms
or make other satisfactory arrangements prior to the time when these agreements
expire. See "Business--Manufacturing."
We also use other third-party contractors for manufacturing activities,
primarily for the assembly and testing of final goods. In 1998, these contract
manufacturers, including Astra, AAPI and ASE, accounted for approximately 20% of
our costs of goods sold. Our agreements with these manufacturers typically
require us to forecast product needs and commit to purchase services consistent
with these forecasts, and in some cases require longer-term commitments in the
early stages of the relationship. Our operations could be adversely affected if
these contract relationships were disrupted or terminated, the cost of such
services increased significantly, the quality of the
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services provided deteriorated or our forecasts proved to be materially
incorrect. See "Business--Manufacturing."
DEPENDENCE ON SUPPLY OF RAW MATERIALS--THE LOSS OF OUR SOURCES OF RAW MATERIAL,
OR INCREASES IN THE PRICES OF SUCH GOODS, COULD ADVERSELY AFFECT OUR OPERATIONS
AND PROFITABILITY.
Our results of operations could be adversely affected if we were unable to
obtain adequate supplies of raw materials in a timely manner or if the costs of
our raw materials increased significantly or their quality deteriorated. Our
manufacturing processes use many raw materials, including silicon wafers, copper
lead frames, mold compound, ceramic packages and various chemicals and gases. We
have no agreements with any of our suppliers that impose minimum or continuing
supply obligations, and we obtain our raw materials and supplies from a large
number of sources 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. Although we believe that our current supplies of raw materials
are adequate, shortages could occur in various essential materials due to
interruption of supply or increased demand in the industry. Prior to our
recapitalization, most of our supplies were purchased jointly with Motorola. As
part of our recapitalization we entered into an agreement with Motorola to
provide for the transition of our supply management functions to a stand-alone
basis. We are currently implementing this transition, which we expect to be
complete by August 3, 2000. We cannot assure you that we will be able to
continue to procure adequate supplies of raw materials in a timely manner on
terms comparable to those on which we procured raw materials as part of
Motorola.
INABILITY TO IMPLEMENT OUR BUSINESS STRATEGY--IF WE ARE UNABLE TO IMPLEMENT OUR
BUSINESS STRATEGY, OUR REVENUES, PROFITABILITY AND OUR ABILITY TO SERVICE OUR
INDEBTEDNESS MAY BE ADVERSELY AFFECTED.
Our future financial performance and success are largely dependent on our
ability to implement successfully our business strategy. We cannot assure you
that we will successfully implement the business strategy described in this
prospectus or that implementing our strategy will sustain or improve our results
of operations. In particular, we cannot assure you that we will be able to
increase our sales and market share, lower our production costs, increase our
manufacturing efficiency, enhance our current portfolio of products or
capitalize on our status as an independent company.
Our business strategy is based on our assumptions about the future demand
for our current products and the new products and applications we are developing
and on our continuing ability to produce our products profitably. Each of these
factors depends, among other things, on our ability to finance our operating and
product development activities, maintain high quality and efficient
manufacturing operations, relocate and close manufacturing facilities as part of
our ongoing cost restructuring with minimal disruption to our operations, access
quality raw materials and contract manufacturing services in a cost-effective
and timely manner, protect our intellectual property portfolio and attract and
retain highly-skilled technical, managerial, marketing and finance personnel.
Our strategy also depends on our ability to implement our transition to a stand-
alone company, which depends to a certain extent on Motorola's ability to
provide transition services to us for limited periods of time and on our ability
to provide or procure such services thereafter. Several of these and other
factors that could affect our ability to implement our business strategy, such
as risks associated with international operations, increased competition, legal
developments and general economic conditions, are beyond our control. In
addition, circumstances beyond our control and changes in our business or
industry may require us to change our business strategy.
Any failure to implement our business strategy or to revise our business
strategy in a timely and effective manner may adversely affect our ability to
service our indebtedness, including our ability to make principal and interest
payments on the Notes. See "Business--Business Strategy."
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RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS--OUR INTERNATIONAL OPERATIONS
SUBJECT US TO RISKS INHERENT IN DOING BUSINESS ON AN INTERNATIONAL LEVEL THAT
COULD ADVERSELY IMPACT OUR RESULTS OF OPERATIONS.
In the first three fiscal quarters of 1999, we generated approximately 46%,
33% and 21% of our product revenues from customers in the Americas, the
Asia/Pacific region and Europe (including the Middle East), respectively. We
maintain significant operations in Guadalajara, Mexico; Seremban, Malaysia;
Carmona, the Philippines; Aizu, Japan; Leshan, China; Roznov, the Czech
Republic; and Piestany, Slovakia. In addition, we rely on a number of contract
manufacturers (primarily for assembly and testing) whose operations are
primarily located in the Asian/Pacific region.
We cannot assure you that we will be successful in overcoming the risks that
relate to or arise from operating in international markets. Risks inherent in
doing business on an international level include, among others, the following:
- economic and political instability;
- changes in regulatory requirements, tariffs, customs, duties and other
trade barriers;
- transportation delays;
- power supply shortages and shutdowns;
- difficulties in staffing and managing foreign operations and other labor
problems;
- fluctuations in currency exchange rates;
- currency convertibility and repatriation;
- taxation of our earnings and the earnings of our personnel; and
- other risks relating to the administration of or changes in, or new
interpretations of, the laws, regulations and policies of the
jurisdictions in which we conduct our business.
Our activities outside the United States are subject to additional risks
associated with fluctuating currency values and exchange rates, hard currency
shortages and controls on currency exchange. Motorola historically engaged in
hedging activities to reduce the risk of adverse currency rate fluctuations
affecting its overall business, but as a stand-alone company we now bear the
risks and costs associated with any such hedging activities. Additionally, while
our sales are primarily denominated in U.S. dollars, worldwide semiconductor
pricing is influenced by currency rate fluctuations, and the recent devaluations
of the currencies of several countries in southeast Asia could have a negative
impact on the demand for, and thus the price of, our products. See also
"--Cyclical Industry."
DEPENDENCE ON HIGHLY-SKILLED PERSONNEL--IF WE FAIL TO ATTRACT AND RETAIN SKILLED
PERSONNEL, OUR RESULTS OF OPERATIONS AND COMPETITIVE POSITION COULD DETERIORATE.
Our success depends upon our ability to attract and retain highly-skilled
technical, managerial, marketing and finance personnel. The market for personnel
with such qualifications is highly competitive. In particular, analog component
designers are difficult to attract and retain, and the failure to attract and
retain analog component designers could compromise our ability to keep pace with
our competitors in the market for analog components. We cannot assure you that
we will be able to continue to attract and retain individuals with the
qualifications necessary to operate our company most effectively.
OUR OWNERSHIP--THE INTERESTS OF OUR CONTROLLING SHAREHOLDER MAY DIFFER FROM THE
INTERESTS OF NOTE HOLDERS, WHICH COULD RESULT IN OUR CONTROLLING SHAREHOLDER
TAKING STEPS TO ADVANCE ITS INTERESTS THAT COULD ADVERSELY AFFECT THE
NOTEHOLDERS.
As a result of our recapitalization an affiliate of Texas Pacific Group
controls us and has the power to elect all of the directors of SCG Holding
Corporation and its subsidiaries, approve all amendments to their charter
documents and effect fundamental corporate transactions such as mergers and
asset sales. The
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interests of our controlling shareholder may differ from the interests of
holders of the notes. See "Ownership of Capital Stock."
DEPENDENCE ON INTELLECTUAL PROPERTY--WE USE A SIGNIFICANT AMOUNT OF INTELLECTUAL
PROPERTY IN OUR BUSINESS. IF WE ARE UNABLE TO PROTECT THIS INTELLECTUAL
PROPERTY, OUR OPERATIONS AND PROFITABILITY WOULD BE ADVERSELY AFFECTED.
We rely on patents, trade secrets, trademarks, mask works and copyrights to
protect our products and technologies. Some of our products and technologies are
not covered by any patents or pending patent applications, and we cannot assure
you that:
- any of the more than approximately 280 U.S. and 280 foreign patents and
pending patent applications that Motorola has assigned, licensed or
sublicensed to us in connection with our recapitalization will not lapse
or be invalidated, circumvented, challenged or licensed to others;
- the license rights granted by Motorola in connection with our
recapitalization will provide competitive advantages to us; or
- any of our pending or future patent applications will be issued or, if
issued, will contain claims within the scope originally sought.
Moreover, we cannot assure you that:
- any of the trademarks, copyrights, trade secrets, know-how or mask works
that Motorola has assigned, licensed or sublicensed to us in connection
with our recapitalization will not lapse or be invalidated, circumvented,
challenged, or licensed to others; or
- any of our pending or future trademark, copyright, or mask work
applications will be issued or have the coverage originally sought.
Some of our high margin analog semiconductor products are the subject of a
patent infringement lawsuit pending in United States District Court in
Wilmington, Delaware that was commenced by Power Integrations against Motorola
prior to our August 1999 recapitalization. If Power Integrations were to obtain
an injunction, we would be unable to pursue the development of these products,
which are part of a product family that is important to our business strategy.
In addition, some of our power-MOS products are the subject of a patent
infringement lawsuit by International Rectifier pending in the United States
District Court for the Central District of California. We are engaged in
discussions with International Rectifier regarding a number of different aspects
of our continuing business relationship, including the development of a new
license agreement covering these products. Although we are optimistic about the
outcome of these discussions, we cannot assure you we will be able to reach such
an agreement on favorable terms. For a discussion of these matters, see
"Business--Legal Proceedings."
Furthermore, we cannot assure you that our competitors or others will not
develop products or technologies that are similar or superior to our products or
technologies, duplicate our products or technologies or design around our
protected technologies. In addition, effective patent, trademark, copyright and
trade secret protection may be unavailable, limited or not applied for in the
United States and in foreign countries.
Also, we may, from time to time, in the future be notified of claims that we
may be infringing third-party patents or other intellectual property rights.
Motorola has agreed to indemnify us for a limited period of time with respect to
some claims that our activities infringe on the intellectual property rights of
others. If necessary or desirable, we may seek licenses under such patents or
intellectual property rights. However, we cannot assure you that we will obtain
such licenses or that the terms of any offered licenses will be acceptable to
us. The failure to obtain a license from a third party for technologies we use
could cause us to incur substantial liabilities or to suspend the manufacture or
shipment of products or our use of processes requiring the technologies.
Litigation could cause us to incur significant expense, by adversely affecting
sales of the challenged
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product or technologies and diverting the efforts of our technical and
management personnel, whether or not such litigation is resolved in our favor.
In the event of an adverse outcome in any such litigation, we may be required
to:
- pay substantial damages;
- cease the manufacture, use, sale or importation of infringing products;
- expend significant resources to develop or acquire non-infringing
technologies;
- discontinue the use of processes; or
- obtain licenses to the infringing technologies.
We cannot assure you that we would be successful in any such development or
acquisition or that any such licenses would be available to us on reasonable
terms. Any such development, acquisition or license could require the
expenditure of substantial time and other resources.
We will also seek to protect our proprietary technologies, including
technologies that may not be patented or patentable, in part by confidentiality
agreements and, if applicable, inventors' rights agreements with our
collaborators, advisors, employees and consultants. We cannot assure you that
these agreements will not be breached, that we will have adequate remedies for
any breach or that persons or institutions will not assert rights to
intellectual property arising out of our research.
ENVIRONMENTAL LIABILITIES; OTHER GOVERNMENTAL REGULATION--REGULATORY MATTERS
COULD ADVERSELY AFFECT OUR ABILITY TO CONDUCT OUR BUSINESS AND COULD REQUIRE
EXPENDITURES THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF
OPERATION OR FINANCIAL CONDITION.
Our manufacturing operations are subject to various environmental laws and
regulations relating to the management, disposal and remediation of hazardous
substances and the emission and discharge of pollutants into the air and water.
Our operations are also subject to laws and regulations relating to workplace
safety and worker health which, among other things, regulate employee exposure
to hazardous substances. Motorola has agreed to indemnify us for environmental
and health and safety liabilities related to the conduct or operations of our
business or Motorola's ownership, occupancy or use of real property occurring
prior to our recapitalization. We cannot assure you that such indemnification
arrangements will cover all material environmental costs relating to pre-closing
matters. Moreover, the nature of our operations exposes us to the continuing
risk of environmental and health and safety liabilities related to events or
activities occurring after our recapitalization.
We believe that the future cost of compliance with existing environmental
and health and safety laws and regulations (and liability for currently known
environmental conditions) will not have a material adverse effect on our
business or prospects. However, we cannot predict:
- changes in environmental or health and safety laws or regulations;
- the manner in which environmental or health and safety laws or regulations
will be enforced, administered or interpreted; or
- the cost of compliance with future environmental or health and safety laws
or regulations or the costs associated with any future environmental
claims, including the cost of clean-up of currently unknown environmental
conditions.
See "Business--Environmental Matters."
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THE EXCHANGE OFFER
The foregoing is a summary of the Exchange Offer and Registration Rights
Agreement dated as of August 4, 1999 among SCG Holding Corporation,
Semiconductor Components Industries, LLC and SCG (Malaysia SMP) Holding
Corporation, SCG (Czech) Holding Corporation, SCG (China) Holding Corporation,
Semiconductor Components Industries Puerto Rico, Inc. and SCG International
Development LLC, Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Lehman Brothers Inc. A copy of the Exchange Offer and
Registration Rights Agreement is available as set forth under the heading
"Prospectus Summary--Where You Can Find More Information."
TERMS OF THE EXCHANGE OFFER
In connection with the issuance of the initial notes pursuant to the
Purchase Agreement dated as of August 4, 1999 among the SCG Holding,
Semiconductor Components, the note guarantors Chase Securities Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and Lehman Brothers Inc., these initial
purchasers and their respective assignees became entitled to the benefits of the
Exchange Offer and Registration Rights Agreement.
The Exchange Offer and Registration Rights Agreement requires SCG Holding,
Semiconductor Components and the note guarantors to file the registration
statement, of which this prospectus is a part, for a registered exchange offer
relating to an issue of new exchange notes identical in all material respects to
the initial notes but containing no restrictive legends. Under the Exchange
Offer and Registration Rights Agreement, SCG Holding, Semiconductor Components
and the note guarantors are required to:
- file the registration statement with the Securities and Exchange
Commission on or prior to 120 days following the date of original issuance
of the initial notes;
- use their reasonable best efforts to cause the registration statement to
be declared effective by the SEC no later than 180 days after the date of
issuance of the initial notes;
- use their reasonable best efforts to cause the exchange offer to be
consummated no later than 210 days after the date of issuance of the
initial notes; and
- keep the registration statement effective for not less than 30 days (or
longer, if required by applicable law) after the date on which notice of
the exchange offer is mailed to holders of the initial notes, which period
may be renewed in our reasonable judgment to enable more holders to
exchange their initial notes, provided, that the exchange offer is
consummated no later than 210 days after the date of issuance of the
initial notes.
The exchange offer that this prospectus describes, if commenced and consummated
within the time periods described in this paragraph, will satisfy those
requirements under the Exchange Offer and Registration Rights Agreement.
We will accept for exchange all initial notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the expiration date. We
will issue exchange notes for an equal principal amount of outstanding initial
notes accepted in the exchange offer. Holders may tender initial notes only in
integral multiples of $1,000. This prospectus, together with the accompanying
letter of transmittal, is being sent to all record holders of initial notes as
of , . The exchange offer is not conditioned upon the tender of
any minimum principal amount of initial notes Our obligation to accept initial
notes for exchange is, however, subject to the conditions as set forth herein
under "--Conditions."
Initial notes will be deemed accepted when, as and if we have given written
notice of acceptance to the exchange agent. The exchange agent will act as agent
for the tendering holders of initial notes for the purposes of receiving the
exchange notes and delivering them to the holders.
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Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to other issuers, we believe that the exchange notes issued in
the exchange offer may be offered for resale, resold or otherwise transferred by
each holder without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that:
- the holder is not a broker-dealer who acquires the initial notes directly
from the issuers for resale pursuant to Rule 144A under the Securities Act
or any other available exemption under the Securities Act;
- the holder is not an "affiliate" of either of the issuers, as that term is
defined in Rule 405 under the Securities Act; and
- the exchange notes are acquired in the ordinary course of the holder's
business and the holder is not engaged in, and does not intend to engage
in, a distribution of the exchange notes and has no arrangement or
understanding with any person to participate in a distribution of the
exchange notes.
By tendering the initial notes in exchange for exchange notes, each holder,
other than a broker-dealer, will represent that:
- any exchange notes to be received by it will be acquired in the ordinary
course of its business;
- it is not engaged in, and does not intend to engage in, a distribution of
such exchange notes and has no arrangement or understanding to participate
in a distribution of the exchange notes; and
- it is not an affiliate, as defined in Rule 405 under the Securities Act,
of either of the issuers.
If a holder of initial notes is engaged in or intends to engage in a
distribution of the exchange notes or has any arrangement or understanding with
respect to the distribution of the exchange notes to be acquired pursuant to the
exchange offer, the holder may not rely on the applicable interpretations of the
staff of the SEC and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each broker-dealer that receives exchange notes for its own account
in the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The accompanying letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of exchange notes received
in exchange for initial notes where such initial notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities. We have agreed to make this prospectus available to any
broker-dealer for a period of time not to exceed 180 days after the registration
statement is declared effective, subject to extension in specified
circumstances, for use in connection with any such resale. See "Plan of
Distribution."
In the event that:
- because of any change in law or applicable interpretations thereof by the
SEC's staff, the issuers and the note guarantors are not permitted to
effect the exchange offer;
- any initial notes validly tendered pursuant to the exchange offer are not
exchanged for exchange notes within 210 days after the date of issuance of
the initial notes;
- the initial purchasers so request with respect to initial notes not
eligible to be exchanged for exchange notes in the exchange offer;
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- any applicable law or interpretations do not permit a holder of initial
notes to participate in the exchange offer;
- any holder of initial notes that participates in the exchange offer does
not receive freely transferable exchange notes in exchange for tendered
initial notes; or
- the issuers so elect;
then, in any such case, the issuers and the note guarantors shall as promptly as
practicable, file with the SEC a shelf registration statement covering resales
of the initial notes by holders who satisfy the conditions relating to the
provision of information in connection with the shelf registration statement.
LIQUIDATED DAMAGES
Under the Exchange Offer and Registration Rights Agreement, the issuers must
pay liquidated damages to holders of the initial notes in the event of any of
the following registration defaults:
- the registration statement or the shelf registration statement is not
filed with the SEC on or prior to 120 days following the date that the
initial notes were issued;
- the registration statement or the shelf registration statement is not
declared effective within 180 days after the date of issuance of the
initial notes;
- the exchange offer is not consummated on or prior to 210 days after the
date of issuance of the initial notes; or
- the shelf registration statement is filed and declared effective within
180 days after the date of issuance of the initial notes (or in the case
of the shelf registration statement, within 60 days after the publication
of the change in law or interpretation) but shall thereafter cease to be
effective (at any time that the issuers and the note guarantors are
obligated to maintain the effectiveness thereof) without being succeeded
within 30 days by an additional registration statement filed and declared
effective;
During the period of one or more such registration defaults, the issuers and the
note guarantors will be obligated to pay liquidated damages to each holder of
Transfer Restricted Securities (as such term is defined in the Exchange Offer
and Registration Rights Agreement), in an amount equal to $0.192 per week per
$1,000 principal amount of Transfer Restricted Securities held by such holder
until:
- the applicable registration statement is filed;
- the exchange offer registration statement is declared effective and the
exchange offer is consummated;
- the shelf registration statement is declared effective; or
- the shelf registration statement again becomes effective, as the case may
be.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.
Holders who do not tender their initial notes before the expiration of the
exchange offer will not, subject to limited exceptions, be entitled to exchange
these untendered initial notes for exchange notes. Holders of initial notes will
not be able to offer or sell their initial notes, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws, unless the initial notes are subsequently
registered under the Securities Act. Subject to limited exceptions, the issuers
will have no obligation to register the initial notes.
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "expiration date" shall mean , (30 days following
the commencement of the exchange offer), unless the exchange offer is extended,
in which case the term "expiration date" shall mean the latest date to which the
exchange offer is extended.
In order to extend the expiration date, the issuers will notify the exchange
agent of any extension by written notice and may notify the holders of the
initial notes by mailing an announcement or by means of a press release or other
public announcement prior to 9:00 A.M., New York City time, on the next business
day after the previously scheduled expiration date.
In addition, the issuers reserve the right to delay acceptance of any
initial notes, to extend the exchange offer or to terminate the exchange offer
and not permit acceptance of initial notes not previously accepted if any of the
conditions set forth herein under "--Conditions" shall have occurred and shall
not have been waived by the issuers (if permitted to be waived), by giving
written notice of such delay, extension or termination to the exchange agent.
The issuers also reserve the right to amend the terms of the exchange offer in
any manner deemed by them to be advantageous to the holders of the initial
notes. If the issuers make any material change to terms of the exchange offer,
the exchange offer shall remain open for a minimum of an additional five
business days, if the exchange offer would otherwise expire during such period.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by written notice of the delay to the
exchange agent. If the issuers amend the exchange offer in a manner that
constitutes a material change, the issuers will promptly disclose the amendment
in a manner reasonably calculated to inform the holders of the initial notes of
the amendment, including by providing public announcement or giving oral or
written notice to the holders of the initial notes. A material change in the
terms of the exchange offer could include, among other things, a change in the
timing of the exchange offer, a change in the exchange agent and other similar
changes in the terms of the exchange offer.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will accrue interest payable in cash at 12% per annum,
from the later of:
- the last interest payment date on which interest was paid on the initial
notes surrendered in exchange therefor; and
- if the initial notes are surrendered for exchange on a date subsequent to
the record date for an interest payment date to occur on or after the date
of such exchange and as to which interest will be paid, the date of such
interest payment.
PROCEDURES FOR TENDERING
In order to tender initial notes in the exchange offer, a holder must
complete one of the procedures described below.
- The holder must cause The Depository Trust Company ("DTC") to deliver to
the exchange agent prior to 5:00 p.m., New York City time, on the
expiration date, a confirmation that such holder's initial notes have been
transferred from the account of a DTC participant to the exchange agent's
account at DTC. The confirmation should include a message stating that DTC
has received express acknowledgment from such DTC participant that it has
received, and agrees to be bound by, the terms of the accompanying letter
of transmittal and that the issuers may enforce such agreement against
such DTC participant.
- The holder must complete, sign and date the letter of transmittal or a
facsimile of it, have the signature guaranteed, if required by the letter
of transmittal, and mail or otherwise deliver the letter of transmittal or
facsimile of it, together with certificates for the initial notes being
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tendered, to the exchange agent prior to 5:00 p.m., New York City time, on
the expiration date.
- The holder must comply with the guaranteed delivery procedure described
below under "--Guaranteed Delivery Procedure."
THE METHOD OF DELIVERY OF INITIAL NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IN THE CASE
OF ANY TENDER OF CERTIFICATED NOTES, WE RECOMMEND THAT HOLDERS USE AN OVERNIGHT
OR HAND-DELIVERY SERVICE RATHER THAN TENDERING BY MAIL. IF A HOLDER DOES DELIVER
BY MAIL, WE RECOMMEND USING REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR INITIAL NOTES SHOULD BE SENT TO
THE ISSUERS.
Holders of initial notes may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees tender initial notes for
them.
The tender by a holder of initial notes will constitute an agreement between
such holder and the issuers in accordance with the terms and subject to the
conditions set forth here and in the accompanying letter of transmittal.
Only a holder of initial notes may tender the initial notes in the exchange
offer. The term "holder" for this purpose means any person in whose name initial
notes are registered on the books of the Issuers or any other person who has
obtained a properly completed bond power from the registered holder.
Any beneficial owner whose initial notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on his or her behalf. If the beneficial owner wishes
to tender on his or her own behalf, such beneficial owner must, prior to
completing and executing the letter of transmittal and delivering his or her
initial notes, either make appropriate arrangements to register ownership of the
initial notes in such beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
SIGNATURE REQUIREMENTS AND SIGNATURE GUARANTEES
Except in the two situations described below, signatures on a letter of
transmittal or a notice of withdrawal must be guaranteed by:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or correspondent in
the United States; or
- an "eligible guarantor" institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934.
Signature guarantees are not required if the initial notes are tendered:
- by a registered holder of the initial notes or a DTC participant whose
name appears on the security position listing as holder, in either case
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the letter of transmittal and the
exchange notes are being issued directly to such registered holder or are
being deposited into such DTC participant's account at DTC, as applicable;
or
- for the account of an eligible guarantor institution.
26
<PAGE>
If the letter of transmittal is signed by the record holder(s) of the
initial notes tendered thereby, the signature must correspond with the name(s)
written on the face of the initial notes without alteration, enlargement or any
change whatsoever. If the letter of transmittal is signed by a DTC participant,
the signature must correspond with the name as it appears on the security
position listing as the holder of the initial notes.
If the registered holder of the initial notes does not sign the letter of
transmittal, but rather the letter of transmittal is signed by someone else,
those initial notes must be
- endorsed by the registered holder, with the signature on that letter
guaranteed by an eligible guarantor institution; or
- accompanied by a bond power in form satisfactory to the issuers, signed by
the registered holder, with that signature guaranteed by an eligible
guarantor institution.
If the letter of transmittal, endorsement, bond power, power of attorney or
any other documents required by the letter of transmittal are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, these
persons must:
- indicate their status when signing; and
- submit evidence that satisfies the issuers of their authority to act in
this capacity with respect to the letter of transmittal.
VALIDITY, FORM, ELIGIBILITY, ACCEPTANCE OF TENDERED INITIAL NOTES
All questions as to the validity, form, eligibility, time of receipt,
acceptance and withdrawal of the tendered initial notes will be determined by
the issuers in their sole discretion, which determination will be final and
binding. The issuers reserve the absolute right to reject any and all initial
notes not properly tendered or any initial notes which, if accepted, would, in
the opinion of the issuers or their counsel, be unlawful. The issuers also
reserve the absolute right to waive any conditions of the exchange offer or
irregularities or defects in tender as to particular initial notes. The issuers'
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties.
Unless waived, any defects or irregularities in connection with tenders of
initial notes must be cured within such time as the issuers shall determine.
Neither the issuers, the exchange agent nor any other person shall be under any
duty to give notification of defects or irregularities with respect to tenders
of initial notes, nor shall any of them incur any liability for failure to give
such notification. Tenders of initial notes will not be deemed to have been made
until such irregularities have been cured or waived. Any initial notes received
by the exchange agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned without cost by
the exchange agent to the tendering holders of such initial notes, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In addition, the issuers reserve the right in their sole discretion, subject
to the provisions of the indenture relating to the initial notes and the
exchange notes, to:
- purchase or make offers for any initial notes that remain outstanding
subsequent to the expiration date or, terminate the exchange offer in
accordance with the terms of the Exchange Offer and Registration Rights
Agreement; and
- to the extent permitted by applicable law, purchase initial notes in the
open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers could differ from the terms of the
exchange offer.
27
<PAGE>
GUARANTEED DELIVERY PROCEDURE
If a registered holder of initial notes desires to tender initial notes but
cannot complete the procedures for tendering described above in a timely manner,
such holder may tender initial notes by causing an "eligible guarantor"
institution, within the meaning of Rule 17Ad-15 under the Securities Exchange
Act of 1934, to mail or otherwise deliver to the exchange agent prior to
5:00 p.m., New York City time, on the expiration date, a properly completed and
duly signed notice of guaranteed delivery and letter of transmittal,
substantially in the form accompanying this prospectus. Such notice of
guaranteed delivery must:
- set forth the registered holder's name and address, the certificate number
of the initial notes being tendered, if available, and the principal
amount of the initial notes being tendered;
- state that the tender is being made by an eligible guarantor institution;
and
- guarantee that, within, five business days after the expiration date, the
eligible guarantor institution will deposit with the exchange agent (1) a
confirmation that the initial notes being tendered have been transferred
from the account of a DTC participant to the exchange agent's account at
DTC and any other documents required by the letter of transmittal or
(2) certificates for the initial notes being tendered in proper form for
transfer and (3) any other documents required by the letter of
transmittal.
Any such tender will be valid if, within, five business days after the
expiration date, the eligible guarantor institution makes such deposit as
guaranteed.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
After all of the conditions to the exchange offer have been satisfied or
waived, all initial notes properly tendered will be accepted, promptly after the
expiration date, and the exchange notes will be issued promptly after acceptance
of the initial notes. See "--Conditions" below. For purposes of the exchange
offer, initial notes shall be deemed to have been accepted as validly tendered
for exchange when, as and if the issuers have given written notice thereof to
the exchange agent.
In all cases, issuance of exchange notes for initial notes that are accepted
for exchange pursuant to the exchange offer will be made only after the exchange
agent's timely receipt of:
- certificates for such initial notes or a timely confirmation of a
book-entry transfer of such initial notes into the exchange agent's
account at DTC,
- a properly completed and duly executed letter of transmittal, and
- all other required documents required by the letter of transmittal.
If any tendered initial notes are not accepted for any reason set forth in
the terms and conditions of the exchange offer or if initial notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged initial notes will be returned without expense to
the tendering holder as promptly as practicable after the expiration or
termination of the exchange offer. In the case of initial notes tendered by the
book-entry transfer procedures described below, the non-exchanged initial notes
will be credited to an account maintained with DTC.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the initial notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus. Any financial institution that
is a DTC participant may make book-entry delivery of initial notes by causing
DTC to transfer such initial notes into the exchange agent's account at DTC in
28
<PAGE>
accordance with DTC's procedures for transfer. However, although delivery of
initial notes may be effected through book-entry transfer into the exchange
agent's account at DTC, a confirmation of book-entry transfer or the letter of
transmittal or facsimile thereof with any required signature guarantees and any
other required documents must, in any case, be transmitted to and received by
the exchange agent at one of the addresses set forth below under "--Exchange
Agent" on or prior to the expiration date or the guaranteed delivery procedures
described below must be complied with. DELIVERY OF DOCUMENTS TO DTC DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in this prospectus to
deposit of initial notes shall be deemed to include DTC's book-entry delivery
method.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of initial notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
A holder may withdraw initial notes it has tendered in the exchange offer by
delivering a written notice of withdrawal to the exchange agent prior to
5:00 p.m., New York City time on the expiration date. Any such notice of
withdrawal must:
1. specify the name of the person that tendered the initial notes to be
withdrawn;
2. identify the initial notes to be withdrawn, including, if applicable,
the registration number or numbers and total principal amount of such
initial notes;
3. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such initial notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to permit the trustee with respect to
the initial notes to register the transfer of such initial notes into the
name of the person withdrawing the tender;
4. specify the name in which any such initial notes are to be registered,
if different from that of the person that deposited them initially; and
5. if the initial notes have been tendered pursuant to the book-entry
procedures, specify the name and number of the DTC participant's account
at DTC to be credited, if different than that of the person withdrawing
the tender.
The issuers will determine all questions as to the validity, form and
eligibility, time of receipt of such notices, which shall be final and binding
on all parties. Any initial notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any initial
notes that have been tendered for exchange and that are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of initial notes tendered by book-entry transfer, such initial notes
will be credited to an account maintained with the Book-Entry Transfer Facility
for the initial notes) as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn initial notes
may be re-tendered by following one of the procedures described under
"--Procedures for Tendering" and "--Book-Entry Transfer" above at any time on or
prior to the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, initial notes will not
be required to be accepted for exchange, nor will exchange notes be issued in
exchange for any initial notes, and the
29
<PAGE>
issuers may terminate or amend the exchange offer as provided herein before the
acceptance of such initial notes, if:
1. because of any change in law, or applicable interpretations thereof by
the SEC, the issuers determine that it is not permitted to effect the
exchange offer;
2. an action is proceeding or threatened that would materially impair the
issuers' ability to proceed with the exchange offer; or
3. not all government approvals that the issuers deem necessary for the
consummation of the exchange offer have been received.
The issuers have no obligation to, and will not knowingly, permit acceptance
of tenders of initial notes:
- from affiliates of the issuers within the meaning of Rule 405 under the
Securities Act;
- from any other holder or holders who are not eligible to participate in
the exchange offer under applicable law or interpretations by the SEC; or
- if the exchange notes to be received by such holder or holders of initial
notes in the exchange offer, upon receipt, will not be tradable by such
holder without restriction under the Securities Act and the Exchange Act
and without material restrictions under the "blue sky" or securities laws
of substantially all of the states of the United States.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
initial notes, as reflected in the issuers' accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the issuers. The costs of the exchange offer and the unamortized
expenses related to the issuance of the initial notes will be amortized over the
term of the exchange notes.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as exchange agent for
the exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus, the letter of transmittal or notice of
guaranteed delivery should be directed to the exchange agent addressed as
follows:
BY MAIL:
State Street Bank and Trust Company
Corporate Trust Department
P.O. Box 778
Boston, Massachusetts
02102-0078
Attn: Mackenzie Elijah
BY COURIER OR HAND DELIVERY:
State Street Bank and Trust Company
Corporate Trust Window, 5th Floor
2 Avenue de Lafayette
Boston, Massachusetts 02111
Attn: Mackenzie Elijah
30
<PAGE>
BY HAND IN NEW YORK UNTIL 5:00PM
(AS DROP AGENT)
State Street Bank and Trust Company
Corporate Trust Window
61 Broadway
15th Floor
New York, New York 10006
BY FACSIMILE: (617) 662-1452
Confirm by Telephone: (617) 662-1525
FEES AND EXPENSES
The issuers will pay the expenses of soliciting tenders under the exchange
offer. The principal solicitation for tenders pursuant to the exchange offer is
being made by mail; however, additional solicitations may be made by telegraph,
telephone, telecopy or in person by officers and regular employees of the
issuers.
The issuers will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. The issuers, however, will pay the
exchange agent reasonable and customary fees for its services and will reimburse
the exchange agent for its reasonable documented out-of-pocket expenses in
connection therewith. The Issuers may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this prospectus, the letter of
transmittal and related documents to the beneficial owners of the initial notes,
and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the exchange offer will be
paid by the Issuers, including fees and expenses of the exchange agent and
trustee and accounting, legal, printing and related fees and expenses.
The issuers will pay all transfer taxes, if any, applicable to the exchange
of initial notes pursuant to the exchange offer. If, however:
- certificates representing exchange notes or initial notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the initial notes tendered;
- tendered initial notes are registered in the name of any person other than
the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
initial notes pursuant to the exchange offer;
then the amount of any such transfer taxes, whether imposed on the registered
holder or any other persons, will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of the transfer taxes will
be billed directly to the tendering holder.
31
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes under the exchange offer. In consideration for issuing the exchange notes
as contemplated in this prospectus, we will receive initial notes in like
principal amount, the terms of which are identical in all material respects to
the exchange notes. The initial notes surrendered in exchange for the exchange
notes will be retired and canceled and cannot be reissued. Accordingly, the
issuance of the exchange notes will not result in any increase in our
indebtedness. The proceeds received from the sale of the initial notes were used
to help finance our recapitalization.
32
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth our summary historical financial data. These
data are based on our unaudited historical combined financial statements as of
and for the fiscal years ended December 31, 1994 and 1995, which are not
included herein, our audited historical combined financial statements as of and
for the fiscal years ended December 31, 1996, 1997 and 1998 (the "Audited
Combined Financial Statements") our unaudited historical combined financial
statements for the nine-month period ended September 26, 1998 and the period
from January 1, 1999 through August 3, 1999 (the "Unaudited Interim Combined
Financial Statements"), and our unaudited historical consolidated financial
statements for the period from August 4, 1999 through October 2, 1999 (the
"Unaudited Interim Consolidated Financial Statements"). Our fiscal year ends on
December 31st of each year, and each of the first three fiscal quarters of each
fiscal year ends on the Saturday closest to the calendar quarter end. As a
result, the nine-month period ended October 2, 1999 was longer than the
nine-month period ended September 26, 1998. You should read this information in
conjunction with "Management's Discussion and Analysis of Financial Position and
Results of Operations," the Unaudited Interim Consolidated Financial Statements,
the Unaudited Interim Combined Financial Statements and the Audited Combined
Financial Statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JANUARY 1, AUGUST 4,
NINE MONTHS 1999 1999
YEARS ENDED DECEMBER 31, ENDED THROUGH THROUGH
---------------------------------------------------- SEPTEMBER 26, AUGUST 3, OCTOBER 2,
1994 1995 1996 1997 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------------- ---------- -----------
(dollars in millions, except for ratios)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
INFORMATION:
OPERATING REVENUES:
Net sales--trade (product
revenues)................. $1,702.7 $2,011.1 $1,748.0 $1,815.2 $1,493.4 $1,133.3 $894.3 $ 301.2
Foundry sales............... -- -- -- -- -- -- -- 28.0
-------- -------- -------- -------- -------- -------- ------ --------
Total revenues.............. 1,702.7 2,011.1 1,748.0 1,815.2 1,493.4 1,133.3 894.3 329.2
-------- -------- -------- -------- -------- -------- ------ --------
DIRECT AND ALLOCATED COSTS AND
EXPENSES:
Cost of sales............... 1,047.9 1,209.5 1,128.8 1,119.6 1,068.8 810.1 626.7 241.1
Research and development.... 65.3 78.1 71.7 65.7 67.5 53.1 34.3 6.9
Selling and marketing....... 84.7 99.7 94.4 110.7 92.4 70.8 39.0 8.8
General and
administrative............ 165.6 180.3 150.8 239.8 201.6 158.6 85.0 26.1
Restructuring and other
charges................... -- -- -- -- 189.8 189.8 -- 6.4
-------- -------- -------- -------- -------- -------- ------ --------
Operating income (loss)..... 339.2 443.5 302.3 279.4 (126.7) (149.1) 109.3 39.9
-------- -------- -------- -------- -------- -------- ------ --------
OTHER INCOME (EXPENSES):
Equity in earnings from
joint ventures............ -- -- 2.4 1.6 8.4 3.7 3.0 0.8
Interest expense............ (15.0) (17.7) (15.0) (11.0) (18.0) (11.4) (7.5) (23.0)
Minority interests.......... -- -- -- -- -- -- -- (0.3)
-------- -------- -------- -------- -------- -------- ------ --------
Other expenses, net......... (15.0) (17.7) (12.6) (9.4) (9.6) (7.7) (4.5) (22.5)
-------- -------- -------- -------- -------- -------- ------ --------
Revenues less direct and
allocated expenses before
taxes..................... $ 324.2 $ 425.8 $ 289.7 $ 270.0 $ (136.3) $ (156.8) $104.8 17.4
======== ======== ======== ======== ======== ======== ======
Provision for income
taxes..................... (14.9)
--------
Net income.................. $ 2.5
========
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
JANUARY 1, AUGUST 4,
NINE MONTHS 1999 1999
YEARS ENDED DECEMBER 31, ENDED THROUGH THROUGH
---------------------------------------------------- SEPTEMBER 26, AUGUST 3, OCTOBER 2,
1994 1995 1996 1997 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------------- ---------- -----------
(dollars in millions, except for ratios)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Adjusted EBITDA(1).......... $ 450.0 $ 578.9 $ 447.1 $ 425.7 $ 212.7 $ 146.2 $189.7 $ 72.4
Depreciation and
amortization.............. 110.8 135.4 142.4 144.7 141.2 101.8 77.4 25.3
Capital expenditures........ 142.0 252.5 190.7 157.8 81.2 71.8 27.5 19.7
Cash flow from operating
activities,
excluding Motorola
financing and taxes(2).... N/A(4) 421.5 424.0 307.5 130.3 104.1 111.4 --
Cash flow used in investing
activities(2)............. N/A(4) (252.5) (190.7) (157.8) (81.2) (71.8) (27.5) (19.7)
Net financing provided to
Motorola(2)............... N/A(4) 169.0 233.3 149.7 49.1 32.3 83.9 --
Cash flow from operating
activities................ -- -- -- -- -- -- -- 7.2
Cash flow from financing
activities................ -- -- -- -- -- -- -- 119.6
Ratio of earnings to fixed
charges(3)................ N/A(5) N/A(5) N/A(5) N/A(5) -- -- 12.9 1.7
BALANCE SHEET DATA (END OF
PERIOD):
Total assets................ $ 558.5 $ 714.2 $ 768.9 $ 900.6 $ 776.6 $1,513.1
Total business equity....... 534.5 689.7 746.1 866.4 681.0 --
Total stockholders' equity
(deficit)................. (284.9)
</TABLE>
- ------------------------------
N/A - Not available
(1) Adjusted EBITDA represents earnings before taxes on income, interest
expense, depreciation and amortization, restructuring and other charges and
minority interests. We are including Adjusted EBITDA data because we
understand that some investors consider such information as an additional
basis on which to evaluate our ability to pay interest, repay debt and make
capital expenditures. Because all companies do not calculate Adjusted EBITDA
identically, the presentation of Adjusted EBITDA herein is not necessarily
comparable to similarly entitled measures of other companies. Adjusted
EBITDA is not intended to represent and should not be considered more
meaningful than, or an alternative to, measures of operating performance as
determined in accordance with generally accepted accounting principles.
(2) Motorola's cash management system is not designed to track centralized cash
and related financing transactions to the specific cash requirements of our
business. In addition, Motorola's transaction systems are not designed to
track receivables, liabilities, cash receipts and payments on a
business-specific basis. Given these constraints, supplemental cash flow
information is included in our audited historical combined financial
statements and our unaudited historical combined financial statements to
facilitate analysis of key components of cash flow activity. Net financing
provided to Motorola does not necessarily represent our cash flows, or the
timing of such flows, had we operated on a stand-alone basis.
(3) We have calculated our ratio of earnings to fixed charges as earnings, which
are revenues less direct and allocated expenses before taxes and before
adjustments for income or loss from equity investments and fixed charges,
divided by fixed charges, which are expensed and capitalized interest,
amortized premiums, discounts and capitalized expenses related to
indebtedness and estimated interest included in rental expense. The
deficiencies for 1998 and the nine months ended September 26, 1998 of $144.7
million and $160.5 million, respectively, were primarily due to the charge
recorded in June 1998 to cover one-time costs of Motorola's portion of our
recent restructuring.
(4) The cash flow data for 1994 is not available because a carve out of the
December 31, 1993 balance sheet from Motorola's accounting records was not
prepared. It is impracticable for us to prepare the 1993 balance sheet in
order to derive the cash flow data for 1994.
(5) The ratios of earnings to fixed charges for the years 1994 through 1997 have
not been presented because, prior to our August 1999 recapitalization, we
did not have any debt. Interest expense was allocated to us by Motorola and
was not based on our actual fixed charges. We believe that such information
computed on a historical basis is not meaningful to investors.
34
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
We are presenting below our unaudited pro forma statements of revenues less
direct and allocated expenses before taxes to show how our results of operations
might have looked if we had been an independent company for the periods
presented. We based these pro forma data on, and you should read them together
with, the Audited Combined Financial Statements, the Unaudited Interim Combined
Financial Statements and the Unaudited Interim Consolidated Financial Statements
that are included elsewhere in this prospectus. See "Index to Financial
Statements." We prepared these pro forma financial data using the assumptions
described below and in the related notes thereto.
We prepared these pro forma statements of revenues less direct and allocated
expenses before taxes for the nine months ended October 2, 1999 and
September 26, 1998 and for the year ended December 31, 1998 as if our
recapitalization and the related transactions had taken place on the first day
of the periods presented. The financial statements give pro forma effect to:
(1) borrowings under our senior bank facilities (approximately
$740.5 million), the issuance and sale of the initial notes ($400 million) and
the issuance of our junior subordinated note ($91 million);
(2) the exclusion of the Opto isolator product group, which Motorola sold to
a third party during the third quarter of fiscal year 1998;
(3) the consolidation of majority-owned joint venture investments accounted
for in our audited combined financial statements on the equity method;
(4) the inclusion of foundry sales and manufacturing expenses in our
revenues and cost of sales as historically both sales and manufacturing expenses
were included in cost of sales; and
(5) quantifiable adjustments to reflect our results of operations on a
stand-alone basis.
Prior to our recapitalization, the joint ventures described above in clause (3)
were financed with equity contributions from joint venture partners and
third-party non-recourse borrowings. As part of our recapitalization, these
third-party non-recourse borrowings were refinanced with intercompany loans from
us.
The pro forma adjustments are based upon available information and
assumptions that management believes are reasonable. We have not adjusted the
pro forma financial statements for operating efficiencies and additional cost
savings that we may realize as a result of our stand-alone operations.
Prior to our recapitalization, we were a part of Motorola rather than a
stand-alone company. As a result, Motorola allocated a portion of its corporate,
marketing, administrative and development expenses to us, which is reflected in
the Audited Combined Financial Statements and Unaudited Interim Combined
Financial Statements. In the opinion of our management, these allocations are
reasonable. However, these expenses may not be indicative of, and it is not
feasible to estimate, the nature and level of expenses that might have been
incurred had we operated as an independent company for the periods presented.
Our management estimates that the aggregate general, administrative, selling and
marketing expenses to be incurred during the first year after our
recapitalization will be less than the total amount that we incurred directly
and that Motorola allocated to us prior to the recapitalization.
We are providing the unaudited pro forma statements of revenues less direct
and allocated expenses before taxes that follow for illustrative purposes only.
They do not purport to represent what our results of operations would have been
had our recapitalization actually occurred as of the dates indicated, and they
do not purport to project our future results of operations.
35
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
FORMERLY,
SEMICONDUCTOR COMPONENTS GROUP OF MOTOROLA, INC.
UNAUDITED PRO FORMA STATEMENT OF REVENUES
LESS DIRECT AND ALLOCATED EXPENSES BEFORE TAXES
For the nine months ended October 2, 1999
(dollars in millions)
<TABLE>
<CAPTION>
JANUARY 1, 1999 THROUGH AUGUST 3, 1999
---------------------------------------------------------------------------------------
ADJUSTMENTS ADJUSTMENTS AUGUST 4,
FOR FOR 1999
ADJUSTMENTS CONSOLIDATION ADJUSTMENTS RECAPITALIZATION THROUGH
HISTORICAL TO EXCLUDE OF JOINT FOR FOUNDRY AND RELATED OCTOBER 2,
SCG OPTO VENTURES SALES TRANSACTIONS SUBTOTAL 1999
---------- ------------ -------------- ------------ ---------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues....... $894.3 $(1.8)(A) $ 1.4(B) $91.1(C) $985.0 $329.2
Direct and allocated
costs and expenses:
Cost of sales...... 626.7 (1.5)(A) (8.4)(B) 91.1(C) 707.9 241.1
Research and
development...... 34.3 $(13.5)(E) 20.8 6.9
Selling and
marketing........ 39.0 39.0 8.8
General and
administrative... 85.0 7.1(B) 4.9(E) 97.0 26.1
Restructuring
charges.......... -- -- 6.4
------ ------ ------
Total operating costs
and expenses....... 785.0 864.7 289.3
------ ------ ------
Operating income..... 109.3 120.3 39.9
------ ------ ------
Other income
(expenses):
Equity in earnings
from joint
ventures......... 3.0 (2.8)(B) 0.2 0.8
(7.5) (2.2)(B) (77.3)(F)
Interest expense...
9.7(G) (77.3) (23.0)
Minority interest.. -- (0.9)(B) (0.9) (0.3)
------ ------ ------
Other expenses,
net.............. (4.5) (78.0) (22.5)
------ ------ ------
Revenues less
direct and
allocated
expenses before
taxes............ $104.8 $ 42.3 $ 17.4
====== ====== ======
<CAPTION>
PRO
FORMA
--------
<S> <C>
Total revenues....... $1,314.2
Direct and allocated
costs and expenses:
Cost of sales...... 949.0
Research and
development...... 27.7
Selling and
marketing........ 47.8
General and
administrative... 123.1
Restructuring
charges.......... 6.4
--------
Total operating costs
and expenses....... 1,154.0
--------
Operating income..... 160.2
--------
Other income
(expenses):
Equity in earnings
from joint
ventures......... 1.0
Interest expense...
(100.3)
Minority interest.. (1.2)
--------
Other expenses,
net.............. (100.5)
--------
Revenues less
direct and
allocated
expenses before
taxes............ $ 59.7
========
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Statements
of Revenues Less Direct and Allocated Expenses Before Taxes.
36
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF MOTOROLA, INC.
UNAUDITED PRO FORMA STATEMENT OF REVENUES
LESS DIRECT AND ALLOCATED EXPENSES BEFORE TAXES
For the nine months ended September 26, 1998
(dollars in millions)
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
FOR FOR
ADJUSTMENTS CONSOLIDATION ADJUSTMENTS RECAPITALIZATION
HISTORICAL TO EXCLUDE OF JOINT FOR FOUNDRY AND RELATED
SCG OPTO VENTURES SALES TRANSACTIONS PRO FORMA
---------- ----------- ------------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenues............. $1,133.3 $(21.8)(A) $ 2.4(B) $126.3(C) $1,240.2
Direct and allocated costs
and expenses:
Cost of sales............ 810.1 (22.7)(A) (7.9)(B) 126.3(C) $ 2.6(D) 908.4
Research and
development............ 53.1 (22.8)(E) 30.3
Selling and marketing.... 70.8 70.8
General and
administrative......... 158.6 (0.3) 0.1(B) 0.3(E) 158.7
Restructuring charges.... 189.8 189.8
-------- --------
Total operating costs and
expenses............... 1,282.4 1,358.0
-------- --------
Operating loss............. (149.1) (117.8)
-------- --------
Operating income
(expenses):
Equity in earnings from
joint ventures......... 3.7 (0.5)(B) 3.2
Interest expense......... (11.4) (2.2)(B) (99.4)(F)
13.6(G) (99.4)
Minority interest........ -- (2.8)(B) (2.8)
-------- --------
Other expenses, net...... (7.7) (99.0)
-------- --------
Revenues less direct and
allocated expenses
before taxes........... $ (156.8) $ (216.8)
======== ========
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Statements
of Revenues Less Direct and Allocated Expenses Before Taxes.
37
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF MOTOROLA, INC.
UNAUDITED PRO FORMA STATEMENT OF REVENUES
LESS DIRECT AND ALLOCATED EXPENSES BEFORE TAXES
For the year ended December 31, 1998
(dollars in millions)
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
FOR FOR
ADJUSTMENTS CONSOLIDATION ADJUSTMENTS RECAPITALIZATION
HISTORICAL TO EXCLUDE OF JOINT FOR FOUNDRY AND RELATED
SCG OPTO VENTURES SALES TRANSACTIONS PRO FORMA
---------- ----------- ------------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenues............. $1,493.4 $(22.7)(A) $ 3.1(B) $162.3(C) $1,636.1
Direct and allocated costs
and expenses:
Cost of sales............ 1,068.8 (24.0)(A) (12.7)(B) 162.3(C) $ 3.6(D) 1,198.0
Research and
development............ 67.5 (29.1)(E) 38.4
Selling and marketing.... 92.4 92.4
General and
administrative......... 201.6 (0.5)(A) (1.7)(B) (6.2)(E) 193.2
Restructuring charges.... 189.8 189.8
-------- --------
Total operating costs and
expenses............... 1,620.1 1,711.8
-------- --------
Operating loss............. (126.7) (75.7)
-------- --------
Equity in earnings from
joint ventures......... 8.4 (3.7)(B) 4.7
Interest expense......... (18.0) (3.3)(B) (132.5)(F)
21.3(G) (132.5)
Minority interest........ -- (6.2)(B) (6.2)
-------- --------
Other expenses, net...... (9.6) (134.0)
-------- --------
Revenues less direct and
allocated expenses before
taxes.................... $ (136.3) $ (209.7)
======== ========
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Statements
of Revenues Less Direct and Allocated Expenses Before Taxes.
38
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
FORMERLY,
SEMICONDUCTOR COMPONENTS GROUP OF MOTOROLA, INC.
NOTES TO THE UNAUDITED PRO FORMA STATEMENTS OF
REVENUES LESS DIRECT AND ALLOCATED EXPENSES BEFORE TAXES
(dollars in millions)
(A) Represents the elimination of sales, cost of sales and general and
administrative expenses related to Opto, which Motorola sold to a
third-party during the third quarter of fiscal year 1998.
(B) Represents the net adjustments for the consolidation of Leshan-Phoenix
Semiconductor Co., Ltd., Tesla Sezam, a.s., Terosil, a.s., and Slovakia
Electronics Industries, a.s. (together, the "Combined Joint Ventures") with
the Semiconductor Components Group of Motorola. The Combined Joint Ventures
were accounted for in the Audited Combined Financial Statements and the
Unaudited Interim Combined Financial Statements on the equity method. Prior
to the recapitalization, the Combined Joint Ventures were financed
independently, from equity contributions from joint venture partners and
third-party non-recourse borrowings. As part of the recapitalization, SCG
Holding refinanced these third-party non-recourse borrowings with
intercompany loans from Semiconductor Components Industries, LLC.
As of October 2, 1999, SCG Holding beneficially owned a majority of the
outstanding equity interests in Leshan and 100% of the outstanding equity
interests in Slovakia Electronics Industries. At such date, it also held
49.9% of the outstanding equity interests in Tesla and Terosil, and Tesla
and Terosil held cross-ownership stakes in each other which resulted in SCG
Holding's beneficial ownership of 58.4% and 62.5%, respectively. The
following sets forth the results for the Combined Joint Ventures and
elimination entries for the nine months ended October 2, 1999 and
September 26, 1998 and the year ended December 31, 1998, respectively.
Amounts remaining in equity in earnings from joint ventures after the
adjustment for consolidation of the Combined Joint Ventures represent
earnings from Semiconductor Miniature Products Malaysia Sdn. Bhd., a joint
venture in which we hold a 50% interest and which is accounted for on the
equity basis for periods before and after the recapitalization.
FOR THE NINE MONTHS ENDED OCTOBER 2, 1999:
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
SLOVAKIA COMBINED CONSOLIDATION
ELECTRONICS JOINT OF JOINT
LESHAN TESLA TEROSIL INDUSTRIES VENTURES ELIMINATIONS VENTURES
-------- -------- -------- ----------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.................... $15.0 $22.8 $ 5.5 $ 0.2 $43.5 $(42.1)(1) $1.4
Cost of sales.............. 9.3 19.1 5.1 0.2 33.7 (42.1)(2) (8.4)
----- ----- ----- ----- ----- ------ ----
Gross margin............... 5.7 3.7 0.4 -- 9.8 -- 9.8
General and administrative
expenses................. 0.6 4.5 1.1 0.9 7.1 -- 7.1
----- ----- ----- ----- ----- ------ ----
Earnings before interest
and tax.................. 5.1 (0.8) (0.7) (0.9) 2.7 -- 2.7
----- ----- ----- ----- ----- ------ ----
Interest expenses.......... 0.7 1.1 0.4 -- 2.2 -- 2.2
Minority interest.......... -- -- -- -- -- 0.9 (3) 0.9
----- ----- ----- ----- ----- ------ ----
Profit before tax.......... $ 4.4 $(1.9) $(1.1) $(0.9) $ 0.5 $ (0.9) $(0.4)
===== ===== ===== ===== ===== ====== ====
</TABLE>
39
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
FORMERLY,
SEMICONDUCTOR COMPONENTS GROUP OF MOTOROLA, INC.
NOTES TO THE UNAUDITED PRO FORMA STATEMENTS OF
REVENUES LESS DIRECT AND ALLOCATED EXPENSES BEFORE TAXES
(dollars in millions) (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1998:
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
SLOVAKIA COMBINED CONSOLIDATION
ELECTRONICS JOINT OF JOINT
LESHAN TESLA TEROSIL INDUSTRIES VENTURES ELIMINATIONS VENTURES
-------- -------- -------- ----------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.................... $12.3 $20.2 $ 7.8 $ -- $40.3 $(37.9)(1) $ 2.4
Cost of sales.............. 7.4 16.1 6.5 -- 30.0 (37.9)(2) (7.9)
----- ----- ----- ----- ----- ------ -----
Gross margin............... 4.9 4.1 1.3 -- 10.3 -- 10.3
General and administrative
expenses................. 1.7 (1.2) (0.4) -- 0.1 -- 0.1
----- ----- ----- ----- ----- ------ -----
Earnings before interest
and tax.................. 3.2 5.3 1.7 -- 10.2 -- 10.2
----- ----- ----- ----- ----- ------ -----
Interest expenses.......... 1.2 0.9 0.1 -- 2.2 -- 2.2
Minority interest.......... -- -- -- -- -- 2.8 (3) 2.8
----- ----- ----- ----- ----- ------ -----
Profit before tax.......... $ 2.0 $ 4.4 $ 1.6 $ -- $ 8.0 $ (2.8) $ 5.2
===== ===== ===== ===== ===== ====== =====
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1998:
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
SLOVAKIA COMBINED CONSOLIDATION
ELECTRONICS JOINT OF JOINT
LESHAN TESLA TEROSIL INDUSTRIES VENTURES ELIMINATIONS VENTURES
-------- -------- -------- ----------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $18.5 $28.6 $ 9.6 $ -- $56.7 $(53.6)(1) $ 3.1
Cost of sales........... 9.3 23.1 8.5 -- 40.9 (53.6)(2) (12.7)
----- ----- ----- ----- ----- ------ ------
Gross margin............ 9.2 5.5 1.1 -- 15.8 -- 15.8
General and
administrative
expenses.............. 2.1 (3.6) (0.3) 0.1 (1.7) -- (1.7)
----- ----- ----- ----- ----- ------ ------
Earnings before interest
and tax............... 7.1 9.1 1.4 (0.1) 17.5 -- 17.5
----- ----- ----- ----- ----- ------ ------
Interest expenses....... 1.5 1.5 0.2 0.1 3.3 -- 3.3
Minority interest....... -- -- -- -- -- 6.2 (3) 6.2
----- ----- ----- ----- ----- ------ ------
Profit before tax....... $ 5.6 $ 7.6 $ 1.2 $(0.2) $14.2 $ (6.2) $ 8.0
===== ===== ===== ===== ===== ====== ======
</TABLE>
The following items describe the adjustments for consolidation of the
Combined Joint Ventures for the nine-month periods ended October 2, 1999 and
September 26, 1998 and the year ended December 31, 1998:
(1) Represents the adjustment to consolidate the Combined Joint Venture
revenues (excluding sales from the Combined Joint Ventures to us) with
our revenues.
(2) Represents the elimination of the Combined Joint Venture sales to us
from cost of goods sold, as we had already included purchases from the
Combined Joint Ventures in our cost of goods sold.
(3) Represents the adjustment to record the minority ownership interest for
the Combined Joint Ventures upon consolidation.
Additionally, the statements reflect the adjustments to eliminate equity
earnings of the Combined Joint Ventures included in the Audited Combined
Financial Statements and Unaudited Interim Combined Financial Statements of
$2.8, $0.5 and $3.7 for the nine months ended October 2, 1999 and
September 26, 1998 and the year ended December 31, 1998.
40
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
FORMERLY,
SEMICONDUCTOR COMPONENTS GROUP OF MOTOROLA, INC.
NOTES TO THE UNAUDITED PRO FORMA STATEMENTS OF
REVENUES LESS DIRECT AND ALLOCATED EXPENSES BEFORE TAXES (CONTINUED)
(dollars in millions)
(C) Historically, the Semiconductor Components Group manufactured products at
cost for other divisions of Motorola's Semiconductor Products Sector. This
adjustment reflects the foundry revenues and cost of sales associated with
products manufactured for other divisions of Motorola's Semiconductor
Products Sector, which on a historical basis had been recorded as an offset
to cost of sales at cost. SCG Holding now records such sales in a manner
consistent with other third-party sales.
(D) Reflects the elimination of interest expense, which was charged to the
Semiconductor Components Group by other divisions of Motorola's
Semiconductor Products Sector in the cost of products purchased, to cost of
sales.
(E) Reflects the elimination of Motorola cost allocations for corporate and
divisional research and development and other allocated costs that bear no
direct or indirect relationship to our operations. These costs represent
allocations in excess of what we will incur on a stand-alone basis.
<TABLE>
<CAPTION>
JANUARY 1, 1999 NINE MONTHS YEAR ENDED
THROUGH ENDED DECEMBER 31,
AUGUST 3, 1999 SEPTEMBER 26, 1998 1998
---------------- ------------------- ------------
<S> <C> <C> <C>
Corporate research and
development (1)............. $ 3.2 $ 4.8 $ 6.4
Sector engineering (2)........ 10.3 18.0 22.7
----- ----- -----
$13.5 $22.8 $29.1
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
JANUARY 1, 1999 NINE MONTHS YEAR ENDED
THROUGH ENDED DECEMBER 31,
AUGUST 3, 1999 SEPTEMBER 26, 1998 1998
---------------- ------------------- ------------
<S> <C> <C> <C>
Royalty income (3)............ $(5.4) $(8.6) $(10.8)
Other (income) expenses (4)... 0.5 8.3 17.0
----- ----- ------
$(4.9) $(0.3) $ 6.2
===== ===== ======
</TABLE>
The following describes the above cost allocation adjustments:
(1) Represents the elimination of the portion of Motorola's expenses for
its corporate research and development labs that was allocated to the
Semiconductor Components Group. These costs are for Motorola projects.
SCG Holding's management believes that SCG Holding will not incur costs
relating to these projects in the future.
(2) Represents the elimination of the portion of Motorola's expenses for
sector engineering that was allocated to the Semiconductor Components
Group, excluding the costs for the CDMC lab (which performed product
research and development for Motorola's Semiconductor Components Group's
TMOS products). SCG Holding's management believes that SCG Holding will
not incur costs relating to these research and development activities in
the future.
(3) Represents the elimination of royalty income, which Motorola allocated
to all of its businesses. This royalty income is not necessarily
indicative of the income that SCG Holding receives as a stand-alone
company.
(4) Represents the elimination of other income and expenses, which Motorola
allocated to all of its businesses. These items principally include
chemical decontamination costs and other expenses. SCG Holding's
management believes that these costs or income will not recur in the
future.
41
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
FORMERLY,
SEMICONDUCTOR COMPONENTS GROUP OF MOTOROLA, INC.
NOTES TO THE UNAUDITED PRO FORMA STATEMENTS OF
REVENUES LESS DIRECT AND ALLOCATED EXPENSES BEFORE TAXES (CONTINUED)
(dollars in millions)
(F) Reflects the additional interest expense resulting from borrowings of
$1,231.5 under the credit agreement relating to the senior bank facilities,
the notes and the junior subordinated note and includes $3.7, $4.8 and $6.4
of deferred financing cost amortization for the approximate seven-month
period ended August 3, 1999, the nine-month period ended September 26, 1998
and the year ended December 31, 1998, respectively. Such borrowings are
expected to bear interest at the following:
Tranche A of senior bank facilities of $65.5--LIBOR plus 3.00% (8.75%,
assumed rate)
Tranche B of senior bank facilities of $325.0--LIBOR plus 3.50% (9.25%,
assumed rate)
Tranche C of senior bank facilities of $350.0--LIBOR plus 3.75% (9.50%,
assumed rate)
Notes of $400.0 (12.00%, fixed rate)
Junior subordinated note of $91.0 (10.00% fixed rate)
For purposes of the unaudited pro forma statements of revenues less direct
and allocated expenses before taxes, the assumed interest rates have been
used to calculate interest expense of $77.3, $99.4 and $132.5 (including the
above mentioned deferred financing cost amortization) for the seven-month
period ended August 3, 1999, the nine-month period ended September 26, 1998
and the year ended December 31, 1998, respectively. Such interest rates are
representative of the interest rates that would have been in effect under
the credit agreement relating to the senior bank facilities had SCG Holding
borrowed such amounts on January 1, 1998 and had such amounts remained
outstanding throughout the periods presented. A 0.125% increase or decrease
in LIBOR would have resulted in a $0.5, $0.7 and $0.9 adjustment to interest
expense for the seven-month period ended August 3, 1999, the nine-month
period ended September 26, 1998 and the year ended December 31, 1998,
respectively.
(G) Reflects the elimination of corporate interest allocated to the
Semiconductor Components Group.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH THE AUDITED
COMBINED FINANCIAL STATEMENTS, THE UNAUDITED INTERIM COMBINED FINANCIAL
STATEMENTS, THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND THE
UNAUDITED PRO FORMA FINANCIAL STATEMENTS, WHICH ARE INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THE UNAUDITED INTERIM COMBINED FINANCIAL STATEMENTS AND THE AUDITED
COMBINED FINANCIAL STATEMENTS PRESENT THE COMBINED ASSETS, LIABILITIES AND
BUSINESS EQUITY AND THE RELATED COMBINED REVENUES LESS DIRECT AND ALLOCATED
EXPENSES BEFORE TAXES OF THE BUSINESS OF MOTOROLA'S SEMICONDUCTOR COMPONENTS
GROUP PRIOR TO THE RECAPITALIZATION AND THE RELATED TRANSACTION, AND ARE NOT
INTENDED TO BE A COMPLETE PRESENTATION OF THE FINANCIAL POSITION, RESULTS OF
OPERATIONS OR CASH FLOWS OF THE BUSINESS OF SCG HOLDING CORPORATION AND ITS
CONSOLIDATED SUBSIDIARIES. THE RESULTS OF OPERATIONS BEFORE TAXES ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS BEFORE TAXES THAT WOULD BE
RECORDED BY SCG HOLDING ON A STAND-ALONE BASIS. THE UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS PRESENT THE CONSOLIDATED FINANCIAL POSITION
AND RESULTS OF OPERATIONS OF SCG HOLDING CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES ON A STAND-ALONE BASIS SUBSEQUENT TO ITS AUGUST 4, 1999
RECAPITALIZATION. OUR FISCAL YEAR ENDS ON DECEMBER 31ST OF EACH YEAR, AND EACH
OF THE FIRST THREE FISCAL QUARTERS OF EACH FISCAL YEAR ENDS ON THE SATURDAY
CLOSEST TO THE CALENDAR QUARTER END. AS A RESULT, THE NINE-MONTH PERIOD ENDED
OCTOBER 2, 1999 WAS LONGER THAN THE NINE-MONTH PERIOD ENDED SEPTEMBER 26, 1998.
OVERVIEW
We are one of the largest independent suppliers of semiconductor components
in the world. Our total addressable market, consisting generally of discrete,
standard analog and standard logic semiconductors, comprised approximately
$16.9 billion of revenues in 1998. Generically referred to as semiconductor
"components," these devices are "building blocks" that provide the power
control, power protection and interfacing necessary for almost all electronic
systems, including computers, consumer electronics, communications equipment,
automotive systems and industrial automation and control systems. With a
portfolio of over 16,000 products, we offer our customers a single source of
supply for virtually all their components needs, including the broadest
selection of discrete semiconductor products in the industry and an extensive
line of standard analog and standard logic products. Our products generally have
long market life cycles, averaging 10 to 20 years, with some as long as
30 years. The long life of these products allows us to use our manufacturing
assets for longer periods of time, leading to lower capital expenditures. Our
total sales volume was approximately 15 billion units in 1998, and we expect our
sales volume to be approximately 18 billion units during 1999.
RECENT RESTRUCTURING. In 1997, Motorola created the Semiconductor
Components Group as a separate division within its Semiconductor Products Sector
to concentrate on the manufacturing of discrete, standard analog and standard
logic semiconductors. In 1998, Motorola initiated a company-wide restructuring
with the goal of increasing the manufacturing efficiency of various operations
within each of Motorola's business groups. In furtherance of this strategy, we
have implemented ongoing cost-saving initiatives to rationalize our product
portfolio, close plants and relocate or outsource related operations to take
advantage of lower-cost labor markets and make our manufacturing processes more
efficient. As part of this restructuring program, we have closed plants in
Arizona and the Philippines. We expect to complete this restructuring program by
the end of 2000 and, as a result, expect to realize annual cost savings of
approximately $210 million in 2000, as compared to our cost structure at the
beginning of 1998. Motorola recorded a restructuring charge in the second
quarter of 1998, of which $189.8 million was allocated to us. We do not
currently anticipate any significant additional costs in connection with this
restructuring. See "Business--Recent Restructuring."
43
<PAGE>
RECAPITALIZATION. On August 4, 1999, SCG Holding Corporation was
recapitalized pursuant to an agreement among SCG Holding, its subsidiary,
Semiconductor Components Industries, LLC, Motorola and affiliates of Texas
Pacific Group. As a result of our recapitalization, an affiliate of Texas
Pacific Group holds approximately 91% and Motorola holds approximately 9% of the
outstanding voting stock of SCG Holding. In addition, as part of these
transactions, Texas Pacific Group's affiliate received 1,500 shares and Motorola
received 590 shares of SCG Holding's mandatorily redeemable preferred stock with
a total liquidation value of $209 million plus accrued and unpaid dividends.
Motorola also received a $91 million junior subordinated note issued by
Semiconductor Components. Cash payments to Motorola in connection with our
recapitalization were financed through equity investments by affiliates of Texas
Pacific Group totaling $337.5 million, borrowings totaling $740.5 million under
a $875 million senior secured bank loan facilities and the issuance of
$400 million of 12% senior subordinated notes due August 2009. Because Texas
Pacific Group's affiliate acquired less than substantially all of SCG Holding's
common stock, the basis of SCG Holding's assets and liabilities for financial
reporting purposes was not impacted by our recapitalization.
SEPARATION FROM MOTOROLA. When we were a division of Motorola, Motorola
allocated to us expenses related to shared services provided by Motorola and its
other divisions. During 1998, we incurred approximately $294 million in general,
administrative, marketing and selling expenses, of which Motorola and its other
divisions allocated to us approximately $124 million. During the seven-month
period prior to our August 1999 recapitalization, we incurred $124 million of
general, administrative, marketing and selling expenses, of which Motorola and
its other divisions allocated to us $52 million. As part of our
recapitalization, we identified the specific services that we believed were
necessary to our business and that we would not be able initially to provide
ourselves. Motorola agreed to provide or arrange for the provision of these
services, including information technology, human resources, supply management
and finance services, for periods of time sufficient to facilitate our
transition to a stand-alone company. Our management estimates that we will incur
not more than $75 million under these arrangements for general, administrative,
selling and marketing related expenses during the first year after our
recapitalization and that our aggregate general, administrative, selling and
marketing expenses will be less than those directly charged and allocated in
1998. In addition, Motorola agreed to continue to provide worldwide shipping and
freight services to us for a period of up to three years using the cost
allocation method currently in effect. Under this arrangement, we anticipate
paying Motorola approximately $30 million in the first year following our
recapitalization. We believe that the scope of the agreements we entered into
with Motorola as part of our recapitalization and the time frames, pricing and
other terms should provide us sufficient time to effect the transition with
minimal disruption to our business, and that we will ultimately be able to
provide these services ourselves or identify third-party suppliers to provide
such services on terms not materially less favorable to us than the terms of our
arrangements with Motorola.
SCG Holding and Motorola have also agreed to continue providing
manufacturing services to each other for limited periods of time following our
recapitalization at fixed prices that are intended to approximate each party's
cost of providing the services. Prior to our recapitalization, the cost of the
services we provided to other divisions of Motorola's Semiconductor Products
Sector was recorded as a credit to our cost of production, while the cost of the
services other divisions of Motorola's Semiconductor Products Sector provided to
us was included in our cost of goods sold. We now record foundry sales for
services we provide to other divisions of Motorola's Semiconductor Products
Sector as revenues, and this change has been reflected as an adjustment in our
pro forma financial information contained in this prospectus. See "Unaudited Pro
Forma Financial Information." In 1996, 1997, and 1998, the Semiconductor
Components Group recorded $159.5 million, $177.4 million, and $162.3 million,
respectively, for the cost of foundry services it provided to other divisions of
Motorola's Semiconductor Products Sector. For the nine months ended
September 26,
44
<PAGE>
1998, the Semiconductor Components Group recorded $126.3 million for the cost of
foundry services it provided to other divisions of Motorola's Semiconductor
Products Sector, and for the period from January 1, 1999 through August 3, 1999,
the Semiconductor Components Group recorded $91.0 million for the cost of these
foundry services. Each party has committed to purchases specified under these
manufacturing services agreements. Subject to our right to cancel upon six
months' written notice, we have minimum commitments to purchase manufacturing
services from Motorola of approximately $29.5 million, $88 million,
$51 million, $41 million and $40 million in the last three months of 1999, and
in fiscal years 2000, 2001, 2002 and 2003, respectively, and have no purchase
obligations thereafter. We currently anticipate that we will purchase
manufacturing services from Motorola of approximately $150 million in 2000.
Subject to its right to cancel upon six months' written notice, Motorola has
minimum commitments to purchase manufacturing services from us of approximately
$24.9 million, $66 million and $26 million in the last three months of 1999, and
in fiscal years 2000 and 2001, respectively, and has no purchase obligations
thereafter. We currently anticipate that Motorola will purchase manufacturing
services from us of approximately $100 million in 2000. We believe that prior to
the expiration of our manufacturing services agreements with Motorola, we will
be able to relocate operations to our facilities, or make arrangements with
third-party manufacturers to replace the manufacturing services provided by
Motorola at costs not materially in excess of the amounts we expect to pay
Motorola.
Before our recapitalization, we accounted for our investments in
Leshan-Phoenix Semiconductor Co., Ltd., Tesla a.s., Terosil a.s. and Slovakia
Electronics Industries a.s. using the equity method because these joint ventures
were financed from equity contributions from joint venture partners (or, in the
case of Slovakia Electronics, formed in anticipation of such a contribution) and
third-party non-recourse borrowings. As part of our recapitalization, we
refinanced these third-party non-recourse borrowings with intercompany loans
totalling $73.0 million. Additionally, we purchase substantially all of the
output from these joint ventures. These joint ventures represented
$53.6 million of our cost of goods sold in 1998 and had external revenues of
$3.1 million. Subsequent to our recapitalization, these joint ventures have been
consolidated in our financial statements and have been presented on a
consolidated basis in the Unaudited Pro Forma Financial Statements contained in
this prospectus. Had we consolidated these joint ventures on a historical basis,
our sales and gross profit in 1998 would have been increased by $3.1 million and
$15.8 million, respectively.
HISTORICAL QUARTERLY PERFORMANCE--1998 THROUGH THIRD QUARTER 1999
The following table sets forth our historical quarterly sales, gross profits
and gross margin (gross profit as a percentage of sales) from January 1, 1998
through October 2, 1999:
<TABLE>
<CAPTION>
JULY 4, AUGUST 4
FOR THE THREE MONTHS ENDED 1999 1999
------------------------------------------------------------------------- THROUGH THROUGH
MARCH 28, JUNE 28, SEPTEMBER 28, DECEMBER 31, APRIL 3, JULY 3, AUGUST 3, OCTOBER 2,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- ------------- ------------ -------- -------- --------- ----------
(DOLLARS IN MILLIONS, UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues....... $414.1 $373.3 $345.9 $360.1 $372.9 $400.7 $120.7 $ 329.2
Gross profit......... $139.6 $ 97.3 $ 86.3 $101.4 $102.9 $121.8 $ 42.9 $ 88.1
Gross margin......... 34% 26% 25% 28% 28% 30% 36% 27%
</TABLE>
45
<PAGE>
In early 1998 we experienced strong sales and gross profit growth resulting
principally from inventory buildups by our distribution customers due to a
positive industry outlook. However, as a result of the Asian economic crisis,
reduced average selling prices resulting from excess semiconductor manufacturing
capacity and adjustments resulting from excess inventory, sales in the second
and third quarters of 1998 were lower than expected. Since the fourth quarter of
1998, the industry has demonstrated continued improvement driven by the recovery
of most Asian economies, better inventory balances and increasing demand for
electronic devices. This positive trend is demonstrated in our sequential
quarterly growth in sales and gross profit from the fourth quarter of 1998
through the third quarter of 1999. On a pro forma basis, gross margin for the
three months ended October 2, 1999 was 29%. The slight decrease in gross margin
resulted from inefficiencies during August 1999 as SCG Holding separated from
Motorola and became a stand-alone entity. Management does not expect this
situation to impact gross margin in the fourth quarter of 1999. World
Semiconductor Trade Statistics, an industry association that collects and
publishes sales statistics on products and regions for the industry, has
forecasted revenue growth in our industry and our total addressable market from
1998 to 2002 at a compound annual growth rate of 15.5% and 10.4%, respectively.
RESULTS OF OPERATIONS
The following table sets forth line items from our statement of revenues
less direct and allocated expenses before taxes, as a percentage of total
revenues for the periods indicated:
<TABLE>
<CAPTION>
JANUARY 1, AUGUST 4,
YEARS ENDED 1999 1999
DECEMBER 31, NINE MONTHS ENDED THROUGH THROUGH
------------------------------ SEPTEMBER 26, AUGUST 3, OCTOBER 2,
1996 1997 1998 1998 1999 1999
-------- -------- -------- ----------------- ---------- ----------
(EXPRESSED AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C>
Total revenues............... 100% 100% 100 % 100 % 100% 100%
Direct and allocated costs
and expenses:
Cost of sales............ 64.6% 61.7% 71.6 % 69.9 % 70.9% 72.9%
Research and
development............ 4.1% 3.6% 4.5 % 4.6 % 3.8% 2.1%
Selling and marketing.... 5.4% 6.1% 6.2 % 6.1 % 4.4% 2.7%
General and
administrative......... 8.6% 13.2% 13.5 % 13.9 % 9.3% 8.7%
Restructuring charges.... 0.0% 0.0% 12.7 % 24.1 % 0.0% 1.9%
----- ----- ----- ----- ----- -----
Total direct and allocated
costs and expenses:........ 82.7% 84.6% 108.5 % 118.7 % 88.5% 88.3%
Other expenses, net...... 0.7% 0.5% 0.6 % 0.6 % 0.5% 6.5%
----- ----- ----- ----- ----- -----
Revenues less direct and
allocated expenses before
taxes.................... 16.6% 14.9% (9.1)% (19.3)% 11.0% 5.2%
===== ===== ===== ===== ===== =====
</TABLE>
46
<PAGE>
We experienced a decline in our market share from 1993 through 1998. Our
market share as a percentage of our total addressable market was 11.0% in 1993,
10.5% in 1994, 9.7% in 1995, 9.4% in each of 1996 and 1997 and 8.7% in 1998. We
believe this decline was attributable primarily to the emphasis of Motorola's
Semiconductor Products Sector on the sale of more complex and higher-priced
semiconductors, including the diversion of research and development, capital
expenditures and manufacturing capacity to these products and incentives
provided to this sales force and third-party distributors linked to the sale of
these products. Our market share has stabilized at 8.7% of our total addressable
market in the last three quarters of 1999. We expect to maintain our current
market share through the end of 1999 and through 2000 by concentrating on
products with significant growth potential, such as analog and high performance
semiconductors, and products in markets with less price competition, such as
bipolar discrete semiconductors.
NINE MONTHS ENDED OCTOBER 2, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 26,
1998
<TABLE>
<CAPTION>
POST-
PRE-RECAPITALIZATION RECAPITALIZATION
----------------------------------- ----------------
NINE JANUARY 1, NINE
MONTHS 1999 AUGUST 4, 1999 MONTHS
ENDED THROUGH THROUGH ENDED
SEPTEMBER 26, 1998 AUGUST 3, 1999 OCTOBER 2, 1999 OCTOBER 2, 1999
------------------ -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Net product sales................. $1,133.3 $894.3 $301.2 $1,195.5
Foundry sales..................... -- -- 28.0 28.0
-------- ------ ------ --------
Total Revenues.................. 1,133.3 894.3 329.2 1,223.5
-------- ------ ------ --------
OPERATING COSTS AND EXPENSES:
Cost of sales..................... 810.1 626.7 241.1 867.8
Research and development.......... 53.1 34.3 6.9 41.2
Selling and marketing............. 70.8 39.0 8.8 47.8
General and administrative........ 158.6 85.0 26.1 111.1
Restructuring and other charges... 189.8 -- 6.4 6.4
-------- ------ ------ --------
Total Operating Costs and
Expenses...................... 1,282.4 785.0 289.3 1,074.3
-------- ------ ------ --------
OPERATING INCOME (LOSS)............. (149.1) 109.3 39.9 149.2
OTHER EXPENSES, NET................. (7.7) (4.5) (22.5) (27.0)
REVENUES LESS DIRECT AND ALLOCATED
EXPENSES BEFORE TAXES.............
-------- ------ ------ --------
$ (156.8) $104.8 $ 17.4 $ 122.2
======== ====== ====== ========
</TABLE>
NET PRODUCT SALES. Net product sales increased $62.2 million, or 5.5%, from
$1,133.3 million for the nine months ended September 26, 1998 to $1,195.5
million for the nine months ended October 2, 1999. The overall increase in net
product sales was primarily attributable to the rebound in the semiconductor
market as well as the introduction of new products. Unit volume increased by
20.6% for the nine months ended October 2, 1999 compared to the nine months
ended September 26, 1998, while average selling prices decreased by 11.0% for
the same periods, primarily as a result of excess semiconductor manufacturing
capacity and aggressive pricing actions taken to
47
<PAGE>
maintain market share. Given recent increases in demand and capacity
utilization, we expect average selling prices to stabilize or increase in the
near term.
Net sales for standard analog products, which accounted for 20.0% of net
product sales for the nine months ended October 2, 1999, increased 16.7%
compared to the same period in 1998, primarily as a result of increased demand
in the telecommunications industry and our focus on expanding the sales of this
product line. Net sales for standard logic products, which accounted for 23.6%
of net product sales for the nine months ended October 2, 1999, increased 5.8%
compared to the same period in 1998, primarily due to increased demand for
emitter-coupled logic products, which was offset by the discontinuation of our
FAST product line as well as reduced emphasis on older standard logic product
families. Net sales for discrete products, which accounted for 56.0% of net
product sales for the nine months ended October 2, 1999, grew by 5.0% compared
to the same period in 1998, mainly fueled by increased demand in the rectifiers
and zener product families.
The geographic distribution of net product sales for the nine months ended
October 2, 1999 was relatively consistent with the 1998 period, except for the
increase in the proportion of our revenues attributable to the Asia/Pacific
Region. Net product sales were derived 46%, 33% and 21% 9% in the Americas,
Asia/Pacific and Europe (including the Middle East), respectively, in the first
nine months of 1999, compared to 47%, 29% and 24%, respectively, in the first
nine months of 1998. Sales to the Asia/Pacific region have strengthened during
1999 and recently exceeded the $500 million mark, due to a recovery in this
market which we expect to continue over the next three years.
GROSS PROFIT. Gross profit, defined as total revenues less cost of sales,
increased 10.1% from $323.2 million for the nine months ended September 26, 1998
to $355.7 million for the nine months ended October 2, 1999. As a percentage of
total revenues, gross profit was 28.5% for the first nine months of 1998,
compared to 29.1% for the first nine months of 1999. The improvement in gross
profit resulted mainly from reductions in costs from the restructuring program
initiated in June 1998, which were offset, in part, by lower average selling
prices. The restructuring program included the implementation of ongoing
cost-saving initiatives to rationalize our product portfolio, close plants and
relocate or outsource related operations to take advantage of lower-cost labor
markets and make our manufacturing processes more efficient. In connection with
the restructuring, we have closed wafer fabrication, assembly and test
facilities located in the Philippines and Arizona and have outsourced or moved
related operations to other facilities in Malaysia, Mexico, the Czech Republic
and Japan. We expect these cost reductions will continue to have a positive
impact on our gross profit. See "Business--Recent Restructuring."
RESEARCH AND DEVELOPMENT. Research and development costs decreased
$11.9 million, or 22.4%, from $53.1 million in the nine months ended
September 26, 1998 to $41.2 million in the nine months ended October 2, 1999,
primarily as a result of our August 1999 recapitalization and the
discontinuation of related expense allocations from Motorola. As a percentage of
total revenues, these costs decreased from 4.7% for the first nine months of
1998 to 3.4% for the first nine months of 1999. Research and development costs
that we incurred directly increased from $26.4 million in the nine months ended
September 26, 1998 to $27.9 million in the nine months ended October 2, 1999,
while research and development costs allocated from Motorola decreased from
$26.7 million to $13.3 million for the same periods.
SELLING AND MARKETING. Selling and marketing expenses decreased by 32.5%
from $70.8 million in the nine months ended September 26, 1998 to $47.8 million
in the nine months ended October 2, 1999. As a percentage of total revenues,
these costs decreased from 6.2% for the first nine months of 1998 to 3.9% for
the first nine months of 1999. The decrease in selling and marketing expenses
was primarily attributable to workforce reductions associated with the
restructuring program.
48
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
by 29.9% from $158.6 million in the nine months ended September 26, 1998 to
$111.1 million in the nine months ended October 2, 1999 primarily as a result of
worldwide personnel reductions associated with the the restructuring program and
as a result of our recapitalization and the discontinuation of related expense
allocations from Motorola. As a percentage of total revenues, these costs
decreased from 14.0% for the first nine months of 1998 to 9.1% for the first
nine months of 1999. General and administrative expenses allocated from Motorola
decreased from $94.4 million in the nine months ended September 26, 1998 to
$50.0 million in the nine months ended October 2, 1999.
RESTRUCTURING AND OTHER CHARGES. In June 1998, Motorola recorded a charge
to cover one-time costs related to the restructuring program, including costs
related to the consolidation of manufacturing operations, the exit of
non-strategic or poorly performing businesses by discontinuance of selected
product lines and the rationalization of our product portfolio, and a reduction
in the number of our employees. Asset impairment and other charges were also
recorded for the write-down of assets that had become impaired as a result of
current business conditions or business portfolio decisions. Our one-time
charges related to these actions were $189.8 million, of which $53.9 million
represented asset impairments charged directly against machinery and equipment.
The remaining charges consisted of $13.2 million for the consolidation of
manufacturing operations, $20.7 million for business exits and $102.0 million
for employment reductions.
Motorola retained the employee separation accrual of $28.8 million as of
August 3, 1999, to cover approximately 900 employees who will remain employees
of, and be released by Motorola.
At October 2, 1999, $13.6 million of reserves relating to the restructuring
program remain outstanding. The following table summarizes activity in these
reserves during 1999:
<TABLE>
<CAPTION>
BALANCE AMOUNTS BALANCE
AS OF RETAINED AS OF
DECEMBER 31, AMOUNTS BY OCTOBER 2,
1998 USED MOTOROLA 1999
------------ -------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidation of manufacturing operations....... $13.2 $ (4.5) $ -- $ 8.7
Business exists................................. 11.3 (6.4) -- 4.9
Employee separations............................ 43.5 (14.7) (28.8) --
----- ------ ------ -----
Total restructuring......................... $68.0 $(25.6) $(28.8) $13.6
===== ====== ====== =====
</TABLE>
After our recapitalization, we incurred $6.4 million of one-time costs
mostly associated with the worldwide launch of our new trade name, ON
Semiconductor-TM-, and related branding initiatives.
OPERATING INCOME (LOSS). We generated an operating loss of $149.1 million,
or 13.2% of total revenues, for the nine months ended September 26, 1998
compared to operating income of $149.2 million, or 12.2% of total revenues, for
the nine months ended October 2, 1999. This improvement is primarily
attributable to the restructuring charge in 1998 as well as subsequent cost
reductions resulting from the restructuring. Excluding the restructuring charge,
we generated operating income of $40.7 million, or 3.6% of total revenues,
during the first nine months of 1998.
OTHER EXPENSES, NET. Other expenses, net increased from $7.7 million for
the nine months ended September 26, 1998 to $27.0 million for the nine months
ended October 2, 1999, primarily as a result of increased interest expense
related to borrowings utilized to finance our recapitalization and related
transactions.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES--TRADE. Net product sales decreased $321.8 million, or 17.7%,
from $1,815.2 million in 1997 to $1,493.4 million in 1998. Our sales decreased
in all major product categories. The decline in net product sales, which was
greater than the decline in overall sales in our total addressable market of 11%
over the same time period, was primarily attributable to a worldwide
49
<PAGE>
recessionary period in the semiconductor industry resulting from the Asian
economic crisis, excess manufacturing capacity and excess inventory levels.
Average sales prices declined 12.3% while total unit volume declined only 5.9%.
Net sales for discrete, standard analog and standard logic products, which
accounted for 58%, 19% and 23%, respectively, of net product sales in 1998,
decreased 16.5%, 7.3% and 27.1%, respectively, compared to 1997, primarily as a
result of industry-wide declines in average selling prices. The decrease in net
sales of standard logic products was exacerbated by our discontinuation of a
standard logic product line and reduced emphasis on older standard logic product
families.
The geographic distribution of net product sales in 1998 is relatively
consistent as compared to 1997. Net product sales were derived 46%, 30% and 24%
in the Americas, the Asia/Pacific region and Europe (including the Middle East),
respectively, in 1998, compared to 46%, 33% and 21%, respectively, in 1997.
GROSS PROFIT. Gross profit, defined as total revenues less cost of sales,
decreased 39.0% from $695.6 million in 1997 to $424.6 million in 1998. As a
percentage of total revenues, gross profit was 38.3% in 1997 compared to 28.4%
in 1998. The decrease in gross profit as a percentage of total revenues resulted
primarily from lower average sales prices as well as the underutilization of
production capacity, causing fixed production costs to be spread over fewer
units of production. These negative impacts on gross profit were offset, in
part, by reductions in costs resulting from the restructuring program initiated
in June 1998.
RESEARCH AND DEVELOPMENT. Research and development costs increased
$1.8 million, or 2.7%, from $65.7 million in 1997 to $67.5 million in 1998. As a
percentage of total revenues, these costs increased from 3.6% in 1997 to 4.5% in
1998. Research and development costs historically consisted of allocations from
Motorola and other divisions of its Semiconductor Products Sector as well as
research and development costs incurred directly by us. Research and development
expenses allocated to us by Motorola and other divisions of its Semiconductor
Products Sector decreased by $1.5 million from $34.6 million in 1997 to
$33.1 million in 1998. Research and development cost increased by $3.3 million
from $31.1 million in 1997 to $34.4 million in 1998. This increase reflects our
continued commitment to focus on new product development.
SELLING AND MARKETING. Selling and marketing expenses decreased by 16.5%
from $110.7 million in 1997 to $92.4 million in 1998. The reduction in selling
and marketing expenses is primarily attributable to the restructuring program.
As a percentage of total revenues, these costs remained relatively consistent at
just over 6% in 1997 and 1998 due to the decline in total revenues and the
restructuring in 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
by 15.9% from $239.8 million in 1997 to $201.6 million in 1998. As a percentage
of total revenues, these costs remained relatively consistent at just over 13%
in 1997 and 1998 due to the decline in total revenues in 1998. In addition to
general and administrative expenses incurred directly by us, general and
administrative costs consist of an allocation of Motorola's corporate and sector
costs. General and administrative expenses allocated to us by Motorola decreased
by $1.8 million, or 1.5%, to $115.2 million for 1998. General and administrative
expenses incurred directly by us decreased by $36.4 million, or 29.6%, to
$86.4 million for 1998. The reduction in general and administrative expenses is
primarily attributable to worldwide personnel reductions under the
restructuring.
RESTRUCTURING AND OTHER CHARGES. In June 1998, Motorola recorded a charge
to cover restructuring costs related to the consolidation of manufacturing
operations, the exit of non-strategic or poorly performing businesses and a
reduction in worldwide employment by 20,000 employees. Asset impairment and
other charges were also recorded for the writedown of assets which had
50
<PAGE>
become impaired as a result of current business conditions or business portfolio
decisions.
Motorola recorded its charge in the following restructuring categories:
CONSOLIDATION OF MANUFACTURING OPERATIONS. Consolidation of manufacturing
operations relates to the closing of production and distribution facilities and
selling or disposing of the machinery and equipment that was no longer needed
and, in some cases, scrapping excess assets that had no net realizable value.
The buildings associated with these production facilities, in many cases, were
sold to outside parties. Also included in this restructuring category were costs
related to shutting down or reducing the capacity of production lines. In most
cases, older facilities with older technologies or non-strategic products were
closed. Machinery and equipment write downs related to equipment that would no
longer be utilized comprised the majority of these costs. These assets have been
deemed to be held for use until such time as they are removed from service and,
therefore, no longer utilized in manufacturing products. An assessment was made
as to whether or not there was an asset impairment related to the valuation of
these assets in determining what the amount of the write down included in the
restructuring charge should be for this machinery and equipment. This assessment
utilized the anticipated future undiscounted cash flows generated by the
equipment as well as its ultimate value upon disposition.
The charges in this restructuring category do not include any costs related
to the abandonment or sub-lease of facilities, moving expenses, inventory
disposals or write downs, or litigation or environmental obligations.
As part of the consolidation of manufacturing operations, Semiconductor
Products Sector facilities in North Carolina, California, Arizona and the
Philippines are being closed as planned. The Semiconductor Products Sector is
consolidating its production facilities into fewer integrated factories to
achieve economies of scale and improved efficiencies and to capitalize on new
technologies that should reduce operating costs.
BUSINESS EXITS. Business exit costs include costs associated with shutting
down businesses that did not fit with Motorola's new strategy. In many cases,
these businesses used older technologies that produced non-strategic products.
The long-term growth and margins associated with these businesses were not in
line with Motorola's expectations given the level of investment and returns.
Included in these business exit costs were the costs of terminating technology
agreements and selling or liquidating interests in joint ventures that did not
fit with the new strategy of Motorola. Exit costs allocated to us related to the
discontinuance of selected product lines and the rationalization of our product
portfolio. Similar to consolidation of manufacturing operations, the charges in
this restructuring category did not include any costs related to the abandonment
or sublease of facilities, moving expenses, inventory disposals or write downs,
or litigation or environmental obligations.
EMPLOYEE SEPARATIONS. Employee separation costs represent the costs of
involuntary severance benefits for the 20,000 positions identified as subject to
severance under the restructuring plan and special voluntary termination
benefits offered beginning in the third quarter of 1998. The special voluntary
termination benefits provided for one week of pay for each year of service
between years 1-10, two weeks of pay for each year of service between years
11-19, and three weeks of pay for each year of service for year 20 and greater.
The majority of employees who accepted special voluntary termination benefits
did so by the end of the year, although severance payments were not completed by
that time. The majority of the special voluntary termination benefits expired at
the end of the fourth quarter of 1998.
As of December 31, 1998, approximately 13,800 employees have separated from
Motorola through a combination of voluntary and involuntary severance programs.
Of the 13,800 separated employees, approximately 8,200 were direct employees and
5,600 were indirect employees. Direct employees are primarily non-supervisory
production employees, and indirect employees are primarily non-production
employees and production managers.
51
<PAGE>
ASSET IMPAIRMENTS AND OTHER CHARGES. As a result of current and projected
business conditions, Motorola wrote down operating assets that became impaired.
The majority of the assets written down were used manufacturing equipment and
machinery.
The amount of impairment charge for the assets written down was based upon
an estimate of the future cash flows expected from the use of the assets, as
well as upon their eventual disposition. These undiscounted cash flows were then
compared to the net book value of the equipment, and impairment was determined
based on that comparison. Cash flows were determined at the facility level for
production facilities based upon anticipated sales value of the products to be
produced and the costs of producing the products at those facilities. In cases
in which sufficient cash flows were not going to be generated by the equipment
at those facilities, the assets were written down to their estimated fair value.
These estimated fair values were based upon what the assets could be sold for in
a transaction with an unrelated third party. Since the majority of these assets
were machinery and equipment, Motorola was able to utilize current market prices
for comparable equipment in the marketplace in assessing what would be the fair
value upon sale of the equipment.
Building writedowns were based on marketability factors of the building in
the particular location.
Assets held for use continue to be depreciated based on an evaluation of
their remaining useful lives and their ultimate values upon disposition. There
were no assets held for sale at December 31, 1998 nor were any impaired assets
disposed of prior to that date.
RESTRUCTURING CHARGE. A restructuring charge of $189.8 million, of which
$53.9 million represented asset impairments charged directly against machinery
and equipment, was allocated to us in 1998. Under our restructuring program, we
expect to reduce our workforce by approximately 3,900 employees by the end of
the first quarter of 2000. As of December 31, 1998, we had released
approximately 2,500 employees as part of our restructuring program.
At December 31, 1998, $68.0 million of restructuring accruals remain
outstanding. The following table displays a rollforward to December 31, 1998 of
the accruals established during the second quarter of 1998:
<TABLE>
<CAPTION>
ACCRUALS AT
INITIAL AMOUNTS DECEMBER 31,
CHARGES USED 1998
-------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Consolidation of manufacturing operations................... $ 13.2 $ -- $13.2
Business exits.............................................. 20.7 (9.4) 11.3
Employee separations........................................ 102.0 (58.5) 43.5
------ ------- -----
Total restructuring....................................... 135.9 (67.9) 68.0
------ ------- -----
Asset impairments and other charges......................... 53.9 (53.9) --
------ ------- -----
Total..................................................... $189.8 $(121.8) $68.0
====== ======= =====
</TABLE>
Our remaining accrual at December 31, 1998 of $13.2 million for the
consolidation of manufacturing operations represents the finalization of the
plant closings in Arizona and the Philippines. Within the business exits
category, the remaining accrual of $11.3 million at December 31, 1998 relates to
costs of exiting two unprofitable product lines. Our remaining accrual of
$43.5 million at December 31, 1998 for employee separations relates to the
completion of severance payments in Japan, Asia, the U.K. and Arizona.
Our total amount used of $121.8 million through December 31, 1998 reflects
approximately $63.6 million in cash payments and $58.2 million in write-offs.
The remaining $68.0 million accrual balance at December 31, 1998 is expected to
be liquidated via cash payments.
52
<PAGE>
OPERATING INCOME. Operating income was $279.4 million, or 15.4% of net
sales, in 1997 compared to an operating loss of $126.7 million, or 8.5% of net
sales, in 1998. Excluding the restructuring charge, we would have had operating
income of $63.1 million, or 4.2% of net sales, in 1998. This decrease is
primarily attributable to the deterioration in gross margins.
EQUITY IN EARNINGS FROM JOINT VENTURES. Equity in earnings from joint
ventures increased from $1.6 million in 1997 to $8.4 million in 1998. During
1998, we recognized a greater benefit from our 1997 investments in Tesla and
Terosil in the Czech Republic, as their manufacturing facilities increased to
full capacity in 1998. These investments were part of our global semiconductor
expansion strategy to relocate manufacturing facilities out of the United States
into markets with lower cost facilities.
INTEREST EXPENSE. Interest expense increased from $11.0 million in 1997 to
$18.0 million in 1998. These amounts were allocated by Motorola to its
Semiconductor Products Sector and in turn to us.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES--TRADE. Net product sales increased $67.2 million, or 3.8%, from
$1,748.0 million in 1996 to $1,815.2 million for 1997. The increase was
consistent with the total growth in overall sales in our addressable market of
4.3% over the same time period. Total unit volume increased 21.2% in 1997
compared to 1996, while average sales prices decreased by 14.9%, reflecting
continued price pressure as a result of excess semiconductor manufacturing
capacity in the industry.
Net sales for discrete products, which accounted for 56% of net product
sales for 1997, decreased 0.4% compared to 1996. Net sales for standard analog
products and standard logic products, which accounted for 17% and 27%,
respectively, of net product sales for 1997, increased 11.3% and 10.5%,
respectively, compared to 1996. The growth rates of discrete, standard analog
and standard logic product families followed general market trends.
The geographic distribution of net product sales for 1997 is relatively
consistent as compared to 1996. Net product sales were derived 46%, 33% and 21%
in the Americas, the Asia/Pacific region and Europe (including the Middle East),
respectively, during 1997, compared to 46%, 33% and 21%, respectively, in 1996.
GROSS PROFIT. Gross profit, defined as total revenues less cost of sales,
increased 12.3% from $619.2 million in 1996 to $695.6 million in 1997. As a
percentage of total revenues, gross profit was 35.4% in 1996 compared to 38.3%
in 1997. This improvement in gross profit as a percentage of total revenues was
primarily the result of improved manufacturing efficiencies and capacity
utilization resulting from increased unit volume. Inventory levels were
increased in 1997 in anticipation of a rebound of the semiconductor industry in
1998. As production was increased in 1997 to build inventory levels, fixed
production costs were spread over higher unit volume and were capitalized into
inventory, resulting in a positive impact on 1997 gross profit.
RESEARCH AND DEVELOPMENT. Research and development costs decreased
$6.0 million, or 8.4%, from $71.7 million in 1996 to $65.7 million in 1997. As a
percentage of total revenues, these costs decreased from 4.1% in 1996 to 3.6% in
1997. Research and development costs historically consisted of allocations from
Motorola and other divisions of its Semiconductor Products Sector as well as
research and development costs incurred directly by us. The research and
development costs allocated by Motorola and other divisions of its Semiconductor
Products Sector were essentially flat at $34.8 million in 1996 compared to
$34.6 million in 1997. The decrease in research and development costs is
primarily attributable to a $5.8 million reduction in the costs incurred
directly by us. The decrease was primarily the result of a reorganization in
1997 of Motorola's Semiconductor Products Sector, when Motorola created the
Semiconductor Components Group as a separate
53
<PAGE>
division within the Semiconductor Products Sector. As a result, a number of
research and development personnel were reassigned to other groups within the
sector, thus reducing our research and development resources in 1997.
SELLING AND MARKETING. Selling and marketing expenses increased by 17.3%
from $94.4 million in 1996 to $110.7 million in 1997. As a percentage of total
revenues, these costs increased from 5.4% in 1996 to 6.1% in 1997. The increase
in selling and marketing expenses is primarily attributable to changes in
processes and additional selling and marketing functions for which we assumed
direct responsibility starting in 1997 as part of the reorganization of
Motorola's Semiconductor Products Sector.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 59.0% from $150.8 million in 1996 to $239.8 million in 1997. As a percentage
of total revenues, these costs increased from 8.6% in 1996 to 13.2% in 1997. In
addition to general and administrative expenses incurred directly by us, general
and administrative costs consist of an allocation of Motorola's corporate and
sector costs. General and administrative expenses allocated to us by Motorola
increased by $29.8 million, or 34.2%, to $117.0 million in 1997. General and
administrative expenses incurred directly by us increased by $59.2 million, or
93.1%, to $122.8 million in 1997. The increase in general and administrative
expenses is primarily attributable to costs resulting from the reorganization of
Motorola's Semiconductor Products Sector in 1997.
OPERATING INCOME. Operating income as a percentage of total revenues
decreased from 17.3%, or $302.3 million, in 1996 to 15.4%, or $279.4 million, in
1997. This decrease is attributable primarily to increased selling and marketing
and general and administrative expenses resulting from the reorganization of
Motorola's Semiconductor Products Sector in 1997, offset by improvements in
gross profit in 1997.
EQUITY IN EARNINGS FROM JOINT VENTURES. Equity in earnings from joint
ventures decreased by 33.3% from $2.4 million in 1996 to $1.6 million in 1997.
The decrease in earnings was primarily attributable to our Malaysian joint
venture, which incurred translation losses in 1997 on U.S. dollar denominated
loans.
INTEREST EXPENSE. Interest expense decreased from $15.0 million in 1996 to
$11.0 million in 1997. These amounts were allocated by Motorola to its
Semiconductor Products Sector and in turn to us.
LIQUIDITY AND CAPITAL RESOURCES
Our senior bank facilities consist of a $200.0 million tranche A facility
(including a $134.5 million delayed-draw term facility) that bears interest at
LIBOR + 3.00% and fully amortizes within six years, a $325.0 million tranche B
facility that bears interest at 3.50% and fully amortizes within seven years and
a $350.0 million tranche C facility that bears interest at LIBOR + 3.75% and
fully amortizes within eight years, together with a $150.0 million revolving
facility for working capital and general corporate purposes (of which
$14.7 million has been used for letters of credits and $135.3 million remains
available as of October 2, 1999). As part of our August 1999 recapitalization,
in addition to borrowing $740.5 million under our senior bank facilities, we
also issued $400.0 million of 12% senior subordinated notes due in 2009. We have
subsequently borrowed an additional $60.0 million under our $134.5 million
delayed-draw term facility, the remainder of which will remain available until
February 4, 2000 to fund working capital.
The senior bank facilities and the notes contain various restrictions and
covenants. As part of our recapitalization, Semiconductor Components Industries,
LLC issued a $91 million junior subordinated note, which bears interest at a
rate of 10% per annum, payable semi-annually in kind. Interest will be payable
in cash after the fifth anniversary of the issue date if, after giving effect to
the payment of interest on any interest payment date, we will be in compliance
with our obligations under our senior bank facilities and the indenture relating
to the notes. Our junior subordinated note
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will mature on the twelfth anniversary of its issue date and be subordinated in
right of payment to the notes and the loans under our senior bank facilities and
pari passu in right of payment with unsecured trade debt.
As of October 2, 1999, we had $800.5 million of indebtedness outstanding
under our senior bank facilities (excluding unused commitments) and a
stockholders' deficit of $284.9 million. In addition, the credit agreement
relating to our senior bank facilities, the indenture relating to the notes and
the terms of our junior subordinated note will allow us to incur further
additional indebtedness.
Prior to our recapitalization, Motorola performed cash management on a
centralized basis, and its Semiconductor Products Sector processed receivables
and payables, payroll and other activities for the Semiconductor Components
Group. Most of these systems were not designed to track receivables,
liabilities, cash receipts and payments on a division-specific basis.
Accordingly, it is not practical to determine assets and liabilities associated
with the Semiconductor Components Group prior to our recapitalization.
Subsequent to our recapitalization, we had cash flow from operating activities
of $7.2 million. Net cash provided by financing activities totalled
$119.6 million, resulting primarily from the issuance of common and preferred
stock to an affiliate of Texas Pacific Group and to the proceeds from the
borrowings incurred in conjunction with our recapitalization less amounts paid
to Motorola as part of our recapitalization.
Capital expenditures, net of transfers, were $81.2 million in 1998. Gross
capital expenditures are expected to be approximately $110.0 million in 1999.
Approximately $61.7 million (before transfers) was spent as of October 2, 1999.
We have been able to limit capital expenditures supporting our capacity
expansions by buying depreciated assets from other Motorola divisions at their
book value.
Our primary future cash needs, both in the short term and in the long term,
will continue to be for working capital, capital expenditures, debt service and
potential business acquisitions. In particular, we are required to begin making
principal payments on our senior bank facilities in 2001. Our ability to make
payments on and to refinance our indebtedness, including the notes, our senior
bank facilities and the junior subordinated note and to fund working capital,
capital expenditures, research and development efforts and strategic
acquisitions will depend on our ability to generate cash in the future, which is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control. Further, our senior bank facilities,
the indenture relating to the notes and the terms of our junior subordinated
note currently do, and other debt instruments we enter into in the future may,
impose various restrictions and covenants on us that could limit our ability to
respond to market conditions, to provide for unanticipated capital investments
or to take advantage of business opportunities. We believe that currently
anticipated costs savings, revenue growth and operating improvements will be
sufficient to enable us to service our indebtedness and to fund our other
liquidity needs for the next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes standards for
the accounting and reporting for derivative instruments, including derivative
instruments embedded in other contracts, and hedging activities. This statement
generally requires recognition of gains and losses on hedging instruments, based
on changes in fair value or the earnings effect of forecasted transactions. As
issued, SFAS No. 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133--An Amendment of FASB Statement
No. 133," which deferred the effective date of SFAS No. 133 until June 15, 2000.
We are currently evaluating the impact of SFAS No. 133.
55
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INDUSTRY
INFORMATION REGARDING OUR MARKET INDUSTRY DATA
In this prospectus, we rely on and refer to information regarding the
semiconductor market and our competitors that has been prepared by industry
research firms, including Semiconductor Industry Association, World
Semiconductor Trade Statistics, the Gartner Group's Dataquest division and
Insight-Onsite Research, or compiled from market research reports, analyst
reports and other publicly available information. All industry and total
addressable market data that are not cited as being from a specified source are
from World Semiconductor Trade Statistics. This information is generally
available, and we have neither sought nor received specific permission from any
firm to cite industry information in this prospectus.
All of our market share information presented in this prospectus refers to
our total product sales revenues in our total addressable market, which
comprises the following specific World Semiconductor Trade Statistics product
categories: (1) discrete products (all discrete semiconductors other than
sensors, RF and microwave power transistors and optoelectronics); (2) standard
analog products (amplifiers, voltage regulators and references and comparators
only); and (3) standard logic products (general purpose logic and MOS general
purpose logic only). We believe that is information is reliable but have not
independently verified it.
INDUSTRY OVERVIEW
Semiconductors are basic building blocks used to create an increasing
variety of electronic products and systems. Since the invention of the
transistor in 1948, continuous improvements in semiconductor process and design
technologies have led to smaller, more complex and more reliable devices at a
lower cost per function. The availability of low-cost semiconductors together
with increased customer demand for sophisticated electronic systems has led to
the proliferation of semiconductor devices into diverse end products such as
computers, consumer electronics, communications equipment, automotive systems
and industrial automation and control systems, together with an increase in the
number of semiconductor devices in individual electronic systems and an increase
in semiconductor value as a percentage of the total cost of electronic systems.
The semiconductor industry is comprised of three broad product segments:
(1) logic devices, which process data and range from complex integrated circuits
such as microprocessors and digital signal processors to standard logic products
(approximately 50% of total industry sales); (2) memory devices, which store
data (approximately 22% of total industry sales); and (3) analog and discrete
devices, which process electronic signals and control electrical power
(approximately 28% of total industry sales). Within these categories,
semiconductors are classified as either standard components or
application-specific components. Standard semiconductors are used by a large
group of systems designers for a broad range of applications, while
application-specific semiconductors are designed to perform specific functions
in specific applications.
The manufacturing of a semiconductor device is a complex process that
requires two primary stages: wafer fabrication and assembly/test. The wafer
fabrication, or "front-end" process, is the more technologically demanding
process in which the circuit patterns of the semiconductor are
photolithographically etched on to raw silicon wafers. In the assembly/test, or
"back-end" process, these wafers are cut into individual "die," which are then
bonded to a substrate, have connectors attached to them and are encapsulated in
a package. In the final step, the finished products are tested to ensure they
meet their operating specifications. Historically, because the back-end process
is less technology intensive (requiring, for example, less stringent clean room
standards) these operations were often located in lower-cost facilities in
emerging market countries while the front-end process remained near the
manufacturer's primary facilities. As these countries' technology industries
have matured, the front-end processes have been increasingly relocated abroad.
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Worldwide semiconductor market revenues were $125.6 billion in 1998,
including revenues in our total addressable market of approximately
$16.9 billion. Since 1993, total industry revenues have grown at a compound
annual growth rate of 10.2% and revenues in our total addressable market have
grown at a compound annual growth rate of 7.3%. The industry is cyclical,
however, and from 1995 to 1998 industry and revenues and revenues in our total
addressable market declined from $144.4 billion to $125.6 billion and from
$19.7 billion to $16.9 billion, respectively. This was the first three-year
downturn in industry history and was driven primarily by reduced average selling
prices resulting primarily from excess semiconductor manufacturing capacity and
the Asian economic crisis.
Recent industry performance shows strong indications of a rebound. The
following table shows revenues in the industry and for our total addressable
market over the most recent six calendar quarters:
QUARTERLY WORLDWIDE SEMICONDUCTOR SALES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1999 1999 1999
-------- ------------- ------------ --------- -------- -------------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Industry.......................... $29.6 $30.7 $33.9 $33.5 33.7 38.1
Change from previous three
months.......................... (5.7)% 3.7% 10.4% (1.2)% 0.6% 13.1%
Total addressable market.......... $ 4.2 $ 4.0 $ 4.2 $ 4.3 4.6 5.0
Change from previous three
months.......................... (6.7)% (4.8)% 5.0% 2.4% 7.0% 9.7%
</TABLE>
The following table sets forth the total industry revenues for the
semiconductor industry from 1993 through 1998 and projected total industry
revenues for 1999 through 2002:
WORLDWIDE SEMICONDUCTOR INDUSTRY SALES (1)
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
---------------------------------------------------------------------------- -------------------
CAGR
1993 1994 1995 1996 1997 1998 (2) 1999 2000
-------- -------- -------- ---------- -------- -------- -------- -------- --------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Logic................... $34.1 $ 42.1 $ 56.0 $ 61.9 $ 70.4 $ 67.0 14.5% $ 75.1 $ 88.7
Analog.................. 10.7 13.6 16.7 17.0 19.8 19.1 12.3% 21.2 24.8
Memory.................. 21.3 32.5 53.5 36.0 29.3 23.0 1.6% 30.2 37.7
Discrete................ 11.3 13.7 18.4 17.0 17.7 16.5 7.9% 18.6 21.0
----- ------ ------ ------ ------ ------ ----- ------ ------
Total................. $77.3 $101.9 $144.4 $132.0 $137.2 $125.6 10.2% $145.2 $172.3
<CAPTION>
PROJECTED
--------------------------------
CAGR
2001 2002 (3)
---------- -------- --------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C>
Logic................... $102.8 $117.0 15.0%
Analog.................. 28.6 32.5 14.2%
Memory.................. 44.5 48.8 20.7%
Discrete................ 23.2 25.3 11.3%
------ ------ ----
Total................. $199.1 $223.5 15.5%
</TABLE>
- ------------------------------
(1) According to the World Semiconductor Trade Statistics. Due to rounding, some
totals are not arithmetically correct sums of their component figures.
(2) Represents the compound annual growth rate from 1993 through 1998.
(3) Represents the projected compound annual growth rate from 1998 through 2002.
OUR MARKET
Our market includes discrete, standard analog and standard logic
semiconductors that provide power control, power protection and interfacing
functions. Electronic systems, such as computers, cellular phones and video
recorders, rely on a combination of discrete, analog, logic, microprocessor and
memory devices. In such a system, microprocessors and memory devices
collectively operate as the "brains" of the system, and rely on discrete,
standard analog and standard logic devices for usable electrical power and
protection and to interface both between components within a system and with
external power and signal sources. Despite the prominent role high-end
microprocessors and memory products play in leading-edge computers and consumer
electronic products, semiconductor components accounted for approximately 85% of
total semiconductor unit
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volume and 13% of semiconductor industry revenues in 1998, and most consumer
electronic products use a variety of these semiconductors. For example,
according to Dataquest and other industry analysts, a computer hard drive
contains approximately 14 semiconductor component products, an automobile's
control unit contains approximately 45 semiconductor component products, a
computer printer contains approximately 30 semiconductor component products and
a cellular phone contains between 30 and 50 semiconductor component products.
POWER CONTROL AND PROTECTION FUNCTIONS. Power control and protection is
essential to virtually all electronic systems. Before sensitive electronic
systems and semiconductors can use the "raw" electricity provided by external
power sources, this electricity must be efficiently converted to a usable and
regulated input. By the same token, these electronic systems must be able to
control higher power outputs, such as when an automotive control box instructs a
spark plug to fire or a starter engine to engage. Within an electronic system,
the characteristics of this output must be further modified and regulated to
meet the requirements of the different components within the system, and
sensitive components must be protected from the output of other higher power
components. Intelligent power control is also critical to meet consumer demands
for long battery lives on increasingly complex and power hungry portable
electronic devices. Power control is provided by discrete and standard analog
products.
INTERFACE FUNCTIONS. In order for components within an electronic system to
interact with each other and with the outside world, non-electronic inputs must
be converted to and from an electronic format and electronic signals generated
by individual integrated circuits within a system must be interconnected and
routed to other integrated circuits. Although complex integrated circuits, such
as microprocessors, ultimately consist of sophisticated architectures of
thousands or millions of interfacing functions, these complex integrated
circuits still rely on single-purpose components for a number of functions.
First, although many of these discrete products provide simple logic functions
of the type that could be integrated into a single chip, in many cases it is
more cost-effective to continue to use discrete products combined with standard
processors or memory devices rather than designing a custom chip. Second, even
when application specific or other new integrated circuits are designed, the
complexity of the design process and demanding time-to-market pressures means
these designs are rarely perfect, and discrete devices continue to be used to
fix these imperfections. Finally, there are a number of applications, such as
high-speed networking devices, that require high power/high performance discrete
interface functions that cannot be efficiently integrated into a single chip.
Interface functions are provided by standard logic products that provide simple
digital logic functions in which electronic signals are treated as either "one"
or "zero" and by standard analog products that amplify or otherwise modify
non-digital signals.
DISCRETE, STANDARD ANALOG AND STANDARD LOGIC PRODUCTS. Although our
products provide power control, protection and interface functions, industry
classifications are typically based on the product family on which specific
semiconductors are based. Our market includes discrete, standard analog
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and standard logic semiconductors. The following table sets forth total industry
revenues for the product families in which we participate:
WORLDWIDE SEMICONDUCTOR SALES IN OUR TOTAL ADDRESSABLE MARKET (1)
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
-------------------------------------------------------------------------- --------
CAGR
1993 1994 1995 1996 1997 1998 (2) 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN BILLIONS)
Discrete (4)........................... $ 7.9 $ 9.5 $12.8 $11.9 $12.0 $10.8 6.3% $11.9
Standard Analog (5).................... 2.1 2.6 3.5 3.2 3.7 3.6 11.3% 4.3
Standard Logic (6)..................... 1.8 3.1 3.5 3.0 3.2 2.5 6.7% 2.7
----- ----- ----- ----- ----- ----- ----- -----
Total................................ $11.8 $15.3 $19.7 $18.1 $18.9 $16.9 7.3% $18.9
===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
PROJECTED
-----------------------------------------
CAGR
2000 2001 2002 (3)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(DOLLARS IN BILLIONS)
Discrete (4)........................... $13.2 $14.3 $15.2 8.9%
Standard Analog (5).................... 5.0 5.7 6.4 15.6%
Standard Logic (6)..................... 2.9 3.3 3.5 8.9%
----- ----- ----- -----
Total................................ $21.1 $23.2 $25.1 10.4%
===== ===== ===== =====
</TABLE>
- ------------------------------
(1) According to World Semiconductor Trade Statistics. Due to rounding, some
totals are not arithmetically correct sums of their component figures.
(2) Represents the compound annual growth rate from 1993 through 1998.
(3) Represents the projected compound annual growth rate from 1998 through 2002
(4) Includes the following specific World Semiconductor Trade Statistics product
categories: all discrete semiconductors other than sensors, RF and microwave
power transistors and optoelectronics.
(5) Includes the following specific World Semiconductor Trade Statistics product
categories: amplifiers, voltage regulators and references and comparators
only.
(6) Includes the following specific World Semiconductor Trade Statistics product
categories: general purpose logic and MOS general purpose logic only.
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BUSINESS
GENERAL
We are one of the largest independent suppliers of semiconductor components
in the world. Our total addressable market, consisting generally of discrete,
standard analog and standard logic semiconductors, comprised approximately
$16.9 billion of revenues in 1998. Discrete, standard analog and standard logic
semiconductors are generically referred to as semiconductor "components" and are
the "building blocks" that provide the power control, power protection and
interfacing necessary for almost all electronic systems, including computers,
consumer electronics, communications equipment, automotive systems and
industrial automation and control systems. With a portfolio of over 16,000
products, we offer our customers a single source of supply for virtually all
their components needs, including the broadest selection of discrete
semiconductor products in the industry and an extensive line of standard analog
and standard logic products. Our products generally have long market life
cycles, averaging 10 to 20 years, with some as long as 30 years. The long life
of these products allows us to use our manufacturing assets for longer periods
of time, leading to lower capital expenditures.
We sell our semiconductors directly to over 500 customers, including
original equipment manufacturers and electronic manufacturers service industry
companies. In addition, we sell indirectly to tens of thousands of other
customers through distributors. As a former division of Motorola, we have our
roots in the very beginnings of the semiconductor industry and have participated
in the industry for over 40 years. Headquartered in Phoenix, Arizona, we employ
approximately 13,150 people worldwide, consisting of approximately 10,150 people
employed directly and approximately 3,000 people employed through our joint
ventures, most of whom are engaged in manufacturing services. We maintain 12
manufacturing facilities in Arizona, Mexico, Slovakia, the Czech Republic,
Japan, the Philippines, Malaysia and China (directly or through our joint
ventures).
RECENT RESTRUCTURING
In 1997, Motorola created the Semiconductor Components Group as a separate
division within its Semiconductor Products Sector to concentrate on the
manufacturing of discrete, standard analog and standard logic semiconductors. In
1998, Motorola initiated a company-wide restructuring with the goal of
increasing the manufacturing efficiency of various operations within each of
Motorola's business groups. In furtherance of this strategy, we have implemented
ongoing cost-saving initiatives to rationalize our product portfolio, close
plants and relocate or outsource related operations to take advantage of
lower-cost labor markets, reduce worldwide personnel and make our manufacturing
processes more efficient.
As a result of this restructuring, we expect to double our production
capacity by the end of 2000, as compared to the beginning of 1998, while
reducing the number of front-end manufacturing facilities we operate or rely
upon from 29 to 15, reducing the number of back-end assembly facilities we
operate or rely upon from 30 to 15, all of which will be located in low-cost
overseas jurisdictions. In addition, we have reduced our original product
portfolio from 25,000 to 16,000 products by eliminating products with poor sales
performance. These reductions in our original portfolio have allowed us to
increase efficiencies in the manufacture of our mainstream products while
refining our portfolio to focus on new product development.
This restructuring is on schedule for completion by the end of 2000 and we
expect these efforts to result in annual cost savings of approximately
$210 million in 2000, as compared to our cost structure at the beginning of
1998. Motorola recorded a restructuring charge in the second quarter of 1998, of
which $189.8 million was allocated to us. We do not currently anticipate any
significant additional costs in connection with this restructuring. We believe
that our current cost
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structure is competitive within the semiconductor components industry and that
upon completion of the restructuring we will be among the industry's lowest-cost
manufacturers.
In connection with the restructuring, we have closed wafer fabrication,
assembly and test facilities located in the Philippines and Arizona and have
outsourced or moved related operations to other facilities in Malaysia, Mexico,
the Czech Republic and Japan. Our total employment reductions in connection with
the restructuring, including those in connection with facility closures, were
approximately 3,000. Included in the employee reductions effected to date are
approximately 1,200 employees in positions not directly involved in the
manufacturing process, such as those in sales, marketing, quality assurance,
customer service center, product engineering and research and development.
Ongoing initiatives include plans to shrink dies and streets in order to
increase die output, negotiate price reductions with third-party manufacturers
and reduce freight carrier costs. For more information concerning aspects of
this restructuring, see Note 9 to the Audited Combined Financial Statements
included elsewhere in this prospectus.
Formerly a division of Motorola, we are now an independent company as a
result of our August 4, 1999 recapitalization. An affiliate of Texas Pacific
Group now owns approximately 91% and Motorola now owns approximately 9% of the
outstanding voting stock of SCG Holding, which, together with its subsidiaries,
holds substantially all of our assets. Motorola has agreed to provide
manufacturing and transition services following our recapitalization in order to
facilitate our ability to operate on a stand-alone basis independent of
Motorola, and we have agreed to provide manufacturing services to Motorola
following our recapitalization. We believe that the duration and terms of these
arrangements are sufficient to allow us to successfully implement the
transition.
OUR STRENGTHS
As a pioneer in the industry, we have established strong, long-term
relationships with numerous customers that are leaders in their respective
markets. Our franchise is built on several specific strengths, including the
following:
LEADING MARKET POSITION. We are the largest independent supplier of
semiconductor components in the world, with a market share of approximately 8.7%
in the first three quarters of 1999 in our total addressable market. Our total
addressable market, consisting generally of discrete, standard analog and
standard logic semiconductors, comprised approximately $16.9 billion of revenues
in 1998. We believe that the combination of our broad product portfolio, high
level of customer service and technological expertise has enabled us to attract
and maintain long-term customer relationships with leading original equipment
manufacturers, electronic manufacturers service industry companies and
distributors.
EXTENSIVE PRODUCT PORTFOLIO. We offer our customers the largest selection
in the industry of discrete semiconductors and an extensive portfolio of
standard analog and standard logic products, which are necessary to complete
almost every electronic system design (including those for computers, consumer
electronics, communications equipment, automotive systems and industrial
automation and control systems). Our portfolio of products is among the most
stable within the semiconductor industry, as a result of its breadth, our long
product market life cycles and the substantial diversity of our customers and
end-market users. We believe that our ability to offer a broad range of products
provides our customers single-source purchasing on a cost-effective and timely
basis, which has become increasingly important as our customers seek to reduce
the number of suppliers with whom they conduct business.
BROAD AND DIVERSE CUSTOMER BASE. We have a broad and diverse customer base
that includes original equipment manufacturers, such as Alcatel, Ford, Hewlett
Packard, Lucent, Motorola and Sony, companies in the increasingly important
electronic manufacturers service industry sector,
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such as Celestica, SCI and Solectron, and worldwide distributors. Overall, we
serve more than 500 direct customers, and our products are ultimately purchased
by tens of thousands of end users in a variety of markets. No one customer
accounted for more than 10% of our revenues in 1997 or 1998. We are less
dependent on either specific customers or specific end-use applications than
most manufacturers of more specialized and complex integrated circuits. We have
long-standing relationships with most of our significant customers, having
served 47 of our 50 largest customers for more than ten years.
LOW-COST PRODUCTION. We believe that our current cost structure is
competitive within the semiconductor components industry and that as a result of
our recent restructuring we will be among the industry's lowest-cost
manufacturers. This restructuring is scheduled for completion by the end of
2000. We expect these efforts to result in annual cost savings of approximately
$210 million in 2000, as compared to our cost structure at the beginning of
1998. In addition, we expect the restructuring to allow us to double our
production capacity by the end of 2000, as compared to the beginning of 1998,
while substantially reducing the number of facilities we operate or on which we
rely.
SUPERIOR CUSTOMER SERVICE. High quality customer service is an essential
element of our business. Our focused, dedicated and experienced sales and
marketing organization consists of approximately 300 professionals with an
average length of service in excess of 10 years. We meet our customers' demands
for reliable delivery and quick responses to inquiries through efficient
communication and inventory management, such as electronic data interchange
functions for order and payment processing, just-in-time delivery facilities and
internet-based communications. As a result of our success in meeting the
challenging demands of our diverse customer base, we have received in January,
February and March of 1999 a number of supplier-of-the-year awards reflecting
our performance in 1998 from customers in the United States, Europe and Japan,
including Celestica, Dovatron, Fuji-Xerox, IBM-Japan, Logitech, Motorola,
Natsteel and Solectron.
EXPERIENCED MANAGEMENT TEAM. We have assembled a strong and experienced
management team at both the administrative and the operating levels. Our
management team is led by Steve Hanson, who has been with Motorola's
semiconductor businesses since 1971. The 14 members of our management team who
have presided over our recent restructuring have been with Motorola for an
average of more than 20 years. We have recently implemented a stock option plan
to provide key employees with the opportunity to purchase common stock of SCG
Holding. Approximately 7.8% (on a fully diluted basis) of our common stock has
been reserved for issuance under the plan. See "Management--1999 Founders Stock
Option Plan."
BUSINESS STRATEGY
Our objective is to build on our position as the largest independent
supplier of discrete, standard analog and standard logic semiconductor
components in our total addressable market. As a stand-alone company dedicated
to the semiconductor components business, we intend to pursue this goal by
following several key strategies:
INCREASE CUSTOMER FOCUS. We are uniquely positioned, as the largest
independent supplier of semiconductor components, to increase our sales and
market share by focusing on the needs of our customers through the following
initiatives:
- Leverage our dedicated sales force, which we selected from among the sales
force of Motorola's Semiconductor Products Sector, to concentrate
exclusively on our products and customers. Previously, our products were
included among the many products sold by the sales force of Motorola's
Semiconductor Products Sector.
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- Further refine our portfolio of products so that we can capitalize on
industry trends and continue to offer our customers a single source of
supply for virtually all their component needs.
- Continue to develop and implement just-in-time delivery and leading edge
customer support services, such as a full range of internet services that
provide device specifications and order entry.
IMPROVE MANUFACTURING EFFICIENCY. We intend to build on the our recent
restructuring by continuing to lower our production costs and by increasing our
manufacturing efficiency through the following strategies:
- Continue to shift our front-end wafer fabrication facilities and back-end
assembly operations to lower-cost international locations.
- Consolidate related front-end and back-end operations to promote
inventory, logistics and cycle-time efficiencies and to allow for longer
production runs and reduced change-over time.
- Significantly increase die output in a cost-effective manner by continuing
to move production from 4" to 6" wafers and increasing the number of die
per square inch, which will allow our factory lines to produce
substantially more die.
- Continue to manage aggressively our existing portfolio of products in
order to focus our production on profitable product lines while continuing
to meet our customers' needs for a broad selection of component products.
PROMOTE EFFICIENT NEW PRODUCT DEVELOPMENT. In 1998, we introduced over 300
new products, and products introduced from 1996 through 1998 accounted for
approximately 13% of our 1998 pro forma product revenues. We will continue to
enhance our current portfolio of products through the following strategies:
- Reduce the number of separate research and development projects we pursue
in order to make our product development efforts more efficient.
- Reduce the number of new product platforms and process flows, which will
allow us to introduce new products in a more cost-effective manner and
streamline manufacturing efficiency.
- Concentrate on the development of discrete power and high-margin analog
semiconductors, which are the two fastest growing product families within
our total addressable market.
CAPITALIZE ON OUR STATUS AS AN INDEPENDENT COMPANY. We believe that as an
independent company we will be a stronger, more cost efficient and more focused
competitor, and we intend to capitalize on the following strengths:
- Our dedicated sales force and marketing organization is now focused solely
on the semiconductor components market and compensated based on the sales
of our products.
- Our overhead costs are under the direct control of our management and will
no longer be allocated on the basis of services provided by other Motorola
divisions.
- Our transition to an independent company is being facilitated by interim
arrangements under which Motorola is providing us services for limited
periods of time.
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CUSTOMERS AND APPLICATIONS
We have a broad and diverse customer base that includes original equipment
manufacturers, companies in the increasingly important electronic manufacturers
service industry sector and international distributors. Overall, we serve more
than 500 direct customers, and our products are ultimately purchased by tens of
thousands of end users for use in a variety of end-use markets in the consumer,
industrial, networking, wireless and transportation industries. As a result, we
are less dependent on either specific customers or specific end-use applications
than most manufacturers of more specialized and complex integrated circuits.
ORIGINAL EQUIPMENT MANUFACTURERS. Direct sales to original equipment
manufacturers accounted for approximately 55% of our pro forma product revenues
in 1998. Total industry sales to these customers accounted for 53.7% of our
total addressable markets in 1998. These customers include automotive
manufacturers (including DaimlerChrysler, Ford and General Motors) and a variety
of companies in the electronics industry (including Alcatel, Hewlett Packard,
Lucent, Motorola, Nortel, Philips, Siemens and Sony). Motorola has historically
constituted our largest customer, accounting for approximately 7% of our pro
forma product revenues in 1998. We intend to focus on four types of original
equipment manufacturers: multi-nationals, selected regional accounts, target
market customers and house accounts. The large multi-nationals and selected
regional accounts, which are significant in specific markets, will be our core
original equipment manufacturer customers. The target market customers are
original equipment manufacturers that are on the leading-edge of specific
technologies and provide direction for technology and new product development.
House accounts are mid-sized or small original equipment manufacturers whom we
believe, either because of long-term relationships or the specific nature of
their product needs, we can continue to serve directly in a cost-efficient
manner. We expect overall sales to original equipment manufacturers to decline
as a percentage of sales as these customers increasingly purchase component
products through distributors or outsource their manufacturing to electronic
manufacturers service industry companies. Because of this trend, electronic
manufacturers service industry customers are representing a larger share of the
market in general, and we expect these customers to represent a larger
percentage of our total addressable market in the future. We expect increased
sales to electronic manufacturers service industry customers to offset declining
sales to original equipment manufacturers, and we do not anticipate any
significant effect on our overall sales from this shift in our customer base.
DISTRIBUTORS. Sales to distributors accounted for 37% of our pro forma
product revenues in 1998. Total industry sales to distributors accounted for
24.6% of our total addressable markets in 1998. Our distributors resell to
mid-sized and smaller original equipment manufacturers and to electronic
manufacturers service industry and other companies, and we expect larger
original equipment manufacturers to become an increasingly important category of
distributor's direct customers. Product sales to our three largest distributors
accounted in the aggregate for approximately 20% of our pro forma product
revenues in 1998.
ELECTRONIC MANUFACTURERS SERVICE INDUSTRY. Direct sales to electronic
manufacturers service industry companies accounted for 8% of our pro forma
product revenues in 1998. Total industry sales to these customers accounted for
21.7% of our total addressable markets in 1998. Our largest electronic
manufacturers service industry customers are Celestica, Delta Electronics, Nanco
Electronics, Solectron and SCI. These customers companies are manufacturers who
typically provide contract manufacturing services for original equipment
manufacturers. Originally, these companies were involved primarily in the
assembly of printed circuit boards, but they now typically provide design,
supply management and manufacturing solutions. Many original equipment
manufacturers now outsource a large part of their manufacturing to electronic
manufacturers service industry companies in order to focus on their core
competencies. We are pursuing a number of strategies to
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service this increasingly important marketplace, including the use of the
internet not only for order and payment processing but also to promote more
immediate communication among our sales and support staff and these customers.
We expect increased sales to these customers to offset declining sales to
original equipment manufacturers and we do not anticipate any significant effect
on our overall sales from this shift in our customer base.
The following table sets forth our principal end-user markets, the
percentage of our pro forma product revenues generated from each end-user market
during 1998, applications for our products and representative original equipment
manufacturers customers.
END MARKETS
<TABLE>
<CAPTION>
NETWORKING AND
COMPUTING INDUSTRIAL TRANSPORTATION WIRELESS CONSUMER
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
APPROXIMATE PERCENTAGE
OF OUR 1998 PRO FORMA
PRODUCT REVENUES:..... 25% 25% 25% 13% 12%
SAMPLE APPLICATION:..... - ATM machines - Surge - 4 wheel drive - Cellular - Cable
- Automatic test protectors controllers phones (analog decoders, set-
equipment used - Industrial - Airbags and digital) top boxes and
to test automation and - Antilock - Pagers satellite
semiconductors control systems braking systems - Wireless receivers
and high-speed - Lamp Ballasts - Automatic door modems and - Home security
logic boards (power systems locks and wireless local systems
- Cable modems for fluorescent windows area networks - Photocopiers
- Cellular base lights) - Automatic - Scanners
stations and - Large transmissions - Small
infrastructure household - Automotive household
- Computer appliances entertainment appliances
monitors - Electric motor systems - Smartcards
- Disk drives controllers - Engine - TVs, VCRs,
- Ethernet cards - Power supplies management and DVDs and other
and other for ignition systems audio-visual
network manufacturing - Fuel injection equipment
controllers equipment systems
- High speed - Thermostats
modems (ADSL & for industrial
ISDN) and consumer
- PBX telephone applications
systems
- PC
Motherboards
- Telephone sets
(corded and
cordless)
REPRESENTATIVE ORIGINAL
EQUIPMENT
MANUFACTURERS
CUSTOMERS:............ ACER Aztec BMW Alcatel Hewlett Packard
Alcatel Delta Bosch Ericsson Philips
Ericsson Eaton Daimler Chrysler Motorola Seagate
Fujitsu Emerson Ford NEC Sony
Intel Electronic General Motors Nokia Toshiba
Italtel Honeywell TRW Philips
Lucent HR Electronics Valeo Samsung
Motorola Magnatek
NEC Reltec
Nortel Timex
Siemens
Tektronix
Teradyne
</TABLE>
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PRODUCTS AND TECHNOLOGY
We offer our customers the largest selection of discrete semiconductors and
an extensive portfolio of standard analog and standard logic products, which are
necessary to complete almost any electronic system design (including those for
computers, consumer electronics, communications equipment, automotive systems
and industrial automation and control systems). Our portfolio of products is
among the most stable within the semiconductor industry as a result of its
breadth, our long product market life cycles and the substantial diversity of
our customers and end-market users. We believe that our ability to offer a broad
range of products provides our customers single-source purchasing on a
cost-effective and timely basis, which has become increasingly important as our
customers seek to reduce the number of suppliers with whom they conduct
business.
Within each of these product lines, we manufacture newer products that
possess advanced performance characteristics as well as more mature products.
Typical market life cycles for our products are generally as follows: between 20
and 30 years for bipolar discrete products, between five and 15 years for MOS
gated discrete products, between 20 and 30 years for standard analog and between
20 and 25 years for standard logic products, although some high-performance
products, such as emitter-coupled logic products, have shorter lifespans.
Because of the long market life cycles of our products, we continue to generate
significant revenues from mature products. Since it takes new products an
average of three to five years to reach full market acceptance, SCG Holding
continues to invest in new products to generate future revenue growth, primarily
for MOS gated discrete products and analog products.
The following table provides information regarding our three primary product
lines:
<TABLE>
<CAPTION>
DISCRETE STANDARD ANALOG STANDARD LOGIC
----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C>
APPROXIMATE 1998 PRO FORMA
PRODUCT REVENUES........... $847 million $282 million $345 million
APPROXIMATE PERCENTAGE OF
1998 PRO FORMA PRODUCT
REVENUES................... 58% 19% 23%
MARKET SHARE IN 1998......... 7.8% 7.8% 13.8%
APPROXIMATE NUMBER OF
DISTINCT PRODUCTS SOLD BY
SCG HOLDING................ 9,000 2,000 6,000
PRIMARY PRODUCT FUNCTION..... Power control and power Power control and interfacing Interfacing functions, such
protection functions in a functions in portable and as interconnecting and
broad range of products. high- power applications. routing (moving) electronic
signals within electronic
systems.
SAMPLE APPLICATIONS.......... Power management for Intelligent power management Fast routing of signals used
computers, televisions, audio and battery protection in in telecommunications and
equipment, fluorescent portable applications such as high- end workstations.
lights, monitors and pagers and portable
automotive control systems. computers.
TYPES OF PRODUCT............. Bipolar and MOS gated power Amplifiers, voltage Bipolar and MOS general
transistors, small signal references and regulators, purpose logic.
transistors, zeners, comparators.
thyristors, rectifiers.
REPRESENTATIVE ORIGINAL
EQUIPMENT MANUFACTURERS
CUSTOMERS.................. Ford Alcatel Ericsson
Lucent Intel Fujitsu
Motorola Motorola Hewlett Packard
Philips Nokia Lucent
Seagate Philips Motorola
Siemens Siemens NCR
Valeo Sony NorTel
Toshiba Tektronix
Teradyne
</TABLE>
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DISCRETE PRODUCTS (1998 PRO FORMA PRODUCT REVENUES OF $847 MILLION). We are
a leading supplier in the discrete semiconductor market. We produce almost all
discrete semiconductors other than sensors, RF and microwave power transistors
and optoelectronics. Discrete semiconductors are individual diodes or
transistors that perform basic signal conditioning and switching functions in
electronic circuits and are used primarily for power control and power
protection. Because of the importance of power control and power protection
within electronic circuits, discrete products are found in nearly every
electronic product, including computers, cellular phones, mass storage devices,
televisions, radios, VCRs, DVDs and pagers. Discrete devices are fabricated
using two primary process technologies: MOS and bipolar.
MOS GATED DISCRETE PRODUCTS. MOS technologies allow for denser, more
efficient and more rugged chips and are the prevalent technology for most
modern power control functions. We produce TMOS (t-structure MOS) and IGBT
(integrated gate bipolar transistors) MOS gated discrete products. TMOS
devices are used to convert, switch, shape or condition electricity. We
offer a wide range of TMOS power MOSFETs designed for low-end and medium
voltage applications over a wide range of performance characteristics, power
handling capabilities and package options. We also have a line of high
voltage TMOS devices designed for high voltage applications such as power
factor correction in switch-mode power supplies. IGBT devices utilize unique
processing methods to create a rugged high-voltage characteristics and are
used primarily for electric motor controls, lamp ballasts (such as
fluorescent light power modules) and ignition modules for automotive
engines.
Because of the trend towards smaller and lighter electronic products, longer
battery lives, batteries with built-in smart function and the overall trend
towards energy conservation, MOS gated discrete products have shown
significant growth in recent years and we expect this trend to continue.
BIPOLAR DISCRETE PRODUCTS. Bipolar discrete products continue to be used
for power protection functions because of their ability to limit and control
current and/or voltage surges that would damage the more sensitive MOS
circuits. We manufacture and sell a wide range of bipolar discrete products.
Although these products are relatively mature, they are being rejuvenated as
a result of packaging miniaturization technologies.
STANDARD ANALOG PRODUCTS (1998 PRO FORMA PRODUCT REVENUES OF
$282 MILLION). We are a leading independent supplier in the standard analog
market. Standard analog devices are simple analog semiconductors (as opposed to
more complex products, such as mixed-signal devices or customized analog
products) that are used for both interface and power control and protection
functions in electronic systems, such as cellular phones, handheld devices,
personal computers and laptops. We are focusing our product development efforts
on the miniaturization of our standard analog products through packaging
technologies and on developing new amplifiers and comparators that operate at 3
volts and lower. We also recently introduced the industry's first 1 volt
operational amplifiers in 1998. We produce standard analog products including
amplifiers, voltage regulators and references and comparators using three
primary process technologies: CMOS, Bipolar and BiCMOS.
CMOS. CMOS technology allows for a denser chip that consumes less power
than Bipolar technology, and has therefore become the prevalent technology
for low-voltage power, battery and thermal management in portable products
such as cellular phones, pagers and laptops. We manufacture a wide variety
of Analog CMOS products, and are focusing new product development on power
converters.
BIPOLAR. Because of their long life spans, many operational amplifiers and
voltage regulators continue to be designed using bipolar processes. These
devices are used in a wide variety of electronic products ranging from
computers to industrial automation and control systems.
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BICMOS. BiCMOS products are designed for very high-power management
applications such as the management of alternating current supplies and
switch-mode power supplies that can be used to replace traditional
transformers. Applications include portable external drives that plug
directly into alternating current outlets and power supply units for
fluorescent lights. BiCMOS analog products are also used for the
distribution and control of power within battery operated systems. For
example, cellular phones use these circuits to switch from standby mode to
full power as needed, and battery chargers use these circuits to regulate
the amount of charging power delivered to the battery and to protect the
battery from overcharging.
STANDARD LOGIC PRODUCTS (1998 PRO FORMA PRODUCT REVENUES OF
$345 MILLION). We are a leading independent supplier in the standard logic
semiconductor market. Standard logic devices are simple logic semiconductors as
opposed to more complex products, such as microprocessors or
application-specific integrated circuits that are used primarily for interfacing
functions, such as interconnecting and routing electronic signals within an
electronic system. These products are used in a variety of electronic systems,
ranging from personal computer systems and consumer applications to specialized
products, such as routers and other telecommunications applications, that
require high-speed data movement solutions. We produce general purpose standard
logic products using two primary process technologies: CMOS and Bipolar.
CMOS. As with standard analog products, CMOS technology allows for a
denser chip that consumes less power than Bipolar technology, and has
therefore become the prevalent technology for low power consumption devices
used in personal computer systems and portable consumer applications. CMOS
logic, in particular 3 volt products, is a growth area in the standard logic
market. We have entered into an alliance with Fairchild and Toshiba to
ensure that all new standard logic families have the same specifications to
promote product standardization.
BIPOLAR. Bipolar devices typically operate at high speeds, require more
power and are more expensive than CMOS devices. Bipolar logic products
remain an important technology for high speed, high power applications, and
continue to be used in other applications that do not require CMOS
solutions. Emitter-coupled logic bipolar devices are our high performance
logic product. Targeted applications include high-speed data communications
and high-speed testers used in the communication, high-end workstation and
automatic test equipment market. Because of these performance requirements,
emitter-coupled logic products have shorter life-spans than other components
we produce and we continue to develop and introduce new products on a
regular basis. For example, this year we introduced the world's fastest
logic family operating at 2.5 volts. According to Insight-Onsite Research,
our market share for emitter-coupled logic products in 1998 was
approximately 90%. We expect emitter-coupled logic products to remain one of
our single most important product families over the next several years.
SALES, MARKETING AND DISTRIBUTION
In 1998, original equipment manufacturers, distributors and electronic
manufacturers service industry companies accounted for 55.1%, 37.1% and 7.8% of
our pro forma product revenues, respectively. We operate regional sales and
marketing organizations in Europe, headquartered in the United Kingdom, the
Americas, headquartered in Phoenix, Arizona, and the Asia/Pacific region,
headquartered in Hong Kong. Each of these regional sales and marketing
organizations is supported by logistics organizations that manage regional
warehouses. These warehouses will be operated either directly to the customer or
indirectly to the customer via the logistics warehouses. In addition, we
maintain dedicated just-in-time warehouses for the benefit of our large original
equipment manufacturers customers.
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Motorola has agreed to continue to provide us with worldwide shipping and
freight services for a period of up to three years following our August 1999
recapitalization using the cost allocation it used previously, which is based on
the percentage of Motorola's overall sales that our sales represented. Because
our products are sold in higher volumes than other Motorola products for
comparable sales, this allocation may result in better prices than we could
obtain from third parties. However, we believe we would be able to replace these
services on comparable terms at the expiration of this agreement because of
increased efficiencies resulting from a shipping and freight organization
dedicated to our products and ongoing factory consolidations.
Our sales and marketing organization consists of approximately 300
professionals selected from among the sales force of Motorola's Semiconductor
Products Sector operating out of 39 offices in 22 countries and serving
customers in approximately 37 countries. Formerly, a single sales and marketing
organization sold both component products and other higher-end Motorola
semiconductors. Our dedicated and experienced sales and marketing organization
will be grouped according to sales channel and customer type to provide a high
degree of customer contact and to meet the different needs of both regional and
international original equipment manufacturers, electronic manufacturers service
industry customers companies and distributors. The average length of service
within our sales and marketing organization is in excess of 10 years.
MANUFACTURING
The manufacturing of a semiconductor device is a complex process that
requires two primary stages: wafer fabrication and assembly/test. The wafer
fabrication, or "front-end" process, is the more technologically demanding
process in which the circuit patterns of the semiconductor are
photolithographically etched on to raw silicon wafers. In the assembly/test, or
"back-end" process, these wafers are cut into individual "die", which are then
bonded to a substrate, have connectors attached to them and are encapsulated in
a package. In the final step, the finished products are tested to ensure they
meet their operating specifications.
We operate twelve manufacturing facilities either directly or through joint
ventures. Six of these are front-end wafer facilities located in the United
States, Malaysia, Mexico, Japan, the Czech Republic and Slovakia and six are
back-end assembly and test facilities in Malaysia, Mexico, the Philippines, the
Czech Republic and China. See "--Joint Ventures." We have recently closed down
three additional front-end facilities in Arizona. In addition to these
manufacturing and assembly operations, our Terosil facility in Roznov, the Czech
Republic, manufactures raw wafers that are used by a number of our facilities.
We also use third-party contract manufacturers other than joint ventures. For
the nine-month period ended October 2, 1999, expenses related to facilities
directly owned and operated by us, joint ventures and third-party contractors
accounted for 50%, 7% and 43%, respectively, of our total costs of goods sold.
Our agreements with these contract manufacturers typically require us to
forecast product needs and commit to purchase services consistent with these
forecasts, and in some cases require longer-term commitments in the early stages
of the relationship. As a result of our recapitalization, Motorola-owned
facilities are considered third-party contractors.
Our manufacturing strategy is three-fold. First, we are continuing to reduce
the number of front-end and back-end facilities through plant closures and the
relocation or outsourcing of the related operations, including consolidating
both steps into nearby low-cost facilities where possible, to promote inventory,
logistics and cycle-time efficiencies. We currently operate or rely upon 29
active front-end facilities, including joint ventures and contract
manufacturers. We plan to consolidate our front-end manufacturing into 15
facilities. Five of these facilities will be our facilities, two of these
facilities will be operated by our joint ventures and eight of these facilities
will be operated by
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third-party contract manufacturers. We currently have 30 active back-end
assembly facilities (including joint ventures and contract manufacturers) but
plan to consolidate these activities into 15 facilities. Four of these
facilities will be our facilities, three of these facilities will be operated by
our joint ventures and eight of these facilities will be operated by third-party
contract manufacturers. We expect these consolidations to be complete by the end
of 2000.
Second, we will significantly increase die output in a cost-effective manner
by continuing to move production from 4" to 6" wafers and increasing the number
of die per square inch, which will allow our factory lines to produce
substantially more die. We expect that by the end of 2000, approximately 50% of
our manufacturing will have been converted to 6" wafers.
Third, in order to reduce research and development costs and streamline
manufacturing effectiveness, we are in the process of amending our product
development criteria to reduce the number of new product platforms from 17 to 12
and to reduce the number of process flows from 50 to 30. Platforms are major
wafer processes used for the manufacturing of a variety of products and process
flows are variations on these major processes. These reductions are underway and
expected to be ongoing.
As a result of our recent restructuring, we expect to double our production
capacity by the end of 2000, as compared to the beginning of 1998, while
substantially reducing the number of facilities we operate.
We and Motorola have agreed to continue to provide manufacturing services to
each other for limited periods of time following our recapitalization. We and
Motorola negotiated prices for the services covered by these agreements to
approximate each party's cost of providing the services and are fixed throughout
the term of the agreements. Each party has committed to minimum purchases under
these agreements. Subject to our right to cancel upon six months' written
notice, we have minimum commitments to purchase manufacturing services from
Motorola of approximately $29.5 million, $88 million, $51 million, $41 million
and $40 million in the last three months of 1999, and in fiscal years 2000,
2001, 2002 and 2003, respectively. Based on our current budget, we anticipate
that we will actually purchase manufacturing services from Motorola of
approximately $150 million in 2000. Subject to its right to cancel upon six
months' written notice, Motorola has minimum commitments to purchase
manufacturing services from us of approximately $24.9 million, $66 million and
$26 million in the last three months of 1999, and in fiscal years 2000 and 2001,
respectively, and has no purchase obligations thereafter. We anticipate that
Motorola will actually purchase manufacturing services from us of approximately
$100 million in 2000. The purchaser of the services has the right to cancel
these arrangements upon six months' written notice. Prior to the termination of
these arrangements, we have plans to relocate the operations provided by
Motorola to our own facilities, joint ventures or to third-party manufacturers
or, in limited circumstances, to terminate the product line.
In July 1998, we achieved certification in a universally accepted quality
system known as QS9000. This system, mandated by all U.S. automotive customers
as a condition of doing business beginning in 2000, provides structure and
discipline to ensure smooth and effective operations. The QS9000 certification
process is more stringent than the ISO9000 certification process, and QS9000
certification automatically affords us ISO9000 qualification. Promptly following
our recapitalization, we received QS9000 (3d edition standards) certification as
a stand-alone entity.
The table below sets forth information with respect to the manufacturing
facilities (excluding the three facilities that are expected to be closed before
the end of 1999) we operate either directly or through our joint ventures, and
the products produced at these facilities.
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MANUFACTURING FACILITIES
<TABLE>
<CAPTION>
LOCATION PRODUCTS
- -------- --------------------------------------------------
<S> <C>
FRONT-END FACILITIES:
Phoenix, Arizona................................ Discrete products: zeners, rectifiers.
Seremban, Malaysia (ISMF)....................... Discrete products: small signal products
Guadalajara, Mexico............................. Discrete products: thyristors, rectifiers
Aizu, Japan..................................... Discrete products: TMOS
Standard logic products
Standard analog products
Roznov, Czech Republic (Tesla joint venture).... Standard analog products: operational amplifiers,
regulators
Piestany, Slovakia.............................. Standard logic products: metal gate
BACK-END FACILITIES:
Seremban, Malaysia (joint venture with Discrete products: small signal products, zeners
Philips)......................................
Guadalajara, Mexico............................. Standard analog products: operational amplifiers,
regulators
Carmona, Philippines............................ Standard logic products
Standard analog products
Roznov, Czech Republic (Tesla joint venture).... Standard analog products: operational amplifiers,
regulators
Leshan, China (Leshan joint venture)............ Discrete products: small signal products, power,
rectifiers
Seremban, Malaysia.............................. Discrete products: small signal products
OTHER:
Roznov, Czech Republic (Terosil joint venture) Raw wafer fabrication
</TABLE>
Our manufacturing processes use many raw materials, including silicon
wafers, copper lead frames, mold compound, ceramic packages and various
chemicals and gases. We have no agreements with any of our suppliers that impose
minimum or continuing supply obligations and we obtain our raw materials and
supplies from a large number of sources 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. Although we believe that supplies of the
raw materials used by us are currently available, shortages could occur in
various essential materials due to interruption of supply or increased demand in
the industry. Prior to our recapitalization, most of our supplies were purchased
jointly with Motorola. We have entered into an agreement with Motorola to
provide for the transition of our supply management functions to a stand-alone
basis.
JOINT VENTURES
A portion of our manufacturing activity is conducted through our joint
ventures in the Czech Republic, China and Malaysia. In 1998, purchases from the
joint ventures represented $53.6 million of total costs of goods sold by
Motorola's Semiconductor Components Group.
In the Czech Republic, we operate two joint ventures, Tesla and Terosil.
These joint ventures are publicly traded Czech companies in which we have equity
interests. As of October 2, 1999, we owned 49.9% of each of Tesla and Terosil,
respectively. The remaining shares were publicly traded in the Czech Republic.
In addition, Tesla and Terosil have cross-ownership interests in each other
resulting in our beneficially owning 58.4% and 62.5% of Tesla and Terosil,
respectively, as of October 2, 1999. The Tesla joint venture operates a
front-end manufacturing facility and a back-end assembly facility. The Terosil
joint venture manufactures raw wafers that are used by a number of our
facilities. We have committed to purchase all of the output of the Tesla joint
venture or, to the extent we do not do so, pay for its fixed and semi-fixed
costs of production. We also have fixed minimum commitments for the Terosil
joint venture. In 1998, we purchased the total output of Tesla
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and 80% of the sales of Terosil, which amount exceeded the minimum commitments.
These commitments expire in February 2004.
In Leshan, China, we operate one joint venture, Leshan-Phoenix Semiconductor
Company Ltd. We beneficially own a majority of the outstanding equity interests
of Leshan, and the remainder is owned by Leshan Radio Company Ltd. Leshan
operates a back-end manufacturing facility. We have committed to purchase a
percentage of the total output commensurate with our ownership stake, and in
1998 actually purchased 90% of the total sales of Leshan. Sales percentages are
generally equal to output percentages. The Leshan joint venture expires in 2045.
In Seremban, Malaysia, we have a 50% investment in Semiconductor Miniatures
Products Malaysia Sdn. Bhd., a joint venture with Philips Semiconductors
International B.V. Semiconductor Miniatures operates a back-end assembly
facility. We have committed to purchase a percentage of the total output equal
to 50% of this joint venture, and in 1998, under a negotiated arrangement,
actually purchased 40% of its total sales. Sales percentages are generally equal
to output percentages. We recently amended the terms of the joint venture
agreement with Philips to provide for the transfer of Motorola's interest in
this joint venture to us and to provide us with the right to sell our interest
to Philips and to provide Philips with the right to purchase our interest,
between January 2001 and July 2002.
RESEARCH AND DEVELOPMENT
Our expenditures for research and development in 1996, 1997 and 1998 were
$71.7 million, $65.7 million and $67.5 million, respectively. Such expenditures
represented 4.1%, 3.6% and 4.5% of trade sales in 1996, 1997 and 1998,
respectively. Of these amounts, $36.9 million, $31.1 million and $34.4 million,
respectively, was spent directly by us, and the remainder related to Motorola
expenses that were allocated to us.
Our research and development efforts are focused on new product development
and improvements in process technology in our growth areas: analog, MOS gated
discretes and high performance digital logic. In the analog arena, we are
focusing our development efforts on the miniaturization of our standard analog
products through new packaging technologies and on developing new amplifiers and
comparators that operate at 3 volts and lower. The target market for this
research is primarily portable electronic systems. In the MOS gated discrete
products arena, we are focusing on TMOS products and automotive IGBTs. TMOS
products are low-power switches that allow portable applications to maximize
battery life by efficiently directing electricity only to the components that
need it. Automotive IGBTs are switches that are used in electronic ignition
systems. In the high-performance digital logic arena, we are focusing on the
development of semiconductors that support high-speed digital communication
systems, a market that is growing as a result of increasing Internet traffic.
These high-performance digital logic products are based on the same process
platform as our traditional emitter-coupled logic products, which are primarily
used in equipment that tests semiconductors and circuit boards. We expect new
products, which include products introduced during the prior three years, to
account for an increasing percentage of our revenues in the future.
In order to reduce research and development costs and streamline
manufacturing effectiveness, we are in the process of amending our product
development criteria to reduce the number of new product platforms from 17 to 12
and to reduce the number of process flows from 50 to 30.
New product development is located in Phoenix, Arizona, Toulouse, France,
Hong Kong and Sendai, Japan. Process and product development is also conducted
at our existing manufacturing facilities including at our pilot manufacturing
line in Phoenix, Arizona. In addition to the research and development conducted
by us, we rely on university research projects sponsored by us and partnerships
with other semiconductor companies.
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BACKLOG
Our trade sales are made primarily pursuant to standard purchase orders that
are generally booked up to 26 weeks in advance of delivery. Generally, prices
and quantities are fixed at the time of booking, while backlog as of a given
date consists of existing orders and estimated orders based on customer
forecasts, in each case scheduled to be shipped over the 13-week period
following such date. Since mid-1997, backlog on average has represented between
80% and 90% of actual shipments. Backlog is influenced by several factors
including market demand, pricing and customer order patterns in reaction to
product lead times. Backlog on December 31, 1998 and October 2, 1999 was $321.4
million and $375.5 million, respectively.
We sell products to key customers pursuant to contracts that are typically
annual fixed-price agreements subject, in some cases, to quarterly negotiations.
These contracts allow us to schedule production capacity in advance and allow
customers to manage their inventory levels consistent with just-in-time
principles while shortening the cycle times required to produce ordered product.
However, these contracts are typically amended to reflect changes in prices and
customer demands.
SEASONALITY
Generally, we are affected by the seasonal trends of the semiconductor and
related industries. As a result of these trends, we typically experiences lower
revenues in the first fiscal quarter, primarily due to customer demand
adjustments as a result of holiday seasons around the world. Revenues usually
has a seasonal peak in the third quarter. In 1998, we did not experience the
typical seasonal peak in the third quarter primarily as a result of the Asian
economic crisis.
COMPETITION
The semiconductor industry, particularly the market for general purpose
semiconductor products like ours, is highly competitive. Although only a few
companies compete with us in all of our product lines, we face significant
competition within each of our product lines from major international
semiconductor companies as well as smaller companies focused on specific market
niches. Many of these competitors have substantially greater financial and other
resources than we have with which to pursue development, engineering,
manufacturing, marketing and distribution of their products and are better able
than we are to withstand adverse economic or market conditions. In addition,
companies not currently in direct competition with us may introduce competing
products in the future. Significant competitors in the discrete market include
International Rectifier, Philips, Rohm, Siliconix, ST Microelectronics and
Toshiba. Significant competitors in the standard analog markets include Analog
Devices, Fairchild, Linear Technology, Maxim Integrated Products, National
Semiconductor, ST Microelectronics and Texas Instruments. Significant
competitors in the standard logic product market include Fairchild, Hitachi,
Philips, Texas Instruments, and Toshiba. The semiconductor components industry
has also been undergoing significant restructuring and consolidations that could
adversely affect our competitiveness.
Because our components are often "building block" semiconductors that in
some cases can be integrated into more complex integrated circuits, we also face
competition from manufacturers of integrated circuits, application-specific
integrated circuits and fully customized integrated circuits, as well as
customers who develop their own integrated circuit products.
We compete in different product lines to various degrees on the basis of
price, quality, technical performance, product features, product system
compatibility, customized design, availability, delivery timing and reliability
and sales and technical support. Gross margins in the industry vary by
geographic region depending on local demand for the products in which
semiconductors are used, such as personal computers, industrial and
telecommunications equipment, consumer electronics
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and automotive goods. In regions where there is a strong demand for such
products, price pressures may also emerge as competitors attempt to gain a
greater market share by lowering prices. Our ability to compete successfully
depends on elements both within and outside of our control, including industry
general economic trends.
PATENTS, TRADEMARKS, COPYRIGHTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
We own rights to a number of patents, trademarks, copyrights, trade secrets,
and other intellectual property directly related to and important to our
business. Motorola has also granted rights and licenses to other patents,
trademarks, copyrights, trade secrets, and other intellectual property necessary
for us to manufacture, market, and sell our existing products and products
contemplated in our long range plans. Our policy is to protect our products and
processes by asserting our intellectual property rights where appropriate and
prudent and by obtaining patents, copyrights, and other intellectual property
rights used in connection with our business when practicable and appropriate.
Under an intellectual property agreement we and Motorola entered into as
part of our August 1999 recapitalization, Motorola has assigned to us
approximately 280 U.S. patents and patent applications, approximately 280
foreign patents and patent applications, rights to over 50 trademarks (not
including the Motorola name) previously used in connection with our products,
rights in know-how relating to at least 39 semiconductor fabrication processes
and rights in specified copyrightable materials. In addition, Motorola has
licensed to us on a non-exclusive, royalty-free basis other patent, trademark,
copyright and know-how rights used in connection with our existing products and
products contemplated in our long range plans. We have perpetual, royalty free,
worldwide rights under Motorola's patent portfolio and other intellectual
property, existing as of the date of our recapitalization or created in the
ensuing five years (the five-year period existing only with respect to patents),
as necessary to manufacture, market, and sell our existing and long range plan
product lines. Additionally, Motorola has provided us with a limited indemnity
umbrella to protect us from some infringement claims by third parties who have
granted Motorola licenses as of the date of our recapitalization, which will
assist us in developing our own patent position and licensing program. We
believe that we have the right to use all Motorola owned technology used in
connection with the products we currently offer.
Some of our products are the subject of a patent infringement lawsuit
pending in United States District Court in Wilmington, Delaware that was
commenced by Power Integrations against Motorola prior to our recapitalization.
If Power Integrations were to obtain an injunction, we would be unable to pursue
the development of these products, which are part of a product family that is
important to our business strategy. In addition, some of our power-MOS products
are the subject of a patent infringement lawsuit by International Rectifier
pending in the United States District Court for the Central District of
California. We are engaged in discussions with International Rectifier regarding
a number of different aspects of our continuing business relationship, including
the development of a new license agreement covering these products. Although we
are optimistic about the outcome of these discussions, we cannot assure you we
will be able to reach such an agreement on favorable terms. For a discussion of
these matters, see "Business--Legal Proceedings."
We have recently commenced marketing our products under the ON
Semiconductor-TM- name. For one year after our recapitalization, we will retain
the limited ability to use the Motorola trade name in connection with the sale,
distribution and advertisement of some products we offer. If, however, the
removal of the Motorola trade name from any of these products would require the
product to be requalified by any of our customers, then we may continue to use
the Motorola trade name, for up to two years after our recapitalization, to
allow us to continue selling the product pending its requalification. In
addition, for two years after our recapitalization, we have the ability to
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utilize the transition statement "formerly a division of Motorola" in connection
with the sale, distribution and advertisement of some products we offer. For the
first of those two years, in the transition statement we may reproduce the term
"Motorola" in the stylized font used by Motorola.
ENVIRONMENTAL MATTERS
Our manufacturing operations are subject to environmental and worker health
and safety laws and regulations. These laws and regulations include those
relating to the emissions and discharges into the air and water; the management
and disposal of hazardous substances; the release of hazardous substances into
the environment at or from our facilities and at other sites; and the
investigation and remediation of resulting contamination.
Our manufacturing facility in Phoenix, Arizona is located on property that
is listed on the National Priorities List under the Comprehensive Environmental
Response, Compensation, and Liability Act. Motorola is actively involved in the
cleanup of on-site solvent contaminated soil and groundwater and off-site
contaminated groundwater pursuant to Consent Decrees with the State of Arizona.
Motorola has retained responsibility for this contamination, and has agreed to
indemnify us with respect to remediation costs and other costs or liabilities
related to this matter.
The manufacturing facilities of the joint ventures in the Czech Republic and
Slovakia have ongoing remediation projects to respond to releases of hazardous
substances that occurred during the years that these facilities were operated by
government-owned entities, prior to the formation of the joint ventures. In each
case, these remediation projects consist primarily of monitoring groundwater
wells located on-site and off-site with additional action plans developed to
respond in the event activity levels are exceeded at each of the respective
locations. The governments of the Czech Republic and Slovakia have agreed to
indemnify, subject to specified limitations, the respective joint venture for
remediation costs associated with this historical contamination. Based upon the
information available, we do not believe that total future remediation costs to
us will be material.
We believe that our operations are in substantial compliance with applicable
environmental and health and safety laws and regulations. We do not expect the
cost of compliance with existing environmental and health and safety laws and
regulations (and liability for currently known environmental conditions) to have
a material adverse effect on the Business or our prospects. It is possible,
however, that future developments, including changes in laws and regulations,
government policies, personnel and physical property conditions (including
currently undiscovered contamination), could lead to material costs.
EMPLOYEES
We employ approximately 13,150 people worldwide, consisting of approximately
10,150 people employed directly and approximately 3,000 people employed through
our joint ventures, most of whom are engaged in manufacturing services. We do
not currently have any collective bargaining arrangements with our employees,
except for those arrangements, such as works councils, that are obligatory for
all employees or all employers in a particular industry under applicable foreign
law. Of the total number of employees employed directly by us, approximately
9,000 were engaged in manufacturing and information services, over 400 were
engaged in our sales and marketing organization and in customer service, 500
were engaged in administration and over 250 were engaged in research and
development.
PROPERTIES
In the United States, our corporate headquarters as well as manufacturing,
research and development and warehouse operations are located in approximately
1,528,000 square feet of space in properties that we own in Phoenix, Arizona. We
also lease from Motorola approximately 100,000
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square feet in Phoenix, Mesa, Tempe and Chandler, Arizona that is used for
research and development, warehouse and office facilities. We have entered into
lease and office sharing agreements with Motorola for approximately 80,000
square feet of space used for sales offices and warehouses in locations such as
Huntsville, Alabama, Calabasas, Irvine, San Diego and Sunnyvale in California,
Denver, Colorado, Wallingford Connecticut, Clearwater, Florida, Lawrenceville,
Georgia, Schaumburg, Illinois, Carmel and Kokomo, Indiana, Woburn,
Massachusetts, Columbia, Maryland, Northville, Michigan, Minnetonka, Minnesota,
Raleigh, North Carolina, Fairfield, New Jersey, Fairport and Hauppauge in New
York, Beaverton, Oregon, Colmar and Horsham in Pennsylvania, Houston and Plano
in Texas, Bellevue, Washington, and Brookfield, Wisconsin. Lease terms for the
sales offices are for one year from July 31, 1999, and the other leases range
between one year and two years. We have has plans to relocate the leased sales
offices and other facilities before the end of the lease terms. Prices for the
leases have been fixed throughout their terms at an amount intended to
approximate the actual historical cost of the covered properties.
As part of our recapitalization, Motorola has conveyed to us the surface
rights to a portion of the land located at our Phoenix facility, excluding the
subsurface rights, and conveyed buildings located at the Phoenix facility. These
buildings do not include any treatment facilities relating to Motorola's
environmental clean-up operations at the Phoenix facility. We have executed a
Declaration of Covenants, Easements and Restrictions with Motorola providing
access easements for the parties and granting to us options to purchase or to
lease the subsurface rights of the land.
We own our manufacturing facilities in Japan, Malaysia, Mexico, the
Philippines and Slovakia. These facilities are primarily manufacturing
operations, but also include office facilities and warehouse space. We own
770,000 square feet of manufacturing, warehouse and office space in Japan,
Malaysia, the Philippines and Slovakia and owns a 254,000 square foot
manufacturing and office complex in Guadalajara, Mexico. Recently, we entered
into an agreement to move our production operations in Hong Kong to a new
facility that will open in 2001.
In connection with our joint ventures, we also own manufacturing, warehouse
and office space in Seremban, Malaysia, Leshan, China, Slovakia and the Czech
Republic.
We have also entered into lease and office sharing agreements for
approximately 67,000 square feet of space for research and development,
warehouses, logistics centers and sales offices in locations including
Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Korea,
Malaysia, Philippines, Puerto Rico, Spain, Sweden, Switzerland, Taiwan,
Thailand, and the United Kingdom. Most of these properties are currently leased
from Motorola. Lease terms for the sales offices are for one year from July 31,
1999, and the other leases range between one year and three years. We have plans
to relocate the leased sales offices and other facilities before the end of
their terms. Motorola will also lease space at our Phoenix facility and in the
Czech Republic for a period of up to two years. In general, prices for these
leases have been fixed throughout their term at an amount intended to
approximate the actual historical cost of the covered properties.
We believe that our facilities around the world, whether owned or leased,
are well-maintained. Our manufacturing facilities contain sufficient productive
capacity to meet our needs for the foreseeable future.
LEGAL PROCEEDINGS
From time to time we are involved in legal proceedings arising in the
ordinary course of business. We believe that none of these proceedings should
have, individually or in the aggregate, a material adverse effect on our
business or our prospects.
We manufacture and sell a family of high margin analog semiconductor
products, a limited portion of which are the subject of a patent infringement
lawsuit commenced by Power Integrations
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against Motorola prior to our recapitalization in August 1999. The future
development of this product family is important to our business strategy. The
Power Integrations lawsuit is pending in United States District Court in
Wilmington, Delaware. On October 15, 1999 the jury returned a verdict against
Motorola awarding damages of $32.3 million, subject to trebling, prejudgment
interest and attorneys' fees. Judgment on the jury's verdict has not been
entered by the Court, and Motorola plans to file motions to set aside the
verdict and, if necessary, to appeal. Although we are not a party to the suit,
Power Integrations has filed a motion seeking to enjoin Motorola and SCG Holding
from making, using, offering to sell or selling products alleged to infringe its
patents. We believe that there are a number of defenses to the imposition of an
injunction against us. During the pendency of quality enhancement efforts, we
have not sold any of the products previously sold by Motorola and found to have
infringed Power Integrations' patent in certain applications. Nonetheless, we do
not agree with the infringement finding and have not abandoned the market served
by these products. We believe that our exposure, if any, arising in connection
with the Power Integrations lawsuit relates to the risk of an injunction and the
imposition of damages in the event that infringing post-recapitalization sales
should occur. In the event an injunction is imposed, we would be unable to
pursue the development of the products in question.
On December 6, 1999, International Rectifier filed an action against us in
the United States District Court for the Central District of California alleging
that our power-MOS products infringed eight of their patents. These power-MOS
products were previously manufactured by Motorola under a license from
International Rectifier that expired on December 31, 1999. We have not yet been
served with process in this litigation and are engaged in good faith discussions
with International Rectifier regarding a number of different aspects of our
continuing business relationship, including development of a new license
agreement. Although we are optimistic about the outcome of these discussions, we
cannot assure you that we will be able to reach such an agreement on favorable
terms.
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MANAGEMENT
DIRECTORS AND EXECUTIVE ARRANGEMENTS
The following table sets forth certain information with respect to the
persons who currently serve as members of the Board of Directors and executive
officers of SCG Holding. Each of our directors will hold office until the next
annual meeting of shareholders or until his successor has been elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE COMPANY POSITION
- ---- -------------------- ----------------------------------------------------------------------------
<S> <C> <C>
Curtis J. Crawford... 52 Chairman of the Board of Directors
Steve Hanson......... 52 Director, President and Chief Executive Officer
David Bonderman...... 56 Director
Richard W. Boyce..... 43 Director
Justin T. Chang...... 32 Director
William A. Franke.... 62 Director
David M. Stanton..... 37 Director
Michael Rohleder..... 43 Senior Vice President and Director of Sales and Marketing
James Thorburn....... 43 Senior Vice President and Chief Operating Officer
William George....... 56 Senior Vice President and Chief Manufacturing and Technology Officer
Dario Sacomani....... 43 Senior Vice President and Chief Financial Officer
Collette T. Hunt..... 47 Vice President and General Manager of Bipolar Discrete Business Unit
Sandra Lowe.......... 55 Vice President and General Manager of Logic Business Unit
James Stoeckmann..... 44 Vice President and Director of Human Resources
Alistair Banham...... 43 Vice President and General Manager, Europe, Middle East and Africa
Henry Leung.......... 46 Vice President and General Manager, Asia
Ralph Quinsey........ 43 Vice President and General Manager of Analog Division
Leon Humble.......... 61 Vice President and General Manager of MOS Gates Business Unit
Chandramohan
Subramaniam........ 43 Vice President and Director of Internal Manufacturing
</TABLE>
CURTIS J. CRAWFORD, DIRECTOR. Mr. Crawford was elected Chairman of the
Board of Directors of SCG Holding in September 1999. Since 1998, Mr. Crawford
has served and continues to serve as President, Chief Executive Officer and
Chairman of the Board of Directors of Zilog, Inc. From 1997 to 1998,
Mr. Crawford was Group President of the Microelectronics Group and President of
the Intellectual Property division of Lucent Technologies, a successor to some
AT&T businesses. From 1995 to 1997, he was President of the Microelectronics
Group. From 1993 to 1995, Mr. Crawford was President of AT&T Microelectronics, a
business unit of AT&T Corporation. From 1991 to 1993, he held the position of
Vice President and Co-Chief Executive Officer of AT&T Microelectronics. From
1988 to 1991, he held the position of Vice President, Sales, Service and Support
for AT&T Computer Systems. Prior thereto, he served in various sales, marketing
and executive management positions at various divisions of IBM. Mr. Crawford
currently serves as a member of the Board of Trustees of DePaul University and
as a member of the Board of Directors of ITT Industries, Inc. and E.I. du Pont
de Nemours.
STEVE HANSON, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr. Hanson
served as the Senior Vice President and General Manager of Motorola's
Semiconductor Components Group from June 1997. He became President of SCG
Holding in August 1999 and Chief Executive Officer in January 2000. Mr. Hanson
has held several executive and management positions, including Corporate Vice
President, since he joined Motorola in 1971.
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DAVID BONDERMAN, DIRECTOR. Mr. Bonderman became a director of SCG Holding
in August 1999. Mr. Bonderman is a Managing Partner of Texas Pacific Group.
Prior to forming Texas Pacific Group, Mr. Bonderman was chief operating officer
and chief investment officer of Keystone Inc., a private investment firm, from
1983 to August 1992. Mr. Bonderman serves on the boards of directors of
Continental Airlines, Inc., Bell & Howell Company, Beringer Wine Estates, Inc.,
Denbury Resources Inc., Oxford Health Plans, Inc., Washington Mutual, Inc.,
Ryanair, Ltd., J. Crew Group, Inc., Paradyne Networks, Realty Information Group,
Ducati Motor Holdings S.p.A., Punch Group Ltd., AerFi plc., Landis & Gyr
Communications and UroGenesys Inc. Mr. Bonderman also serves in general partner
advisory board roles for Newbridge Investment Partners, L.P., Newbridge Latin
America, L.P. and Aqua International, L.P.
RICHARD W. BOYCE, DIRECTOR. Mr. Boyce became a director of SCG Holding in
September 1999. Mr. Boyce is President of CAF, Inc., a consulting firm that
advises various companies controlled by Texas Pacific Group. Prior to founding
CAF, Inc. in 1997, he served as Senior Vice President of Operations for
Pepsi-Cola North America from 1996 to 1997 and its Chief Financial Officer from
1994 to 1996. From 1992 to 1994, Mr. Boyce served as Senior Vice
President-Strategic Planning for PepsiCo. Prior to joining PepsiCo, Mr. Boyce
was a director at the management consulting firm of Bain & Company, where he was
employed from 1980 to 1992. Mr. Boyce also serves on the Boards of Directors of
J. Crew Group, Inc., Del Monte Foods Company and Del Monte Corporation.
JUSTIN T. CHANG, DIRECTOR. Mr. Chang became a director of SCG Holding in
August 1999. Mr. Chang is a partner of Texas Pacific Group, where he has been
employed since 1993.
WILLIAM A. FRANKE, DIRECTOR. Mr. Franke became a director of SCG Holding in
December 1999. Mr. Franke is currently the managing partner of Newbridge Latin
America, LLP, an investment partnership specializing in Latin American companies
and has served in this position since 1996. Mr. Franke also serves as the
President, CEO and Chairman of the Board of Directors of America West Holdings
Corp. and its subsidiary, America West Airlines, Inc., and has served in this
position since 1992. He is also the President and owner of Franke & Company and
has served in this position since 1987. In addition to being a director of the
Company, Mr. Franke serves on the Boards of Directors of America West Holdings
Corporation, Beringer Wine Estates, Inc., Phelps Dodge Corporation, Central
Newspapers, Inc. and AerFi Group. plc.
DAVID M. STANTON, DIRECTOR. Mr. Stanton became a director of SCG Holding in
August 1999. Mr. Stanton is currently the founding partner of Francisco
Partners, an investment partnership specializing in private technology
companies. From 1996 until August 12, 1999, Mr. Stanton was a partner of Texas
Pacific Group and, a limited partner in Communication Partners, L.P. During this
time, he also served as Vice President of TPG Advisors, Inc. and as President of
Communication Genpar, Inc., entities affiliated with Communication Partners,
L.P. Prior to joining Texas Pacific Group, Mr. Stanton was a venture capitalist
with Trinity Ventures, where he specialized in information technology, software
and telecommunications investing. Mr. Stanton currently serves as a director of
Denbury Resources Inc., GlobeSpan, Inc. and several private companies, including
Paradyne Credit Corp., an affiliated entity of Paradyne.
MICHAEL ROHLEDER, SENIOR VICE PRESIDENT AND DIRECTOR OF SALES AND
MARKETING. For two years prior to assuming this position in September 1999,
Mr. Rohleder was President and Chief Executive Officer of Wyle Electronics, a
member of the VEBA Electronics Group. Prior to his tenure at Wyle, Mr. Rohleder
served as President of Insight Electronics, also a member of the VEBA
electronics group, for a period of seven years.
JAMES THORBURN, SENIOR VICE PRESIDENT AND CHIEF OPERATING OFFICER. Prior to
assuming this position in August 1999, Mr. Thorburn was the Chief Financial
Officer of Zilog, a position he had
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held since May 1998. Prior to his tenure at Zilog, Mr. Thorburn spent 17 years
at National Semiconductor, most recently as Vice President of Operations
Finance.
WILLIAM GEORGE, SENIOR VICE PRESIDENT AND CHIEF MANUFACTURING AND TECHNOLOGY
OFFICER. For two years prior to assuming this position in August 1999,
Mr. George held several executive and management positions, including directing
investment and operation strategy for Motorola's worldwide manufacturing
operations, since he joined Motorola in 1968.
DARIO SACOMANI, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER. Mr. Sacomani served as the Vice President and Director of Finance of
Motorola's Semiconductor Components Group from July 1997 until he assumed his
current position in August 1999. Mr. Sacomani has held several executive and
management positions, including Vice President and Financial Controller for the
European Semiconductor Group of Motorola, since he joined Motorola in 1980.
COLLETTE T. HUNT, VICE PRESIDENT AND GENERAL MANAGER OF BIPOLAR
DISCRETES. Prior to assuming this position in August 1999, Ms. Hunt served as
Vice President of Motorola's Semiconductor Products Sector beginning in 1994 and
the position of Director of Product Operations of the Semiconductor Components
Group beginning in 1998. Ms. Hunt has held various executive and managerial
positions, including positions on the board of directors of Motorola's joint
venture operations in Malaysia and China, since she joined Motorola in 1984.
SANDRA LOWE, VICE PRESIDENT AND GENERAL MANAGER OF LOGIC BUSINESS
UNIT. Prior to assuming this position in August 1999, Ms. Lowe served as the
Director of Quality and Continuous Improvement for Motorola's Semiconductor
Components Group beginning in November 1997. Ms. Lowe has held several
positions, including General Manager of the Motorola Test Equipment Business
Unit in the Space Systems Technology Group, since she joined Motorola in 1993.
JAMES STOECKMANN, VICE PRESIDENT AND DIRECTOR OF HUMAN RESOURCES. Prior to
assuming this position in August 1999, Mr. Stoeckmann served as the Director of
Human Resources for Motorola's Semiconductor Components Group beginning in
November 1998. Mr. Stoeckmann has held several positions, including Human
Resources Director for SCG Worldwide Manufacturing, since he joined Motorola in
1984.
ALISTAIR BANHAM, VICE PRESIDENT AND GENERAL MANAGER, EUROPE, MIDDLE EAST AND
AFRICA. Prior to assuming this position in August 1999, Mr. Banham served as
General Manager of Motorola's Semiconductor Components Group for Europe, the
Middle East and Africa beginning in April 1999. Mr. Banham has managed various
foreign aspects of Motorola's semiconductor products business, including
leadership of the European Motorola Segment Sales and Engineering Applications
Team, since he joined Motorola in 1989.
HENRY LEUNG, VICE PRESIDENT AND GENERAL MANAGER, ASIA. Prior to assuming
this position in August 1999, Mr. Leung served as the director in the Asia
Pacific Region for Motorola's Semiconductor Components Group beginning in 1994.
Mr. Leung has held several positions, including Business Director of Motorola's
Semiconductor Component Group (Discrete Products) for the Asia Pacific Region,
since he joined Motorola in 1976.
RALPH QUINSEY, VICE PRESIDENT AND GENERAL MANAGER OF ANALOG DIVISION. From
1997 until he assumed this position in August 1999, Mr. Quinsey served as Vice
President and General Manager of Motorola's Semiconductor Products Sector
Wireless Subscriber Systems Group. Prior to that time, Mr. Quinsey served as
General Manager for the Logic and Analog Integrated Circuits Mixed Signal
Communications Products Division of Motorola. Mr. Quinsey has held several
management positions since he joined Motorola in 1979.
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LEON HUMBLE, VICE PRESIDENT AND GENERAL MANAGER, MOS GATED PRODUCTS
DIVISION. Prior to assuming this position in August 1999, Mr. Humble served as
Director of Manufacturing Restructuring and Separation Programs for Motorola's
Semiconductor Components Group. Mr. Humble has held several management
positions, including Product Line Manager for CMOS Products Division, since he
joined Motorola in 1968.
CHANDRAMOHAN SUBRAMANIAM, VICE PRESIDENT AND DIRECTOR OF INTERNAL
MANUFACTURING. Prior to assuming this position in August 1999, Mr. Subramaniam
held several director and management positions, including Director of Asia
manufacturing, General Manager Seremban and Director of Quality and Continuous
Improvement, after joining Motorola in 1984.
DIRECTOR COMPENSATION
The Chairman of the Board of Directors will receive a quarterly payment of
$25,000. The Board may grant nonemployee members of the Board an option to
purchase up to 15,000 shares of common stock of SCG Holding with vesting and
other terms to be determined by the Board at the time of grant. To date, the
Board has not granted any options for service on the Board. Each nonemployee
member of the Board is entitled to receive a fee of $1,000 for attendance at
each meeting of the Board or any committee thereof.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by SCG Holding as well
as the cash compensation paid by Motorola during fiscal year 1999 to the five
most highly compensated executives of SCG Holding.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------------- --------------
SECURITIES ALL OTHER
UNDERLYING CASH
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPENSATION
- --------------------------- -------- --------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Steven Hanson....................................... 1999 $339,744(1) $70,000(4) 1,200,000 $759,611(5)
President and Chief Executive Officer (2)
William George...................................... 1999 276,978(1) 70,000(4) 650,000 421,500(5)
Senior Vice President and Chief Manufacturing and
Technology Officer
Dario Sacomani...................................... 1999 230,263(1) 68,000(4) 650,000 666,690(5)
Senior Vice President and Chief Financial Officer
Michael Rohleder.................................... 1999 112,179 -- 700,000 29,955(5)
Senior Vice President and Director of Sales and
Marketing (3)
James Thorburn...................................... 1999 125,711 -- 750,000 270,000(6)
Senior Vice President and Chief Operating Officer
(3)
</TABLE>
- ------------------------------
(1) Represents the combined salary earned by Messrs. Hanson, George and Sacomani
at both Motorola and SCG Holding during fiscal 1999.
(2) Mr. Hanson was appointed Chief Executive Officer effective January 21, 2000.
(3) Messrs. Rohleder and Thorburn were not employed with Motorola in 1999 and
commenced employment with SCG Holding on August 2, 1999 and September 1,
1999, respectively.
(4) Represents annual bonus earned in 1998, but paid in 1999. Each of the named
executive officers is eligible to receive a performance-based bonus for
fiscal year 1999 based on the performance of the Company during this period.
(See "Employment Agreements/Change in Control Agreements" below.) However,
such amounts are not determinable at this time, except that Mr. Rohleder is
entitled to a minimum guaranteed bonus of $350,000 for fiscal year 1999.
(5) Represents relocation expenses in the case of Messrs. Hanson, Sacomani and
Rohleder of $257,111, $379,590 and $29,955, respectively and in the case of
Messrs. Hanson, George, and Sacomani, a special bonus in connection with the
transaction of $502,500, $421,500 and $287,100, respectively.
(6) Represents a one-time consultation fee to Mr. Thorburn.
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<PAGE>
EMPLOYMENT AGREEMENTS/CHANGE IN CONTROL AGREEMENTS
We have entered into employment agreements with each of Messrs. Hanson,
Rohleder, Thorburn, George and Sacomani. The following summaries of the material
provisions of the employment agreements do not purport to be complete and are
qualified in their entirety by reference to such agreements.
The agreements with Messrs. Hanson, George and Sacomani each provide for an
employment term of three years ending on August 4, 2002. The agreements provide
an annual base salary of $375,000, $300,000 and $250,000, respectively, and an
annual bonus up to 100% of the base salary based on achievement of annual
performance objectives. Messrs. Hanson, George and Sacomani will each be
entitled to a one-time special bonus of $150,000 to be paid on the first
anniversary of his employment, provided the respective executive is employed on
such date. The agreements with Messrs. Rohleder and Thorburn each provide for an
employment term of three years ending on September 1, 2002 and August 2, 2002,
respectively, and for an annual base salary of $350,000 and $300,000,
respectively. Mr. Rohleder is eligible to receive an annual bonus of up to 200%
of his base salary based on achievement of annual performance objectives,
provided that, during the first year of his employment term, Mr. Rohleder is
guaranteed to receive an annual bonus at least equal to 100% of his base salary,
regardless of whether any performance objectives are achieved. Mr. Thorburn is
eligible to receive an annual bonus of up to 100% of his base salary based on
achievement of annual performance objectives, and has received a one-time
consultation fee of $270,000. Messrs. Rohleder and Thorburn also have been
provided certain relocation benefits under their agreements.
Messrs. Hanson, Thorburn, Rohleder, George and Sacomani have been granted
options under our stock option plan (described below) to purchase 1,200,000,
750,000, 700,000, 650,000 and 650,000 shares, respectively, of common stock of
SCG Holding, which become exercisable generally on a semi-annual basis over a
four-year period (see description of the stock option plan below). The
executive's outstanding options will become immediately exercisable upon a
change in control (as defined in the executives' agreements), and with respect
to Messrs. Hanson, Sacomani and George, each such executive's outstanding option
will become immediately exercisable if such executive's employment is terminated
by SCG Holding without cause (as defined in their respective agreements) or by
the executives for good reason. Good reason is defined in each employment
agreement and includes a voluntary resignation by the executive within one year
after a change in control (as defined). The executives have also been provided a
car allowance of up to $1,200 per month.
Under the terms of each of their respective agreements, if the executive's
employment is terminated without cause (as defined in the applicable employment
agreement), such executive will be entitled to a lump sum payment equal to the
product of (A) either (i) three, if the date of termination of employment is on
or before September 1, 2001, or (ii) two, if the date of termination of
employment is after September 1, 2001 and prior to the expiration of the
employment term; and (B) the sum of (i) the highest rate of the executive's
annualized base salary in effect at any time up to and including the date of
termination and (ii) the annual bonus earned by such executive in the year
immediately preceding his date of termination. In addition, if the executive's
employment is terminated without cause within two years after a change in
control (as defined in the applicable employment agreement), he will be entitled
to continuation of medical benefits provided generally to other executives of
SCG Holding for the greater of two years from the date of termination or the
expiration of the term of employment under the agreement. Under the agreements
with Messrs. Hanson, George and Sacomani, the executives will be entitled to the
foregoing severance payments and, in the event of a change of control,
continuation of medical coverage if they resign for good reason (as defined in
their respective employment agreements).
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<PAGE>
Each executive is also subject to customary non-solicitation of employees
and confidentiality provisions.
Finally, we have provided Mr. Thorburn with a non-recourse loan in the
amount of approximately $227,900 for the purposes of exercising stock options
granted by his former employer. Mr. Thorburn has pledged the stock received upon
the exercise of such option to SCG Holding as security for the loan. The loan
accrues interest at a rate of 5.54% per annum and the entire principal amount
and accrued interest is repayable upon Mr. Thorburn's sale of the stock.
1999 FOUNDERS STOCK OPTION PLAN
We have adopted the SCG Holding Corporation 1999 Founders Stock Option Plan
to provide our key employees, directors and consultants with the opportunity to
purchase common stock of SCG Holding. We reserved 17,365,000 shares of SCG
Holding's common stock for issuance under the option plan. The option plan is
administered by the Board of Directors of SCG Holding or a committee thereof,
which is authorized to, among other things, select the key employees, directors
and consultants who will receive grants and determine the exercise price and
vesting schedule of the options. Prior to the existence of a public market (as
defined in the plan) for the common stock, fair market value is determined by
the Board in good faith, and following the existence of a public market for the
common stock, fair market value will be based on the closing price for the
shares on the exchange on which the shares are listed. As of November 1, 1999,
the Board of Directors of SCG Holding had approved the grant of options to
purchase an aggregate of 15,154,000 shares of SCG Holding's common stock to some
of its directors and a total approximately of 420 key employees (including
Messrs. Hanson, Thorburn, Rohleder, George and Sacomani) at an exercise price of
$1.00 per share. Generally the options initially issued under the plan will vest
gradually over a period of four years, with approximately 8% becoming
immediately vested and exercisable on the Grant Date, provided that the option
holder remains employed with us during this period. All outstanding options will
vest automatically upon a change of control (as defined in the plan) other than
an initial public offering, provided the option holder is employed with us on
the date of the change in control. Upon the termination of an option holder's
employment, all unvested options will immediately terminate and vested options
will generally remain exercisable for a period of 90 days after date of
termination (one year in the case of death or disability). Prior to the
existence of a public market for the common stock, if an employee's employment
terminates, generally we will have the right to purchase vested options from
that employee at a price equal to the excess of the fair market value per share
of the common stock over the exercise price per share specified in the option.
In addition, any shares acquired prior to the existence of a public market will
generally be subject to our call right, as well as customary drag-along and
tag-along rights.
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<PAGE>
The following table sets forth information regarding grants of options to
purchase stock of SCG Holding to the named executive officers in fiscal 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- -------------------------------------------------------------------------------------------- ---------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/ EMPLOYEES OF
NAME SARS IN BASE PRICE
(A) GRANTED(1) FISCAL YEAR PER SHARE EXPIRATION DATE 5% ($) 10% ($)
- ----------------------------- ------------- ------------- ----------- --------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven Hanson................ 1,200,000 7.9% $1 09/09/2009 754,673 1,912,491
President and Chief
Executive Officer
William George............... 650,000 4.3% $1 09/09/2009 408,781 1,034,932
Senior Vice President and
Chief Manufacturing and
Technology Officer
Dario Sacomani............... 650,000 4.3% $1 09/09/2009 408,781 1,035,932
Senior Vice President and
Chief Financial Officer
Michael Rohleder............. 700,000 4.6% $1 09/09/2009 440,226 1,115,619
Senior Vice President and
Director of Sales and
Marketing
James Thorburn............... 750,000 4.9% $1 09/09/2009 471,670 1,195,306
Senior Vice President and
Chief Operating Officer
</TABLE>
- ------------------------------
(1) The options generally will vest in six-month intervals over a period of four
years, with approximately 8% becoming immediately vested and exercisable on
the date of grant, provided that the option holder remains employed by SCG
Holding during such period.
The following table sets forth, on an aggregate basis, certain information
with respect to the value of unexercised options held by the named executive
officers at the end of fiscal 1999. No options were exercised by the named
executive officers in fiscal 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS/SARS AT VALUE OF UNEXERCISED IN-THE-MONEY
FISCAL YEAR-END OPTIONS/SARS AT FISCAL YEAR-END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------- -------------------------------- ----------------------------------
<S> <C> <C>
Steven Hanson.............................. 100,800/1,099,200 --
President and Chief Executive Officer
William George............................. 54,600/595,400 --
Senior Vice President and Chief
Manufacturing and Technology Officer
Dario Sacomani............................. 54,600/595,400 --
Senior Vice President and Chief Financial
Officer
Michael Rohleder........................... 58,800/641,200 --
Senior Vice President and Director of
Sales and Marketing
James Thorburn............................. 63,000/687,000 --
Senior Vice President and Chief Operating
Officer
</TABLE>
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<PAGE>
RETIREMENT PLAN
Our Retirement Plan covers eligible employees within the United States,
including the named executive officers. The pension plan provides for monthly
pension benefits based upon a formula including employee's years of service,
compensation level calculated as final average earnings for the five years of
highest pay during the last ten years of employment, and the Social Security
benefit. The Social Security benefit is the estimated amount of Social Security
retirement benefit payable at age 65. The earliest date on which eligible
employees may receive pension benefits for retirement is after age 55 with at
least five years of service or at age 60 with at least one year of service.
Normal retirement under the pension plan is after age 65. Benefits are reduced
if pension payments begin before age 65.
The following table shows the estimated annual benefits payable under the
current Retirement Plan for employees who are eligible under the criteria stated
above assuming a life annuity benefit:
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000.................... $25,973 $31,116 $33,173 $33,173 $33,173
$125,000.................... $33,152 $39,545 $42,102 $42,102 $42,102
$150,000.................... $40,331 $47,973 $51,031 $51,031 $51,031
$175,000.................... $43,202 $51,345 $54,602 $54,602 $54,602
$200,000.................... $43,202 $51,345 $54,602 $54,602 $54,602
</TABLE>
As of December 31, 1999, Mr. Hanson, Mr. George, Mr. Sacomani, Mr. Thorburn
and Mr. Rohleder had approximately 28, 31, 19, 0 and 0 estimated years of
service, respectively, and the annual compensation covered by the pension plan
for each of these officers is $160,000.
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<PAGE>
OWNERSHIP OF CAPITAL STOCK
The certificate of incorporation of SCG Holding, as amended to date,
authorizes the issuance of capital stock consisting of 300,000,000 shares of
common stock, and 100,000 shares of preferred stock which may be issued in
multiple series, the terms, provisions and the preferences of which may be
designated from time to time by the Board of Directors of SCG Holding.
The following table sets forth as of January 1, 2000 information regarding
the beneficial ownership of SCG Holding Common Stock and Series A Cumulative
Preferred Stock of SCG Holding, as determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended, with respect to:
- each person known by SCG Holding to be the beneficial owner of more than
5% of any class of SCG Holdings' voting securities;
- each of the directors and some of the executive officers of SCG Holding;
and
- all directors and executive officers, as a group.
Except as otherwise noted, the persons named in the table have sole voting
and investment power with respect to all shares shown as beneficially owned by
them.
<TABLE>
<CAPTION>
SERIES A CUMULATIVE
COMMON STOCK PREFERRED STOCK
-------------------------------- ----------------------
NUMBER OF NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) PERCENTAGE(1) SHARES PERCENTAGE
- ------------------------------------------- ----------- ------------- --------- ----------
<S> <C> <C> <C> <C>
TPG Advisors II, Inc....................... 187,499,150(2) 90.8% 1,500 71.8%
201 Main Street, Suite 2420
Fort Worth, TX 76102
Motorola, Inc.............................. 17,500,850 8.5% 590 28.2%
1303 East Algonquin Road
Schaumberg, IL 60196
David Bonderman............................ --(3) -- -- --
Justin T. Chang............................ --(3) -- -- --
David M. Stanton........................... -- -- -- --
Curtis J. Crawford......................... 300,000(4) * -- --
Richard W. Boyce........................... 615,000(4) * -- --
William A. Franke.......................... --(5) -- -- --
Steven Hanson.............................. 100,800(4) * -- --
Dario Sacomani............................. 54,600(4) * -- --
William George............................. 54,600(4) * -- --
James Thorburn............................. 63,000(4) * -- --
Michael Rohleder........................... 58,800(4) * -- --
All directors and executive officers as a 1,346,760 * -- --
group (19 persons).......................
</TABLE>
- ------------------------
* Less than 1% of the total voting power of the outstanding shares of Common
Stock.
(1) Calculated excluding all shares issuable pursuant to options or warrants
except, as to each person, the shares issuable to such person pursuant to
options or warrants immediately exercisable or exercisable within 60 days
from January 1, 2000.
(2) TPG Advisors II, Inc. indirectly controls TPG Semiconductor Holdings, LLC,
which directly owns the common stock and preferred stock listed in the table
above.
(3) Excludes shares listed above as beneficially owned by TPG Advisors II, Inc.,
which may be deemed an affiliate of each of David Bonderman and Justin
Chang.
(4) All shares listed are issuable on exercise of options.
(5) Mr. Franke is the beneficial owner of a minority equity interest in TPG
Semiconductor Holdings, LLC.
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<PAGE>
We have also reserved 17,365,000 shares of common stock for issuance under
our stock option plans as more fully described under "Management--1999 Founders
Stock Option Plan."
The preferred stock has a par value of $0.01 per share and accumulates
dividends at the rate of 12% per annum, payable quarterly. Dividends compound to
the extent not paid. The preferred stock has an original liquidation preference
of $100,000 per share. SCG Holding will be required to redeem all of the shares
of the preferred stock on the thirteenth anniversary of the issue date at a
price equal to such liquidation value plus all accumulated dividends that have
been applied to increase liquidation value. Shares of the preferred stock may be
redeemed at the option of SCG Holding, in whole or in part, for this total value
plus accrued dividends not included therein.
Optional redemption of the preferred stock is subject to, and expressly
conditioned upon, limitations under the notes, our senior bank facilities and
other documents relating to our indebtedness. We may also be required to offer
to repurchase shares of the preferred stock in other circumstances, including
the occurrence of a change of control of SCG Holding, in each case subject to
the terms of the notes, our senior bank facilities and other documents relating
to our indebtedness. Holders of the preferred stock will not have any voting
rights, except with respect to specified actions that might adversely affect the
holders and except for such rights as are provided under applicable law. See
"Description of Exchange Notes--Limitation on Restricted Payments."
SHAREHOLDERS AGREEMENT
SCG Holding, Motorola and TPG Semiconductor Holdings, LLC, which is
controlled by investment funds affiliated with Texas Pacific Group, have entered
into a Shareholders Agreement relating to registration rights, transfers of
common stock and preferred stock (together, the "SCG Stock") and other matters.
The Shareholders Agreement terminates upon the earlier to occur of (1) TPG
Holding owning less than 35% of the outstanding shares of common stock or
(2) an underwritten initial public offering of SCG Stock; PROVIDED that
registration rights terminate with respect to a class of SCG Stock at such time
(at least three years after the date of the Shareholders Agreement) as Motorola
shall be legally permitted to sell all shares of such class of SCG Stock then
held by Motorola without registration under the Securities Act.
REGISTRATION RIGHTS
Pursuant to the Shareholders Agreement, Motorola and Permitted Transferees
(as defined below under "--Permitted Transfers") have "piggyback" registration
rights on a proportional basis with respect to the same class of SCG Stock in
any public offering of SCG Stock by SCG Holding or Texas Pacific Group. SCG
Holding pays the registration expenses of any registration including, without
limitation, SEC and NASD filing fees and the fees and expenses of counsel for
SCG Holding (but not including underwriting discounts or fees and expenses of
counsel to Motorola). SCG Holding has agreed to indemnify Motorola, transferee
holders and underwriters and their respective affiliates and control persons
against securities law liabilities relating to the registration statement in
connection with any registered offering pursuant to registration rights. Each
selling shareholder has agreed to indemnify SCG Holding and underwriters
(together with their respective affiliates and control persons) against
securities law liabilities for information provided by the selling shareholder
in writing specifically for inclusion in the registration statement.
RIGHT OF FIRST OFFER
The Shareholders Agreement permits Motorola to transfer some or all of its
shares of SCG Stock to any third party, PROVIDED that prior to any such transfer
(other than pursuant to limited exceptions set forth in the Shareholders
Agreement), Motorola shall have provided TPG Holding and SCG Holding with notice
of its intent to sell such SCG Stock (specifying the number of shares
87
<PAGE>
thereof, the purchase price therefor and other terms and conditions) and an
opportunity to acquire all (but not less than all) of such shares of SCG Stock
at the purchase price and on the other terms and conditions specified in the
offer notice. In the event Texas Pacific Group and SCG Holding do not exercise
their right to acquire such SCG Stock, Motorola may, within a specified period
following the delivery of the offer notice, sell all of such SCG Stock to a
third party at a price that is not less than the purchase price and on
substantially the same terms and conditions specified in the offer notice.
TAG-ALONG RIGHTS
The Shareholders Agreement provides that, in the event that Texas Pacific
Group determines to sell SCG Stock to any third party (not including affiliates
of Texas Pacific Group), except in a public offering or in a brokerage
transaction through the public securities markets, Motorola has the right to
participate PRO RATA (treating each class of SCG Stock individually) in such
transaction as a seller on the same terms and conditions as apply to the sale of
Texas Pacific Group's SCG Stock. Notwithstanding the foregoing, (1) Texas
Pacific Group has the right to sell or transfer up to 10% of the outstanding
shares of SCG Holding Common Stock and SCG Holding Preferred Stock in the
aggregate to third parties free of tag-along rights in connection with the
retention by SCG Holding of directors, officers, advisors or consultants, or the
sale of other securities of SCG Holding or its subsidiaries, and (2) if Texas
Pacific Group proposes to transfer both common stock and preferred stock in the
same transaction or in related transactions, Motorola may tag-along in such
transaction or transactions by transferring both common stock and preferred
stock in the same proportion as is proposed to be transferred by Texas Pacific
Group.
DRAG-ALONG RIGHTS
In the event that Texas Pacific Group determines to sell all or
substantially all of the stock or assets of SCG Holding, by merger, stock sale,
asset sale or otherwise, to any third party, Texas Pacific Group has the right
to cause Motorola to sell its shares of common stock in such transaction (and to
waive its appraisal or dissenters' rights with respect to such transaction, as
applicable), all at the same price per share and on the same terms and
conditions as apply to the sale of Texas Pacific Group's common stock.
CALL RIGHT
Under the Shareholders Agreement, Texas Pacific Group has the right to
purchase from Motorola, at any time and from time to time, all or any portion of
the shares of the preferred stock held by Motorola at the stated redemption
price per share in cash.
FLIP PROTECTION
In the event that all or substantially all of the outstanding shares of
common stock or the assets of SCG Holding are sold in specified circumstances
for a limited period of time after our recapitalization, Motorola will be
entitled to 30% of the net profit realized by TPG Holding from the sale.
CORPORATE GOVERNANCE
In the event SCG Holding fails to redeem the preferred stock on or prior to
the thirteenth anniversary of the issue date, Texas Pacific Group shall cause
20% of the members of the Board of Directors of SCG Holding to be Motorola
nominees.
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<PAGE>
PERMITTED TRANSFERS
Notwithstanding anything to the contrary contained in the Shareholders
Agreement, transfers to any Permitted Transferee of the transferor shall not be
subject to the right of first offer, tag-along rights, drag-along rights or flip
protection provisions. A "Permitted Transferee" means (a) in the case of any
transferor that is not a corporation, individual, general or limited partner,
member, officer, employee or affiliate (as defined in Rule 12b-2 under the
Exchange Act) of such transferor, (b) in the case of any transferor that is a
corporation, any other entity that owns, directly or indirectly, at least 51% of
the equity securities of such transferor ("majority ownership") or that is under
common majority ownership with such transferor, (c) in the case of any
transferor that is an individual, any successor by death or divorce or (d) in
the case of any transferor that is a trust whose sole beneficiaries are
individuals, such individuals or their spouses or lineal descendants.
TRANSFEREE'S RIGHTS AND OBLIGATIONS
A third party that acquires SCG Stock shall assume the obligations and,
unless otherwise agreed by the transferee, acquire the rights of the
transferring party with respect to the shares that it acquires.
TEXAS PACIFIC GROUP
Texas Pacific Group was founded by David Bonderman, James G. Coulter and
William S. Price, III in 1993 to pursue public and private investment
opportunities through a variety of methods, including leveraged buyouts,
recapitalizations, joint ventures, restructurings and strategic public
securities investments. The principals of Texas Pacific Group manage TPG
Partners, L.P. and TPG Partners II, L.P., both Delaware limited partnerships,
which, with affiliated partnerships, have aggregate committed capital of more
than $3.2 billion.
The investment in SCG Holding is the largest investment of Texas Pacific
Group to date and its sixth investment in the technology and telecommunications
area. Texas Pacific Group's other investments in technology and
telecommunications companies include Paradyne Corporation, GlobeSpan, GT Com,
Landis & Gyr Communications and Zilog.
Texas Pacific Group's portfolio companies also include America West
Airlines, Belden & Blake, Beringer Wine Estates, Del Monte Foods, Denbury
Resources, Ducati Motorcycle Holdings, Favorite Brands International, Genesis
ElderCare, J. Crew, Oxford Health Plans, Virgin Entertainment and Vivra. In
addition, Texas Pacific Group principals led the $9 billion reorganization of
Continental Airlines in 1993.
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<PAGE>
RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with our recapitalization, Motorola has made bonus payments to
Messrs. Hanson, George and Sacomani in the approximate amounts of $502,500,
$421,500 and $287,100, respectively.
In connection with our recapitalization, we paid Texas Pacific Group a
financial advisory fee in the amount of $25 million. We have agreed to pay Texas
Pacific Group annually a management fee of not more than $2 million. Two of our
directors, David Bonderman and Justin Chang, are also Texas Pacific Group
partners.
In connection with our recapitalization, Motorola has assigned, licensed and
sublicensed to us intellectual property in connection with the products we plan
to offer (including a limited use of the Motorola trade name for one year and a
transition statement, "formerly a division of Motorola," for an additional year
thereafter), has agreed to continue providing us information technology, human
resources, supply management, logistics and finance services for agreed periods
of time while we determine the most cost-effective means to obtain such
services, has agreed to continue providing manufacturing and assembly services
to us and to continue using similar services we provide to them, has agreed to
continue selling to us depreciated equipment to support our capacity expansion
and has leased real estate to us. Motorola provides some of these services on
more favorable terms than we would expect to obtain from independent sources.
In connection with our recapitalization, we paid the Chairman of our Board
of Directors, Curtis J. Crawford, a consulting fee of $100,000 and granted Mr.
Crawford an option to purchase 300,000 shares of common stock. We also granted
one of our directors, Richard W. Boyce an option to purchase 615,000 shares of
common stock. The option grants to Messrs. Crawford and Boyce were in
consideration for their respective consulting services. Messrs. Crawford and
Boyce's options are at an exercise price of $1.00 per share, are fully
exercisable upon grant and have a ten year term and are otherwise governed by
the 1999 Founders Stock Option Plan.
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<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR FACILITIES
The description set forth below is qualified in its entirety by reference to
agreements setting forth the principal terms and conditions of our senior bank
facilities.
Pursuant to a Credit Agreement that was entered into as part of our
August 1999 recapitalization among Semiconductor Components Industries, LLC, as
borrower, SCG Holding, as parent, the lenders named therein, The Chase Manhattan
Bank as administrative agent, collateral agent and syndication agent, DLJ
Capital Funding, Inc., as co-documentation agent, and Lehman Commercial Paper
Inc., as co-documentation agent, a syndicate of banks and other financial
institutions led by Chase have provided us senior secured credit facilities of
up to $1,025.0 million. The Credit Agreement provides for (1) a $200.0 million
senior secured term tranche A loan that fully amortizes within six years, (2) a
$325.0 million senior secured tranche B term loan that fully amortizes within
seven years, (3) a $350.0 million senior secured tranche C term loan that fully
amortizes within eight years and (4) a $150.0 million senior secured revolving
credit facility that matures on the earlier of (a) the date that is six years
after our recapitalization and (b) the final repayment in full of the tranche A
facility. At the time of the recapitalization, we drew down $65.5 million under
the tranche A facility, and we have drawn down an additional $60.0 million to
date to fund working capital. The $74.5 million balance of the tranche A
facility is being made available to fund working capital during the period from
the date of our recapitalization to the date that is six months after our
recapitalization.
The senior bank facilities initially bear interest (subject to performance
based step downs applicable to the tranche A facility and the revolving
facility) at a rate equal to LIBOR plus (1) in the case of the tranche A
facility and the revolving facility, 3.00%; or at our option, the alternate base
rate (as defined in the Credit Agreement) plus 2.00%; (2) in the case of the
tranche B facility, 3.50% or, at our option, the alternate base rate plus 2.50%
and (3) in the case of the tranche C facility, 3.75% or, at our option, the
alternate base rate plus 2.75%.
In addition to paying interest on outstanding principal under the senior
bank facilities, we are required to pay a commitment fee to the lenders under
the revolving facility and the delayed draw term facility in respect of the
unutilized commitments thereunder at a rate equal to 0.50% per annum.
The senior bank term facilities will amortize in quarterly amounts based
upon the annual amounts shown below.
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B TRANCHE C
CALENDAR YEAR FACILITY FACILITY FACILITY
- ------------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
2000........................................................ $ -- $ -- $ --
2001........................................................ 15.000 1.625 1.750
2002........................................................ 35.000 3.250 3.500
2003........................................................ 45.000 3.250 3.500
2004........................................................ 65.000 3.250 3.500
2005........................................................ 40.000 157.625 3.500
2006........................................................ -- 156.000 168.000
2007........................................................ -- -- 166.250
-------- -------- --------
Total....................................................... $200.000 $325.000 $350.000
</TABLE>
The obligations of Semiconductor Components under the senior bank facilities
are unconditionally and irrevocably guaranteed by SCG Holding and each of its
other existing and subsequently acquired or organized domestic subsidiaries. In
addition, the senior bank facilities are secured by first priority or equivalent
security interests in substantially all tangible and intangible assets of SCG
Holding and each of its existing and subsequently acquired or organized domestic
subsidiaries,
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<PAGE>
including all the capital stock of, or other equity interests in Semiconductor
Components and each other direct or indirect subsidiary of SCG Holding (except,
in the case of voting stock of a foreign subsidiary, not more than 65% of such
voting stock shall be required to be pledged).
The senior bank facilities are subject to mandatory prepayment with, in
general, (1) 100% of the proceeds of non-ordinary course assets sales, (2) 50%
of SCG Holding's Excess Cash Flow (as defined in the Credit Agreement) and (3)
100% of the proceeds from the issuance of debt obligations other than debt
obligations permitted under the Credit Agreement. With respect to any prepayment
of the tranche B facility or the tranche C facility within two years after our
recapitalization, except with respect to prepayments out of Excess Cash Flow, we
will pay a premium of (1) 2% of the principal amount being prepaid of each such
facility during the first year after August 4, 1999 and (2) 1% of the principal
amount being prepaid of each such facility during the second year after
August 4, 1999.
The Credit Agreement contains a number of covenants that, among other
things, restrict our ability to dispose of assets, incur additional
indebtedness, incur guarantee obligations, repay other indebtedness, pay
restricted payments and dividends, create liens on assets, make investments,
loans or advances, make acquisitions, engage in mergers or consolidations, make
capital expenditures, enter into sale and leaseback transactions, or engage in
various transactions with subsidiaries and affiliates and otherwise restrict
corporate activities. In addition, under the senior bank facilities, we are
required to comply with specified financial ratios and tests, including minimum
fixed charge coverage and interest coverage ratios and maximum leverage ratios.
The Credit Agreement also contains customary events of default.
JUNIOR SUBORDINATED NOTE
As part of our August 1999 recapitalization, Semiconductor Components issued
a junior subordinated note to Motorola in the amount of $91 million, which bears
interest at a rate of 10% per annum, payable semi-annually in kind. Interest may
be paid by Semiconductor Components in cash after the fifth anniversary of the
issue date if, after giving effect to the payment of interest on any interest
payment date, we would be in compliance with our obligations under the senior
bank facilities and the indenture relating to the notes. The junior subordinated
note matures on the twelfth anniversary of the issue date and ranks subordinated
in right of payment to the notes and the loans under the senior bank facilities
and PARI PASSU in right of payment with, among other things, unsecured trade
debt.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
Definitions of terms used in this Description of Exchange Notes may be found
under "--Defined Terms." For purposes of this section, the term "SCG Holding"
refers only to SCG Holding Corporation and not any of its Subsidiaries,
"Semiconductor Components" refers to Semiconductor Components Industries, LLC, a
Wholly Owned Subsidiary of SCG Holding, the "Issuers" refers to SCG Holding and
Semiconductor Components and "we" refers to the Issuers.
SCG Holding issued initial notes and will issue the exchange notes under an
Indenture, dated as of August 4, 1999 among SCG Holding, Semiconductor
Components, the Note Guarantors and State Street Bank and Trust Company, as
Trustee. The Indenture contains provisions that define your rights under the
exchange notes. In addition, the Indenture governs the obligations of the
Issuers and of each Note Guarantor under the exchange notes. The terms of the
Exchange Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "TIA"). The
Indenture has been filed as an exhibit to the registration statement of which
this prospectus is a part and is available as set forth under the heading
"Prospectus Summary--Where You Can Find More Information."
This Description of Exchange Notes is meant to be only a summary of the
Indenture, does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of terms used
below, and the TIA. It does not restate the terms of the Indenture in their
entirety. We urge that you carefully read the Indenture as it, and not this
description, will govern your rights as Holders.
OVERVIEW OF THE EXCHANGE NOTES AND THE NOTE GUARANTEES
THE EXCHANGE NOTES
The Exchange Notes will:
- be general unsecured obligations of each of the Issuers;
- be subordinated in right of payment to all existing and future Senior
Indebtedness of each of the Issuers;
- rank PARI PASSU in right of payment with all existing and future Senior
Subordinated Indebtedness of each of the Issuers;
- be senior in right of payment to all existing and future Subordinated
Obligations of each of the Issuers;
- be effectively subordinated to all existing and future Secured
Indebtedness of SCG Holding, Semiconductor Components and the other
Subsidiaries of SCG Holding to the extent of the value of the assets
securing such Indebtedness; and
- be effectively subordinated to all liabilities of the Foreign Subsidiaries
of SCG Holding, which are not Guaranteeing the exchange notes, and any
other future Subsidiaries of SCG Holding that do not Guarantee the
exchange notes.
THE NOTE GUARANTEES
The exchange notes will be Guaranteed by each of the following Domestic
Subsidiaries of SCG Holding:
- SCG (Malaysia SMP) Holding Corporation,
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- SCG (Czech) Holding Corporation,
- SCG (China) Holding Corporation,
- Semiconductor Components Industries Puerto Rico, Inc. and
- SCG International Development LLC.
The Note Guarantees will:
- be general unsecured obligations of each Note Guarantor;
- be subordinated in right of payment to all existing and future Senior
Indebtedness of each Note Guarantor;
- rank PARI PASSU in right of payment with all existing and future Senior
Subordinated Indebtedness of each Note Guarantor;
- be senior in right of payment to all existing and future Subordinated
Obligations of each Note Guarantor;
- be effectively subordinated to all existing and future Secured
Indebtedness of each Note Guarantor to the extent of the value of the
assets securing such Indebtedness; and
- be effectively subordinated to all liabilities of the Foreign Subsidiaries
of SCG Holding, which are not Guaranteeing the exchange notes, and any
other future Subsidiaries of SCG Holding that do not Guarantee the
exchange notes.
SCG Holding's existing and future Foreign Subsidiaries are not currently
required to Guarantee the exchange notes. However, any existing or future
Foreign Subsidiary that Guarantees other Indebtedness of SCG Holding or any of
its Domestic Subsidiaries will be required to Guarantee the exchange notes if
the aggregate principal amount of Indebtedness of SCG Holding and its Domestic
Subsidiaries Guaranteed by all Foreign Subsidiaries exceeds $25 million.
PRINCIPAL, MATURITY AND INTEREST
We will issue the exchange notes in an aggregate principal amount of up to
$400 million. The exchange notes will mature on August 1, 2009. We will issue
the exchange notes in fully registered form, without coupons, in denominations
of $1,000 and any integral multiple of $1,000.
Each exchange note we issue will accrue interest at a rate of 12% beginning
on August 4, or from the most recent date to which interest has been paid or
provided for. We will pay interest semiannually in arrears to Holders of record
at the close of business on the January 15 or July 15 immediately preceding the
interest payment date on February 1 and August 1 of each year.
Interest on the exchange notes will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
PAYING AGENT AND REGISTRAR
We will pay the principal of, premium, if any, and interest on the exchange
notes at any office of ours or any agency designated by us that is located in
the Borough of Manhattan, the City of New York. We have initially designated the
corporate trust office of the Trustee to act as the agent of SCG Holding in such
matters. The location of the corporate trust office is 61 Broadway, New York,
New York 10006. We, however, reserve the right to pay interest to Holders by
check mailed directly to Holders at their registered addresses.
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TRANSFER AND EXCHANGE
Holders may exchange or transfer their exchange notes at the same location
given above under "--Paying Agent and Registrar." No service charge will be made
for any registration of transfer or exchange of exchange notes. We, however, may
require Holders, among other things, to furnish appropriate endorsements and
transfer documents and to pay any transfer tax or other similar governmental
charge payable in connection with any such transfer or exchange.
Except as provided in the Indenture, the registered Holder of any of the
exchange notes will be treated as the owner thereof for all purposes under the
Indenture. The Issuers will not be required to transfer or exchange any exchange
note selected for redemption or to transfer or exchange any exchange note for a
period of 15 days prior to a selection of exchange notes to be redeemed.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, we may not redeem the
exchange notes prior to August 1, 2004. On and after this date, we may redeem
the exchange notes, in whole or in part, on one or more occasions. We must give
not less than 30 nor more than 60 days' prior notice. Upon redemption, we will
pay the redemption prices, plus accrued and unpaid interest and liquidated
damages thereon, if any, to the applicable redemption date, subject to the right
of Holders of record on the relevant record date to receive interest due on the
relevant interest payment date. We will pay the following redemption prices,
expressed as percentages of principal amount, if we redeem the exchange notes
during the 12-month periods commencing on August 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2004........................................................ 106.0%
2005........................................................ 104.5%
2006........................................................ 103.0%
2007........................................................ 101.5%
2008 and thereafter......................................... 100.0%
</TABLE>
Prior to August 1, 2002, the Issuers also may (but shall not have the
obligation to), on one or more occasions, redeem up to a maximum of 35% of the
original aggregate principal amount of the exchange notes with the Net Cash
Proceeds of one or more Public Equity Offerings by SCG Holding, at a redemption
price equal to 112% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages thereon, if any, to the applicable redemption
date, subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date. However, after
giving effect to any such redemption:
(1) at least 65% of the aggregate principal amount of the notes and the exchange
notes, taken together, must remain outstanding; and
(2) any such redemption by the Issuers must be made within 90 days of the date
of the closing of the applicable Public Equity Offering and in accordance
with procedures set forth in the Indenture.
SELECTION AND NOTICE OF REDEMPTION
If we redeem less than all of the exchange notes outstanding at any time,
the Trustee will select the exchange notes to be redeemed on a pro rata basis,
by lot or by such other method as the Trustee in its sole discretion shall deem
to be fair and appropriate, although no exchange note of $1,000 in original
principal amount or less will be redeemed in part. We will mail notices of
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redemption by first class mail at least 30 but not more than 60 days before the
applicable redemption date to each Holder of the exchange notes to be redeemed
at such Holder's registered address.
If we redeem any exchange note in part only, the notice of redemption
relating to such exchange note shall state the portion of the principal amount
thereof to be redeemed. A new exchange note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancelation of the original exchange note. On and after the redemption date,
interest will cease to accrue on exchange notes or portions thereof called for
redemption so long as we have deposited with the Paying Agent funds sufficient
to pay the principal of such exchange notes or portions thereof, plus accrued
and unpaid interest and liquidated damages thereon, if any, to the applicable
redemption date.
RANKING
The exchange notes will be unsecured obligations of each of the Issuers.
They will be subordinated in right of payment to all existing and future Senior
Indebtedness of each of the Issuers, will rank PARI PASSU in right of payment
with all existing and future Senior Subordinated Indebtedness of each of the
Issuers and will be senior in right of payment to all existing and future
Subordinated Obligations of each of the Issuers. The exchange notes will also be
effectively subordinated to any Secured Indebtedness of SCG Holding,
Semiconductor Components and the other Subsidiaries of SCG Holding to the extent
of the value of the assets securing such Indebtedness. However, payment from the
money or the proceeds of U.S. Government Obligations held in any defeasance
trust described below under the caption "--Defeasance" will not be subordinated
to any Senior Indebtedness or subject to the restrictions described herein.
SCG Holding currently conducts all, and Semiconductor Components currently
conducts of their operations through their Subsidiaries. The Note Guarantees
will be unsecured obligations of the applicable Note Guarantor, will be
subordinated in right of payment to all existing and future Senior Indebtedness
of such Note Guarantor, will rank PARI PASSU in right of payment with all
existing and future Senior Subordinated Indebtedness of such Note Guarantor will
be are senior in right of payment to all existing and future Subordinated
Obligations of such Note Guarantor. The Note Guarantees will also be effectively
subordinated to any Secured Indebtedness of the applicable Note Guarantor to the
extent of the value of the assets securing such Secured Indebtedness.
SCG Holding's existing and future Foreign Subsidiaries are not currently
required to Guarantee the exchange notes. However, any existing or future
Foreign Subsidiary that Guarantees other Indebtedness of SCG Holding or any of
its Domestic Subsidiaries will be required to Guarantee the exchange notes if
the aggregate principal amount of Indebtedness of SCG Holding and its Domestic
Subsidiaries Guaranteed by all Foreign Subsidiaries exceeds $25 million.
Creditors of such Foreign Subsidiaries, including trade creditors, and preferred
stockholders (if any) of such Foreign Subsidiaries generally will have priority
with respect to the assets and earnings of such Foreign Subsidiaries over the
claims of our creditors, including Holders. The exchange notes, therefore, will
be effectively subordinated to creditors, including trade creditors, and
preferred stockholders (if any) of SCG Holding's Foreign Subsidiaries.
As of October 2, 1999, we had outstanding the following:
(1) $800.5 million of Senior Indebtedness of each of SCG Holding and
Semiconductor Components, all of which is Secured Indebtedness, excluding
unused commitments under the Credit Agreement;
(2) no Senior Subordinated Indebtedness of either SCG Holding or
Semiconductor Components other than the initial notes;
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(3) no Indebtedness of SCG Holding and Semiconductor Components, other than
$91 million under the Junior Subordinated Note, that is subordinated or
junior in right of payment to the exchange notes;
(4) no Senior Indebtedness of the Note Guarantors, excluding intercompany
debt and Guarantees of Indebtedness under the Credit Agreement;
(5) no Senior Subordinated Indebtedness of the Note Guarantors, other than
the Note Guarantees and the Guarantees of the initial notes; and
(6) no Indebtedness of the Note Guarantors that is subordinated or junior in
right of payment to the Note Guarantees.
Although the amount of additional Indebtedness we can Incur is limited, we
may be able to Incur substantial amounts of additional Indebtedness. Such
Indebtedness may be Senior Indebtedness. See "--Indenture Covenants--Limitation
on Indebtedness" below.
"Senior Indebtedness" of SCG Holding, Semiconductor Components or any Note
Guarantor, as applicable, means
- the principal of, premium (if any) and accrued and unpaid interest on,
including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization of SCG Holding, Semiconductor Components
or any Note Guarantor, regardless of whether or not a claim for
post-filing interest is allowed in such proceedings, and
- fees and other amounts owing in respect of, Bank Indebtedness and all
other Indebtedness of SCG Holding, Semiconductor Components or any Note
Guarantor, whether outstanding on the Closing Date or thereafter Incurred,
unless in the instrument creating or evidencing the same or pursuant to
which the same is outstanding it is provided that such obligations are not
superior in right of payment to the exchange notes and the initial notes or such
Note Guarantor's Note Guarantee or Guarantee of the initial notes.
Senior Indebtedness shall not include:
(1) any obligation of SCG Holding or Semiconductor Components to any
Subsidiary of SCG Holding or any obligation of such Note Guarantor to SCG
Holding, Semiconductor Components or any other Subsidiary of SCG Holding;
(2) any liability for Federal, state, local or other taxes owed or owing by
SCG Holding, Semiconductor Components or such Note Guarantor;
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business, including Guarantees thereof or
instruments evidencing such liabilities;
(4) any Indebtedness or obligation of SCG Holding, Semiconductor Components
or such Note Guarantor, and any accrued and unpaid interest in respect
thereof that by its terms is subordinated or junior in right of payment
to any other Indebtedness or obligation of SCG Holding, Semiconductor
Components or such Note Guarantor, including any Senior Subordinated
Indebtedness and any Subordinated Obligations;
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness Incurred in violation of the Indenture.
Only Indebtedness of SCG Holding or Semiconductor Components that is Senior
Indebtedness will rank senior in right of payment to the exchange notes. The
exchange notes will rank PARI PASSU in right of payment with all other Senior
Subordinated Indebtedness of SCG Holding or of Semiconductor Components. The
Issuers will not Incur, directly or indirectly, any Indebtedness that is
subordinated or junior in right of payment to Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated
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Indebtedness. Unsecured Indebtedness is not deemed to be subordinated or junior
in right of payment to Secured Indebtedness merely because it is unsecured.
We may not pay principal of, premium (if any) or interest on, the exchange
notes, make any deposit pursuant to the provisions described under
"--Defeasance" below, or otherwise repurchase, redeem or otherwise retire any
exchange notes (collectively, "pay the exchange notes") if:
(1) any Designated Senior Indebtedness is not paid when due, or
(2) any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms
unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded, or
(y) such Designated Senior Indebtedness has been paid in full;
However, we may pay the exchange notes without regard to the foregoing if we and
the Trustee receive written notice approving such payment from the
Representative of the Designated Senior Indebtedness with respect to which
either of the events set forth in clause (1) or (2) above has occurred and is
continuing.
During the continuance of any default, other than a default described in
clause (1) or (2) above, with respect to any Designated Senior Indebtedness of
either Issuer pursuant to which the maturity thereof may be accelerated
immediately without further notice, except such notice as may be required to
effect such acceleration, or the expiration of any applicable grace periods, we
may not pay the exchange notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee of written notice (a "Blockage
Notice") of such default from the Representative of such Designated Senior
Indebtedness. Such Blockage Notice shall specify an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated:
(1) by written notice to the Trustee and the Issuers from the Person or
Persons who gave such Blockage Notice,
(2) by repayment in full of such Designated Senior Indebtedness, or
(3) because no default with respect to any Designated Senior Indebtedness is
continuing).
Notwithstanding the provisions contained in the second preceding sentence but
subject to the provisions contained in the second preceding sentence, the
Issuers may resume payments on the exchange notes after the end of such Payment
Blockage Period, unless the holders of such Designated Senior Indebtedness or
the Representative of such holders have accelerated the maturity of such
Designated Senior Indebtedness and such Designated Senior Indebtedness has not
been repaid in full.
Not more than one Blockage Notice may be given in any period of 360
consecutive days, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than the Bank Indebtedness, the
Representative of the Bank Indebtedness may give another Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any period of 360 consecutive days. For purposes of this paragraph, no
default or event of default that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the Representative of such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such default or event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
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Upon any payment or distribution of the assets of SCG Holding or
Semiconductor Components to their respective creditors upon a total or partial
liquidation or a total or partial dissolution of SCG Holding or Semiconductor
Components or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to SCG Holding or its property or Semiconductor
Components or its property:
(1) the holders of Senior Indebtedness of SCG Holding or Semiconductor
Components, as applicable, will be entitled to receive payment in full of
such Senior Indebtedness before the Holders are entitled to receive any
payment of principal of or interest on the exchange notes; and
(2) until such Senior Indebtedness is paid in full, any payment or
distribution to which Holders would be entitled but for the subordination
provisions of the Indenture will be made to holders of such Senior
Indebtedness as their interests may appear, except that Holders may
receive shares of stock and any debt securities that are subordinated to
such Senior Indebtedness to at least the same extent as the exchange
notes. If a distribution is made to Holders that due to the subordination
provisions of the Indenture should not have been made to them, such
Holders will be required to hold it in trust for the holders of Senior
Indebtedness of SCG Holding or Semiconductor Components, as applicable,
and pay it over to them as their interests may appear.
If payment of the exchange notes is accelerated because of an Event of
Default, the Issuers or the Trustee shall promptly notify the holders of each
Issuer's Designated Senior Indebtedness or their Representative of the
acceleration. Before acceleration of payment, the Trustee must receive written
notice from the Issuers or a Representative identifying the Designated Senior
Indebtedness for which such Representative is so designated, on which notice the
Trustee shall be entitled to rely conclusively. If any such Designated Senior
Indebtedness is outstanding, the Issuers may not pay the Notes until five
Business Days after such holders or the Representative of such Designated Senior
Indebtedness receive notice of such acceleration and, thereafter, may pay the
exchange notes only if the subordination provisions of the Indenture otherwise
permit payment at that time.
By reason of the subordination provisions of the Indenture, in the event of
insolvency, creditors of the Issuers who are holders of Senior Indebtedness may
recover more, ratably, than the Holders, and creditors of the Issuers who are
not holders of Senior Indebtedness or of Senior Subordinated Indebtedness
(including the exchange notes) may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than the holders of Senior
Subordinated Indebtedness.
NOTE GUARANTEES
SCG (Malaysia SMP) Holding Corporation, SCG (Czech) Holding Corporation, SCG
(China) Holding Corporation, Semiconductor Components Industries Puerto Rico,
Inc. and SCG International Development LLC, as primary obligors and not merely
as sureties, will jointly and severally irrevocably and unconditionally
Guarantee on an unsecured senior subordinated basis full and punctual payment
when due, whether at Stated Maturity, by acceleration or otherwise, of all
obligations of the Issuers under the Indenture, including obligations to the
Trustee, and the exchange notes, whether for payment of principal of or interest
on in respect of the exchange notes, expenses, indemnification or otherwise (all
such obligations Guaranteed by such Note Guarantors being herein called the
"Guaranteed Obligations"). Such Note Guarantors have agreed to pay, in addition
to the amount stated above, any and all reasonable costs and expenses, including
reasonable counsel fees and expenses, incurred by the Trustee or the Holders in
enforcing any rights under the Note Guarantees. Each Note Guarantee will be
limited in amount to an amount not to exceed the maximum amount that can be
Guaranteed by the applicable Note Guarantor without rendering the Note
Guarantee, as it relates to such Note Guarantor, voidable under applicable law
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relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. If a Note Guarantee were to be
rendered voidable, it could be subordinated by a court to all other
Indebtedness, including guarantees and contingent liabilities, of the applicable
Note Guarantor, and, depending on the amount of such indebtedness, a Note
Guarantor's liability in respect of its Note Guarantee could be reduced to zero.
After the Closing Date, SCG Holding will cause (1) each Domestic Subsidiary and
(2) each Foreign Subsidiary that enters into or has outstanding a Guarantee of
any other Indebtedness of SCG Holding or any Domestic Subsidiary, if the
aggregate principal amount of Indebtedness of SCG Holding and its Domestic
Subsidiaries Guaranteed by all Foreign Subsidiaries exceeds $25 million, to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Subsidiary will Guarantee payment of the exchange notes. See "--Indenture
Covenants--Future Note Guarantors" below.
Each Note Guarantor that makes a payment under its Note Guarantee will be
entitled to a contribution from each other Note Guarantor in an amount equal to
such other Note Guarantor's pro rata portion of such payment based on the
respective net assets of all Note Guarantors at the time of such payment, as
determined in accordance with GAAP.
The obligations of a Note Guarantor under its Note Guarantee are senior
subordinated obligations. As such, the rights of Holders to receive payment by a
Note Guarantor pursuant to its Note Guarantee will be subordinated in right of
payment to the rights of holders of Senior Indebtedness of such Note Guarantor.
The terms of the subordination provisions described above with respect to the
Issuers' obligations under the exchange notes apply equally to a Note Guarantor
and the obligations of such Note Guarantor under its Note Guarantee.
Each Note Guarantee is a continuing Guarantee and shall
(1) remain in full force and effect until payment in full of all the
Guaranteed Obligations or until released as described in the following
paragraph,
(2) be binding upon each Note Guarantor and its successors and
(3) inure to the benefit of, and be enforceable by, the Trustee, the Holders
and their successors, transferees and assigns. Each Note Guarantee will be a
guarantee of payment and not of collection.
A Note Guarantee as to any Note Guarantor shall terminate and be of no
further force or effect and such Note Guarantor will be deemed to be released
from all obligations under its Note Guarantee upon any of the following:
(1) the merger or consolidation of such Note Guarantor with or into any
Person other than SCG Holding or a Subsidiary or Affiliate of SCG Holding where
such Note Guarantor is not the surviving entity of such consolidation or merger;
(2) the sale or transfer by SCG Holding or any Subsidiary of SCG Holding of
the Capital Stock of such Note Guarantor (or by any other Person as a result of
a foreclosure of any Lien on such Capital Stock securing Senior Indebtedness),
where, after such sale or transfer, such Note Guarantor is no longer a
Subsidiary of SCG Holding, or
(3) the sale, conveyance or transfer of all or substantially all the assets
of such Note Guarantor to another Person other than SCG Holding or a Subsidiary
or Affiliate of SCG Holding; PROVIDED, HOWEVER, that each such merger,
consolidation, sale, conveyance or transfer by SCG Holding or such Subsidiary
shall comply with the covenants described under "--Merger and Consolidation" and
"--Indenture Covenants--Limitation on Sales of Assets and Subsidiary Stock." At
the request of SCG Holding, the Trustee shall execute and deliver an appropriate
instrument evidencing such release (in the form provided by SCG Holding).
Notwithstanding the foregoing, if the Credit Agreement so requires, any Note
Guarantor that has Guaranteed Indebtedness under the Credit Agreement and is
being released from its Guarantee thereunder will be simultaneously released
from its Note Guarantee hereunder unless an Event of Default has occurred and is
continuing.
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CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Issuers to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's exchange notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest and liquidated damages
thereon, if any, to the date of repurchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); PROVIDED, HOWEVER, that notwithstanding the occurrence
of a Change of Control, the Issuers are not obligated to repurchase the exchange
notes pursuant to this section in the event that they have exercised their right
to redeem all the exchange notes and initial notes as described under
"--Optional Redemption":
(1) (A) any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act), other than one or more Permitted Holders, becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 40% of the total voting power of the
Voting Stock of SCG Holding or Semiconductor Components, whether as a
result of issuance of securities of SCG Holding or Semiconductor
Components, any merger, consolidation, liquidation or dissolution of SCG
Holding or Semiconductor Components, any direct or indirect transfer of
securities by any Permitted Holder or otherwise, and
(B) the Permitted Holders "beneficially own" (as defined in clause (A)
above), directly or indirectly, in the aggregate a lesser percentage of
the total voting power of the Voting Stock of SCG Holding or
Semiconductor Components, than such other person and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of
SCG Holding or Semiconductor Components, as applicable;
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of
SCG Holding or the similar governing body of Semiconductor Components, as
the case may be (together with any new directors or members of such
governing body, as the case may be, whose election by such board of
directors of SCG Holding or governing body of Semiconductor Components,
as the case may be, or whose nomination for election by the shareholders
of SCG Holding or the members of Semiconductor Components, as the case
may be, was approved by a vote of a majority of the directors of
SCG Holding or a majority of the members of the governing body of
Semiconductor Components, as the case may be, then still in office who
were either directors or members of such governing body, as the case may
be, at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the board of directors of SCG Holding or a majority of the
members of the governing body of Semiconductor Components, as applicable,
then in office;
(3) the adoption of a plan relating to the liquidation or dissolution of
SCG Holding or Semiconductor Components (other than a plan with respect
to Semiconductor Components adopted solely for the purpose of
reorganizing Semiconductor Components as a corporation); or
(4) the merger or consolidation of SCG Holding or Semiconductor Components
with or into another Person or the merger of another Person with or into
SCG Holding or Semiconductor Components, or the sale of all or
substantially all the assets of SCG Holding or Semiconductor Components
to another Person (other than a Person that is controlled by the
Permitted Holders), and, in the case of any such merger or consolidation,
the securities of
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SCG Holding or Semiconductor Components that are outstanding immediately
prior to such transaction and which represent 100% of the aggregate
voting power of the Voting Stock of SCG Holding or Semiconductor
Components are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are changed
into or exchanged for, in addition to any other consideration, securities
of the surviving Person or transferee or a Person controlling such
surviving Person or transferee that represent immediately after such
transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving Person or transferee or a Person
controlling such surviving Person or transferee.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of exchange notes pursuant
to this covenant, then prior to the mailing of the notice to Holders provided
for in the immediately following paragraph but in any event within 30 days
following any Change of Control, Semiconductor Components shall:
(1) repay in full all Bank Indebtedness or offer to repay in full all
Bank Indebtedness and repay the Bank Indebtedness of each lender who
has accepted such offer, or
(2) obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the exchange notes as
provided for in the immediately following paragraph.
Within 30 days following any Change of Control, the Issuers shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control Offer")
stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Issuers to purchase all or a portion (equal to
$1,000 or an integral multiple thereof) of such Holder's exchange
notes at a purchase price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant record date to receive interest on
the relevant interest payment date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days (or such
shorter time period as may be permitted under applicable laws, rules
and regulations) nor later than 60 days from the date such notice is
mailed); and
(4) the instructions determined by the Issuers, consistent with this
covenant, that a Holder must follow in order to have its exchange
notes purchased.
The Issuers are not required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by the Issuers and
purchases all exchange notes validly tendered and not withdrawn under such
Change of Control Offer.
The Issuers will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of exchange notes pursuant to this covenant.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of the Indenture relating to Change of Control Offers, the
Issuers will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under this covenant by virtue
thereof.
The Change of Control purchase feature is a result of negotiations between
the Issuers and the Initial Purchasers. The Issuers have no present intention to
engage in a transaction involving a Change of Control, although it is possible
that they would decide to do so in the future. Subject to the limitations
discussed below, the Issuers could, in the future, enter into transactions,
including
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acquisitions, refinancings or other recapitalizations, that would not constitute
a Change of Control under the Indenture, but that could increase the amount of
Indebtedness outstanding at such time or otherwise affect the Issuers' capital
structures or credit ratings. Restrictions on the ability of the Issuers to
Incur additional Indebtedness are contained in the covenants described under
"--Indenture Covenants--Limitation on Indebtedness." Such restrictions can only
be waived with the consent of the Holders of a majority in principal amount of
the exchange notes then outstanding. Except for the limitations contained in
such covenants, however, the Indenture does not contain any covenants or
provisions that may afford Holders protection in the event of a highly leveraged
transaction.
The occurrence of specified events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of SCG Holding may contain similar restrictions, provisions or
prohibitions of events which would constitute a Change of Control or require
such Senior Indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the Holders of their right to require the Issuers to repurchase
the exchange notes could cause a default under such Senior Indebtedness, even if
the Change of Control itself does not, due to the financial effect of such
repurchase on SCG Holding. Finally, the Issuers' ability to pay cash to the
Holders upon a repurchase may be limited by the Issuers' then existing financial
resources. There can be no assurance that the Issuers will have sufficient
assets to satisfy their repurchase obligation under the exchange notes. The
provisions under the Indenture relating to the Issuers' obligation to make an
offer to repurchase the exchange notes as a result of a Change of Control may be
waived or modified with the written consent of the Holders of a majority in
principal amount of the exchange notes and the initial notes taken together.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of SCG Holding or Semiconductor Components. Although there is a
developing body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder to require the Issuers to repurchase such
exchange notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of SCG Holding or Semiconductor
Components taken as a whole to another Person or group may be uncertain.
INDENTURE COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) SCG Holding will not, and will not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
PROVIDED, HOWEVER, that SCG Holding, Semiconductor Components or any Note
Guarantor may Incur Indebtedness if on the date of such Incurrence and after
giving effect thereto the Consolidated Coverage Ratio would be greater than
2.25:1.
(b) Notwithstanding the foregoing paragraph (a), SCG Holding and, to the
extent specified, its Restricted Subsidiaries may Incur the following
Indebtedness:
(1) Bank Indebtedness of SCG Holding, Semiconductor Components or any
Note Guarantor and any Receivables Facility in an aggregate principal amount
not to exceed $1.025 billion less the aggregate amount of all prepayments of
principal applied to permanently reduce any such Indebtedness;
(2) Indebtedness in respect of a Receivables Facility in an aggregate
principal amount not to exceed the lesser of (A) the amount of all
prepayments of principal applied to permanently reduce Indebtedness under
clause (1) of this paragraph (b) and (B) $100 million;
(3) Indebtedness of SCG Holding owed to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
SCG Holding or any other
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Restricted Subsidiary; PROVIDED, HOWEVER, that (A) any subsequent issuance
or transfer of any Capital Stock or any other event that results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of any such Indebtedness (except to SCG Holding or
another Restricted Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of such Indebtedness by the issuer thereof, (B) if
SCG Holding or Semiconductor Components is the obligor on such Indebtedness,
such Indebtedness is expressly subordinated to the prior payment in full in
cash of all obligations with respect to the exchange notes and the initial
notes and (C) if a Note Guarantor is the obligor, such Indebtedness is
subordinated in right of payment to the Note Guarantee and the Guarantee of
the initial notes of such Note Guarantor;
(4) Indebtedness represented by the Junior Subordinated Note, the
exchange notes, the initial notes, the Note Guarantees, the Guarantees of
the initial notes, and any replacement notes issued pursuant to the
Indenture;
(5) Indebtedness outstanding on the Closing Date (other than the
Indebtedness described in clause (2), (3) or (4) of this paragraph (b));
(6) Indebtedness consisting of Refinancing Indebtedness Incurred in
respect of any Indebtedness described in the foregoing paragraph (a) and in
clauses (4), (5), (6), (7), (10) and (13) of this paragraph (b);
(7) Indebtedness consisting of Guarantees of (A) any Indebtedness
permitted under paragraph (a), so long as the Person providing the Guarantee
is a Note Guarantor or (B) any Indebtedness permitted under this
paragraph (b);
(8) Indebtedness of SCG Holding or any of its Restricted Subsidiaries in
respect of worker's compensation claims, self-insurance obligations,
performance bonds, bankers' acceptances, letters of credit, surety, appeal
or similar bonds and completion guarantees provided by SCG Holding and the
Restricted Subsidiaries in the ordinary course of their business; PROVIDED,
HOWEVER, that upon the drawing of letters of credit for reimbursement
obligations, including with respect to workers' compensation claims, or the
Incurrence of other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims, such obligations are
reimbursed within 30 days following such drawing or Incurrence;
(9) Indebtedness under Interest Rate Agreements and Currency Agreements
entered into for bona fide hedging purposes of SCG Holding in the ordinary
course of business;
(10) Purchase Money Indebtedness, mortgage financings and Capitalized
Lease Obligations, in each case Incurred by SCG Holding, Semiconductor
Components or any Restricted Subsidiary for the purpose of financing all or
any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in a Permitted Business, and in an
aggregate principal amount not in excess of $25 million at any one time
outstanding.
(11) Indebtedness of SCG Holding or any of its Restricted Subsidiaries
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary course
of business; PROVIDED, HOWEVER, that such Indebtedness is extinguished
within five business days of Incurrence;
(12) Indebtedness arising from agreements of SCG Holding or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, Incurred or assumed in connection with
the disposition of any business, assets or Capital Stock of SCG Holding or
any Restricted Subsidiary; PROVIDED that (A) the maximum aggregate liability
in respect of all such Indebtedness shall at no time exceed the gross
proceeds actually received by SCG Holding and its Subsidiaries in connection
with such disposition and (B) such Indebtedness is not reflected in the
balance sheet of SCG Holding or any Restricted Subsidiary
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(contingent obligations referred to in a footnote to financial statements
and not otherwise reflected on the balance sheet will not be deemed to be
reflected on such balance sheet for purposes of this clause (B));
(13) Indebtedness of SCG Holding or any of its Restricted Subsidiaries
that is Acquired Debt in an aggregate principal amount at any time
outstanding not to exceed $25 million; or
(14) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this
paragraph (b)) of SCG Holding or any Restricted Subsidiary in an aggregate
principal amount (or accreted value, as applicable) on the date of
Incurrence that, when added to all other Indebtedness Incurred pursuant to
this clause (14) and then outstanding, shall not exceed $50 million, of
which up to $25 million may be Incurred by Restricted Subsidiaries that are
not Note Guarantors.
(c) Notwithstanding the foregoing, neither SCG Holding nor Semiconductor
Components may Incur any Indebtedness pursuant to paragraph (b) above if the
proceeds thereof are used, directly or indirectly, to repay, prepay, redeem,
defease, retire, refund or refinance any Subordinated Obligations of such Person
in reliance on clause (2) of paragraph (b) of the covenant described under
"--Limitation on Restricted Payments" unless such Indebtedness will be
subordinated to the exchange notes and the initial notes to at least the same
extent as such Subordinated Obligations. Neither SCG Holding nor Semiconductor
Components may Incur any Indebtedness if such Indebtedness is subordinated or
junior in right of payment to any Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness. In addition, neither SCG Holding
nor Semiconductor Components may Incur any Secured Indebtedness that is not
Senior Indebtedness unless contemporaneously therewith effective provision is
made to secure the exchange notes and the initial notes equally and ratably with
(or on a senior basis to, in the case of Indebtedness subordinated in right of
payment to the exchange notes and the initial notes) such Secured Indebtedness
for so long as such Secured Indebtedness is secured by a Lien. A Note Guarantor
may not Incur any Indebtedness if such Indebtedness is by its terms expressly
subordinated or junior in right of payment ranking in any respect to any Senior
Indebtedness of such Note Guarantor unless such Indebtedness is Senior
Subordinated Indebtedness of such Note Guarantor or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness of such Note Guarantor. In
addition, a Note Guarantor shall not Incur any Secured Indebtedness that is not
Senior Indebtedness of such Note Guarantor unless contemporaneously therewith
effective provision is made to secure the Note Guarantee and the Guarantee of
the initial notes of such Note Guarantor equally and ratably with (or on a
senior basis to, in the case of Indebtedness subordinated in right of payment to
such Note Guarantee) such Secured Indebtedness for as long as such Secured
Indebtedness is secured by a Lien.
(d) Notwithstanding any other provision of this covenant, the maximum amount
of Indebtedness that SCG Holding or any Restricted Subsidiary may Incur pursuant
to this covenant shall not be deemed to be exceeded solely as a result of
fluctuations in the exchange rates of currencies. For purposes of determining
compliance with this covenant:
(1) Indebtedness Incurred pursuant to the Credit Agreement prior to or
on the Closing Date shall be treated as Incurred pursuant to clause (1) of
paragraph (b) above,
(2) Indebtedness permitted by this covenant need not be permitted solely
by reference to one provision permitting such Indebtedness but may be
permitted in part by one such provision and in part by one or more other
provisions of this covenant permitting such Indebtedness,
(3) in the event that Indebtedness meets the criteria of more than one
of the types of Indebtedness described in this covenant, SCG Holding, in its
sole discretion, shall classify such
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Indebtedness and only be required to include the amount of such Indebtedness
in one of such clauses, and
(4) the aggregate amount of any Indebtedness Guaranteed pursuant to
clause (7) of paragraph (b) will be included in the calculation of
Indebtedness but the corresponding amount of the Guarantee will not be so
included.
(e) Accrual of interest, the accretion of accreted value and the payment of
interest in the form of additional Indebtedness will not be deemed to be an
Incurrence of Indebtedness for purposes of this covenant.
(f) For purposes of determining compliance with any U.S. dollar-denominated
restriction on the Incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was Incurred, in the case of term debt, or first committed, in
the case of revolving credit debt; PROVIDED, that (1) the U.S. dollar-equivalent
principal amount of any such Indebtedness outstanding or committed on the
Closing Date shall be calculated based on the relevant currency exchange rate in
effect on August 1, 1999, and (2) if such Indebtedness is Incurred to Refinance
other Indebtedness denominated in a foreign currency, and such Refinancing would
cause the applicable U.S. dollar-denominated restriction to be exceeded if
calculated at the relevant currency exchange rate in effect on the date of such
Refinancing, such U.S. dollar-denominated restriction shall be deemed not to
have been exceeded so long as the principal amount of such Refinancing
Indebtedness does not exceed the principal amount of such Indebtedness being
Refinanced. The principal amount of any Indebtedness Incurred to Refinance other
Indebtedness, if Incurred in a different currency from the Indebtedness being
Refinanced, shall be calculated based on the currency exchange rate applicable
to the currencies in which such respective Indebtedness is denominated that is
in effect on the date of such Refinancing.
(g) SCG Holding will not, and will not permit Semiconductor Components to,
make any amendment to the Junior Subordinated Note which (1) makes the Junior
Subordinated Note subordinated in right of payment to the exchange notes and the
initial notes to a lesser extent than on the Closing Date or (2) results or
could result in any cash payment of principal, premium or interest in respect of
the Junior Subordinated Note becoming due at any time prior to the date such
payment would have been required in accordance with the terms of the Junior
Subordinated Note as in effect on the Closing Date.
LIMITATION ON RESTRICTED PAYMENTS. (a) SCG Holding will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(1) declare or pay any dividend or make any distribution on or in
respect of SCG Holding's or any Restricted Subsidiary's Capital Stock
(including any payment in connection with any merger or consolidation
involving SCG Holding) or similar payment to the direct or indirect holders
of its Capital Stock except dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock) and except dividends or
distributions payable to SCG Holding or another Restricted Subsidiary (and,
if such Restricted Subsidiary has shareholders other than SCG Holding or
other Restricted Subsidiaries, to its other shareholders on a pro rata
basis),
(2) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of SCG Holding or any Restricted Subsidiary held by Persons other than
SCG Holding or another Restricted Subsidiary, other than the making of a
Permitted Investment,
(3) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of
acquisition),
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(4) make any Investment (other than a Permitted Investment) in any
Person, or
(5) make or pay any interest or other distribution on the Junior
Subordinated Note except interest or other distributions payable solely in
Capital Stock (other than Disqualified Stock) or additional Junior
Subordinated Notes,
(any such dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition, retirement or Investment described in and not excluded from
clauses (1) through (5) being herein referred to as a "Restricted Payment"),
if at the time SCG Holding or such Restricted Subsidiary makes such
Restricted Payment:
(A) a Default will have occurred and be continuing (or would result
therefrom);
(B) SCG Holding could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under
"--Limitation on Indebtedness"; or
(C) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
will be conclusive and evidenced by a resolution of the Board of
Directors) declared or made subsequent to the Closing Date would exceed
the sum of (without duplication):
(i) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the
Closing Date occurs to the end of the most recent fiscal quarter for
which internal financial statements are available ending prior to the
date of such Restricted Payment (or, in case such Consolidated Net
Income will be a deficit, minus 100% of such deficit);
(ii) the aggregate Qualified Proceeds received by SCG Holding
from the issue or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Closing Date (other than an issuance or sale
to (x) a Subsidiary of SCG Holding or (y) an employee stock ownership
plan or other trust established by SCG Holding or any of its
Subsidiaries for the benefit of its employees to the extent that the
purchase by such plan or trust is financed by Indebtedness of such
plan or trust owed to SCG Holding or any of its Subsidiaries or
Indebtedness Guaranteed by SCG Holding or any of its Subsidiaries);
(iii) 100% of the aggregate Qualified Proceeds received by
SCG Holding from the issuance or sale of debt securities of
SCG Holding or Disqualified Stock of SCG Holding that after the
Closing Date have been converted into or exchanged for Capital Stock
(other than Disqualified Stock) of SCG Holding (other than an
issuance or sale to a Subsidiary of SCG Holding or an employee stock
ownership plan or other trust established by SCG Holding or any of
its Subsidiaries for the benefit of its employees to the extent that
the purchase by such plan or trust is financed by Indebtedness of
such plan or trust owed to SCG Holding or any of its Subsidiaries or
Indebtedness Guaranteed by SCG Holding or any of its Subsidiaries
(less the amount of any cash or the Fair Market Value of any property
distributed by SCG Holding or any Restricted Subsidiary upon such
conversion or exchange); PROVIDED, HOWEVER, that no amount will be
included in this clause (iii) to the extent it is already included in
Consolidated Net Income;
(iv) in the case of any Investment by SCG Holding or any
Restricted Subsidiary (other than any Permitted Investment) made
after the Closing Date, the disposition of such Investment by, or
repayment of such Investment to, SCG Holding or a Restricted
Subsidiary or the receipt by SCG Holding or any Restricted Subsidiary
of any dividends or distributions from such Investment, an aggregate
amount equal to the lesser
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of (x) the aggregate amount of such Investment treated as a
Restricted Payment pursuant to clause (4) above and (y) the aggregate
amount in cash received by SCG Holding or any Restricted Subsidiary
upon such disposition, repayment, dividend or distribution; PROVIDED,
HOWEVER, that no amount will be included in this clause (iv) to the
extent it is already included in Consolidated Net Income;
(v) in the event SCG Holding or any Restricted Subsidiary makes
any Investment in a Person that, as a result of or in connection with
such Investment, becomes a Restricted Subsidiary, an amount equal to
SCG Holding's or any Restricted Subsidiary's existing Investment in
such Person that was previously treated as a Restricted Payment
pursuant to clause (4) above; PROVIDED, HOWEVER, that such Person is
engaged in a Permitted Business; and
(vi) the amount equal to the sum of (x) the net reduction in
Investments in Unrestricted Subsidiaries resulting from payments of
dividends, repayments of the principal of loans or advances or other
transfers of assets to SCG Holding or any Restricted Subsidiary from
Unrestricted Subsidiaries and (y) the portion (proportionate to
SCG Holding's equity interest in such Subsidiary) of the Fair Market
Value of the net assets of an Unrestricted Subsidiary at the time
such Unrestricted Subsidiary is redesignated a Restricted Subsidiary;
PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments
previously made by SCG Holding or any Restricted Subsidiary in such
Unrestricted Subsidiary and treated as a Restricted Payment pursuant
to clause (4) above.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any purchase, repurchase, redemption or other acquisition or
retirement for value of Capital Stock of SCG Holding or any Restricted
Subsidiary made by exchange for, or out of the proceeds of the substantially
concurrent sale of, other Capital Stock of SCG Holding (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of SCG Holding or an employee stock ownership plan or other trust
established by SCG Holding or any of its Subsidiaries for the benefit of its
employees to the extent that the purchase by such plan or trust is financed
by Indebtedness of such plan or trust owed to SCG Holding or any of its
Subsidiaries or Indebtedness Guaranteed by SCG Holding or any of its
Subsidiaries); PROVIDED, HOWEVER, that:
(A) such Restricted Payment will be excluded from the calculation of
the amount of Restricted Payments, and
(B) the Net Cash Proceeds from such sale applied in the manner set
forth in this clause (1) will be excluded from the calculation of amounts
under clause (C)(ii) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of
SCG Holding or any Restricted Subsidiary, other than the Junior Subordinated
Note, made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness that is permitted to be Incurred pursuant
to paragraph (b) of the covenant described under "--Limitation on
Indebtedness"; PROVIDED, HOWEVER, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value will be
excluded from the calculation of the amount of Restricted Payments;
(3) the repurchase, redemption or other acquisition or retirement for
value of Disqualified Stock of SCG Holding or any Restricted Subsidiary made
by exchange for, or out of the proceeds of the substantially concurrent sale
of, Disqualified Stock of SCG Holding or any Restricted Subsidiary that is
permitted to be Incurred pursuant to the covenant described under
"--Limitation on Indebtedness"; PROVIDED, HOWEVER, that such repurchase,
redemption or other
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acquisition or retirement for value will be excluded from the calculation of
the amount of Restricted Payments;
(4) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock"; PROVIDED, HOWEVER,
that such purchase or redemption will be excluded from the calculation of
the amount of Restricted Payments;
(5) upon the occurrence of a Change of Control and within 60 days after
the completion of the offer to repurchase the exchange notes pursuant to the
covenant described under "Change of Control" above (including the purchase
of the exchange notes tendered), any purchase or redemption of Subordinated
Obligations required pursuant to the terms thereof as a result of such
Change of Control at a purchase or redemption price not to exceed the
outstanding principal amount thereof, plus any accrued and unpaid interest;
PROVIDED, HOWEVER, that (A) at the time of such purchase, no Default or
Event of Default shall have occurred and be continuing (or would result
therefrom), (B) SCG Holding would be able to Incur at least $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"--Limitation on Indebtedness" above after giving pro forma effect to such
Restricted Payment and (C) such purchase or redemption will be included in
the calculation of the amount of Restricted Payments;
(6) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; PROVIDED, HOWEVER, that such dividend will be included in the
calculation of the amount of Restricted Payments (without duplication for
declaration);
(7) the repurchase, redemption or other acquisition or retirement for
value of Capital Stock of SCG Holding or any of its Subsidiaries from
employees, former employees, directors or former directors of SCG Holding or
any of its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell or are granted the option to purchase or sell, shares of
such Capital Stock; PROVIDED, HOWEVER, that the aggregate amount of such
repurchases shall not exceed $2 million in any calendar year; PROVIDED
FURTHER, HOWEVER, that such repurchases, redemptions and other acquisitions
or retirements for value will be excluded from the calculation of the amount
of Restricted Payments;
(8) the declaration and payment of any dividend (or the making of any
similar distribution or redemption) to the holders of any class or series of
Disqualified Stock of SCG Holding, or Semiconductor Components or a Note
Guarantor issued or Incurred after the Closing Date in accordance with the
covenant described under "--Limitation on Indebtedness"; PROVIDED that no
Default or Event of Default shall have occurred and be continuing
immediately after making such declaration or payment; and PROVIDED, FURTHER,
that such payment will be excluded from the calculation of the amount of
Restricted Payments; and PROVIDED FURTHER that under no circumstances shall
this clause (8) allow the payment of any dividend (or the making of any
similar distribution or redemption) to the holders of any SCG Holding
Preferred Stock;
(9) cash payments in lieu of fractional shares issuable as dividends on
Preferred Stock of SCG Holding or any of its Restricted Subsidiaries;
PROVIDED that such cash payments shall not exceed $20,000 in the aggregate
in any twelve-month period and no Default or Event of Default shall have
occurred and be continuing immediately after such cash payments; and
PROVIDED, FURTHER, that such cash payments will be excluded from the
calculation of the amount of Restricted Payments;
(10) specified payments made in connection with our recapitalization and
the related transactions; or
(11) other Restricted Payments in an aggregate amount not to exceed
$20 million.
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LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. SCG Holding will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness or other obligations owed to SCG Holding or any
of its Restricted Subsidiaries;
(2) make any loans or advances to SCG Holding or any of its Restricted
Subsidiaries; or
(3) transfer any of its property or assets to SCG Holding or any of its
Restricted Subsidiaries, except:
(A) any encumbrance or restriction pursuant to applicable law,
regulation, order or an agreement in effect at or entered into on
the Closing Date;
(B) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary prior to the date on which
such Restricted Subsidiary was acquired by SCG Holding (other
than Indebtedness Incurred as consideration in, in contemplation
of, or to provide all or any portion of the funds or credit
support utilized to consummate the transaction or series of
related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was otherwise acquired by SCG
Holding) and outstanding on such date;
(C) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (A) or (B) of this covenant or this
clause (C) or contained in any amendment to an agreement referred
to in clause (A) or (B) of this covenant or this clause (C);
PROVIDED, HOWEVER, that the encumbrances and restrictions
contained in any agreement or amendment relating to such
Refinancing are no less favorable to the Holders than the
encumbrances and restrictions contained in the agreements
relating to the Indebtedness so Refinanced;
(D) any encumbrance or restriction
(i) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a
lease, license or similar contract, or
(ii) that is contained in security agreements securing Indebtedness
of a Restricted Subsidiary to the extent such encumbrance or
restriction restricts the transfer of the property subject to
such security agreements;
(E) with respect to a Restricted Subsidiary, any restriction imposed
pursuant to an agreement entered into for the sale or disposition
of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or
disposition;
(F) contracts for the sale of assets containing customary
restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of
such Subsidiary;
(G) agreements for the sale of assets containing customary
restrictions with respect to such assets;
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(H) restrictions relating to the common stock of Unrestricted
Subsidiaries or Persons other than Subsidiaries;
(I) encumbrances or restrictions existing under or by reason of
provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar
agreements entered into in the ordinary course of business;
(J) encumbrances or restrictions existing under or by reason of
restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; and
(K) any encumbrance or restriction existing under or by reason of a
Receivables Facility or other contractual requirements of a
Receivables Facility permitted pursuant to the covenant described
under "--Limitation on Indebtedness"; PROVIDED that such
restrictions apply only to such Receivables Facility.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) SCG Holding will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless:
(1) SCG Holding or such Restricted Subsidiary, as the case may be,
receives consideration (including by way of relief from, or by any
other Person assuming sole responsibility for, any liabilities,
contingent or otherwise) at the time of such Asset Disposition at
least equal to the Fair Market Value of the shares and assets subject
to such Asset Disposition,
(2) at least 80% of the consideration thereof received by SCG Holding or
such Restricted Subsidiary is in the form of cash, Temporary Cash
Investments or other Qualified Proceeds (PROVIDED that the aggregate
Fair Market Value of Qualified Proceeds (other than cash and
Temporary Cash Investments) shall not exceed $10 million since the
Closing Date) and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by SCG Holding (or such Restricted Subsidiary,
as the case may be)
(A) FIRST, (x) to the extent SCG Holding elects (or is required by
the terms of any Indebtedness), to prepay, repay, redeem or
purchase Senior Indebtedness of SCG Holding or Indebtedness
(other than any Disqualified Stock) of a Wholly Owned Subsidiary
(in each case other than Indebtedness owed to SCG Holding or an
Affiliate of SCG Holding and other than Preferred Stock) or
(y) to the extent SCG Holding or such Restricted Subsidiary
elects, to acquire Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with
Net Available Cash received by SCG Holding or another Restricted
Subsidiary), in each case, within one year from the later of such
Asset Disposition or the receipt of such Net Available Cash;
PROVIDED, HOWEVER, that pending the final application of any such
Net Available Cash under clause (A), SCG Holding or such
Restricted Subsidiary may temporarily reduce amounts available
under revolving credit facilities or invest such Net Available
Cash in Temporary Cash Investments,
(B) SECOND, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to make an Offer
(as defined below) to purchase exchange notes pursuant to and
subject to the conditions set forth in paragraph (b) of this
covenant; PROVIDED, HOWEVER, that if SCG Holding elects (or is
required by the terms of any other Senior Subordinated
Indebtedness), such Offer
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may be made ratably to purchase the exchange notes and other
Senior Subordinated Indebtedness of SCG Holding, and
(C) THIRD, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), for
general corporate purposes;
PROVIDED, HOWEVER that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A), (B) or (C) above, SCG
Holding or such Restricted Subsidiary will retire such Indebtedness and
will cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or
purchased.
Notwithstanding the foregoing provisions of this covenant, SCG Holding and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $10 million.
For the purposes of clause (2) above of this covenant only, the
following are deemed to be cash:
- the assumption of any liabilities (as shown on SCG Holding's or a
Restricted Subsidiary's most recent balance sheet) of SCG Holding or
any such Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the exchange notes
or any Note Guarantee) pursuant to a customary novation agreement that
releases SCG Holding or such Restricted Subsidiary from further
liability in connection with such Asset Disposition and
- any securities or other obligations received by SCG Holding or any
Restricted Subsidiary from the transferee that are converted within
90 days of receipt by SCG Holding or such Restricted Subsidiary into
cash.
(b) In the event of an Asset Disposition that requires the purchase of
exchange notes (and other Senior Subordinated Indebtedness) pursuant to
clause (a)(3)(C) of this covenant, SCG Holding will be required to
purchase exchange notes (and other Senior Subordinated Indebtedness)
tendered pursuant to an offer by SCG Holding to Holders for the exchange
notes (and other Senior Subordinated Indebtedness) (the "Offer") at a
purchase price of 100% of their principal amount (without premium) plus
accrued and unpaid interest (or, in respect of such other Senior
Subordinated Indebtedness, such lesser price, if any, as may be provided
for pursuant to the terms thereof), to the date of purchase (subject to
the right of Holders of record on the relevant date to receive interest
due on the relevant interest payment date) in accordance with the
procedures (including prorating in the event of oversubscription), set
forth in the Indenture. If the aggregate purchase price of exchange notes
(and other Senior Subordinated Indebtedness) tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of the
exchange notes (and other Senior Subordinated Indebtedness), SCG Holding
will apply the remaining Net Available Cash in accordance with
clause (a)(3)(C) of this covenant. SCG Holding will not be required to
make an Offer for exchange notes (and other Senior Subordinated
Indebtedness) pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in
clauses (a)(3)(A) and (B)) is less than $10 million for any particular
Asset Disposition (which lesser amount will be carried forward for
purposes of determining whether an Offer is required with respect to the
Net Available Cash from any subsequent Asset Disposition).
(c) SCG Holding will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the
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repurchase of exchange notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this covenant, SCG Holding will comply with the applicable
securities laws and regulations and will not be deemed to have breached
its obligations under this covenant by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) SCG Holding will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of SCG Holding
unless such transaction is on terms:
(1) that are no less favorable (other than in immaterial respects) to SCG
Holding or such Restricted Subsidiary, as the case may be, than those
that could be obtained at the time of such transaction in comparable
arm's-length dealings with a Person who is not such an Affiliate,
(2) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $5 million,
(A) are set forth in writing, and
(B) have been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction and,
(3) that, in the event such Affiliate Transaction involves an amount in
excess of $15 million, have been determined by a nationally recognized
appraisal or investment banking firm to be fair, from a financial
standpoint, to SCG Holding and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any Restricted Payment permitted to be paid pursuant to the covenant
described under "--Limitation on Restricted Payments,"
(2) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the
Board of Directors,
(3) the grant of stock options or similar rights to officers, employees,
consultants and directors of SCG Holding pursuant to plans approved by
the Board of Directors and the payment of amounts or the issuance of
securities pursuant thereto,
(4) loans or advances to employees in the ordinary course of business
consistent with prudent business practice, but in any event not to exceed
$5 million in the aggregate outstanding at any one time,
(5) the payment of reasonable fees, compensation or employee benefit
arrangements to and any indemnity provided for the benefit of directors,
officers, consultants or employees of SCG Holding or any Restricted
Subsidiary in the ordinary course of business,
(6) any transaction between SCG Holding and a Restricted Subsidiary or
between Restricted Subsidiaries (the joint venture Semiconductor
Miniature Products, which is discussed in "Business--Joint Ventures,"
being deemed a Restricted Subsidiary solely for purposes of this
clause (6) so long as SCG Holding continues to own, directly or
indirectly, at least 40% of its Voting Stock),
(7) payment of fees and expenses to Texas Pacific Group or its Affiliates in
connection with our recapitalization and the related transactions on the
terms described in this prospectus,
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(8) the payment of management, consulting and advisory fees to Texas Pacific
Group or its Affiliates made pursuant to any financial advisory,
financing, underwriting or placement agreement or in respect of other
investment banking activities, including, without limitation, in
connection with acquisitions or divestitures, in an amount not to exceed
$2 million in any calendar year and any related out-of-pocket expenses,
(9) the agreements we entered into with Motorola and its Affiliates in
connection with our recapitalization as in effect on the Closing Date and
on the terms described in this prospectus or any amendment or
modification thereto or replacement thereof so long as any such
amendment, modification or replacement thereof is not more
disadvantageous to the Holders in any material respect than the related
agreement as in effect on the Closing Date,
(10) transactions with customers, suppliers, contractors, joint venture
partners or purchasers or sellers of goods or services, in each case
which are in the ordinary course of business (including, without
limitation, pursuant to joint venture agreements) and otherwise in
compliance with the terms of the Indenture, and which are fair to SCG
Holding or its Restricted Subsidiaries, as applicable, in the reasonable
determination of the Board of Directors or the senior management of SCG
Holding or its Restricted Subsidiaries, as applicable or are on terms at
least as favorable as might reasonably have been obtained at such time
from an unaffiliated party, or
(11) any transaction effected in connection with a Receivables Facility
permitted under the covenant "--Limitations on Indebtedness."
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. SCG Holding will not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except:
(1) to SCG Holding or another Restricted Subsidiary;
(2) if, immediately after giving effect to such issuance, sale or other
disposition, neither SCG Holding nor any of its Restricted Subsidiaries
own any Capital Stock of such Restricted Subsidiary;
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in such Person remaining after giving effect thereto
would have been permitted to be made under the covenant described under
"--Limitation on Restricted Payments" if made on the date of such
issuance, sale or other disposition;
(4) directors' qualifying shares or shares required by applicable law to be
held by a Person other than SCG Holding or a Restricted Subsidiary; or
(5) in the case of a Restricted Subsidiary other than a wholly owned
Restricted Subsidiary, the issuance by that Restricted Subsidiary of
Capital Stock on a PRO RATA basis to SCG Holding and its Restricted
Subsidiaries, on the one hand, and minority shareholders of the
Restricted Subsidiary, on the other hand (or on less than a PRO RATA
basis to any minority shareholder if the minority holder does not acquire
its PRO RATA amount), so long as SCG Holding or another Restricted
Subsidiary owns and controls at least the same percentage of the Voting
Stock of, and economic interest in, such Restricted Subsidiary as prior
to such issuance.
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The cash proceeds of any sale of Capital Stock permitted under clauses
(2) and (3) will be treated as Net Available Cash from an Asset Disposition and
must be applied in accordance with the terms of the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock."
COMMISSION REPORTS. SCG Holding will provide the Trustee, within 15 days
after it files them with the SEC, copies of its annual report and the
information, documents and other reports that are specified in Sections 13 and
15(d) of the Exchange Act. In addition, following a Public Equity Offering, SCG
Holding shall furnish to the Trustee, promptly upon their becoming available,
copies of the annual report to shareholders and any other information provided
by SCG Holding to its public shareholders generally. SCG Holding also will
comply with the other provisions of Section 314(a) of the TIA.
FUTURE NOTE GUARANTORS. SCG Holding will cause (1) each Domestic Subsidiary
and (2) each Foreign Subsidiary that enters into or has outstanding a Guarantee
of any other Indebtedness of SCG Holding or any Domestic Subsidiary, if the
aggregate principal amount of Indebtedness of SCG Holding and its Domestic
Subsidiaries Guaranteed by all Foreign Subsidiaries exceeds $25 million, to
become a Note Guarantor, and, if applicable, execute and deliver to the Trustee
a supplemental indenture in the form set forth in the Indenture pursuant to
which such Subsidiary will Guarantee payment of the exchange notes. Each Note
Guarantee will be limited to an amount not to exceed the maximum amount that can
be Guaranteed by that Note Guarantor, without rendering the Note Guarantee, as
it relates to such Note Guarantor voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
LIMITATION ON LINES OF BUSINESS. SCG Holding will not, and will not permit
any Restricted Subsidiary (other than a Receivables Subsidiary) to, engage in
any business, other than a Permitted Business.
MERGER AND CONSOLIDATION
(a) SCG Holding and Semiconductor Components each will not consolidate with
or merge with or into, or convey, transfer or lease all or substantially all its
assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation or, subject to the proviso below, a
partnership or limited liability company, in each case organized and
existing under the laws of the United States of America, any State thereof
or the District of Columbia, and the Successor Company (if not SCG Holding
or Semiconductor Components, as the case may be) will expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of SCG Holding
or Semiconductor Components, as the case may be, under the exchange notes
and the Indenture; PROVIDED, HOWEVER, that at all times, at least one Issuer
must be a corporation organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur at least $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "--Indenture
Covenants--Limitation on Indebtedness"; and
(4) SCG Holding shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, SCG Holding or Semiconductor Components, as
the case may be, under the Indenture.
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(b) In addition, SCG Holding will not permit any Note Guarantor to
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of its assets to any Person unless:
(1) in the case of any Note Guarantor that is a Domestic Subsidiary, the
resulting, surviving or transferee Person will be a corporation, partnership
or limited liability company organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia, and
such Person (if not such Note Guarantor) will expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of such Note Guarantor
under its Note Guarantee;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been Incurred by
such Person at the time of such transaction), no Default shall have occurred
and be continuing; and
(3) SCG Holding will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture;
PROVIDED, HOWEVER, that the foregoing shall not apply to any such
consolidation or merger with or into, or conveyance, transfer or lease to, any
Person if the resulting, surviving or transferee Person will not be a Subsidiary
of SCG Holding and the other terms of the Indenture, including the covenant
described under "--Indenture Covenants--Limitations on Sales of Assets and
Subsidiary Stock," are complied with.
(c) Notwithstanding the foregoing:
(1) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to SCG Holding or
Semiconductor Components;
(2) SCG Holding may merge with an Affiliate incorporated or organized
solely for the purpose of reincorporating or reorganizing SCG Holding in
another jurisdiction to realize tax or other benefits;
(3) nothing in the indenture limits any conveyance, transfer or lease of
assets between or among any of SCG Holding, Semiconductor Components and the
Note Guarantors; and
(4) the foregoing clause 3 of paragraph (a) above does not prohibit
(A) a merger between SCG Holding and a Person that owns all of the Capital
Stock of SCG Holding created solely for the purpose of holding the Capital
Stock of SCG Holding or (B) a merger between Semiconductor Components and a
Person that owns all of the Capital Stock of Semiconductor Components
created solely for the purpose of holding the Capital Stock of Semiconductor
Components; PROVIDED, HOWEVER, that the other terms of paragraph (a) above
are complied with.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in any payment of interest on any exchange note or initial
note or in any payment of liquidated damages with respect thereto, whether
or not prohibited by the provisions described under "--Ranking" above,
continued for 30 days,
(2) a default in the payment of principal of any exchange note or
initial note when due and payable at its Stated Maturity, upon required
redemption or repurchase, upon declaration or otherwise, whether or not such
payment is prohibited by the provisions described under "--Ranking" above,
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(3) the failure by SCG Holding, Semiconductor Components or any Note
Guarantor to comply with its obligations under the covenant described under
"--Merger and Consolidation" above,
(4) the failure by SCG Holding, Semiconductor Components or any Note
Guarantor to comply for 30 days after notice with any of their obligations
under the covenants described under "--Change of Control" or "--Indenture
Covenants" above (in each case, other than a failure to purchase Notes),
(5) the failure by SCG Holding, Semiconductor Components or any Note
Guarantor to comply for 60 days after notice with its other agreements
contained in the Notes or the Indenture,
(6) the failure by SCG Holding or any Restricted Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $25 million or its foreign currency equivalent (the "cross
acceleration provision") and such failure continues for 10 days after
receipt of the notice specified in the Indenture,
(7) events of bankruptcy, insolvency or reorganization of SCG Holding,
Semiconductor Components or any other Significant Subsidiary (the
"bankruptcy provisions"),
(8) with respect to any judgment or decree for the payment of money in
excess of $25 million or its foreign currency equivalent against
SCG Holding or any Restricted Subsidiary:
(A) the commencement of an enforcement proceeding thereon by any
creditor if such judgment or decree is final and nonappealable and the
failure by SCG Holding or such Restricted Subsidiary, as applicable, to
stay such proceeding within 10 days thereafter or
(B) the failure by SCG Holding or such Restricted Subsidiary, as
applicable, to pay such judgment or decree, which judgment or decree has
remained outstanding for a period of 60 days following such judgment or
decree without being paid, discharged, waived or stayed (the "judgment
default provision");
(9) any Note Guarantee or Guarantee of any initial note of any
Significant Subsidiary ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Significant Subsidiary that is a
Note Guarantor, Guarantor of an initial note or Person acting by or on
behalf of such Significant Subsidiary denies or disaffirms such Significant
Subsidiary's obligations under the Indenture, any Note Guarantee or any
Guarantee of any initial note and such Default continues for 10 days after
receipt of the notice specified in the Indenture.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (4), (5), (6) or (9) will not constitute an
Event of Default until the Trustee notifies the Issuers or the Holders of at
least 25% in principal amount of the outstanding exchange notes and initial
notes taken together notify the Issuers and the Trustee of the default and the
Issuers, the relevant Note Guarantor or Guarantee of any initial note, as
applicable, do not cure such default within the time specified after receipt of
such notice.
The Holders of a majority in aggregate principal amount of the exchange
notes and initial notes taken together and then outstanding by notice to the
Trustee may on behalf of the Holders of all of
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the exchange notes and initial notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the
exchange notes or the initial notes.
If an Event of Default (other than an Event of Default relating to events of
bankruptcy, insolvency or reorganization of SCG Holding or Semiconductor
Components) occurs and is continuing, the Trustee or the Holders of at least 25%
in principal amount of the outstanding exchange notes and initial notes taken
together by notice to the Issuers may declare the principal of and accrued but
unpaid interest on all the exchange notes and initial notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to events of bankruptcy,
insolvency or reorganization of SCG Holding or Semiconductor Components occurs,
the principal of and interest on all the exchange notes and initial notes will
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Holders. Under specified circumstances, the Holders
of a majority in principal amount of the outstanding exchange notes and initial
notes may rescind any such acceleration with respect to the exchange notes and
initial notes and its consequences.
In the event of a declaration of acceleration of the exchange notes and
initial notes because an Event of Default has occurred and is continuing as a
result of the acceleration of any Indebtedness described in clause (6) of the
fourth preceding paragraph, the declaration of acceleration of the exchange
notes and initial notes shall be automatically annulled if the holders of any
such Indebtedness have rescinded the declaration of acceleration in respect of
such Indebtedness within 30 days of the date of such acceleration and if
(1) the annulment of the acceleration of the exchange notes and initial notes
would not conflict with any judgment or decree of a court of competent
jurisdiction and (2) all existing Events of Default, except nonpayment of
principal or interest on the exchange notes or initial notes that became due
solely because of the acceleration of the exchange notes and initial notes, have
been cured or waived.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the exchange notes unless:
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing,
(2) Holders of at least 25% in principal amount of the outstanding
exchange notes and initial notes taken together have requested the Trustee
in writing to pursue the remedy,
(3) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense,
(4) the Trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity and
(5) the Holders of a majority in principal amount of the outstanding
exchange notes and initial notes taken together have not given the Trustee a
direction inconsistent with such request within such 60-day period.
Subject to specified restrictions, the Holders of a majority in principal
amount of the outstanding exchange notes and initial notes taken together will
be given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising
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any trust or power conferred on the Trustee. The Trustee, however, may refuse to
follow any direction that conflicts with law or the Indenture or that the
Trustee determines is unduly prejudicial to the rights of any other Holder or
that would involve the Trustee in personal liability. Prior to taking any action
under the Indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each Holder notice of the Default within the earlier of
90 days after it occurs or 30 days after it is known to a Trust Officer or
written notice of it is received by the Trustee. Except in the case of a Default
in the payment of principal of, premium (if any) or interest on any exchange
note or initial note (including payments pursuant to the redemption provisions
of such exchange note or initial note, as applicable), the Trustee may withhold
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding notice is in the interests of the Holders. In
addition, the Issuers will be required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred during the previous year. The
Issuers will also be required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
Events of Default, their status and what action the Issuers are taking or
propose to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to specified exceptions, the Indenture or the exchange notes may be
amended with the written consent of the Holders of a majority in principal
amount of the exchange notes and the initial notes taken together and then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the Holders of a majority in principal amount of the
exchange notes and the initial notes taken together and then outstanding.
However, without the consent of each Holder of an outstanding exchange note
affected, no amendment may, among other things:
(1) reduce the amount of exchange notes and initial notes whose Holders
must consent to an amendment,
(2) reduce the rate of or extend the time for payment of interest on any
exchange note,
(3) reduce the principal of or extend the Stated Maturity of any
exchange note,
(4) reduce the premium payable upon the redemption of any exchange note
or change the time at which any exchange note may be redeemed as described
under "--Optional Redemption" above,
(5) make any exchange note payable in money other than that stated in
the exchange note,
(6) make any change to the subordination provisions of the Indenture
that adversely affects the rights of any Holder,
(7) impair the right of any Holder to receive payment of principal of,
and interest or any liquidated damages on, such Holder's exchange notes on
or after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such Holder's exchange notes,
(8) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions, or
(9) modify the Note Guarantees in any manner adverse to the Holders.
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Without the consent of any Holder, SCG Holding and Trustee may amend the
Indenture to:
- cure any ambiguity, omission, defect or inconsistency,
- provide for the assumption by a successor corporation of the obligations
of either Issuer under the Indenture,
- provide for uncertificated exchange notes in addition to or in place of
certificated exchange notes; PROVIDED, HOWEVER, that the uncertificated
exchange notes are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated
exchange notes are described in Section 163(f)(2)(B) of the Code,
- make any change in the subordination provisions of the Indenture that
would limit or terminate the benefits available to any holder of Senior
Indebtedness of the Issuers (or any Representative thereof) under such
subordination provisions,
- add additional Guarantees with respect to the exchange notes,
- secure the exchange notes,
- add to the covenants of the Issuers for the benefit of the Holders or to
surrender any right or power conferred upon SCG Holding,
- make any change that does not adversely affect the rights of any Holder,
subject to the provisions of the Indenture,
- provide for the issuance of the exchange notes or
- comply with any requirement of the Commission in connection with the
qualification of the Indenture under the TIA.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of either Issuer then outstanding unless the holders of such Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent to
such change.
The consent of the Holders will not be necessary to approve the particular
form of any proposed amendment. It will be sufficient if such consent approves
the substance of the proposed amendment.
After an amendment becomes effective, the Issuers are required to mail to
Holders a notice briefly describing such amendment. However, the failure to give
such notice to all Holders, or any defect therein, will not impair or affect the
validity of the amendment.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, stockholder, member or incorporator of
SCG Holding, Semiconductor Components or the Note Guarantors, as such, shall
have any liability for any obligations of the Issuers or the Note Guarantors
under the exchange notes, the Indenture or the Note Guarantees or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting an exchange note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the exchange notes. Such waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
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DEFEASANCE
The Issuers may at any time terminate all their obligations under the
exchange notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the exchange notes, to replace mutilated,
destroyed, lost or stolen exchange notes and to maintain a registrar and paying
agent in respect of the exchange notes. In addition, the Issuers may at any time
terminate:
(1) their obligations under the covenants described under "--Indenture
Covenants", and
(2) the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment default
provision described under "--Defaults" above and the limitations contained
in clause (3) under paragraph (a) of the covenant described under "--Merger
and Consolidation" above ("covenant defeasance").
In the event that the Issuers exercise their legal defeasance option or
their covenant defeasance option, each Note Guarantor will be released from all
of their obligations with respect to its Note Guarantee.
The Issuers may exercise their legal defeasance option notwithstanding their
prior exercise of their covenant defeasance option. If the Issuers exercise
their legal defeasance option, payment of the exchange notes may not be
accelerated because of an Event of Default with respect thereto. If the Issuers
exercise their covenant defeasance option, payment of the exchange notes may not
be accelerated because of an Event of Default specified in clause (4), (6),
(7) (with respect only to Significant Subsidiaries), (8) (with respect only to
Significant Subsidiaries) or (9) under "--Defaults" above or because of the
failure of SCG Holding to comply with clause (3) under paragraph (a) of the
covenant described under "--Merger and Consolidation" above.
In order to exercise either defeasance option, the Issuers must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money in an amount
sufficient or U.S. Government Obligations, the principal of and interest on
which will be sufficient, or a combination thereof sufficient, to pay the
principal, premium (if any) and interest on the exchange notes to redemption or
maturity, as the case may be, including interest thereon to maturity or such
redemption date, and must comply with other conditions, including delivery to
the Trustee of an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by SCG Holding as Registrar, Paying Agent and Exchange Agent
with regard to the exchange notes.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.
The Indenture and the provisions of the TIA contain limitations on the
rights of the Trustee, should it become a creditor of SCG Holding, to obtain
payments of claims or to realize on property
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received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; PROVIDED
that, if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
GOVERNING LAW
The Indenture and the exchange notes are governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
DEFINED TERMS
"Acquired Debt" means, with respect to any specified Person,
(1) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness Incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person) and (2) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock) to be
used by SCG Holding or a Restricted Subsidiary in a Permitted Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by SCG Holding or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary; PROVIDED, HOWEVER, that:
any such Restricted Subsidiary described in clauses (2) or (3) above is
primarily engaged in a Permitted Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Indenture Covenants--Limitation on
Transactions with Affiliates" and "--Indenture Covenants--Limitation on Sales of
Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial
owner of shares representing more than 10% of the total voting power of the
Voting Stock (on a fully diluted basis) of SCG Holding or of rights or warrants
to purchase such Voting Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asset Disposition" means any sale, lease (other than an operating lease),
transfer or other disposition (or series of related sales, leases, transfers or
dispositions) by SCG Holding or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation, or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than SCG Holding or a Restricted Subsidiary) that
have a Fair Market Value in excess of $5 million,
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(2) all or substantially all the assets of any division or line of business
of SCG Holding or any Restricted Subsidiary or
(3) any other assets of SCG Holding or any Restricted Subsidiary outside of
the ordinary course of business of SCG Holding or such Restricted
Subsidiary
other than, in the case of (1), (2) and (3) above,
(A) disposition by SCG Holding to a Restricted Subsidiary or by a
Restricted Subsidiary to SCG Holding or to another Restricted
Subsidiary;
(B) an issuance of Capital Stock by a Subsidiary to SCG Holding or to a
Restricted Subsidiary;
(C) for purposes of the covenants described under "--Indenture
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
a disposition that constitutes a Restricted Payment permitted by the
covenant described under "--Indenture Covenants--Limitation on
Restricted Payments";
(D) a disposition of assets with a Fair Market Value of less than
$5 million;
(E) a Sale/Leaseback Transaction with respect to any assets within
90 days of the acquisition of such assets;
(F) a disposition of Temporary Cash Investments, the proceeds of which
are used within five business days to make another Permitted
Investment;
(G) a disposition of obsolete, uneconomical, negligible, worn out or
surplus property or equipment in the ordinary course of business and
the periodic clearance of aged inventory;
(H) any exchange of like-kind property of the type described in
Section 1031 of the Code for use in a Permitted Business;
(I) the sale or disposition of any assets or property received as a
result of a foreclosure by SCG Holding or any of its Restricted
Subsidiaries of any secured Investment or any other transfer of title
with respect to any secured Investment in default;
(J) the licensing of intellectual property in the ordinary course of
business or in accordance with industry practice;
(K) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof; and
(L) a sale of accounts receivable and related assets pursuant to a
Receivables Facility.
Notwithstanding the foregoing, the sale, lease, conveyance or other
disposition of all or substantially all of the assets of SCG Holding and its
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "Merger and Consolidation" and not
by the provisions of the covenant described under the caption "--Indenture
Covenants--Limitation of Sales of Assets and Subsidiary Stock."
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
implicit in such transaction, determined in accordance with GAAP) of the total
obligations of the lessee for net rental payments during the remaining term of
the lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended or may be, at the option of the lessor,
extended).
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"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the number of years obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or scheduled redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such payment
by
(2) the then outstanding sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Credit Agreement and any Refinancing Indebtedness with respect thereto, as
amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to SCG Holding or Semiconductor
Components whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof. It is understood and
agreed that Refinancing Indebtedness in respect of the Credit Agreement may be
Incurred from time to time after termination of the Credit Agreement.
"Board of Directors" means the Board of Directors of SCG Holding or any
committee thereof duly authorized to act on behalf of the Board of Directors of
SCG Holding.
"Business Day" means each day which is not a Legal Holiday.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, partnership,
membership or other interests, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock (but excluding any debt securities convertible into such equity) and any
rights to purchase, warrants, options or similar interests with respect to the
foregoing.
"Closing Date" means the date of the Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of:
(1) the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters for which internal financial statements are
available prior to the date of such determination to
(2) Consolidated Interest Expense for such four fiscal quarters;
PROVIDED, HOWEVER, that:
(A) if SCG Holding or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains
outstanding on such date of determination or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Indebtedness, EBITDA and Consolidated Interest
Expense for such
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period shall be calculated after giving effect on a pro forma basis
to such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period (in each case other than Indebtedness
Incurred under any revolving credit facility, in which case interest
expense shall be computed based upon the average daily balance of
such Indebtedness during the applicable period) and the discharge of
any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period,
(B) if SCG Holding or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning
of such period or if any Indebtedness is to be repaid, repurchased,
defeased or otherwise discharged (in each case, if such Indebtedness
has been permanently repaid and has not been replaced, other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness is permanently reduced, in which case interest expense
shall be computed based upon the average daily balance of such
Indebtedness during the applicable period) on the date of the
transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such
period shall be calculated on a pro forma basis as if such discharge
had occurred on the first day of such period and as if SCG Holding or
such Restricted Subsidiary has not earned any interest income
actually earned during such period in respect of cash or Temporary
Cash Investments used to repay, repurchase, defease or otherwise
discharge such Indebtedness,
(C) if since the beginning of such period SCG Holding or any Restricted
Subsidiary shall have made any Asset Disposition, EBITDA for such
period shall be reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets that are the subject of such
Asset Disposition for such period or increased by an amount equal to
EBITDA (if negative) directly attributable thereto for such period
and Consolidated Interest Expense for such period shall be reduced by
an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of SCG Holding or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to SCG Holding and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (or, if the
Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent SCG Holding
and its continuing Restricted Subsidiaries are no longer liable for
such Indebtedness after such sale),
(D) if since the beginning of such period SCG Holding or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on
the first day of such period, and
(E) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into SCG Holding
or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition or
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any Investment or acquisition of assets that would have required an
adjustment pursuant to clause (C) or (D) above if made by SCG Holding
or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Asset Disposition,
Investment or acquisition of assets occurred on the first day of such
period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of SCG Holding.
Any such pro forma calculations shall reflect any pro forma expense and cost
reductions attributable to such acquisitions, to the extent such expense and
cost reduction would be permitted by the Commission to be reflected in pro forma
financial statements included in a registration statement filed with the
Commission.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term as at the date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of SCG Holding and its Consolidated Restricted Subsidiaries, plus, to
the extent Incurred by SCG Holding or its Restricted Subsidiaries in such period
but not included in such interest expense, without duplication:
(1) interest expense attributable to Capitalized Lease Obligations and the
imputed interest with respect to Attributable Debt,
(2) amortization of debt discount,
(3) amortization of debt issuance costs (other than any such costs
associated with the Bank Indebtedness, the initial notes, the exchange
notes, the Junior Subordinated Note or otherwise associated with our
recapitalization),
(4) capitalized interest,
(5) noncash interest expense other than any noncash interest expense in
connection with the Junior Subordinated Note,
(6) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing,
(7) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by SCG Holding or any Restricted
Subsidiary,
(8) net costs associated with Hedging Obligations (including amortization of
fees) (other than any such costs associated with the Bank Indebtedness,
the exchange notes, the Junior Subordinated Note or otherwise associated
with the Transactions),
(9) dividends in respect of all Disqualified Stock of SCG Holding and all
Preferred Stock of any of the Restricted Subsidiaries of SCG Holding, to
the extent held by Persons other than SCG Holding or another Restricted
Subsidiary, other than accumulated but unpaid dividends on the SCG
Holding Preferred Stock,
(10) interest Incurred in connection with investments in discontinued
operations and
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(11) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to
pay interest or fees to any Person (other than SCG Holding) in connection
with Indebtedness Incurred by such plan or trust.
Notwithstanding anything to the contrary contained herein, commissions,
discounts, yield and other fees and charges Incurred in connection with any
transaction (including, without limitation, in connection with a Receivables
Facility) pursuant to which SCG Holding or any Subsidiary of SCG Holding may
sell, convey or otherwise transfer or grant a security interest in any accounts
receivable or related assets as contemplated by the definition of "Receivables
Facility" shall be included in Consolidated Interest Expense.
"Consolidated Net Income" means, for any period, the net income of SCG
Holding and its Consolidated Subsidiaries for such period determined in
accordance with GAAP; PROVIDED, HOWEVER, that:
(1) any net income of any Person (other than SCG Holding) if such Person is
not a Restricted Subsidiary, shall be excluded from such Consolidated Net
Income, except that:
(A) subject to the limitations contained in clause (4) below, SCG
Holding's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period
to SCG Holding or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other
distribution made to a Restricted Subsidiary, to the limitations
contained in clause (3) below) and
(B) SCG Holding's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by SCG Holding or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded from such Consolidated Net
Income;
(3) any net income (or loss) of any Restricted Subsidiary, to the extent
that the declaration of dividends or similar distributions by such
Restricted Subsidiary of that income is not at the date of determination
permitted without any prior governmental approval (that has not been
obtained) or is, directly or indirectly, restricted by operation of the
terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary or its stockholders or other holders of its equity,
shall be excluded from such Consolidated Net Income except that:
(A) subject to the limitations contained in clause (4) below, SCG
Holding's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such
Restricted Subsidiary during such period to SCG Holding or another
Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend or other distribution made to another
Restricted Subsidiary, to the limitation contained in this clause)
and
(B) SCG Holding's equity in a net loss of any such Restricted Subsidiary
for such period shall be included in determining such Consolidated
Net Income;
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(4) any gain (or loss) realized upon the sale or other disposition of any
asset of SCG Holding or its Consolidated Subsidiaries (including pursuant
to any Sale/Leaseback Transaction) that is not sold or otherwise disposed
of in the ordinary course of business and any gain (or loss) realized
upon the sale or other disposition of any Capital Stock of any Person
shall be excluded from such Consolidated Net Income (without regard to
abandonments or reserves relating thereto);
(5) any extraordinary gain or loss shall be excluded from such Consolidated
Net Income;
(6) the cumulative effect of a change in accounting principles shall be
excluded from such Consolidated Net Income;
(7) gains or losses due solely to fluctuations in currency values and the
related tax effects according to GAAP shall be excluded from such
Consolidated Net Income;
(8) only for the purposes of the definition of EBITDA, one-time cash charges
recorded in accordance with GAAP resulting from any merger,
recapitalization or acquisition transaction shall be excluded from such
Consolidated Net Income; and
(9) the amortization of any premiums, fees or expenses incurred in
connection with our recapitalization and the related transactions or any
amounts required or permitted by Accounting Principles Board Opinions
Nos. 16 (including noncash write-ups and noncash charges relating to
inventory and fixed assets, in each case arising in connection with the
Transactions) and 17 (including noncash charges relating to intangibles
and goodwill arising in connection with our recapitalization), in each
case in connection with our recapitalization and the related
transactions, shall be excluded from such Consolidated Net Income.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of SCG Holding in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of SCG Holding or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement to be dated as of August 4,
1999 among Semiconductor Components, SCG Holding and the Subsidiaries of SCG
Holding named therein, the lenders named therein and The Chase Manhattan Bank,
as administrative agent, collateral agent and syndication agent, DLJ Capital
Funding, Inc., as co-documentation agent, and Lehman Commercial Paper Inc., as
co-documentation agent, including any collateral documents, instruments and
agreements executed in connection therewith, and any amendments, supplements,
modifications, extensions, renewals, restatements or refundings thereof (except
to the extent that any such amendment, supplement, modification, extension,
renewal, restatement or refunding would be prohibited by the terms of the
Indenture, unless otherwise agreed to by the Holders of at least a majority in
aggregate principal amount of exchange notes and the initial notes taken
together and at the time outstanding) and any indentures or credit facilities or
commercial paper facilities with banks or other institutional lenders that
replace, refund or refinance any part of the loans, notes, other credit
facilities or commitments thereunder, including any such replacement, refunding
or refinancing facility or indenture that increases the amount borrowable
thereunder or alters the maturity thereof.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreements or other similar agreement or arrangement to
which such Person is a party.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" of SCG Holding means
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(1) the Bank Indebtedness and
(2) any other Senior Indebtedness of SCG Holding that, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to at least $25 million and is specifically designated by SCG
Holding in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of the
Indenture.
"Designated Senior Indebtedness" of Semiconductor Components and of a Note
Guarantor has a correlative meaning.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(3) is redeemable at the option of the holder thereof, in whole or in part,
in the case of clauses (1), (2) and (3), on or prior to 90 days after the Stated
Maturity of the exchange notes; PROVIDED, HOWEVER, that only the portion of
Capital Stock that so matures or is mandatorily redeemable, is so convertible or
exchangeable or is so redeemable at the option of the holder thereof prior to
the Stated Maturity of the exchange notes shall be deemed Disqualified Stock;
provided further, however, that (x) any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to 90 days
after the Stated Maturity of the exchange notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions of the covenants described under "--Change of
Control" and "--Indenture Covenants--Limitation on Sale of Assets and Subsidiary
Stock", (y) a class of Capital Stock shall not be Disqualified Stock hereunder
solely as a result of any maturity or redemption that is conditioned upon, and
subject to, compliance with the covenant described above under "--Indenture
Covenants--Limitation on Restricted Payments" and (z) Capital Stock issued to
any plan for the benefit of employees shall not constitute Disqualified Stock
solely because it may be required to be repurchased by SCG Holding in order to
satisfy applicable statutory or regulatory obligations.
"Domestic Subsidiary" means any Restricted Subsidiary of SCG Holding other
than a Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus, without duplication, the following to the extent deducted in calculating
such Consolidated Net Income:
(1) provision for taxes based on income or profits of SCG Holding and its
Consolidated Restricted Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation expense of SCG Holding and its Consolidated Restricted
Subsidiaries;
(4) amortization expense (including amortization of goodwill and other
intangibles) of SCG Holding and its Consolidated Restricted Subsidiaries
(excluding amortization expense attributable to a prepaid cash item that
was paid in a prior period);
(5) all other noncash expenses or losses of SCG Holding and its Consolidated
Restricted Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP
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(excluding any such charge that constitutes an accrual of or a reserve
for cash charges for any future period);
(6) any non-recurring fees, expenses or charges realized by SCG Holding and
its Restricted Subsidiaries for such period related to any offering of
Capital Stock or Incurrence of Indebtedness permitted to be Incurred
under the Indenture;
(7) Recapitalization Related Special Charges of SCG Holding and its
Restricted Subsidiaries incurred on or prior to December 31, 2001 and in
the aggregate not exceeding $50 million;
(8) noncash dividends on SCG Holding Preferred Stock;
and MINUS all noncash items increasing Consolidated Net Income of such Person
for such Period (excluding any items which represent the reversal of any accrual
of, or cash reserve for, anticipated cash charges in any prior period).
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and noncash charges of, a
Restricted Subsidiary of SCG Holding shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date of
determination to be dividended or similarly distributed to SCG Holding by such
Restricted Subsidiary without prior governmental approval (that has not been
obtained) or is not, directly or indirectly, restricted by operation of the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders or other holders of its equity.
"Exchange Act" means the Securities Exchange Act of 1934.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. For all purposes of
the Indenture, Fair Market Value will be determined in good faith by the Board
of Directors, whose determination will be conclusive and evidenced by a
resolution of the Board of Directors.
"Foreign Subsidiary" means any Restricted Subsidiary of SCG Holding that is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entities as approved by a
significant segment of the accounting profession, and
(4) the rules and regulations of the Commission governing the inclusion of
financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission.
All ratios and computations based on GAAP contained in the Indenture shall
be computed in conformity with GAAP.
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"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or
(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning. The term "Guarantor"
shall mean any Person Guaranteeing any Indebtedness.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means the Person in whose name and exchange note or initial note,
as applicable, is registered on the Registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to issue, assume, Guarantee, incur or otherwise become liable for;
PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing
immediately after the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication) the following items if and to the extent
that any of them (other than items specified under clauses (3), (8), (9) and
(10) below) would appear as a liability or, in the case of clause (6) only,
Preferred Stock on the balance sheet of such Person, prepared in accordance with
GAAP, on such date:
(1) the principal amount of and premium (if any) in respect of indebtedness
of such Person for borrowed money;
(2) the principal amount of and premium (if any) in respect of obligations
of such Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto but excluding obligations in respect of letters of credit issued
in respect of Trade Payables);
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services (except Trade Payables), which purchase
price is due more than twelve months after the date of placing such
property in service or taking delivery and title thereto or the
completion of such services;
(5) all Capitalized Lease Obligations and all Attributable Debt of such
Person;
(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
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(7) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
PROVIDED, HOWEVER, that the amount of Indebtedness of such Person shall
be the lesser of:
(A) the Fair Market Value of such asset at such date of determination and
(B) the amount of such Indebtedness of such other Persons;
(8) Hedging Obligations of such Person;
(9) all obligations of such Person in respect of a Receivables Facility; and
(10) all obligations of the type referred to in clauses (1) through (9) of
other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations described above, at such
date; PROVIDED, HOWEVER, that the amount outstanding at any time of any
Indebtedness issued with original issue discount will be deemed to be the face
amount of such Indebtedness less the remaining unaccreted portion of the
original issue discount of such Indebtedness at such time, as determined in
accordance with GAAP.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extension of
credit (including by way of Guarantee or similar arrangement but excluding
commission, travel and similar advances to officers, consultants and employees
made in the ordinary course of business) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary" and the covenant
described under "--Indenture Covenants--Limitation on Restricted Payments,"
(1) "Investment" shall include the portion (proportionate to SCG Holding's
equity interest in such Subsidiary) of the Fair Market Value of the net
assets of any Subsidiary of SCG Holding at the time that such Subsidiary
is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, SCG Holding
shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to:
(A) SCG Holding's "Investment" in such Subsidiary at the time of such
redesignation less
(B) the portion (proportionate to SCG Holding's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its Fair Market Value at the time of such transfer.
"Junior Subordinated Note" means the junior subordinated note of
Semiconductor Components issued as part of the of our recapitalization and
related transactions in the principal amount of $91 million, which will be
subordinated to the Notes.
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"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions are not required by law or regulation to be open in the State of
New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Motorola" means Motorola, Inc., a Delaware corporation.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of:
(1) all direct costs relating to such Asset Disposition, including all
legal, title, accounting and investment banking fees, and recording tax
expenses, sales and other commissions and other fees and relocation
expenses incurred, and all Federal, state, provincial, foreign and local
taxes required to be paid or accrued as a liability under GAAP;
(2) all payments made on any Indebtedness that (x) is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
Lien upon or other security agreement of any kind with respect to such
assets, or (y) must, by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition; and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and
retained by SCG Holding or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Note Guarantee" means each Guarantee of the obligations with respect to the
exchange notes issued by a Subsidiary of SCG Holding pursuant to the terms of
the Indenture.
"Note Guarantor" means any Subsidiary that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of SCG Holding. "Officer" of Semiconductor Components and of a Note
Guarantor has a correlative meaning.
"Officers' Certificate" means a certificate signed by two Officers of each
Person issuing such certificate. For the avoidance of doubt, any Officers'
Certificate to be delivered by the Issuers pursuant to the Indenture shall be
signed by two Officers of each Issuer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to SCG Holding, Semiconductor Components, a Note Guarantor or the
Trustee.
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"Permitted Business" means any business engaged in by the Issuers or any
Restricted Subsidiary on the Closing Date and any Related Business.
"Permitted Holders" means TPG Partners II, L.P. and its Affiliates and any
Person acting in the capacity of an underwriter in connection with a public or
private offering of SCG Holding or Semiconductor Components Capital Stock.
"Permitted Investment" means an Investment by SCG Holding or any Restricted
Subsidiary:
(1) in SCG Holding, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a
Permitted Business;
(2) in another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, SCG Holding or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Permitted
Business;
(3) in Temporary Cash Investments;
(4) in receivables owing to SCG Holding or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms
as SCG Holding or any such Restricted Subsidiary deems reasonable under
the circumstances;
(5) in payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course
of business;
(6) in loans or advances to employees made in the ordinary course of
business consistent with prudent business practice and not exceeding
$5 million in the aggregate outstanding at any one time;
(7) in stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to SCG Holding or
any Restricted Subsidiary or in satisfaction of judgments;
(8) in any Person to the extent such Investment represents the noncash
portion of the consideration received for an Asset Disposition that was
made pursuant to and in compliance with the covenant described under
"--Indenture Covenants--Limitation on Sale of Assets and Subsidiary
Stock" or a transaction not constituting an Asset Disposition by reason
of the $1 million threshold contained in the definition thereof;
(9) that constitutes a Hedging Obligation or commodity hedging arrangement
entered into for bona fide hedging purposes of SCG Holding in the
ordinary course of business and otherwise in accordance with the
Indenture;
(10) in securities of any trade creditor or customer received in settlement
of obligations or pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade creditor or
customer;
(11) acquired as a result of a foreclosure by SCG Holding or such Restricted
Subsidiary with respect to any secured Investment or other transfer of
title with respect to any secured Investment in default;
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(12) existing as of the Closing Date or an Investment consisting of any
extension, modification or renewal of any Investment existing as of the
Closing Date (excluding any such extension, modification or renewal
involving additional advances, contributions or other investments of cash
or property or other increases thereof unless it is a result of the
accrual or accretion of interest or original issue discount or
payment-in-kind pursuant to the terms, as of the Closing Date, of the
original Investment so extended, modified or renewed);
(13) consisting of purchases and acquisitions of inventory, supplies,
materials and equipment or licenses or leases of intellectual property,
in any case, in the ordinary course of business and otherwise in
accordance with the Indenture;
(14) in a trust, limited liability company, special purpose entity or other
similar entity in connection with a Receivables Facility permitted under
the covenant "--Indenture Covenants--Limitation on Indebtedness";
PROVIDED that, in the good faith determination of the Board of Directors,
such Investment is necessary or advisable to effect such Receivables
Facility;
(15) consisting of intercompany Indebtedness permitted under the covenant
"--Indenture Covenants--Limitation on Indebtedness";
(16) the consideration for which consists solely of shares of common stock
of SCG Holding; and
(17) so long as no Default shall have occurred and be continuing (or result
therefrom), in any Person engaged in a Permitted Business having an
aggregate Fair Market Value (measured on the date made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (17) that are at the time
outstanding (and measured on the date made and without giving effect to
subsequent changes in value), not to exceed $15 million.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"Public Equity Offering" means an underwritten primary public offering of
common stock of SCG Holding pursuant to an effective registration statement
under the Securities Act, other than public offerings with respect to SCG
Holding's common stock registered on Form S-8.
"Purchase Money Indebtedness" means Indebtedness:
(1) consisting of the deferred purchase price of an asset, conditional sale
obligations, obligations under any title retention agreement and other
purchase money obligations, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset
being financed, and
(2) Incurred to finance the acquisition by SCG Holding or a Restricted
Subsidiary of all or a portion of such asset, including additions and
improvements;
PROVIDED, HOWEVER, that such Indebtedness is Incurred within 180 days after the
acquisition by SCG Holding or such Restricted Subsidiary of such asset or the
relevant addition or improvement.
"Qualified Proceeds" means any of the following or any combination of the
following: (1) cash, (2) Temporary Cash Investments, (3) the Fair Market Value
of assets that are used or useful in the
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Permitted Business and (4) the Fair Market Value of the Capital Stock of any
Person engaged primarily in a Permitted Business if, in connection with the
receipt by SCG Holding or any Restricted Subsidiary of SCG Holding of such
Capital Stock, (a) such Person becomes a Restricted Subsidiary or (b) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, SCG Holding
or any Restricted Subsidiary.
"Recapitalization Related Special Charges" means separately delineated costs
on the income statement of SCG Holding that are characterized as non-recurring
expenses and are associated with the recapitalization of SCG Holding consisting
of costs related to (1) branding and marketing, (2) consulting and information
technology, (3) recruiting and employee retention bonuses and (4) facility or
office relocations.
"Receivables Facility" means one or more receivables financing facilities,
as amended from time to time, pursuant to which SCG Holding and/or any of its
Restricted Subsidiaries sells its accounts receivable to a Person that is not a
Restricted Subsidiary pursuant to arrangements customary in the industry.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) any Indebtedness of SCG Holding or any Restricted
Subsidiary (including Indebtedness of SCG Holding that Refinances Refinancing
Indebtedness); PROVIDED, HOWEVER, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced,
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced,
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or
if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being Refinanced and
(4) if the Indebtedness being Refinanced is subordinated in right of payment
to the Notes, such Refinancing Indebtedness is subordinated in right of
payment to the Notes at least to the same extent as the Indebtedness
being Refinanced;
PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include:
(A) Indebtedness of a Restricted Subsidiary that Refinances Indebtedness
of SCG Holding or
(B) Indebtedness of SCG Holding or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
any of the businesses of SCG Holding and the Restricted Subsidiaries on the
Closing Date.
"Representative" means the trustee, agent or representative, if any, for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of SCG Holding, including
Semiconductor Components, other than an Unrestricted Subsidiary.
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"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by SCG Holding or a Restricted Subsidiary whereby
SCG Holding or a Restricted Subsidiary transfers such property to a Person and
SCG Holding or such Restricted Subsidiary leases it from such Person, other than
leases between SCG Holding and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.
"Secured Indebtedness" means any Indebtedness of SCG Holding secured by a
Lien. "Secured Indebtedness" of a Note Guarantor has a correlative meaning.
"Senior Subordinated Indebtedness" of SCG Holding means the exchange notes,
the initial notes and any other Indebtedness of SCG Holding that specifically
provides that such Indebtedness is to rank PARI PASSU with the exchange notes
and the initial notes in right of payment and is not subordinated by its terms
in right of payment to any Indebtedness or other obligation of SCG Holding which
is not Senior Indebtedness. "Senior Subordinated Indebtedness" of a Note
Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of SCG Holding within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of SCG Holding, whether
outstanding on the Closing Date or thereafter Incurred, that is subordinate or
junior in right of payment to the exchange notes and the initial notes pursuant
to a written agreement. "Subordinated Obligation" of a Note Guarantor has a
correlative meaning.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total Voting Stock is at
the time owned or controlled, directly or indirectly, by:
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person or
(3) one or more Subsidiaries of such Person.
Notwithstanding the foregoing, with respect to SCG Holding, the term
"Subsidiary" also includes the following Persons: Tesla Sezam, a.s., Terosil,
a.s. and Leshan-Phoenix Semiconductor Co. Ltd, so long as SCG Holding directly
or indirectly owns more than 50% of the Voting Stock or economic interests of
such Person.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America or
any agency thereof or obligations Guaranteed by the United States of
America or any agency thereof,
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing not more than one year from the date of
acquisition thereof, bankers' acceptances with maturities not exceeding
one year and overnight bank deposits, in each case with a bank or trust
company that is organized under the laws of the United States of America,
any state thereof (including any foreign branch of any of the foregoing)
or any foreign country recognized by the United States of America having
capital, surplus and
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undivided profits aggregating in excess of $250,000,000 (or the foreign
currency equivalent thereof),
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above or
clause (5) below entered into with a bank meeting the qualifications
described in clause (2) above,
(4) investments in commercial paper, maturing not more than one year after
the date of acquisition, issued by a corporation (other than an Affiliate
of SCG Holding) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States
of America having at the time as of which any investment therein is made
one of the two highest ratings obtainable from either Moody's Investors
Service, Inc. ("Moody's") or Standard and Poor's Ratings Service, a
division of The McGraw-Hill Companies, Inc. ("S&P"),
(5) investments in securities with maturities of six months or less from the
date of acquisition issued or fully Guaranteed by any state, commonwealth
or territory of the United States of America, or by any foreign
government or any state, commonwealth or territory or by any political
subdivision or taxing authority thereof, and, in each case, having one of
the two highest ratings obtainable from either S&P or Moody's; and
(6) investments in funds investing exclusively in investments of the types
described in clauses (1) and (5) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
SectionSection77aaa-77bbbb) as in effect on the Closing Date.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means any vice president, assistant vice president or trust
officer of the Trustee assigned by the Trustee to administer its corporate trust
matters.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of SCG Holding that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of SCG Holding,
including any newly acquired or newly formed Subsidiary of SCG Holding, to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, SCG Holding or any other Subsidiary of SCG Holding that is not a Subsidiary
of the Subsidiary to be so designated; PROVIDED, HOWEVER, that either:
(A) the Subsidiary to be so designated has total Consolidated assets of
$1,000 or less or
(B) if such Subsidiary has Consolidated assets greater than $1,000, then
such designation would be permitted under the covenant entitled
"--Indenture Covenants--Limitation on Restricted Payments."
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The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect
to such designation:
(x) SCG Holding could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "--Indenture
Covenants--Limitation on Indebtedness" and
(y) no Default shall have occurred and be continuing.
Any such designation of a Subsidiary as a Restricted Subsidiary or
Unrestricted Subsidiary by the Board of Directors shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in such obligations, of the United States of
America, including any agency or instrumentality thereof, for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests, including partnership interests, of such Person then outstanding and
normally entitled at the time to vote in the election of directors, managers or
trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of SCG Holding all
the Capital Stock of which, other than directors' qualifying shares, is owned by
SCG Holding or another Wholly Owned Subsidiary.
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EXCHANGE OFFER AND REGISTRATION RIGHTS AGREEMENT
The issuers, the initial purchasers and the guarantors of the initial notes
entered into an Exchange Offer and Registration Rights Agreement concurrently
with the issuance of the initial notes. Pursuant to the Exchange Offer and
Registration Rights Agreement, the Issuers and the guarantors of the initial
notes are required
- to file with the Commission on or prior to 120 days after the date of
issuance of the initial notes a registration statement on Form S-1 or
Form S-4, if the use of such form is then available, relating to a
registered exchange offer for the initial notes under the Securities Act
and
- to use their reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities Act
within 180 days after the date of issuance of the initial notes.
The Exchange Offer being made hereby, if commenced and consummated within
the time periods described in this paragraph, will satisfy those requirements
under the Exchange Offer and Registration Rights Agreement.
In the event that:
(1) because of any change in law or applicable interpretations thereof by
the staff of the SEC, the Issuers are not permitted to effect the exchange
offer.
(2) any initial notes validly tendered pursuant to the exchange offer are
not exchanged for exchange notes within 210 days after the date of issuance of
the initial notes,
(3) the initial purchasers so request with respect to initial notes not
eligible to be exchanged for exchange notes in the exchange offer,
(4) any applicable law or interpretations do not permit any holder of
initial notes to participate in the exchange offer,
(5) any holder of initial notes that participates in the exchange offer does
not receive freely transferable exchange notes in exchange for tendered initial
notes, or
(6) the issuers so elect,
then the issuers and the guarantors of the initial notes will file as
promptly as practical following the occurrence of any of the foregoing events
listed under (1) through (6), but in no event more than 60 days after so
required or requested, with the SEC a shelf registration statement to cover
resales of Transfer Restricted Securities (as defined below) by such holders who
satisfy the conditions relating to the provision of information in connection
with the shelf registration statement. For purposes of the foregoing, "Transfer
Restricted Securities" means each initial note until
- the date on which such initial note has been exchanged for a freely
transferable exchange note in the exchange offer,
- the date on which such initial note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf
registration statement or
- the date on which such initial note is distributed to the public pursuant
to Rule 144 under the Securities Act or is salable pursuant to
Rule 144(k) under the Securities Act.
If applicable, the Issuers and the guarantors of the initial notes will use
their reasonable best efforts to have the shelf registration statement declared
effective by the SEC as promptly as practicable after the filing thereof and to
keep the shelf registration statement effective for a period of two years after
the date of issuance of the initial notes.
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In the event that:
(1) the applicable registration statement is not filed with the SEC on or
prior to 120 days after the date of issuance of the initial notes;
(2) the exchange offer registration statement or the shelf registration
statement, as the case may be, is not declared effective within 180 days after
the date of issuance of the initial notes;
(3) the exchange offer is not consummated within 210 days after the date of
issuance of the initial notes; or
(4) the shelf registration statement is filed and declared effective within
180 days after the date of issuance of the initial notes, or, in the case of a
shelf registration statement to be filed in response to any change in law or
applicable interpretations thereof, within 60 days after the publication of the
change in law or interpretation, but shall thereafter cease to be effective at
any time that the issuers and the guarantors of the initial notes are obligated
to maintain the effectiveness thereof without being succeeded within 30 days by
an additional registration statement filed and declared effective (each such
event referred to in clauses (a) through (d), a "Registration Default"),
the issuers and the guarantors of the initial notes will be obligated to pay
liquidated damages to each holder of Transfer Restricted Securities, during the
period of one or more such Registration Defaults, in an amount equal to $0.192
per week per $1,000 principal amount of the Transfer Restricted Securities held
by such holder until the applicable registration statement is filed, the
exchange offer registration statement is declared effective and the exchange
offer is consummated or the shelf registration statement is declared effective
or again becomes effective, as the case may be. Following the cure of all
Registration Defaults, the accrual of liquidated damages will cease.
The Exchange Offer and Registration Rights Agreement also provides that the
issuers and the guarantors of the initial notes
- make available for a period of 180 days after the consummation of the
exchange offer a prospectus meeting the requirements of the Securities Act
to any broker-dealer for use in connection with any resale of any such
exchange notes and
- pay all expenses incident to the exchange offer, including the expense of
one counsel to the holders of the exchange notes and the initial notes
taken together, and jointly and severally indemnify holders of the initial
notes, including any broker-dealer, against liabilities, including
liabilities under the Securities Act. A broker-dealer which delivers such
a prospectus to purchasers in connection with such resales will be subject
to some of the civil liability provisions under the Securities Act and
will be bound by the provisions of the Exchange Offer and Registration
Rights Agreement, including indemnification rights and obligations.
Each holder of initial notes who wishes to exchange such initial notes for
exchange notes in the Exchange Offer is required to make representations,
including representations that
(1) any exchange notes to be received by it have been acquired in the
ordinary course of its business,
(2) it has no arrangement or understanding with any person to participate in
the distribution of the exchange notes and
(3) it is not an "affiliate" as defined in Rule 405 under the Securities Act
of SCG Holding, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
If the holder is not a broker-dealer, it is required to represent that it is
not engaged in, and does not intend to engage in, the distribution of the
exchange notes. If the holder is a broker-dealer
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that receives exchange notes for its own account in exchange for initial notes
that were acquired as a result of market-making activities or other trading
activities, it is required to acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes.
Holders of the initial notes are required to make representations to the
Issuers (as described above) in order to participate in the exchange offer and
will be required to deliver information to be used in connection with the shelf
registration statement in order to have their initial notes included in the
shelf registration statement and benefit from the provisions regarding
liquidated damages set forth in the preceding paragraphs. A holder who sells
initial notes pursuant to the shelf registration statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Exchange Offer and Registration Rights Agreement
which are applicable to such a holder (including indemnification obligations).
The foregoing description of the Exchange Offer and Registration Rights
Agreement is a summary only, and is qualified in its entirety by reference to
all provisions of the Exchange Offer and Registration Rights Agreement.
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BOOK-ENTRY, DELIVERY AND FORM
The exchange notes will be issued in the form of a one or more global notes
(collectively, the "Global Note"). The Global Note will be deposited with, or on
behalf of, DTC and registered in the name of DTC or its nominee. Except as set
forth below, the global note may be transferred in whole and not in part, only
to DTC or other nominees of DTC. Investors may hold their beneficial interests
for the Global Note directly through DTC if they have an account with DTC or
indirectly through organizations which have accounts with DTC.
Exchange notes that are issued as described below under "--Certificated
Exchange Notes" will be issued in definitive form. Upon the transfer of an
Exchange Note in definitive form, such Exchange Note will, unless the Global
Note has previously been exchanged for exchange notes in definitive form, be
exchanged for an interest in the Global Note representing the principal amount
of exchange notes being transferred.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTE
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Neither
of the Issuers nor any of the Initial Purchasers takes any responsibility for
these operations or procedures, and investors are urged to contact the relevant
system or its participants directly to discuss these matters.
DTC has advised the Issuers that it is
- a limited purpose trust company organized under the laws of the State of
New York,
- a "banking organization" within the meaning of the New York Banking Law,
- a member of the Federal Reserve System,
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. DTC's Participants include securities brokers and
dealers, including the initial purchasers, banks and trust companies, clearing
corporations and other organizations. Indirect access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Investors who are not Participants may beneficially own securities held by or on
behalf of DTC only through Participants or Indirect Participants.
The Issuers expect that pursuant to procedures established by DTC
- upon deposit of the Global Note, DTC will credit the accounts of
Participants designated by the Initial Purchasers with an interest in the
Global Note and
- ownership of the exchange notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC
(with respect to the interests of Participants) and the records of
Participants and the Indirect Participants (with respect to the interests
of persons other than Participants).
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The laws of some jurisdictions may require that purchasers of securities
take physical delivery of such securities in definitive form. Accordingly, the
ability to transfer interests in the Notes represented by a Global Note to such
persons may be limited. In addition, because DTC can act only on behalf of its
Participants, who in turn act on behalf of persons who hold interests through
Participants, the ability of a person having an interest in exchange notes
represented by a Global Note to pledge or transfer such interest to persons or
entities that do not participate in DTC's system, or to otherwise take actions
in respect of such interest, may be affected by the lack of a physical
definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the exchange notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have exchange notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or holders
thereof under the Indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in a Global Note must rely
on the procedures of DTC and, if such holder is not a Participant or an Indirect
Participant, on the procedures of the Participant through which such holder owns
its interest, to exercise any rights of a holder of exchange notes under the
Indenture or such Global Note. The Issuers understand that under existing
industry practice, in the event that the Issuers request any action of holders
of exchange notes, or a holder that is an owner of a beneficial interest in a
Global Note desires to take any action that DTC, as the holder of such Global
Note, is entitled to take, DTC would authorize the Participants to take such
action and the Participants would authorize holders owning through such
Participants to take such action or would otherwise act upon the instruction of
such holders. Neither the Issuers nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of exchange notes by DTC, or for maintaining, supervising or reviewing
any records of DTC relating to such exchange notes.
Payments with respect to the principal of, and premium, if any, and interest
on, any exchange notes represented by a Global Note registered in the name of
DTC or its nominee on the applicable record date will be payable by the Trustee
to or at the direction of DTC or its nominee in its capacity as the registered
holder of the Global Note representing such exchange notes under the Indenture.
Under the terms of the Indenture, SCG Holding and the Trustee may treat the
persons in whose names the exchange notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving payment thereon
and for any and all other purposes whatsoever. Accordingly, neither SCG Holding
nor the Trustee has or will have any responsibility or liability for the payment
of such amounts to owners of beneficial interests in a Global Note (including
principal, premium, if any, and interest). Payments by the Participants and the
Indirect Participants to the owners of beneficial interests in a Global Note
will be governed by standing instructions and customary industry practice and
will be the responsibility of the Participants or the Indirect Participants and
DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
exchange notes, cross-market transfers between the Participants in DTC, on the
one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Cedel, as the case may be, by the counterparty in such system in accordance with
the rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the
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transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day,
which must be a business day for Euroclear and Cedel, immediately following the
settlement date of DTC. Cash received in Euroclear or Cedel as a result of sales
of interest in a Global Security by or through a Euroclear or Cedel participant
to a Participant in DTC will be received with value on the settlement date of
DTC but will be available in the relevant Euroclear or Cedel cash account only
as of the business day for Euroclear or Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in DTC,
Euroclear and Cedel, they are under no obligation to perform or to continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Issuers nor the Trustee will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED NOTES
If any of the following occur:
- the Issuers notify the Trustee in writing that DTC is no longer willing or
able to act as a depositary or DTC ceases to be registered as a clearing
agency under the Exchange Act and a successor depositary is not appointed
within 90 days of such notice or cessation,
- the Issuers, at their option, notify the Trustee in writing that they
elect to cause the issuance of exchange notes in definitive form under the
Indenture or
- other events as provided in the Indenture,
then, upon surrender by DTC of the Global Notes, Certificated Notes will be
issued to each person that DTC identifies as the beneficial owner of the
exchange notes represented by the Global Notes. Upon any such issuance, the
Trustee is required to register such Certificated Notes in the name of such
person or persons, or the nominee of any thereof, and cause the same to be
delivered thereto.
Neither the Issuers nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related exchange notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes,
including with respect to the registration and delivery, and the respective
principal amounts, of the exchange notes to be issued.
YEAR 2000
DTC management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter "year 2000 problems." DTC
has informed its Participants and other members of the financial community that
it has developed and is implementing a program so that its systems, as the same
relate to the timely payment of distributions, including principal and income
payments, to security holders, book-entry deliveries, and settlement of trades
within DTC, continue to function appropriately. This program includes a
technical assessment and remediation plan, each of which is
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complete. Additionally, DTC's plan includes a testing phase, which is expected
to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third-party vendors from whom DTC licenses software and hardware, and
third-party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting and will
continue to contact third-party vendors from whom DTC acquires services to:
- impress upon them the importance of such services being year 2000
compliant; and
- determine the extent of their efforts for year 2000 remediation and, as
appropriate, testing of their services.
In addition, DTC is in the process of developing such contingency plans as
it deems appropriate.
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U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of material United States federal income tax
consequences and other tax consequences of the acquisition, ownership and
disposition of the initial notes. Unless otherwise stated, this discussion is
limited to the tax consequences to those persons who are original beneficial
owners of the initial notes and who hold such notes as capital assets
("Holders"). This discussion does not purport to be a comprehensive description
of all tax considerations that may be relevant to a decision to purchase the
initial notes by any particular investor and does not address specific tax
consequences that may be relevant to particular persons (including, for example,
financial institutions, broker-dealers, insurance companies, tax-exempt
organizations, persons that have a functional currency other than the U.S.
dollar and persons in special situations, such as those who hold initial notes
as part of a straddle, hedge, conversion transaction, or other integrated
investment). This discussion does not address U.S. federal alternative minimum
tax consequences, and does not describe any tax consequences arising under U.S.
federal gift and estate or other federal tax laws or under the tax laws of any
state, local or foreign jurisdiction. This discussion is based upon the Internal
Revenues Code of 1986, as amended (the "Code"), the Treasury Department
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as of the date hereof and all of which are subject
to change, possibly on a retroactive basis.
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM, AS A RESULT OF THEIR INDIVIDUAL
CIRCUMSTANCES, OF THE EXCHANGE OF THE INITIAL NOTES FOR THE EXCHANGE NOTES AND
OF THE OWNERSHIP AND DISPOSITION OF EXCHANGE NOTES RECEIVED IN THE EXCHANGE
OFFER, INCLUDING THE APPLICATION OF STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Holder that is a citizen or individual resident of
the United States, a U.S. domestic corporation or any other person that is
subject to U.S. federal income tax on a net income basis in respect of its
investment in the initial notes (a "U.S. Holder").
PAYMENTS OF INTEREST
Interest on a note will generally be includible in the income of a U.S.
Holder in accordance with the U.S. Holder's regular method of accounting for
U.S. federal income tax purposes.
DISPOSITION OF NOTES
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between (1) the sum of cash plus the fair market
value of all other property received on such disposition, except to the extent
such cash or property is attributable to accrued but unpaid interest, which will
be taxable as ordinary income, and (2) such beneficial owner's adjusted tax
basis in the note. A U.S. Holder's adjusted tax basis in an initial note
generally will equal the cost of the initial note to such Holder, less any
principal payments received by such Holder.
Gain or loss recognized on the disposition of a note generally will be
capital gain or loss, and will be long-term capital gain or loss if, at the time
of such disposition, the U.S. Holder's holding period for the note is more than
12 months. The maximum federal long-term capital gain rate is 20% for
noncorporate U.S. Holders and 35% for corporate U.S. Holders. The deductibility
of capital losses by U.S. Holders is subject to limitations.
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U.S. FEDERAL INCOME TAXATION OF EXCHANGE OFFER
The exchange pursuant to the exchange offer contemplated herein will not be
a taxable event for U.S. federal income tax purposes. As a result, a Holder of
an initial note whose initial note is accepted in the exchange offer will not
recognize gain or loss on the Exchange. A tendering Holder's tax basis in the
exchange notes will be the same as such Holder's tax basis in the initial notes
for which they are exchanged. A tendering Holder's holding period for the notes
received pursuant to the exchange offer will include its holding period for the
initial notes surrendered therefor.
U.S. FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
PAYMENTS OF INTEREST
Subject to the discussion of backup withholding below, payments of principal
and interest on the notes by us or any of our agents to a holder of the notes
that is, with respect to the United States, a foreign corporation or
non-resident alien individual (a"Non-U.S. Holder") will not be subject to
withholding of United States federal income tax, provided that, with respect to
payments of interest, (i) the Non-U.S. Holder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of stock of SCG Holding and is not a controlled foreign corporation
related to SCG Holding through stock ownership and (ii) the beneficial owner
provides a statement signed under penalties of perjury that includes its name
and address and certifies that it is a Non-U.S. Holder in compliance with
applicable requirements (or, with respect to payments made after December 31,
2000, satisfies documentary evidence requirements ("New Regulations") for
establishing that it is a Non-U.S. Holder).
DISPOSITION OF NOTES
No withholding of United States federal income tax will be required with
respect to any gain or income realized by a Non-U.S. Holder upon the sale,
exchange or disposition of a Note.
A Non-U.S. Holder will not be subject to U.S. federal income tax on gain
realized on the sale, exchange or other disposition of a note unless (a) the
Non-U.S. Holder is an individual who is present in the United States for a
period or periods aggregating 183 or more days in the taxable year of the
disposition and other conditions are met, or (b) such gain or income is
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business in the United States.
EACH NON-U.S. HOLDER IS URGED TO CONSULT THE HOLDER'S TAX ADVISOR AS TO THE
APPLICATION OF THE NEW REGULATIONS AND THE PROCEDURES FOR ESTABLISHING AN
EXEMPTION FROM WITHHOLDING TAX.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We are required to file information returns with the Internal Revenues
Service with respect to payments made to some U.S. Holders of notes. In
addition, some U.S. Holders may be subject to a 31 percent backup withholding
tax in respect of such payments if they do not provide their taxpayer
identification numbers to us. Non-U.S. Holders of Notes may be required to
comply with applicable certification procedures to establish that they are not
U.S. holders in order to avoid the application of such information reporting
requirements and backup withholding tax. Any amounts withheld under the backup
withholding rules will be allowed as a refund or a credit against the person's
U.S. federal income tax liability provided that required information is
furnished to the Internal Revenue Service.
EACH NON-U.S. HOLDER IS URGED TO CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE
APPLICATION OF THE NEW REGULATIONS AND THE PROCEDURES FOR ESTABLISHING AN
EXEMPTION FROM BACKUP WITHHOLDING.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for initial notes
where such initial notes were acquired as a result of market-making activities
or other trading activities. The Issuers have agreed that, for a period of
180 days after the expiration date, they will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until , all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
The issuers will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date, the Issuers will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. The Issuers have agreed to pay all expenses
incident to the exchange offer, including the expenses of one counsel for the
holders of the initial notes, other than commissions or concessions of any
broker-dealers and will indemnify the holders of the initial notes, including
any broker-dealers, against liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the exchange notes, will be passed upon for us by Cleary,
Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The combined balance sheets as of December 31, 1997 and 1998 and the
combined statements of revenues less direct and allocated expenses before taxes
for each of the years in the three-year period ended December 31, 1998 of the
Semiconductor Components Group of Motorola, Inc. have been included herein in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. KPMG LLP, Motorola's independent accountants, will
audit the combined financial statements of Motorola's Semiconductor Components
Group for the period January 1, 1999 through August 3, 1999, which was prior to
our recapitalization. PricewaterhouseCoopers LLP has been engaged to serve as
our independent accountants and will audit the consolidated financial statements
of SCG Holding and its subsidiaries for the period from August 4, 1999 through
December 31, 1999.
149
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
Analog Product............................... Products that operate on non-digital signals.
BiCMOS....................................... A hybrid of CMOS and bipolar technologies.
Bipolar...................................... A manufacturing process that uses two
opposite electrical poles to build
semiconductors.
CMOS......................................... Complementary Metal Oxide Semiconductor.
Die.......................................... A piece of a semiconductor wafer containing
the circuitry of a single chip.
Digital Products............................. Products that operate on digital signals,
where electronic signals are treated as
either "one" or "zero."
Diode........................................ An electronic device that allows current to
flow in only one direction.
Discrete Product............................. Individual diodes or transistors that perform
basic signal conditioning and switching
functions in electronic circuits.
Fab.......................................... The facility that fabricates wafers.
IGBT......................................... Insulated Gate Bipolar Transistor.
Lead Frames.................................. A conductive frame that brings the electrical
signals to and from the die.
MOS.......................................... Metal Oxide Semiconductor.
Package...................................... A protective case that surrounds the die,
consisting of a plastic housing and a lead
frame.
Semiconductor................................ A material with electrical conducting
properties in between those of metals and
insulators. (Metals always conduct and
insulators never conduct, but semiconductors
sometimes conduct.) This is the building
block of all integrated circuits and diode
devices.
Standard Analog Products..................... Simple analog semiconductors (as opposed to
more complex products, such as mixed-signal
devices or customized analog products) that
are used for both interface, power control
and power protection functions in electronic
systems.
</TABLE>
150
<PAGE>
<TABLE>
<S> <C>
Standard Logic Products...................... Simple logic semiconductors (as opposed to
more complex products, such as
microprocessors or application-specific
integrated circuits) that are used primarily
for interfacing functions, such as
interconnecting and routing electronic
signals within an electronic system.
Transistor................................... An individual circuit that can amplify or
switch electric current.
Wafer........................................ Round, flat piece of silicon that is the base
material in the semiconductor manufacturing
process.
</TABLE>
151
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
SEMICONDUCTOR COMPONENTS GROUP OF MOTOROLA, INC. FINANCIAL
STATEMENTS:
Independent Auditors' Report.............................. F-2
Combined Balance Sheets as of December 31, 1997 and
December 31, 1998....................................... F-3
Combined Statements of Revenues Less Direct and Allocated
Expenses Before Taxes for each of the years in the
three-year period ended December 31, 1998, the nine
months ended September 26, 1998 (unaudited) and the
period from January 1, 1999 through August 3, 1999
(unaudited)............................................. F-4
Notes to Combined Financial Statements.................... F-5
SCG HOLDING CORPORATION AND SUBSIDIARIES FINANCIAL
STATEMENTS:
Consolidated Balance Sheet as of October 2, 1999
(unaudited)............................................. F-21
Consolidated Statement of Operations and Comprehensive
Income (Loss), August 4, 1999 through October 2, 1999
(unaudited)............................................. F-22
Consolidated Statement of Stockholders' Equity (Deficit),
August 4, 1999 through October 2, 1999 (unaudited)...... F-23
Condensed Consolidated Statement of Cash Flows, August 4,
1999 through October 2, 1999 (unaudited)................ F-24
Notes to Financial Statements............................. F-25
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Motorola, Inc.:
We have audited the accompanying combined balance sheets of the
Semiconductor Components Group of Motorola, Inc. ("the Company" or "the
Business") as of December 31, 1997 and 1998 and the accompanying combined
statements of revenues less direct and allocated expenses before taxes for each
of the years in the three-year period ended December 31, 1998. These combined
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying combined statements were prepared to comply with the rules
and regulations of the Securities and Exchange Commission and on the basis of
presentation as described in Note 1. The accompanying combined statements
present the combined assets, liabilities and business equity and the related
combined revenues less direct and allocated expenses before taxes of the
Business, and are not intended to be a complete presentation of the Business'
financial position, results of operations or cash flows. The results of
operations before taxes are not necessarily indicative of the results of
operations before taxes that would be recorded by the Company on a stand-alone
basis.
In our opinion, the accompanying combined statements present fairly, in all
material respects, the combined assets, liabilities and business equity of the
Business as of December 31, 1997 and 1998 and its combined revenues less direct
and allocated expenses before taxes for each of the years in the three-year
period ended December 31, 1998, on the basis described in Note 1, in conformity
with generally accepted accounting principles.
KPMG LLP
Phoenix, Arizona
January 18, 1999, except as to Note 12
which is as of May 11, 1999
F-2
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
COMBINED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Inventories............................................... $231.1 201.7
Other..................................................... 13.7 9.2
------ ------
Total current assets................................ 244.8 210.9
Property, plant and equipment, net.......................... 614.2 512.3
Other assets................................................ 41.6 53.3
------ ------
Total assets........................................ $900.6 776.5
====== ======
LIABILITIES AND BUSINESS EQUITY
Current liabilities:
Accounts payable.......................................... $ 7.5 9.5
Accrued expenses.......................................... 13.4 81.4
------ ------
Total current liabilities........................... 20.9 90.9
Non-current liabilities..................................... 13.3 4.6
Commitments and contingencies
Business equity............................................. 866.4 681.0
------ ------
Total liabilities and business equity............... $900.6 776.5
====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
COMBINED STATEMENTS OF REVENUES LESS DIRECT AND
ALLOCATED EXPENSES BEFORE TAXES
(IN MILLIONS)
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED JANUARY 1, 1999
------------------------------ SEPTEMBER 26, THROUGH
1996 1997 1998 1998 AUGUST 3, 1999
-------- -------- -------- ----------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales--trade........... $1,748.0 1,815.2 1,493.4 1,133.3 894.3
-------- -------- -------- ------ -----
Direct and allocated costs
and expenses:
Cost of sales.............. 1,128.8 1,119.6 1,068.8 810.1 626.7
Research and development... 71.7 65.7 67.5 53.1 34.3
Selling and marketing...... 94.4 110.7 92.4 70.8 39.0
General and
administrative........... 150.8 239.8 201.6 158.6 85.0
Restructuring and other
charges.................. -- -- 189.8 189.8 --
-------- -------- -------- ------ -----
Operating costs and
expenses............... 1,445.7 1,535.8 1,620.1 1,282.4 785.0
-------- -------- -------- ------ -----
302.3 279.4 (126.7) (149.1) 109.3
-------- -------- -------- ------ -----
Other income (expenses):
Equity in earnings from
joint ventures........... 2.4 1.6 8.4 3.7 3.0
Interest expense........... (15.0) (11.0) (18.0) (11.4) (7.5)
-------- -------- -------- ------ -----
Other expenses, net...... (12.6) (9.4) (9.6) (7.7) (4.5)
-------- -------- -------- ------ -----
Revenues less direct and
allocated expenses
before taxes........... $ 289.7 270.0 (136.3) (156.8) 104.8
======== ======== ======== ====== =====
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(1) BASIS OF PRESENTATION
The Semiconductor Components Group ("SCG" or "the Business") is defined as
the discrete and integrated circuits standard products of the Semiconductor
Products Sector ("SPS") of Motorola, Inc. ("Motorola"), including Power BiPolar,
Rectifiers, Thyristors, Zeners, TMOS, Analog, ECL, Small Signal and Logic
Products. Manufacturing operations for the Business are primarily conducted in
plants in Guadalajara, Mexico, Carmona, Philippines, Seremban, Malaysia (2
Plants), Phoenix, Arizona, United States and Aizu, Japan (collectively referred
to as "SCG plants"). Certain manufacturing operations related to SCG products
are also performed at other SPS plants. Similarly, certain SCG plants perform
manufacturing operations related to other SPS product lines. SCG also has
investments in various joint ventures which are accounted for on the equity
method.
The accompanying combined balance sheets do not include Motorola's or SPS's
sector assets or liabilities not specifically identifiable to SCG. Motorola
performs cash management on a centralized basis and SPS processes receivables
and certain payables, payroll and other activity for SCG. Most of these systems
are not designed to track receivables, liabilities and cash receipts and
payments on a business specific basis. Accordingly, it is not practical to
determine certain assets and liabilities associated with the business;
therefore, such assets and liabilities cannot be included in the accompanying
combined balance sheets. Given these constraints, certain supplemental cash flow
information is presented in lieu of a statement of cash flows. (See Note 8.)
Assets and liabilities not specifically identifiable to the Business include:
(A) Cash, cash equivalents and investments. Activity in SCG cash balances is
recorded through the business equity account.
(B) Trade accounts receivable and related allowances for bad debts and
product returns. Trade receivable balances are maintained by customer, not by
the Business. Estimated allowances for product returns are reflected in SCG net
sales. Accounts receivable related to SCG are allocated through the business
equity account.
(C) Accounts payable related to trade purchases that are made centrally by
SPS in the United States. Such purchases related to SCG are allocated to SCG
through the business equity account.
(D) Certain accrued liabilities for allocated corporate costs and
environmental and pension costs which are allocated to SCG through the business
equity account.
The combined statements of revenues less direct and allocated expenses
before taxes includes all revenues and costs attributable to the Business
including an allocation of the costs of shared facilities and overhead of
Motorola and SPS. In addition, certain costs incurred at SCG plants for the
benefit of other SPS product lines are allocated from SCG to the other SPS
divisions.
All of the allocations and estimates in the combined statements of revenues
less direct and allocated expenses before taxes 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 Business had been operated on a stand-alone basis.
F-5
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(1) BASIS OF PRESENTATION (CONTINUED)
Transactions between the Business and other Motorola and SPS operations have
been identified in the combined statements as transactions between related
parties to the extent practicable (See Note 2).
The accompanying unaudited combined financial statements of the Business
have been prepared in accordance with generally accepted accounting principles
for interim financial information and on the same basis of presentation as the
audited combined financial statements. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for financial statements. In the opinion of the Business, the interim
data includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for the interim periods.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF COMBINATION
All significant intercompany balances and transactions within the Business
have been eliminated.
(B) REVENUE RECOGNITION
Revenues from the sale of SCG semiconductor products is generally recognized
when shipped, with a provision for estimated returns and allowances recorded at
the time of shipment.
(C) RELATED PARTY TRANSACTIONS
SCG manufactures products for other sectors of Motorola. Sales of these
products are treated as external sales and are reflected in the accompanying
combined statements of revenues less direct and allocated expenses before taxes
with the related cost of sales. These sales totaled $131.5 million,
$126.9 million and $105.7 million for the years ended December 31, 1996, 1997
and 1998, respectively. These sales totaled $77.6 million and $76.1 million for
the nine months ended September 26, 1998 and for the period from January 1, 1999
through August 3, 1999, respectively.
F-6
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SCG also manufactures products, at cost, for other SPS divisions and these
other divisions also manufacture products for SCG. The gross amounts charged
to/from SCG for these products are summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS JANUARY 1,
YEARS ENDED DECEMBER 31, ENDED 1999 THROUGH
------------------------------ SEPTEMBER 26, AUGUST 3,
1996 1997 1998 1998 1999
-------- -------- -------- ------------- ------------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Manufacturing services
performed by other SPS
divisions on behalf of
SCG...................... $322.7 310.5 266.8 212.6 125.5
====== ===== ===== ===== =====
Manufacturing services
performed by SCG and
transferred at actual
production costs to other
SPS divisions............ $159.5 177.4 162.3 126.3 91.0
====== ===== ===== ===== =====
</TABLE>
A portion of manufacturing costs transferred from other SPS divisions to SCG
are capitalized into inventory at worldwide standard cost and are recorded as
cost of sales as related product sales are recognized. Variations between
worldwide standard cost and the actual costs transferred from other SPS
divisions are considered period costs and are immediately charged to operations.
Where it is possible to specifically identify other operating costs with the
activities of SCG or other SPS product lines, these amounts have been charged or
credited directly to SCG or SPS product lines without allocation or
apportionment. Although a number of different approaches are used to allocate
shared or common costs, there is usually a predominant basis for each expense
category. Accordingly, research and development costs have been allocated from
SPS based predominately on dedicated spending. Research and development from
Motorola is first allocated to SPS and then allocated 20% to SCG as SCG is one
of five divisions within SPS. Selling and marketing expenses from SPS have been
allocated 20% to SCG and general and administrative expenses from Motorola and
SPS have been allocated 20% to SCG. Prior to changing to this allocation
structure in July, 1997, allocations to SCG for research and development,
selling and marketing, and general and administrative expenses were based on
budgeted sales volume. This change had an insignificant impact on the amount of
the allocated costs.
F-7
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Total amounts allocated to SCG for research and development, selling and
marketing, and general and administrative expenses were as follows:
<TABLE>
<CAPTION>
NINE MONTHS JANUARY 1,
YEARS ENDED DECEMBER 31, ENDED 1999 THROUGH
------------------------------------ SEPTEMBER 26, AUGUST 3,
1996 1997 1998 1998 1999
-------- -------- -------- ------------- ------------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Research and
development.......... $34.8 34.6 33.1 26.7 13.3
===== ===== ===== ===== =====
Selling and
marketing............ $39.5 4.3 3.7 2.9 2.2
===== ===== ===== ===== =====
General and
administrative....... $87.2 117.0 115.2 94.4 50.0
===== ===== ===== ===== =====
</TABLE>
These cost allocations are included in the accompanying combined statements
of revenues less direct and allocated expenses before taxes but are not
necessarily indicative of the costs that would be incurred by the Business on a
stand-alone basis.
(D) INVENTORIES
Inventories are stated at the lower of worldwide standard cost, which
approximates actual cost on a first-in, first-out basis, or market. The main
components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
<S> <C> <C>
1997 1998
------ -----
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Raw materials............................................... $ 21.5 20.0
Work in process............................................. 109.1 103.1
Finished goods.............................................. 100.5 78.6
------ -----
Total Inventories....................................... $231.1 201.7
====== =====
</TABLE>
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Many of these assets are
directly related to SCG and are included without apportionment. SCG also shares
certain property, plant, and equipment with other SPS product lines. These
shared assets have been allocated to SCG based on sales volume for buildings,
land, and other general assets and units of production for machinery and
equipment.
F-8
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation is computed over the following estimated useful lives
predominately on the straightline method:
<TABLE>
<S> <C>
Buildings................................................... 30-40 years
Machinery and equipment..................................... 3-8 years
</TABLE>
SCG has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires recognition of
impairment of long-lived assets whenever events or changes in circumstances
indicate the carrying value of such assets exceeds the future undiscounted cash
flows attributable to such assets. During 1998, SCG incurred restructuring and
other charges which included impairment writedowns of $53.9 million related to
machinery and equipment (see Note 9).
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
<S> <C> <C>
1997 1998
-------- -------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Land..................................................... $ 9.6 10.3
Buildings................................................ 423.6 419.5
Machinery and equipment.................................. 1,199.3 1,181.1
-------- -------
Total property, plant and equipment.................. 1,632.5 1,610.9
Less accumulated depreciation............................ 1,018.3 1,098.6
-------- -------
$ 614.2 512.3
======== =======
</TABLE>
(F) INTEREST EXPENSE
Motorola had net interest expense on a consolidated basis for all periods
presented. These amounts have been allocated to SPS and in turn to SCG in the
amount of approximately $15.0 million, $11.0 million and $18.0 million for the
years ended December 31, 1996, 1997 and 1998, respectively, and $11.4 million
and $7.5 million for the nine months ended September 26, 1998 and for the period
from January 1, 1999 through August 3, 1999, respectively, primarily on the
basis of net assets. SCG management believes this allocation is reasonable, but
it is not necessarily indicative of the cost that would have been incurred if
the Business had been operated on a stand-alone basis.
(G) CURRENCIES AND FOREIGN CURRENCY INSTRUMENTS
SCG's functional currency for all foreign operations is the U.S. dollar,
except for Japan and Europe which is the local currency. Accordingly, the net
effect of gains and losses from translation of foreign currency financial
statements into U.S. dollars is included in current operations. The net
F-9
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
translation gains and losses for Japan and Europe are not significant and are
included as a component of business equity. Gains and losses resulting from
foreign currency transactions are included in current operations and were not
significant for 1996, 1997 or 1998.
(H) USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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.
(3) ACCRUED EXPENSES
The components of accrued expenses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
<S> <C> <C>
1997 1998
----- ----
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Payroll and employee related accruals....................... $ 6.3 7.1
Restructuring charges....................................... -- 68.0
Other accruals.............................................. 7.1 6.3
----- ----
Total accrued expenses.................................. $13.4 81.4
===== ====
</TABLE>
(4) EMPLOYEE BENEFIT PLANS
Employees of SCG participate in several Motorola retirement, employee
benefit, and incentive plans. These include (1) a profit sharing plan, (2) a
stock bonus plan, (3) a salary deferral 401(k) plan and (4) pension and
healthcare benefit plans. Motorola also has a stock option plan under which key
employees of SCG may be granted nonqualified or incentive stock options to
purchase shares of Motorola common stock. Certain key employees and certain
management of SCG also participate in various incentive arrangements based on
individual performance and Motorola/SPS/ SCG profitability. The costs of these
programs were allocated from Motorola to SPS and then to SCG on the basis of
payroll costs and headcount and are not necessarily indicative of the costs that
would be incurred on a stand-alone basis.
SCG employees in foreign countries participate in a retirement plan within
the country. In each case, the plan meets local and legal requirements of that
particular country and is based on defined years of service. Each country's plan
is unfunded and is accrued for in the accompanying combined balance sheets based
on actuarially determined amounts.
F-10
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(5) CONTINGENCIES
Motorola is currently a defendant in certain legal actions relating to SCG.
In the opinion of management, the outcome of such litigation will not have a
material adverse effect on the business equity, operations or liquidity of SCG.
Motorola is also involved in certain administrative and judicial proceedings
related to certain environmental matters at SCG locations. Based on information
currently available, management believes that the costs of these matters are not
likely to have a material adverse effect on business equity, operations or
liquidity of SCG.
(6) BUSINESS EQUITY
Business equity represents Motorola's ownership interest in the recorded net
assets of SCG. All cash transactions, accounts receivable, accounts payable in
the United States, other allocations and intercompany transactions are reflected
in this amount. A summary of activity is as follows:
<TABLE>
<CAPTION>
NINE MONTHS JANUARY 1,
YEARS ENDED DECEMBER 31, ENDED 1999 THROUGH
------------------------------------ SEPTEMBER 26, AUGUST 3,
1996 1997 1998 1998 1999
-------- -------- -------- -------------- ------------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period........ $ 689.7 746.1 866.4 866.4 681.0
Revenues less direct and allocated
expenses
before taxes........................ 289.7 270.0 (136.3) (156.8) 104.8
Net intercompany activity............. (233.3) (149.7) (49.1) (32.3) (83.9)
------- ------ ------ ------ -----
Balance at end of period.............. $ 746.1 866.4 681.0 677.3 701.9
======= ====== ====== ====== =====
</TABLE>
(7) INDUSTRY AND GEOGRAPHIC INFORMATION
The Business operates in one industry segment and is engaged in the design,
development, manufacture and marketing of a wide variety of semiconductor
products for the semiconductor industry and original equipment manufacturers.
SCG operates in various geographic locations. In the information that follows,
sales include local sales and exports made by operations within each area. To
control costs, a substantial portion of SCG's products are transported between
various SCG and SPS facilities in the process of being manufactured and sold.
Accordingly, it is not meaningful to present interlocation transfers between SCG
facilities on a stand alone basis. Sales to unaffiliated customers have little
correlation with the location of manufacture. It is, therefore, not meaningful
to present operating profit by geographical location.
SCG conducts a substantial portion of its operations outside of the United
States and is subject to risks associated with non-U.S. operations, such as
political risks, currency controls and fluctuations, tariffs, import controls
and air transportation.
F-11
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(7) INDUSTRY AND GEOGRAPHIC INFORMATION (CONTINUED)
Property, plant and equipment by geographic location is summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
<S> <C> <C>
1997 1998
------ -----
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
United States............................................... $283.2 210.4
Malaysia.................................................... 97.2 102.7
Philippines................................................. 42.8 40.1
Japan....................................................... 30.5 31.3
Mexico...................................................... 28.6 30.3
Other foreign countries..................................... 131.9 97.5
------ -----
Total....................................................... $614.2 512.3
====== =====
</TABLE>
Sales to unaffiliated customers by geographic location is summarized as
follows:
<TABLE>
<CAPTION>
NINE MONTHS JANUARY 1,
YEARS ENDED DECEMBER 31, ENDED 1999 THROUGH
------------------------------ SEPTEMBER 26, AUGUST 3,
1996 1997 1998 1998 1999
-------- -------- -------- ------------- ------------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States......... $ 766.1 804.4 636.4 493.2 374.0
Germany............... 106.1 107.7 108.0 84.1 61.2
Hong Kong............. 112.5 117.1 107.4 80.4 78.0
Japan................. 182.7 188.7 127.4 97.5 76.7
Singapore............. 115.8 137.6 98.2 70.0 75.1
Taiwan................ 80.1 81.9 71.0 53.1 33.9
Other foreign
countries........... 384.7 377.8 345.0 255.0 195.4
-------- ------- ------- ------- -----
Total................. $1,748.0 1,815.2 1,493.4 1,133.3 894.3
======== ======= ======= ======= =====
</TABLE>
As discussed in note 2, sales to other sectors of Motorola are treated as
sales to unaffiliated customers.
(8) SUPPLEMENTAL CASH FLOW INFORMATION
As described in note 1, Motorola's cash management system is not designed to
track centralized cash and related financing transactions to the specific cash
requirements of the Business. In addition, SPS's transaction systems are not
designed to track receivables and certain liabilities and
F-12
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(8) SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
cash receipts and payments on a business specific basis. Given these
constraints, the following data are presented to facilitate analysis of key
components of cash flow activity:
<TABLE>
<CAPTION>
NINE MONTHS JANUARY 1,
YEARS ENDED DECEMBER 31, ENDED 1999 THROUGH
------------------------------ SEPTEMBER 26, AUGUST 3,
1996 1997 1998 1998 1999
-------- -------- -------- ------------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Revenues less direct and allocated
expenses before taxes................ $ 289.7 270.0 (136.3) (156.8) 104.8
Depreciation........................... 130.6 133.3 129.2 92.9 73.4
Impairment write down on property,
plant and equipment.................. -- -- 53.9 53.9 --
(Increase) decrease in inventories..... 12.0 (86.8) 29.4 14.4 (28.1)
Decrease in other current assets....... .9 1.1 4.5 2.4 (0.8)
Increase in other assets............... (7.6) (21.5) (11.7) (0.2) (14.1)
Increase (decrease) in accounts payable
and accrued expenses................. (3.0) 6.4 70.0 106.1 (24.1)
Increase (decrease) in non-current
liabilities.......................... 1.4 5.0 (8.7) (8.6) 0.3
------- ------ ------ ------ ------
Cash flow from operating activities,
excluding Motorola financing and
taxes.................................. 424.0 307.5 130.3 104.1 111.4
Investing activities:
Capital expenditures, net of
transfers............................ (190.7) (157.8) (81.2) (71.8) (27.5)
------- ------ ------ ------ ------
Net financing provided to Motorola*.... $ 233.3 149.7 49.1 32.3 83.9
======= ====== ====== ====== ======
</TABLE>
* The difference between cash flow from operating activities and investing
activities does not necessarily represent the cash flows of the Business, or
the timing of such cash flows, had it operated on a stand-alone basis.
(9) RESTRUCTURING AND OTHER CHARGES
In June 1998, Motorola recorded a charge to cover restructuring costs related
to the consolidation of manufacturing operations, the exit of non-strategic or
poorly performing businesses and a reduction in worldwide employment by 20,000
employees. Asset impairment and other charges were also recorded for the
writedown of assets which had become impaired as a result of current business
conditions or business portfolio decisions. Motorola recorded its charge in the
following restructuring categories:
CONSOLIDATION OF MANUFACTURING OPERATIONS
Consolidation of manufacturing operations relates to the closing of
production and distribution facilities and selling or disposing of the machinery
and equipment that was no longer needed and, in some cases, scrapping excess
assets that had no net realizable value. The buildings associated with these
production facilities, in many cases were sold to outside parties. Also included
in this restructuring category were costs related to shutting down or reducing
the capacity of certain
F-13
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(9) RESTRUCTURING AND OTHER CHARGES (CONTINUED)
production lines. In most cases, older facilities with older technologies or
non-strategic products were closed. Machinery and equipment write downs related
to equipment that would no longer be utilized comprised the majority of these
costs. These assets have been deemed to be held for use until such time as they
are removed from service and, therefore, no longer utilized in manufacturing
products. An assessment was made as to whether or not there was an asset
impairment related to the valuation of these assets in determining what the
amount of the write down included in the restructuring charge should be for this
machinery and equipment. This assessment utilized the anticipated future
undiscounted cash flows generated by the equipment as well as its ultimate value
upon disposition.
The charges in this restructuring category do not include any costs related
to the abandonment or sub-lease of facilities, moving expenses, inventory
disposals or write downs, or litigation or environmental obligations.
As part of the consolidation of manufacturing operations, certain SPS
facilities in North Carolina, California, Arizona and the Philippines are being
closed as planned. SPS is consolidating its production facilities into fewer
integrated factories to achieve economies of scale and improved efficiencies and
to capitalize on new technologies that should reduce operating costs.
BUSINESS EXITS
Business exit costs include costs associated with shutting down businesses
that did not fit with Motorola's new strategy. In many cases, these businesses
used older technologies that produced non-strategic products. The long-term
growth and margins associated with these businesses were not in line with
Motorola's expectations given the level of investment and returns. Included in
these business exit costs were the costs of terminating technology agreements
and selling or liquidating interests in joint ventures that did not fit with the
new strategy of Motorola. Similar to consolidation of manufacturing operations,
the charges in this restructuring category did not include any costs related to
the abandonment or sublease of facilities, moving expenses, inventory disposals
or write downs, or litigation or environmental obligations.
EMPLOYEE SEPARATIONS
Employee separation costs represent the costs of involuntary severance
benefits for the 20,000 positions identified as subject to severance under the
restructuring plan and special voluntary termination benefits offered beginning
in the third quarter of 1998. The special voluntary termination benefits
provided for one week of pay for each year of service between years 1-10, two
weeks of pay for each year of service between years 11-19, and three weeks of
pay for each year of service for year 20 and greater. The majority of employees
who accepted special voluntary termination benefits did so by the end of the
year, although severance payments were not completed by that time. The majority
of the special voluntary termination benefits expired at the end of the fourth
quarter of 1998.
F-14
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(9) RESTRUCTURING AND OTHER CHARGES (CONTINUED)
As of December 31, 1998, approximately 13,800 employees have separated from
Motorola through a combination of voluntary and involuntary severance programs.
Of the 13,800 separated employees, approximately 8,200 were direct employees and
5,600 were indirect employees. Direct employees are primarily non-supervisory
production employees, and indirect employees are primarily non-production
employees and production managers.
ASSET IMPAIRMENTS AND OTHER CHARGES
As a result of current and projected business conditions, Motorola wrote
down operating assets that became impaired. The majority of the assets written
down were used manufacturing equipment and machinery.
The amount of impairment charge for the assets written down was based upon
an estimate of the future cash flows expected from the use of the assets, as
well as upon their eventual disposition. These undiscounted cash flows were then
compared to the net book value of the equipment, and impairment was determined
based on that comparison. Cash flows were determined at the facility level for
certain production facilities based upon anticipated sales value of the products
to be produced and the costs of producing the products at those facilities. In
cases in which sufficient cash flows were not going to be generated by the
equipment at those facilities, the assets were written down to their estimated
fair value. These estimated fair values were based upon what the assets could be
sold for in a transaction with an unrelated third party. Since the majority of
these assets were machinery and equipment, Motorola was able to utilize current
market prices for comparable equipment in the marketplace in assessing what
would be the fair value upon sale of the equipment.
Building writedowns were based on marketability factors of the building in
the particular location.
Assets held for use continue to be depreciated based on an evaluation of
their remaining useful lives and their ultimate values upon disposition. There
were no assets held for sale at December 31, 1998 nor were any impaired assets
disposed of prior to that date.
SCG'S RESTRUCTURING CHARGE
SCG's charges related to these actions were $189.8 million of which
$53.9 million represented asset impairments charged directly against machinery
and equipment. SCG's employment reductions will total approximately 3,900 of
which approximately 2,500 (1,600 direct employees and 900 indirect employees)
had separated from SCG as of December 31, 1998. Approximately 3,000 (1,800
direct employees and 1,200 indirect employees) had separated from SCG as of
August 3, 1999.
F-15
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(9) RESTRUCTURING AND OTHER CHARGES (CONTINUED)
At December 31, 1998, $68.0 million of restructuring accruals remain
outstanding. The following table displays a rollforward to December 31, 1998 of
the accruals established during the second quarter of 1998:
<TABLE>
<CAPTION>
ACCRUALS AT
INITIAL AMOUNTS DECEMBER 31,
CHARGES USED 1998
-------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Consolidation of manufacturing operations................... $ 13.2 -- 13.2
Business exits.............................................. 20.7 9.4 11.3
Employee separations........................................ 102.0 58.5 43.5
------ ------ -----
Total restructuring....................................... 135.9 67.9 68.0
------ ------ -----
Asset impairments and other charges......................... 53.9 53.9 --
------ ------ -----
Total..................................................... $189.8 121.8 68.0
====== ====== =====
</TABLE>
SCG's remaining accrual at December 31, 1998 of $13.2 million for the
consolidation of manufacturing operations represents the finalization of the
plant closings in Arizona and the Philippines. Within the business exits
category, the remaining accrual of $11.3 million at December 31, 1998 relates to
costs of exiting two unprofitable product lines. SCG's remaining accrual of
$43.5 million at December 31, 1998 for employee separations relates to the
completion of severance payments in Japan, Asia, the U.K. and Arizona.
SCG's total amount used of $121.8 million through December 31, 1998 reflects
approximately $63.6 million in cash payments and $58.2 million in write-offs.
The remaining $68.0 million accrual balance at December 31, 1998 is expected to
be liquidated via cash payments.
At August 3, 1999, $43.1 million of restructuring accruals remain
outstanding. The following table displays a rollforward from December 31, 1998
to August 3, 1999, of the accruals established during the second quarter of
1998:
<TABLE>
<CAPTION>
ACCRUALS AT 1999
DECEMBER 31, AMOUNTS ACCRUALS AT
1998 USED AUGUST 3, 1999
------------ -------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
Consolidation of manufacturing operations............... $13.2 3.8 9.4
Business exits.......................................... 11.3 6.4 4.9
Employee separations.................................... 43.5 14.7 28.8
----- ---- ----
Total restructuring................................. 68.0 24.9 43.1
----- ---- ----
Asset impairments and other charges..................... -- -- --
----- ---- ----
Total............................................... $68.0 24.9 43.1
===== ==== ====
</TABLE>
F-16
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(9) RESTRUCTURING AND OTHER CHARGES (CONTINUED)
SCG's remaining accrual at August 3, 1999 of $9.4 million for the
consolidation of manufacturing operations represents the finalization of the
plant closings in Arizona and the Philippines. Within the business exits
category, the remaining accrual of $4.9 million at August 3, 1999 relates to
costs of exiting two unprofitable product lines. SCG's remaining accrual of
$28.8 million at August 3, 1999 for employee separations relates to the
completion of severance payments in Japan, Asia, the U.K. and Arizona. SCG's
total 1999 amount used of $24.9 million through August 3, 1999 reflects cash
payments. The remaining $43.1 million accrual balance at August 3, 1999 is
expected to be liquidated via cash payments.
Motorola retained the employee separation accrual of $28.8 million as of
August 3, 1999, to cover approximately 900 employees who will remain employees
of, and be released by Motorola.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires that the Business disclose estimated
fair values for its financial instruments. The carrying amount of accounts
payable and accrued liabilities is assumed to be the fair value because of the
short-term maturity of these instruments.
(11) INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
SCG participates in joint ventures in China, Malaysia and Eastern Europe.
The joint ventures have been accounted for using the equity method. The
investment in each joint venture approximates the underlying equity interest of
such joint venture. Investments in these joint ventures totaled $31.3 million
and $46.8 million at December 31, 1997 and 1998, respectively, and are included
in other assets in the accompanying combined balance sheets. Earnings from these
joint ventures totaled $2.4 million, $1.6 million, and $8.4 million for the
years ended December 31, 1996, 1997, and 1998, respectively.
F-17
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(11) INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
<TABLE>
<CAPTION>
LESHAN- SEMICONDUCTOR
PHOENIX MINIATURE SLOVAKIA
SEMICONDUCTOR PRODUCTS TESLA ELECTRONICS
JOINT VENTURE LTD. MALAYSIA TEROSIL A.S. SEZAM A.S. INDUSTRIES TOTAL
------------- ------------- ------------- ------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Czech Czech Slovak
Country Location...... China Malaysia Republic Republic Republic
SCG Ownership
%(Direct)........... 55.0% 50.0% 49.9% 49.9% 100.0%
As of and for the year
ended December 31,
1998
- ----------------------
Current assets........ $ 5,354 7,791 7,450 13,780 346 34,721
Noncurrent assets..... 49,241 74,467 8,650 42,520 8,804 183,682
------- -------- -------- -------- -------- -------
Total assets.......... $54,595 82,258 16,100 56,300 9,150 218,403
======= ======== ======== ======== ======== =======
Current liabilities... $ 1,996 4,328 3,743 16,839 0 26,906
======= ======== ======== ======== ======== =======
Noncurrent
liabilities......... $24,548 54,442 4,857 29,361 592 113,800
======= ======== ======== ======== ======== =======
Venture's equity...... $28,051 23,488 7,500 10,100 8,558 77,697
======= ======== ======== ======== ======== =======
Net sales............. $21,534 56,655 10,400 31,100 0 119,689
======= ======== ======== ======== ======== =======
Gross profit.......... $ 6,452 20,288 4,315 8,408 0 39,463
======= ======== ======== ======== ======== =======
Income (loss) from
continuing
operations.......... $ 5,631 5,578 1,280 5,140 (149) 17,480
======= ======== ======== ======== ======== =======
Net income (loss)..... $ 5,631 5,245 1,280 5,140 (149) 17,147
======= ======== ======== ======== ======== =======
</TABLE>
F-18
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
(11) INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
<TABLE>
<CAPTION>
LESHAN- SEMICONDUCTOR
PHOENIX MINIATURE SLOVAKIA
SEMICONDUCTOR PRODUCTS TESLA ELECTRONICS
JOINT VENTURE LTD. MALAYSIA TEROSIL A.S. SEZAM A.S. INDUSTRIES TOTAL
------------- ------------- ------------- ------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
As of and for the year
ended December 31,
1997
- ----------------------
Current assets........ $12,425 10,752 4,711 8,783 36,671
Noncurrent assets..... 31,281 56,971 5,545 22,315 116,112
------- -------- -------- -------- -------
Total assets.......... $43,706 67,723 10,256 31,098 152,783
======= ======== ======== ======== =======
Current liabilities... $ 7,996 17,579 1,680 4,602 31,857
======= ======== ======== ======== =======
Noncurrent
liabilities......... $18,181 33,180 1,613 20,062 73,036
======= ======== ======== ======== =======
Venture's equity...... $17,529 16,964 6,962 6,434 47,889
======= ======== ======== ======== =======
Net sales............. $18,508 57,661 10,153 16,447 102,769
======= ======== ======== ======== =======
Gross profit.......... $ 4,633 8,879 4,122 991 18,625
======= ======== ======== ======== =======
Income (loss) from
continuing
operations.......... $ 710 (1,650) 3,694 476 3,230
======= ======== ======== ======== =======
Net income (loss)..... $ 710 (1,350) 2,478 476 2,314
======= ======== ======== ======== =======
Year ended
December 31, 1996
- ----------------------
Net sales............. $ 4,341 29,412 33,753
======= ======== =======
Gross profit.......... $ 537 (1,731) (1,194)
======= ======== =======
Income (loss) from
continuing
operations.......... $(1,279) 6,590 5,311
======= ======== =======
Net income (loss)..... $(1,279) 6,590 5,311
======= ======== =======
</TABLE>
12. BUSINESS TRANSACTION
On May 11, 1999, affiliates of the Texas Pacific Group entered into an
agreement with Motorola, providing for a recapitalization of the Business and
certain related transactions, after which affiliates of Texas Pacific Group will
own approximately 91% and Motorola will own approximately 9% of the outstanding
voting stock of the Business. In addition, as part of these transactions, Texas
Pacific Group will receive 1,500 shares and Motorola will receive 590 shares of
mandatorily redeemable
F-19
<PAGE>
SEMICONDUCTOR COMPONENTS GROUP OF
MOTOROLA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF AUGUST 3, 1999, FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 3, 1999 IS UNAUDITED
12. BUSINESS TRANSACTION (CONTINUED)
preferred stock of SCG Holding ("SCG Holding Preferred Stock") and Motorola will
receive $91 million of junior subordinated notes of SCI LLC (the "Junior
Subordinated Notes"). Cash payments to Motorola will be financed through equity
investments by affiliates of Texas Pacific Group, borrowings under senior
secured bank loan facilities and the issuance of senior subordinated notes due
2009.
In connection with the recapitalization and related transactions, it is
anticipated that certain wholly-owned domestic subsidiaries will be established
to serve as guarantors of the senior subordinated notes due 2009. Each guarantor
will jointly and severally, irrevocably and unconditionally guarantee the
obligations of the issuers under the notes. The net assets to be contributed to
these guarantor subsidiaries are expected to consist of SCG's equity interests
in its unconsolidated joint ventures in China, Malaysia and Eastern Europe,
nominal interests in certain foreign subsidiaries and a nominal amount of cash.
The joint ventures and foreign subsidiaries themselves are not expected to be
guarantors of the notes. The net assets to be contributed to the guarantor
subsidiaries approximated $31.3 million and $46.8 million at December 31, 1997
and 1998, respectively, and generated related earnings of $2.4 million,
$1.6 million and $8.4 million for the years ended December 31, 1996, 1997 and
1998, respectively.
F-20
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN MILLIONS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 2, 1999
---------------
<S> <C>
ASSETS
Cash and cash equivalents................................. $ 107.1
Receivables, less allowance for doubtful accounts......... 206.5
Inventories............................................... 210.5
Other current assets...................................... 26.6
--------
Total Current Assets.................................... 550.7
Property, plant and equipment, net........................ 610.6
Deferred income taxes..................................... 280.2
Investment in joint venture............................... 18.4
Other assets.............................................. 53.2
--------
Total Assets............................................ $1,513.1
========
LIABILITIES, MINORITY INTERESTS, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable.......................................... $ 101.0
Accrued expenses.......................................... 145.3
--------
Total Current Liabilities............................... 246.3
Long term debt............................................ 1,293.0
Other long term liabilities............................... 17.2
--------
Total Liabilities....................................... 1,556.5
--------
Commitments and contingencies............................. --
--------
Minority interests in consolidated subsidiaries........... 28.3
--------
Redeemable preferred stock ($0.01 par value, 100,000
shares authorized, 2,090 shares issued and outstanding;
12% annual dividend rate; liquidation value - $100,000
per share plus $4.2 accrued dividends).................. 213.2
--------
Common stock ($0.01 par value, 300,000,000 shares
authorized, 205,000,000 shares issued and
outstanding)............................................ 2.1
Additional paid-in capital................................ 202.9
Accumulated other comprehensive income (loss)............. (3.2)
Accumulated deficit....................................... (486.7)
--------
Total Stockholders' Equity (Deficit).................... (284.9)
--------
Total Liabilities, Minority Interests, Redeemable
Preferred Stock and Stockholders' Equity (Deficit)...... $1,513.1
========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 4, 1999
THROUGH OCTOBER 2,
1999
(DOLLARS IN MILLIONS) ------------------
<S> <C>
REVENUES:
Net product sales......................................... $301.2
Foundry sales............................................. 28.0
------
Total Revenues.......................................... 329.2
------
OPERATING COSTS AND EXPENSES:
Costs of sales............................................ 241.1
Research and development.................................. 6.9
Selling and marketing..................................... 8.8
General and administrative................................ 26.1
Restructuring and other charges........................... 6.4
------
Total Operating Costs and Expenses...................... 289.3
------
OPERATING INCOME 39.9
------
OTHER INCOME (EXPENSES):
Interest expense.......................................... (23.0)
Equity in earnings of joint ventures...................... 0.8
------
Other expenses, net..................................... (22.2)
------
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS........... 17.7
PROVISION FOR INCOME TAXES.................................. (14.9)
MINORITY INTERESTS.......................................... (0.3)
------
NET INCOME.................................................. 2.5
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign Currency Translation Adjustment................... (3.2)
------
COMPREHENSIVE INCOME (LOSS)................................. $ (0.7)
======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK COMMON ADDITIONAL PAID COMPREHENSIVE ACCUMULATED
(SHARES) STOCK IN CAPITAL INCOME (LOSS) DEFICIT TOTAL
--------------- --------- --------------- --------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares issued in
connection with
Recapitalization (See
Note 2)................ 100,000 $ -- $205.0 $(485.0) $(280.0)
2,049-for-1 stock split
effected in the form of
a stock dividend....... 204,900,000 2.1 (2.1) --
Redeemable preferred
stock dividends........ (4.2) (4.2)
Comprehensive Income
(Loss):
Net income............. 2.5 2.5
Foreign Currency
Translation
Adjustment........... $(3.2) (3.2)
-------
Comprehensive Income
(Loss)............. (0.7)
-------
Balances at October 2,
----------- ---- ------ ----- ------- -------
1999................... 205,000,000 $2.1 $202.9 $(3.2) $(486.7) $(284.9)
=========== ==== ====== ===== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 4,
1999 THROUGH
OCTOBER 2,
1999
(DOLLARS IN MILLIONS) ------------
<S> <C>
Net cash provided by operating activities................... $ 7.2
---------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment................. (19.7)
---------
Net cash used in investing activities................... (19.7)
---------
Cash Flows from Financing Activities (See Note 2):
Proceeds from issuance of common stock to Texas Pacific
Group................................................... 187.5
Proceeds from issuance of redeemable preferred stock to
Texas Pacific Group..................................... 150.0
Payment of transaction costs charged to accumulated
deficit................................................. (29.0)
Proceeds from borrowings under senior credit facilities... 800.5
Proceeds from issuance of senior subordinated notes....... 400.0
Payment of debt issuance costs............................ (52.6)
Repayment of joint venture debt........................... (73.0)
Net cash payments to Motorola in connection with
Recapitalization........................................ (1,263.8)
---------
Net cash provided by financing activities............... 119.6
---------
Net increase in cash and cash equivalents................... 107.1
Cash and cash equivalents, beginning of period.............. --
---------
Cash and cash equivalents, end of period.................... $ 107.1
=========
Supplemental schedule of noncash financing activities (See
Note 2):
Issuance of common stock to Motorola...................... $ 17.5
Issuance of redeemable preferred stock to Motorola........ $ 59.0
Issuance of junior subordinated note to Motorola.......... $ 91.0
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
NOTES TO FINANCIAL STATEMENTS
ALL INFORMATION AS OF OCTOBER 2, 1999 AND FOR THE PERIOD FROM
AUGUST 4, 1999 TO OCTOBER 2, 1999 IS UNAUDITED
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial statements as of October 2, 1999 and
for the period from August 4, 1999 (the date of the Recapitalization described
in Note 2) through October 2, 1999 include the accounts of SCG Holding
Corporation and its majority-owned subsidiaries (collectively, the Company.)
The accompanying financial information reflects all adjustments, consisting
only of normal recurring adjustments, that are, in the opinion of management,
necessary for a fair statement of the results for the interim period presented.
Such financial information should be read in conjunction with the combined
financial statements of the Semiconductor Components Group (SCG) of Motorola,
Inc. (Motorola) for the year ended December 31, 1998.
The Company utilizes a calendar year as its fiscal year. However, for
quarterly reporting purposes, the Company's reporting periods end on the
Saturday closest to the calendar quarter end. The results of operations for the
period presented in the accompanying financial information are not necessarily
indicative of the results to be expected for an entire fiscal year or for any
future period.
NOTE 2: THE RECAPITALIZATION
On August 4, 1999, SCG Holding Corporation was recapitalized and certain
related transactions were effected (the Recapitalization) pursuant to an
agreement among SCG Holding Corporation, its subsidiary, Semiconductor
Components Industries, LLC, Motorola and affiliates of Texas Pacific Group. As a
result of the Recapitalization, an affiliate of Texas Pacific Group holds
approximately 91% and Motorola holds approximately 9% of the outstanding voting
stock of SCG Holding Corporation. In addition, as part of these transactions,
Texas Pacific Group received 1,500 shares and Motorola received 590 shares of
the Company's mandatorily redeemable preferred stock with a liquidation value of
$209 million plus accrued and unpaid dividends. Motorola also received $91
million of junior subordinated notes issued by Semiconductor Components
Industries, LLC. Cash payments to Motorola in connection with the
Recapitalization were financed through equity investments by affiliates of Texas
Pacific Group totaling $337.5 million, borrowings totaling $740.5 million under
the Company's $875 million senior secured bank loan facilities and the issuance
of $400 million of 12% senior subordinated notes due August 2009. Because Texas
Pacific Group acquired less than substantially all of the Company's common
stock, the basis of the Company's assets and liabilities for financial
accounting purposes was not impacted by the Recapitalization.
F-25
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF OCTOBER 2, 1999 AND FOR THE PERIOD FROM
AUGUST 4, 1999 TO OCTOBER 2, 1999 IS UNAUDITED
NOTE 3: LONG TERM DEBT
Long term debt consists of the following (dollars in millions):
<TABLE>
<CAPTION>
BALANCE
AT
INTEREST OCTOBER 2,
AMOUNT RATE 1999
-------- ------------- ----------
<S> <C> <C> <C>
Senior Bank Facilities:
Tranche A............................... $200.0 LIBOR + 3.00% $ 125.5
Tranche B............................... $325.0 LIBOR + 3.50% 325.0
Tranche C............................... $350.0 LIBOR + 3.75% 350.0
Revolving Facility...................... $375.0 LIBOR + 3.00% 0.0
--------
800.5
Senior Subordinated Notes due 2009 12% 400.0
Junior Subordinated Note due 2011
(including accrued interest of $1.5).... 10% 92.5
--------
--------
Total................................... $1,293.0
========
</TABLE>
Borrowings under Tranche A, B and C amortize within six, seven and eight
years, respectively. The Tranche A facility includes a delayed-draw facility of
$134.5 million of which $60.0 million had been borrowed as of October 2, 1999.
The remaining $74.5 million of the delayed-draw facility will remain outstanding
until February 4, 2000. The senior bank facilities as well as the senior
subordinated notes contain various covenants and restrictions. Although no
amounts are outstanding under the Company's revolving bank facility as of
October 2, 1999, the amount available has been reduced by $14.7 million for
letters of credit issued on behalf of the Company.
The Company and one of its domestic subsidiaries (collectively the Issuers)
issued the senior subordinated notes due 2009. The Company's other domestic
subsidiaries (collectively the Guarantor Subsidiaries) have jointly and
severally, irrevocably and unconditionally guaranteed the Issuers' obligations
under the senior subordinated notes. The Guarantor Subsidiaries are holding
companies whose net assets consist primarily of investments in the Company's
foreign joint ventures in China, Malaysia and the Czech Republic as well as
nominal equity interests in certain of the Company's foreign subsidiaries. The
foreign joint ventures and foreign subsidiaries (collectively, the Non-Guarantor
Subsidiaries) themselves are not guarantors of the senior subordinated notes.
F-26
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF OCTOBER 2, 1999 AND FOR THE PERIOD FROM
AUGUST 4, 1999 TO OCTOBER 2, 1999 IS UNAUDITED
NOTE 3: LONG TERM DEBT (CONTINUED)
Condensed consolidating financial information for Issuers, the Guarantor
Subsidiaries and the Non-Guarantor Subsidiaries as of October 2, 1999 and for
the period from August 4, 1999 through October 2, 1999 is as follows:
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
ISSUERS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 328.5 $ 13.8 $ (13.1) $ 329.2
-------- ----- ------ ------- --------
Cost of sales................................. 242.7 11.5 (13.1) 241.1
General and administrative.................... 25.4 0.7 26.1
Other operating expenses...................... 22.1 22.1
-------- ----- ------ ------- --------
Total operating costs and expenses.......... 290.2 12.2 (13.1) 289.3
-------- ----- ------ ------- --------
Operating income.............................. 38.3 1.6 0.0 39.9
Interest expense.............................. 21.9 1.1 23.0
Equity earnings............................... 1.0 1.0 (1.2) 0.8
-------- ----- ------ ------- --------
Income before taxes and minority interests.... 17.4 1.0 0.5 (1.2) 17.7
Provision for income taxes.................... (14.9) (14.9)
Minority interests............................ (0.3) (0.3)
-------- ----- ------ ------- --------
Net income.................................. $ 2.5 $ 1.0 $ 0.5 $ (1.5) $ 2.5
======== ===== ====== ======= ========
Receivables................................... $ 202.4 $ 10.1 $ (6.0) $ 206.5
Inventories................................... 202.7 7.8 210.5
Other current assets.......................... 125.9 14.0 (6.2) 133.7
-------- ----- ------ ------- --------
Total current assets........................ 531.0 31.9 (12.2) 550.7
Property, plant and equipment, net............ 498.0 112.6 610.6
Deferred income taxes......................... 280.2 280.2
Investments and other assets.................. 170.2 45.2 3.3 (147.1) 71.6
-------- ----- ------ ------- --------
Total assets................................ $1,479.4 $45.2 $147.8 $(159.3) $1,513.1
======== ===== ====== ======= ========
Accounts payable.............................. $ 99.5 $ 8.3 $ (6.8) $ 101.0
Accrued expenses.............................. 139.7 5.6 145.3
-------- ----- ------ ------- --------
Total current liabilities................... 239.2 13.9 (6.8) 246.3
Long term debt and other...................... 1,309.9 79.7 (79.4) 1,310.2
-------- ----- ------ ------- --------
Total liabilities........................... 1,549.1 93.6 (86.2) 1,556.5
-------- ----- ------ ------- --------
Minority interests............................ 28.3 28.3
-------- ----- ------ ------- --------
Redeemable preferred stock.................... 213.2 213.2
-------- ----- ------ ------- --------
Stockholders' equity (deficit)................ (282.9) 45.2 54.2 (101.4) (284.9)
-------- ----- ------ ------- --------
Liabilities, minority interests, redeemable
preferred stock and stockholders' equity
(deficit)................................... $1,479.4 $45.2 $147.8 $(159.3) $1,513.1
======== ===== ====== ======= ========
</TABLE>
F-27
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF OCTOBER 2, 1999 AND FOR THE PERIOD FROM
AUGUST 4, 1999 TO OCTOBER 2, 1999 IS UNAUDITED
NOTE 4: INVESTMENTS IN JOINT VENTURES
The Company has investments in joint ventures located in China and the Czech
Republic and a subsidiary established in anticipation of a joint venture in
Slovakia, each of which was accounted for under the equity method prior to the
Recapitalization. In connection with the Recapitalization, the Company
refinanced third-party non-recourse loans of the joint ventures totaling $73.0
million with intercompany loans and, as a result, began consolidating these
joint ventures effective August 4, 1999.
The Company has a 50% interest in Semiconductor Miniatures Products Malaysia
Sdn. Bhd. (SMP), a company that operates a semiconductor assembly facility in
Seremban, Malaysia. The Company accounts for its investment in SMP using the
equity method.
NOTE 5: RESTRUCTURING AND OTHER CHARGES
Subsequent to the Recapitalization, the Company incurred $6.4 million of
one-time costs primarily relating to the worldwide launch of its new trade name,
ON Semiconductor-TM-. Such costs have been separately identified as
restructuring and other charges within operating costs and expenses in the
accompanying consolidated statement of operations and comprehensive income
(loss).
In June 1998, Motorola recorded a charge to cover restructuring costs
related to the consolidation of manufacturing operations, the exit of
non-strategic or poorly performing businesses and a reduction in worldwide
employment by 20,000. Asset impairment and other charges were also recorded for
the write-down of assets which became impaired as a result of current business
conditions or business portfolio decisions. The Company's charges related to
these actions were $189.8 million of which $53.9 million represented asset
impairments charged directly against property, plant and equipment.
As part of our recapitalization, Motorola agreed to retain, and subsequently
release, approximately 900 employees whom the Semiconductor Components Group had
planned to release as part of its restructuring program.
At October 2, 1999, $13.6 million of related restructuring accruals remained
outstanding. The following table summarizes movements in the restructuring
accruals from August 4, 1999, the date of the Recapitalization, through
October 2, 1999:
<TABLE>
<CAPTION>
AUGUST 4, OCTOBER 2,
1999 PAYMENTS 1999
--------- -------- ----------
<S> <C> <C> <C>
Consolidation of manufacturing operations..... $ 9.4 $(0.7) $ 8.7
Business exits................................ 4.9 -- 4.9
----- ----- -----
$14.3 $(0.7) $13.6
===== ===== =====
</TABLE>
The Company's remaining accrual at October 2, 1999 for the consolidation of
manufacturing operations represents the finalization of plant closings in the
United States while the remaining
F-28
<PAGE>
SCG HOLDING CORPORATION AND SUBSIDIARIES
(D/B/A ON SEMICONDUCTOR)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ALL INFORMATION AS OF OCTOBER 2, 1999 AND FOR THE PERIOD FROM
AUGUST 4, 1999 TO OCTOBER 2, 1999 IS UNAUDITED
NOTE 5: RESTRUCTURING AND OTHER CHARGES (CONTINUED)
accrual within the business exits category relates to the costs of exiting two
unprofitable product lines. The Company expects to liquidate the remaining
accruals via cash payments.
NOTE 6: CONTINGENCIES
The Company is currently involved in a variety of legal matters that arose
in the normal course of business. Based on information currently available,
management does not believe that the ultimate resolution of these matters will
have a material adverse effect on our financial condition, results of operations
or cash flows.
NOTE 7: SEGMENT INFORMATION
The Company operates in one industry segment and is engaged in the design,
development, manufacture and marketing of a wide variety of semiconductor
products for the semiconductor industry and original equipment manufacturers.
The Company operates in various geographic locations. Sales to unaffiliated
customers have little correlation with the location of manufacture. It is,
therefore, not meaningful to present operating profit by geographic location.
The Company conducts a substantial portion of its operations outside of the
United States and is subject to risks associated with non-U.S. operations, such
as political risks, currency controls and fluctuations, tariffs, import controls
and air transportation. Net product sales to unaffiliated customers by
geographic location, including local sales and exports made by operations within
each area, for the period from August 4, 1999 to October 2, 1999 approximated
$154.3 million, $79.2 million, $56.9 million and $38.8 million in the Americas,
Asia/Pacific, Europe and Japan, respectively.
F-29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS OR IN THE ACCOMPANYING
LETTER OF TRANSMITTAL. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR
REPRESENTATIONS. THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL ARE
AN OFFER TO SELL OR TO BUY ONLY THE SECURITIES OFFERED HEREBY, BUT ONLY UNDER
CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION
CONTAINED IN THIS PROSPECTUS AND IN THE ACCOMPANYING LETTER OF TRANSMITTAL ARE
CURRENT ONLY AS OF THEIR RESPECTIVE DATES.
- --------------------------------------------------------------------------------
[LOGO]
THROUGH AND INCLUDING , (THE 90TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
,
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Limited Liability Company Agreements of Semiconductor Components
Industries, LLC ("Semiconductor Components") and SCG International Development,
LLC and the Certificates of Incorporation of SCG Holding Corporation ("SCG
Holding"), SCG (Malaysia SMP) Holding Corporation, SCG (China) Holding
Corporation, SCG (Czech) Holding Corporation and Semiconductor Components
Industries Puerto Rico, Inc. (each, a "Co-Registrant") provide for
indemnification of the Registrants' officers and directors or members, as the
case may be.
The Limited Liability Company Agreements of Semiconductor Components and SCG
International Development, LLC each provide for the indemnification of their
sole Member, SCG Holding, their officers, and each of their respective
affiliates, officers, directors, shareholders, agents or employees if such
persons acted in furtherance of the interests of the respective company's
interest and no court of competent jurisdiction decides that the actions of such
persons constituted bad faith, gross negligence or willful misconduct.
The Certificate of Incorporation for each of the remaining Co-Registrants
provides for the indemnification of all persons, including its directors, whom
it may indemnify to the fullest extent permitted by the General Corporation Law
of the State of Delaware (the "DGCL"). Section 145 of the DGCL provides as
follows:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE--
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
A corporation shall have power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made
II-1
<PAGE>
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
To the extent that a present or former director or officer of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of this section, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Any Indemnification under subsections (a) and (b) of this section (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because the
person has met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
Expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the corporation
as authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents may be
so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
A corporation shall have power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person in any such capacity or arising out of such person's status as such
whether or not the corporation would have the power to indemnify such person
against such liability under this section.
For purposes of this section, references to "the corporation" shall include,
in addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same
II-2
<PAGE>
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
The Court of Chancery is hereby vested with exclusive jurisdiction to hear
and determine all actions for advancement of expenses or indemnification brought
under this section or under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Registrant also carries liability insurance covering officers and
directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBITS. A list of exhibits included as part of this Registration Statement
is set forth in the Exhibit Index which immediately precedes such exhibits and
is hereby incorporated by reference herein.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrants' annual reports pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plans annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 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 any such director, officer or controlling person in
connection with the securities being registered, the registrants 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 of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each registrant
has duly caused this registration statement to be signed on behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on January 27, 2000.
<TABLE>
<S> <C> <C>
SCG HOLDING CORPORATION
BY: /S/ STEVE HANSON
-----------------------------------------
NAME: STEVE HANSON
TITLE: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated, on January 27, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLES DATE
--------- ------ ----
<C> <S> <C>
/s/ STEVE HANSON President, Chief Executive
------------------------------------------- Officer and Director of January 27, 2000
Steve Hanson the registrant
Senior Vice President, Chief
/s/ DARIO SACOMANI Financial Officer and
------------------------------------------- Chief Accounting Officer January 27, 2000
Dario Sacomani of the registrant
/s/ CURTIS J. CRAWFORD* Chairman of the Board of
------------------------------------------- Directors of the January 27, 2000
Curtis J. Crawford registrant
/s/ DAVID BONDERMAN*
------------------------------------------- Director of the registrant January 27, 2000
David Bonderman
/s/ RICHARD W. BOYCE*
------------------------------------------- Director of the registrant January 27, 2000
Richard W. Boyce
/s/ JUSTIN T. CHANG*
------------------------------------------- Director of the registrant January 27, 2000
Justin T. Chang
/s/ DAVID M. STANTON
------------------------------------------- Director of the registrant January 27, 2000
David M. Stanton
/s/ WILLIAM A. FRANKE
------------------------------------------- Director of the registrant January 27, 2000
William A. Franke
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DARIO SACOMANI
--------------------------------------
Dario Sacomani, AS ATTORNEY-IN-FACT
</TABLE>
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each registrant
has duly caused this registration statement to be signed on behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on January 27, 2000.
<TABLE>
<S> <C> <C>
SEMICONDUCTOR COMPONENTS INDUSTRIES, LLC
BY: /S/ STEVE HANSON
-----------------------------------------
NAME: STEVE HANSON
TITLE: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated, on January 27, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
President and Chief
Executive Officer of the
/s/ STEVE HANSON registrant and Director of
------------------------------------------- SCG Holding Corporation January 27, 2000
Steve Hanson (the sole member of the
registrant)**
/s/ DARIO SACOMANI Financial Officer and Chief
------------------------------------------- Accounting Officer of the January 27, 2000
Dario Sacomani registrant
Chairman of the Board of
/s/ CURTIS J. CRAWFORD* Directors of SCG Holding
------------------------------------------- Corporation (the sole January 27, 2000
Curtis J. Crawford member of the
registrant)**
Director of SCG Holding
/s/ DAVID BONDERMAN* Corporation (the sole
------------------------------------------- member of the January 27, 2000
David Bonderman registrant)**
Director of SCG Holding
/s/ RICHARD W. BOYCE* Corporation (the sole
------------------------------------------- member of the January 27, 2000
Richard W. Boyce registrant)**
Director of SCG Holding
/s/ JUSTIN T. CHANG* Corporation (the sole
------------------------------------------- member of the January 27, 2000
Justin T. Chang registrant)**
Director of SCG Holding
/s/ DAVID M. STANTON* Corporation (the sole
------------------------------------------- member of the January 27, 2000
David M. Stanton registrant)**
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
Director of SCG Holding
/s/ WILLIAM A. FRANKE Corporation (the sole
------------------------------------------- member of the January 27, 2000
William A. Franke registrant)**
</TABLE>
<TABLE>
<S> <C> <C>
*By: /s/ DARIO SACOMANI
--------------------------------------
Dario Sacomani, AS ATTORNEY-IN-FACT
</TABLE>
** As a Delaware limited liability company, the registrant does not have any
directors.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each registrant
has duly caused this registration statement to be signed on behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on January 27, 2000.
<TABLE>
<S> <C> <C>
SCG INTERNATIONAL DEVELOPMENT, LLC
BY: /S/ STEVE HANSON
-----------------------------------------
NAME: STEVE HANSON
TITLE: PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated, on January 27, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLES DATE
--------- ------ ----
<C> <S> <C>
President of the registrant
and Director of SCG
Holding Corporation (the
/s/ STEVE HANSON sole member of
------------------------------------------- Semiconductor Components January 27, 2000
Steve Hanson Industries, LLC, the sole
member of the
registrant)**
Senior Vice President, Chief
/s/ DARIO SACOMANI Financial Officer and
------------------------------------------- Chief Accounting Officer January 27, 2000
Dario Sacomani of the registrant
Chairman of the Board of
Directors of SCG Holding
/s/ CURTIS J. CRAWFORD* Corporation (the sole
------------------------------------------- member of Semiconductor January 27, 2000
Curtis J. Crawford Components Industries,
LLC, the sole member of
the registrant)**
Director of SCG Holding
Corporation (the sole
/s/ DAVID BONDERMAN* member of Semiconductor
------------------------------------------- Components Industries, January 27, 2000
David Bonderman LLC, the sole member of
the registrant)**
Director of SCG Holding
Corporation (the sole
/s/ RICHARD W. BOYCE* member of Semiconductor
------------------------------------------- Components Industries, January 27, 2000
Richard W. Boyce LLC, the sole member of
the registrant)**
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLES DATE
--------- ------ ----
<C> <S> <C>
Director of SCG Holding
Corporation (the sole
/s/ JUSTIN T. CHANG* member of Semiconductor
------------------------------------------- Components Industries, January 27, 2000
Justin T. Chang LLC, the sole member of
the registrant)**
Director of SCG Holding
Corporation (the sole
/s/ DAVID M. STANTON* member of Semiconductor
------------------------------------------- Components Industries, January 27, 2000
David M. Stanton LLC, the sole member of
the registrant)**
Director of SCG Holding
Corporation (the sole
/s/ WILLIAM A. FRANKE member of Semiconductor
------------------------------------------- Components Industries, January 27, 2000
William A. Franke LLC, the sole member of
the registrant)**
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DARIO SACOMANI
--------------------------------------
Dario Sacomani, AS ATTORNEY-IN-FACT
</TABLE>
** As Delaware limited liability companies, neither the registrant nore its
sole member, Semiconductor Components Industries, LLC, has any directors.
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each registrant
has duly caused this registration statement to be signed on behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on January 27, 2000.
<TABLE>
<S> <C> <C>
SCG (MALAYSIA SMP) HOLDING CORPORATION
BY: /S/ STEVE HANSON
-----------------------------------------
NAME: STEVE HANSON
TITLE: PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated, on January 27, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLES DATE
--------- ------ ----
<C> <S> <C>
/s/ STEVE HANSON President of the registrant
------------------------------------------- January 27, 2000
Steve Hanson
Senior Vice President, Chief
/s/ DARIO SACOMANI Financial Officer and
------------------------------------------- Chief Accounting Officer January 27, 2000
Dario Sacomani of the registrant
/s/ GEORGE H. CAVE Director of the registrant
------------------------------------------- January 27, 2000
George H. Cave
/s/ JEAN-JAQUES MORIN Director of the registrant
------------------------------------------- January 27, 2000
Jean-Jaques Morin
/s/ HENRY LEUNG Director of the registrant
------------------------------------------- January 27, 2000
Henry Leung
</TABLE>
S-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each registrant
has duly caused this registration statement to be signed on behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on January 27, 2000.
<TABLE>
<S> <C> <C>
SCG (CHINA) HOLDING CORPORATION
BY: /S/ STEVE HANSON
-----------------------------------------
NAME: STEVE HANSON
TITLE: PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated, on January 27, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLES DATE
--------- ------ ----
<C> <S> <C>
/s/ STEVE HANSON President of the registrant
------------------------------------------- January 27, 2000
Steve Hanson
Senior Vice President, Chief
/s/ DARIO SACOMANI Financial Officer and
------------------------------------------- Chief Accounting Officer January 27, 2000
Dario Sacomani of the registrant
/s/ GEORGE H. CAVE Director of the registrant
------------------------------------------- January 27, 2000
George H. Cave
/s/ JEAN-JACQUES MORIN Director of the registrant
------------------------------------------- January 27, 2000
Jean-Jacques Morin
</TABLE>
S-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each registrant
has duly caused this registration statement to be signed on behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on January 27, 2000.
<TABLE>
<S> <C> <C>
SEMICONDUCTOR COMPONENTS INDUSTRIES PUERTO
RICO, INC.
BY: /S/ STEVE HANSON
-----------------------------------------
NAME: STEVE HANSON
TITLE: PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated, on January 27, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLES DATE
--------- ------ ----
<C> <S> <C>
/s/ STEVE HANSON President of the registrant
------------------------------------------- January 27, 2000
Steve Hanson
Senior Vice President, Chief
/s/ DARIO SACOMANI Financial Officer, Chief
------------------------------------------- Accounting Officer and January 27, 2000
Dario Sacomani Director of the registrant
/s/ GEORGE H. CAVE Director of the registrant
------------------------------------------- January 27, 2000
George H. Cave
/s/ JEAN-JACQUES MORIN Director of the registrant
------------------------------------------- January 27, 2000
Jean-Jacques Morin
</TABLE>
S-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each registrant
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on January 27, 2000.
<TABLE>
<S> <C> <C>
SCG (CZECH) HOLDING CORPORATION
BY: /S/ STEVE HANSON
-----------------------------------------
NAME: STEVE HANSON
TITLE: PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated, on January 27, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLES DATE
--------- ------ ----
<C> <S> <C>
/s/ STEVE HANSON President of the registrant
------------------------------------------- January 27, 2000
Steve Hanson
Senior Vice President, Chief
/s/ DARIO SACOMANI Financial Officer and
------------------------------------------- Chief Accounting Officer January 27, 2000
Dario Sacomani of the registrant
/s/ GEORGE H. CAVE Director of the registrant
------------------------------------------- January 27, 2000
George H. Cave
/s/ JEAN-JACQUES MORIN Director of the registrant
------------------------------------------- January 27, 2000
Jean-Jacques Morin
</TABLE>
S-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Reorganization Agreement, dated as of May 11, 1999, among
Motorola, Inc., SCG Holding Corporation and Semiconductor
Components Industries LLC.+*
2.2 Agreement and Plan of Recapitalization and Merger, as
amended, dated as of May 11, 1999, among SCG Holding
Corporation, Semiconductor Components Industries, LLC,
Motorola, Inc., TPG Semiconductor Holdings LLC, and TPG
Semiconductor Acquisition Corp.+*
2.3 Amendment No. 1 to Agreement and Plan of Recapitalization
and Merger, dated as of July 28, 1999, among SCG Holding
Corporation, Semiconductor Components Industries, LLC,
Motorola, Inc., TPG Semiconductor Holdings LLC, and TPG
Semiconductor Acquisition Corp.+*
3.1 Amended and Restated Certificate of Incorporation of SCG
Holding Corporation*
3.2 Certificate of Limited Liability Company of Semiconductor
Components Industries, LLC*
3.3 Certificate of Incorporation of SCG (Malaysia SMP) Holding
Corporation*
3.4 Amended and Restated Certificate of Incorporation of SCG
(China) Holding Corporation*
3.5 Amended and Restated Certificate of Incorporation of SCG
(Czech) Holding Corporation*
3.6 Amended and Restated Certificate of Incorporation of
Semiconductor Components Industries Puerto Rico, Inc.*
3.7 Certificate of Limited Liability Company of SCG
International Development, LLC*
3.8 Bylaws of SCG Holding Corporation*
3.9 Limited Liability Company Agreement of Semiconductor
Components Industries, LLC*
3.10 Bylaws of SCG (Malaysia SMP) Holding Corporation*
3.11 Bylaws of SCG (China) Holding Corporation*
3.12 Bylaws of SCG (Czech) Holding Corporation*
3.13 Bylaws of Semiconductor Components Industries Puerto Rico,
Inc.*
3.14 Limited Liability Company Agreement of SCG International
Development, LLC*
4.1 Indenture, dated as of August 4, among SCG Holding
Corporation, Semiconductor Components Industries, LLC and
State Street Bank and Trust Company, as trustee, relating to
the 12% Senior Subordinated Notes due 2009*
4.2 Form of 12% Senior Subordinated Note due 2009 of SCG Holding
Corporation and Semiconductor Components Industries, LLC
(the "Initial Note") (included as Exhibit A to The Indenture
filed as Exhibit 4.1)*
4.3 Form of 12% Senior Subordinated Note due 2009 of SCG Holding
Corporation and Semiconductor Components Industries, LLC
(the "Exchange Note") (included as Exhibit B to the
Indenture filed as Exhibit 4.1)*
4.4 Junior Subordinated Note Due 2011 payable to Motorola, Inc.*
4.5 Exchange Offer and Registration Rights Agreement, dated
August 4, 1999, Semiconductor Components Industries, LLC,
SCG Holding Corporation, the subsidiary guarantors of SCG
Holding Corporation*
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton regarding the
legality of Exchange Notes*
10.1 Purchase Agreement, dated as of August 4, 1999, among SCG
Holding Corporation, Semiconductor Components Industries,
LLC, Chase Securities Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, Lehman Brothers Inc.*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.2 Credit Agreement, dated as of August 4, 1999, among SCG
Holding Corporation, Semiconductor Components Industries,
LLC, The Chase Manhattan Bank, as Administrative Agent,
Credit Lyonnais New York Branch as Co-Documentation Agent,
DLJ Capital Funding, Inc., as Co-Documentation Agent, Lehman
Commercial Paper Inc., as Co-Documentation Agent and Chase
Securities Inc., as Arranger and the other financial
institutions party thereto*
10.3 Guarantee Agreement, dated as of August 4, 1999, among SCG
Holding Corporation, the subsidiary guarantors of SCG
Holding Corporation that are signatories thereto, and The
Chase Manhattan Bank, as collateral agent*
10.4 Security Agreement, dated as of August 4, 1999, among
Semiconductor Components Industries, LLC, SCG Holding
Corporation, the subsidiary guarantors of SCG Holding
Corporation that are signatories thereto, and The Chase
Manhattan Bank, as collateral agent++*
10.5 Amended and Restated Intellectual Property Agreement, dated
August 4, 1999, among Semiconductor Components Industries,
LLC and Motorola, Inc.++*
10.6 Transition Services Agreement, dated August 4, 1999, among
Motorola, Inc., SCG Holding Corporation, and Semiconductor
Components Industries, LLC*
10.7 Employee Matters Agreements, as amended, dated July 30,
1999, among Semiconductor Components Industries, LLC, SCG
Holding Corporation and Motorola, Inc.*
10.8 Motorola Assembly Agreement, dated July 31, 1999, among
Semiconductor Components Industries, LLC and Motorola,
Inc.++*
10.9 SCG Assembly Agreement, dated July 31, 1999, among
Semiconductor Components Industries, LLC and Motorola,
Inc.++*
10.10 Motorola Foundry Agreement, dated July 31, 1999, among
Semiconductor Components Industries, LLC and Motorola,
Inc.++*
10.11 SCG Foundry Agreement, dated July 31, 1999, among
Semiconductor Components Industries, LLC and Motorola,
Inc.++*
10.12 Equipment Lease and Repurchase Agreement, dated July 31,
1999, among Semiconductor Components Industries, LLC and
Motorola, Inc.*
10.13 Equipment Passdown Agreement, dated July 31, 1999, among
Semiconductor Components Industries, LLC and Motorola,
Inc.++*
10.14 SCG Holding Corporation 1999 Founders Stock Option Plan*
10.15 Lease for 52nd Street property, dated July 31, 1999, among
Motorola Inc. as Lessor and Semiconductor Components
Industries, LLC, as Lessee*
10.16 Lease for U.S. Locations (Mesa, Chandler, 56th Street and
Tempe), dated July 31, 1999, among Semiconductor Components
Industries, LLC as Lessor, and Motorola, Inc. as Lessee*
10.17 Declaration of Reciprocal Covenants, Easement of
Restrictions and Options to Purchase and Lease, dated
July 31, 1999, among Semiconductor Components Industries,
LLC and Motorola, Inc.*
10.18 Employment Agreement, dated as of October 27, 1999, between
Semiconductor Components Industries, LLC and Steve Hanson*
10.19 Employment Agreement, dated as of September 13, 1999,
between Semiconductor Components Industries, LLC and Michael
Rohleder*
10.20 Employment Agreement, dated as of November 8, 1999, between
Semiconductor Components Industries, LLC and James Thorburn*
10.21 Employment Agreement, dated as of October 27, 1999, between
Semiconductor Components Industries, LLC and William George*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.22 Employment Agreement, dated as of October 27, 1999, between
Semiconductor Components Industries, LLC and Dario Sacomani*
10.23 Pledge and Security Agreement, dated as of November 8, 1999,
between Semiconductor Components Industries, LLC and James
Thorburn*
10.24 Promissory Note/Security Interest, dated as of November 8,
1999, from James Thorburn to Semiconductor Components
Industries, LLC*
10.25 Summary of Deferred Compensation Plan*
10.26 Stock Option Agreement, dated as of November 22, 1999,
between SCG Holding Corporation and Steven Hanson**
10.27 Stock Option Agreement, dated as of November 22, 1999,
between SCG Holding Corporation and Dario Sacomani**
10.28 Stock Option Agreement, dated as of November 8, 1999,
between SCG Holding Corporation and James Thorburn**
10.29 Stock Option Agreement, dated as of November 22, 1999,
between SCG Holding Corporation and William George**
10.30 Stock Option Agreement, dated as of November 22, 1999,
between SCG Holding Corporation and Michael Rohleder**
10.31 Stock Option Agreement, dated as of November 22, 1999,
between SCG Holding Corporation and Richard Boyce**
10.32 Stock Option Agreement, dated as of November 22, 1999,
between SCG Holding Corporation and Curtis J. Crawford**
12.1 Calculation of Ratio of Earnings to Fixed Charges*
21.1 List of Significant Subsidiaries*
23.1 Consent of KPMG LLP, independent accountants***
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
its opinion filed as Exhibit 5.1)*
23.3 Consent of PricewaterhouseCoopers LLP, independent
accountants**
24.1 Power of Attorney*
24.2 Power of Attorney**
24.3 Power of Attorney**
25.1 Form T-1 with respect to the eligibility of State Street
Bank & Trust Company with respect to the Indenture*
27.1 Financial Data Schedule*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees*
99.4 Form of Letter to Clients*
99.5 Stockholders Agreement dated as of August 4, 1999 among SCG
Holding Corporation, TPG Semiconductor Holdings, LLC and
Motorola, Inc.*
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
*** Previously filed and filed herewith in a revised form.
+ Schedules or other attachments to these exhibits not filed herewith shall be
furnished to the Commission upon request.
++ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
<PAGE>
Exhibit 10.26
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this 22nd day of November 1999 between
SCG Holding Corporation (the "Company") and Steven Hanson (the "Participant").
WHEREAS, the Company has adopted and maintains the SCG Holding
Corporation 1999 Founders Stock Option Plan (the "Plan") to promote the
interests of the Company and its Affiliates and stockholders by providing the
Company's key employees and others with an appropriate incentive to encourage
them to continue in the employ of the Company or its affiliates and to improve
the growth and profitability of the Company;
WHEREAS, the Plan provides for the Grant to Participants in the Plan
of Non-Qualified Stock Options to purchase shares of Common Stock of the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Grant of Options. Pursuant to, and subject to, the terms and
conditions set forth herein and in the Plan, the Company hereby grants to the
Participant a NON-QUALIFIED STOCK OPTION (the "Option") with respect to
1,200,000 shares of Common Stock of the Company.
2. Grant Date. The Grant Date of the Option hereby granted is
September 9, 1999.
3. Incorporation of Plan. All terms, conditions and restrictions of
the Plan are incorporated herein and made part hereof as if stated herein. If
there is any conflict between the terms and conditions of the Plan and this
Agreement, the terms and conditions of this Agreement, as interpreted by the
Board in good faith, shall govern. For all purposes under this Agreement and the
Plan as applied to this Agreement, the following capitalized terms shall have
the following meanings:
(a) "Cause" shall have the meaning set forth in the employment
agreement dated as of October 27, 1999, between the Participant and the Company
(the "Participant's Employment Agreement").
(b) "Change in Control" shall have the meaning set forth in the
Participant's Employment Agreement.
(c) "Disability" shall have the meaning set forth in the
Participant's Employment Agreement.
(d) "Permitted Transferee" shall mean (i) any trust or custodianship
created by the Participant, the beneficiaries of which may include only the
Participant, the Participant's spouse or the Participant's lineal descendants
(by blood or adoption) and (ii) in the event of the Participant's death, the
Participant's beneficiaries or estate.
<PAGE>
All other capitalized terms used and not defined herein shall have
the meaning given to such terms in the Plan.
4. Exercise Price. The exercise price of each share underlying the
Option hereby granted is $1.00 U.S.
5. Vesting Date. The Option shall become exercisable as follows:
Approximately 8.4 percent of the Option shall become exercisable on the Grant
Date; an additional 8.3 percent of the Option shall become exercisable six
months following the Grant Date; an additional 8.3 percent of the Option shall
become exercisable on the first anniversary of the Grant Date; and on each
six-month anniversary following the first one-year anniversary of the Grant
Date, an additional 12.5 percent of the Option shall become exercisable until
100 percent of the Option is fully vested and exercisable; provided that, the
number of shares to become exercisable on any Vesting Date shall be rounded up
to the nearest share, but in no event shall more than 25 percent of the shares
underlying the Option become exercisable in any twelve-month period, nor shall
more than the total number of shares underlying the Option become exercisable.
Notwithstanding the foregoing, any portion of the Option which has not expired
pursuant to Section 6 below and which has not theretofore been exercised shall
become immediately exercisable in full upon a termination of the Participant's
Employment without Cause as described in Section 3(d) of the Participant's
Employment Agreement (including a deemed termination without Cause described in
Section 3(f) of the Participant's Employment Agreement) and upon the occurrence
of a Change in Control.
6. Expiration Date. Subject to the provisions of the Plan, with
respect to the Option or any portion thereof which has not become exercisable,
the Option shall expire on the date the Participant's Employment is terminated
for any reason, and with respect to any Option or any portion thereof which has
become exercisable, the Option shall expire on the earlier of: (i) 90 days after
the Participant's termination of Employment other than for Cause, death or
Disability; (ii) one year after termination of the Participant's Employment by
reason of death or Disability; (iii) the commencement of business on the date
the Participant's Employment is, or is deemed to have been, terminated for
Cause; or (iv) the tenth anniversary of the Grant Date.
7. Company Call Rights. Upon a termination of the Participant's
Employment for any reason prior to the existence of a Public Market, the Company
shall have the right, in its sole discretion, during the ninety-day period
immediately following the date of termination (the "Option Call Period"), to
purchase for cash any portion of the Option that has become exercisable on or
before the date of such termination of Employment for a purchase price equal to
the Option Spread, if any, determined as of the Valuation Date immediately
preceding the date that the Company exercises its right to purchase such Option
multiplied by the number of shares of Common Stock underlying such portion of
the Option. Upon notice that the Company is exercising its right to purchase
such portion of the Option, such Option shall no longer be exercisable by the
Participant (unless otherwise agreed by the Company) and, upon payment by the
Company, such Option shall immediately become void and cancelled, without any
further action by the Participant or the Company or otherwise. Such payment
shall be made within ten days after the date that the Company notifies the
Participant that it is exercising its right to purchase the Option hereunder,
provided that the Company may delay any such payment in the event such payment
will result in the violation of the terms or provisions of, or result in a
A-2
<PAGE>
default or event of default under, any guarantee, financing or security
agreement or document entered into by the Company or any of its Affiliates and
in effect on such date (hereinafter a "Financing Agreement"). In the event the
payment of the purchase price is delayed as a result of a restriction imposed by
a Financing Agreement as provided above, such payment shall be made without the
application of further conditions or impediments as soon as practicable after
the payment of such purchase price would no longer result in the violation of
the terms or provisions of, or result in a default or event of default under,
any Financing Agreement, and such payment shall equal the amount that would have
been paid to the Participant if no delay had occurred plus interest for the
period from the date on which the purchase price would have been paid but for
the delay in payment provided herein to the date on which such payment is made
(the "Delay Period"), calculated at an annual rate equal to the average annual
prime rate charged during the Delay Period by a nationally recognized bank
designated by the Board. The Company may deduct from any payment provided
hereunder an amount equal to the applicable federal, state and local withholding
taxes.
8. Construction of Agreement. Any provision of this Agreement (or
portion thereof) which is deemed invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction and subject to this section, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable. No waiver of any provision or violation
of this Agreement by the Company shall be implied by the Company's forbearance
or failure to take action.
9. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party or any provisions or conditions of this Agreement, shall be in
writing and shall be effective only to the extent specifically set forth in such
writing.
10. Limitation on Transfer. The Option shall be exercisable only by
the Participant or the Participant's Permitted Transferee(s). Each Permitted
Transferee shall be subject to all the restrictions, obligations, and
responsibilities as apply to the Participant under the Plan and this Stock
Option Grant Agreement and shall be entitled to all the rights of the
Participant under the Plan, provided that in respect of any Permitted Transferee
which is a trust or custodianship, the Option shall become exercisable and/or
expire based on the employment and termination of employment of the Participant.
All shares of Common Stock obtained pursuant to the Option granted herein shall
not be transferred except as provided in the Plan and, where applicable, the
Management Stockholders' Agreement.
A-3
<PAGE>
11. Integration. This Agreement, and the other documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein and in the Plan. This Agreement, including without
limitation the Plan, supersedes all prior agreements and understandings between
the parties with respect to its subject matter.
12. Term of Note in Event of Termination of Option. The term of any
note described in Section 4.13(a) of the Plan issued to the Participant shall
not exceed one (1) year without the prior written consent of the Participant,
unless the payment of such amounts are subject to any Financing Restriction(s),
in which case such note shall continue until such Financing Restriction(s) have
lapsed. Interest on any such note shall be paid not less frequently than
monthly.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
14. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware without regard
to the provisions governing conflict of laws. The parties hereto hereby agree
that any dispute, claim or cause of action related to this Agreement shall be
commenced in Maricopa County, Arizona, and the parties hereby submit to the
exclusive jurisdiction of such courts and waive any claim of forum non
conveniens.
15. Participant Acknowledgment. The Participant hereby acknowledges
receipt of a copy of the Plan. The Participant hereby acknowledges that all
decisions, determinations and interpretations of the Board made in good faith in
respect of the Plan, this Agreement and the Option shall be final and
conclusive. The Participant further acknowledges that, prior to the existence of
a Public Market, no exercise of the Option or any portion thereof shall be
effective unless and until the Participant has executed the Management
Stockholders' Agreement and the Participant hereby agrees to be bound thereby.
* * * * *
A-4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer and said Participant has hereunto signed
this Agreement on his own behalf, thereby representing that he has carefully
read and understands this Agreement, the Plan and the Management Stockholders'
Agreement as of the day and year first written above.
SCG Holding Corporation
/s/ James Stoeckmann
-------------------------------------
By: James Stoeckmann
Title: Vice President Human Resources
/s/ Steven Hanson
-------------------------------------
Participants Signature
Steven Hanson
A-5
<PAGE>
Exhibit 10.27
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this 22nd day of November 1999 between
SCG Holding Corporation (the "Company") and Dario Sacomani (the "Participant").
WHEREAS, the Company has adopted and maintains the SCG Holding
Corporation 1999 Founders Stock Option Plan (the "Plan") to promote the
interests of the Company and its Affiliates and stockholders by providing the
Company's key employees and others with an appropriate incentive to encourage
them to continue in the employ of the Company or its affiliates and to improve
the growth and profitability of the Company;
WHEREAS, the Plan provides for the Grant to Participants in the Plan
of Non-Qualified Stock Options to purchase shares of Common Stock of the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Grant of Options. Pursuant to, and subject to, the terms and
conditions set forth herein and in the Plan, the Company hereby grants to the
Participant a NON-QUALIFIED STOCK OPTION (the "Option") with respect to 650,000
shares of Common Stock of the Company.
2. Grant Date. The Grant Date of the Option hereby granted is
September 9, 1999.
3. Incorporation of Plan. All terms, conditions and restrictions of
the Plan are incorporated herein and made part hereof as if stated herein. If
there is any conflict between the terms and conditions of the Plan and this
Agreement, the terms and conditions of this Agreement, as interpreted by the
Board in good faith, shall govern. For all purposes under this Agreement and the
Plan as applied to this Agreement, the following capitalized terms shall have
the following meanings:
(a) "Cause" shall have the meaning set forth in the employment
agreement dated as of October 27, 1999, between the Participant and the Company
(the "Participant's Employment Agreement").
(b) "Change in Control" shall have the meaning set forth in the
Participant's Employment Agreement.
(c) "Disability" shall have the meaning set forth in the
Participant's Employment Agreement.
(d) "Permitted Transferee" shall mean (i) any trust or custodianship
created by the Participant, the beneficiaries of which may include only the
Participant, the Participant's spouse or the Participant's lineal descendants
(by blood or adoption) and (ii) in the event of the Participant's death, the
Participant's beneficiaries or estate.
<PAGE>
All other capitalized terms used and not defined herein shall have
the meaning given to such terms in the Plan.
4. Exercise Price. The exercise price of each share underlying the
Option hereby granted is $1.00 U.S. per share.
5. Vesting Date. The Option shall become exercisable as follows:
Approximately 8.4 percent of the Option shall become exercisable on the Grant
Date; an additional 8.3 percent of the Option shall become exercisable six
months following the Grant Date; an additional 8.3 percent of the Option shall
become exercisable on the first anniversary of the Grant Date; and on each
six-month anniversary following the first one-year anniversary of the Grant
Date, an additional 12.5 percent of the Option shall become exercisable until
100 percent of the Option is fully vested and exercisable; provided that, the
number of shares to become exercisable on any Vesting Date shall be rounded up
to the nearest share, but in no event shall more than 25 percent of the shares
underlying the Option become exercisable in any twelve-month period, nor shall
more than the total number of shares underlying the Option become exercisable.
Notwithstanding the foregoing, any portion of the Option which has not expired
pursuant to Section 6 below and which has not theretofore been exercised shall
become immediately exercisable in full upon a termination of the Participant's
Employment without Cause as described in Section 3(d) of the Participant's
Employment Agreement (including a deemed termination without Cause described in
Section 3(f) of the Participant's Employment Agreement) and upon the occurrence
of a Change in Control.
6. Expiration Date. Subject to the provisions of the Plan, with
respect to the Option or any portion thereof which has not become exercisable,
the Option shall expire on the date the Participant's Employment is terminated
for any reason, and with respect to any Option or any portion thereof which has
become exercisable, the Option shall expire on the earlier of: (i) 90 days after
the Participant's termination of Employment other than for Cause, death or
Disability; (ii) one year after termination of the Participant's Employment by
reason of death or Disability; (iii) the commencement of business on the date
the Participant's Employment is, or is deemed to have been, terminated for
Cause; or (iv) the tenth anniversary of the Grant Date.
7. Company Call Rights. Upon a termination of the Participant's
Employment for any reason prior to the existence of a Public Market, the Company
shall have the right, in its sole discretion, during the ninety-day period
immediately following the date of termination (the "Option Call Period"), to
purchase for cash any portion of the Option that has become exercisable on or
before the date of such termination of Employment for a purchase price equal to
the Option Spread, if any, determined as of the Valuation Date immediately
preceding the date that the Company exercises its right to purchase such Option
multiplied by the number of shares of Common Stock underlying such portion of
the Option. Upon notice that the Company is exercising its right to purchase
such portion of the Option, such Option shall no longer be exercisable by the
Participant (unless otherwise agreed by the Company) and, upon payment by the
Company, such Option shall immediately become void and cancelled, without any
further action by the Participant or the Company or otherwise. Such payment
shall be made within ten days after the date that the Company notifies the
Participant that it is exercising its right to purchase the Option hereunder,
provided that the Company may delay any such payment in the event such payment
will result in the violation of the terms or provisions of, or result in a
A-2
<PAGE>
default or event of default under, any guarantee, financing or security
agreement or document entered into by the Company or any of its Affiliates and
in effect on such date (hereinafter a "Financing Agreement"). In the event the
payment of the purchase price is delayed as a result of a restriction imposed by
a Financing Agreement as provided above, such payment shall be made without the
application of further conditions or impediments as soon as practicable after
the payment of such purchase price would no longer result in the violation of
the terms or provisions of, or result in a default or event of default under,
any Financing Agreement, and such payment shall equal the amount that would have
been paid to the Participant if no delay had occurred plus interest for the
period from the date on which the purchase price would have been paid but for
the delay in payment provided herein to the date on which such payment is made
(the "Delay Period"), calculated at an annual rate equal to the average annual
prime rate charged during the Delay Period by a nationally recognized bank
designated by the Board. The Company may deduct from any payment provided
hereunder an amount equal to the applicable federal, state and local withholding
taxes.
8. Construction of Agreement. Any provision of this Agreement (or
portion thereof) which is deemed invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction and subject to this section, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable. No waiver of any provision or violation
of this Agreement by the Company shall be implied by the Company's forbearance
or failure to take action.
9. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party or any provisions or conditions of this Agreement, shall be in
writing and shall be effective only to the extent specifically set forth in such
writing.
10. Limitation on Transfer. The Option shall be exercisable only by
the Participant or the Participant's Permitted Transferee(s). Each Permitted
Transferee shall be subject to all the restrictions, obligations, and
responsibilities as apply to the Participant under the Plan and this Stock
Option Grant Agreement and shall be entitled to all the rights of the
Participant under the Plan, provided that in respect of any Permitted Transferee
which is a trust or custodianship, the Option shall become exercisable and/or
expire based on the employment and termination of employment of the Participant.
All shares of Common Stock obtained pursuant to the Option granted herein shall
not be transferred except as provided in the Plan and, where applicable, the
Management Stockholders' Agreement.
A-3
<PAGE>
11. Integration. This Agreement, and the other documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein and in the Plan. This Agreement, including without
limitation the Plan, supersedes all prior agreements and understandings between
the parties with respect to its subject matter.
12. Term of Note in Event of Termination of Option. The term of any
note described in Section 4.13(a) of the Plan issued to the Participant shall
not exceed one (1) year without the prior written consent of the Participant,
unless the payment of such amounts are subject to any Financing Restriction(s),
in which case such note shall continue until such Financing Restriction(s) have
lapsed. Interest on any such note shall be paid not less frequently than
monthly.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
14. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware without regard
to the provisions governing conflict of laws. The parties hereto hereby agree
that any dispute, claim or cause of action related to this Agreement shall be
commenced in Maricopa County, Arizona, and the parties hereby submit to the
exclusive jurisdiction of such courts and waive any claim of forum non
conveniens.
15. Participant Acknowledgment. The Participant hereby acknowledges
receipt of a copy of the Plan. The Participant hereby acknowledges that all
decisions, determinations and interpretations of the Board made in good faith in
respect of the Plan, this Agreement and the Option shall be final and
conclusive. The Participant further acknowledges that, prior to the existence of
a Public Market, no exercise of the Option or any portion thereof shall be
effective unless and until the Participant has executed the Management
Stockholders' Agreement and the Participant hereby agrees to be bound thereby.
* * * * *
A-4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer and said Participant has hereunto signed
this Agreement on his own behalf, thereby representing that he has carefully
read and understands this Agreement, the Plan and the Management Stockholders'
Agreement as of the day and year first written above.
SCG Holding Corporation
/s/ James Stoeckmann
-------------------------------------
By: James Stoeckmann
Title: Vice President Human Resources
/s/ Dario Sacomani
-------------------------------------
Participants Signature
Dario Sacomani
A-5
<PAGE>
Exhibit 10.28
STOCK OPTION GRANT AGREEMENT
(Non-Qualified Stock Options)
THIS AGREEMENT, made as of this 8th day of November 1999 between SCG
Holding Corporation (the "Company") and James Thorburn (the "Participant").
WHEREAS, the Company has adopted and maintains the SCG Holding
Corporation 1999 Founders Stock Option Plan (the "Plan") to promote the
interests of the Company and its Affiliates and stockholders by providing the
Company's key employees and others with an appropriate incentive to encourage
them to continue in the employ of the Company or its affiliates and to improve
the growth and profitability of the Company;
WHEREAS, the Plan provides for the Grant to Participants in the Plan
of Non-Qualified Stock Options to purchase shares of Common Stock of the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Grant of Options. Pursuant to, and subject to, the terms and
conditions set forth herein and in the Plan, the Company hereby grants to the
Participant a NON-QUALIFIED STOCK OPTION (the "Option") with respect to 750,000
shares of Common Stock of the Company.
2. Grant Date. The Grant Date of the Option hereby granted is
September 9, 1999.
3. Incorporation of Plan. All terms, conditions and restrictions of
the Plan are incorporated herein and made part hereof as if stated herein;
provided that Section 4.6 of the Plan shall not apply to the Participant; and
provided further that Section 4.13(a) shall only apply to the Participant in the
event the Board terminates the Options for all participants in the Plan. If
there is any conflict between the terms and conditions of the Plan and this
Agreement, the terms and conditions of this Agreement, as interpreted by the
Board, shall govern. All capitalized terms used and not defined herein shall
have the meaning given to such terms in the Plan.
4. Exercise Price. The exercise price of each share underlying the
Option hereby granted is $1.00 per share.
5. Vesting Date. The Option shall become exercisable as follows:
sixty-three thousand (63,000) shares underlying the Option shall become
exercisable on the Grant Date; an additional sixty-two thousand two hundred
fifty (62,250) shares underlying the Option shall become exercisable six months
following the Grant Date; an additional sixty-two thousand two hundred fifty
(62,250) shares underlying the Option shall become exercisable on the first
anniversary of the Grant Date; and on each six-month anniversary following the
first one-year anniversary of the Grant Date, an additional ninety-three
thousand seven hundred fifty (93,750) shares underlying the Option shall become
exercisable. Notwithstanding the foregoing, in the event of a Change in Control
(as defined in the Plan), any portion of the Option which has not
<PAGE>
expired pursuant to Section 6 below, shall become immediately vested and
exercisable on the date of such Change in Control.
6. Expiration Date. Subject to the provisions of the Plan, with
respect to the Option or any portion thereof which has not become exercisable,
the Option shall expire on the date the Participant's Employment is terminated
for any reason, and with respect to any Option or any portion thereof which has
become exercisable, the Option shall expire on the earlier of: (i) 90 days after
the Participant's termination of Employment other than for Cause (as defined in
the Participant's employment agreement of the same date hereof), death or
Disability; (ii) one year after termination of the Participant's Employment by
reason of death or Disability; (iii) 30 days after the date the Participant's
Employment is, or is deemed to have been, terminated for Cause; or (iv) the
tenth anniversary of the Grant Date.
7. Construction of Agreement. Any provision of this Agreement (or
portion thereof) which is deemed invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction and subject to this section, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable. No waiver of any provision or violation
of this Agreement by the Company shall be implied by the Company's forbearance
or failure to take action.
8. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party or any provisions or conditions of this Agreement, shall be in
writing and shall be effective only to the extent specifically set forth in such
writing.
9. Limitation on Transfer. During the lifetime of the Participant,
the Option shall be exercisable only by the Participant. The Option shall not be
assignable or transferable other than by will or by the laws of descent and
distribution. All shares of Common Stock obtained pursuant to the Option granted
herein shall not be transferred except as provided in the Plan and, where
applicable, the Management Stockholders' Agreement.
10. Integration. This Agreement, and the other documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein and in the Plan. This Agreement, including without
2
<PAGE>
limitation the Plan, supersedes all prior agreements and understandings between
the parties with respect to its subject matter.
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware (United States
of America) without regard to the provisions governing conflict of laws.
13. Participant Acknowledgment. The Participant hereby acknowledges
receipt of a copy of the Plan. The Participant hereby acknowledges that all
decisions, determinations and interpretations of the Board in respect of the
Plan, this Agreement and the Option shall be final and conclusive. The
Participant further acknowledges that, prior to the existence of a Public
Market, no exercise of the Option or any portion thereof shall be effective
unless and until the Participant has executed the Management Stockholders'
Agreement and the Participant hereby agrees to be bound thereby.
* * * * *
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer and said Participant has hereunto signed
this Agreement on his own behalf, thereby representing that he has carefully
read and understands this Agreement, the Plan and the Management Stockholders'
Agreement as of the day and year first written above.
SCG Holding Corporation
/s/ George H. Cave
By: George H. Cave
Title: Assistant Secretary & General Counsel
/s/ James Thorburn
--------------------------------------------
James Thorburn
3
<PAGE>
Exhibit 10.29
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this 22nd day of November 1999 between
SCG Holding Corporation (the "Company") and William George (the "Participant").
WHEREAS, the Company has adopted and maintains the SCG Holding
Corporation 1999 Founders Stock Option Plan (the "Plan") to promote the
interests of the Company and its Affiliates and stockholders by providing the
Company's key employees and others with an appropriate incentive to encourage
them to continue in the employ of the Company or its affiliates and to improve
the growth and profitability of the Company;
WHEREAS, the Plan provides for the Grant to Participants in the Plan
of Non-Qualified Stock Options to purchase shares of Common Stock of the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Grant of Options. Pursuant to, and subject to, the terms and
conditions set forth herein and in the Plan, the Company hereby grants to the
Participant a NON-QUALIFIED STOCK OPTION (the "Option") with respect to 650,000
shares of Common Stock of the Company.
2. Grant Date. The Grant Date of the Option hereby granted is
September 9, 1999.
3. Incorporation of Plan. All terms, conditions and restrictions of
the Plan are incorporated herein and made part hereof as if stated herein. If
there is any conflict between the terms and conditions of the Plan and this
Agreement, the terms and conditions of this Agreement, as interpreted by the
Board in good faith, shall govern. For all purposes under this Agreement and the
Plan as applied to this Agreement, the following capitalized terms shall have
the following meanings:
(a) "Cause" shall have the meaning set forth in the employment
agreement dated as of October 27, 1999, between the Participant and the Company
(the "Participant's Employment Agreement").
(b) "Change in Control" shall have the meaning set forth in the
Participant's Employment Agreement.
(c) "Disability" shall have the meaning set forth in the
Participant's Employment Agreement.
(d) "Permitted Transferee" shall mean (i) any trust or custodianship
created by the Participant, the beneficiaries of which may include only the
Participant, the Participant's spouse or the Participant's lineal descendants
(by blood or adoption) and (ii) in the event of the Participant's death, the
Participant's beneficiaries or estate.
<PAGE>
All other capitalized terms used and not defined herein shall have
the meaning given to such terms in the Plan.
4. Exercise Price. The exercise price of each share underlying the
Option hereby granted is $1.00 U.S. per share.
5. Vesting Date. The Option shall become exercisable as follows:
Approximately 8.4 percent of the Option shall become exercisable on the Grant
Date; an additional 8.3 percent of the Option shall become exercisable six
months following the Grant Date; an additional 8.3 percent of the Option shall
become exercisable on the first anniversary of the Grant Date; and on each
six-month anniversary following the first one-year anniversary of the Grant
Date, an additional 12.5 percent of the Option shall become exercisable until
100 percent of the Option is fully vested and exercisable; provided that, the
number of shares to become exercisable on any Vesting Date shall be rounded up
to the nearest share, but in no event shall more than 25 percent of the shares
underlying the Option become exercisable in any twelve-month period, nor shall
more than the total number of shares underlying the Option become exercisable.
Notwithstanding the foregoing, any portion of the Option which has not expired
pursuant to Section 6 below and which has not theretofore been exercised shall
become immediately exercisable in full upon a termination of the Participant's
Employment without Cause as described in Section 3(d) of the Participant's
Employment Agreement (including a deemed termination without Cause described in
Section 3(f) of the Participant's Employment Agreement) and upon the occurrence
of a Change in Control.
6. Expiration Date. Subject to the provisions of the Plan, with
respect to the Option or any portion thereof which has not become exercisable,
the Option shall expire on the date the Participant's Employment is terminated
for any reason, and with respect to any Option or any portion thereof which has
become exercisable, the Option shall expire on the earlier of: (i) 90 days after
the Participant's termination of Employment other than for Cause, death or
Disability; (ii) one year after termination of the Participant's Employment by
reason of death or Disability; (iii) the commencement of business on the date
the Participant's Employment is, or is deemed to have been, terminated for
Cause; or (iv) the tenth anniversary of the Grant Date.
7. Company Call Rights. Upon a termination of the Participant's
Employment for any reason prior to the existence of a Public Market, the Company
shall have the right, in its sole discretion, during the ninety-day period
immediately following the date of termination (the "Option Call Period"), to
purchase for cash any portion of the Option that has become exercisable on or
before the date of such termination of Employment for a purchase price equal to
the Option Spread, if any, determined as of the Valuation Date immediately
preceding the date that the Company exercises its right to purchase such Option
multiplied by the number of shares of Common Stock underlying such portion of
the Option. Upon notice that the Company is exercising its right to purchase
such portion of the Option, such Option shall no longer be exercisable by the
Participant (unless otherwise agreed by the Company) and, upon payment by the
Company, such Option shall immediately become void and cancelled, without any
further action by the Participant or the Company or otherwise. Such payment
shall be made within ten days after the date that the Company notifies the
Participant that it is exercising its right to purchase the Option hereunder,
provided that the Company may delay any such payment in the event such payment
will result in the violation of the terms or provisions of, or result in a
A-2
<PAGE>
default or event of default under, any guarantee, financing or security
agreement or document entered into by the Company or any of its Affiliates and
in effect on such date (hereinafter a "Financing Agreement"). In the event the
payment of the purchase price is delayed as a result of a restriction imposed by
a Financing Agreement as provided above, such payment shall be made without the
application of further conditions or impediments as soon as practicable after
the payment of such purchase price would no longer result in the violation of
the terms or provisions of, or result in a default or event of default under,
any Financing Agreement, and such payment shall equal the amount that would have
been paid to the Participant if no delay had occurred plus interest for the
period from the date on which the purchase price would have been paid but for
the delay in payment provided herein to the date on which such payment is made
(the "Delay Period"), calculated at an annual rate equal to the average annual
prime rate charged during the Delay Period by a nationally recognized bank
designated by the Board. The Company may deduct from any payment provided
hereunder an amount equal to the applicable federal, state and local withholding
taxes.
8. Construction of Agreement. Any provision of this Agreement (or
portion thereof) which is deemed invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction and subject to this section, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable. No waiver of any provision or violation
of this Agreement by the Company shall be implied by the Company's forbearance
or failure to take action.
9. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party or any provisions or conditions of this Agreement, shall be in
writing and shall be effective only to the extent specifically set forth in such
writing.
10. Limitation on Transfer. The Option shall be exercisable only by
the Participant or the Participant's Permitted Transferee(s). Each Permitted
Transferee shall be subject to all the restrictions, obligations, and
responsibilities as apply to the Participant under the Plan and this Stock
Option Grant Agreement and shall be entitled to all the rights of the
Participant under the Plan, provided that in respect of any Permitted Transferee
which is a trust or custodianship, the Option shall become exercisable and/or
expire based on the employment and termination of employment of the Participant.
All shares of Common Stock obtained pursuant to the Option granted herein shall
not be transferred except as provided in the Plan and, where applicable, the
Management Stockholders' Agreement.
A-3
<PAGE>
11. Integration. This Agreement, and the other documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein and in the Plan. This Agreement, including without
limitation the Plan, supersedes all prior agreements and understandings between
the parties with respect to its subject matter.
12. Term of Note in Event of Termination of Option. The term of any
note described in Section 4.13(a) of the Plan issued to the Participant shall
not exceed one (1) year without the prior written consent of the Participant,
unless the payment of such amounts are subject to any Financing Restriction(s),
in which case such note shall continue until such Financing Restriction(s) have
lapsed. Interest on any such note shall be paid not less frequently than
monthly.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
14. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware without regard
to the provisions governing conflict of laws. The parties hereto hereby agree
that any dispute, claim or cause of action related to this Agreement shall be
commenced in Maricopa County, Arizona, and the parties hereby submit to the
exclusive jurisdiction of such courts and waive any claim of forum non
conveniens.
15. Participant Acknowledgment. The Participant hereby acknowledges
receipt of a copy of the Plan. The Participant hereby acknowledges that all
decisions, determinations and interpretations of the Board made in good faith in
respect of the Plan, this Agreement and the Option shall be final and
conclusive. The Participant further acknowledges that, prior to the existence of
a Public Market, no exercise of the Option or any portion thereof shall be
effective unless and until the Participant has executed the Management
Stockholders' Agreement and the Participant hereby agrees to be bound thereby.
* * * * *
A-4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer and said Participant has hereunto signed
this Agreement on his own behalf, thereby representing that he has carefully
read and understands this Agreement, the Plan and the Management Stockholders'
Agreement as of the day and year first written above.
SCG Holding Corporation
/s/ James Stoeckmann
By: James Stoeckmann
Title: Vice President
/s/ William George
-----------------------------------------
Participants Signature
William George
A-5
<PAGE>
Exhibit 10.30
STOCK OPTION GRANT AGREEMENT
(Non-Qualified Stock Options)
THIS AGREEMENT, made as of this 22nd day of November 1999 between
SCG Holding Corporation (the "Company") and Michael Rohleder (the
"Participant").
WHEREAS, the Company has adopted and maintains the SCG Holding
Corporation 1999 Founders Stock Option Plan (the "Plan") to promote the
interests of the Company and its Affiliates and stockholders by providing the
Company's key employees and others with an appropriate incentive to encourage
them to continue in the employ of the Company or its affiliates and to improve
the growth and profitability of the Company;
WHEREAS, the Plan provides for the Grant to Participants in the Plan
of Non-Qualified Stock Options to purchase shares of Common Stock of the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Grant of Options. Pursuant to, and subject to, the terms and
conditions set forth herein and in the Plan, the Company hereby grants to the
Participant a NON-QUALIFIED STOCK OPTION (the "Option") with respect to 700,000
shares of Common Stock of the Company.
2. Grant Date. The Grant Date of the Option hereby granted is
September 9, 1999.
3. Incorporation of Plan. All terms, conditions and restrictions of
the Plan are incorporated herein and made part hereof as if stated herein. If
there is any conflict between the terms and conditions of the Plan and this
Agreement, the terms and conditions of this Agreement, as interpreted by the
Board, shall govern. All capitalized terms used and not defined herein shall
have the meaning given to such terms in the Plan.
4. Exercise Price. The exercise price of each share underlying the
Option hereby granted is $1.00 U.S. per share.
5. Vesting Date. The Option shall become exercisable as follows:
Approximately 8.4 percent of the Option shall become exercisable on the Grant
Date; an additional 8.3 percent of the Option shall become exercisable six
months following the Grant Date; an additional 8.3 percent of the Option shall
become exercisable on the first anniversary of the Grant Date; and on each
six-month anniversary following the first one-year anniversary of the Grant
Date, an additional 12.5 percent of the Option shall become exercisable until
100 percent of the Option is fully vested and exercisable; provided that, the
number of shares to become exercisable on any Vesting Date shall be rounded up
to the nearest share, but in no event shall more than 25 percent of the shares
underlying the Option become exercisable in any twelve-month period, nor shall
more than the total number of shares underlying the Option become exercisable.
Notwithstanding the foregoing, in the event of a Change in Control (as
<PAGE>
defined in the Plan), any portion of the Option which has not expired pursuant
to Section 6 below, shall become immediately vested and exercisable on the date
of such Change in Control.
6. Expiration Date. Subject to the provisions of the Plan, with
respect to the Option or any portion thereof which has not become exercisable,
the Option shall expire on the date the Participant's Employment is terminated
for any reason, and with respect to any Option or any portion thereof which has
become exercisable, the Option shall expire on the earlier of: (i) 90 days after
the Participant's termination of Employment other than for Cause, death or
Disability; (ii) one year after termination of the Participant's Employment by
reason of death or Disability; (iii) the commencement of business on the date
the Participant's Employment is, or is deemed to have been, terminated for
Cause; or (iv) the tenth anniversary of the Grant Date.
7. Company Call Rights. Upon a termination of the Participant's
Employment for any reason prior to the existence of a Public Market, the Company
shall have the right, in its sole discretion, during the ninety-day period
immediately following the date of termination (the "Option Call Period"), to
purchase for cash any portion of the Option that has become exercisable on or
before the date of such termination of Employment for a purchase price equal to
the Option Spread, if any, determined as of the Valuation Date immediately
preceding the date that the Company exercises its right to purchase such Option
multiplied by the number of shares of Common Stock underlying such portion of
the Option. Upon written notice that the Company is exercising its right to
purchase such portion of the Option, such Option shall no longer be exercisable
by the Participant (unless otherwise agreed by the Company) and, upon payment by
the Company, such Option shall immediately become void and cancelled, without
any further action by the Participant or the Company or otherwise. Such payment
shall be made within ten days after the date that the Company notifies the
Participant in writing that it is exercising its right to purchase the Option
hereunder, provided that the Company may delay any such payment in the event
such payment will result in the violation of the terms or provisions of, or
result in a default or event of default under, any guarantee, financing or
security agreement or document entered into by the Company or any of its
Affiliates and in effect on such date (hereinafter a "Financing Agreement"). In
the event the payment of the purchase price is delayed as a result of a
restriction imposed by a Financing Agreement as provided above, such payment
shall be made without the application of further conditions or impediments as
soon as practicable after the payment of such purchase price would no longer
result in the violation of the terms or provisions of, or result in a default or
event of default under, any Financing Agreement, and such payment shall equal
the amount that would have been paid to the Participant if no delay had occurred
plus interest for the period from the date on which the purchase price would
have been paid but for the delay in payment provided herein to the date on which
such payment is made (the "Delay Period"), calculated at an annual rate equal to
the average annual prime rate charged during the Delay Period by a nationally
recognized bank designated by the Board. The Company may deduct from any payment
provided hereunder an amount equal to the applicable federal, state and local
withholding taxes.
8. Construction of Agreement. Any provision of this Agreement (or
portion thereof) which is deemed invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction and subject to this section, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or
A-2
<PAGE>
unenforceable in any other jurisdiction, If any covenant should be deemed
invalid, illegal or unenforceable because its scope is considered excessive,
such covenant shall be modified so that the scope of the covenant is reduced
only to the minimum extent necessary to render the modified covenant valid,
legal and enforceable. No waiver of any provision or violation of this Agreement
by the Company shall be implied by the Company's forbearance or failure to take
action.
9. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party or any provisions or conditions of this Agreement, shall be in
writing and shall be effective only to the extent specifically set forth in such
writing.
10. Limitation on Transfer. During the lifetime of the Participant,
the Option shall be exercisable only by the Participant. The Option shall not be
assignable or transferable other than by will or by the laws of descent and
distribution. All shares of Common Stock obtained pursuant to the Option granted
herein, shall not be transferred except as provided in the Plan and, where
applicable, the Management Stockholders' Agreement.
11. Integration. This Agreement, and the other documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein and in the Plan. This Agreement, including without
limitation the Plan, supersedes all prior agreements and understandings between
the parties with respect to its subject matter.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
13. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware (United States
of America) without regard to the provisions governing conflict of laws.
14. Participant Acknowledgment. The Participant hereby acknowledges
receipt of a copy of the Plan. The Participant hereby acknowledges that all
decisions, determinations and interpretations of the Board in respect of the
Plan, this Agreement and the Option shall be final and conclusive. The
Participant further acknowledges that, prior to the existence of a Public
Market, no exercise of the Option or any portion thereof shall be effective
unless and until the Participant has executed the Management Stockholders'
Agreement and the Participant hereby agrees to be bound thereby.
A-3
<PAGE>
* * * * *
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer and said Participant has hereunto signed
this Agreement on his own behalf, thereby representing that he has carefully
read and understands this Agreement, the Plan and the Management Stockholders'
Agreement as of the day and year first written above.
SCG Holding Corporation
/s/ James Stoeckmann
By: James Stoeckmann
Title: Vice President Human Resources
/s/ Michael Rohleder
-----------------------------------------
Participants Signature
Michael Rohleder
A-4
<PAGE>
Exhibit 10.31
STOCK OPTION GRANT AGREEMENT
(Non-Qualified Stock Options)
THIS AGREEMENT, made as of this 22nd day of November 1999 between
SCG Holding Corporation (the "Company") and Richard Boyce (the "Participant").
WHEREAS, the Company has adopted and maintains the SCG Holding
Corporation 1999 Founders Stock Option Plan (the "Plan") to promote the
interests of the Company and its Affiliates and stockholders by providing the
Company's key employees and others with an appropriate incentive to improve the
growth and profitability of the Company;
WHEREAS, the Plan provides for the Grant to Participants in the Plan
of Non-Qualified Stock Options to purchase shares of Common Stock of the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Grant of Options. Pursuant to, and subject to, the terms and
conditions set forth herein and in the Plan, the Company hereby grants to the
Participant a NON-QUALIFIED STOCK OPTION (the "Option") with respect to 615,000
shares of Common Stock of the Company.
2. Grant Date. The Grant Date of the Option hereby granted is
September 9, 1999.
3. Incorporation of Plan. All terms, conditions and restrictions of
the Plan are incorporated herein and made part hereof as if stated herein. If
there is any conflict between the terms and conditions of the Plan and this
Agreement, the terms and conditions of this Agreement, as interpreted by the
Board, shall govern. All capitalized terms used and not defined herein shall
have the meaning given to such terms in the Plan.
4. Exercise Price. The exercise price of each share underlying the
Option hereby granted is $1.00 U.S.
5. Vesting Date. Subject to the provisions of the Plan, the Option
shall be fully vested and exercisable as of the Grant Date provided above.
6. Expiration Date. Subject to the provisions of the Plan, the
Option shall expire on the earlier of: (i) 90 days after the Participant's
termination of Employment other than for Cause, death or Disability; (ii) one
year after termination of the Participant's Employment by reason of death or
Disability; (iii) the commencement of business on the date the Participant's
Employment is, or is deemed to have been, terminated for Cause; or (iv) the
tenth anniversary of the Grant Date.
7. Company Call Rights. Upon a termination of the Participant's
Employment for any reason prior to the existence of a Public Market, the Company
shall have the right, in its sole discretion, during the ninety-day period
immediately following the date of
<PAGE>
termination (the "Option Call Period"), to purchase for cash any portion of the
Option that has become exercisable on or before the date of such termination of
Employment for a purchase price equal to the Option Spread, if any, determined
as of the Valuation Date immediately preceding the date that the Company
exercises its right to purchase such Option multiplied by the number of shares
of Common Stock underlying such portion of the Option. Upon written notice that
the Company is exercising its right to purchase such portion of the Option, such
Option shall no longer be exercisable by the Participant (unless otherwise
agreed by the Company) and, upon payment by the Company, such Option shall
immediately become void and cancelled, without any further action by the
Participant or the Company or otherwise. Such payment shall be made within ten
days after the date that the Company notifies the Participant in writing that it
is exercising its right to purchase the Option hereunder, provided that the
Company may delay any such payment in the event such payment will result in the
violation of the terms or provisions of, or result in a default or event of
default under, any guarantee, financing or security agreement or document
entered into by the Company or any of its Affiliates and in effect on such date
(hereinafter a "Financing Agreement"). In the event the payment of the purchase
price is delayed as a result of a restriction imposed by a Financing Agreement
as provided above, such payment shall be made without the application of further
conditions or impediments as soon as practicable after the payment of such
purchase price would no longer result in the violation of the terms or
provisions of, or result in a default or event of default under, any Financing
Agreement, and such payment shall equal the amount that would have been paid to
the Participant if no delay had occurred plus interest for the period from the
date on which the purchase price would have been paid but for the delay in
payment provided herein to the date on which such payment is made (the "Delay
Period"), calculated at an annual rate equal to the average annual prime rate
charged during the Delay Period by a nationally recognized bank designated by
the Board. The Company may deduct from any payment provided hereunder an amount
equal to the applicable federal, state and local withholding taxes.
8. Construction of Agreement. Any provision of this Agreement (or
portion thereof) which is deemed invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction and subject to this section, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable. No waiver of any provision or violation
of this Agreement by the Company shall be implied by the Company's forbearance
or failure to take action.
9. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party or any provisions or
A-2
<PAGE>
conditions of this Agreement, shall be in writing and shall be effective only to
the extent specifically set forth in such writing.
10. Limitation on Transfer. During the lifetime of the Participant,
the Option shall be exercisable only by the Participant. The Option shall not be
assignable or transferable other than by will or by the laws of descent and
distribution. All shares of Common Stock obtained pursuant to the Option granted
herein shall not be transferred except as provided in the Plan and, where
applicable, the Management Stockholders' Agreement.
11. Integration. This Agreement, and the other documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein and in the Plan. This Agreement, including without
limitation the Plan, supersedes all prior agreements and understandings between
the parties with respect to its subject matter.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
13. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware (United States
of America) without regard to the provisions governing conflict of laws.
14. Participant Acknowledgment. The Participant hereby acknowledges
receipt of a copy of the Plan. The Participant hereby acknowledges that all
decisions, determinations and interpretations of the Board in respect of the
Plan, this Agreement and the Option shall be final and conclusive. The
Participant further acknowledges that, prior to the existence of a Public
Market, no exercise of the Option or any portion thereof shall be effective
unless and until the Participant has executed the Management Stockholders'
Agreement and the Participant hereby agrees to be bound thereby.
A-3
<PAGE>
* * * * *
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer and said Participant has hereunto signed
this Agreement on his own behalf, thereby representing that he has carefully
read and understands this Agreement, the Plan and the Management Stockholders'
Agreement as of the day and year first written above.
SCG Holding Corporation
/s/ James Stoeckmann
By: James Stoeckmann
Title: Vice President Human Resources
/s/ Richard Boyce
-----------------------------------------
Participants Signature:
Richard Boyce
12/22/99
A-4
<PAGE>
Exhibit 10.32
STOCK OPTION GRANT AGREEMENT
(NON-QUALIFIED STOCK OPTIONS)
THIS AGREEMENT, made as of this 22nd day of November 1999 between SCG
Holding Corporation (the "COMPANY") and Curtis J. Crawford (the
"PARTICIPANT").
WHEREAS, the Company has adopted and maintains the SCG Holding
Corporation 1999 Founders Stock Option Plan (the "PLAN") to promote the
interests of the Company and its Affiliates and stockholders by providing the
Company's key employees and others with an appropriate incentive to improve
the growth and profitability of the Company.
WHEREAS, the Plan provides for the Grant to Participants in the Plan of
Non-Qualified Stock Options to purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. GRANT OF OPTIONS. Pursuant to, and subject to, the terms and
conditions set forth herein and in the Plan, the Company hereby grants to
the Participant a NON-QUALIFIED STOCK OPTION (the "OPTION") with respect to
300,000 shares of Common Stock of the Company.
2. GRANT DATE. The Grant Date of the Option hereby granted is September
9, 1999.
3. INCORPORATION OF PLAN. All terms, conditions and restrictions of the
Plan are incorporated herein and made part hereof as if stated herein. If
there is any conflict between the terms and conditions of the Plan and this
Agreement, the terms and conditions of this Agreement, as interpreted by the
Board, shall govern. All capitalized terms used and not defined herein shall
have the meaning given to such terms in the Plan.
4. EXERCISE PRICE. The exercise price of each share underlying the
Option hereby granted is $1.00 U.S.
5. VESTING DATE. Subject to the provisions of the Plan, the Option shall
be fully vested and exercisable as of the Grant Date provided above.
6. EXPIRATION DATE. Subject to the provisions of the Plan, the Option
shall expire on the earlier of: (i) 90 days after the Participant's
termination of Employment other than for Cause, death or Disability; (ii) one
year after termination of the Participant's Employment by reason of death or
Disability; (iii) the commencement of business on the date the Participant's
Employment is, or is deemed to have been, terminated for Cause; or (iv) the
tenth anniversary of the Grant Date.
7. COMPANY CALL RIGHTS. Upon a termination of the Participant's
Employment for any reason prior to the existence of a Public Market, the
Company shall have the right, in its sole discretion, during the ninety-day
period immediately following the date of
<PAGE>
termination (the "OPTION CALL PERIOD"), to purchase for cash any portion of
the Option that has become exercisable on or before the date of such
termination of Employment for a purchase price equal to the Option Spread, if
any, determined as of the Valuation Date immediately preceding the date that
the Company exercises its right to purchase such Option multiplied by the
number of shares of Common Stock underlying such portion of the Option. Upon
written notice that the Company is exercising its right to purchase such
portion of the Option, such Option shall no longer be exercisable by the
Participant (unless otherwise agreed by the Company) and, upon payment by the
Company, such Option shall immediately become void and cancelled, without any
further action by the Participant or the Company or otherwise. Such payment
shall be made within ten days after the date that the Company notifies the
Participant in writing that it is exercising its right to purchase the Option
hereunder, provided that the Company may delay any such payment in the event
such payment will result in the violation of the terms or provisions of, or
result in a default or event of default under, any guarantee, financing or
security agreement or document entered into by the Company or any of its
Affiliates and in effect on such date (hereinafter a "FINANCING AGREEMENT").
In the event the payment of the purchase price is delayed as a result of a
restriction imposed by a Financing Agreement as provided above, such payment
shall be made without the application of further conditions or impediments as
soon as practicable after the payment of such purchase price would no longer
result in the violation of the terms or provisions of, or result in a default
or event of default under, any Financing Agreement, and such payment shall
equal the amount that would have been paid to the Participant if no delay had
occurred plus interest for the period from the date on which the purchase
price would have been paid but for the delay in payment provided herein to
the date on which such payment is made (the "DELAY PERIOD"), calculated at an
annual rate equal to the average annual prime rate charged during the Delay
Period by a nationally recognized bank designated by the Board. The Company
may deduct from any payment provided hereunder an amount equal to the
applicable federal, state and local withholding taxes.
8. CONSTRUCTION OF AGREEMENT. Any provision of this Agreement (or
portion thereof) which is deemed invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction and subject to this section, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of
the covenant is reduced only to the minimum extent necessary to render the
modified covenant valid, legal and enforceable. No waiver of any provision or
violation of this Agreement by the Company shall be implied by the Company's
forbearance or failure to take action.
9. DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of
any party under this Agreement, shall impair any such right, power or remedy
of such party nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party or any provisions or
A-2
<PAGE>
conditions of this Agreement, shall be in writing and shall be effective only
to the extent specifically set forth in such writing.
10. LIMITATION ON TRANSFER. During the lifetime of the Participant,
the Option shall be exercisable only by the Participant. The Option shall not
be assignable or transferable other than by will or by the laws of descent
and distribution. All shares of Common Stock obtained pursuant to the Option
granted herein shall not be transferred except as provided in the Plan and,
where applicable, the Management Stockholders' Agreement.
11. INTEGRATION. This Agreement, and the other documents referred to
herein or delivered pursuant hereto which form a part hereof contain the
entire understanding of the parties with respect to its subject matter. There
are no restrictions, agreements, promises, representations, warranties,
covenants or undertakings with respect to the subject matter hereof other
than those expressly set forth herein and in the Plan. This Agreement,
including without limitation the Plan, supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
13. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware (United
States of America) without regard to the provisions governing conflict of
laws.
14. PARTICIPANT ACKNOWLEDGMENT. The Participant hereby acknowledges
receipt of a copy of the Plan. The Participant hereby acknowledges that all
decisions, determinations and interpretations of the Board in respect of the
Plan, this Agreement and the Option shall be final and conclusive. The
Participant further acknowledges that, prior to the existence of a Public
Market, no exercise of the Option or any portion thereof shall be effective
unless and until the Participant has executed the Management Stockholders'
Agreement and the Participant hereby agrees to be bound thereby.
A-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed by its duly authorized officer and said Participant has
hereunto signed this Agreement on his own behalf, thereby representing that
he has carefully read and understands this Agreement, the Plan and the
Management Stockholders' Agreement as of the day and year first written above.
SCG Holding Corporation
/s/ James Stoeckmann
----------------------------------------
By: James Stoeckmann
Title: Vice President Human Resources
/s/ Curtis J. Crawford
----------------------------------------
Participant Signature
Curtis J. Crawford
A-4
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the use of our report included herein on the combined balance
sheets of the Semiconductor Components Group of Motorola, Inc. as of
December 31, 1997 and 1998 and the combined statements of revenues less direct
and allocated expenses before taxes for each of the years in the three-year
period ended December 31, 1998 and to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG LLP
Phoenix, Arizona
January 26, 2000
<PAGE>
Exhibit 23.3
Consent of Independent Accountants
We hereby consent to the reference to us under the heading "Experts" in this
Registration Statement on Form S-4 of SCG Holding Corporation and
Semiconductor Components Industries, LLC.
/s/ PricerwaterhouseCoopers LLP
Phoenix, Arizona
January 26, 2000
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
The undersigned director of SCG Holding Corporation (the "Company"),
which has filed with the United States Securities and Exchange Commission
(the "SEC"), under the provisions of the Securities Act of 1933, as amended,
a Registration Statement on Form S-4 in connection with the public offering
of the 12% Senior Subordinated Notes due 2009 (the "Notes") of the Company
and its wholly-owned subsidiary, Semiconductor Components Industries, LLC,
hereby constitutes and appoints Steve Hanson, James Thorburn and Dario
Sacomani, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to act, for him
and in his name, place and stead and on his behalf, in any and all
capacities, to sign any and all amendments to such Registration Statement on
Form S-4, including post-effective amendments, and other documents relating
thereto and to file on behalf of the Company any an all amendments to such
Registration Statement on Form S-4 with all exhibits thereto and any and all
other information and documents in connection therewith, with the SEC, hereby
granting unto said attorney-in-fact and agent, full power and authority to do
and perform any and all acts and things requisite as fully to all intents and
purposes as he might or could do in person as a director of the Company,
hereby ratifying and confirming all that said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof, and this power of attorney
shall remain in effect until June 30, 2000.
Signature Title(s) Date
--------- ------- ----
/s/ William A. Franke Director of the Company January 7, 2000
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William A. Franke
<PAGE>
Exhibit 24.3
POWER OF ATTORNEY
The undersigned director of SCG (Malaysia SMP) Holding Corporation (the
"Company"), which has filed with the United States Securities and Exchange
Commission (the "SEC"), under the provisions of the Securities Act of 1933,
as amended, a Registration Statement on Form S-4 in connection with the
public offering of the 12% Senior Subordinated Notes due 2009 (the "Notes")
of the Company hereby constitutes and appoints Steve Hanson, James Thorburn
and Dario Sacomani, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, to act, for him and in his name, place and stead and on his
behalf, in any and all capacities, to sign any and all amendments to such
Registration Statement on Form S-4, including post-effective amendments, and
other documents relating thereto and to file on behalf of the Company any and
all amendments to such Registration Statement on Form S-4 with all exhibits
thereto and any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorney-in-fact and
agent, full power and authority to do and perform any and all acts and things
requisite as fully to all intents and purposes as he might or could do in
person as a director of the Company, hereby ratifying and confirming all that
said attorney-in-fact and agent may lawfully do or cause to be done by virtue
hereof, and this power of attorney shall remain in effect until June 30, 2000.
Signature Title(s) Date
--------- ------- ----
/s/ Henry Leung Director of the Company January 18, 2000
- -----------------
Henry Leung
