<PAGE>
As filed with the Securities and Exchange Commission on November 15, 1994
Registration No. 33-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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INTEGRATED DEVICE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-2669985
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2975 Stender Way
Santa Clara, California 95054
(408) 727-6116
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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JACK MENACHE, ESQ.
INTEGRATED DEVICE TECHNOLOGY, INC.
2975 Stender Way
Santa Clara, California 95054
(408) 727-6116
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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COPIES TO:
DENNIS R. DEBROECK, ESQ. JEFFREY D. SAPER, ESQ.
KATHERINE T. TALLMAN, ESQ. HOWARD S. ZEPRUN, ESQ.
ROBERT A. FREEDMAN, ESQ. RANA B. DIORIO, ESQ.
Fenwick & West CHRISTOPHER F. BOYD, ESQ.
Two Palo Alto Square Wilson, Sonsini, Goodrich & Rosati, P.C.
Palo Alto, California 94306 650 Page Mill Road
(415) 494-0600 Palo Alto, California 94304
(415) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE
TITLE OF EACH CLASS OF TO BE PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share(3) .... 3,910,000 shares $27.75 $108,502,500 $ 37,414.66
<FN>
- ----------------------------------------------------------------------------------------------------
(1) Includes 510,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933.
(3) Associated with the Common Stock are Preferred Stock Purchase Rights which
will not be exercisable or be evidenced separately from the Common Stock
prior to the occurrence of certain events.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant 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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 15, 1994
3,400,000 SHARES
IDT LOGO GOES HERE
COMMON STOCK
Of the 3,400,000 shares of Common Stock offered hereby, 3,300,000 shares are
being sold by the Company and 100,000 shares are being sold by the Selling
Stockholders. See "Selling Stockholders." The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders.
The Company's Common Stock is quoted on the Nasdaq National Market under
the trading symbol "IDTI." On November 14, 1994, the last reported sale price
of the Common Stock on the Nasdaq National Market was $28.625 per share. See
"Price Range of Common Stock."
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- ------------ -------------- ---------------- --------------- ----------------
Per Share ... $ $ $ $
Total(3) .... $ $ $ $
==============================================================================
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $310,000.
(3) The Company and one of the Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 510,000 additional shares of
Common Stock solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the Price to Public will total $ ,
the Underwriting Discount will total $ , the Proceeds to Company will
total $ and the Proceeds to Selling Stockholders will total $ .
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about November , 1994.
MONTGOMERY SECURITIES
LEHMAN BROTHERS
SMITH BARNEY INC.
November , 1994
<PAGE>
AVAILABLE INFORMATION
Integrated Device Technology, Inc. ("IDT" or the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock being offered
pursuant to this Prospectus. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in or incorporated
by reference as exhibits to the Registration Statement as permitted by the rules
and regulations of the Commission. For further information, reference is made to
the Registration Statement including the exhibits filed or incorporated by
reference therein. Statements contained herein concerning the provisions of
documents filed with, or incorporated by reference in, the Registration
Statement as exhibits are necessarily summaries of such documents and each such
statement is qualified in its entirety by reference to the copy of the
applicable documents filed with the Commission.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
April 3, 1994;
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 3, 1994;
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 2, 1994;
4. The description of the Company's Common Stock as set forth in its
Registration Statement on Form 8-B dated September 23, 1987, as amended by the
Company's Form 8 dated March 28, 1989, and the Company's Registration Statement
on Form 8-A dated December 20, 1988, as amended by the Company's Form 8 dated
February 27, 1992; and
5. All other documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the Common Stock.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus or the Registration
Statement.
The Company will provide without charge, upon written or oral request of any
person to whom a copy of this Prospectus is delivered, a copy of any or all of
the documents which have been or may be incorporated by reference in this
Prospectus, other than exhibits to such documents. Requests for such copies
shall be directed to Integrated Device Technology, Inc., 2975 Stender Way, Santa
Clara, CA 95054, Attention: Chief Financial Officer, telephone (408) 727-6116.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY IN THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to the more
detailed information and consolidated financial statements, including the notes
thereto, appearing elsewhere or incorporated by reference in this Prospectus.
The Company's fiscal year ends on the Sunday closest to March 31 and the first,
second and third fiscal quarters end on the Sunday closest to June 30, September
30 and December 31, respectively. As a result, there were 53 weeks in fiscal
1994 and 14 weeks in the fourth quarter of fiscal 1994. For ease of reference,
month-end dates are used herein except in the Consolidated Financial Statements
and related notes thereto. Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
Integrated Device Technology, Inc. ("IDT" or the "Company") designs,
develops, manufactures and markets a broad range of high-performance
semiconductor products for the workstation/server, desktop computer, office
automation and communications markets. The Company focuses its development
efforts on providing proprietary and enhanced industry-standard products that
improve the performance of systems incorporating high-performance
microprocessors. The Company offers over 5,000 product configurations in four
product families: SRAM components and modules, specialty memory products, logic
circuits and RISC microprocessors and subsystems.
The Company has introduced 33 new products in a variety of configurations
since the beginning of fiscal 1994, including the ORION 64-bit microprocessor
and a family of 3.3 volt SRAMs. The Company believes that its ability to
introduce new, higher-performance products has resulted in its becoming a market
leader in SRAMs, SRAM cache modules, FIFO and multi-port specialty memory
products and high-speed CMOS logic circuits. The Company has made significant
investments and commitments in becoming a supplier of RISC based microprocessors
and now offers a family of 20 microprocessor and related peripheral products for
the desktop computing and embedded systems markets.
IDT operates sub-micron wafer fabrication facilities in San Jose and
Salinas, California. The Company's Salinas facility includes a 24,000 square
foot, class 3 fabrication line that is being converted from five-inch to
six-inch wafers. The Company's San Jose facility includes a 24,000 square foot,
class 1, six-inch wafer fabrication line. The Company is also building a 192,000
square foot facility containing a 48,000 square foot, class 1, eight-inch wafer
fabrication line in Hillsboro, Oregon. The Company continues to make significant
investments to advance its proprietary CMOS process technologies in order to
improve product performance and lower product costs through increased yields.
The majority of IDT's current products are manufactured using 0.65 micron
process technologies and a 0.5 micron CMOS process technology is under
development. IDT believes that maintaining its own wafer fabrication capability
facilitates the implementation of advanced process technologies and new
higher-performance product designs, provides it with a reliable source of supply
of semiconductors and allows it to be more flexible in shifting production
according to product demand.
The Company markets its products on a worldwide basis primarily to OEMs
through a variety of channels, including a direct sales force, distributors and
independent sales representatives. The Company's end-user customers include
Alcatel, AT&T, Apple Computer, Bay Networks, Canon, Cisco Systems, Compaq
Computer, Dell Computer, Digital Equipment, FORE Systems, Hewlett-Packard, IBM,
Intel, Motorola, Nokia, Olivetti, Radius, Siemens Nixdorf, Silicon Graphics, Sun
Microsystems and Tektronix.
The Company was incorporated in California in 1980 and reincorporated in
Delaware in September 1987. Its principal offices are located at 2975 Stender
Way, Santa Clara, California 95054 and its telephone number is (408) 727-6116.
3
<PAGE>
THE OFFERING
Common Stock offered by the Company................ 3,300,000 shares
Common Stock offered by the Selling Stockholders... 100,000 shares
Common Stock to be outstanding after the offering.. 37,084,376 shares(1)
Use of proceeds.................................... For construction of a new
wafer fabrication facility,
expansion of existing wafer
fabrication facilities,
acquisition of capital
equipment and general
corporate purposes,
including working capital.
Nasdaq National Market symbol...................... IDTI
- ----------
(1)Excludes 5,293,537 shares of Common Stock subject to stock options
outstanding at September 30, 1994 and an additional 3,593,731 shares of
Common Stock reserved for issuance under the Company's stock option and
purchase plans. See "Capitalization."
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------------ ---------------------
1990 1991 1992(1) 1993 1994 1993 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues....................... $209,475 $198,559 $202,734 $236,263 $330,462 $153,061 $190,628
Gross profit................... 111,303 98,611 75,915 103,978 170,835 73,915 110,206
Operating income (loss)........ 29,956 4,138 (29,316) 11,006 52,269 17,427 44,302
Income (loss) before provision
(benefit) for income taxes..... 27,871 836 (34,768) 6,278 50,206 15,444 45,169
Net income (loss)(2)........... 17,007 1,226 (32,808) 5,336 40,165 12,361 33,884
Net income (loss) per share(2). $ .66 $ .05 $ (1.25) $ .18 $ 1.21 $ .39 $ .94
Shares used in computing net
income (loss) per share........ 25,668 26,070 26,255 29,701 33,116 31,953 36,040
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
--------------------------
ACTUAL AS ADJUSTED(3)
----------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital ............................................................... $ 152,611 $242,513
Total assets .................................................................. 397,566 487,468
Total debt .................................................................... 42,924 42,924
Stockholders' equity .......................................................... 260,373 350,275
<FN>
- ----------
(1) In fiscal 1992, the Company recorded restructuring and other charges of
$24.8 million. See Note 2 of Notes to Consolidated Financial Statements.
(2) The Company's exemption from Malaysian income taxes expired in fiscal
1994. See Note 2 to the table under "Selected Consolidated Financial Data"
and Note 11 of Notes to Consolidated Financial Statements.
(3) Adjusted to give effect to the sale by the Company of 3,300,000 shares of
Common Stock offered hereby at an assumed public offering price of $28.625
per share and the receipt of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
</TABLE>
4
<PAGE>
RISK FACTORS
In addition to the other information contained in or incorporated by
reference in this Prospectus, the following risk factors should be considered
carefully in evaluating the Company and its business before purchasing the
shares of Common Stock offered hereby.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; DEPENDENCE ON COMPUTER AND
COMMUNICATIONS INDUSTRIES
IDT's past operating results have been, and its future operating results
may be, subject to quarterly fluctuations due to a wide variety of factors
including the timing of new product and process technology announcements and
introductions by the Company or its competitors, competitive pricing pressures,
fluctuations in manufacturing yields, changes in the mix of products sold,
availability and costs of raw materials, the cyclical nature of the
semiconductor industry, industry-wide wafer-processing capacity, economic
conditions in various geographic areas and costs associated with other events,
such as an expansion of production capability or litigation. For example, the
Company's results in fiscal 1991 were adversely affected by a delay in the
introduction of a higher-speed 256K (kilobit) SRAM (Static Random Access Memory)
and a 1 Meg (megabit) SRAM, an industry-wide decrease in demand for logic
products and, in late 1991, significant price competition in the SRAM market. In
addition, due primarily to the write-down of excess inventory and underutilized
capital assets, accruals for patent litigation defense costs and charges related
to closure of an older wafer fabrication facility, the Company incurred a
significant loss in fiscal 1992. Since the end of fiscal 1992, as a result of
the introduction of new higher-margin products, improvement of production
processes and expansion of capacity, as well as the general improvement in the
semiconductor market and other factors, the Company has achieved improved
quarterly operating results. However, any unfavorable changes in manufacturing
yields, product mix, supply or costs of raw materials, delays in new product or
process technology introductions, underutilization of manufacturing capacity,
unfavorable market conditions, increased price competition or other factors
could adversely affect the Company's operating results. In recent periods the
pricing environment for SRAMs has been favorable, notwithstanding the long term
trend of price declines in the market. Significant price declines for SRAM
products in the future could adversely affect the Company's operating results.
The Company's operating results are also affected by the market's
acceptance of the Company's and its customers' products and the level and timing
of orders received. The Company ships a substantial portion of its quarterly
sales in the last month of a quarter. If anticipated shipments in any quarter do
not occur, the Company's operating results for that quarter could be adversely
affected. In addition, a substantial percentage of the Company's products are
incorporated into computer and computer-related products, which have
historically been characterized by significant fluctuations in demand which in
turn have affected the demand for components used in these computers. In
addition, demand for certain of the Company's products is dependent upon growth
in the communications market. A slowdown in the computer and related peripherals
or communications markets could adversely affect the Company's operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company's operating results will be impacted by a number of risks
associated with the Company's current and planned facilities expansion programs.
See "--Current Capacity Limitations and Risks Associated with Planned Expansion"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CURRENT CAPACITY LIMITATIONS AND RISKS ASSOCIATED WITH PLANNED EXPANSION
The Company is operating its wafer fabrication facilities in Salinas and
San Jose and its assembly operations in Malaysia near installed equipment
capacity. As a result, the Company has not been able to take advantage of all
market opportunities presented to the Company. Due to long production lead times
and current capacity constraints, any failure by the Company to adequately
forecast the mix of product demand could adversely affect the Company's sales
and operating results. For example, the Company's second quarter fiscal 1995
results were relatively flat compared to its prior quarter results due to a
slowing in demand from networking customers and an inability to shift production
to other product areas where demand exceeded supply.
5
<PAGE>
To address its capacity requirements, the Company is currently converting
its Salinas wafer fabrication facility from five-inch to six-inch wafers, adding
incremental production equipment to its San Jose wafer fabrication facility and
building an additional 40,000 square foot test and assembly facility in Penang,
Malaysia. In addition, the Company recently commenced construction of a 192,000
square foot facility containing a 48,000 square foot, class 1, eight-inch wafer
fabrication line in Hillsboro, Oregon. Conversion of the Salinas facility, while
operating near installed equipment capacity, constrains production scheduling
and could impact production output. In addition, delays in the delivery of wafer
fabrication or test equipment to the Company's Salinas, San Jose, Penang or
Oregon facilities could delay planned increases in the Company's production
capacity. In connection with the construction, equipping and commencement of
operations at the new Oregon facility, the Company faces a number of substantial
additional risks including, but not limited to, delays in construction, cost
overruns, equipment delays or shortages and manufacturing startup or process
problems. In addition, the Company has never operated an eight-inch wafer
fabrication facility and eight-inch facilities and production equipment are
relatively new to the industry. Accordingly, the Company could incur
unanticipated process or production problems.
The Company's capacity additions will result in a significant increase in
fixed and operating expenses. If revenue levels do not increase sufficiently to
offset these additional expense levels, the Company's operating results could be
adversely impacted in future periods. In this regard, IDT has historically
expensed as period costs, rather than capitalized, the operating expenses
associated with bringing a fabrication facility to commercial production.
Although the Company does not expect to generate significant revenues from its
new Oregon fabrication facility until fiscal 1997 at the earliest, the Company
will recognize substantial operating expenses associated with the facility in
fiscal 1996 and 1997. In addition, in fiscal 1997, the Company will begin to
recognize substantial depreciation expenses before production of commercial
volume is achieved.
The extensive production expansion programs, including, in particular, the
construction of the new facility in Oregon, could strain the Company's
management and engineering resources. This strain on resources could be
exacerbated by the geographic distance between the Company's Oregon and
California facilities. There can be no assurance that the Company will be able
to hire additional management, engineering and other personnel, as needed, to
manage these expansion programs effectively and to implement new production
capacity in a timely manner and within budget.
The Company believes other manufacturers are also expanding or planning to
expand their fabrication capacity over the next several years. There can be no
assurance that expansion by the Company and its competitors will not lead to
overcapacity in the Company's target markets, which could cause declines in
product prices that would adversely affect the Company's operating results.
MANUFACTURING RISKS
The Company's CMOS (Complementary Metal Oxide Silicon) and BiCMOS (Bipolar
CMOS) manufacturing processes are highly complex, require advanced and costly
equipment and are continuously being modified in an effort to improve yields and
product performance. Minute impurities or other difficulties in the
manufacturing process can lower yields. From time to time, IDT has experienced
production difficulties that have caused delivery delays and quality problems.
There can be no assurance that the Company will not experience manufacturing
problems and product delivery delays in the future as a result of, among other
things, changes to its process technologies, ramping production, installing new
equipment at its San Jose and Salinas facilities, converting its Salinas
facility from five-inch to six-inch wafers and constructing its new facilities
in Penang and Oregon. See "Current Capacity Limitations and Risks Associated
with Planned Expansion." Further, the Company's existing wafer fabrication
facilities are located relatively near each other in northern California. If the
Company were unable to use these facilities, as a result of a natural disaster
or otherwise, the Company's operations would be materially adversely affected
until the Company were able to obtain other production capability. See
"Business-Manufacturing."
6
<PAGE>
INVENTORY VALUATION ISSUES
In connection with the Company's fiscal 1993 audit, the Company's auditors
identified a material weakness in the Company's internal controls with respect
to its inventory management system as it relates to determining the cost of
inventory. A material weakness indicates that a material error or irregularity
may occur in the Company's quarterly financials and may not be timely detected
by the Company's employees in the normal course of performing their assigned
functions, thereby possibly resulting in a misstatement of the Company's
quarterly financial statements. There were no adjustments to the Company's
financial statements in connection with the fiscal 1993 audit and no
restatements of any quarterly periods in that year. Beginning in fiscal 1994,
the Company implemented programs aimed at improving its inventory management and
costing systems. The Company's auditors did not identify a material weakness
with respect to these systems in their audit for fiscal 1994, but did indicate
to IDT that the Company's systems continue to have significant limitations.
While the Company continues to devote resources to the improvement of its
systems, there can be no assurance that the Company will successfully implement
systems which will completely resolve these issues. Failure to devote adequate
resources to address limitations in the Company's inventory management and
costing systems or to improve such systems could result in a misstatement of
operating results.
DEPENDENCE ON NEW PRODUCTS AND TECHNOLOGIES
The market for the Company's products is characterized by significant price
competition, frequent new product introductions, rapidly changing technology and
evolving industry standards. Average selling prices of the Company's products
have historically declined over time and this trend is expected to continue. To
offset these decreases, the Company relies on manufacturing cost reductions and
on timely introductions of new products that meet customers' needs. From time to
time the Company has experienced delays in product introductions. For example,
IDT's operating results were adversely affected in fiscal 1991 due to the delay
in the introduction of a higher-speed 256K SRAM and a 1 Meg SRAM. To remain
competitive the Company also must continue to devote significant resources to
advancing process technologies to reduce semiconductor die size, increase
performance and improve manufacturing yields. IDT is currently converting the
manufacture of several products to its newer generation process technologies.
Often in the past, such conversions have temporarily adversely affected yields.
In particular, as process geometries become smaller, implementation becomes more
difficult. There can be no assurance that the Company will be able to develop
and introduce new products in a timely manner, that new products will gain
market acceptance or that new process technologies can be successfully
implemented. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Research and Development."
COMPETITION
The Company competes with a number of manufacturers in each of its major
product areas. Several of the Company's competitors have substantially greater
technical, marketing, manufacturing and financial resources than the Company. In
addition, several of the Company's foreign competitors receive assistance from
their respective governments, which may give them a competitive advantage. The
Company competes principally on the basis of technical innovation and product
performance, as well as on quality, price and product availability. The ability
of IDT to compete successfully depends upon a number of factors, including new
product and process technology introductions by IDT and its competitors,
customer acceptance of the Company's products, cost effective manufacturing,
assertion of intellectual property rights and general market and economic
conditions. Some of these factors are outside the Company's control. There can
be no assurance that the Company will be able to compete successfully in the
future against existing or potential competitors or that the Company's operating
results will not be adversely affected by increased price competition. See
"Business--Competition."
CAPITAL NEEDS
The semiconductor industry is extremely capital intensive. To remain
competitive, the Company must continue to invest in advanced manufacturing and
test equipment. During the past three fiscal years,
7
<PAGE>
cash flow from operations has been insufficient to fund fully the Company's
needs for capital equipment, mandatory debt repayment and working capital. The
Company currently plans to make approximately $60 to $70 million in capital
expenditures during the second half of fiscal 1995. In addition, the
construction and purchase of equipment for the Company's new Oregon facility,
together with ongoing capital expenditures, are expected to require $200 million
in fiscal 1996, with significant continuing expenditures in the following years.
While the Company believes that the proceeds from this offering, together with
existing cash and cash equivalents, cash flow from operations and existing
credit facilities, will be adequate to fund its anticipated capital expenditures
and working capital needs, including mandatory debt repayments through fiscal
1996, there can be no assurance that the Company will not be required to seek
other financing sooner or that such financing, if required, would be available
on terms satisfactory to the Company. In this regard, any adverse effect upon
the Company's operating results due to a significant downturn in industry
pricing or otherwise could accelerate the Company's need to seek additional
outside capital. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
INTELLECTUAL PROPERTY RISKS
The Company has been notified that it may be infringing patents or other
intellectual property rights of others. The semiconductor industry is
characterized by vigorous protection and pursuit of intellectual property rights
or positions, which have resulted in significant and often protracted and
expensive litigation. During fiscal 1993, IDT settled outstanding patent
litigation with both AT&T and Texas Instruments and obtained five-year
cross-licenses from both parties. Costs associated with these litigation matters
adversely affected IDT's results of operations for fiscal 1992. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 3 and 13 of Notes to Consolidated Financial Statements.
There can be no assurance that additional claims alleging infringement of
intellectual property rights, including infringement of patents that have been
or may be issued in the future, will not be asserted in the future. Any
assertions of intellectual property claims could require IDT to discontinue the
use of certain processes or cease the manufacture, use and sale of infringing
products, to incur significant litigation costs and damages, and to develop
noninfringing technology or to acquire licenses to the alleged infringed
technology. There can be no assurance that the Company would be able to obtain
such licenses on acceptable terms or to develop noninfringing technology. IDT
has received patent licenses from a number of companies. The failure to renew
certain of these licenses or significant increases in amounts payable under
these licenses could have an adverse effect on the Company. In addition, there
can be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented or that rights granted thereunder will
provide competitive advantages to the Company. Furthermore, the laws of certain
countries do not protect the Company's intellectual property rights to the same
extent as do the laws of the United States. See "Business--Intellectual Property
and Licensing."
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The semiconductor industry is highly cyclical and has been subject to
significant downturns at various times that have been characterized by
diminished product demand, production overcapacity and accelerated erosion of
average selling prices. During fiscal 1992, the Company's operating results were
adversely affected by a general decline in demand for semiconductor products and
significant price competition. While semiconductor demand has been strong in
recent periods, and the Company's existing manufacturing equipment capacity is
operating near installed equipment capacity, there can be no assurance that IDT
will not be adversely affected in the future by cyclical conditions in the
semiconductor industry.
MANAGEMENT OF GROWTH
The Company has experienced, and expects to experience in the future,
growth in the number of employees, the scope of its operations and the
geographic area of its operations. This growth has resulted in new and increased
reponsibilities for management personnel and has placed added pressures on the
Company's operating and financial systems. To manage future growth effectively,
the Company must hire
8
<PAGE>
additional management and technical personnel, integrate its new employees
into its overall operations and continue to improve its operational,
financial and management systems. If the Company is unable to manage growth
effectively or hire or retain qualified personnel, the Company's business and
results of operations could be materially and adversely affected. See
"Business--Employees."
DEPENDENCE ON THIRD PARTIES
The Company's manufacturing operations depend upon obtaining adequate raw
materials on a timely basis. The number of vendors of certain raw materials,
such as silicon wafers, ultra-pure metals and certain chemicals and gases, is
very limited. In addition, certain packages used by the Company require long
lead times and are available from only a few suppliers. From time to time,
vendors have extended lead times or limited supply to the Company due to
capacity constraints. The Company's results of operations would be adversely
affected if it were unable to obtain adequate supplies of raw materials in a
timely manner or if there were significant increases in the costs of raw
materials. IDT has been dependent on the design capabilities of Quantum Effect
Design, Inc. ("QED"), a majority-owned subsidiary, for the design and
development of derivatives of MIPS RISC based microprocessors, including the
ORION R4600. There can be no assurance that the Company will be able to maintain
this design relationship with QED or that QED will continue to be successful in
developing new microprocessors. See "Business--Manufacturing" and "--Research
and Development."
INTERNATIONAL OPERATIONS
Substantially all of the Company's test operations and a significant
portion of its assembly operations are performed at IDT's facility in Penang,
Malaysia. IDT also uses subcontractors in Korea, the Philippines and Malaysia
for certain assembly operations. The Company's reliance on these facilities
entails certain risks generally associated with doing business abroad, such as
foreign governmental regulations, currency fluctuations, political unrest and
disruptions or delays in shipments. The Company's operations in Penang are
subject to other specific risks. There is currently a very low unemployment
rate, and accordingly a limited pool of skilled workers, in Penang. There can be
no assurance that the Company will be able to hire sufficient skilled personnel
as it expands its operations in Penang. In addition, due to current limitations
on electrical power availability in Penang, certain large consumers of power
have been subject to brief shutdowns on a weekly basis. While the Company is not
a large consumer of power and therefore has not been affected by such scheduled
shutdowns, there can be no assurance that, as IDT's and other manufacturers'
operations in Penang expand, electrical power shortages will not adversely
affect the Company's Malaysian operations. The Company's tax rate in fiscal 1996
will increase as a result of the expiration of the Company's exemption from
Malaysian income taxes. This will contribute to an increase in the Company's
overall income tax rate in the future. See Note 2 to the table under "Selected
Consolidated Financial Data" and Note 11 of Notes to Consolidated Financial
Statements. If the Company were unable to assemble or test products offshore, or
if air transportation to these foreign facilities were curtailed, the Company's
operations could be materially adversely affected.
A substantial percentage of the Company's revenues are derived from export
sales. In fiscal 1994 and the first six months of fiscal 1995, export sales
accounted for 32% and 38%, respectively, of IDT's revenues. See Note 12 of Notes
to Consolidated Financial Statements. Export sales are generally denominated in
local currencies. The Company's offshore assembly and test operations and export
sales are subject to risks associated with foreign operations, including
currency controls and fluctuations, changes in local economic conditions, import
and export controls, as well as changes in tax laws, tariffs and freight rates.
The Company attempts to hedge against a portion of its short-term exposure to
currency fluctuations. There can be no assurance that the above factors will not
adversely affect the Company's operations in the future or that the Company will
be successful in its hedging efforts. See "Business--Marketing and Sales" and
"--Manufacturing" and Note 1 of Notes to Consolidated Financial Statements.
9
<PAGE>
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of foreign, federal, state and local
governmental regulations related to the discharge and disposal of toxic,
volatile or otherwise hazardous materials used in its manufacturing process.
While the Company believes that it has all environmental permits necessary to
conduct its business and that its activities conform to present environmental
regulations, increasing public attention has been focused on the environmental
impact of semiconductor operations. Any failure by the Company to control the
use of, or to restrict adequately the discharge of, hazardous materials under
present or future regulations could subject it to substantial liability or could
cause its manufacturing operations to be suspended. In addition, IDT could be
held financially responsible for remedial measures if its properties were found
to be contaminated whether or not the Company was responsible for such
contamination.
VOLATILITY OF STOCK PRICE
The Company's Common Stock has experienced substantial price volatility and
such volatility may occur in the future, particularly as a result of quarter to
quarter variations in the actual or anticipated financial results of the Company
or other companies in the semiconductor industry or in the markets served by the
Company, or announcements by the Company or its competitors regarding new
product introductions. In addition, the stock market has experienced extreme
price and volume fluctuations that have affected the market price of many
technology companies' stocks in particular and that have often been unrelated or
disproportionate to the operating performance of these companies. These factors
may adversely affect the market price of the Common Stock. See "Price Range of
Common Stock."
10
<PAGE>
USE OF PROCEEDS
Thenet proceeds to the Company from the sale of the 3,300,000 shares of
Common Stock offered by the Company are estimated to be approximately
$89,902,000 ($103,843,000 if the Underwriters' over-allotment option is
exercised in full and the shares subject thereto are sold in the entirety by the
Company) assuming a public offering price of $28.625 per share and after
deducting the estimated underwriting discount and offering expenses payable by
the Company.
The Company intends to use the net proceeds of the offering for construction
of a new wafer fabrication facility in Hillsboro, Oregon, expansion of existing
wafer fabrication facilities in San Jose and Salinas, California, acquisition of
capital equipment and general corporate purposes, including working capital. The
Company believes that the proceeds of this offering, together with existing cash
and cash equivalents, cash flow from operations and existing credit facilities,
will be adequate to fund its anticipated capital expenditures and working
capital needs through fiscal 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Pending their application, the proceeds will be invested in short-term, interest
bearing instruments.
The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See "Selling Stockholders."
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"IDTI." The following table sets forth the high and low last reported sale
prices for the Common Stock as reported by the Nasdaq National Market during the
fiscal quarters indicated.
HIGH LOW
-------- -------
Fiscal 1993:
First Quarter ................................. $ 5 3/4 $ 3 7/8
Second Quarter ................................ 5 3 5/8
Third Quarter ................................. 6 3/4 4 1/8
Fourth Quarter ................................ 8 3/8 6 1/4
Fiscal 1994:
First Quarter ................................. 11 1/8 6 1/2
Second Quarter ................................ 19 5/8 10 1/2
Third Quarter ................................. 18 7/8 12 3/8
Fourth Quarter ................................ 33 5/8 16 3/4
Fiscal 1995:
First Quarter ................................. 31 3/8 23 7/8
Second Quarter ................................ 28 7/8 16 1/4
Third Quarter (through November 14, 1994) ..... 29 11/16 18 1/2
On November 14, 1994, the last reported sale price of the Common Stock was
$28.625 per share. As of November 8, 1994, there were approximately 965 record
holders of the Common Stock.
DIVIDEND POLICY
The Company intends to retain any future earnings for use in its business
and, accordingly, does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of IDT at September 30,
1994 and as adjusted to reflect the sale by the Company of the 3,300,000 shares
of Common Stock offered hereby assuming a public offering price of $28.625 per
share and the receipt of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
--------------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long term obligations(1) .......................................... $ 8,608 $ 8,608
========= =========
Long-term obligations excluding current portion(1) ................................... $ 34,316 $ 34,316
--------- ---------
Stockholders' equity:
Preferred Stock; $.001 par value: 5,000,000 shares authorized;
no shares issued ................................................................... -- --
Common Stock; $.001 par value: 65,000,000 shares authorized;
33,652,361 shares issued and outstanding; 36,952,361 shares
issued and outstanding as adjusted(2) .............................................. 34 37
Additional paid-in capital ........................................................... 162,109 252,008
Retained earnings .................................................................... 98,401 98,401
Cumulative translation adjustment .................................................... (171) (171)
Total stockholders' equity ........................................................... $ 260,373 $ 350,275
---------- ---------
Total capitalization ................................................................. $ 294,689 $ 384,591
========== =========
<FN>
- ---------
(1) See Notes 4 and 5 of Notes to Consolidated Financial Statements.
(2) Excludes 5,293,537 shares of Common Stock subject to stock options
outstanding at September 30, 1994 and an additional 3,593,731 shares of
Common Stock reserved for issuance under the Company's stock option and
stock purchase plans. See Note 9 of Notes to Consolidated Financial
Statements.
</TABLE>
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data as of March 31, 1993 and 1994 and for
each of the years in the three-year period ended March 31, 1994 have been
derived from IDT's Consolidated Financial Statements included elsewhere in this
Prospectus, which have been audited by Price Waterhouse LLP, independent
accountants, as indicated in their report thereon appearing elsewhere herein.
The following selected financial data as of March 31, 1990, 1991 and 1992 and
for each of the years in the two-year period ended March 31, 1991 have been
derived from audited consolidated financial statements not included herein. The
consolidated financial data as of September 30, 1994 and for the six months
ended September 30, 1993 and 1994 have been derived from unaudited condensed
consolidated financial statements, which, in the opinion of management of IDT,
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for the fair statement of the financial data for such periods. The
results of operations for the six months ended September 30, 1994 are not
necessarily indicative of results that may be expected for any other period or
for the full year. The data set forth below are qualified in their entirety by
reference to, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and related notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------------- ---------------------
1990 1991 1992(1) 1993 1994 1993 1994
---------- ---------- ----------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues ............................$209,475 $198,559 $202,734 $236,263 $330,462 $153,061 $190,628
Cost of revenues .................... 98,172 99,948 126,819 132,285 159,627 79,146 80,422
---------- ---------- ----------- ---------- ---------- ---------- ----------
Gross profit......................... 111,303 98,611 75,915 103,978 170,835 73,915 110,206
---------- ---------- ----------- ---------- ---------- ---------- ----------
Operating expenses:
Research and development........... 41,644 50,848 52,044 53,461 64,237 31,182 35,536
Selling, general and administrative 39,703 43,625 48,721 39,511 54,329 25,306 30,368
Restructuring charge............... -- -- 4,466 -- -- -- --
---------- ---------- ----------- ---------- ---------- ---------- ----------
Total operating expenses........... 81,347 94,473 105,231 92,972 118,566 56,488 65,904
---------- ---------- ----------- ---------- ---------- ---------- ----------
Operating income (loss).............. 29,956 4,138 (29,316) 11,006 52,269 17,427 44,302
Interest expense .................... (3,519) (6,507) (7,045) (5,855) (5,165) (2,778) (1,854)
Interest income and other, net....... 1,434 3,205 1,593 1,127 3,102 795 2,721
---------- ---------- ----------- ---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes ........ 27,871 836 (34,768) 6,278 50,206 15,444 45,169
Provision (benefit) for income taxes. 10,864 (390) (1,960) 942 10,041 3,083 11,285
---------- ---------- ----------- ---------- ---------- ---------- ----------
Net income (loss)(2) ................$ 17,007 $ 1,226 $(32,808) $ 5,336 $ 40,165 $ 12,361 $ 33,884
========== ========== =========== ========== ========== ========== ==========
Net income (loss) per share(2).......$ .66 $ .05 $ (1.25) $ .18 $ 1.21 $ .39 $ .94
========== ========== =========== ========== ========== ========== ==========
Shares used in computing net
income (loss) per share ........... 25,668 26,070 26,255 29,701 33,116 31,953 36,040
========== ========== =========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------------ SEPTEMBER 30,
1990 1991 1992 1993 1994 1994
---------- ---------- --------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital .............................. $ 68,139 $ 63,539 $ 40,493 $ 50,885 $143,248 $152,611
Total assets ................................. 261,538 258,626 229,730 239,994 349,571 397,566
Total debt.................................... 78,733 73,858 66,100 62,295 51,646 42,924
Stockholders' equity ......................... 130,704 134,524 104,602 117,760 224,367 260,373
<FN>
- ---------
(1) In fiscal 1992, the Company recorded restructuring and other charges of
$24.8 million. See Note 2 of Notes to Consolidated Financial Statements.
(2) As described in Note 11 of Notes to Consolidated Financial Statements, the
Company's Malaysian subsidiary was granted a tax holiday which extended
through June 30, 1993. Such status had the effect of reducing the Company's
provision for taxes by approximately $0.8 million, $0.9 million, $1.0
million, and $1.5 million, or $0.03, $0.04, $0.04 and $0.05 per share, for
the years ended March 31, 1990, 1991, 1992 and 1993, respectively.
Management believes it is likely that carryovers of depreciation from the
tax holiday period along with expected additional depreciation grants will
defer the time beyond March 31, 1995 when the Malaysian subsidiary will
first begin to pay local taxes. The corporate income tax rate in Malaysia
which would otherwise be applicable for the Company's fiscal year ending
April 2, 1995 and for subsequent periods is 34%.
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
IDT designs, develops, manufactures and markets a broad range of
high-performance semiconductor products for the workstation/server, desktop
computer, office automation and communications markets. The Company's revenues
have increased from $203 million in fiscal 1992 to $236 million in fiscal 1993
and to $330 million in fiscal 1994. This growth has been due to increasing
market acceptance of new products, the expansion of production output through
additions of capital equipment and improved manufacturing processes and
associated die shrinks and yield improvements and improvements in overall market
conditions. In particular, the Company has introduced 33 new products in a
variety of configurations since the beginning of fiscal 1994, including the
ORION 64-bit microprocessor and the Company's family of 3.3 volt SRAMs. During
these periods, the Company has achieved unit volume growth across all of its
market segments.
The Company's gross profit and operating profit margins have improved
significantly from 43.5% and 3.5%, respectively, in the first quarter of fiscal
1993 to 58.1% and 23.1%, respectively, in the second quarter of fiscal 1995.
These improvements have been attributable to economies of scale associated with
increased unit shipments, higher utilization of manufacturing capacity, wafer
fabrication process improvements, and a mix shift to higher margin products,
including microprocessors.
The Company is currently operating near installed equipment capacity. To
address this situation, the Company initiated a significant capacity expansion
program, including conversion of the Company's Salinas wafer fabrication
facility from five-inch to six-inch wafers, the purchase of incremental wafer
fabrication equipment for the Company's San Jose facility, expansion of assembly
and test facilities in Penang, Malaysia, and construction of a new eight-inch
wafer fabrication facility in Oregon. These programs will require substantial
capital expenditures in the balance of fiscal 1995, in fiscal 1996 and beyond.
See "Business--Manufacturing." The Company expects that the equipment conversion
in the Salinas facility will be completed near the end of fiscal 1995 and the
addition of equipment to the San Jose facility and the expansion of the Penang
facility will be completed in fiscal 1996. It is expected that the Oregon
facility will commence production during fiscal 1996; however, the Oregon
facility is not expected to achieve significant revenues until fiscal 1997 at
the earliest and will not achieve commercial volume production until fiscal 1998
at the earliest.
The increased operating expenses associated with the Company's capacity
expansion programs will adversely affect operating results until the Company
achieves volume production utilizing the new facilities and equipment. Although
the Company does not expect to generate significant revenues from its new Oregon
fabrication facility until fiscal 1997 at the earliest, the Company will
recognize substantial operating expenses associated with the facility in fiscal
1996 and 1997. In addition, in fiscal 1997 the Company will begin to recognize
substantial depreciation expenses before production in commercial volumes is
achieved.
14
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth certain amounts, as a percentage of
revenues, from the Company's consolidated statements of operations for the three
fiscal years ended March 31, 1992, 1993 and 1994 and for the six months ended
September 30, 1993 and 1994.
SIX MONTHS
ENDED SEPTEMBER 30,
FISCAL YEAR ENDED MARCH 31,
--------------------------- ------------------
1992 1993 1994 1993 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues .............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues ...................... 62.6 56.0 48.3 51.7 42.2
--------- -------- -------- -------- --------
Gross margin........................... 37.4 44.0 51.7 48.3 57.8
--------- -------- -------- -------- --------
Operating expenses:
Research and development.............. 25.7 22.6 19.4 20.4 18.6
Selling, general and administrative... 24.0 16.7 16.5 16.5 15.9
Restructuring charge.................. 2.2 -- -- -- --
--------- -------- -------- -------- --------
Total operating expenses ............ 51.9 39.3 35.9 36.9 34.6
--------- -------- -------- -------- --------
Operating income (loss)................ (14.5) 4.7 15.8 11.4 23.2
Net interest (expense) income.......... (2.7) (2.0) (0.6) (1.3) 0.5
--------- -------- -------- -------- --------
Income (loss) before provision (benefit)
for income taxes....................... (17.2) 2.7 15.2 10.1 23.7
Provision (benefit) for income taxes... (1.0) 0.4 3.0 2.0 5.9
--------- -------- -------- -------- --------
Net income (loss)...................... (16.2)% 2.3% 12.2% 8.1% 17.8%
========= ======== ======== ======== ========
</TABLE>
Set forth below are selected financial data from the Company's consolidated
statements of operations for the last ten fiscal quarters, reflecting continued
improvements in the Company's operating results:
<TABLE>
<CAPTION>
FISCAL 1993 FISCAL 1994 FISCAL 1995
--------------------------------------- --------------------------------------- -------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...... $53,758 $57,479 $60,590 $64,436 $72,766 $80,295 $85,330 $92,071 $95,043 $95,585
Gross profit.. 23,366 24,734 27,234 28,645 33,948 39,967 45,419 51,501 54,632 55,574
Net income.... 475 838 1,493 2,530 4,628 7,733 11,625 16,179 16,878 17,006
Net income per
share........ $ .02 $ .03 $ .05 $ .08 $ .15 $ .24 $ .35 $ .45 $ .47 $ .47
</TABLE>
RESULTS OF OPERATIONS
Six months ended September 30, 1993 and 1994. Revenues for the first six
months of fiscal 1995 increased 24.5% to $190.6 million as compared to revenues
of $153.1 million for the first six months of fiscal 1994. This increase was
attributable to higher unit volumes across most product families, geographic
regions and sales channels. Significant unit volume growth was experienced in
SRAM memories, particularly 3.3 volt devices, RISC based microprocessors, logic
circuits and specialty memory products. The higher unit volumes were offset in
part by lower average unit selling prices on certain products due to competitive
pricing and the maturation of certain products. In the second quarter of fiscal
1995, revenues were relatively flat compared to the first quarter of fiscal 1995
due to a slowing in demand from networking customers and an inability to shift
production to other product areas where demand exceeded supply.
Gross profit for the first six months of fiscal 1995 increased 49.1% to
$110.2 million, or 57.8% of revenues, as compared to $73.9 million, or 48.3% of
revenues, for the comparable period of the prior year. The improvements in gross
profit and gross margins were primarily attributable to higher capacity
utilization and increased unit volumes. In addition, the Company continued a
shift to more advanced designs and wafer fabrication processes which resulted in
increased die per wafer yields and therefore lower unit costs. More efficient
test and burn-in procedures also contributed to improved yields and reduced
manufacturing costs. In addition, selective acceptance of new orders as a result
of continued strong demand
15
<PAGE>
allowed the Company to shift manufacturing capacity to higher-margin products.
Due primarily to the Company reaching a cap on certain royalty obligations,
gross profit also benefited in the first six months of fiscal 1995 compared to
the first six months of fiscal 1994 from a $1 million reduction in patent and
royalty expenses relating to cross-license agreements. However, the Company's
industry is characterized by patent claims and license agreements, and there can
be no assurance royalty expenses will not increase in the future.
Research and development ("R&D") expenses for the first six months of
fiscal 1995 increased 14.0% to $35.5 million, but decreased as a percentage of
revenues to 18.6% from 20.4% in the corresponding period of the prior year. The
Company continues to invest in the development of new products and process
technologies. In the first six months of fiscal 1995, the Company introduced 11
new products and continued to develop its 0.5 micron CMOS processes. The Company
expects that it will continue to increase R&D spending in the future, although
such expenses may vary as a percentage of revenues.
Selling, general and administrative ("SG&A") expenses increased 20.0% to
$30.4 million for the first six months of fiscal 1995, but declined as a
percentage of revenues to 15.9% from 16.5% in the comparable period of the prior
year. The increase in SG&A expenses was attributable to higher costs associated
with the higher level of sales, including higher sales commissions, employee
profit sharing and management bonuses, although SG&A expenses did not increase
as rapidly as sales. The Company anticipates that SG&A expenses will continue to
increase, but may vary as a percentage of revenues.
Interest expense for the first six months of fiscal 1995 decreased 33.3% to
$1.9 million. The decrease was the result of lower debt balances coupled with
lower interest rates. Interest income and other, net, increased to $2.7 million
for the six-month period as compared to $0.8 million for the same period of the
prior year. The increase in interest income was attributable to significantly
higher average cash balances, partially offset by lower interest rates.
Income taxes for the first six months of fiscal 1995 were provided at an
effective rate of 25%. This compares to an effective rate of 20% in the
corresponding period of fiscal 1994. The increase in the effective tax rate in
fiscal 1995 as compared to fiscal 1994 is primarily due to higher utilization in
fiscal 1994 of certain deferred tax benefits. The Company believes that its
effective tax rate will increase in the future as the tax holiday associated
with the Company's Malaysia facility expires and the Company will have exhausted
its deferred tax benefits.
Fiscal Years 1992, 1993 and 1994. Revenues increased 39.9% to $330.5
million in fiscal 1994, as compared to revenues of $236.3 million in fiscal
1993, which in turn represented a 16.6% increase over revenues of $202.7 million
in fiscal 1992. Growth in fiscal 1994 was due to increased unit sales across all
product segments, with the largest percentage increase in the microprocessor
segment, as well as favorable pricing during the fiscal year on certain
products, offset in part by lower selling prices for some products. Revenue
growth in fiscal 1993 was attributed to increases in product shipments across
all market segments, offset in part by price reductions on several major
products. Toward the end of fiscal 1993, pricing firmed in the memory business
segment, reversing a trend of steady price erosion over several years, which had
been driven in part by increased demand across all market segments.
Gross profit increased 64.3% to $170.8 million, or 51.7% of revenues in
fiscal 1994 as compared to $104.0 million or 44.0% of revenues in fiscal 1993.
Gross profit increased 37.0% in fiscal 1993 from $75.9 million or 37.4% of
revenues in fiscal 1992. The improvement in fiscal 1994 was primarily
attributable to greater capacity utilization, which lowered average wafer
manufacturing costs, significant increases in die per wafer due to wafer
fabrication process improvements, and a mix shift to products with higher
average selling prices, particularly microprocessors. In fiscal 1992, gross
profit was negatively impacted principally by write-offs of inventory, including
approximately $14.9 million of charges to operations in the second quarter, and
underutilization of capital assets.
Research and development expenses increased 20.2% to $64.2 million or 19.4%
of revenues in fiscal 1994, as compared to $53.5 million or 22.6% of revenues in
fiscal 1993. In fiscal 1992, R&D expenses were $52.0 million or 25.7% of
revenues. The increases in R&D expenses were due primarily to continued
investments by the Company in both process technology and new product design and
development.
16
<PAGE>
Selling, general and administrative expenses increased 37.5% to $54.3
million in fiscal 1994 or 16.5% of revenues, as compared to $39.5 million or
16.7% of revenues in fiscal 1993. In fiscal 1992, SG&A expenses were $48.7
million or 24.0% of revenues. The fiscal 1994 increase was primarily due to
increases in management bonuses, employee profit sharing and the variable
selling expenses associated with the revenue increase. Fiscal 1992 SG&A expenses
were significantly impacted by patent litigation expenses and an increase in the
provision for bad debt. Patent litigation expenses accrued in fiscal 1992 were
resolved in fiscal 1993 and, as a consequence, the reversal of a portion of the
1992 accruals benefited fiscal 1993 results.
IDT incurred approximately $4.5 million of restructuring charges in fiscal
1992 associated with the closing of its oldest wafer fabrication line and a
reduction in workforce.
Interest expense totaled $5.2 million in fiscal 1994, compared to $5.9
million in fiscal 1993 and $7.0 million in fiscal 1992. Interest expense has
decreased as IDT's asset-secured debt has declined. IDT continues to incur
interest on a long-term obligation associated with a patent cross-license which
did not exist in fiscal 1992 and was insignificant in fiscal 1993.
Interest income and other, net, increased to $3.1 million in fiscal 1994
compared to $1.1 million and $1.6 million in fiscal years 1993 and 1992,
respectively. Fiscal 1994 was favorably impacted by higher cash balances
available for investment, gains on the disposition of assets and royalty income.
The Company adopted Statement of Financial Accounting Standards No. 109
(FAS 109) during fiscal 1993, retroactively to March 30, 1991. The effective tax
rates for fiscal 1994 and 1993 of 20% and 15%, respectively, differed from the
U.S. statutory rate of 34% primarily due to earnings of foreign subsidiaries
being taxed at lower rates, as well as the utilization of research and
development credits. In addition, fiscal 1994 benefited from the realization of
certain deferred tax benefits for which a valuation allowance was previously
required. The tax benefit for fiscal 1992 reflected the ability of the Company
to apply fiscal 1992 pretax losses against taxes paid for prior years
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition improved during fiscal 1994 and the first
six months of fiscal 1995. Cash and cash equivalents and short-term investments
increased from $24.4 million at the end of fiscal 1993 to $121.8 million at the
end of fiscal 1994 and to $125.9 million at September 30, 1994. Working capital
increased from $51.4 million at March 31, 1993 to $143.2 million at March 31,
1994 and to $152.6 million as of September 30, 1994. These increases were due to
improved profitability, as well as a public stock offering in fiscal 1994
yielding net proceeds of approximately $46.8 million. As of September 30, 1994,
the Company had $4.4 million available under unsecured lines of credit, all of
which are overseas. See Note 6 of Notes to Consolidated Financial Statements.
During fiscal 1992, 1993 and 1994 and the first six months of fiscal 1995,
the Company generated $31.9 million, $37.2 million, $100.1 million and $51.5
million, respectively, of cash flow from operations. The largest single factor
influencing cash flow from operations during fiscal 1992 and 1993 was the
depreciation resulting from the Company's San Jose wafer fabrication facility.
The improved operating results in fiscal 1993, 1994 and the first six months of
fiscal 1995 also had a significant impact on cash flow during those periods.
Cash flow during fiscal 1992 was affected negatively by the operating loss for
the year. The Company anticipates that significant depreciation relating to the
San Jose facility will continue through at least fiscal 1996.
During fiscal 1992, 1993 and 1994, and the first six months of fiscal 1995,
the Company's net cash used in investing activities was $16.1 million, $28.8
million, $68.9 million and $45.0 million, respectively, of which $25.7 million,
$28.2 million, $38.1 million and $40.6 million, respectively, were used for
capital equipment and property and plant improvements. During fiscal 1992 and
1993, the Company's net cash used in financing activities was $7.4 million and
$5.9 million, respectively, due primarily to net repayments of $9.8 million and
$8.8 million, respectively, related primarily to capital equipment financing.
For fiscal 1994, financing activities provided net cash of $34.8 million as a
result of the Company's public offering, offset by net repayments of equipment
financing of $20.5 million. For the six months ended September 30, 1994 the
Company used $7.2 million in net cash for financing activities, including net
repayments of
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$9.1 million. See Notes 4, 5, 6 and 7 of Notes to Consolidated Financial
Statements for information regarding the Company's various financing
arrangements. IDT expects capital equipment financing to be reduced and
borrowing and repayment levels to decrease over the next few years as a portion
of the proceeds of this offering is used to purchase capital equipment.
In view of current and anticipated capacity requirements, the Company
anticipates capital expenditures of $60 to $70 million for the last six months
of fiscal 1995 and approximately $200 million in fiscal 1996, principally in
connection with its capacity expansion programs. See "Risk Factors--Current
Capacity Limitations and Risk Associated with Planned Expansion."
The Company believes that the proceeds from this offering, together with
existing cash and cash equivalents, cash flow from operations and existing
credit facilities, will be adequate to fund its anticipated capital expenditures
and working capital needs through fiscal 1996. There can be no assurance,
however, that the Company will not be required to seek other financing sooner or
that such financing, if required, will be available on terms satisfactory to the
Company.
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BUSINESS
IDT designs, develops, manufactures and markets a broad range of
high-performance semiconductor products for the workstation/server, desktop
computer, office automation and communications markets. The Company focuses its
development efforts on providing proprietary and enhanced industry-standard
products that improve the performance of systems incorporating high-performance
microprocessors. The Company offers over 5,000 product configurations in four
product families: SRAM components and modules, specialty memory products, logic
circuits and RISC microprocessors and subsystems. The Company has made
significant investments and commitments in becoming a supplier of RISC based
microprocessors and now offers a family of 20 microprocessor and related
peripheral products for the desktop computing and embedded systems markets. For
example, the Company offers the 64-bit ORION R4600 microprocessor and recently
announced ORION derivatives.
The Company markets its products on a worldwide basis primarily to OEMs
through a variety of channels, including a direct sales force, distributors and
independent sales representatives. The Company's end-user customers include
Alcatel, AT&T, Apple Computer, Bay Networks, Canon, Cisco Systems, Compaq
Computer, Dell Computer, Digital Equipment, FORE Systems, Hewlett-Packard, IBM,
Intel, Motorola, Nokia, Olivetti, Radius, Siemens Nixdorf, Silicon Graphics, Sun
Microsystems and Tektronix.
BACKGROUND
Virtually all electronic systems--whether in personal computers, telephone
switches or automobiles--are designed around microprocessors. Memory and
input/output devices surround and control the flow of data to and from the
microprocessor. Continuing improvements in the speed and performance of
microprocessors have facilitated a trend toward making electronic systems
smaller, faster, more powerful and more accessible to users. However, in order
to take advantage of the full capabilities of the new generations of
microprocessors, electronic systems require faster and higher performance memory
and logic devices. In addition, the decreasing size of electronic systems has
led in many cases to the use of modules or subsystems that integrate a number of
semiconductor components. The foregoing trends are driving the demand for the
Company's four product families.
o RISC Microprocessors and Subsystems. Microprocessors manipulate and
control data in electronic systems through a fixed set of instructions.
Some microprocessor architectures use complex instruction set computing
("CISC") while other architectures focus on a reduced number, or subset,
of instructions ("RISC"). Substantially all personal computer systems
today use CISC microprocessors based on the Intel x86 architecture. RISC
microprocessors, however, generally operate at higher speeds than CISC
microprocessors, which has led to the increasing acceptance of RISC
microprocessors in workstations, servers and other high-performance
computers as well as in embedded controllers for printers, copiers,
facsimile machines and other electronic products.
o SRAM Components and Modules. Today's higher-performance microcomputers
that use advanced microprocessors and more complex operating systems and
applications software require more memory, including SRAM cache memory,
DRAM (Dynamic Random Access Memory) main memory and disk memory. SRAM
cache memory provides intermediate storage between fast microprocessors
and relatively slow DRAM main memory. By serving as an intermediate
high-speed memory, SRAM cache memory significantly increases overall
system speed and performance. Personal computers based on Intel
microprocessor architectures through the 386 family generally did not
utilize SRAM cache memory. The high-performance 32-bit Intel 486 family
of microprocessors and new 64-bit microprocessors, such as the Intel
Pentium microprocessor and the PowerPC microprocessor, have some on-chip,
or internal, SRAM cache memory. The increased speed of these newer
microprocessors, however, will continue to require additional external
SRAM cache memory for enhanced performance. The Company believes that a
large portion of Intel 486-based PCs require SRAM cache memory and that
substantially all Intel Pentium-based PCs will require such memory. In
addition, low voltage (3.3 volt) SRAM cache memories are increasingly
being used to reduce power consumption in desktop and laptop computers.
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o Specialty Memory Products. Complex electronic systems that have different
data transfer rates within the system or use multiple microprocessors may
utilize specialty memory products, such as FIFOs (First In/First Out
memory products) and multi-port memory devices, to enhance performance.
For example, communications systems increasingly use specialty memory
products to improve the flexibility and throughput of the systems. The
trend toward linking computer users within an office or an enterprise so
that they can share data and peripherals has led to the rapid growth of
high-performance local area networks ("LANs") and wide area networks
("WANs") and therefore the increased use of specialty memory products.
o Logic Circuits. The increasing speed, complexity and reduced size of
microprocessor-based systems often require the use of high-speed,
high-performance logic devices to interconnect the various elements in a
system. While many general logic functions are increasingly being
integrated through the use of programmable logic devices, many
specialized logic elements, such as buffers, clock drivers and memory
drivers, continue to be implemented as discrete functions.
STRATEGY
IDT's strategy is to be a leading supplier of products that improve the
performance of microprocessor-based systems. The Company seeks to offer
innovative products with superior cost/performance by utilizing its expertise in
memory design and process technologies. Key elements of the Company's strategy
are:
o Develop High Performance Solutions for Growing Markets. IDT focuses its
development efforts on providing proprietary products and enhanced
industry-standard products for use in applications in the growing
workstation/server, desktop computer, office automation and
communications markets. Since the beginning of fiscal 1994, the Company
has introduced 33 new products in a variety of configurations to meet the
needs of these markets. The Company believes that its emphasis on
high-performance, innovative products has resulted in its becoming a
market leader in SRAMs, SRAM cache modules, FIFOs, multi-port memory
products and high-speed CMOS logic circuits.
o Leverage Expertise in SRAM and Subsystem Design. IDT uses the extensive
experience it has gained in the design of SRAMs and subsystems since its
founding in 1980 to develop new memory products that provide higher
value-added solutions to IDT's customers. The Company is increasingly
integrating components from its various product families into single
devices or modules that provide increased functionality and can in turn
be more easily integrated into its customers' systems. For example, IDT
offers cache memory modules that include cache controller, cache tag SRAM
and cache SRAM components for personal computer applications, and the
SARAM device that incorporates both logic and memory functions for
enhanced functionality in network applications.
o Maintain Process Technology Leadership. The Company is committed to
continuously improving its CMOS process technologies in order to improve
product performance and lower product costs through improved yields. The
Company invests a substantial portion of its research and development
expenditures in order to advance its process technologies. The majority
of IDT's current products are manufactured using its 0.65 micron process
technologies and a 0.5 micron CMOS process technology is under
development. IDT believes that its advanced process technology capability
allows it to design and manufacture state-of-the-art products, thereby
providing it with a competitive advantage.
o Control and Expand Production Capability. IDT believes that maintaining
its own wafer fabrication capability facilitates the implementation of
advanced process technologies and new higher-performance product designs,
provides it with a reliable source of supply of semiconductors and allows
it to be more flexible in shifting production according to product
demand. In addition, the Company has a greater ability to lower costs at
production volumes by matching manufacturing flow to the process
technology being used. The Company has undertaken a significant program
to invest in new capital equipment and facilities in order to increase
and improve its capacity, including the construction of the new Oregon
facility. Through operating its own test facilities, the Company believes
it is able to maintain quality while controlling costs.
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PRODUCTS AND MARKETS
IDT offers over 5,000 product configurations in four product families: SRAM
components and modules, specialty memory products, logic circuits, and RISC
microprocessors and subsystems. During fiscal 1994, these product families
accounted for 33%, 29%, 21% and 17%, respectively, of total revenues. The
Company markets its products primarily to OEMs in the workstation/server,
desktop computer, office automation and communications markets. IDT's product
design efforts are focused on developing proprietary components and integrating
its components into single devices, modules or subsystems to meet the needs of
customers.
SRAMs. SRAMs are memory circuits used for storage and retrieval of data
during a computer system's operation. SRAMs do not require electrical
refreshment of the memory contents to ensure data integrity, allowing them to
operate at high speeds. SRAMs include substantially more circuitry than DRAMs,
resulting in higher production costs for a given amount of memory, and generally
command higher selling prices than the equivalent density DRAM. The market for
SRAMs is fragmented by differing demands for speed, power, density, organization
and packaging. As a result, there are a number of niche markets for SRAMs.
The Company's SRAM product strategy is to offer high-performance 5 volt and
3.3 volt SRAM components and modules that have differentiated features optimized
to work with specified microprocessors, such as the Intel 486 and Pentium
families of microprocessors and the PowerPC microprocessor, as well as the MIPS
RISC microprocessors. The Company is focused primarily on the cache memory
segment of the SRAM market. Cache memory provides an intermediate storage
solution between fast microprocessors and relatively slow DRAM main memory.
Cache memory operates at the speed of the microprocessor and increases the
microprocessor's efficiency by temporarily storing the most frequently used
instructions and data. Special cache tag SRAMs provide a look-up table function
that tells the cache controller which blocks of data are currently stored in the
cache SRAMs.
IDT is a leading supplier of cache SRAM components and modules to personal
computer manufacturers. The Company offers a range of cache SRAMs, including
burst-mode cache SRAMs that support the Intel and PowerPC microprocessors, and
cache tag SRAMs . The Company's cache SRAM components are often integrated into
cache memory modules. These modules include the cache controller, cache tag SRAM
and cache SRAM components and are ready to plug into sockets on a computer
system's motherboard. IDT offers a series of standard and custom cache memory
modules for IBM and IBM-compatible PCs and PowerPC-based personal computers as
well as for certain RISC microprocessor-based systems.
The Company continues to develop its next generation SRAM products to meet
the growing cache memory needs of increasingly faster microprocessors. IDT's new
products are being designed to operate at higher speeds and provide greater
levels of integration.
In order to provide SRAM products that meet the varying needs of its
customers, IDT uses both CMOS and BiCMOS process technologies and offers 16K,
64K, 256K and 1 Meg density SRAMs in a number of speed, power and packaging
configurations.
Specialty Memory Products. The Company's proprietary specialty memory
products include FIFOs and multi-port memory products that offer
high-performance features which allow communications and computer systems to
operate more effectively. FIFOs are used as rate buffers to transfer large
amounts of data at high speeds between separate devices or pieces of equipment
operating at different speeds within a system. Multi-port memory products are
used to speed data transfers and act as the link between multiple
microprocessors or between microprocessors and peripherals when the order of the
data to be transferred needs to be controlled. These products are currently used
primarily in peripheral interface, communications and networking products,
including hubs, bridges and routers.
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IDT is a leading supplier of both synchronous and asynchronous FIFOs and
has increasingly focused its resources on the design of synchronous FIFOs.
Synchronous FIFOs have been gaining greater market acceptance because they are
faster and provide an easier user interface. IDT's family of 9-bit SyncFIFOs are
being used in many of the newer networking products.
The Company is the leading supplier of multi-port memory products. IDT's
family of multi-port memory products is composed primarily of dual-port
asynchronous devices. The Company also offers four-port products, a synchronous
dual-port device and a new device, known as a SARAM, that combines the
flexibility of a multi-port product with the ease of a FIFO. In addition, the
Company is developing a family of specialty memory products for the emerging
asynchronous transfer mode ("ATM") market. The first members of this ATM family
will be a highly integrated, low cost interface device for ATM network cards and
two transceiver chip sets providing low-cost physical media interface to ATM
networks.
Logic Circuits. IDT is a leading manufacturer of high-speed byte-wide and
double-density 16-bit CMOS logic circuits for high-performance applications.
Logic circuits control data communication between various elements of electronic
systems, such as between a microprocessor and a memory circuit. IDT offers a
wide range of logic circuit products, which support bus and backplane
interfaces, memory interfaces and other logic support applications where
high-speed, low power and high-output drive are critical. IDT's logic circuits
are used in a broad range of markets.
IDT's 16-bit family of logic products is available in small packages,
enabling board area to be reduced, and has gained increasing market acceptance.
These products are designed for new applications in which small size, low power
and extra low noise are as important as high speeds. IDT also supplies a series
of 8-bit and 16-bit 3.3 volt logic products and a 3.3 volt to 5 volt translator
circuit directed at the growing requirements for 3.3 volt systems in the
notebook and laptop computer and other markets. The Company also offers a family
of clock drivers and clock generators. These devices, placed at critical
positions in a system, correct the degradation of timing that occurs the further
the impulses travel from the main system clock.
RISC Microprocessor Components and Subsystems. IDT is a licensed
manufacturer of MIPS RISC microprocessors. IDT now manufactures MIPS
architecture 32-bit and 64-bit standard microprocessors and IDT derivative
products for the office automation, communications, server/workstation and
desktop computer markets.
The Company focuses its RISC microprocessor design and marketing efforts
primarily on the embedded controller market. Embedded controllers are
microprocessors that control a single device such as a printer, copier or
network router. The Company sells several proprietary 32-bit derivative products
for the embedded controller market, including devices with on-circuit SRAM cache
memory and floating point functions.
In 1993, the Company introduced its ORION R4600 microprocessor, which is
capable of clock speeds of up to 150 MHz. The R4600 is a higher performance,
lower cost version of the 64-bit R4000 and R4400 microprocessors developed by
MIPS Computer Systems, which was acquired by Silicon Graphics in 1992 ("MIPS"),
and introduced by the Company and other MIPS licensees in 1992 and 1993,
respectively. The R4600 was developed for the Company and to the Company's
specifications by Quantum Effect Design, Inc. ("QED"), a consolidated
subsidiary. Systems based on the ORION family of microprocessors are targeted at
applications that require high speed computing and complex graphics, such as
scientific research, engineering design and advanced visual computing.
The Company also manufactures RISC subsystems, which are board level
products that contain MIPS RISC architecture microprocessors, cache SRAMs, logic
circuits and supporting software. These products are used in development systems
for the evaluation and design of hardware and software or are integrated into
customers' end-user systems, thereby reducing design cycle time.
CUSTOMERS
The Company markets and sells its products primarily to OEMs in the
workstation/server, desktop computer, office automation and communications
markets. Customers often purchase products from more than one of the Company's
product families.
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<TABLE>
<CAPTION>
The following is an alphabetical listing of current representative end-user
customers of the Company, by market:
WORKSTATION/SERVER DESKTOP COMPUTER OFFICE AUTOMATION COMMUNICATIONS
- ------------------ ----------------- ----------------------- ---------------
<S> <C> <C> <C>
Digital Equipment Apple Computer AGFA Alcatel
EMC AST Research Canon AT&T
Pyramid Technology Compaq Computer Electronics For Imaging Bay Networks
NEC Dell Computer Hewlett-Packard Cabletron
Siemens Nixdorf Gateway Computers QMS Cisco Systems
Silicon Graphics Groupe Bull Radius Ericsson
Sun Microsystems IBM Samsung FORE Systems
Tandem Computers ICL Tektronix Fujitsu
Intel Texas Instruments Motorola
Olivetti Toshiba Nokia
Xerox Siemens
</TABLE>
MARKETING AND SALES
IDT markets and sells its products primarily to OEMs through a variety of
channels, including a direct sales force, distributors and independent sales
representatives.
The Company had 58 direct sales personnel in the United States at September
30, 1994. They are located at the Company's headquarters and in 17 sales offices
in Alabama, California, Colorado, Florida, Illinois, Maryland, Massachusetts,
Minnesota, New Jersey, New York, Oregon and Texas, and are primarily responsible
for marketing and sales in those areas. IDT also utilizes three national
distributors, Hamilton Hallmark, Future Electronics and Wyle Laboratories, and
several regional distributors in the United States. Hamilton Hallmark accounted
for 15% and 14% of the Company's revenues in fiscal 1994 and the first six
months of fiscal 1995, respectively. In addition, IDT uses independent sales
representatives, which generally take orders on an agency basis while the
Company ships directly to the customer. The representatives receive commissions
on all products shipped to customers in their geographic area.
The Company had 41 direct sales personnel and eight sales offices located
outside of the United States at September 30, 1994. Sales activities outside
North America are generally controlled by IDT's subsidiaries located in France,
Germany, Hong Kong, Italy, Japan, Sweden, Taiwan and the United Kingdom. The
Company has recently increased its direct marketing efforts to OEMs in Europe
and to United States companies with operations in the Asia/Pacific area. The
majority of export sales, however, continues to be made through international
distributors, which tend not to carry inventory or carry significantly smaller
levels compared to domestic distributors. During fiscal 1992, 1993, 1994 and the
first six months of fiscal 1995, export sales accounted for 30%, 36%, 32% and
38% of total revenues. Sales outside the United States are generally denominated
in local currencies. Export sales are subject to certain risks, including
currency controls and fluctuations, changes in local economic conditions, import
and export controls, and changes in tax laws, tariffs and freight rates.
The Company's distributors typically maintain an inventory of a wide
variety of products, including products offered by IDT's competitors, and often
handle small or rush orders. Pursuant to distribution agreements, the Company
grants distributors the right to return slow-moving products for credit against
other products and offers protection to the distributors against inventory
obsolescence or price reductions. Revenue recognition of sales to distributors
is deferred until the products are resold by the distributor.
MANUFACTURING
IDT believes that maintaining its own wafer fabrication capability
facilitates the implementation of advanced process technologies and new
higher-performance product designs, provides it with a reliable source of supply
of semiconductors and allows it to be more flexible in shifting production
according to product demand. The Company operates sub-micron wafer fabrication
facilities in San Jose and Salinas, California. The Salinas facility, first
placed in production in fiscal 1986, includes a 24,000 square foot, class
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3 fabrication line. The Company is converting this facility from five-inch to
six-inch wafers. The San Jose facility includes a 24,000 square foot, class 1
(less than one particle 0.5 micron or greater in size per cubic foot), six-inch
wafer fabrication line that was first placed in production in March 1991. IDT
also operates a 100,000 square foot component assembly and test facility in
Penang, Malaysia. Substantially all of the Company's test operations and a
significant portion of its assembly operations are performed at its Malaysian
facility. IDT also uses subcontractors, principally in Korea, the Philippines
and Malaysia, to perform certain assembly operations. If IDT were unable to
assemble or test products offshore, or if air transportation to these locations
were curtailed, the Company's operations could be materially adversely affected.
Additionally, foreign manufacturing exposes IDT to certain risks generally
associated with doing business abroad, including foreign governmental
regulations, currency controls and fluctuation, changes in local economic
conditions and changes in tax rates, tariffs and freight rates. In addition to
this offshore assembly and test capability, the Company has the capacity for
low-volume, quick-turn assembly in Santa Clara as well as limited test
capability in Santa Clara, San Jose and Salinas. Assembly and test of memory
modules and RISC subsystems takes place in both San Jose and Santa Clara.
The Company is operating its wafer fabrication facilities in Salinas and
San Jose and its assembly operations in Malaysia near installed equipment
capacity. To address its capacity requirements, the Company is currently
converting its Salinas wafer fabrication facility from five-inch to six-inch
wafers, adding incremental production equipment to its San Jose facility and
building an additional 40,000 square foot test and assembly facility in Penang,
Malaysia. In addition, the Company recently commenced construction of a 192,000
square foot facility containing a 48,000 square foot, class 1, eight-inch wafer
fabrication line in Hillsboro, Oregon. The Company also believes the
construction of a facility in Oregon reduces the Company's risk of a natural
disaster affecting all of its wafer fabrication facilities which are currently
located in northern California. The Company faces a number of risks in order to
accomplish its goals to increase production in its existing plants and to
construct, equip and commence operations of its new Oregon facility. See "Risk
Factors--Current Capacity Limitations and Risks Associated with Planned
Expansion" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company utilizes proprietary CMOS and BiCMOS process technologies
permitting sub-micron geometries. BiCMOS is a combination of bipolar and CMOS
technologies and is used for applications requiring higher speeds. The majority
of IDT's current products are manufactured using its proprietary 0.65 micron
process technologies and the Company is currently developing 0.5 micron process
technologies.
Wafer fabrication involves a highly sophisticated, complex process that is
extremely sensitive to contamination. Integrated circuit manufacturing costs are
primarily determined by circuit size because the yield of good circuits per
wafer generally increases as a function of smaller die. Other factors affecting
costs include wafer size, number of process steps, costs and sophistication of
manufacturing equipment, packaging type, process complexity and cleanliness.
IDT's manufacturing process is complex, involving a number of steps including
wafer fabrication, plastic or ceramic packaging, burn-in and final test. The
Company continuously makes changes to its manufacturing process to lower costs
and improve yields. From time to time the Company has experienced manufacturing
problems that have caused delays in shipments or increased costs. There can be
no assurance that IDT will not experience manufacturing problems in the future.
The Company generally has been able to arrange for multiple sources of raw
materials, but the number of vendors capable of delivering certain raw
materials, such as silicon wafers, ultra-pure metals and certain chemicals and
gases is very limited. Some of the Company's packages, while not unique, have
very long lead times and are available from only a few suppliers. While IDT has
not experienced any difficulties recently, from time to time vendors have
extended lead times or limited supply to the Company due to capacity
constraints. These circumstances could reoccur and could adversely affect IDT.
BACKLOG
IDT manufactures and markets primarily standard products. Sales are
generally made pursuant to standard purchase orders, which are frequently
revised during the agreement term to reflect changes in
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the customer's requirements. The Company has also entered into master purchase
agreements with several of its OEM customers. These agreements do not require
the OEMs to purchase minimum quantities of the Company's products. Product
deliveries are scheduled upon the Company's receipt of purchase orders under the
related OEM agreements. Generally, these purchase orders and OEM agreements also
allow customers to reschedule delivery dates and cancel purchase orders without
significant penalties. Orders are frequently rescheduled, revised or cancelled.
In addition, distributor orders are subject to price adjustments both prior to,
and occasionally after, shipment. For these reasons, IDT believes that its
backlog, while useful for scheduling production, is not necessarily a reliable
indicator of future revenues.
RESEARCH AND DEVELOPMENT
IDT's competitive position has been established, to a large extent, through
its emphasis on the development of proprietary and enhanced performance
industry-standard products, and the development of advanced CMOS and BiCMOS
process technologies. IDT believes that its focus on continually advancing its
process technologies has allowed the Company to achieve cost reductions in the
manufacture of most of its products. The Company believes that a continued high
level of research and development expenditures is necessary to retain its
competitive position. Research and development expenditures as a percentage of
revenues were 26%, 23%, 19% and 19% in fiscal 1992, 1993 and 1994 and the first
six months of fiscal 1995, respectively.
The Company's product development activities are focused on the design of
new circuits and modules that provide enhanced performance for growing
applications. In the SRAM family, IDT is utilizing its 5 volt and 3.3 volt SRAM
and subsystem design expertise to develop advanced SRAM cache memories and
modules for microcomputer systems based on Intel's 486 and Pentium families of
microprocessors and the PowerPC microprocessors, as well as MIPS RISC
microprocessors. IDT's efforts in the specialty memory products area are
concentrated on the development for the communications market of advanced
synchronous FIFOs and more sophisticated multi-port memory products. The Company
is also developing a family of specialty memory products for the emerging ATM
market, and a family of lower voltage logic devices for a broad range of
applications. In the RISC component and subsystems product family, the Company
is designing products for embedded control applications, such as printers and
telecommunications switches. The Company also continues to refine its CMOS and
BiCMOS process technologies to increase the speed and density of circuits in
order to provide customers with advanced products at competitive prices, thus
enhancing their competitive positions. The Company is currently refining its
CMOS process technology to achieve half-micron geometries and converting the
production of many products, particularly 3.3 volt devices, to newer generation
process technologies.
In fiscal 1992, the Company purchased an equity interest in QED, a newly
formed corporation. Pursuant to a development agreement between QED and the
Company, QED developed the ORION R4600 microprocessor for IDT. The Company
recently announced two new ORION derivative products being designed for IDT by
QED, the R4700 microprocessor targeted to desktop systems running WindowsNT or
UNIX operating systems, and the R4650 microprocessor targeted to embedded
applications. The Company owns such products, subject to the payment of
royalties and other fees to QED. IDT has licensed Toshiba and NKK to manufacture
and market certain of these products. There can be no assurance that QED will
continue to design products for the Company or be successful in developing such
products.
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
rapid technological advances, cyclical market patterns, price erosion, evolving
industry standards, occasional shortages of materials and high capital equipment
costs. Many of the Company's competitors have substantially greater technical,
marketing, manufacturing and financial resources than IDT. In addition, several
foreign competitors receive assistance from their governments in the form of
research and development loans and grants and reduced capital costs, which could
give them a competitive advantage. The Company competes in different product
areas, to varying degrees, on the basis of technical innovation and performance
of its products, as well as quality, price and product availability.
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IDT's competitive strategy is to differentiate its products through
high-performance, innovative configurations and proprietary features or to offer
industry-standard products with higher speeds and/or lower power consumption.
There can be no assurance that price competition, introductions of new products
by IDT's competitors, delays in product introductions by IDT or other
competitive factors will not have a material adverse effect on the Company in
the future.
INTELLECTUAL PROPERTY AND LICENSING
IDT has obtained 44 patents in the United States and several abroad and has
numerous inventions in various stages of the patent application process. The
Company intends to continue to increase the scope of its patents. There can be
no assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. The Company also relies on trade secret,
copyright and trademark laws to protect its products, and a number of the
Company's circuit designs are registered pursuant to the Semiconductor Chip
Protection Act of 1984. This Act gives protection similar to copyright
protection for the patterns which appear on integrated circuits and prohibits
competitors from making photographic copies of such circuits.
In recent years, there has been a growing trend of companies to resort to
litigation to protect their semiconductor technology from unauthorized use by
others. IDT has been notified that it may be infringing patents issued to others
and in the past has been involved in patent litigation, which adversely affected
its operating results. There can be no assurance that additional intellectual
property claims will not be made against the Company in the future. The Company
believes that licenses, to the extent required, will be available in connection
with intellectual property claims. No assurance can be given, however, that the
Company will be able to obtain such a license on acceptable terms. Should
licenses from any such claimant be unavailable, the Company may be required to
discontinue its use of certain processes or the manufacture, use and sale of
certain of its products or to develop noninfringing technology. If IDT is unable
to obtain any necessary licenses, pass any increased cost of patent licenses on
to its customers or develop noninfringing technology, the Company could be
materially adversely affected. In addition, IDT has received patent licenses
from several companies, and the failure to renew certain of these licenses as
they expire or significant increases in amounts payable under these licenses
could have an adverse effect on the Company.
On January 16, 1988, IDT entered into a manufacturing, marketing and
purchase agreement with MIPS that allows IDT to manufacture and market the
complete MIPS family of RISC microprocessors and related software and to modify
the MIPS microprocessors to create subsets and supersets.
On May 1, 1992, IDT and AT&T entered into a five-year royalty-free patent
cross-license agreement. As part of this agreement, patent litigation instituted
by AT&T was settled and dismissed. Under the agreement, IDT made a lump sum
payment and issued shares of its Common Stock to AT&T, granted a discount on
future purchases, and gave credit for future purchases of technology on a
nonexclusive basis.
On December 10, 1992, IDT and Texas Instruments ("TI") entered into a
five-year patent cross- license agreement. As part of this agreement, patent
litigation instituted by TI was dismissed. Under the agreement, IDT granted to
TI a license to certain IDT technology and products and guaranteed TI that it
will realize certain revenues from the technology and products, and IDT will
develop certain products which will be manufactured and sold by both IDT and TI.
See Note 13 of Notes to Consolidated Financial Statements.
EMPLOYEES
At September 30, 1994, IDT and its subsidiaries employed approximately
2,750 people worldwide, of whom approximately 980 were in Penang. IDT's success
depends in part on its ability to attract and retain qualified personnel, who
are generally in great demand. Since its founding, the Company has implemented
policies enabling its employees to share in IDT's success. Examples are stock
option, stock purchase, profit sharing and special bonus plans for key
contributors. IDT has never had a work stoppage, no employees are represented by
a collective bargaining agreement, and the Company considers its employee
relations to be good.
26
<PAGE>
PROPERTIES
The Company presently occupies six major facilities in California and
Malaysia as follows:
LOCATION FACILITY USE SQUARE FEET
-------- ------------- -----------
Salinas ............ Wafer fabrication, SRAM and multi- 98,000
port memory operations
Santa Clara ........ Logic and RISC microprocessor 62,000
operations
Santa Clara......... Administration and sales 43,700
Santa Clara ........ Administration and RISC subsystems 50,000
operations
Penang, Malaysia ... Assembly and test 100,000
San Jose ........... Wafer fabrication, process technology 135,000
development, FIFO and memory
subsystems operations, and research
and development
The Company leases its Salinas facility from Carl E. Berg, a director, and in
October 1994 purchased a 5.5 acre parcel adjacent to its Salinas facility for
$653,000 from Mr. Berg. IDT leases its Salinas and Santa Clara facilities under
leases expiring in 1999 through 2005. The lease for the Salinas facility has two
five-year renewal options. The Company owns its Malaysian and San Jose
facilities, although the Malaysian facility is subject to long-term ground
leases and the San Jose facility is subject to a mortgage. IDT leases offices
for its sales force in 17 domestic locations as well as Hong Kong, London,
Milan, Munich, Paris, Stockholm, Taipei and Tokyo. See Note 7 of Notes to
Consolidated Financial Statements for information concerning IDT's obligations
under operating and capital leases. The Company is building an additional 40,000
square foot facility in Malaysia in order to add additional assembly and test
capacity. This expansion is planned to be completed in early fiscal 1996. The
Company has purchased a 23 acre parcel in Hillsboro, Oregon and has commenced
construction of a 192,000 square foot facility containing a 48,000 square foot,
class 1, eight-inch wafer fabrication line, which the Company plans to be
operational in fiscal 1997. See "Risk Factors--Current Capacity Limitations and
Risks Associated With Planned Expansion."
27
<PAGE>
MANAGEMENT
The executive officers and directors of the Company, and their respective
ages as of October 31, 1994, are as follows:
NAME AGE POSITION
- ----- ----- ----------
D. John Carey ......... 58 Chairman of the Board
Leonard C. Perham...... 51 Chief Executive Officer, President and Director
William B. Cortelyou... 38 Vice President, Wafer Operations
Robin H. Hodge......... 54 Vice President, Assembly and Test
Alan H. Huggins........ 41 Vice President, Memory Division
Larry T. Jordan........ 50 Vice President, Marketing
Daniel L. Lewis........ 45 Vice President, Sales
Chuen-Der Lien......... 38 Vice President, Technology Development
Jack Menache........... 51 Vice President, General Counsel and Secretary
Richard R. Picard...... 46 Vice President, Logic and Microprocessor
Products
William D. Snyder...... 50 Vice President, Finance and Chief Financial
Officer
Carl E. Berg(1)........ 57 Director
John C. Bolger(1)...... 48 Director
Federico Faggin........ 52 Director
- -----------
(1) Member of the Audit, Compensation and Stock Option Committees.
Mr. Carey was elected to the Board of Directors in 1980 and has been Chairman
of the Board since 1982. He served as Chief Executive Officer from 1982 until
his resignation in April 1991 and was President from 1982 until 1986. Mr. Carey
was a founder of Advanced Micro Devices ("AMD") in 1969 and was an executive
officer there until 1978.
Mr. Perham joined IDT in October 1983 as Vice President and General
Manager, SRAM Division. In October 1986, Mr. Perham was appointed President and
Chief Operating Officer and a director of the Company. In April 1991, Mr. Perham
was elected Chief Executive Officer. Prior to joining IDT, Mr. Perham held
executive positions at Optical Information Systems Incorporated and Zilog Inc.
Mr. Cortelyou joined IDT in 1982. In January 1990, he was elected Vice
President, Wafer Operations, Salinas. Mr. Cortelyou currently serves as Vice
President, Wafer Operations. Prior to joining IDT, Mr. Cortelyou was an engineer
at AMD.
Mr. Hodge joined IDT as Director of Assembly Operations in March 1989. In
January 1990, Mr. Hodge was elected Vice President, Assembly Operations. Mr.
Hodge currently serves as Vice President, Assembly and Test. From 1983 until
joining IDT, Mr. Hodge was Director of Assembly Operations for Maxim Integrated
Products.
Mr. Huggins joined IDT in 1983 and was elected Vice President in 1987. Mr.
Huggins currently serves as Vice President, Memory Division. Prior to joining
the Company, Mr. Huggins held various engineering positions at AMD.
Mr. Jordan joined IDT in July 1987 as Vice President, Marketing. Prior to
joining the Company, Mr. Jordan held management positions in marketing and sales
at SEEQ Technology, Inc. and Intel Corporation.
Mr. Lewis joined IDT in 1984 as Eastern Area Sales Manager. In June 1991,
he was elected Vice President, Sales. Prior to joining IDT, Mr. Lewis held
management positions at Avatar Technologies, Inc., Data General and Zilog.
28
<PAGE>
Dr. Lien joined IDT in 1987 and was elected Vice President, Technology
Development in April 1992. Prior to joining the Company, he held engineering
positions at Digital Equipment Corporation and AMD.
Mr. Menache joined IDT as Vice President, General Counsel and Secretary in
September 1989. From April 1989 until joining IDT, he was General Counsel of
Berg & Berg Developers. From 1986 until April 1989, he was Vice President,
General Counsel and Secretary of The Wollongong Group Inc.
Mr. Picard joined IDT in 1985. In 1989 he was elected Vice President,
Static RAM Product Line. In April 1990 he was appointed Vice President and
General Manager, Logic Products. He was elected Vice President, Logic and
Microprocessor Products in May 1993. Prior to joining IDT, Mr. Picard held
management positions at International Micro Circuits, Zilog and AMD.
Mr. Snyder joined the Company as Treasurer in 1985. In May 1990, he was
elected Vice President, Corporate Controller, and in September 1990 Mr. Snyder
was elected Vice President, Finance and Chief Financial Officer. Prior to
joining the Company, Mr. Snyder held financial management positions at Actrix
Computer, Zilog and Digital Equipment Corporation.
Mr. Berg has been a director of the Company since 1982. Mr. Berg has been a
partner of Berg & Berg Developers, a real estate development partnership, since
1979. He is a director of Valence Technology.
Mr. Bolger has been a director of the Company since January 1993. Mr.
Bolger is a private investor. He was Vice President--Finance and Administration
of Cisco Systems, Inc., an internetworking systems manufacturer, from 1989 to
1992 and Vice President--Finance and Administration of KLA Instruments, Inc., an
optical inspection equipment manufacturer, from 1988 to 1989. Mr. Bolger is a
director of Data Race, Inc., Integrated Systems, Inc., Sanmina Corporation and
Teknekron Communications Systems, Inc.
Mr. Faggin has been a director of the Company since 1992. Mr. Faggin has
been President, Chief Executive Officer and Director of Synaptics, Inc., a
neural network research and development company, since 1986. He is a director of
Aptix, Inc., Atesla, Inc. and Orbit Semiconductor.
CERTAIN TRANSACTIONS
The Company leases its Salinas facility from Carl E. Berg, a director and,
prior to this offering, a more than 5% shareholder of the Company. The Company
paid rental expense of $1,396,000 during fiscal 1994, under a lease agreement
that expires in July 1995, with options to renew for successive five-year
periods through 2015. In September 1994 the Company exercised its option to
renew the lease at an annual rental expense of $927,000 from July 1995 through
July 2005. In connection with the lease renewal, the Company was granted a right
of first refusal to purchase the Salinas facility on the same terms as a third
party offeree and an option to purchase the facility for a purchase price of
approximately $8,509,000 in a tax-free stock exchange. IDT's option is
exercisable for six months beginning on July 1, 2000.
In October 1994, the Company purchased from Mr. Berg a 5.5 acre parcel of
undeveloped land adjacent to its Salinas facility for $653,000.
The Company holds an approximately 57% equity interest in QED, a
corporation formed in 1991. Leonard C. Perham, the President and Chief Executive
Officer and a director of the Company, and Carl E. Berg are members of the board
of directors of QED. Mr. Berg also holds a minority equity interest in QED.
Pursuant to a development agreement between the Company and QED, QED is
developing for the Company derivative products based on MIPS' 64-bit
microprocessor architecture. During fiscal 1994, the Company paid QED a total of
$3,075,000 for product development and nonrecurring engineering. During the
first six months of fiscal 1995, the Company paid QED a total of $2,025,000 for
product development and nonrecurring engineering and $232,450 in royalties. See
"Business--Research and Development."
The Company holds an approximately 16% equity interest in Monolithic System
Technology, Inc. ("MoSys"). Leonard C. Perham and Carl E. Berg are members of
the board of directors of MoSys. Mr. Berg also holds an equity interest of
approximately 18% of MoSys. MoSys is developing certain technology that, if
successfully reduced to practice, could relate to the Company's business. During
fiscal
29
<PAGE>
1993 and 1994, the Company purchased a total of 333,500 shares of MoSys
preferred stock for a total of $667,000. During the first six months of fiscal
1995, the Company purchased 400,000 shares of MoSys preferred stock for a total
of $2,000,000 and paid MoSys $125,000 for technical support.
The Company has from time to time retained Phillip Perham, a contractor and
the brother of Leonard C. Perham, as an independent contractor to perform
certain construction services in connection with improvements and repairs to
various Company facilities. The Company paid Phillip Perham an aggregate of
approximately $177,570 and $9,160 for such services in fiscal 1994 and the first
six months of fiscal 1995, respectively.
SELLING STOCKHOLDERS
The following table and notes thereto set forth certain information
regarding beneficial ownership of the Company's Common Stock as of October 31,
1994, and as adjusted to reflect the sale of the shares offered by this
Prospectus, by each Selling Stockholder. The over-allotment option for 510,000
shares will be granted to the Underwriters by either the Company or Mr. Berg.
The table below shows the number of shares held by Selling Stockholders before
and after the offering assuming the over-allotment option is exercised in full
and such shares are sold by Mr. Berg.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
---------------------------- SHARES TO ------------------------
SELLING STOCKHOLDERS(1) NUMBER PERCENT BE SOLD NUMBER PERCENT
- -------------------------------------------------------- ------------ ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Carl E. Berg ..................................... 1,798,354(2) 5.3% 510,000 1,288,354 3.5%
c/o Berg and Berg Developers
10050 Bandley Drive
Cupertino, California
D. John Carey .................................... 867,308(3) 2.6 50,000 817,308 2.2
Leonard C. Perham ................................ 279,546(4) * 50,000 229,546 *
------------ ----- -------- ---------- -------
Total........................................ 2,945,208(5) 8.6% 610,000 2,335,208 6.2%
============ ===== ======= ========== =======
</TABLE>
- -----------
* Less than one percent.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them, subject
to community property laws where applicable and the information contained
in the footnotes to the table.
(2) Includes 859,500 shares held by West Coast Venture Capital Ltd, of which
Mr. Berg is President of the general partner, and 20,000 shares subject to
options exercisable within 60 days of October 31, 1994. Also includes
78,900 shares held in trust for his child and 27,500 shares held by his
spouse, as to which Mr. Berg disclaims beneficial ownership. The shares
being sold pursuant to the over-allotment option, if any, by Mr. Berg are
held of record by West Coast Venture Capital Ltd.
(3) Includes 245,962 shares subject to options exercisable within 60 days of
October 31, 1994.
(4) Includes 269,903 shares subject to options exercisable within 60 days of
October 31, 1994.
(5) Includes the 535,865 shares subject to options as described in footnotes
(2)-(4) above.
30
<PAGE>
UNDERWRITING
Montgomery Securities, Lehman Brothers Inc. and Smith Barney Inc. (the
"Underwriters") have severally agreed, subject to the terms and conditions set
forth in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock indicated below
opposite their respective names at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of such shares if any are purchased.
NUMBER
UNDERWRITER OF SHARES
------------- ---------
Montgomery Securities ................................
Lehman Brothers Inc. .................................
Smith Barney Inc. ....................................
---------
Total ............................................. 3,400,000
=========
The Underwriters have advised the Company and the Selling Stockholders that the
Underwriters propose initially to offer the Common Stock to the public on the
terms set forth on the cover page of this Prospectus. The Underwriters may allow
to selected dealers a concession of not more than $ per share,
and the Underwriters may allow, and such dealers may reallow, a concession of
not more than $ per share to certain other dealers. After the initial
public offering, the offering price and other selling terms may be changed by
the Underwriters. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.
The Company and one of the Selling Stockholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 510,000 additional shares of Common
Stock to cover over-allotments, if any, at the same price per share as the
initial 3,400,000 shares to be purchased by the Underwriters. To the extent that
the Underwriters exercise this option, the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in the same
proportion as set forth in the table above. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments that Underwriters may be required to make in respect thereof.
All of the Company's executive officers and directors and the Selling
Stockholders have agreed that, for a period of 90 days after the date of this
Prospectus, they will not, without the prior written consent of Montgomery
Securities, directly or indirectly offer to sell, sell or otherwise dispose of
more than an aggregate of 150,000 shares of Common Stock of the Company (except
for shares offered hereby by the Selling Stockholders), or any securities
convertible or exchangeable for shares of Common Stock, owned by them. In
addition, the Company has agreed that for a period of 90 days after the date of
this Prospectus, it will not, without the prior written consent of Montgomery
Securities, directly or indirectly offer to sell, issue, distribute or otherwise
dispose of any equity securities or securities convertible into or exchangeable
for equity securities or any options, rights or warrants with respect to any
equity securities except for shares of Common Stock offered hereby or shares of
Common Stock or options issued pursuant to existing benefit plans of IDT.
In connection with this offering, the Underwriters and selling group members
may engage in passive market making transactions in the Company's Common Stock
on the Nasdaq National Market immediately prior to the commencement of the sale
of the shares in this offering, in accordance with Rule 10b-6A under the
Exchange Act. Passive market making consists of displaying bids on the Nasdaq
National Market limited by the bid prices of market makers not connected with
this offering and purchases limited by such prices and effected in response to
order flow. Net purchases by a passive market maker on each
31
<PAGE>
day are limited in amount to a specified percentage of the passive market
maker's average daily trading volume in the Common Stock during a specified
period prior to the filing with the Commission of the Registration Statement of
which this Prospectus is a part and must be discontinued when such limit is
reached. Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock will be passed upon
for the Company and the Selling Stockholders by Fenwick & West, Palo Alto,
California. Certain legal matters will be passed upon for the Underwriters by
Wilson, Sonsini, Goodrich & Rosati, P.C., Palo Alto, California.
EXPERTS
The consolidated financial statements of IDT as of April 3, 1994 and March
28, 1993 and for each of the three years in the period ended April 3, 1994
included in this Prospectus have been audited by Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
32
<PAGE>
REPORT OF PRICE WATERHOUSE LLP, INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Integrated Device Technology, Inc.
In our opinion, the accompanying balance sheets and the related consolidated
statements of operations, cash flows and stockholders' equity present fairly, in
all material respects, the financial position of Integrated Device Technology,
Inc. and its subsidiaries at March 28, 1993 and April 3, 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended April 3, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsiblity is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
April 27, 1994
F-1
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 28, APRIL 3, OCTOBER 2,
1993 1994 1994
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 22,529 $ 88,490 $ 87,774
Short-term investments ................................................... 1,877 33,351 38,120
Accounts receivable, net of allowance for returns and
doubtful accounts of $2,994, $4,129 and $3,728 .......................... 43,190 40,643 59,872
Inventory ................................................................ 27,237 29,855 32,755
Deferred tax assets ...................................................... 15,270 26,276 24,068
Prepayments and other current assets ..................................... 2,825 3,858 4,382
----------- ---------- ---------
Total current assets .................................................... 112,928 222,473 246,971
----------- ---------- ---------
Property, plant and equipment, net ........................................ 118,837 120,838 143,170
Other assets .............................................................. 8,229 6,260 7,425
----------- ---------- ---------
Total assets ............................................................ $ 239,994 $ 349,571 $ 397,566
=========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 15,819 $ 15,925 $ 25,954
Accrued compensation and related expense ................................. 7,399 16,528 15,851
Deferred income on shipments to distributors ............................. 10,450 17,592 25,829
Income taxes payable ..................................................... 878 1,964 8,052
Other accrued liabilities ................................................ 7,524 13,032 10,066
Current portion of long-term obligations ................................. 19,467 14,184 8,608
----------- ---------- ---------
Total current liabilities ............................................... 61,537 79,225 94,360
----------- ---------- ---------
Long-term obligations ..................................................... 48,987 37,462 34,316
----------- ---------- ---------
Deferred tax liabilities .................................................. 11,710 8,517 8,517
----------- ---------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.001 par value: 5,000,000 shares
authorized; no shares issued
Common stock; $.001 par value: 65,000,000 shares
authorized; 28,377,721, 33,405,552 and 33,652,361
shares issued and outstanding ........................................... 28 33 34
Additional paid-in capital ............................................... 93,731 160,221 162,109
Retained earnings ........................................................ 24,352 64,517 98,401
Cumulative translation adjustment ........................................ (351) (404) (171)
----------- ---------- ---------
Total stockholders' equity ............................................... 117,760 224,367 260,373
----------- ---------- ---------
Total liabilities and stockholders' equity ............................... $ 239,994 $ 349,571 $ 397,566
=========== ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED SIX MONTHS ENDED
-------------------------------------------- --------------------------
MARCH 29, MARCH 28, APRIL 3, SEPTEMBER 26, OCTOBER 2,
1992 1993 1994 1993 1994
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues ........................................... $ 202,734 $ 236,263 $ 330,462 $ 153,061 $ 190,628
Cost of revenues ................................... 126,819 132,285 159,627 79,146 80,422
---------- --------- --------- ---------- ---------
Gross profit ....................................... 75,915 103,978 170,835 73,915 110,206
---------- --------- --------- ---------- ---------
Operating expenses:
Research and development .......................... 52,044 53,461 64,237 31,182 35,536
Selling, general and administrative ............... 48,721 39,511 54,329 25,306 30,368
Restructuring charge .............................. 4,466 -- -- -- --
---------- --------- --------- ---------- ---------
Total operating expenses .......................... 105,231 92,972 118,566 56,488 65,904
---------- --------- --------- ---------- ---------
Operating income (loss) ............................ (29,316) 11,006 52,269 17,427 44,302
Interest expense ................................... (7,045) (5,855) (5,165) (2,778) (1,854)
Interest income and other, net ..................... 1,593 1,127 3,102 795 2,721
---------- --------- --------- ---------- ---------
Income (loss) before provision (benefit)
for income taxes .................................. (34,768) 6,278 50,206 15,444 45,169
Provision (benefit) for income taxes ............... (1,960) 942 10,041 3,083 11,285
---------- --------- --------- ---------- ---------
Net income (loss) .................................. $ (32,808) $ 5,336 $ 40,165 $ 12,361 $ 33,884
========== ========= ========= ========== =========
Net income (loss) per share ........................ $ (1.25) $ .18 $ 1.21 $ .39 $ .94
========== ========= ========= ========== =========
Shares used in computing net income
(loss) per share .................................. 26,255 29,701 33,116 31,953 36,040
========== ========= ========= ========== =========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------------- --------------------------
MARCH 29, MARCH 28, APRIL 3, SEPTEMBER 26, OCTOBER 2,
1992 1993 1994 1993 1994
----------- ---------- -------------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss) ...................................... $ (32,808) $ 5,336 $ 40,165 $ 12,361 $ 33,884
Adjustments:
Depreciation and amortization ......................... 40,787 37,140 37,594 18,809 19,089
Provision for losses on accounts receivable ........... 1,222 (742) 476 392 290
Restructuring charges ................................. 4,466 -- -- -- --
Changes in assets and liabilities:
Accounts receivable ................................... (1,926) (6,167) 2,071 (668) (19,519)
Inventory ............................................. 8,670 (3,843) (2,618) (1,882) (2,900)
Deferred tax assets ................................... 2,324 2,616 (10,897) -- --
Other assets .......................................... 2,180 (391) (1,247) (1,417) (2,874)
Accounts payable ...................................... 5 (804) 106 385 10,029
Accrued compensation and related expense .............. (157) 3,158 9,799 2,559 (677)
Deferred income to distributors ....................... 610 1,093 7,142 1,695 8,237
Income taxes payable .................................. 722 477 11,574 2,940 8,296
Other accrued liabilities ............................. 5,816 (679) 5,885 143 (2,348)
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities .............. 31,911 37,194 100,050 35,317 51,507
---------- ---------- ---------- ---------- ----------
Investing activities:
Additions to property, plant and equipment ............. (25,706) (28,188) (38,083) (16,061) (40,636)
Proceeds from sale of equipment ........................ 416 178 671 591 400
Purchases of short-term investments .................... (18,458) (4,927) (40,221) (2,007) (24,456)
Proceeds from sales of short-term
investments ........................................... 27,624 4,110 8,747 460 19,687
---------- --------- --------- ----------- ---------
Net cash used for investing activities ................. (16,124) (28,827) (68,886) (17,017) (45,005)
---------- --------- --------- ----------- ---------
Financing activities:
Issuance of common stock, net .......................... 2,358 2,981 55,337 3,946 1,889
Proceeds from borrowings ............................... 11,665 32,161 2,731 2,731 --
Payment on capital leases and other debt ............... (21,423) (41,006) (23,271) (12,744) (9,107)
---------- --------- --------- ----------- ---------
Net cash provided by (used for) financing
activities ............................................ (7,400) (5,864) 34,797 (6,067) (7,218)
---------- --------- --------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents ........................................... 8,387 2,503 65,961 12,233 (716)
Cash and cash equivalents at beginning of
period ................................................. 11,639 20,026 22,529 22,529 88,490
---------- --------- --------- ----------- ---------
Cash and cash equivalents at end of period .............. $ 20,026 $ 22,529 $ 88,490 $ 34,762 $ 87,774
========== ========= ========= =========== =========
Supplemental disclosure of cash flow information:
Interest paid .......................................... $ 6,876 $ 5,893 $ 4,713 $ 2,711 $ 1,526
Income taxes paid (refunded) ........................... (5,638) (2,050) 9,163 151 2,841
Issuance of common stock for acquisition of
technology ............................................ -- 7,738 -- -- --
Tax benefits from exercise of stock options ............ 477 582 10,488 -- --
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
----------------------- PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT EQUITY
------------ ----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1991 ........................... 25,889,601 $ 26 $ 82,834 $ 51,824 $ (160) $ 134,524
Issuance of common stock ......................... 664,130 1 2,358 -- -- 2,359
Tax benefits of stock option
transactions .................................... -- -- 477 -- -- 477
Translation adjustment ........................... -- -- -- -- 50 50
Net loss ......................................... -- -- -- (32,808) -- (32,808)
----------- ---------- ---------- ---------- ----------- ----------
Balance, March 29, 1992 ........................... 26,553,731 27 85,669 19,016 (110) 104,602
Issuance of common stock ......................... 1,823,990 1 7,480 -- -- 7,481
Tax benefits of stock option
transactions .................................... -- -- 582 -- -- 582
Translation adjustment ........................... -- -- -- -- (241) (241)
Net income ....................................... -- -- -- 5,336 -- 5,336
----------- ---------- ---------- ---------- ----------- ----------
Balance, March 28, 1993 ........................... 28,377,721 28 93,731 24,352 (351) 117,760
Issuance of common stock ......................... 2,027,831 2 9,241 -- -- 9,243
Issuance of common stock at $15.71 per
share, pursuant to public offering, net
of expenses of $366 ............................. 3,000,000 3 46,761 -- -- 46,764
Tax benefits of stock option
transactions .................................... -- -- 10,488 -- -- 10,488
Translation adjustment ........................... -- -- -- -- (53) (53)
Net income ....................................... -- -- -- 40,165 -- 40,165
----------- ---------- ---------- ---------- ----------- ----------
Balance, April 3, 1994 ............................ 33,405,552 33 160,221 64,517 (404) 224,367
Issuance of common stock (unaudited) ............. 246,809 1 1,888 -- -- 1,889
Translation adjustment (unaudited) ............... -- -- -- -- 233 233
Net income (unaudited) ........................... -- -- -- 33,884 -- 33,884
----------- ---------- ---------- ---------- ----------- ----------
Balance, October 2, 1994 (unaudited) .............. 33,652,361 $ 34 $ 162,109 $ 98,401 $ (171) $ 260,373
=========== ========== ========== ========== =========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-5
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements include the
accounts of Integrated Device Technology, Inc. (IDT or "the Company") and all of
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Fiscal Year. The Company's fiscal year ends on the Sunday nearest March 31.
Fiscal years 1993, 1992 and 1991 each included 52 weeks. The fiscal year ended
on April 3, 1994 was a 53-week year. The fiscal year-end of certain of the
Company's foreign subsidiaries is March 31, and the results of their operations
as of their fiscal year end have been combined with the Company's results of
operations as of April 3, 1994. Transactions during the intervening period were
not significant.
Cash, Cash Equivalents and Short-term Investments. Cash equivalents are
highly liquid investments with original maturities of three months or less at
the time of acquisition or with guaranteed on-demand buy-back provisions.
Short-term investments are valued at amortized cost, which approximates market
and consist primarily of time deposits, corporate notes and treasuries. Cash
equivalents and short-term investments included certificates of deposit totaling
$9,349,000 and $10,603,000 at March 28, 1993 and April 3, 1994, respectively.
The Company adopted Statement of Financial Accounting Standards (FAS) 115,
"Accounting for Certain Investments in Debt and Equity Securities" effective
April 4, 1994 as required by that pronouncement. The Statement requires
reporting of investments as either held to maturity, trading or available for
sale. The Company's investments are classified as available for sale. The effect
of adoption was not material.
Inventory. Inventory is stated at the lower of standard cost (which
approximates actual cost on a first-in, first-out basis) or market. Market is
based upon estimated realizable value reduced by normal gross margin. Inventory
at March 28, 1993, April 3, 1994 and October 2, 1994 was:
OCTOBER 2,
MARCH 28, 1993 APRIL 3, 1994 1994
-------------- -------------- --------------
(IN THOUSANDS) (UNAUDITED)
Inventory:
Raw materials .................. $ 3,117 $ 2,834 $ 3,076
Work-in-process ................ 13,494 10,201 15,056
Finished goods ................. 10,626 16,820 14,621
-------- ------- -------
$27,237 $29,855 $32,755
======== ======== =======
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Depreciation is computed for property, plant and equipment using the
straight-line method over estimated useful lives of the assets. Leasehold
improvements and leasehold interests are amortized over the shorter of the
estimated useful lives of the assets or the remaining term of the lease.
Accelerated methods of depreciation are used for tax computations. Property,
plant and equipment at March 28, 1993 and April 3, 1994 were:
MARCH 28, 1993 APRIL 3, 1994
-------------- ---------------
(IN THOUSANDS)
Property, plant and equipment:
Land ............................................ $ 4,382 $ 4,382
Machinery and equipment ......................... 217,167 248,095
Building and leasehold improvements ............. 39,896 40,063
Construction-in-progress ........................ 10 76
---------- ---------
261,455 292,616
Accumulated depreciation and amortization ....... (142,618) (171,778)
---------- ---------
$ 118,837 $ 120,838
========== =========
F-6
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes. The Company adopted Statement of Financial Accounting Standards
(FAS) 109, "Accounting for Income Taxes," in fiscal 1993, electing to apply the
provisions of FAS 109 retroactively to the beginning of fiscal 1992. The
adoption of FAS 109 changed the Company's method of accounting for income taxes
from the deferred method to an asset and liability approach. The asset and
liability approach requires that the expected future tax consequences of
temporary differences between book and tax bases of assets and liabilities be
recognized as deferred tax assets and liabilities.
Net Income (Loss) Per Share. Net income (loss) per share is computed using
the weighted average number of shares of common stock outstanding during the
year, plus incremental common equivalent shares, if dilutive. Common stock
equivalents consist of stock options (using the treasury stock method).
Revenue Recognition. Revenue from product sales is generally recognized upon
shipment and a reserve is provided for estimated returns and discounts. A
portion of the Company's sales is made to distributors under agreements which
allow certain rights of return and price protection on products unsold by the
distributors; such sales and profits thereon are deferred until the products are
resold by the distributors.
Reclassifications. Certain amounts in prior fiscal years' consolidated
financial statements and notes have been reclassified to conform with fiscal
1994 presentation.
Translation of Foreign Currencies. Accounts denominated in foreign currencies
have been translated in accordance with Statement of Financial Accounting
Standard (FAS) 52. The functional currency for the Company's sales operations is
the applicable local currency with the exception of the Hong Kong sales
subsidiary whose functional currency and reporting currency is the U.S. dollar.
For subsidiaries whose functional currency is the local currency, gains and
losses resulting from translation of these foreign currencies into U.S. dollars
are accumulated in a separate component of stockholders' equity. For the
Malaysian manufacturing and the Hong Kong sales subsidiaries, where the
functional currency is the U.S. dollar, gains and losses resulting from the
process of remeasuring foreign currency financial statements into U.S. dollars
are included in income. Aggregate net foreign currency transaction gains
(losses) totaled $(141,000), $(93,000) and $(232,000) in fiscal 1992, 1993 and
1994, respectively. The effect of foreign currency exchange rate fluctuations on
cash balances held in foreign currencies have not been material.
Foreign Exchange Contracts. The Company enters into forward exchange
contracts to hedge against the short-term impact of foreign currency
fluctuations on certain assets denominated in foreign currencies. The total
amount of these contracts is offset by the underlying assets denominated in
foreign currencies. The gains or losses on these contracts are included in
income as the exchange rates change and are offset by gains and losses on the
underlying assets being hedged. At April 3, 1994, the Company had $12 million of
forward exchange contracts outstanding, with maturity dates through July 1994.
The Company does not anticipate non-performance by the counterparties to these
contracts.
Concentration of Credit Risk and Off-Balance-Sheet Risk. The Company markets
high-speed integrated circuits to OEMs and distributors primarily in the United
States, Europe and the Far East. The Company performs on-going credit
evaluations of its customers' financial conditions and limits the amount of
credit extended when deemed necessary but generally does not require collateral.
Management believes that any risk of loss is significantly reduced due to the
diversity of its products, customers and geographic sales areas. The Company
maintains a provision for potential credit losses.
The Company sells a significant portion of its products through third-party
distributors. As a result of the merger of two of the Company's national
distributors, the receivable balance from the merged company is significant in
aggregate for fiscal 1994. If the financial condition and operations of this
distributor deteriorate below critical levels, the Company's operating results
could be adversely affected. This distributor's receivable balance represented
9% of total accounts receivable at March 28, 1993 on a pro forma combined basis
and 11% of total accounts receivable at April 3, 1994, following the merger.
F-7
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company invests its cash and cash equivalents in cash deposits, money
market funds and commercial paper. Securities comprising cash equivalents and
short-term investments are maintained with high quality institutions, the
composition and maturities of which are regularly monitored by management.
Generally, a highly liquid market exists for these securities and they may be
redeemed upon demand and, therefore, bear minimal risk. The Company has not
experienced any material losses on its investments.
Unaudited Interim Information. The accompanying consolidated balance sheet at
October 2, 1994 and the consolidated statements of operations, cash flows and
shareholders' equity for fiscal quarters ended September 26, 1993 and October 2,
1994 are unaudited. In the opinion of management these financial statements have
been prepared on the same basis as the audited consolidated financial statements
and reflect all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial data of IDT and its subsidiaries for
such periods. The results of operations and cash flows for the fiscal quarters
are not necessarily indicative of the results to be expected for any other
fiscal quarter or for the year ending April 2, 1995. The data disclosed in the
notes to the consolidated financial statements for these periods is unaudited.
NOTE 2--RESTRUCTURING AND SIGNIFICANT OTHER EVENTS
In fiscal year 1992, the Company recorded $4.5 million of charges to net
income relating to the abandonment of IDT's original wafer processing facility
and product line reorganizations. The Company has substantially completed this
restructuring.
Also in fiscal 1992, due to changes in the market, the Company revised its
estimated useful lives and future realizable values of several assets. These
charges included a $7.2 million writeoff of excess inventory and $5.4 million of
writeoffs and changes in useful lives of underutilized capital assets. Also, due
to specific events during the second fiscal quarter, the Company provided a $1.3
million reserve for doubtful accounts and recorded $6.4 million of accrued legal
expenses. Subsequent developments and resolution of one of these legal matters
led the Company to recognize a $1 million benefit during fiscal 1993.
NOTE 3--OTHER ASSETS--INTANGIBLES
During fiscal 1993, IDT entered into various royalty-free patent
cross-license agreements. The patents licenses granted to IDT under these
agreements have been recorded at their cost of approximately $8,200,000 and will
be amortized on a straight-line basis over five years. The amortization relating
to patents licenses was $780,000 and $1,647,000 at March 28, 1993 and April 3,
1994, respectively.
NOTE 4--LONG-TERM OBLIGATIONS
The Company leases certain equipment under long-term leases or finances
purchases of equipment under bank financing agreements. Leased assets and assets
pledged under financing agreements which are included under property, plant and
equipment are as follows:
MARCH 28, 1993 APRIL 3, 1994
-------------- -------------
(IN THOUSANDS)
Building improvements ...................... $ 6,907 $ 6,907
Machinery and equipment .................... 86,091 65,403
--------- --------
Accumulated depreciation and
amortization .............................. (49,001) (43,949)
--------- --------
$ 43,997 $ 28,361
========= ========
The capital lease agreements and equipment financings are collateralized by
the related leased equipment and contain certain restrictive covenants.
F-8
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum payments under capital leases and equipment financing
agreements, at varying interest rates (4.9%-11.0%) are as follows:
FISCAL YEAR (IN THOUSANDS)
----------- --------------
1995 .................................. $14,339
1996 .................................. 5,898
1997 .................................. 3,075
1998 .................................. 1,486
1999 .................................. 3
--------
Total minimum payments ................ 24,801
Less interest ......................... 2,420
--------
Present value of net minimum payments.. 22,381
Less current portion................... 12,878
--------
$ 9,503
========
During fiscal 1993, IDT recorded a long-term obligation in connection with
the dismissal of certain litigation and entering into a patent cross-license
agreement. Under this cross license/technology agreement, the Company recorded,
at March 28, 1993, a long-term obligation of $7,041,000 representing the present
value discounted at 8% of amounts due at the end of the five-year license. The
present values of the amount due at the end of the license term were $7,041,000
and $7,471,000 at March 28, 1993 and April 3, 1994, respectively. During the
year, this amount payable has been reduced by an amount of royalty income
pursuant to certain guaranteed revenues realized on sales of IDT's products. The
Company is accreting $3.3 million in future interest charges from the recorded
amount at April 3, 1994 to the amount due at the end of the term using the
effective interest method.
NOTE 5--LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 28, 1993 APRIL 3, 1994
-------------- -------------
(IN THOUSANDS)
Mortgage payable bearing interest at 9.625%
due in monthly installments of $142,000
including interest through April 1, 2005.
The note is secured by property and
improvements in San Jose, California ............ $12,152 $11,543
Term loan payable to a Malaysian bank at 8%
due in monthly installments of $54,000 .......... 1,448 791
------- --------
13,600 12,334
Less current portion ............................. 1,188 1,306
------- --------
$12,412 $11,028
======= ========
Principal payments required in the next five years are as follows (in
thousands): $1,306 (1995), $790 (1996), $752 (1997), $828 (1998) and $8,658
(beyond 1998).
NOTE 6--LINES OF CREDIT
The Company's Malaysian subsidiary has unsecured revolving lines of credit
that allow borrowings up to $2,500,000 with three local banks. These lines have
no expiration date. At April 3, 1994 there were no outstanding borrowings
against these lines. The borrowing rate for these lines would be incurred at the
local bank's cost of funds plus 0.75% to 1% (8.80%-9.25% on April 3, 1994).
F-9
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In fiscal 1994, the Company's Japanese subsidiary had a secured revolving
line of credit that allowed borrowings up to approximately $1,940,000. The line
of credit automatically extends until the Company requests termination. As of
April 3, 1994, no amounts were outstanding under this line of credit. The
borrowing rate for this line of credit is the local bank's short-term prime rate
existing at the borrowing date plus 0.2%. At April 3, 1994 this short-term
borrowing rate was 3.2%.
The Company also has foreign exchange facilities with several banks that
allow the Company to enter into foreign exchange contracts of up to $30,000,000,
of which $18,026,000 was available at April 3, 1994.
NOTE 7--COMMITMENTS
Lease Commitments. The Company leases most of its administrative and
manufacturing facilities under operating lease agreements which expire through
1996. Two facilities were leased from a principal shareholder. The annual rent
paid to this shareholder totaled approximately $1,995,000, $1,396,000 and
$1,396,000 in fiscal 1992, 1993 and 1994, respectively. One stockholder lease
expired during fiscal 1992 and the other will expire in June 1995.
The aggregate minimum rent commitments under all operating leases are as
follows:
(FISCAL YEAR) (IN THOUSANDS)
------------------- ------------
1995 ................. $ 4,122
1996 ................. 2,902
1997 ................. 2,217
1998 ................. 1,924
1999 ................. 1,933
2000 and thereafter... 1,980
--------
$ 15,078
========
Rent expense for the years ended March 29, 1992, March 28, 1993 and April 3,
1994 totaled approximately $3,839,000, $3,303,000 and $3,488,000, respectively.
As of April 3, 1994, four secured standby letters of credit were outstanding
totaling $1,937,000. Three letters of credit are held in connection with the
Company's workers compensation insurance and mature on June 30, 1994, June 30,
1995 and June 30, 1996. The fourth letter of credit secures the credit facility
for the Company's Japanese subsidiary and matured on April 4, 1994.
NOTE 8--FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company, using available market information and valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies could have a material effect on the estimated fair
value amounts.
The amount reported for cash and cash equivalents, short-term investments,
foreign exchange contracts and the Malaysian term loan were considered to be
reasonable estimates of their fair value.
The fair values of short-term and long-term debt were based upon estimated
interest rates available to the Company for issuance of debt with similar terms
and remaining maturities for existing asset-secured equipment loans and capital
leases. The estimated fair value of the Company's short-term and long-term debt
at April 3, 1994 was $20,784,000. The fair value for the mortgage loan is
$10,748,000 estimated using discounted cash flow analysis based on an estimated
interest rate of 7.5 percent for similar types of borrowing arrangements.
F-10
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value estimates presented herein were based upon information
available to management as of April 4, 1994. Although management is not aware of
any factors that would materially affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of the consolidated
financial statements since that date, and current estimates of fair value may
differ significantly from the amounts presented herein.
NOTE 9--STOCKHOLDERS' EQUITY
Stock Option Plans. The Company has stock option plans under which key
employees, officers, directors and consultants may be granted options to
purchase shares of the Company's common stock at prices which are not less than
fair market value at the date of grant. Options granted are generally
exercisable in 25% increments each year beginning one year after the grant date.
At April 3, 1994, options for 1,172,000 shares were exercisable at an
aggregate exercise price of $4,856,000. At March 28, 1993, options for 2,093,853
shares were exercisable at an aggregate exercise price of $7,692,000.
<TABLE>
<CAPTION>
Activity under the plans is summarized as follows:
OPTIONS OUTSTANDING
--------------------------------------------
AVAILABLE AGGREGATE
FOR ISSUANCE NUMBER PRICE PER SHARE PRICE
-------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Balance, March 31, 1991 .............. 1,463,734 4,391,764 $ 3.25-$ 14.25 $ 16,832,000
Additional authorization ............ 1,500,000
Granted ............................. (2,697,815) 2,697,815 $ 3.75-$ 9.50 14,459,000
Surrendered, canceled or expired..... 1,807,581 (1,809,971) $ 3.25-$ 14.25 (11,321,000)
Exercised ........................... -- (464,036) $ 3.25-$ 5.13 (1,683,000)
-------------- ------------- --------------
Balance, March 29, 1992............... 2,073,500 4,815,572 $ 3.25-$ 13.25 18,287,000
Additional authorization.............
Granted ............................. (1,358,323) 1,358,323 $3.625-$ 8.25 6,701,000
Surrendered, canceled or expired..... 254,930 (447,625) $ 3.25-$ 13.25 (1,810,000)
Exercised ........................... -- (529,371) $ 3.25-$ 7.50 (1,933,000)
-------------- ------------- --------------
Balance, March 28, 1993............... 970,107 5,196,899 $ 3.25-$12.125 21,245,000
Additional authorization............. 975,000
Granted.............................. (1,850,234) 1,850,234 $ 7.00-$25.375 26,599,000
Surrendered, canceled or expired..... 284,010 (287,423) $ 3.25-$22.125 (1,738,000)
Exercised............................ -- (1,780,613) $ 3.25-$17.625 (6,695,000)
-------------- ------------- -------------
Balance, April 3, 1994................ 378,883 4,979,097 $ 3.25-$25.375 $ 39,411,000
============== ============= =============
</TABLE>
Stock Purchase Plan. The Company has a stock purchase plan under which
employees and officers may purchase shares of the Company's Common Stock. The
purchase price at which shares may be purchased under this plan is 85% of the
lower of the fair market value on the first or last day of each quarterly plan
period. As of March 28, 1993 and April 3, 1994, 1,277,328 and 1,457,771 shares,
respectively, had been purchased by employees, net of repurchases by the
Company, under the terms of the plan agreements. At April 3, 1994, 567,229
shares were reserved and available for issuance under this plan.
Stockholder Rights Plan. In February 1992, the Board approved certain amendments
to the Company's Stockholder Rights Plan. Under the plan, the Company declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of common stock. Each Right entitles the holder, under certain
circumstances, to purchase common stock of the Company with a value of twice the
exercise
F-11
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
price of the Right. In addition, the Board of Directors may, under certain
circumstances, cause each Right to be exchanged for one share of common stock or
substitute consideration. The Rights are redeemable by the Company and expire in
1998.
NOTE 10--EMPLOYEE BENEFITS PROFIT SHARING PLAN
Prior to September 24, 1993, under the Company's Profit Sharing Plan, the
Board of Directors could authorize semiannual contributions for the benefit of
employees of up to 10% of pre-tax earnings, before profit sharing. Half of the
annual contribution, net of expenses, was in the form of cash payments directly
to all domestic and Malaysian employees meeting certain service criteria, and
the residual half was contributed directly to the Company's Long-Term Incentive
Plan for the purchase of IDT Common Stock on behalf of the Company's employees.
The Company received approval from the IRS to terminate the Long-Term
Incentive Plan effective September 24, 1993. Effective this date, all shares
were 100% vested and no additional shares of IDT stock will be added to this
account. Beginning September 27, 1993, all IDT employees will receive an
increase in their cash profit sharing from 5% to 7% and the Company will
contribute an additional 1% of pre-tax profits to the Company's 401(k) plan.
Administrative expenses are netted against the Profit Sharing Plan
contribution. Contributions for the years ended March 28, 1993 and April 3, 1994
for this plan were $477,000 and $5,128,000, respectively. There were no
contributions for the year ended March 29, 1992.
NOTE 11--INCOME TAXES
The components of income before provision (benefit) for income taxes are as
follows:
MARCH 29, MARCH 28, APRIL 3,
1992 1993 1994
------------ ----------- ----------
(IN THOUSANDS)
United States.......... $ (37,858) $ 2,240 $44,808
Foreign................ 3,090 4,038 5,398
---------- ----------- ----------
$ (34,768) $ 6,278 $50,206
========== =========== ==========
The provisions (benefits) for income taxes consist of the following:
MARCH 29, MARCH 28, APRIL 3,
1992 1993 1994
----------- ------------ -----------
(IN THOUSANDS)
Current income taxes (benefits):
United States .......................... $ 242 $ (2,467) $ 14,699
State .................................. -- -- 4,039
Foreign ................................ 161 102 798
--------- --------- --------
403 (2,365) 19,536
--------- --------- --------
Deferred (prepaid) income taxes:
United States .......................... (2,363) 3,307 (5,379)
State .................................. -- -- (4,116)
--------- --------- --------
(2,363) 3,307 (9,495)
--------- --------- --------
Provision (benefit) for income taxes .... $ (1,960) $ 942 $ 10,041
========= ========= ========
F-12
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of deferred assets and liabilities are as follows:
MARCH 28, APRIL 3,
1993 1994
---------- ---------
(IN THOUSANDS)
Deferred tax assets:
Deferred income on shipments to distributors ...... $ 4,330 $ 7,466
Non-deductible accruals and reserves .............. 8,313 13,527
Capitalized inventory and other expenses .......... 6,014 4,071
Capitalized research and development .............. 752 825
Other ............................................. 746 273
Refund receivables ................................ 3,560 2,451
--------- --------
Total deferred tax asset .......................... 23,715 28,613
Valuation allowance ............................... (8,445) (2,337)
--------- --------
Net deferred tax asset ............................ 15,270 26,276
--------- --------
Deferred tax liabilities:
Depreciation ...................................... (11,710) (8,517)
--------- --------
Total deferred tax liability ...................... (11,710) (8,517)
--------- --------
Net deferred tax asset ............................ $ 3,560 $ 17,759
========= ========
<TABLE>
<CAPTION>
The provision (benefit) for income taxes differs from the amount computed by
applying the U.S. statutory income tax rate of 35% for the year ended April 3,
1994 (34% for the years ended March 28, 1993 and March 29, 1992) to income
before the provision (benefit) for income taxes as follows:
MARCH 29, MARCH 28, APRIL 3,
1992 1993 1994
------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision at U.S. statutory rate of 34%........ $ (11,821) $ 2,134 $ 17,572
Earnings of foreign subsidiaries considered
permanently reinvested, less foreign taxes.... (232) (1,701) (951)
General business credits ...................... (660) 0 (2,710)
Tax rate differential.......................... 3,220 574 (1,167)
State tax...................................... -- -- 3,558
Valuation allowance ........................... 8,031 414 (6,108)
Other ......................................... $ (498) (479) (153)
---------- ----------- ----------
Provision (benefit) for income taxes .......... $ (1,960) $ 942 $ 10,041
========== =========== ==========
</TABLE>
The Company's Malaysian subsidiary operates under a tax holiday which
extended through July 1993. Management believes it is likely that carryovers of
depreciation from the tax holiday period along with expected additional
depreciation grants will defer the time when the Malaysian subsidiary will first
begin to pay local taxes beyond its year ended April 3, 1994.
The provision for income taxes for the six month period ended October 2, 1994
reflects the estimated annualized effective tax rate of 25%. This rate differs
from the U.S. statutory rate of 35% primarily due to earnings of foreign
subsidiaries being taxed at lower rates, utilization of research and development
credits and utilization of certain deferred tax benefits for which a valuation
allowance was previously required.
F-13
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's intention is to permanently reinvest its earnings in all of its
foreign subsidiaries. Accordingly, U.S. taxes have not been provided on
approximately $19,700,000 of unremitted earnings, of which approximately
$17,100,000 were earned by the Company's Malaysian subsidiary. Upon distribution
of those earnings in the form of dividends or otherwise, the Company will be
subject to both U.S. income taxes and various foreign country withholding taxes.
NOTE 12--INDUSTRY SEGMENT, FOREIGN OPERATIONS
IDT operates predominantly in one industry segment and is engaged in the
design, development, manufacture and marketing of high-performance integrated
circuits. No single customer or distributor accounted for more than 10% of net
revenues in fiscal 1992 and 1993. During fiscal 1994, two of the Company's
national distributors became one entity and accounted for 15% of net revenues.
If these two distributors had been a single entity during fiscal 1992 and 1993,
it would have accounted for 17% and 16%, respectively, of IDT's total revenues.
Major operations outside the United States include manufacturing facilities
in Malaysia and sales subsidiaries in Japan, the Pacific Rim, and throughout
Europe.
At March 28, 1993 and April 3, 1994, total liabilities for operations outside
of the United States were $20,152,000 and $20,704,000, respectively.
F-14
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
The following is a summary extract of IDT's foreign operations by
geographic areas for fiscal 1992, 1993 and 1994:
TRANSFERS
SALES TO BETWEEN OPERATING
UNAFFILIATED GEOGRAPHIC INCOME IDENTIFIABLE
CUSTOMERS AREAS NET REVENUE (LOSS) ASSETS
-------------- ------------ ------------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fiscal year ended March 29, 1992
United States ...................... $ 140,999 $ 21,616 $ 162,615 $ (4,800) $ 190,801
Japan............................... 23,018 23,018 41 6,192
Europe ............................. 26,861 2,838 29,699 303 5,703
Asia-Pacific........................ 11,856 15,230 27,086 3,234 18,838
Eliminations ....................... -- (39,684) (39,684) (71) (26,172)
Corporate .......................... -- -- -- (28,023) 34,368
-------------- ------------ ------------- ------------ --------------
Consolidated ....................... $ 202,734 $ -- $ 202,734 $ (29,316) $ 229,730
============== ============ ============= ============ ==============
Fiscal year ended March 28, 1993
United States ...................... $ 152,303 $ 23,585 $ 175,888 $ 22,159 $ 198,993
Japan............................... 23,022 23,022 (419) 5,651
Europe.............................. 33,907 2,847 36,754 374 8,028
Asia-Pacific........................ 27,031 20,566 47,597 4,715 24,155
Eliminations........................ -- (46,998) (46,998) (94) (24,081)
Corporate........................... -- -- -- (15,729) 27,248
-------------- ------------ ------------- ------------ --------------
Consolidated........................ $ 236,263 $ -- $ 236,263 $ 11,006 $ 239,994
============== ============ ============= ============ ==============
Fiscal year ended April 3, 1994
United States ...................... $ 223,600 $ 42,500 $ 266,100 $ 70,788 $197,385
Japan .............................. 29,959 29,959 (257) 8,033
Europe ............................. 60,064 3,274 63,338 677 8,182
Asia-Pacific........................ 16,839 24,869 41,708 5,146 27,202
Eliminations ....................... -- (70,643) (70,643) (408) (24,470)
Corporate .......................... -- -- -- (23,677) 133,239
-------------- ------------ ------------- ------------ --------------
Consolidated........................ $ 330,462 $ -- $ 330,462 $ 52,269 $349,571
============== ============ ============= ============ ==============
</TABLE>
Transfers between geographic areas are accounted for at amounts which are
generally above cost and consistent with the rules and regulations of governing
tax authorities. Such transfers are eliminated in the consolidated financial
statements. Operating income by geographic areas reflect foreign earnings
reported by the foreign entities and does not include an allocation of general
corporate expenses. Identifiable assets are those assets that can be directly
associated with a particular foreign entity and thus do not include assets used
for general corporate purposes: cash and cash equivalents, short-term
investments and prepaid income taxes.
F-15
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 13--CROSS-LICENSE AGREEMENT
During fiscal 1993, the Company entered into a patent cross-license agreement
which obligated the payment of an amount of royalties dependent upon the level
of the Company's profitability. The amount of royalties accrued during fiscal
1994 was approximately $4.4 million and has been included in other accrued
liabilities. The Company will not be negatively impacted by any further royalty
payment from this agreement beginning fiscal 1995.
F-16
<PAGE>
====================================== ======================================
No dealer, sales representative or 3,400,000 SHARES
any other person has been authorized
to give any information or to make any
representation not contained in this
Prospectus in connection with the
offer made by this Prospectus and, if
given or made, such information or
representation must not be relied upon
as having been authorized by the IDT LOGO GOES HERE
Company, any Selling Stockholder or
any Underwriter. This Prospectus does
not constitute an offer to sell or a
solicitation of an offer to buy any
securities other than the registered
securities to which it relates or an
offer to sell or a solicitation of an
offer to buy such securities in any COMMON STOCK
circumstances in which such offer or
solicitation is unlawful. Neither the
delivery of this Prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication
that there has been no change in the
affairs of the Company since the date
hereof or that the information
contained herein is correct as of any ----------
time subsequent to the date hereof.
PROSPECTUS
----------
TABLE OF CONTENTS ----------
----------
PAGE
----
Available Information .......... 2
Information Incorporated by
Reference...................... 2
Prospectus Summary.............. 3
Risk Factors ................... 5
Use of Proceeds ................ 11
Price Range of Common Stock .... 11 MONTGOMERY SECURITIES
Dividend Policy ................ 11
Capitalization.................. 12
Selected Consolidated Financial LEHMAN BROTHERS
Data .......................... 13
Management's Discussion
and Analysis of Financial SMITH BARNEY INC.
Condition and Results of
Operations .................... 14
Business ....................... 19
Management ..................... 28
Certain Transactions............ 29
Selling Stockholders............ 30
Underwriting.................... 31
Legal Matters .................. 32
Experts ........................ 32
Report of Independent
Accountants ................... F-1
Consolidated Financial
Statements ................... F-2 November , 1994
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all estimated
expenses to be paid by the Company in connection with the issuance and
distribution of the securities being registered:
EXPENSES
----------
SEC registration fee ............... $ 37,415
NASD filing fee .................... 11,350
Nasdaq fee ......................... 17,500
Transfer Agent fee ................. 5,000
Printing and engraving expenses .... 100,000
Legal expenses ..................... 75,000
Accounting fees and expenses........ 45,000
Other securities laws fees and
expenses .......................... 12,000
Miscellaneous ...................... 6,735
----------
Total .............................. $310,000
==========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits a corporation
to grant indemnification to directors, officers and other agents in terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities, including expenses, arising in connection with the Securities Act
of 1933, as amended. Pursuant to the Bylaws of the Company, directors and
officers of the Company are indemnified to the full extent permitted by law
against all expenses (including attorneys' fees), judgments, fines or settlement
amounts incurred or paid by them in any action or proceeding, including any
action by or on behalf of the Company, on account of their service as an officer
or director of the Company. The Bylaws further provide that the rights conferred
under such Bylaws shall not be deemed exclusive of any other right to which such
persons may be entitled under the Delaware General Corporation Law, the
Company's Restated Certificate of Incorporation, any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. The Restated Certificate
of Incorporation of the Company precludes, with certain exceptions, the Company
and its stockholders from recovering monetary damages from directors for
business decisions that breach such directors' fiduciary duty.
The Company also maintains directors and officers insurance policies which
insure directors and officers against losses arising from certain wrongful acts
in their official capacities and reimburses the Company for such loss for which
the Company has lawfully indemnified the directors and officers. In addition,
the Company has entered into an Indemnification Agreement with each of its
directors and officers whereby the Company has agreed to indemnify each director
and officer from and against any and all expenses, losses, claims, damages and
liabilities incurred by such director or officer while acting in his or her
official capacity.
Reference is made to Section 11 of the form of Underwriting Agreement filed
as an exhibit hereto pursuant to which the Underwriter may, under certain
circumstances, indemnify the directors and officers of the Company. Directors
and officers of the Company may also be indemnified in certain circumstances
under the terms of other underwriting agreements entered into by the Company in
connection with prior public offerings.
II-1
<PAGE>
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement (draft dated November 15, 1994).
4.1* Restated Certificate of Incorporation (previously filed as Exhibit 3A
to Registration Statement on Form 8-B [File No. 0-12695] dated
September 23, 1987).
4.2* Certificate of Amendment of Restated Certificate of Incorporation
(previously filed as Exhibit 3.2 to Annual Report on Form 10-K [File
No. 0-12695] for the Fiscal Year Ended April 2. 1989).
4.3* Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock (previously filed as Exhibit 3.3 to
Annual Report on Form 10-K [File No. 0-12695] for the Fiscal Year
Ended April 2, 1989).
4.4* Bylaws dated January 25, 1993 (previously filed as Exhibit 3.4 to
Annual Report on Form 10-K [File No. 0-12695] for the Fiscal Year
Ended March 28, 1993).
4.5* Amended and Restated Rights Agreement dated as of February 27, 1992,
between the Company and The First National Bank of Boston (previously
filed as Exhibit 4.1 to Current Report on Form 8-K [File No. 0-12695]
dated February 27, 1992).
5.1 Opinion of Fenwick & West
23.1 Consent of Price Waterhouse LLP (see page II-4).
23.2 Consent of Fenwick & West (included in the Opinion of Counsel filed as
Exhibit 5.1 hereto).
24.1 Power of Attorney (see page II-3).
27.1 Financial Data Schedule (EDGAR version only).
- ----------
* These exhibits were previously filed with the Commission as indicated and are
incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities and Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that:
(a) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(b) for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Santa Clara, California on this 14th day of November, 1994.
INTEGRATED DEVICE TECHNOLOGY, INC.
By: /s/ LEONARD C. PERHAM
-----------------------------------------
Leonard C. Perham
Chief Executive Officer
<TABLE>
<CAPTION>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of Integrated Device Technology,
Inc., a Delaware corporation, do hereby constitute and appoint Leonard C. Perham
and William D. Snyder, and each of them, the lawful attorneys and agents or
attorney and agent, with power and authority to do any and all acts and things
and to execute any and all instruments which said attorneys and agents, and any
one of them, determine may be necessary or advisable or required to enable said
corporation to comply with the Securities Act of 1933, as amended, and any rules
or regulations or requirements of the Securities and Exchange Commission in
connection with this Registration Statement. Without limiting the generality of
the foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and directors in the
capacities indicated below to this Registration Statement, to any and all
amendments, both pre-effective and post-effective, and supplements to this
Registration Statement, and to any and all instruments or documents filed as
part of or in conjunction with this Registration Statement or amendments or
supplements thereof, and each of the undersigned hereby ratifies and confirms
that said attorneys and agents or any of them shall do or cause to be done by
virtue hereof. This Power of Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
SIGNATURE TITLE DATE
- --------------------- ------------------------------------------ -------------------------
<S> <C> <C>
--------------------- Chairman of the Board November , 1994
D. John Carey
/s/ LEONARD C. PERHAM Chief Executive Officer, President and November 14, 1994
- ----------------------- Director
Leonard C. Perham
/s/ WILLIAM D. SNYDER Vice President, Finance and Chief November 14, 1994
- ----------------------- Financial Officer (Principal Financial
William D. Snyder and Accounting Officer)
/s/ CARL E. BERG Director November 14, 1994
- -----------------------
Carl E. Berg
/s/ JOHN C. BOLGER Director November 14, 1994
---------------------
John C. Bolger
/s/ FEDERICO FAGGIN Director November 14, 1994
- ----------------------
Federico Faggin
</TABLE>
II-3
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated April 27, 1994 relating
to the financial statements of Integrated Device Technology, Inc. which appears
in such Prospectus. We also consent to the incorporation by reference in the
Prospectus constituting part of this Registration Statement on Form S-3 of our
report dated April 27, 1994 appearing on page 12 of Integrated Device
Technology, Inc.'s Annual Report on Form 10-K for the year ended April 3, 1994.
We also consent to the references to us under the heading "Experts," "Risk
Factors" and "Selected Financial Data" in such Prospectus. However, it should be
noted that Price Waterhouse has not prepared or certified such "Selected
Financial Data."
PRICE WATERHOUSE LLP
San Jose, California
November 11, 1994
II-4
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED DEVICE TECHNOLOGY, INC.
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- -------- ---------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement (draft dated November 15, 1994).
4.1* Restated Certificate of Incorporation (previously filed as Exhibit 3A
to Registration Statement on Form 8-B [File No. 0-12695] dated
September 23, 1987).
4.2* Certificate of Amendment of Restated Certificate of Incorporation
(previously filed as Exhibit 3.2 to Annual Report on Form 10-K [File
No. 0-12695] for the Fiscal Year Ended April 2. 1989).
4.3* Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock (previously filed as Exhibit 3.3 to
Annual Report on Form 10-K [File No. 0-12695] for the Fiscal Year
Ended April 2, 1989).
4.4* Bylaws dated January 25, 1993 (previously filed as Exhibit 3.4 to
Annual Report on Form 10-K [File No. 0-12695] for the Fiscal Year
Ended March 28, 1993).
4.5* Amended and Restated Rights Agreement dated as of February 27, 1992,
between the Company and The First National Bank of Boston (previously
filed as Exhibit 4.1 to Current Report on Form 8-K [File No. 0-12695]
dated February 27, 1992).
5.1 Opinion of Fenwick & West
23.1 Consent of Price Waterhouse LLP (see page II-4).
23.2 Consent of Fenwick & West (included in the Opinion of Counsel filed as
Exhibit 5.1 hereto).
24.1 Power of Attorney (see page II-3).
27.1 Financial Data Schedule (EDGAR version only).
<FN>
- ----------
* These exhibits were previously filed with the Commission as indicated and are
incorporated herein by reference.
</TABLE>
[Draft dated November 15, 1994]
3,400,000 SHARES
INTEGRATED DEVICE TECHNOLOGY, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
____________1994
MONTGOMERY SECURITIES
LEHMAN BROTHERS INC.
SMITH BARNEY INC.
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
SECTION 1
INTRODUCTION
INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation (the
"Company"), proposes to issue and sell 3,300,000 shares of its authorized but
unissued Common Stock (the "Common Stock") and certain stockholders of the
Company named in Schedule B annexed hereto (the "Selling Stockholders") propose
to sell an aggregate of 100,000 shares of the Company's issued and outstanding
Common Stock to the several underwriters named in Schedule A annexed hereto (the
"Underwriters"). Said aggregate of 3,400,000 shares are herein called the "Firm
Common Shares." In addition, the Company and one Selling Stockholder, as
designated on Schedule B, severally and not jointly, propose to grant to the
Underwriters an option to purchase up to an aggregate of 510,000 additional
shares of Common Stock (the "Optional Common Shares"), as provided in Section 5
hereof. The Firm Common Shares and, to the extent such option is exercised, the
Optional Common Shares are hereinafter collectively referred to as the "Common
Shares."
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the Registration Statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
<PAGE>
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the several Underwriters
that:
(a) A registration statement on Form S-3 (File No. 33-_____) with
respect to the Common Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (as hereinafter defined) of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the
Commission. The Company has prepared and has filed or may file prior to the
effective date of such registration statement an amendment or amendments to such
registration statement, which amendment or amendments have been or will be
similarly prepared. There have been delivered to you two signed copies of such
registration statement and amendments, together with two copies of each exhibit
filed therewith. Conformed copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a further
amendment thereto, including the form of final prospectus, or (ii) a final
prospectus in accordance with Rules 430A and 424(b) of the Rules and
Regulations. As filed, such amendment and form of final prospectus, or such
final prospectus, shall include all Rule 430A Information (as hereinafter
defined) and, except to the extent that you shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to you
prior to the date and time that this Agreement was executed and delivered by the
parties hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus (as hereinafter defined)) as the
Company shall have previously advised you in writing would be included or made
therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date (as hereinafter defined), shall also
mean such registration statement as so amended; provided, however, that such
term shall also include all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the Rules and Regulations. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the preceding
paragraph and any preliminary prospectus included in the Registration Statement
at the time it becomes effective that omits Rule 430A Information. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Common Shares in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, if no filing pursuant
to Rule 424(b) of the Rules and Regulations is required, shall mean the form of
final prospectus included in the Registration Statement at the time such
registration statement becomes effective. The term "Rule 430A Information" means
information with respect to the Common Shares and the offering thereof permitted
to be omitted from the Registration Statement when it
-2-
<PAGE>
becomes effective pursuant to Rule 430A of the Rules and Regulations. Any
reference herein to the Registration Statement, any Preliminary Prospectus or
the Prospectus shall be deemed to refer to and include (unless the context
otherwise requires) any and all documents and information incorporated by
reference therein pursuant to Form S-3 under the Act, as of the date of such
Registration Statement, Preliminary Prospectus or Prospectus, as the case may
be, and shall be deemed to refer to and include any documents filed after the
date of such Registration Statement, Preliminary Prospectus or Prospectus, as
the case may be, and which are incorporated by reference under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). For purposes of this
Agreement, "Rules and Regulations" mean the Rules and Regulations as adopted by
the Commission under either the Act or the Exchange Act, as applicable.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the Rules
and Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including each Closing
Date hereinafter mentioned, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, will contain all material statements and
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of the
Act and the Rules and Regulations, and neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, no representation or warranty contained in this subsection
2(b) shall be applicable to information contained in or omitted from any
Preliminary Prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
specifically for use in the preparation thereof. The documents incorporated by
reference in the Preliminary Prospectus or Prospectus or from which information
is so incorporated by reference, when they became effective or were filed with
the Commission, as the case may be, conformed in all material respects to the
requirements of the Act or Exchange Act, as applicable, and the Rules and
Regulations, and any documents so filed and incorporated by reference subsequent
to the effective date of the Registration Statement shall, when they are filed
with the Commission, comply in all material respects to the requirements of the
Act and Exchange Act, as applicable, and Rules and Regulations, and none of such
documents contained at the time of filing with the Commission an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 22 to the Annual Report on Form 10-K for the Company's most recent
fiscal year. The Company and each of its subsidiaries other than Quantum Effect
Design, Inc. ("QED") (herein collectively referred to as "Subsidiaries"),
-3-
<PAGE>
have been duly incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of incorporation, with
full power and authority (corporate and other) to own and lease their properties
and conduct their respective businesses as described in the Prospec- tus; the
Company owns all of the outstanding capital stock of its Subsidiaries (other
than director's qualifying shares) free and clear of all claims, liens, charges
and encumbrances; the Company and each of its Subsidiaries are in possession of
and operating in compliance with all authorizations, licenses, permits,
consents, certificates and orders material to the conduct of their respective
businesses, all of which are valid and in full force and effect except where the
failure to be in such possession or compliance, or the failure of any such
authorizations, licenses, permits, consents, certificates or orders would not in
any single case or in the aggregate, have a material adverse affect upon the
condition (financial or otherwise), business, results of operations, properties
or prospects of the Company or the affected Subsidiary; the Company and each of
its Subsidiaries are duly qualified to do business and in good standing as
foreign corporations in each jurisdiction in which the ownership or leasing of
properties or the conduct of their respective businesses requires such
qualification, except for jurisdictions in which the failure to so qualify would
not have a material adverse affect upon the condition (financial or otherwise),
business, results of operations, properties or prospects of the Company or the
effected Subsidiary; and no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.
QED has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the state of its incorporation, with full
power and authority (corporate and other) to own and lease its properties and
conduct its business as described in the Prospectus. The Company owns 2,200,000
shares of the Common Stock of QED and 1,440,000 shares of the Series A Preferred
Stock of QED, constituting approximately 48% of the Common Stock of QED and a
majority of the Preferred Stock of QED. The shares of capital stock of QED owned
by the Company are owned free and clear of all claims, liens, charges and
encumbrances; and were duly authorized and validly issued, are fully paid and
nonassessable. To the best knowledge of the Company, QED is in possession of and
operating in compliance with all authorizations, licenses, permits, consents,
certificates and orders material to the conduct of its business, all of which,
to the best knowledge of the Company, are in full force and effect except where
the failure to be in such possession or compliance, or the failure of any such
authorizations, licenses, permits, consents, certificates or orders would not in
any single case or in the aggregate, have a material adverse effect upon the
condition (financial or otherwise), business, results of operations, properties
or prospects of the Company or QED. To the best knowledge of the Company, QED is
duly qualified to do business and in good standing as a foreign corporation in
each jurisdiction in which the ownership or leasing of properties or the conduct
of its business requires such qualification, except for jurisdictions in which
the failure to so qualify would not have a material adverse effect upon the
condition (financial or otherwise), business, results of operations, properties
or prospects of the Company or QED; and to the best knowledge of the Company, no
proceeding has been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification. To the best knowledge of the Company, the Company is the sole and
exclusive owner of the Products, as such term is defined in the Development and
License Agreement
-4-
<PAGE>
between the Company and QED dated as of January 13, 1992, as amended. To the
best knowledge of the Company, the representations and warranties set forth in
subparagraphs (i), (k), (l), (m), (n), (o), (p), (q), (s) and (t) of this
Section 2 are also true and correct with respect to QED. To the best knowledge
of the Company, QED does not own or control, directly or indirectly, any
corporation, association or other entity.
(d) The Company has an authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws (except where noncompliance with any state
securities law would not have a material effect upon the Company), were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and conform to the description thereof
contained in the Prospectus. All issued and outstanding shares of capital stock
of each Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable. Except as disclosed or incorporated by reference in or
contemplated by the Prospectus and the financial statements of the Company, and
the related notes thereto, included in the Prospectus, neither the Company nor
any Subsidiary has outstanding any options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock purchase and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, incorporated by reference in the Prospectus accurately and
fairly presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(e) The Common Shares to be sold hereunder have been duly authorized
and either are or, when issued, delivered and paid for in the manner set forth
in this Agreement, will be, duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been exercised or waived to require the Company to register the sale of
any shares owned by such stockholder under the Act in the public offering
contemplated by this Agreement. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
transfer and sale of the Common Shares to be sold by the Selling Stockholders or
the issuance and sale of the Common Shares to be sold by the Company as
contemplated herein.
(f) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company in accordance with its terms. The
making and performance of this Agreement by the Company and the consummation of
the transactions herein contemplated will not (i) violate any provisions of the
charter, bylaws or other organizational documents of the Company or any of its
Subsidiaries, (ii) conflict with, result in the breach or violation of, or
constitute, either by itself or
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upon notice or the passage of time or both, a default under any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or any of their respective
properties may be bound or affected or (iii) conflict with or violate any
material statute or any authorization, judgment, decree, order, rule or material
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its Subsidiaries or any of
their respective properties. No consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental body
is required for the execution and delivery of this Agreement or the consummation
of the transactions contemplated by this Agreement, except for compliance with
the Act, the U.S. Blue Sky laws applicable to the public offering of the Common
Shares by the several Underwriters and the clearance of such offering with the
National Association of Securities Dealers, Inc. (the "NASD").
(g) Price Waterhouse LLP, who has expressed its opinion with respect to
certain of the financial statements and schedules filed with the Commission as a
part of the Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the Act and
the Rules and Regulations. Except as disclosed in the Prospectus, the Company
maintains a system of internal accounting controls which it believes sufficient
to provide reasonable assurances that (i) transactions are executed in
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accounting for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(h) The financial statements and schedules of the Company and its
subsidiaries, and the related notes thereto, included or incorporated by
reference in the Registration Statement and the Prospectus present fairly the
financial position of the Company and its subsidiaries as of the respective
dates of such financial statements and schedules, and the results of operations
and changes in financial position of the Company and its subsidiaries for the
respective periods covered thereby. Such statements, schedules and related notes
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis as certified by Price Waterhouse LLP, the
independent accountants named in subsection 2(g), as the case may be. No other
financial statements or schedules are required to be included or incorporated by
reference in the Registration Statement. The selected financial data set forth
in the Prospectus under the captions "Capitalization" and "Selected Consolidated
Financial Data" fairly present the information set forth therein on the basis
stated in the Registration Statement.
(i) Neither the Company nor any of its Subsidiaries is, or with the
giving of notice or lapse of time or both would be, in violation of or default
under any provision of its charter, bylaws or other organizational documents.
Neither the Company nor any of its Subsidiaries is in violation, breach of or
default with respect to any provision of any agreement, judgment, decree, order,
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mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries' respective properties, is or are
bound or affected, except as to violations, breaches or defaults, which in any
single case or in the aggregate would not have a material adverse effect on the
condition (financial or otherwise), business, results of operations, properties
or prospects of the Company or any Subsidiary; and to the best of the Company's
knowledge, there does not exist any state of facts which constitutes an event of
default on the part of the Company or any such Subsidiary as defined in such
documents or which, with notice or lapse of time or both, would constitute such
an event of default where such default or event of default would have, in any
single case or in the aggregate, a material adverse effect on the condition
(financial or otherwise), business, results of operations, properties or
prospects of the Company or any Subsidiary.
(j) There are no statutes, contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which have not
been described or filed as required. The statutes, contracts or other documents
described or incorporated by reference in the Registration Statement and the
Prospectus fairly present the information required to be provided by the Act and
the Rules and Regulations. The contracts so described in the Prospectus or
listed as exhibits to the Registration Statement or incorporated therein are in
full force and effect on the date hereof; and neither the Company nor any of its
Subsidiaries, nor to the best of the Company's knowledge, any other party is in
breach of or default under any of such contracts except as to breaches or
defaults, which in any single case or in the aggregate would not have a material
adverse effect on the financial condition or business prospects of the Company
or any Subsidiary. Complete and fully executed copies of such contracts were
provided to counsel for the Underwriters and there exist no agreements or other
documents which modify, change or amend such contracts.
(k) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company or any of its Subsidiaries
is or may be a party, or of which property owned or leased by the Company or any
of its Subsidiaries is or may be the subject, or related to environmental or
employee matters, which action, suit or proceeding might, individually or in the
aggregate, prevent or adversely affect the transactions contemplated by this
Agreement or result in a material adverse change in the condition (financial or
otherwise), properties, business, results of operations or prospects of the
Company and its Subsidiaries; and no labor disturbance by the employees of the
Company or any of its Subsidiaries exists or is imminent which might be expected
to affect adversely such condition, properties, business, results of operations
or prospects. Except for the Limited Exclusion Order dated February 18, 1992 and
the Order to Cease and Desist dated February 18, 1992, each issued by the United
States International Trade Commission in connection with Investigation No.
337-TA-315, and the determination of the administrative law judge in connection
therewith, neither the Company nor any of its Subsidiaries is a party or subject
to the provisions of any injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
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(l) The Company and its Subsidiaries have good and marketable title to
all the properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except (i) those, if any,
reflected in such financial statements (or elsewhere in the Prospectus), or (ii)
those which are not material in amount and do not adversely affect the use made
and proposed to be made of such property by the Company and any of its
Subsidiaries. The Company and its Subsidiaries hold their respective leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company. Except as
disclosed in the Prospectus, the Company and its Subsidiaries own or lease all
such properties as are necessary to their respective operations as now conducted
or as proposed to be conducted.
(m) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
Subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or written
agreement or other transaction which is not in the ordinary course of business
or which could result in a material reduction in the future revenues or earnings
of the Company and its subsidiaries; (ii) the Company and its Subsidiaries have
not sustained any material loss or interference with their respective businesses
or properties from fire, flood, windstorm, accident or other calamity, whether
or not covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock and the
Company and its Subsidiaries are not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been any change
in the capital stock (other than upon the sale of the Common Shares hereunder
and upon the issuance of capital stock on the exercise of options and warrants
or pursuant to a stock purchase plan, in each case as described in or
contemplated by the Registration Statement and the Prospectus) or indebtedness
material to the Company and its Subsidiaries (other than in the ordinary course
of business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of operations
or prospects of the Company and its Subsidiaries.
(n) Except as disclosed in or contemplated by the Prospectus (i) the
Company and its Subsidiaries have sufficient trademarks, trade names, patent
rights, mask works, copyrights, licenses, approvals and governmental
authorizations to conduct their businesses as now conducted and as contemplated
to be conducted; (ii) the expiration of any trademarks, trade names, patent
rights, mask works, copyrights, licenses, approvals or governmental
authorizations, in any single case or in the aggregate, would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company or its Subsidiaries; and (iii)
the Company has no knowledge of any infringement by it or its subsidiaries of
trademark, trade name rights, patent rights, mask works, copyrights, licenses,
trade secret or other similar rights of others, and there is no claim being made
against the Company or its Subsidiaries regarding trademark, trade name, patent,
mask work, copyright, license, trade secret or other infringement which could
have a material adverse effect on the condition (financial or otherwise),
business, results of operations, properties or prospects of the Company and its
Subsidiaries.
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(o) The Company has not been advised, and has no reason to believe,
that either it or any of its Subsidiaries is not conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is or they are conducting business, including, without limitation,
all applicable local, state and federal, tax, employment and environmental laws
and regulations; except where failure to be so in compliance would not
materially adversely affect the condition (financial or otherwise), business,
results of operations, properties or prospects of the Company and its
Subsidiaries.
(p) The Company and its Subsidiaries have accurately filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown as due thereon; and have established an adequate accrual or
reserve for the payment of all taxes payable in respect of the periods
subsequent to the periods covered by the most recent applicable tax returns. The
Company has no knowledge of any tax deficiency, penalty or interest whether with
respect to federal, state, local or foreign income, franchise, excise, property,
sales, use, employment, license, payroll, occupation taxes or otherwise, which
has been or might be asserted or threatened against the Company or its
Subsidiaries other than a tax deficiency, penalty or interest which is contested
in good faith and which would not materially and adversely affect the condition
(financial or otherwise), business, results of operations, properties or
prospects of the Company and its Subsidiaries.
(q) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute prior to
the First Closing Date any offering material in connection with the offering and
sale of the Common Shares other than the Prospectus, the related Preliminary
Prospectus, the Registration Statement and the other materials permitted by the
Act.
(s) Each of the Company and its Subsidiaries maintains insurance of the
types and in the amounts generally deemed adequate for its business, including,
but not limited to, insurance covering real and personal property owned or
leased by the Company and its Subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(t) Neither the Company nor any of its Subsidiaries has at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States of any jurisdiction thereof.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
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(v) The Common Stock is duly listed and quoted on the Nasdaq National
Market.
(w) The Company has obtained agreements from each director and
executive officer of the Company, providing that such person will not, for a
period of ninety (90) days after the first date that any of the Common Shares
are released by you for sale to the public, directly or indirectly, sell, offer
to sell, contract to sell, or otherwise sell or dispose of, or agree to dispose
of, any shares of Common Stock or any options or warrants to purchase any shares
of Common Stock, or any securities convertible into or exchangeable for any
shares of Common Stock, other than (i) as a bona fide gift or gifts where prior
notice is provided to you and the donee agrees to be bound to the agreement or
(ii) with the prior written consent of Montgomery Securities, which consent may
be withheld at the sole discretion of Montgomery Securities. Each such person
has also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent and registrar against the transfer of shares of
Common Stock held by such person or entity, unless such person is in compliance
with the foregoing restrictions.
(x) The Company has filed all reports required to be filed pursuant to
the Act and the Exchange Act and the Rules and Regulations promulgated
thereunder.
(y) The Company has satisfied the conditions for use of Form S-3, as
set forth in the General Instructions thereto, with respect to the Registration
Statement.
SECTION 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SELLING STOCKHOLDERS
(a) Each of the Selling Stockholders represents and warrants to, and
agrees with, each of the Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing
Date and any Second Closing Date hereinafter mentioned will have, good and
marketable title to the Common Shares proposed to be sold by such Selling
Stockholder hereunder on such Closing Date, free and clear of all voting trust
arrangements, liens, encumbrances, equities, security interests, restrictions
and claims whatsoever; and full right, power and authority to enter into this
Agreement and to sell, assign, transfer and deliver such Common Shares hereunder
and upon delivery of and payment for such Common Shares hereunder, the
Underwriters will acquire good and marketable title thereto, free and clear of
any and all liens, encumbrances, equities, claims, security interests, voting
trusts or other defects of title whatsoever.
(ii) Such Selling Stockholder has executed and delivered a
Power of Attorney and caused to be executed and delivered on his behalf a
Custody Agreement (hereinafter collectively referred to as the "Stockholders
Agreement") and in connection herewith such Selling Stockholder
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further represents, warrants and agrees that such Selling Stockholder has
deposited in custody, under the Stockholders Agreement, with the agent named
therein (the "Agent") as custodian, certificates in negotiable form for the
Common Shares to be sold hereunder by such Selling Stockholder, for the purpose
of further delivery pursuant to this Agreement. Such Selling Stockholder agrees
that the Common Shares to be sold by such Selling Stockholder on deposit with
the Agent are subject to the interests of the Company and the Underwriters, that
the arrangements made for such custody are to that extent irrevocable, and that
the obligations of such Selling Stockholder hereunder shall not be terminated,
except as provided in this Agreement or in the Stockholders Agreement, by any
act of such Selling Stockholder, by operation of law, by the death or incapacity
of such Selling Stockholder or by the occurrence of any other event. If the
Selling Stockholder should die or become incapacitated, or if any other event
should occur, before the delivery of the Common Shares hereunder, the documents
evidencing Common Shares then on deposit with the Agent shall be delivered by
the Agent in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether or
not the Agent shall have received notice thereof. This Agreement and the
Stockholders Agreement have been duly executed and delivered by or on behalf of
such Selling Stockholder and the form of such Stockholders Agreement has been
delivered to you.
(iii) The performance of this Agreement and the Stockholders
Agreement and the consummation of the transactions contemplated hereby and by
the Stockholders Agreement will not result in a breach or violation by such
Selling Stockholder of any of the terms or provisions of, or constitute a
default by such Selling Stockholder under, any indenture, mortgage, will, deed
of trust, note agreement or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder or any of its
properties is bound, any statute, or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to such
Selling Stockholder or any of his properties.
(iv) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or which has constituted or
which might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock of the Company to
facilitate the sale or resale of the Common Shares.
(v) Each Preliminary Prospectus and the Prospectus, insofar
as it has related to such Selling Stockholder, has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and has
not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made; and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, as it
relates to such Selling Stockholder, will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(vi) Such Selling Stockholder is not aware that any of the
representations and warranties set forth in Section 2 above are untrue or
inaccurate in any material respect.
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(b) Each of the Selling Stockholders agrees with the Underwriters not
to sell or offer to sell, contract to sell or otherwise sell or dispose of, any
shares of Common Stock or any options or warrants to purchase any shares of
Common Stock or any securities convertible into or exchangeable for shares of
Common Stock, owned directly by such Selling Stockholder or with respect to
which such Selling Stockholder has the power of disposition, for a period of
ninety (90) days after the first date that any of the Common Shares are released
by you for sale to the public, other than (i) as a bona fide gift or gifts where
prior notice is provided to you and the donee agrees to be bound by the
provisions of this Section 3(b) or (ii) with the prior written consent of
Montgomery Securities, which consent may be withheld at the sole discretion of
Montgomery Securities. Each of the Selling Stockholders further agrees and
consents to the entry of stop transfer instructions with the Company's transfer
agent and registrar against the transfer of shares of Common Stock held by such
Selling Stockholder, unless such Selling Stockholder is in compliance with the
foregoing restrictions.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS
Each of the Underwriters represents and warrants to the Company and to
the Selling Stockholders that the information set forth (i) on the cover page of
the Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus was furnished
to the Company by and on behalf of the Underwriters for use in connection with
the preparation of the Registration Statement and the Prospectus and is correct
in all material respects.
SECTION 5
PURCHASE, SALE AND DELIVERY OF COMMON SHARES
On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, (i) the
Company agrees to issue and sell to the Underwriters 3,300,000 of the Firm
Common Shares, and (ii) the Selling Stockholders agree, severally and not
jointly, to sell to the Underwriters in the respective amounts set forth in
Schedule B hereto, an aggregate of 100,000 of the Firm Common Shares. The
Underwriters agree, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, the number of Firm Common Shares
described below. The purchase price per share to be paid by the several
Underwriters to the Company and to the Selling Stockholders, respectively, shall
be $_____ per share.
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The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 3,300,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholders shall be to purchase from the Selling
Stockholders that number of full shares which (as nearly as practicable, as
determined by you) bears to 100,000 the same proportion as the number of shares
set forth opposite the name of such Underwriter in Schedule A hereto bears to
the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Underwriters) at such time
and date, not later than the fifth full business day following the first date
that any of the Common Shares are released by you for sale to the public, as you
shall designate by at least forty-eight (48) hours prior notice to the Company
(or at such other time and date, not later than one week after such fifth full
business day as may be agreed upon by the Company and the Underwriters) (the
"First Closing Date"); provided, however, that if the Prospectus is at any time
prior to the First Closing Date recirculated to the public, the First Closing
Date shall occur upon the later of the fifth full business day following the
first date that any of the Common Shares are released by you for sale to the
public or the date that is forty-eight (48) hours after the date that the
Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or
on behalf of the Company and the Selling Stockholders to you, for the respective
accounts of the Underwriters with respect to the Firm Common Shares to be sold
by the Company and by the Selling Stockholders against payment by you, for the
accounts of the several Underwriters, of the purchase price therefor by
certified or official bank checks payable in next day funds to the order of the
Company and of the Agent in proportion to the number of Firm Common Shares to be
sold by the Company and the Selling Stockholders, respectively. The certificates
for the Firm Common Shares shall be registered in such names and denominations
as you shall have requested at least two (2) full business days prior to the
First Closing Date, and shall be made available for checking and packaging on
the business day preceding the First Closing Date at a location in San
Francisco, California or such other place as may be designated by you. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company and the one Selling Stockholder designated on Schedule B,
severally and not jointly, hereby grant an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 510,000 Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you for the
account of the Underwriters in the sale and distribution of the Firm Common
Shares. Such Selling Stockholder grants an option to the several Underwriters to
purchase that number of Optional Common Shares as is set forth on
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Schedule B and the Company grants an option to the several Underwriters
to purchase the remaining number of Optional Common Shares. The option granted
hereunder may be exercised at any time (but not more than once) within thirty
(30) days after the first date that any of the Common Shares are released by you
for sale to the public, upon notice by you to the Company and said Selling
Stockholder setting forth the aggregate number of Optional Common Shares as to
which the Underwriters are exercising the option, the names and denominations in
which the certificates for such shares are to be registered and the time and
place at which such certificates will be delivered. Such time of delivery (which
may not be earlier than the First Closing Date), being herein referred to as the
"Second Closing Date," shall be determined by you, but if at any time other than
the First Closing Date shall not be earlier than three nor later than five (5)
full business days after delivery of such notice of exercise. If the option is
exercised for less than all of the Optional Common Shares, the number of
Optional Common Shares to be purchased from the Company and such Selling
Stockholder shall be allocated proportionately based upon the respective ratio
the aggregate number of Optional Common Shares granted by each of the Company
and the Selling Stockholder bears to the aggregate Optional Common Shares
granted by all parties. The number of Optional Common Shares to be purchased by
each Underwriter from the Company and such Selling Stockholder shall be
determined by multiplying the aggregate number of Optional Common Shares to be
sold by the Company and such Selling Stockholder pursuant to such notice of
exercise by a fraction, the numerator of which is the number of Firm Common
Shares to be purchased by such Underwriter as set forth opposite its name in
Schedule A and the denominator of which is 3,400,000 (subject to such
adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in San Francisco, California or such other place as
may be designated by you. The manner of payment for and delivery of the Optional
Common Shares shall be the same as for the Firm Common Shares purchased from the
Company and said Selling Stockholder as specified in the two preceding
paragraphs. At any time before lapse of the option, you may cancel such option
by giving written notice of such cancellation to the Company and said Selling
Stockholder. If the option is canceled or expires unexercised in whole or in
part, the Company will deregister under the Act the number of Option Shares as
to which the option has not been exercised.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as soon
after the effective date of the Registration Statement as in the judgment of the
Underwriters is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the Prospectus.
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SECTION 6
COVENANTS OF THE COMPANY
The Company covenants and agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly advise you in writing (i) of the receipt of
any comments of the Commission, (ii) of any request of the Commission for
amendment of or supplement to the Registration Statement (either before or after
it becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the lifting
of such order at the earliest possible moment. The Company will not file any
amendment or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus or file any
document under the Exchange Act if such document would be deemed to be
incorporated by reference into the Preliminary Prospectus or Prospectus, of
which you have not been furnished with a copy a reasonable time prior to such
filing or to which you reasonably object or which is not in compliance with the
Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or the Prospectus which in your judgment may be necessary or advisable to enable
the several Underwriters to continue the distribution of the Common Shares and
will use its best efforts to cause the same to become effective as promptly as
possible. The Company will fully and completely comply with the provisions of
Rule 430A of the Rules and Regulations with respect to information omitted from
the Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in Section
10(a)(3) of the Act during which a prospectus relating to the Common Shares is
required to be delivered under the Act any event occurs, as a result of which
the Prospectus, including any amendments or supplements, would include an untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or if
it is necessary at any time to amend the Prospectus, including any amendments or
supplements, or to file under the Exchange Act any document which would be
deemed to be incorporated by reference in the
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Prospectus, in order to comply with the Exchange Act, the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will promptly
prepare and file with the Commission, at its own expense, an amendment,
supplement or document which will correct such statement or omission, an
amendment, supplement or document which will effect such compliance and will use
its best efforts to cause the same to become effective as soon as possible; and,
in case any Underwriter is required to deliver a prospectus after such
nine-month period, the Company upon request, but at the expense of such
Underwriter, will promptly prepare such amendment or amendments to the
Registration Statement and such Prospectus or Prospectuses or file such document
as may be necessary to permit compliance with the requirements of Section
10(a)(3) of the Act.
(d) As soon as practicable, but not later than forty-five (45) days
after the end of the first quarter ending after one (1) year following the
"effective date of the Registration Statement" (as defined in Rule 158(c) of the
Rules and Regulations), the Company will make generally available to its
security holders an earnings statement (which need not be audited) covering a
period of twelve (12) consecutive months beginning after the effective date of
the Registration Statement which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the Company, at
its expense, but only for the nine-month period referred to in Section 10(a)(3)
of the Act, will furnish to you or mail to your order copies of the Registration
Statement, the Prospectus, the Preliminary Prospectus and all amendments and
supplements to any such documents (including any documents filed under the
Exchange Act and deemed to be incorporated by reference into the Prospectus), in
each case as soon as available and in such quantities as you may reasonably
request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions from
the application of) the U.S. Blue Sky laws of such jurisdictions as you
designate, will comply with such laws and will continue such qualifications,
registrations and exemptions in effect so long as reasonably required for the
distribution of the Common Shares. The Company shall not be required to qualify
as a foreign corporation or to file a general consent to service of process in
any such jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise you
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such purpose,
and in the event of the issuance of any order suspending such qualification,
registration or exemption, the Company, with your cooperation, will use its best
efforts to obtain the withdrawal thereof.
(g) During the period of five (5) years hereafter, or, if shorter, for
so long as required by law, the Company will furnish to each of the
Underwriters: (i) as soon as practicable after the end of each fiscal year,
copies of the Annual Report of the Company containing the balance sheet of the
Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public
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accountants; (ii) as soon as practicable after the filing thereof, copies of
each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Report on Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of its Common
Stock.
(h) During the period of ninety (90) days after the first date that any
of the Common Shares are released by you for sale to the public, without the
prior written consent of Montgomery Securities (which consent may be withheld at
the sole discretion of Montgomery Securities), the Company will not, other than
pursuant to outstanding stock options and warrants or otherwise pursuant to the
Company's stock option, stock purchase or other stock plans disclosed in the
Prospectus, issue, offer, sell, grant options to purchase or otherwise dispose
of any of the Company's equity securities or any other securities convertible
into or exchangeable with its Common Stock or other equity security.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.
(j) The Company will maintain a transfer agent and registrar for its
Common Stock.
(k) For the Company's third fiscal quarter of fiscal 1995, the Company
will engage Price Waterhouse LLP to perform a review pursuant to SAS No. 71 with
respect to the Company's quarterly financial statements, and the Company will
not release its quarterly earnings prior to the completion of such procedures.
You, on behalf of the Underwriters, may, in your sole discretion, waive
in writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
SECTION 7
PAYMENT OF EXPENSES
Whether or not the transactions contemplated hereunder are consummated
or this Agreement becomes effective or is terminated, the Company agrees to pay,
all costs, fees and expenses incurred in connection with the performance of its
and the Selling Stockholders' obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
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the Company's counsel and the Company's independent accountants, (v) all costs
and expenses incurred in connection with the preparation, printing, filing,
shipping and distribution of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements provided for herein, this Agreement, and the
Blue Sky memorandum, (vi) all filing fees, attorneys' fees and expenses incurred
by the Company or the Underwriters in connection with qualifying or registering
(or obtaining exemptions from the qualification or registration of) all or any
part of the Common Shares for offer and sale under U.S. Blue Sky laws and
Canadian securities laws, (vii) the filing fee of the NASD, and (viii) all other
fees, costs and expenses referred to in Item 14 of the Registration Statement;
provided that each Selling Stockholder shall pay the underwriting discount
attributable to the sale of his Common Shares. Except as provided in this
Section 7 and in Sections 9 and 11 hereof, the Underwriters shall pay all of
their own expenses, including the fees and disbursements of their counsel
(excluding those relating to qualification, registration or exemption under U.S.
Blue Sky laws and Canadian securities laws and the Blue Sky Memorandum referred
to above). This Section 7 shall not affect any agreements relating to the
payment of expenses between the Company and the Selling Stockholders.
SECTION 8
CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS
The obligations of the several Underwriters to purchase and pay for the
Firm Common Shares on the First Closing Date and the Optional Common Shares on
the Second Closing Date shall be subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Stockholders herein
set forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., Washington, D.C. time, on the date of this Agreement, or at such
later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, the Selling Stockholders or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have been
complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital
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stock of the Company or any of its subsidiaries other than pursuant to the
exercise of outstanding options or warrants disclosed in the Prospectus or the
issuance of capital stock or grant of options or other rights pursuant to the
Company's stock option, stock purchase or other stock plans disclosed in the
Prospectus, or any material change in the indebtedness (other than in the
ordinary course of business) of the Company or any of its subsidiaries, (ii)
except as set forth or contemplated by the Registration Statement or the
Prospectus, no material verbal or written agreement or other transaction shall
have been entered into by the Company or any of its subsidiaries, which is not
in the ordinary course of business or which could result in a material reduction
in the future revenues or earnings of the Company and its subsidiaries, (iii) no
loss or damage (whether or not insured) to the property of the Company or any of
its subsidiaries shall have been sustained which materially and adversely
affects the condition (financial or otherwise), business, results of operations
or prospects of the Company and its subsidiaries, (iv) no legal or governmental
action, suit or proceeding affecting the Company or any of its subsidiaries
which is material to the Company and its subsidiaries or which materially
adversely affects or may materially adversely affect the transactions
contemplated by this Agreement shall have been instituted or threatened, and (v)
there shall not have been any material change in the condition (financial or
otherwise), business, management, results of operations or prospects of the
Company and its subsidiaries which makes it impractical or inadvisable in the
judgment of the Underwriters to proceed with the public offering or purchase the
Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as the Underwriters, on
each Closing Date, in form and substance satisfactory to you, except as
otherwise expressly provided below:
(i) An opinion of Fenwick & West, counsel for the Company
and all Selling Stockholders, addressed to the Underwriters and dated
the First Closing Date, or the Second Closing Date, as the case may be,
to the effect that:
(1) Each of the Company and its subsidiaries in Japan
and Malaysia (the "Material Subsidiaries") has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation,
is duly qualified to do business as a foreign corporation and
is in good standing in all other jurisdictions where the
ownership or leasing of properties or the conduct of its
business requires such qualification, except for jurisdictions
in which the failure to so qualify would not have a material
adverse effect on the Company or its Material Subsidiaries
taken as a whole, and has full corporate power and authority
to own, lease and operate its properties and conduct its
business as described in the Registration Statement and the
Prospectus;
(2) QED has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the state of its incorporation. To the best of such counsel's
knowledge, QED is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where
the ownership or leasing of properties or the conduct of its
business requires such qualification, except for
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such jurisdictions in which the failure to so qualify would
not have a material adverse effect on the Company or QED,
taken as a whole, and to such counsel's knowledge, QED has
full corporate power and authority to own, lease and operate
its properties and conduct its business as described in the
Registration Statement and the Prospectus. To the knowledge of
such counsel, the Company owns 2,200,000 shares of Common
Stock of QED and 1,440,000 shares of the Series A Preferred of
QED. To the knowledge of such counsel, the shares of QED
capital stock issued to the Company have been duly and validly
authorized and issued, are fully paid and nonassessable and
are owned beneficially by the Company free and clear of all
liens, encumbrances, equities, claims, security interests,
voting trusts or other defects of tithes whatsoever. To the
best of such counsel's knowledge, QED is not in violation of
or default under a provision of its charter, bylaws, or other
organizational document, or in violation, breach of or default
with respect to any provision of any agreement, lease, license
or other instrument between QED and the Company.
(3) The authorized, issued and outstanding capital
stock of the Company at October 2, 1994 is as set forth under
the caption "Capitalization" in the Prospectus; all necessary
and proper corporate proceedings have been taken in order to
authorize validly such authorized Common Stock; all
outstanding shares of Common Stock (including the Firm Common
Shares and any Optional Common Shares) which have been issued
within the past three (3) years have been duly and validly
issued, are fully paid and nonassessable, have been issued in
compliance with federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or
to the best of such counsel's knowledge other rights to
subscribe for or purchase any securities, and conform to the
description thereof contained in the Prospectus; without
limiting the foregoing, there are no preemptive or to the best
of such counsel's knowledge other rights to subscribe for or
purchase any of the Common Shares to be sold by the Company
hereunder;
(4) To the best of such counsel's knowledge, all of the
issued and outstanding shares of the capital stock of the
Company's Material Subsidiaries have been duly and validly
authorized and issued, are fully paid and nonassessable and
are owned beneficially by the Company (other than director's
qualifying shares, if any) free and clear of all liens,
encumbrances, equities, claims, security interests, voting
trusts or other defects of title whatsoever;
(5) The certificates evidencing the Common Shares to
be delivered hereunder, if any, are in due and proper form
under Delaware law, and the certificates representing the
Common Shares to be sold by the Company, when duly
countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the
agreed consideration therefor in accordance with the
provisions of this Agreement, the Common Shares represented
thereby will be duly authorized and validly issued, fully paid
and nonassessable, will not have
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been issued in violation of or subject to any preemptive
rights or, to the best of such counsel's knowledge, other
rights granted by the Company to subscribe for or purchase
securities or any agreement to which the Company or any of its
Material Subsidiaries is a party or bound, and will conform in
all respects to the description thereof contained in the
Prospectus;
(6) Except as disclosed or incorporated by reference
in or contemplated by the Prospectus, to the best of such
counsel's knowledge, there are no outstanding options,
warrants or other rights calling for the issuance of, and no
commitments, plans or arrangements to issue, any shares of
capital stock of the Company or any security convertible into
or exchangeable for capital stock of the Company;
(7) (a) The Registration Statement has become
effective under the Act, and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement or preventing the use of the Prospectus
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
any required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) of the Rules and Regulations
has been made in the manner and within the time period
required by such Rule 424(b);
(b) To the best of such counsel's knowledge,
there are no franchises, leases, contracts, agreements or
documents of a character required to be disclosed or described
in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement (or required to be
filed under the Exchange Act if upon such filing they would be
incorporated, in whole or in part, by reference therein) which
are not so disclosed, described or filed, as required by
Regulation S-K of the Rule and Regulations; and
(c) To the best of such counsel's knowledge,
there are no legal or governmental actions, suits or
proceedings pending or threatened against the Company which
are required to be disclosed or described in the Prospectus
which are not described as required by Regulation S-K of the
Rule and Regulations; and
(8) The Company has full right, power and authority
to enter into this Agreement and to sell and deliver the
Common Shares to be sold by it to the several Underwriters and
this Agreement has been duly and validly authorized by all
necessary corporate action by the Company and has been duly
and validly executed and delivered by and on behalf of the
Company; and no approval, authorization, order, consent,
registration, filing, qualification, license or permit of or
with any court, regulatory, administrative or other
governmental body is required for the execution and delivery
of this Agreement by the Company or the consummation of the
transactions contemplated by this Agreement, except such as
have been obtained and are in full force and effect under the
Act and such as may be required under applicable
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U.S. Blue Sky laws in connection with the purchase and
distribution of the Common Shares by the Underwriters and the
clearance of such offering with the NASD;
(9) The execution and performance of this Agreement
and the consummation of the transactions herein contemplated
will not conflict with, result in the breach of, or
constitute, either by itself or upon notice or the passage of
time or both, a default under, any agreement, mortgage, deed
of trust, lease, franchise, license, indenture, permit or
other instrument which the Company or any of its Material
Subsidiaries is a party or by which the Company, any of its
Material Subsidiaries or any of its or their property may be
bound or affected which is filed as an exhibit to the
Registration Statement or the Company's Annual Report on Form
10-K for fiscal 1994, or violate any of the provisions of the
certificate of incorporation or bylaws, or other
organizational documents, of the Company or any of its
Material Subsidiaries or, so far as is known to such counsel,
violate any statute, judgment, decree, order, rule or
regulation of any court or governmental body having
jurisdiction over the Company or any of its Material
Subsidiaries or any of its or their property;
(10) Neither the Company nor, to the best of such
counsel's knowledge, any of the Company's Material
Subsidiaries is in violation of or default under any provision
of its charter, bylaws, or other organizational documents;
neither the Company nor any of its Material Subsidiaries is,
to the best of such counsel's knowledge, in violation, breach
of or default with respect to any provision of any agreement,
judgment, decree, order mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument
which the Company or any of its Material Subsidiaries is a
party or by which the Company or any of its Material
Subsidiaries's respective properties is or are bound or
affected which is filed as an exhibit to the Registration
Statement or the Company's Annual Report on Form 10-K for
fiscal 1994, except where such violation, breach or default
would not materially and adversely affect the Company or any
of its Material Subsidiaries.
(11) To the best of such counsel's knowledge, no
holders of securities of the Company have rights which have
not been exercised, waived or expired to the registration of
shares of Common Stock or other securities, because of the
filing of the Registration Statement by the Company or the
offering contemplated hereby;
(12) To the best of such counsel's knowledge, this
Agreement and the Stockholders Agreement have been duly
authorized, executed and delivered by or on behalf of each of
the Selling Stockholders; the Agent has been duly and validly
authorized to act as the custodian of the Common Shares to be
sold by each such Selling Stockholder; and the performance of
this Agreement and the Stockholders Agreement and the
consummation of the transactions herein contemplated by the
Selling Stockholders will not result in a breach of, or
constitute a default under, any
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indenture, mortgage, will, deed of trust, note agreement or
other agreement or instrument known to such counsel to which
any of the Selling Stockholders is a party or by which any of
the Selling Stockholders or any of their properties may be
bound, or violate any statute, judgment, decree, order, rule
or regulation known to such counsel of any court or
governmental body having jurisdiction over any of the Selling
Stockholders or any of their properties; and to the best of
such counsel's knowledge, no consent, approval, authorization
or order of any court, governmental agency or body is required
for the execution and delivery of this Agreement or the
Stockholders Agreement or the consummation by the Selling
Stockholders of the transactions contemplated by this
Agreement, except such as have been obtained and are in full
force and effect under the Act and such as may be required
under the rules of the NASD and applicable U.S. Blue Sky laws;
(13) To the best of such counsel's knowledge, the
Selling Stockholders have full right, power and authority to
enter into this Agreement and the Stockholders Agreement and
to sell, transfer and deliver the Common Shares to be sold on
such Closing Date by such Selling Stockholders hereunder.
Assuming the Underwriters are acquiring such Common Shares in
good faith and without notice of any adverse claim, the
Underwriters will be the owners of such Common Shares so sold,
free and clear of all liens, equities, claims, restrictions,
security interests, voting trusts, or other encumbrances; and
(14) No transfer tax is required to be paid in
connection with the sale and delivery of the Common Shares to
the Underwriters hereunder.
In rendering such opinion, such counsel may rely as to matters
governed by the laws of states or jurisdictions other than California, the
General Corporation Law of the State of Delaware and Article 8 of the Uniform
Commercial Code as enacted in the State of Delaware, or federal laws, and
judicial interpretations of each of them, on opinions of local counsel, as to
matters set forth in paragraph (2), on an opinion of Holtzmann, Wise & Shepard
and, as to matters of fact, on certificates of the Selling Stockholders and of
officers of the Company and of governmental officials, in which case their
opinion is to state that they are so doing and that the Underwriters are
justified in relying on such opinions or certificates and copies of said
opinions or certificates are to be attached to the opinion. In addition to the
matters set forth above, counsel rendering the foregoing opinion shall also
include a statement to the effect that, although they have not independently
verified the accuracy or completeness of the statements contained in the
Registration Statement and Prospectus, based upon their participation in the
preparation of the Registration Statement and Prospectus and their review and
discussion of the contents thereof, nothing has come to such counsel's attention
during the course of their representation that leads such counsel to believe (i)
that the Registration Statement, the Prospectus and each amendment or supplement
thereto including the documents incorporated by reference therein (except for
the financial statements and schedules included therein as to which such counsel
need not express any statement) did not comply as to form as of their respective
filing dates with the Commission in all material respects with the requirements
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of the Act and the Rules and Regulations, (ii) that (except for the financial
statements and schedules as to which such counsel need not express any
statement) the Registration Statement and Prospectus included therein at the
time the Registration Statement became effective did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) that (except for the financial statements and schedules as to which such
counsel need not express any statement) the Registration Statement and
Prospectus and any amendment or supplement thereto effected on or before the
First Closing Date or the Second Closing Date, as the case may be, does not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(ii) Such opinion or opinions of Wilson Sonsini Goodrich &
Rosati, counsel for the Underwriters dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to the
incorporation of the Company, the sufficiency of all corporate
proceedings and other legal matters relating to this Agreement, the
validity of the Common Shares, the Registration Statement and the
Prospectus and other related matters as you may reasonably require, and
the Company and the Selling Stockholders shall have furnished to such
counsel such documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of enabling them
to pass upon such matters. In connection with such opinions, such
counsel may rely on representations or certificates of officers of the
Company, Selling Stockholders and governmental officials.
(iii) A certificate of the Company executed by the Chairman of
the Board or President and the chief financial or accounting officer of
the Company, dated the First Closing Date or the Second Closing Date,
as the case may be, to the effect that:
(1) The representations and warranties of the Company
set forth in Section 2 of this Agreement are true and correct
as of the date of this Agreement and as of the First Closing
Date or the Second Closing Date, as the case may be, and the
Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied on or
prior to such Closing Date;
(2) The Commission has not issued any order
preventing or suspending the use of the Prospectus or any
Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending
the effectiveness of the Registration Statement has been
issued; and to the best of the knowledge of the respective
signers, no proceedings for that purpose have been instituted
or are pending or contemplated under the Act;
(3) Each of the respective signers of the certificate
has carefully examined the Registration Statement and the
Prospectus, and any amendments or supplements thereto
(including any documents filed under the Exchange Act and
deemed to be incorporated by reference into the Prospectus);
in his opinion and to the best of his
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knowledge, the Registration Statement and the Prospectus and
any amendments or supplements thereto contain all statements
required to be stated therein regarding the Company and its
subsidiaries; and at the time the Registration Statement
became effective, neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto included
any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary
to make the statements therein not misleading; and at all
times subsequent to the Registration Statement becoming
effective, up to and including the date of such certificate,
neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, includes any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral,
transaction or event has occurred which should have been set
forth in an amendment to the Registration Statement or in a
supplement to or amendment of any prospectus which has not
been disclosed in such a supplement or amendment, and there
has been no document required to be filed under the Exchange
Act that upon such filing would be deemed to be incorporated
by reference into the Prospectus that has not been so filed;
(5) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as disclosed in or contemplated by the
Prospectus, there has not been any material adverse change or
a development involving a material adverse change in the
condition (financial or otherwise), business, properties,
results of operations, management or prospects of the Company
and its subsidiaries; and no legal or governmental action,
suit or proceeding is pending or threatened against the
Company or any of its subsidiaries that is material to the
Company and its subsidiaries, whether or not arising from
transactions in the ordinary course of business, or that may
adversely affect the transactions contemplated by this
Agreement; since such dates and except as so disclosed,
neither the Company nor any of its subsidiaries has entered
into any verbal or written agreement or other transaction that
is not in the ordinary course of business or which could
result in a material reduction in the future revenues or
earnings of the Company or incurred any material liability or
obligation, direct, contingent or indirect, made any change in
its capital stock (except pursuant to the Company's stock
option, stock purchase or other stock plans disclosed in the
Prospectus), made any material change in its short-term debt
or funded debt or repurchased or otherwise acquired any of the
Company's capital stock; and the Company has not declared or
paid any dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders of record on
a date prior to the First Closing Date or Second Closing Date;
and
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(6) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus and except as disclosed in or contemplated by the
Prospectus, the Company and its subsidiaries have not
sustained a material loss or damage by strike, fire, flood,
windstorm, accident or other calamity (whether or not
insured).
(iv) On the First Closing Date or the Second Closing Date, as
the case may be, a certificate, dated such Closing Date and addressed
to you, signed by or on behalf of each of the Selling Stockholders to
the effect that the representations and warranties of such Selling
Stockholder in this Agreement are true and correct, as if made at and
as of the First Closing Date or the Second Closing Date, as the case
may be, and such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on his part to be performed
or satisfied prior to the First Closing Date or the Second Closing
Date, as the case may be.
(v) On the date before this Agreement is executed and also on
the First Closing Date and the Second Closing Date a letter addressed
to you, as the Underwriters, from each of Price Waterhouse LLP,
independent accountants, the first one from such independent accountant
to be dated the day before the date of this Agreement, the second one
from such independent accountant to be dated the First Closing Date and
the third one (in the event of a Second Closing) from such independent
accountant to be dated the Second Closing Date, each in form and
substance satisfactory to you.
(vi) On or before the First Closing Date, letters from each
of the Selling Stockholders, and each director and executive officer of
the Company, in form and substance satisfactory to you, confirming that
for a period of ninety (90) days after the first date that any Common
Shares are released by you for sale to the public, such person will not
sell or offer to sell, contract to sell, or otherwise sell or dispose
of, any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock, owned directly by such person
or with respect to which such person has the power of disposition other
than (i) as a bona fide gift or gifts where prior notice is provided to
you and the donee agrees to be bound by the foregoing agreement or (ii)
without the prior written consent of Montgomery Securities, which
consent may be withheld at the sole discretion of Montgomery
Securities. Each such person shall also agree and consent to the entry
of stock transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock held by such
person or entity, unless such person is in compliance with the
foregoing restrictions.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters. The Company
shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any
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officer of the Company and delivered to the Underwriters or to counsel for the
Underwriters shall be deemed to be a representation and warranty by the Company
to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Underwriters to the Company and the Selling Stockholders without liability on
the part of any Underwriter or the Company or the Selling Stockholders except
for the expenses to be paid or reimbursed by the Company and by the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
SECTION 9
REIMBURSEMENT OF UNDERWRITERS' EXPENSES
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriters of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you upon demand for all out-of-pocket
expenses that shall have been reasonably incurred by you in connection with the
proposed purchase and the sale of the Common Shares, including but not limited
to fees and disbursements of counsel, printing expenses, travel expenses,
postage, telegraph charges and telephone charges relating directly to the
offering contemplated by the Prospectus. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section 9 and Sections 7 and 11 hereof shall at all times be effective and shall
apply.
SECTION 10
EFFECTIVENESS OF REGISTRATION STATEMENT
You, the Company and the Selling Stockholders will use your, its and
their best efforts to cause the Registration Statement to become effective, to
prevent the issuance of any stop order suspending the effectiveness of the
Registration Statement and, if such stop order be issued, to obtain as soon as
possible the lifting thereof.
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SECTION 11
INDEMNIFICATION
(a) The Company and, subject to Section 11(f) hereof, each of the
Selling Stockholders, jointly and severally, agree to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages, liabilities
or expenses, joint or several, to which such Underwriter or such controlling
person may become subject, under the Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) (i) arise out of
or are based in whole or in part upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or (ii) arise out of or are based in whole or in part upon the omission or
alleged omission to state in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto a material
fact required to be stated therein or necessary to make the statements in any of
them not misleading, or (iii) arise out of or are based in whole or in part on
any inaccuracy in the representations and warranties of the Company or any
Selling Stockholders contained herein or any failure of the Company or any
Selling Stockholders to perform their respective obligations hereunder or under
law; and will reimburse each Underwriter and each such controlling person for
any legal and other expenses as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that (i) neither the Company
nor the Selling Stockholders will be liable in any such case to the extent that
any such loss, claim, damage, liability or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 4
hereof, (ii) with respect to any untrue statement or omission or alleged untrue
statement or omission made in any Preliminary Prospectus or the Prospectus, the
indemnity agreement contained in this paragraph shall not inure to the benefit
of any Underwriter (or any person controlling such Underwriter) from whom the
person asserting any such losses, claims, damages, liabilities or expenses
purchased the Common Shares which are the subject thereof to the extent that any
such loss, claim, damage, liability or expense results from the fact that the
untrue statement or omission has been corrected in the Prospectus or any
amendment or supplement thereto but a copy of the Prospectus, the amendment or
supplement (as the case may be) was not sent or given to such person at or prior
to the written confirmation of the sale of such Common Shares to such person in
any case where such delivery is required by the Act, and if the untrue statement
or omission has been corrected in the Prospectus, unless such failure to deliver
the Prospectus, the amendment or the supplement (as the case may be) was as a
result of noncompliance by the Company with the obligations under Section 6(a)
hereof, (iii) no Selling Stockholder shall be required to provide
indemnification hereunder to an Underwriter with respect to any loss, claim,
damage, liability or expense until such
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Underwriter or such control person seeking indemnification shall have first made
a demand on the Company with respect to such loss, claim, damage, liability or
expense, and the Company shall have either rejected such demand or failed to
make such requested payment within ninety (90) days after receipt of such
demand, and (iv) each Selling Stockholder required to provide indemnification
hereunder shall only be liable under this Section 11(a) for the proportion of
any such losses, claims, damages, liabilities or expenses which the number of
Common Shares sold by such Selling Stockholder bears to the total number of
Common Shares sold hereunder by all such Selling Stockholders required to
provide indemnification hereunder. The Company and the Selling Stockholders may
agree, as among themselves and without limiting the rights of the Underwriters
under this Agreement, as to their respective amounts of such liability for which
they each shall be responsible.
In addition to their other obligations under this Section 11(a), the
Company and (subject to the provisions of Section 11(f) hereof) the Selling
Stockholders jointly and severally agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, or any inaccuracy in the representations and warranties of the
Company or any Selling Stockholders herein or failure to perform their
respective obligations hereunder, all as described in this Section 11(a)
(subject to the provisions of Section 11(f) hereof), they will reimburse each
Underwriter on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
or the Selling Stockholders' obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within
thirty (30) days of a request for reimbursement, shall bear interest at the
Prime Rate from the date of such request. The Company and each of the
Underwriters agree with the Selling Stockholders that any claim of such
Underwriter against the Selling Stockholders for the advancement of expenses
shall first be sought by such Underwriter to be satisfied in full by the Company
and, shall be satisfied by the Selling Stockholders only to the extent such
claim has not been satisfied in full by the Company within the foregoing thirty
(30) day period following the date requested for payment in accordance with the
terms of this Agreement and subject to the limitations on liability set forth in
Section 11(f) hereof. This indemnity agreement will be in addition to any
liability which the Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Stockholder or controlling person may become
subject, under the Act,
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the Exchange Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and will reimburse the
Company, or any such director, officer, Selling Stockholder or controlling
person for any legal and other expense reasonably incurred by the Company, or
any such director, officer, Selling Stockholder or controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action. In addition to its other
obligations under this Section 11(b), each Underwriter severally agrees that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 11(b)
which relates to information furnished to the Company pursuant to Section 4
hereof, it will reimburse the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) on a quarterly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Company (and, to the extent applicable, each officer, director, controlling
person or Selling Stockholder) for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) shall promptly
return it to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) within thirty (30)
days of a request for reimbursement, shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such
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indemnified party seeks or intends to seek indemnity from an indemnifying party,
the indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel, approved by the Underwriters in the case of paragraph (a),
representing the indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 11 is required
by its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Stockholders and the Underwriters from the offering of the
Common Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the Selling Stockholders and the Underwriters in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company, the
Selling Stockholders and the Underwriters shall be deemed to be in the same
proportion, in the case of the Company and the Selling Stockholders as the total
price paid to the Company and to the Selling Stockholders, respectively, for the
Common Shares sold by them to the Underwriters (net of underwriting commissions
but before deducting expenses), and in the case of the Underwriters as the
underwriting commissions received by them bears to the total of such amounts
paid to the Company and to the Selling Stockholders and received by the
Underwriters as under-
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writing commissions. The relative fault of the Company, the Selling Stockholders
and the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or the
alleged inaccurate representation and/or warranty relates to information
supplied by the Company, the Selling Stockholders or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in subparagraph (c) of this Section 11, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in subparagraph (c) of
this Section 11 with respect to notice of commencement of any action shall apply
if a claim for contribution is to be made under this subparagraph (d); provided,
however, that no additional notice shall be required with respect to any action
for which notice has been given under subparagraph (c) for purposes of
indemnification. The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 11 were determined solely by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. Notwithstanding the
provisions of this Section 11, no Underwriter shall be required to contribute
any amount in excess of the amount of the total underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public and a Selling Stockholder's liability shall
be subject to the provisions set forth in Section 11(f) hereof. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 11 are several in proportion to their respective
underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 11(a) and 11(b)
hereof, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration must be commenced by service of a
written demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Sections 11(a) and 11(b)
hereof and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of such
Sections 11(a) and 11(b) hereof.
(f) Notwithstanding anything else in this Section 11 to the contrary
(i) the aggregate liability of each Selling Stockholder for indemnification,
contribution, reimbursement of expenses
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or otherwise under this Section 11 shall not exceed the aggregate amount of the
net proceeds received by such Selling Stockholder from the sale of the Common
Shares by such Selling Stockholder to the Underwriters pursuant to the terms
hereof and (ii) the aggregate liability of the Selling Stockholders for
indemnification, contribution, reimbursement of expenses or otherwise under this
Section 11 shall not exceed $3,000,000.
SECTION 12
DEFAULT OF UNDERWRITERS
It shall be a condition to this Agreement and the obligations of the
Company and the Selling Stockholders to sell and deliver the Common Shares
hereunder, and of each Underwriter to purchase the Common Shares in the manner
as described herein, that, except as hereinafter in this paragraph provided,
each of the Underwriters shall purchase and pay for all the Common Shares agreed
to be purchased by such Underwriter hereunder upon tender to the Underwriters of
all such shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Common Shares hereunder on
either the First or Second Closing Date and the aggregate number of Common
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the nondefaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of Common
Shares with respect to which such default occurs is more than the above
percentage and arrangements satisfactory to the Underwriters and the Company for
the purchase of such Common Shares by other persons are not made within
forty-eight (48) hours after such default, this Agreement will terminate without
liability on the part of any nondefaulting Underwriter or the Company or the
Selling Stockholders except for the expenses to be paid by the Company and the
Selling Stockholders pursuant to Section 7 hereof and except to the extent
provided in Section 11 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the nondefaulting Underwriters or by another party or parties, the
Underwriters or the Company shall have the right to postpone the First or Second
Closing Date, as the case may be, for not more than five (5) business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
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SECTION 13
EFFECTIVE DATE
This Agreement shall become effective immediately as to Sections 7, 9,
11, 14 and 16 and, as to all other provisions, (i) if at the time of execution
of this Agreement the Registration Statement has not become effective, at 2:00
P.M., California time, on the first full business day following the
effectiveness of the Registration Statement or (ii) if at the time of execution
of this Agreement the Registration Statement has been declared effective, at
2:00 P.M., California time, on the first full business day following the date of
execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by release of
any of the Common Shares for sale to the public. For the purposes of this
Section 13, the Common Shares shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Common
Shares or upon the release by you of telegrams (i) advising Underwriters that
the Common Shares are released for public offering or (ii) offering the Common
Shares for sale to securities dealers, whichever may occur first.
SECTION 14
TERMINATION
Without limiting the right to terminate this Agreement pursuant to any
other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
and the Selling Stockholders or by you by notice to the Company and the Selling
Stockholders at any time prior to the time this Agreement shall become effective
as to all its provisions, and any such termination shall be without liability on
the part of the Company or the Selling Stockholders to any Underwriter (except
for the expenses to be paid or reimbursed by the Company and the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof) or of any Underwriter to the Company or the
Selling Stockholders (except to the extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
Exchange or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred
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or shall have accelerated or escalated to such an extent, as, in the judgment of
the Underwriters, to affect adversely the marketability of the Common Shares,
(iii) if any adverse event shall have occurred or shall exist which makes untrue
or incorrect in any material respect any statement or information contained in
the Registration Statement or Prospectus or which is not reflected in the
Registration Statement or Prospectus but should be reflected therein in order to
make the statements or information contained therein not misleading in any
material respect, or (iv) if there shall be any action, suit or proceeding
pending or threatened, or there shall have been any development or prospective
development involving particularly the business or properties or securities of
the Company or any of its subsidiaries or the transactions contemplated by this
Agreement, which, in the reasonable judgment of the Underwriters, may materially
and adversely affect the Company's business or earnings and makes it
impracticable or inadvisable to offer or sell the Common Shares. Any termination
pursuant to this subsection (b) shall without liability on the part of any
Underwriter to the Company or the Selling Stockholders or on the part of the
Company or the Selling Stockholders to any Underwriter (except for expenses to
be paid or reimbursed by the Company and the Selling Stockholders pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof.
SECTION 15
FAILURE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER
If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Stockholders at the First or Second Closing Date under the terms of this
Agreement, then the Underwriters may at their option, by written notice from you
to the Company and the Selling Stockholders, either (i) terminate this Agreement
without any liability on the part of any Underwriter or, except as provided in
Sections 7, 9 and 11 hereof, the Company or the Selling Stockholders or (ii)
purchase the shares which the Company and other Selling Stockholders have agreed
to sell and deliver in accordance with the terms hereof. In the event of a
failure by one or more of the Selling Stockholders to sell and deliver as
referred to in this Section, either you or the Company shall have the right to
postpone the applicable Closing Date for a period not exceeding seven (7)
business days in order that the necessary changes in the Registration Statement,
Prospectus and any other documents, as well as any other arrangements, may be
effected.
SECTION 16
REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers, of the Selling Stockholders
and of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any
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investigation made by or on behalf of any Underwriter or the Company or any of
its or their partners, officers or directors or any controlling person, or the
Selling Stockholders, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.
SECTION 17
NOTICES
All communications hereunder shall be in writing and, if sent to the
Underwriters shall be mailed, delivered or telegraphed and confirmed to you at
600 Montgomery Street, San Francisco, California 94111, Attention: David Baylor,
with a copy to Jeffrey D. Saper, Wilson Sonsini Goodrich & Rosati, 650 Page Mill
Road, Palo Alto, California 94304; and if sent to the Company or the Selling
Stockholders shall be mailed, delivered or telegraphed and confirmed to the
Company at 2975 Stender Way, Santa Clara, California 95054, Attention: Leonard
C. Perham, with a copy to Dennis R. DeBroeck, Fenwick & West, Two Palo Alto
Square, Suite 800, Palo Alto, California 94306. The Company, the Selling
Stockholders or you may change the address for receipt of communications
hereunder by giving notice to the others.
SECTION 18
SUCCESSORS
This Agreement will inure to the benefit of and be binding upon the
parties hereto, including any substitute Underwriters pursuant to Section 12
hereof, and to the benefit of the officers and directors and controlling persons
referred to in Section 11, and in each case their respective successors,
personal representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder. The term "successors" shall not include any purchaser of
the Common Shares as such from any of the Underwriters merely by reason of such
purchase.
SECTION 19
REPRESENTATION OF UNDERWRITERS
Any action under or in respect of this Agreement taken by you jointly
or by Montgomery Securities will be binding upon all the Underwriters.
-36-
<PAGE>
SECTION 20
PARTIAL UNENFORCEABILITY
The invalidity or unenforceability of any Section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other Section, paragraph or provision hereof. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 21
APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
the internal laws (and not the laws pertaining to conflicts of laws) of the
State of California.
SECTION 22
GENERAL
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in several counterparts, each one of
which shall be an original, and all of which shall constitute one and the same
document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
Any person executing and delivering this Agreement as attorney-in-fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as attorney-in-fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such attorney-in-fact to
take such action. Any action taken under this Agreement by any of the
attorneys-in-fact will be binding on all the Selling Stockholders.
-37-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement between among the Company, the Selling
Stockholders and the several Underwriters including you, all in accordance with
its terms.
Very truly yours,
INTEGRATED DEVICE TECHNOLOGY, INC.
By:
----------------------------------------
Leonard C. Perham
SELLING STOCKHOLDERS
By:
----------------------------------------
(attorney-in-fact)
D. JOHN CAREY
By:
----------------------------------------
Title:
-------------------------------------
LEONARD C. PERHAM
By:
----------------------------------------
Title:
-------------------------------------
-38-
<PAGE>
WEST COAST VENTURE CAPITAL LTD.
By:
----------------------------------------
Title:
-------------------------------------
[---------------------------]
By:
----------------------------------------
Title:
-------------------------------------
-39-
<PAGE>
The foregoing Underwriting Agreement is
hereby confirmed and accepted by us in
San Francisco, California as of the date
first above written.
MONTGOMERY SECURITIES;
LEHMAN BROTHERS INC.; AND
SMITH BARNEY INC.
By: MONTGOMERY SECURITIES
By:
-------------------------------------
Richard A. Smith
Managing Director
-40-
<PAGE>
SCHEDULE A
NUMBER OF FIRM
COMMON SHARES
NAME OF UNDERWRITER TO BE PURCHASED
- ------------------- ----------------
Montgomery Securities......................................
Lehman Brothers Inc........................................
Smith Barney Inc...........................................
----------------
TOTAL............................................
-41-
<PAGE>
SCHEDULE B
NUMBER OF OPTIONAL
NUMBER OF FIRM COMMON COMMON SHARES
SHARES TO BE SOLD BY TO BE SOLD BY
NAME OF SELLING STOCKHOLDER SELLING STOCKHOLDER SELLING STOCKHOLDER
- ----------------------------- ----------------------- ---------------------
D. John Carey .................. 50,000
Leonard C. Perham............... 50,000
West Coast Venture Capital Ltd.. --
-------
TOTAL .................. 100,000
=======
-42-
EXHIBIT 5.01
November 14, 1994
Integrated Device Technology, Inc.
2975 Stender Way
Santa Clara, CA 95054
Ladies and Gentlemen:
At your request, we have examined the Registration Statement filed by you
with the Securities and Exchange Commission ("SEC") on November 15, 1994 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of up to 3,910,000 shares of your Common
Stock (the "Stock"), up to 610,000 shares of which are presently issued and
outstanding and will be sold by certain Selling Stockholders (the "Selling
Stockholders"). The Stock is to be sold to the underwriters named in said
Registration Statement for resale to the public.
As your counsel, we have examined the proceedings taken by you in connection
with the issuance and sale by you of up to 3,810,000 shares of the Stock and the
sale by the Selling Stockholders of up to 610,000 shares of the Stock.
It is our opinion that the up to 610,000 shares of the Stock that will be
sold by the Selling Stockholders are legally and validly issued and are fully
paid and nonassessable, and that the up to 3,810,000 shares of the Stock that
may be issued and sold by you, when issued and sold in the manner referred to in
the Registration Statement, will be legally and validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the Prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
Fenwick & West
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated April 27, 1994 relating
to the financial statements of Integrated Device Technology, Inc. which appears
in such Prospectus. We also consent to the incorporation by reference in the
Prospectus constituting part of this Registration Statement on Form S-3 of our
report dated April 27, 1994 appearing on page 12 of Integrated Device
Technology, Inc.'s Annual Report on Form 10-K for the year ended April 3, 1994.
We also consent to the references to us under the heading "Experts," "Risk
Factors" and "Selected Financial Data" in such Prospectus. However, it should be
noted that Price Waterhouse has not prepared or certified such "Selected
Financial Data."
PRICE WATERHOUSE LLP
San Jose, California
November 11, 1994
<TABLE>
<CAPTION>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of Integrated Device Technology,
Inc., a Delaware corporation, do hereby constitute and appoint Leonard C. Perham
and William D. Snyder, and each of them, the lawful attorneys and agents or
attorney and agent, with power and authority to do any and all acts and things
and to execute any and all instruments which said attorneys and agents, and any
one of them, determine may be necessary or advisable or required to enable said
corporation to comply with the Securities Act of 1933, as amended, and any rules
or regulations or requirements of the Securities and Exchange Commission in
connection with this Registration Statement. Without limiting the generality of
the foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and directors in the
capacities indicated below to this Registration Statement, to any and all
amendments, both pre-effective and post-effective, and supplements to this
Registration Statement, and to any and all instruments or documents filed as
part of or in conjunction with this Registration Statement or amendments or
supplements thereof, and each of the undersigned hereby ratifies and confirms
that said attorneys and agents or any of them shall do or cause to be done by
virtue hereof. This Power of Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
SIGNATURE TITLE DATE
- --------------------- ------------------------------------------ -------------------------
<S> <C> <C>
--------------------- Chairman of the Board November , 1994
D. John Carey
/s/ LEONARD C. PERHAM Chief Executive Officer, President and November 14, 1994
- ----------------------- Director
Leonard C. Perham
/s/ WILLIAM D. SNYDER Vice President, Finance and Chief November 14, 1994
- ----------------------- Financial Officer (Principal Financial
William D. Snyder and Accounting Officer)
/s/ CARL E. BERG Director November 14, 1994
- -----------------------
Carl E. Berg
/s/ JOHN C. BOLGER Director November 14, 1994
---------------------
John C. Bolger
/s/ FEDERICO FAGGIN Director November 14, 1994
- ----------------------
Federico Faggin
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENTS OF OPERATIONS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-02-1995
<PERIOD-END> OCT-02-1994
<CASH> 87774
<SECURITIES> 38120
<RECEIVABLES> 63600
<ALLOWANCES> 3728
<INVENTORY> 32755
<CURRENT-ASSETS> 246971
<PP&E> 331684
<DEPRECIATION> 188514
<TOTAL-ASSETS> 397566
<CURRENT-LIABILITIES> 94360
<BONDS> 0
<COMMON> 34
0
0
<OTHER-SE> 260373
<TOTAL-LIABILITY-AND-EQUITY> 397566
<SALES> 190628
<TOTAL-REVENUES> 190628
<CGS> 80422
<TOTAL-COSTS> 80422
<OTHER-EXPENSES> 65904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1854
<INCOME-PRETAX> 45169
<INCOME-TAX> 11285
<INCOME-CONTINUING> 33884
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33884
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
</TABLE>
