ParthusCeva, the company that will be created from the merger of Parthus and US-Israeli firm Ceva, will not achieve revenue and earnings targets set in April due to a slowdown in the chip industry.
The firm, due to be established in October, will also write off $16.5 million (€16.6 million) in research and development undertaken by Parthus that failed to generate feasible technologies, the merger prospectus warns.
This $16.5 million write-off will reduce ParthusCeva's net income and earnings per share for the quarter in which the merger is concluded. The merger prospectus warns this could significantly and adversely affect the firm's shares.
It also warns investors that revenue and earnings targets set by Parthus for the merged company when the deal was first announced in April will now not be met.
Mr Kevin Fielding, chief executive of Parthus, had said in April that ParthusCeva would have revenues of $80 million, with targeted profits of between $17-$18 million for 2003.
But the prospectus says these targets were based on financial information available in April 2002 and have not been updated for the continued slowdown in the semiconductor sector and the depression in equity prices.
It continues: "We currently do not endorse such targets and note that our actual results will vary from such targets, and those variations are likely to be material."
The prospectus also shows that DSP Group - the firm that is demerging the Ceva unit - has agreed to a five-year non-compete with ParthusCeva following the merger. Under the terms of this agreement, DSP will not compete in the business of developing and licensing designs for programmable digital signal cores - a key technology in mobile devices. In return, ParthusCeva has agreed not to compete with DSP in its core business - designing and manufacturing integrated circuit devices used in digital signal processing.
The document outlines the payout that several Parthus directors will receive following the merger, due to their large shareholdings in Parthus. As part of the merger, existing Parthus directors and the firm's executive officers will net 31 per cent of a $60 million payment due to shareholders.
Parthus founder, Mr Brian Long, will net the largest sum, worth some $11.2 million, while other Parthus directors and executives will share $8.2 million.
Mr Fielding, who will be chief executive of ParthusCeva, will receive a basic salary of €280,000 per year plus a bonus entitlement to be decided by the board. This is an €85,000 increase on his salary for 2001, but a Parthus spokesman said Mr Fielding had taken a pay cut in 2001 when a pay freeze was introduced for staff and his salary should have been €280,000.
Mr Long - who will become vice-chairman of the ParthusCeva board - will receive a basic salary of $170,000 per year and Mr Eliyahu Ayalon - who will become chairman of the board - will get a salary of $170,000 plus bonus.
Parthus has also agreed to reprice stock options granted to executives and employees to $2.67, around the current share price.
