SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Check One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 0-12695
INTEGRATED DEVICE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2669985
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2975 Stender Way,
Santa Clara, California 95054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 727-6116
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
5.5% Convertible Subordinated Notes due 2002
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant was approximately $1,203,292,000 as of April
28, 1996, based upon the closing sale price of $15.50 per share on the Nasdaq
National Market for that date. Shares of Common Stock held by each executive
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
There were 77,631,723 shares of the Registrant's Common Stock issued and
outstanding as of April 28, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, and 13 of Part III incorporate information by reference from
the 1996 Proxy Statement for the Annual Meeting of Stockholders to be held on
August 28, 1996.
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ITEM 1. BUSINESS
Integrated Device Technology, Inc. "IDT" or "the Company" designs,
develops, manufactures and markets a broad range of high-performance
semiconductor products for the communications, desktop computer, office
automation and workstation/server markets using advanced CMOS (complimentary
metal oxide silicon) process technology. 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 (reduced instruction set computers) microprocessors.
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, NEC, Nokia, Olivetti, Siemens Nixdorf, Silicon Graphics, Sun
Microsystems and Tektronix. The Company attempts to differentiate itself from
competitors through unique architecture, enhanced system cost, performance, and
packaging options.
IDT was incorporated in California in 1980 and reincorporated in
Delaware in 1987. The terms "the Company" and "IDT" refer to Integrated Device
Technology, Inc. and its consolidated subsidiaries, unless the context indicates
otherwise.
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. During fiscal 1996, these product families accounted for 46%,
27%, 17% and 10%, respectively, of total revenues of $679.5 million. The Company
markets its products primarily to OEMs in the communications, desktop computer,
office automation and workstation/server markets. IDT's product design efforts
are focused on proprietary components and integration of 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 traditional DRAM
products. 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 is focused primarily on the cache memory segment of the
SRAM market. The Company's SRAM product strategy is to offer high-performance 5
volt and 3.3 volt SRAM
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components and modules that have differentiated features optimized to work with
specified microprocessors, such as Intel Pentium, PowerPC and MIPS RISC
microprocessors.
Cache memory provides intermediate storage between fast microprocessors
and relatively slow traditional 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 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 and cache tag SRAMs that support Intel and PowerPC
microprocessors. The Company's cache SRAM components are often integrated into
cache memory modules. These modules typically include a 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 1996, the Company announced Fusion Memory* technology, with
production scheduled to begin during fiscal 1997. Fusion Memory products use
DRAM technology and function with speed comparable to some SRAM products. DRAM
technology offers lower production costs than required to produce equivalent
density SRAM products. The Company believes that Fusion Memory products can
supplement the Company's existing SRAM product offerings and will be available
initially in a 1 Megabit product.
In order to provide SRAM products that meet the varying needs of its
customers, IDT uses CMOS process technology and offers 16K, 64K, 256K and 1
Megabit SRAMs in a number of speed, organization, power and packaging
configurations.
Specialty Memory Products. The Company's proprietary specialty memory
products include FIFOs and multi-port memories 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 bridges,
hubs, routers and switches.
*Fusion Memory is a trademark of Integrated Device Technology, Inc.
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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 newer networking products.
The Company is a leading supplier of multi-port memory products. IDT's
family of multi-port memories is composed primarily of dual-port asynchronous
devices. The Company also offers four-port products, a synchronous dual-port
device and 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. During
fiscal 1996, IDT announced and shipped revenue units of its first product for
the ATM market. The first member of this ATM family, a SAR (segmentation and
reassembly) chip, is a highly integrated, low cost interface device for ATM
network cards. Other members of the ATM family will include low-cost physical
media interface devices, as well as more highly-integrated SAR devices for 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 logic products are available in small packages, enabling
board area to be reduced. These products are designed for new applications in
which small size, low power and extra low noise are as important as high speed.
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 3.3 volt systems in the
notebook and laptop computers 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. IDT is a licensed manufacturer of MIPS
RISC microprocessors. IDT manufactures 32-bit and 64-bit MIPS microprocessors
and IDT derivative products for the communications, office automation,
workstation/server and desktop computer markets.
The Company focuses its RISC microprocessor 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 embedded controllers, including devices with
on-circuit SRAM cache memory and floating point functions.
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In 1996, the Company introduced the R5000, IDT's first 64-bit
superscalar microprocessor, which is available with clock speeds of up to 200
Mhz. In 1993, the Company introduced its ORION*R4600* microprocessor, which is
capable of clock speeds of up to 150 Mhz. The R5000 and R4600 are higher
performance derivatives of the 64-bit R4000 and R4400 microprocessors developed
by MIPS Computer Systems (MIPS). MIPS was acquired by Silicon Graphics (SGI) in
1992 and the R4000 and R4400 were introduced by the Company and other MIPS
licensees in 1992 and 1993, respectively. The R5000 was developed for SGI by
Quantum Effect Design, Inc. ("QED"), an affiliate of IDT. Through agreements
with SGI, IDT obtained a license to manufacture and sell the R5000. The R4600
was developed for the Company by QED. Systems based on the ORION family of
microprocessors are targeted at both embedded and desktop applications.
CUSTOMERS
The Company markets and sells its products primarily to OEMs in the
communications, desktop computer, office automation and workstation/server
markets. Customers often purchase products from more than one of the Company's
product families. In fiscal 1996, one OEM customer, Apple Computer Inc.,
accounted for 12 % of the Company's revenue. The following is an alphabetical
listing of current representative end-user customers of the Company, by market:
DESKTOP OFFICE WORKSTATION/
COMMUNICATIONS COMPUTER AUTOMATION SERVER
--------------- ------------ ----------------- -------------------
Alcatel Apple Computer Canon Digital Equipment
AT&T AST Research Electronics For Imaging EMC
Bay Networks Compaq Computer QMS NEC
Cabletron Dell Computer Samsung Siemens Nixdorf
Cisco Systems Gateway Computers Tektronix Silicon Graphics
Ericsson Groupe Bull Texas Instruments Sun Microsystems
FORE Systems Hewlett-Packard Toshiba
Fujitsu IBM Xerox
Motorola ICL
Nokia Intel
Siemens Olivetti
* R4600 and Orion are trademarks of Integrated Device Technology, Inc.
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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 77 direct sales personnel in the United States at March
31, 1996. Such personnel are located at the Company's headquarters and in 18
sales offices in Alabama, California, Colorado, Florida, Georgia, Illinois,
Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Oregon
and Texas, and are primarily responsible for marketing and sales in those areas.
IDT also utilizes four national distributors, Hamilton Hallmark, Future
Electronics, Wyle Laboratories and Insight Electronics, Inc. and several
regional distributors in the United States. Hamilton Hallmark accounted for 11%,
13% and 15% of the Company's revenues in fiscal 1996, 1995 and 1994,
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 55 direct sales personnel and eleven sales offices
located outside of the United States at March 31, 1996. Sales activities outside
North America are generally controlled by IDT's subsidiaries located in France,
Germany, Hong Kong, Italy, Japan, Sweden and the United Kingdom. The Company
also has sales offices in Taiwan, Singapore and Israel. The Company continues to
emphasize its direct marketing efforts to OEMs in Europe and to United States
companies with operations in the Asia/Pacific area. A significant portion 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 1994, 1995 and 1996, export sales
accounted for 32%, 39% and 40% of total revenues, respectively. Sales outside
the United States are generally denominated in local currencies. Sales and other
financial information for foreign operations is included in Note 12 of the
Consolidated Financial Statements contained elsewhere in this Form 10K. 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 currently operates sub-micron
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wafer fabrication facilities in San Jose and Salinas, California, and is
currently qualifying for sale products fabricated in the new facility in
Hillsboro, Oregon. The Salinas facility, first placed in production in fiscal
1986, includes a 24,000 square foot, class 3 (less than three particles 0.5
micron or greater in size per cubic foot) six-inch wafer fabrication line. 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. Construction commenced on the
Oregon facility in August 1994 and was completed in 1996, and it is expected the
Oregon facility will contribute to revenues in fiscal 1997. The facility is
192,000 square feet and contains a 48,000 square foot, class 1, eight-inch wafer
fabrication line. The Company currently estimates that the cost to construct,
equip, and bring this facility to full production capacity, excluding assets
leased through the tax ownership lease transaction described in Note 7 of the
Consolidated Financial Statements, will be approximately $425 to $450 million.
Through March 31, 1996, excluding the tax ownership lease assets, the Company
has spent $150 million on the Oregon facility. The Company believes the
construction of the facility in Oregon reduces the Company's risk of a natural
disaster affecting all of its wafer fabrication facilities which, excluding the
Oregon facility, are all currently located in Northern California. If demand for
the Company's products does not fully utilize the additional capacity provided
by the Oregon facility, the incremental fixed costs and operating expenses may
materially adversely affect the Company's results of operations and financial
condition.
IDT also operates component assembly and test facilities which
aggregate 145,000 square feet 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 takes place both domestically and offshore.
The Company has been operating its wafer fabrication facilities in
Salinas and San Jose and its assembly operations in Malaysia at approximate
installed equipment capacity since fiscal 1994. To address its capacity
requirements, in fiscal 1996 the Company completed the conversion of its Salinas
wafer fabrication facility from five-inch to six-inch wafers. In late fiscal
1995, the Company acquired an interest in approximately 10 acres of land in the
Philippines and is constructing an assembly and test facility which initially
will be 176,000 square feet. Construction of the building is expected to be
completed in mid-fiscal 1997. The Company has the capability to expand to
accommodate growth. The Company estimates the costs to acquire the land,
construct the building and equip the facility in multiple phases will total
approximately $75 million in capital expenditures, of which approximately $21
million will be spent in fiscal 1997.
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 the Oregon and Philippines
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facilities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company utilizes proprietary CMOS process technology permitting
sub-micron geometries. The majority of IDT's current products are manufactured
using its proprietary 0.65 micron processes, an increasing number are being
manufactured using the Company's new 0.5 micron processes and the Company is
currently developing several sub-0.5 micron CMOS processes.
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 continually 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. Manufacturing
problems with the new facility in Oregon or its existing wafer fabrication,
assembly or test facilities could materially adversely affect the Company's
results of operations.
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. 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 materially
adversely affect IDT.
BACKLOG
IDT manufactures and markets primarily standard products. Sales are
generally made pursuant to purchase orders, which are frequently revised to
reflect changes in the customer's requirements. The Company has also entered
into master purchase agreements with many 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 canceled. 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.
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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 processes. 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. The
Company maintains research and development centers in Northern California,
Atlanta, Georgia, Austin, Texas and Morrisville, North Carolina. In addition,
the new plant start-up costs associated with the Oregon wafer fabrication
facility will significantly impact research and development expenditures in
fiscal 1997. Research and development expenditures are set out in the
Consolidated Statement of Operations in the Consolidated Financial Statements
and as a percentage of revenues were 20%, 19% and 19% in fiscal 1996, 1995 and
1994, 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 Pentium, IBM and Motorola's
PowerPC, and SGI's MIPS RISC microprocessors. Additionally, the Company
continues its research into applications of Fusion Memory technology, with the
goal of expanding product offerings.
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. In fiscal 1996, the Company
continued its efforts to develop 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. The Company is emphasizing the design of RISC
microprocessors for embedded control applications, such as printers and
telecommunications switches. The Company also continues to refine its CMOS
process technology 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 continues to refine its CMOS process
technology focusing on sub-0.5 micron geometry processes and converting the
production of many products to newer generation processes.
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. QED also
designed the R5000 for SGI, and through agreements with SGI, IDT obtained a
license to manufacture and sell the R5000. The R5000 is targeted at 3-D
visualization, internetworking and office automation applications. Except for
the R5000, the Company owns such products, subject to the payment of royalties
and other fees to QED and SGI. IDT has licensed Toshiba and NKK to manufacture
and market certain of these products. With respect to the R5000, SGI owns the
intellectual property rights. There can be no assurance that QED will continue
to design products for the Company or be successful in developing such products.
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In addition, the Company is engaged in the development of microprocessors for
use in general applications at its research center in Austin Texas.
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,
intellectual property disputes, high capital equipment costs and availability
and control of manufacturing capacity. 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.
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 or lower power consumption. Price
competition, introductions of new products by IDT's competitors, delays in
product introductions by IDT or other competitive factors could have a material
adverse effect on the Company in the future.
INTELLECTUAL PROPERTY AND LICENSING
IDT has obtained 64 patents in the United States and 18 abroad and has
95 inventions in various stages of the patent application process, 86 of which
are in the United States. The Company intends to continue to increase the scope
of its patents. 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. There can be no assurance that any patents issued to the
Company will not be challenged, invalidated or circumvented, that the rights
granted thereunder will provide competitive advantages to the Company, or that
the Company's efforts generally to protect its intellectual property rights will
be successful.
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. The Company in the past has been involved in patent litigation which
adversely affected its operating results. Although the Company has obtained
patent licenses from certain semiconductor manufacturers, the Company does not
have licenses from a number of semiconductor manufacturers who have a broad
portfolio of patents. IDT has been notified that it may be infringing patents
issued to certain semiconductor manufacturers and other parties, and is
currently involved in several license negotiations. 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 made against the Company in the future or that licenses, to the
extent required, will be available. Should licenses
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from any such claimant be unavailable, or not be available on terms acceptable
to the Company, the Company may be required to discontinue its use of certain
processes or the manufacture, use and sale of certain of its products, to incur
significant litigation costs and damages, 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 that expire over time, and
the failure to renew or renegotiate 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 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. In December 1995, the agreement with AT&T was modified
to reflect AT&T's restructure into three legal entities, extend the agreement
for five years beyond the original expiration date and other agreed-upon
changes. 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 that TI will
realize certain revenues from the licensed technology and products, and IDT will
develop certain products which will be manufactured and sold by both IDT and TI.
See Note 5 of Notes to Consolidated Financial Statements.
ENVIRONMENTAL REGULATION
Federal, State and local provisions have been enacted regulating the
discharge and disposal into the environment of certain materials used in the
semiconductor manufacturing process. The Company's manufacturing facilities are
designed to comply with existing regulations, and the Company believes that its
activities conform to present regulations. The Company has been conducting its
operations with all necessary permits, and without material adverse impact
attributable to environmental regulation. However, there can be no assurance
that future additions or changes to environmental regulations will not impose
upon the Company the requirement for significant capital expenditure. Further,
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.
EMPLOYEES
At March 31, 1996, IDT and its subsidiaries employed 3,828 people
worldwide, of whom 1,389 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.
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ITEM 2. PROPERTIES
The Company presently occupies eight major facilities in California,
Oregon and Malaysia:
LOCATION FACILITY USE SQUARE FEET
--------- ------------- ------------
Salinas Wafer fabrication, SRAM and multiport 98,000
memory operations
Santa Clara Logic operation 62,000
Santa Clara Administration and RISC microprocessor 43,700
operations
Santa Clara Administration and other 50,000
operations
Santa Clara Administration ` 48,300
Penang, Malaysia Assembly and test 145,000
San Jose Wafer fabrication, process technology 135,000
development, FIFO and memory subsystems
operations, and research and development
Oregon Wafer fabrication 192,000
The Company leases its Salinas facility from Carl E. Berg, a director,
under a lease expiring in 2005 and in October 1994 purchased a 5.5 acre parcel
adjacent to its Salinas facility for $653,000 from Mr. Berg. IDT recently
entered into an agreement with Mr. Berg to acquire the Salinas facility in a
transaction structured as a tax free reorganization. IDT leases its Santa Clara
facilities under leases expiring in 1999 through 2015, including renewal
options. The Oregon facility is subject to a tax ownership operating lease.
Additional information about leased properties, including the purchase of the
Salinas facility, is provided in Note 7 of the Consolidated Financial
Statements. The Company owns its Malaysian and San Jose facilities, although the
Malaysian facilities are subject to long-term ground leases, and the San Jose
facility is subject to a mortgage. IDT leases offices for its sales force in 18
domestic locations as well as Edinburgh, Hong Kong, London, Milan, Munich,
Paris, Singapore, Stockholm, Taipei, Tel Aviv and Tokyo. IDT leases offices for
its design centers in Georgia, North Carolina and Texas. In late fiscal 1995,
the Company acquired an interest in approximately 10 acres of land in the
Philippines, and construction has commenced on a 176,000 square foot assembly
and test facility, which may be expanded in the future.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Registrant or any of
its subsidiaries is a party or of which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of the fiscal year ended March 31, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, and their respective ages as of April
30,1996 are as follows:
Name Age Position
----- --- --------
D. John Carey 59 Chairman of the Board
Leonard C. Perham 52 President & Chief Executive Officer
William B. Cortelyou 40 Vice President, Wafer Operations
Robin H. Hodge 56 Vice President, Assembly and Test
Alan H. Huggins 43 Vice President, Memory Division
Daniel L. Lewis 47 Vice President, Sales
Chuen-Der Lien 40 Vice President, Research and
Development, Chief
Technology Officer
Jack Menache 52 Vice President, General Counsel and
Secretary
Richard R. Picard 48 Vice President, Logic and Microprocessor
Products
Robert Phillips 51 Vice President, Manufacturing
William D. Snyder 51 Vice President, Finance and Chief
Financial Officer
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.
13
<PAGE>
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.
Effective May 15, 1996, Mr. Huggins resigned as an executive officer.
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.
Dr. Lien joined IDT in 1987 and was elected Vice President, Technology
Development in April 1992 and was elected Vice President, Research and
Development, Chief Technology Officer in 1996. 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. Phillips joined IDT in March 1995 as Vice President, Manufacturing.
Prior to joining IDT, Mr. Phillips was Vice President of Fab, Assembly and Test
Operations at Vitesse Semiconductor and Edsun Labs, and was President of PMT
Manufacturing Technology, Inc.
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.
14
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
The Common Stock of the Company is traded on The Nasdaq National Market under
the symbol "IDTI". The following table sets forth the high and low last reported
sales prices for the Common Stock as reported by the Nasdaq National Market
during the fiscal quarters indicated:
HIGH LOW
-------------------------------------
Fiscal 1996:
First Quarter 25 1/16 18 1/32
Second Quarter 33 1/4 22 9/16
Third Quarter 24 3/8 12 7/8
Fourth Quarter 14 7/8 9 1/4
Fiscal 1995:
First Quarter 15 11/16 11 15/16
Second Quarter 14 7/16 8 1/8
Third Quarter 15 1/32 9 1/4
Fourth Quarter 20 3/8 14 3/16
In August, 1995, the Company announced a two-for-one stock split in the form of
a stock dividend for stockholders of record on August 25, 1995. The distribution
of additional shares was on September 15, 1995. Price information for all
periods presented has been retroactively adjusted to reflect this stock
dividend.
As of April 28, 1996, there were approximately 1,427 record holders of the
Common Stock.
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.
15
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
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 Form 10-K.
<CAPTION>
FISCAL YEAR ENDED
------------------------------
MARCH 31, APRIL 2, APRIL 3, MARCH 28, MARCH 29,
1996 1995 1994 1993 1992 (1)
------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 679,497 $ 422,190 $ 330,462 $ 236,263 $ 202,734
Income (loss) before
extraordinary item $ 118,249 $ 78,302 $ 40,165 $ 5,336 ($32,808)
Net income (loss) $ 120,170 $ 78,302 $ 40,165 $ 5,336 ($32,808)
Primary earnings per share:
Income before extraordinary item $ 1.44 $ 1.05 $ 0.61 $ 0.09 ($0.62)
Net income $ 1.47 $ 1.05 $ 0.61 $ 0.09 ($0.62)
Fully diluted earnings per share:
Income before extraordinary item $ 1.42 $ 1.04 $ 0.60 $ 0.09 ($0.62)
Net income $ 1.44 $ 1.04 $ 0.60 $ 0.09 ($0.62)
Shares used in computing
net income (loss) per share:
Primary 81,897 74,765 66,232 59,402 52,510
Fully diluted 87,753 75,426 67,260 59,402 52,510
BALANCE SHEET DATA
Total assets $ 939,434 $ 561,975 $ 349,571 $ 239,994 $ 229,730
Long-term obligations,
excluding current portion $ 36,682 $ 36,595 $ 37,462 $ 48,987 $ 53,050
Convertible subordinated notes,
net of issuance costs $ 182,558
Stockholders' equity $ 549,727 $ 414,531 $ 224,367 $ 117,760 $ 104,602
Research & development expenses $ 133,317 $ 78,376 $ 64,237 $ 53,461 $ 52,044
Number of employees 3,828 2,965 2,615 2,414 2,159
<FN>
(1) In fiscal 1992, the Company recorded restructuring and other charges of
$24.8 million.
</FN>
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 1996, April 2, 1995 and April 3, 1994.
FISCAL YEAR ENDED
MARCH 31, APRIL 2, APRIL 3,
1996 1995 1994
-------------------------------
Revenues 100.0% 100.0% 100.0%
Cost of revenues 43.2 42.5 48.3
-------------------------------
Gross profit 56.8 57.5 51.7
-------------------------------
Operating expenses:
Research and development 19.6 18.6 19.4
Selling, general and administrative 13.1 15.3 16.5
-------------------------------
Total operating expenses 32.7 33.9 35.9
-------------------------------
Operating income 24.1 23.6 15.8
Net interest income 1.5 1.2 (0.6)
-------------------------------
Income before provision for income taxes 25.6 24.8 15.2
Provision for income taxes 8.2 6.2 3.0
Income before extraordinary item 17.4 18.6 12.2
-------------------------------
Extraordinary item:
Gain from early extinguishment of debt,
net of tax 0.3 -- --
-------------------------------
Net income 17.7% 18.6% 12.2%
===============================
17
<PAGE>
Overview
Revenues were $679.5 million in fiscal 1996, a 61% increase over fiscal
1995 of $422.2 million and a 106% increase over fiscal 1994 of $330.5 million.
Net income was $1.44 per fully diluted share in fiscal 1996 compared to $1.04 in
fiscal 1995 and $0.60 in fiscal 1994. During fiscal 1996, IDT made significant
progress in increasing capacity in Penang, Malaysia, completed the conversion of
the Salinas wafer facility from five-inch to six-inch wafers, started
construction of a new assembly and test facility in the Philippines and
completed construction of the Hillsboro, Oregon wafer facility. The Oregon
facility is expected to ship its first revenue units in the first quarter of
fiscal 1997.
Both revenues and profits were affected dramatically by a volatile
market for the Company's largest product line, SRAMs, which accounted for 46% of
IDT's total fiscal 1996 revenue. For the first two quarters of the fiscal year,
SRAMs were in great demand and prices rose. At the same time, through die
shrinks and better utilization of manufacturing capacity, IDT reduced costs of
production resulting in record operating margins despite startup costs
associated with the new Oregon plant. During the latter part of the year, SRAM
pricing began to fall significantly as a number of competitors, particularly
Taiwanese, shifted capacity to SRAMs. Shortly thereafter, demand for high speed
SRAMs by personal computer (PC) manufacturers slowed. The SRAM order rate
declined further as certain customers not only reduced SRAM order rates, but
also sold off excess SRAM inventory at low prices causing excess supply. As an
example of the market conditions, in less than six months, selling prices for
new orders on the industry-standard 3.3 volt 32Kx8 SRAM declined by as much as
80% from the peak. Consequently, while revenues and earnings grew sequentially
in the first three quarters of fiscal 1996, fourth quarter earnings and revenue
dropped significantly from the immediately preceding quarter and fourth quarter
earnings decreased compared to the same period in the prior year.
Results of Operations
Revenues of $679.5 million were achieved in fiscal 1996 through a
combination of improved selling prices on SRAM products shipped during the first
three quarters, higher output as the Company increased die production and
generally increased demand across all of IDT's other products. SRAM revenues
increased 90.3% to $315.4 million compared to fiscal 1995. Fiscal 1995 revenue
increased 28% over fiscal 1994 due to strong demand for fast SRAMs for secondary
cache requirements in the PC market. Looking forward, the Company does not
expect demand in the PC market will resume last year's growth rates, and is
uncertain as to whether pricing for commodity SRAMs will change.
Gross profit increased 59% to $385.8 million in fiscal 1996 when
compared to fiscal 1995 and 126% over the gross profit reported in fiscal 1994.
However, as a result of significant price declines on SRAM orders taken in the
second half of the year, IDT's gross profit as a percentage of revenue declined
to 56.8% in fiscal 1996 compared to 57.5% in fiscal 1995. Gross profit as a
percentage of revenue was 51.7% in fiscal 1994. While gross profit as a
percentage of revenue for the first three quarters of fiscal 1996 was not
appreciably different from the prior year, the fourth quarter declined to 54.3%.
Some markets such as telecommunications and datacommunications remained robust
throughout the year, but falling prices and orders in the PC market offset
strong performance for the remainder of the Company's market segments in the
third and fourth quarters. Costs associated with
18
<PAGE>
the Hillsboro, Oregon plant are expected to negatively impact gross margins in
fiscal 1997, while that plant is on a ramp to increase production. IDT's policy
is to expense new plant startup costs to research and development (R & D)
expense until a facility is ready to begin commercial production. In fiscal 1996
substantially all Oregon plant expenses, amounting to $ 18.5 million, were
charged to R & D expense, but as that plant reaches production status in fiscal
1997, an increasingly significant portion of the total costs will be allocated
to cost of goods sold, based upon activities performed.
R & D expenses increased 70% to $133.3 million in fiscal 1996 as
compared to $78.4 million in fiscal 1995, and $64.2 million in fiscal 1994. As a
percentage of revenue, R & D expense was 19.6% of fiscal 1996 revenue, an
increase from 18.6% in fiscal 1995. R & D expenses had been 19.4% of fiscal 1994
revenue. The increase in 1996 can be principally attributed to process
engineering research costs of approximately $18.5 million relative to the new
Oregon wafer fabrication plant. Other R & D activities included development of
sub 0.5 micron processes, the release of 20 new products, including IDT's first
product for the ATM (asynchronous transfer mode) market, the SAR (segmentation
and reassembly) chip, and further development and design of new products and
processes. The Company expects the startup of the new Oregon facility to
continue to impact R & D expense in fiscal 1997 but that total R & D expense as
a percentage of revenue will be reduced compared to fiscal 1996. IDT believes
that high levels of R & D investment is required to support its strategy of
providing products to its customers which are not readily available from
competitors.
Selling, general and administrative (S, G & A) expenses increased 37%
to $88.8 million in fiscal 1996, as compared to $64.6 million in fiscal 1995. As
a percentage of revenues, S, G & A expenses declined to 13.1% of fiscal 1996
revenue compared to 15.3% of fiscal 1995 revenue. Fiscal 1994 S, G & A expenses
were $54.3 million or 16.5% of revenue. The 1996 increase in S, G & A expenses
can be attributed to higher variable selling expenses associated with the
year-over-year revenue growth of 61%, increases in employee profit sharing and
management bonuses, increases in sales personnel and increases in provisions for
bad debts. In 1997, IDT plans to install an enterprise-wide management
information system and anticipates that S, G & A expenses will remain constant
as a percentage of revenues.
Interest expense was $9.3 million in fiscal 1996 as compared to $3.3
million and $5.2 million in fiscal years 1995 and 1994, respectively. Interest
expense increased in 1996 primarily due to the issuance of $201.3 million of 5
1/2% convertible subordinated notes issued in the first quarter of the fiscal
year. 1996 gross interest expense of $12.3 million was reduced by $3.0 million
in connection with capitalization of construction period interest for the Oregon
wafer fabrication plant. Despite retiring $15 million of the 5 1/2% convertible
subordinated notes in the fourth quarter resulting in an extraordinary gain (see
Note 5 of the Consolidated Financial Statements), interest expense is expected
to be higher in fiscal 1997, as the notes were not outstanding for all of fiscal
1996. Furthermore, interest capitalization will cease when the Oregon facility
is placed in production.
Interest income and other, net, increased to $19.4 million in fiscal
1996 compared to $8.2 million and $3.1 million in fiscal years 1995 and 1994,
respectively. The increase in interest income was due primarily to the
investment of higher cash balances from the proceeds of the issuance of $201.25
million of subordinated notes in the first quarter of fiscal 1996. Fiscal 1995
had been impacted favorably by a $97.6 million equity offering. As the Company
continues to pay cash for
19
<PAGE>
substantial capital equipment acquisitions, less cash will be available for
investment, resulting in lower interest income in fiscal 1997.
The effective tax rates for fiscal 1996, 1995 and 1994 of 32%, 25% and
20%, respectively, differed from the US statutory rate of 35% primarily due to
earnings of foreign subsidiaries being taxed at lower rates, and the utilization
of certain tax credits. The Company has consumed substantially all of the tax
benefits associated with its Malaysian subsidiary, and it has fully utilized
carried forward R&D tax credits.
The Company accounts for its stock option plans and its employee stock
purchase plan in accordance with provisions of the Accounting Principles Board's
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." In 1995 the
Financial Accounting Standards Board released the Statement of Financial
Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based
Compensation." While SFAS 123 provides an alternative to APB 25 and is effective
for fiscal years beginning after December 15, 1995, as permitted by SFAS 123,
the Company intends to continue to account for its employee stock plans in
accordance with APB 25. Consequently, SFAS 123 is not expected to have any
material impact on IDT's financial condition or results of operations.
Liquidity and Capital Resources
IDT's financial condition improved during fiscal 1996. Cash and
cash-equivalents and short term investments increased from $221.6 million at the
end of 1995 to $261.3 million at the end of 1996. Working capital increased from
$261.2 million to $286.2 million despite substantial cash investments in plant,
property and equipment. These increases were a result of improved profitability
as well as the issuance of the 5 1/2% convertible subordinated notes.
Additionally the Company has $67.8 million of cash classified as other assets,
which are pledged as security relative to the operating lease for the Oregon
facility. As of March 31, 1996, the Company had $5.4 million available under
unsecured lines of credit, all of which are overseas. See Note 6 of Notes to
Consolidated Financial Statements.
During fiscal 1996, 1995 and 1994 cash flow from operations was $200.9
million, $115.8 million and $100.1 million, respectively. Improved operating
results in fiscal 1995 and 1996 was the largest single factor affecting cash
flow from operations. Other factors contributing to greater cash flow from
operations include increases in accounts payable and other current liabilities.
See the Consolidated Statements of Cash Flows in the Consolidated Financial
Statements. IDT expects that increased depreciation expenses associated with its
recent and forecasted capital expenditures will be significant relative to
future cash flows from operations.
During fiscal 1996, 1995 and 1994 the Company's net cash used in
investing activities was $359.3 million, $163.2 million and $68.9 million,
respectively, of which $287.5 million, $94.7 million and $37.4 million,
respectively, was used for capital equipment and property and plant
improvements. In fiscal 1996, $57.3 million was used to collateralize the Oregon
facility lease. In fiscal 1994, financing activities generated $34.8 million,
the primary source of which was an equity offering which resulted in net cash of
$46.8 million. In fiscal 1995, financing activities generated $89.2 million, the
primary source of which was an equity offering in December 1994 which resulted
in net cash of $97.6
20
<PAGE>
million. In fiscal 1996, financing activities generated $185.4 million, the
primary source of which was the issuance of convertible subordinated debt (see
Note 5 of the Consolidated Financial Statements) which resulted in net cash of
$196.7 million.
In view of current and anticipated capacity requirements, IDT
anticipates capital expenditures of approximately $255 million in fiscal 1997,
principally in connection with continued installation of equipment in the new
Oregon facility plus the construction and partial equipping of the new
Philippine plant and other capacity improvements.
Looking forward, the Company believes that existing cash balances, cash
flow from operations, existing credit facilities and other financing
arrangements that are available will be sufficient to fund its anticipated
capital expenditures and working capital needs through fiscal 1997. If the
Company is required to seek other financing sooner, the unavailability of
financing on terms satisfactory to IDT could have a material adverse effect on
the Company.
Factors Affecting Future Results
Except for the historical information contained in this Annual Report
on Form 10-K, the matters discussed in this report are forward looking
statements. These forward looking statements concern matters that involve risks
and uncertainties, including but not limited to those set forth below, that
could cause actual results to differ materially from those projected in the
forward looking statements. In any event, the matters set forth below should be
carefully considered when evaluating the Company's business and prospects.
IDT's operating results have been, and in the future may be, subject to
fluctuations due to a wide variety of factors including the timing of or delays
in new product and process technology announcements and introductions by the
Company or its competitors, competitive pricing pressures, particularly in the
SRAM memory market, fluctuations in manufacturing yields, changes in the mix of
product 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 underutilization or expansion of production capacity, intellectual
property disputes, or other litigation. Further, 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 Companies operating results will not be
adversely affected by increased price competition.
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 the past year, markets for some of the Company's
SRAMs were characterized by excess demand relative to supply and the resulting
favorable pricing. During the later part of fiscal 1996, a number of companies,
principally foreign, shifted manufacturing capacity to SRAMs causing rapid
adjustments to supply and consequently impacting market prices. The resulting
significant downward trend in prices in an extremely short period negatively
affected SRAM gross margins, and adversely affected the Company's operating
results. A material increase in industry-wide production capacity, shift in
industry capacity toward products competitive with the Company's products,
reduced demand or other factors could result in a
21
<PAGE>
rapid decline in product pricing and could also materially adversely affect the
Company's operating results.
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. Furthermore, any decline in
the demand for advanced microprocessors which utilize SRAM cache memory could
adversely affect the Company's operating results. In addition, demand for
certain of the Company's products is dependent upon growth in the communications
market. Any slowdown in the computer and related peripherals or communications
markets could also materially adversely affect the Company's operating results.
The Company is operating its domestic wafer fabrication facilities and
Malaysian assembly operations at approximately installed equipment capacity. As
a result, the Company has utilized subcontractors for the majority of its
incremental assembly requirements, typically at higher costs that its own
Malaysian operations. The Company expects to continue utilizing subcontractors
extensively until it opens its Philippines assembly plant. At times during
fiscal 1996, as a result of production capacity constraints, the Company was not
able to take advantage of all market opportunities presented to it. Due to long
production lead times and current capacity constraints, any failure by the
Company to forecast adequately the mix of product demand could adversely affect
the Company's sales and operating results. To address its capacity requirements,
during the past year, the Company has undertaken extensive production expansion
programs including the construction of an eight-inch wafer fabrication line in
Oregon and an assembly and test facility in the Philippines. These expansion
programs face a number of substantial risks including, but not limited to,
delays in construction, cost overruns, equipment delays or shortages,
manufacturing start-up or process problems or difficulties in hiring key
managers and technical personnel. In addition, the Company has never operated an
eight-inch wafer fabrication facility. Accordingly, the Company could incur
unanticipated process or production problems. From time to time, the Company 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 facilities and constructing new facilities in
Oregon and the Philippines. 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 was able to obtain other production capability.
The Company's capacity additions will result in a significant increase
in fixed and operating expenses. Historically, the Company has expensed the
operating expenses associated with bringing a new fabrication facility to
commercial production as R&D in the period such expenses are incurred. However,
as commercial production at a new fabrication facility commences, the operating
costs will be classified as cost of revenues, and the Company will begin to
recognize depreciation expense relating to the facility. Accordingly, although
the Company expects the Oregon fabrication facility to contribute to revenues in
fiscal 1997, the Company will recognize substantial operating expenses
22
<PAGE>
associated with the facility in 1997, which could reduce gross margins.
Specifically, as commercial production begins in fiscal 1997, the Company
anticipates incurring substantial operating costs and depreciation expense
relating to the facility before production of substantial volume is achieved.
Accordingly, if revenue levels do not increase sufficiently to offset these
additional expense levels, or if the Company is unable to achieve gross margins
from products produced at the Oregon facility that are comparable to the
Company's current products, the Company's future results of operations could be
adversely impacted.
New products, process technology and start-up costs associated with the
Oregon wafer fabrication facility continue to require significant research and
development expenditures. However, 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. If the Company is unable to develop new products in a
timely manner, and to sell them at gross margins comparable to the Company's
current products, the future results of operations could be adversely impacted.
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.
The semiconductor industry is extremely capital-intensive. To remain
competitive, the Company must continue to invest in advanced manufacturing and
test equipment. In fiscal 1997, the Company expects to expend approximately $255
million in capital expenditures and anticipates significant continuing capital
expenditures in the next several years. There can be no assurance that the
Company will not be required to seek financing to satisfy its cash and capital
needs or that such financing will be available on terms satisfactory to the
Company. If such financing is required and if such financing is not available on
terms satisfactory to the Company, its operations would be materially adversely
affected.
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. 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. The Company in
the past has been involved in patent litigation, which adversely affected its
operating results. Although the Company has obtained patent licenses from
certain semiconductor manufacturers, the Company does not have licenses from a
number of semiconductor manufacturers who have a broad portfolio of patents. The
Company has been notified that it may be infringing patents issued to certain
semiconductor manufacturers and other parties and is currently involved in
several license negotiations. There can be no assurance that additional claims
alleging infringement of intellectual property rights will not be asserted in
the future. The intellectual property claims that have been made or may be
asserted against the Company could require that the Company 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. There can be no assurance that the Company would be
able to obtain such licenses on acceptable terms or to develop noninfringing
technology. Further, the failure to renew or renegotiate existing licenses, or
significant increases in amounts payable or the inability to obtain a license,
could have a materially adverse effect on the Company.
A substantial percentage of the Company's revenues are derived from
export sales, which 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 and import and export
controls, as well as changes in tax laws, tariffs and freight rates. Recently,
contract pricing for raw materials, as well as for subcontract assembly
services, has been impacted by currency exchange rate fluctuations.
23
<PAGE>
The Company is subject to a variety of regulations related to hazardous
materials used in its manufacturing process. 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.
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, the 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' stock in particular. These factors may
adversely affect the price of the Common Stock.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL
INFORMATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS
Consolidated Financial Statements included in Item 8:
Report of Independent Accountants
Consolidated Balance Sheets at March 31, 1996 and April 2, 1995
Consolidated Statements of Operations for each of the three fiscal years in the
period ended March 31, 1996
Consolidated Statements of Cash Flows for each of the three fiscal years in the
period ended March 31, 1996
Consolidated Statements of Stockholder's Equity for each of the three fiscal
years in the period ended March 31, 1996
Notes to Consolidated Financial Statements
Financial Statement Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the consolidated
financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Integrated Device Technology, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Integrated Device Technology, Inc. and its subsidiaries at March 31,
1996 and April 2, 1995 and the results of their operations and their cash flows
for each of the three years in the period ended March 31, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility 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 19, 1996
25
<PAGE>
<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<CAPTION>
March 31, 1996 April 2, 1995
---------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $157,228 $130,211
Short-term investments 104,046 91,425
Accounts receivable, net of allowance for returns and 85,026 71,974
doubtful accounts of $4,580 and $ 3,830
Inventory 46,630 37,459
Deferred tax assets 38,712 24,923
Prepayments and other current assets 15,658 8,533
---------------------------------------
Total current assets 447,300 364,525
Property, plant and equipment, net 415,214 178,780
Other assets 76,920 18,670
---------------------------------------
TOTAL ASSETS $939,434 $561,975
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $78,821 $39,814
Accrued compensation and related expense 29,237 22,889
Deferred income on shipments to distributors 31,325 22,348
Income taxes payable 5,747 1,716
Other accrued liabilities 12,171 10,609
Current portion of long term obligations 3,799 5,903
---------------------------------------
Total current liabilities 161,100 103,279
Convertible subordinated notes, net of issuance cost 182,558 ------
---------------------------------------
Long term obligations 36,682 36,595
---------------------------------------
Deferred tax liabilities 9,367 7,570
---------------------------------------
Commitments and Contingencies
Stockholders' equity:
Preferred stock;$.001 par value:
10,000,000 shares authorized; no shares issued
Common stock; $.001 par value: 200,000,000
shares authorized; 77,496,833 and
76,209,268 shares issued and outstanding 77 76
Additional paid-in capital 287,064 271,580
Retained earnings 262,989 142,819
Unrealized gain on available-for-sale securities, net 102 ------
Cumulative translation adjustment (505) 56
---------------------------------------
Total stockholders' equity 549,727 414,531
---------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $939,434 $561,975
=======================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
26
<PAGE>
<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
FISCAL YEAR ENDED
-----------------------
MARCH 31, APRIL 2, APRIL 3,
1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C>
Revenues $679,497 $422,190 $330,462
Cost of revenues 293,695 179,652 159,627
----------------------------------------------------------
Gross profit 385,802 242,538 170,835
----------------------------------------------------------
Operating expenses:
Research and development 133,317 78,376 64,237
Selling, general and administrative 88,752 64,647 54,329
----------------------------------------------------------
Total operating expenses 222,069 143,023 118,566
----------------------------------------------------------
Operating income 163,733 99,515 52,269
Interest expense (9,269) (3,298) (5,165)
Interest income and other, net 19,432 8,186 3,102
----------------------------------------------------------
Income before provision for income taxes 173,896 104,403 50,206
Provision for income taxes 55,647 26,101 10,041
----------------------------------------------------------
Income before extraordinary item 118,249 78,302 40,165
Extraordinary item:
Gain from early extinguishment of debt (net of
tax provision of $904) 1,921
----------------------------------------------------------
Net income $120,170 $78,302 $40,165
==========================================================
Primary earnings per share:
Income before extraordinary item $1.44 $1.05 $0.61
==========================================================
Net income $1.47 $1.05 $0.61
==========================================================
Fully diluted earnings per share:
Income before extraordinary item $1.42 $1.04 $0.60
==========================================================
Net income $1.44 $1.04 $0.60
==========================================================
Weighted average shares of common stock
and common stock equivalents:
Primary 81,897 74,765 66,232
==========================================================
Fully diluted 87,753 75,426 67,260
==========================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
27
<PAGE>
<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
MARCH 31, APRIL 2, APRIL 3,
1996 1995 1994
-------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $120,170 $78,302 $40,165
Adjustments:
Depreciation and amortization 53,782 38,816 37,594
Provision for losses on accounts receivable 2,536 299 476
Gain from early extinguishment of debt (1,921)
Changes in assets and liabilities:
Accounts receivable (14,456) (31,630) 2,071
Inventory (9,171) (7,604) (2,618)
Deferred tax assets (7,719) 3,081 (10,897)
Other assets (12,514) (6,226) (1,247)
Accounts payable 39,651 23,889 106
Accrued compensation and related expense 6,348 6,361 9,799
Deferred income on shipments to distributors 8,977 4,756 7,142
Income taxes payable 12,004 7,605 11,574
Other accrued liabilities 3,228 (1,846) 5,885
-------------------------------------------------
Net cash provided by operating activities 200,915 115,803 100,050
-------------------------------------------------
Investing activities:
Purchases of property, plant and equipment (287,491) (94,717) (37,412)
Purchases of short-term investments (215,097) (96,499) (40,221)
Proceeds from sales of short-term investments 200,618 38,425 8,747
Purchases of investments collateralizing
facility lease (57,333) (10,449)
-------------------------------------------------
Net cash used for investing activities (359,303) (163,240) (68,886)
-------------------------------------------------
Financing activities:
Issuance of common stock, net 6,608 103,549 55,337
Proceeds from issuance of convertible subordinated
notes, net of issuance costs 196,721
Proceeds from borrowings 2,731
Payment on capital leases and early extinguishment of
convertible subordinated notes (17,924) (14,391) (23,271)
-------------------------------------------------
Net cash provided by financing activities 185,405 89,158 34,797
-------------------------------------------------
Net increase in cash and cash equivalents 27,017 41,721 65,961
Cash and cash equivalents at beginning of period 130,211 88,490 22,529
-------------------------------------------------
Cash and cash equivalents at end of period $157,228 $130,211 $88,490
=================================================
Supplemental disclosure of cash flow information:
Interest paid $7,457 $2,698 $4,713
Income taxes paid 54,616 13,901 9,163
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
28
<PAGE>
<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<CAPTION>
ADDITIONAL CUMULATIVE UNREALIZED TOTAL
COMMON STOCK PAID-IN RETAINED TRANSLATION GAIN ON STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SECURITIES, NET EQUITY
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 28, 1993 56,755,442 $ 56 $ 93,703 $24,352 $ (351) $ - $ 117,760
Issuance of common stock 4,055,662 4 9,239 9,243
Issuance of common stock at $7.855 per
share, pursuant to public offering, net
of expenses of $366 6,000,000 6 46,758 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 66,811,104 66 160,188 64,517 (404) - 224,367
Issuance of common stock 1,778,164 2 5,986 5,988
Issuance of common stock at $12.8375 per
share, pursuant to public offering, net
of expenses of $261 7,620,000 8 97,553 97,561
Tax benefits of stock option transactions 7,853 7,853
Translation adjustment 460 460
Net income 78,302 78,302
-------------------------------------------------------------------------------------
Balance, April 2, 1995 76,209,268 76 271,580 142,819 56 - 414,531
Issuance of common stock 1,287,565 1 6,607 6,608
Tax benefits of stock option transactions 8,877 8,877
Translation adjustment (561) (561)
Unrealized gain on available-for-sale
securities, net 102 102
Net income 120,170 120,170
-------------------------------------------------------------------------------------
Balance, March 31, 1996 77,496,833 $ 77 $287,064 $262,989 $ (505) $ 102 $549,727
=====================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The Company's fiscal year ends on the Sunday nearest March 31.
Fiscal years 1995 and 1996 each included 52 weeks. The fiscal year ended 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. Transactions during
the intervening period in 1995 and 1994 were not significant.
Consolidation. The consolidated financial statements include the accounts of
Integrated Device Technology, Inc. (IDT or the Company) and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
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.
The Company's investments are classified as available-for-sale as of March 31,
1996 and April 2, 1995. Investment securities classified as available-for-sale
are measured at market value and net unrealized gains or losses are recorded as
a separate component of stockholders' equity until realized. Any gains or losses
on sales of investments are computed based upon specific identification. As of
March 31, 1996, gross realized and unrealized gains and losses on investments
available for sale were not material. Management determines the appropriate
classification of debt and equity securities at the time of purchase and
reevaluates the classification at each reporting date.
Available-for Sale Securities
(in thousands) March 31, 1996 April 2, 1995
------------------------------
U.S.Government agency securities $ 47,096 $ 25,813
State and local governments 142,933 94,345
Corporate securities 56,898 73,160
Others 10,969 8,215
------------ -----------
Total debt and equity securities 257,896 201,533
Less cash equivalents (153,850) (110,108)
------------ -----------
Short-term investments $ 104,046 $ 91,425
============ ============
Short-term investments of $65,992,000 mature in less than one year and
$38,054,000 have maturities between one and four years.
30
<PAGE>
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
31, 1996 and April 2, 1995 was:
(in thousands) March 31, 1996 April 2, 1995
------------------------------
Raw materials $ 5,171 $ 4,404
Work-in-process 22,538 16,977
Finished goods 18,921 16,078
------- ---------
$46,630 $ 37,459
======= =========
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 31, 1996 and April 2, 1995 were:
(in thousands) March 31, 1996 April 2, 1995
------------------------------
Land $ 11,920 $ 6,076
Machinery and equipment 585,011 332,680
Building and leasehold improvements 48,820 40,576
Construction-in-progress 15,167 5,553
---------- ----------
660,918 384,885
Less accumulated depreciation and amortization (245,704) (206,105)
---------- ----------
$ 415,214 $ 178,780
========== ==========
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. Related gross profits thereon are deferred until the products are
resold by the distributors.
Income Taxes. The Company accounts for income tax in accordance with a liability
approach.
Net Income Per Share. Primary net income per common share is computed using the
weighted average number of common shares and the dilutive effects of common
stock equivalent shares outstanding during the period. Common stock equivalent
shares include shares issuable under the Company's stock option plans. Fully
diluted net income per share is computed by adjusting the primary shares
outstanding and net income for the potential effect of the conversion of the
5.5% Convertible Subordinated Notes (Note 5) outstanding during the period and
the elimination of the related interest and deferred issue costs (net of income
taxes).
31
<PAGE>
Translation of Foreign Currencies. Accounts denominated in foreign currencies
have been translated in accordance with SFAS 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 is the U.S. dollar.
For subsidiaries whose functional currency is the local currency, gains and
losses resulting from translation of these foreign currency financial statements
into U.S. dollars are accumulated in a separate component of stockholders'
equity. For the Malaysian and Philippines manufacturing subsidiaries and the
Hong Kong sales subsidiary, 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. The effect of
foreign currency exchange rate fluctuations have not been material.
Fair Value Disclosures of Financial Instruments. Fair values of cash and cash
equivalents, short-term investments and short-term debt approximate cost due to
the short period of time until maturity. Fair values of long-term investments,
long-term debt and currency forward contracts are based on quoted market prices
or pricing models using current market rates.
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 condition 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, and write-offs of accounts
receivable were insignificant in each of the three years ended March 31, 1996.
One distributor's receivable balance represented 10% and 6% of total accounts
receivable at March 31, 1996, and April 2, 1995, respectively. One OEM's
receivable represented 7% and 16% of total accounts receivable at March 31, 1996
and April 2, 1995, respectively. If the financial condition and operations of
this distributor or OEM deteriorate below critical levels, the Company's
operating results could be adversely affected.
Industry Risk.
Products and Markets. The Company operates in predominantly one industry segment
(Note 12) within the 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 over
capacity and accelerated erosion of average selling prices. Therefore, the
average selling price the Company receives for industry standard products is
dependent upon industry-wide demand and capacity, and such prices have
historically been subject to rapid change.
Materials. The Company's manufacturing operations depend upon obtaining adequate
raw materials. The number of vendors of certain raw materials, such as silicon
wafers, ultra-pure metals and certain chemicals and gases, is very limited. 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.
32
<PAGE>
Employee Stock Plans. The Company accounts for its stock options plans and its
employee stock purchase plan in accordance with provisions of the Accounting
Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees". In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company intends to continue to apply APB No. 25 for purposes
of determining net income and to adopt the pro forma disclosure requirements in
fiscal 1997.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates, although
such differences are not expected to be material to the financial statements.
Stock dividend and reclassifications. On August 2, 1995, the Company announced a
two-for-one stock split of its common stock in the form of a 100% stock dividend
payable to stockholders of record as of August 25, 1995. On or about September
15, 1995 stockholders received certificates representing one additional share
for every share held. The Company's par value of $0.001 per share remained
unchanged. Historical share and per share amounts have been restated to reflect
retroactively the stock dividend.
Certain reclassifications have been made to prior year balances, none of which
affected results of operations, to present the financial statements on a
consistent basis.
33
<PAGE>
NOTE 2--DERIVATIVE FINANCIAL INSTRUMENTS
The Company has foreign subsidiaries which operate and sell or manufacture the
Company's products in various global markets. As a result, the Company is
exposed to changes in foreign currency exchange rates. The Company primarily
utilizes forward exchange contracts to hedge against the short-term impact of
foreign currency fluctuations on certain assets or liabilities 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. Management
believes that these forward contracts do not subject the Company to undue risk
due to foreign exchange movements because gains and losses on these contracts
are offset by losses and gains on the underlying asset and transactions being
hedged. These forward exchange contracts are considered identifiable hedges and
realized and unrealized gains and losses are deferred until settlement of the
underlying commitments. At March 31, 1996 deferred gains and losses are not
material.
<TABLE>
Foreign exchange hedge positions which include buy and sell positions, generally
with maturities of less than three months are as follows:
<CAPTION>
March 31, 1996 April 2, 1995
---------------------------------------- -------------------------------------
Buy Sell Buy Sell
<S> <C> <C> <C> <C>
(in thousands of U.S. dollars)
Japanese Yen $ $ 14,569 $ 1,898 $ 10,357
British Pound Sterling 2,561 992
Malaysian Ringgits 5,271 2,214 2,003 3,022
Others 211
----- ------ ------ ------
$ 5,271 $ 19,344 $ 3,901 $ 14,582
===== ====== ====== ======
</TABLE>
The Company is exposed to credit-related losses if counterparties to
financial instruments fail to perform their obligations. However, it does not
expect any counterparties, which presently have high credit ratings, to fail to
meet their obligations. The Company controls credit risk through credit
approvals, limits and monitoring procedures including the use of high credit
quality counterparties.
34
<PAGE>
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 are being amortized on a
straight-line basis over five years. The amortization relating to patents
licenses was $1,647,000 in each of fiscal years 1996, 1995 and 1994.
35
<PAGE>
NOTE 4--LONG-TERM LEASE 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:
(in thousands) March 31, 1996 April 2, 1995
-------------- -------------
Machinery and equipment $ 17,296 $ 39,316
Less accumulated depreciation and amortization (13,233) (27,396)
-------- --------
$ 4,063 $ 11,920
======== ========
The capital lease agreements and equipment financings are collateralized by the
related leased equipment and contain certain restrictive covenants.
Future minimum payments under capital leases and equipment financing agreements,
at varying interest rates (4.7%-10.5%) are as follows:
FISCAL YEAR (in thousands)
1997 $ 3,312
1998 1,629
1999 3
-----
Total minimum payments 4,944
Less interest (340)
-----
Present value of net minimum payments 4,604
Less current portion (3,047)
-----
$ 1,557
=====
36
<PAGE>
NOTE 5--LONG-TERM DEBT
Long-term debt consists of the following:
(in thousands) March 31, 1996 April 2, 1995
-------------- -------------
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 $ 10,238 $ 10,922
Less current portion (752) (684)
------- -------
$ 9,486 $ 10,238
======= =======
Principal payments required in the next five years and beyond are as follows (in
thousands): $752 (1997), $828 (1998), $911 (1999), $1,003 (2000) and $6,744
(2001 and beyond).
In fiscal 1996, the Company capitalized $2,983,000 of interest expense ($152,000
in fiscal year 1995) in connection with the construction of the Hillsboro,
Oregon plant.
During fiscal 1993, IDT recorded a long-term obligation in connection with the
dismissal of certain litigation and entered into a patent cross-license
agreement. The present values of the amount due at the end of the license term
were $7,073,000 and $7,581,000 at March 31, 1996 and April 2, 1995,
respectively. In both fiscal years, these amounts payable have been reduced by
an amount of royalty income pursuant to certain guaranteed revenues realized on
sales of IDT's products. The Company is accreting $1,620,000 in future interest
charges, reflecting an 8% discount rate, from the recorded amount at March 31,
1996 to the amount due at the end of the term using the effective interest
method.
In May 1995, the Company issued $201.3 million of 5.5% Convertible Subordinated
Notes (the "Notes"), due 2002. The Notes are subordinated to all existing and
future senior debt and are convertible into shares of the Company's common stock
at a conversion rate of $28.625 per share and are redeemable at the option of
the Company in whole or in part at any time on or after June 2, 1998 at 102.75%
initially and thereafter at prices declining to 100% at maturity plus accrued
interest. Each holder of these Notes has the right, subject to certain
conditions and restrictions, to require the Company to offer to repurchase all
outstanding Notes, in whole or in part, owned by such holder, at specified
repurchase prices plus accrued interest upon the occurrence of certain events
and in certain circumstances. The costs incurred in connection with the offering
($4,600,000) have been netted against the Notes balance in the consolidated
balance sheet and are being amortized over the 7-year term of the Notes using
the straight-line method which approximates the effective interest method.
Interest on the Notes is payable semi-annually on June 1 and December 1
commencing December 1, 1995. Based upon quoted market prices, the fair value of
the Notes was approximately $152,725,000 at March 31, 1996.
37
<PAGE>
In January 1996, the Company retired $15 million of the Notes at a cost of
approximately $12 million resulting in an extraordinary gain. The gain, net of
tax and deferred issue costs, has been recorded as an extraordinary item in the
Company's consolidated financial statements for the twelve months ending March
31, 1996. The per share amount of the gain on early retirement of debt, net of
related income tax effect, was $0.02 in fiscal 1996.
38
<PAGE>
NOTE 6--LINES OF CREDIT
The Company's Malaysian subsidiary has unsecured revolving lines of
credit that allow borrowings up to $2,600,000 with three local banks. These
lines have no expiration dates. At March 31, 1996 there were no outstanding
borrowings against these lines. The borrowing rates for these lines are incurred
at the local bank's cost of funds plus 0.75% to 1% (8.6%-8.7% on March 31,
1996).
In fiscal 1996, the Company's Japanese subsidiary had a secured
revolving line of credit that allowed borrowings of up to approximately
$2,800,000. The line of credit automatically extends until the Company requests
termination. As of March 31, 1996, 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. At March 31, 1996 this
short-term borrowing rate was 1.63%.
The Company also has foreign exchange facilities with several banks
that allow the Company to enter into foreign exchange contracts of up to
$115,000,000, of which $94,761,000 was available at March 31, 1996.
39
<PAGE>
NOTE 7--COMMITMENTS
Lease Commitments. The Company leases most of its administrative and
manufacturing facilities under operating lease agreements which expire at
various dates through 2005. One facility is leased from a shareholder and
director. The Company recorded rental expense for the facility leased from the
shareholder and director of $1,058,000, $1,527,000 and $1,396,000 in fiscal
1996, 1995 and 1994, respectively. During fiscal 1995, this lease was renewed
through June 2005. On March 8, 1996, the Company entered into an agreement to
purchase this facility for a purchase price of approximately $8,509,000 in a
transaction structured as a tax-free stock exchange. The following rent
commitments table has not been adjusted to reflect this transaction as the
details have not been finalized.
In fiscal 1995, the Company entered into a five-year $60 million (revised to $64
million in fiscal 1996) Tax Ownership Lease transaction to lease the wafer
fabrication facility in Hillsboro, Oregon. This lease requires monthly payments
which vary based on the London Interbank Offered Rate (LIBOR) plus 0.3% (5.77%
at March 31, 1996). This lease also provides the Company with the option of
either acquiring the building at its original cost or arranging for the building
to be acquired at the end of the respective lease term. The Company's
obligations under the lease are secured by a trust deed on the building and
collateralized by cash and/or investments (restricted securities) up to 105% of
the lessor's construction costs until the building was completed in fiscal 1996
and 85% thereafter. Restricted securities, included in other non-current assets,
collateralizing this lease were $67,782,000 at March 31, 1996 and $10,500,000 at
April 2, 1995. The Company is also contingently liable under a first-loss clause
for up to 85% of the construction costs of the building. In addition, the
Company must maintain compliance with certain financial covenants. Management
believes that this contingent liability will not have a material adverse effect
on the Company's financial position or results of operations.
The aggregate minimum rent commitments under all operating leases, including the
Hillsboro facility, which began in January 1996 at approximately $3,700,000 per
year, are as follows:
(FISCAL YEAR) (IN THOUSANDS)
1997 $ 8,040
1998 8,140
1999 7,939
2000 7,001
2001 3,356
2002 and thereafter 4,002
-----
$ 38,478
======
40
<PAGE>
Rent expense for the years ended March 31, 1996, April 2, 1995 and April 3, 1994
totaled approximately $4,552,000, $3,326,000 and $3,488,000 respectively.
As of March 31, 1996, two secured standby letters of credit were outstanding
totaling $8,235,000. One letter of credit is held in connection with the
Company's workers compensation insurance and matures on January 28, 1997. The
other letter of credit is required for international purchases and expires on
June 10, 1996.
As of March 31, 1996, the Company had commitments of $52 million for equipment
purchases and $9.8 million for the construction of buildings.
NOTE 8--SALE OF COMMON STOCK
In December 1994, the Company completed a public offering of 7,620,000 shares of
its Common Stock and received net proceeds of $97,600,000.
41
<PAGE>
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.
During January 1996, employees and officers holding options to purchase
6,752,351 shares of the Company's common stock were offered the opportunity to
cancel options in exchange for grants of new options, with certain restrictions
and limitations, at the then current market price. Under the terms of the
program, 6,090,334 shares were exchanged and are reflected in the grant and
cancellation activity for fiscal 1996.
<TABLE>
Activity under the plans is summarized as follows:
<CAPTION>
Options Outstanding
------------------------------------------------
Available Aggregate
for Issuance Number Price per Share Price
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, March 28, 1993 1,940,214 10,393,798 $ 1.625 - $ 6.0625 $ 21,245,000
Additional authorization 1,950,000
Granted (3,700,468) 3,700,468 $ 3.50 - $ 12.6875 26,599,000
Surrendered, canceled or expired 568,020 (574,846) $ 1.625 - $ 11.0625 (1,738,000)
Exercised (3,561,226) $ 1.625 - $ 8.8125 (6,695,000)
----------- ---------- ------------
Balance, April 3, 1994 757,766 9,958,194 $ 1.625 - $ 12.6875 39,411,000
Additional authorization 3,350,000
Granted (3,024,112) 3,024,112 $ 8.25 - $ 19.844 41,595,000
Surrendered, canceled or expired 574,024 (567,202) $ 1.625 - $ 19.844 (4,903,000)
Exercised (1,477,158) $ 1.625 - $ 14.0625 (3,529,000)
----------- ---------- ------------
Balance, April 2, 1995 1,657,678 10,937,946 $ 1.625 - $ 19.844 72,574,000
Additional authorization 4,000,000
Granted (10,907,337) 10,907,337 $ 9.875 - $ 32.75 156,026,000
Surrendered, canceled or expired 6,789,906 (6,789,906) $ 1.625 - $ 32.0625 (121,662,000)
Exercised (1,034,261) $ 1.625 - $ 18.9375 (2,955,000)
----------- ---------- ------------
Balance, March 31, 1996 1,540,247 14,021,116 $ 1.625 - $ 32.0625 103,983,000
=========== ========== ============
Exercisable at March 31, 1996 4,120,357 $ 1.625 - $ 19.844 $ 12,485,000
========== ============
</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 31, 1996 and April 2, 1995, 3,435,714 and 3,189,810 shares,
respectively, had been purchased by employees, net of repurchases by the
Company, under the terms of the plan agreements. At March 31, 1996, 614,286
shares were reserved and available for issuance under this plan.
42
<PAGE>
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. As a result of a two-for-one stock dividend in September
1995, the number of Rights associated with each share of Common Stock was
adjusted proportionately to one-half of a Right per 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 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.
43
<PAGE>
NOTE 10--EMPLOYEE BENEFITS PLANS
The Profit Sharing Plan is available to all employees who have at least six
months of service with the Company. Under this plan, all eligible IDT employees
will receive profit sharing contributions of 7% of pre-tax earnings in cash, and
an additional 1% of pre-tax earnings, is divided equally among all domestic
employees and contributed to the Company's 401(k) plan. Administrative expenses
are netted against the Profit Sharing Plan contribution. The cash contributions
for the years ended March 31, 1996, April 2, 1995 and April 3, 1994 for this
plan were $14,056,000, $8,360,000 and $5,128,000 respectively.
The Company pays an annual cash bonus to certain executive officers and other
key employees based on the pre-tax earnings of the Company and the employee's
individual performance. Prior to fiscal 1996 the aggregate amount of all bonuses
paid for any single fiscal year was up to 6% of pre-tax profits for the year.
During fiscal 1996, the amount accrued under the bonus plan was 6% of operating
income less a factor for the percent change in the Company's income tax
provision rate over the prior year. The performance bonus recorded for the years
ended March 31, 1996, April 2, 1995 and April 3, 1994 for this plan were
$9,136,000, $6,264,000 and $ 3,012,000 respectively.
44
<PAGE>
NOTE 11 INCOME TAXES
<TABLE>
The components of income before provision for income taxes are as follows:
<CAPTION>
March 31, April 2, April 3,
(in thousands) 1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
United States $ 161,209 $ 96,524 $ 44,808
Foreign 12,687 7,879 5,398
----------- ----------- ----------
$ 173,896 $ 104,403 $ 50,206
=========== =========== ==========
The provisions for income taxes consist of the following:
March 31, April 2, April 3,
(in thousands) 1996 1995 1994
----------- ----------- ----------
Current income taxes:
United States $ 63,829 $ 21,164 $ 14,699
State 1,517 3,902 4,039
Foreign 2,293 668 798
----------- ----------- ----------
67,639 25,734 19,536
----------- ----------- ----------
Deferred (prepaid) income taxes:
United States (11,340) (182) (5,379)
State (652) 549 (4,116)
----------- ----------- ----------
(11,992) 367 (9,495)
----------- ----------- ----------
Provision for income taxes $ 55,647 $ 26,101 $ 10,041
=========== =========== ==========
</TABLE>
45
<PAGE>
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 31, April 2,
(in thousands) 1996 1995
----------- -----------
Deferred tax assets:
Deferred income on shipments to distributors $ 12,289 $ 8,768
Non-deductible accruals and reserves 16,208 8,980
Capitalized inventory and other expenses 9,694 5,817
Other 521 1,358
----------- -----------
Total deferred tax assets 38,712 24,923
----------- -----------
Deferred tax liabilities:
Depreciation (9,367) (7,570)
----------- -----------
Total deferred tax liabilities (9,367) (7,570)
----------- -----------
Net deferred tax assets $ 29,345 $ 17,353
=========== ===========
46
<PAGE>
<TABLE>
The provisions for income taxes differ from the amount computed by applying the
U.S. statutory income tax rate of 35% to income before the provision for income
taxes as follows:
<CAPTION>
March 31, April 2, April 3,
(in thousands) 1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Provision at U.S. statutory rate $ 60,864 $ 36,541 $ 17,572
Earnings of foreign subsidiaries considered
permanently reinvested, less foreign taxes (2,327) (2,444) (951)
General business credits (1,994) (6,504) (2,710)
Tax rate differential 0 0 (1,167)
State tax, net of federal benefit 865 3,245 3,558
Valuation allowance 0 (2,337) (6,108)
Other (1,761) (2,400) (153)
----------- ----------- ----------
Provision for income taxes $ 55,647 $ 26,101 $ 10,041
=========== =========== ==========
</TABLE>
The Company's Malaysian subsidiary operated 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 income taxes on operating income until after its year ended
March 31, 1996.
The Company's intention is to permanently reinvest its earnings in all of its
foreign subsidiaries, except for its German subsidiary, Integrated Device
Technology GMBH. Accordingly, U.S. taxes have not been provided on approximately
$38,673,085 of unremitted earnings, of which approximately $32,495,430 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.
47
<PAGE>
NOTE 12--INDUSTRY SEGMENT, FOREIGN OPERATIONS AND SIGNIFICANT CUSTOMERS
IDT operates predominantly in one industry segment. The Company designs,
develops, manufactures and markets a broad range of high-performance
semiconductor products for the communications, desktop computer, office
automation and workstation/server markets using advanced CMOS (Complimentary
Metal Oxide Silicon) process technology. The Company offers products in four
product families; SRAM components and modules, specialty memory products, logic
circuits and RISC microprocessors and subsystems. During fiscal 1994, two of the
Company's national distributors became one entity. Sales through a national
distributor accounted for 11%, 13% and 15% of net revenues for fiscal 1996, 1995
and 1994 respectively. Additionally, one OEM customer accounted for 12% of net
revenues in fiscal 1996.
Major operations outside the United States include manufacturing facilities in
Malaysia and sales subsidiaries in Japan, the Pacific Rim, and throughout
Europe. At March 31, 1996, and April 2, 1995 total liabilities for operations
outside of the United States were $34,475,000 and $42,065,000, respectively.
<TABLE>
The following is a summary extract of IDT's foreign operations by geographic
areas for fiscal 1996, 1995 and 1994:
<CAPTION>
TRANSFERS
SALES TO BETWEEN OPERATING
UNAFFILIATED GEOGRAPHIC INCOME IDENTIFIABLE
CUSTOMERS AREAS NET REVENUES (LOSS) ASSETS
<S> <C> <C> <C> <C> <C>
(in thousands)
Fiscal year ended March 31, 1996
United States $ 404,994 $ 150,769 $555,763 $149,206 $574,287
Japan 72,530 72,530 3,405 21,482
Europe 144,154 144,154 39,274 28,478
Asia-Pacific 57,819 46,870 104,689 8,466 72,703
Eliminations (197,639) (197,639) 89 (42,633)
Corporate (36,707) 285,117
--------------------------------------------------------------------------------
Consolidated $ 679,497 $ -- $679,497 $163,733 $939,434
================================================================================
Fiscal year ended April 2, 1995
United States $ 256,014 $ 60,266 $316,280 $111,394 $292,501
Japan 36,974 36,974 582 11,973
Europe 85,180 7,566 92,746 9,524 30,788
Asia-Pacific 44,022 30,929 74,951 5,812 36,855
Eliminations (98,761) (98,761) (217) (48,797)
Corporate (27,580) 238,655
--------------------------------------------------------------------------------
Consolidated $ 422,190 $ -- $422,190 $ 99,515 $561,975
================================================================================
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
48
<PAGE>
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 deferred tax assets.
NOTE 13--CROSS-LICENSE AGREEMENT
During fiscal 1993, the Company entered into a 5 year patent cross-license
agreement which obligated the payment of an amount of royalties dependent upon
the level of the Company's profitability. The maximum royalty under this
agreement was accrued in fiscal 1994 and paid during fiscal 1995.
49
<PAGE>
NOTE 14 -- RELATED PARTIES TRANSACTIONS
The Company leases one facility from a shareholder and director of the Company
(Note 7). The Company paid rent of $1,266,000 during fiscal 1996, under a lease
agreement that was renewed during fiscal 1996 through June 2005, with options to
renew for successive five-year periods through 2015. On March 8, 1996, the
Company entered into an agreement to acquire the Salinas facility for
$8,509,000, with payment in the form of 782,445 unregistered shares of the
Company's stock at $10.875 per share.
The Company holds an approximately 37.4% equity interest in Quantum Effect
Design, Inc., (QED). A shareholder and director also holds an approximate 3.7%
equity interest in QED. During fiscal 1996, the Company paid QED a total of
$900,000 for product development and nonrecurring engineering expenses. During
fiscal 1996, the Company recorded royalty expense of $2,029,000 to QED.
The Company holds an approximately 14% equity interest in Monolithic System
Technology, Inc. (MoSys). An executive officer and director and a shareholder
and director of the Company are members of the board of directors of MoSys. The
shareholder and director also holds an equity interest of approximately 15% of
MoSys. During the year ended March 31, 1996, the Company recorded $1,594,000 of
revenues associated with a foundry relationship whereby IDT manufactured DRAM
wafers for MoSys.
50
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year ended March 31, 1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenues $152,195 $178,504 $188,545 $160,253
Gross profit 87,873 102,785 108,145 86,999
Income before
extraordinary item 28,791 34,336 35,535 19,587
Net income 28,791 34,336 35,535 21,508
Primary earnings per share:
Income before
extraordinary item 0.35 0.42 0.44 0.24
Net income 0.35 0.42 0.44 0.27
Fully diluted earnings per share:
Income before
extraordinary item 0.35 0.40 0.42 0.25
Net income 0.35 0.40 0.42 0.27
Year ended April 2, 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenues $95,043 $95,585 $105,765 $125,797
Gross profit 54,632 55,574 60,528 71,804
Income before
extraordinary item 16,878 17,006 19,799 24,619
Net income 16,878 17,006 19,799 24,619
Primary earnings per share:
Income before
extraordinary item 0.23 0.24 0.27 0.30
Net income 0.23 0.24 0.27 0.30
Fully diluted earnings per share:
Income before
extraordinary item 0.23 0.24 0.27 0.30
Net income 0.23 0.24 0.27 0.30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
51
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended March 31,1996, and
the information from the section entitled "Executive Officers of the Registrant"
in Part I, Item 4A of this Report.
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
There is incorporated herein by reference the information required by this Item
included in the Company's Proxy statement for the 1996 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements are included
in Item 8:
- Consolidated Balance Sheets at March 31, 1996 and
April 2, 1995
- Consolidated Statements of Operations for each of the
three fiscal years in the period ended March 31, 1996
- Consolidated Statements of Cash Flows for each of the
three fiscal years in the period ended March 31, 1996
- Consolidated Statements of Stockholders' Equity for each
of the three fiscal years in the period ended March 31,
1996
- Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
52
<PAGE>
All other schedules are omitted since the required information
is not present in amounts sufficient to require submission of the schedules, or
because the required information is included in the financial statements or
notes thereto.
(a) 3. Listing of Exhibits
Exhibit No. Description
Page
3.1* Restated Certificate of Incorporation (previously filed as Exhibit 3A to
Registration Statement on Form 8-B dated September 23, 1987).
3.2* Certificate of Amendment of Restated Certificate of Incorporation
(previously filed as Exhibit 3(a) to the Registration Statement on Form 8
dated March 28, 1989).
3.3* Certificate of Amendment of Restated Certificate of Incorporation
(previously filed as Exhibit 4.3 to the Registration Statement on Form
S-8 (File Number 33-63133) filed on October 2, 1995).
3.4* Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock (previously filed as Exhibit 3(a) to the
Registration Statement on Form 8 dated March 28, 1989).
3.5* Bylaws dated January 25, 1993 (previously filed as Exhibit 3.4 to Annual
Report on Form 10-K for the Fiscal Year Ended March 28, 1993).
4.1* 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 dated February 27,
1992).
4.2* Amendment dated September 29, 1995 to the Rights Agreement (previously
filed as Exhibit 4.2 to Amendment No. 2 to the Registration Statement on
Form 8-A filed October 19, 1995).
4.3* Form of Indenture between the Company and The First National Bank of
Boston, as Trustee, including Form of Notes (previously filed as Exhibit
4.6 to the S-3 Registration Statement (File number 33-59443).
10.1* Lease for 1566 Moffet Street, Salinas, California, dated June 28, 1985
between the Company and Carl E. Berg and Clyde J. Berg, dba Berg & Berg
Developers (previously filed as Exhibit 10.7 to Form S-1 Registration
Statement (File No. 33- 3189)).
10.2* Assignment of Lease dated October 30, 1985 between the Company and
Synertek Inc. relating to 2975 Stender Way, Santa Clara, California
(previously filed as Exhibit 10.4 to Annual Report on Form 10-K for the
Fiscal Year Ended April 1, 1990).
53
<PAGE>
10.3* Assignment of Lease dated October 30, 1985 between the Company and
Synertek Inc. relating to 3001 Stender Way, Santa Clara, California
(previously filed as Exhibit 10.5 to Annual Report on Form 10-K for
Fiscal Year Ended April 1, 1990).
10.4* Lease dated October 23, 1989 between Integrated Device Technology
International Inc. and RREEF USA FUND - III relating to 2972 Stender Way,
Santa Clara, California (previously filed as Exhibit 10.6 to Annual
Report on Form 10-K for the Fiscal Year Ended April 1, 1990).
10.5* First Deed of Trust and Assignment of Rents, Security Agreement and
Fixture Filing dated March 28, 1990 between the Company and Santa Clara
Land Title Company for the benefit of The Variable Annuity Life Insurance
Company relating to 2670 Seeley Avenue, San Jose, California (previously
filed as Exhibit 10.7 to Annual Report on Form 10-K for the Fiscal Year
Ended April 1, 1990).
10.6* Amended and Restated 1984 Employee Stock Purchase Plan(previously filed
as Exhibit 10.16 to the Quarterly Report on Form 10-Q for the Fiscal
Quarter Ended October 2, 1994).**
10.7* 1994 Stock Option Plan, as amended through May 3, 1995 (previously filed
as Exhibit 4.8 to the Registration Statement on Form S-8 (File Number
33-63133) filed on October 2, 1995).**
10.8* 1994 Directors Stock Option Plan and related documents(previously filed
as Exhibit 10.18 to the Quarterly Report on Form 10-Q for the Fiscal
Quarter Ended October 2, 1994).**
10.9* Form of Indemnification Agreement between the Company and its directors
and officers (previously filed as Exhibit 10.68 to Annual Report on Form
10-K for the Fiscal Year Ended April 2, 1989).**
10.10* Manufacturing, Marketing and Purchase Agreement between the Company and
MIPS Computer Systems, Inc. dated January 16, 1988 (previously filed as
Exhibit to Annual Report on Form 10-K for the Fiscal Year Ended March 29,
1992) (Confidential Treatment Granted).
10.11* Preferred Stock Purchase Agreement dated January 14, 1992 among the
Company, Berg & Berg Enterprises, Inc. and Quantum Effect Design, Inc.
(previously filed as Exhibit 10.13 to Annual Report on Form 10-K for the
Fiscal Year Ended March 29, 1992).
10.12* Patent License Agreement between the Company and American Telephone and
Telegraph Company ("AT&T") dated May 1, 1992 (previously filed as Exhibit
19.1 to Quarterly Report on Form 10-Q for the Quarter Ended June 28,
1992) (Confidential Treatment Granted).
54
<PAGE>
10.13* Patent License Agreement dated September 22, 1992 between the Company and
Motorola, Inc. (previously filed as Exhibit 19.1 to Quarterly Report on
Form 10Q for the Quarter Ended September 27, 1992) (Confidential
Treatment Granted).
10.14* Agreement between the Company and Texas Instruments Incorporated
effective December 10, 1992, including all related exhibits, among
others, the Patent Cross-License Agreement and the OEM Purchase Agreement
(previously filed as Exhibit 19.1 to Quarterly Report on Form 10-Q for
the Quarter Ended December 27, 1992) (Confidential Treatment Granted).
10.15* Series A Preferred Stock Purchase Agreement dated July 16,1992 among
Monolithic System Technology, Inc. and certain purchasers (previously
filed as Exhibit 10.12 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended October 2, 1994).
10.16* Series B Preferred Stock Purchase Agreement dated March 1994 among
Monolithic System Technology, Inc. and certain purchasers (previously
filed as Exhibit 10.13 to the Quarter Report on Form 10-Q for the Fiscal
Quarter Ended October 2, 1994).
10.17* Series C Preferred Stock Purchase Agreement dated June 13,1994 among
Monolithic System Technology, Inc. and certain purchasers (previously
filed as Exhibit 10.14 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended October 2, 1994).
10.18* Domestic Distributor Agreement between the Company and Wyle Laboratories,
Inc. Electronic Marketing Group dated as of April 15, 1994 (previously
filed as Exhibit 10.15 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended October 2, 1994).
10.19* Lease Extension and Modification Agreement between the Company and
Baccarat Silicon, Inc. ("Baccarat") dated as of September 1, 1994,
relating to 1566 Moffet Street, Salinas, California (previously filed as
Exhibit 10.16 to the Quarterly Report on Form 10-Q for the Fiscal Quarter
Ended October 2, 1994).
10.20* Promissory Note dated April 28, 1995 between L. Robert Phillips and the
Company and related document (previously filed as Exhibit 10.20 to the
Annual report on Form 10-K for the Fiscal Year Ended April 2, 1995).**
10.21* Sublease of the Land and Lease of the Improvement by and between Sumitomo
Bank Leasing and Finance, Inc. and the Company dated January 27, 1995 and
related agreements thereto (previously filed as Exhibit 10.21 to the
Annual Report on Form 10-K for the Fiscal Year Ended April 2, 1995).
10.22* 1995 Executive Performance Plan (previously filed as Exhibit 10.22 to the
Quarterly Report on Form 10-Q for the Fiscal Quarter Ended October 1,
1995).**
55
<PAGE>
10.23 Letter amending Patent License Agreement between the Company and AT&T
dated December 4, 1995 (Confidential Treatment Requested).
10.24 Letter agreement dated March 8, 1996 between the Company and Baccarat
regarding the acquisition of Baccarat by the Company.
10.25 Lease dated July 1995 between Integrated Device Technology, Inc. and
American National Insurance Company relating to 3250 Olcott Street, Santa
Clara, California.
11.0 Statement re: computation of earnings per share
21.1 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule (EDGAR version only)
* These exhibits were previously filed with the Commission as indicated and
are incorporated herein by reference.
** These exhibits are management contracts or compensatory plans or
arrangements required to be filed pursuant to Item 14 (c) of Form 10-K.
(b) Reports on Form 8-K
Not applicable.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTEGRATED DEVICE TECHNOLOGY, INC.
Registrant
May 15, 1996 By: /s/ Leonard C. Perham
Chief Executive Officer
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ D. John Carey Chairman of the Board May 15, 1996
(D. John Carey)
/s/ Leonard C. Perham Chief Executive Officer May 15, 1996
(Leonard C. Perham) and Director (Principal Executive Officer)
/s/ William D. Snyder Vice President, Chief May 15, 1996
(William D. Snyder) Financial Officer
(Principal Financial and Accounting Officer)
/s/ Carl E. Berg Director May 15, 1996
(Carl E. Berg)
/s/ John C. Bolger Director May 15, 1996
(John C. Bolger)
/s/ Federico Faggin Director May 15, 1996
(Federico Faggin)
</TABLE>
57
<PAGE>
SCHEDULE II
<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Additions
Balance at Charged to
Beginning of Cost and Recoveries and Balance at
Period Expenses Write-offs End of Period
<S> <C> <C> <C> <C>
(In thousands)
Inventory Lower of Cost or Market Reserve
Year ended April 3, 1994 $ 2,190 $1,509 $ (2,905) $ 794
Year ended April 2, 1995 $ 794 $ 603 $ (760) $ 637
Year ended March 31, 1996 $ 637 $2,866 $ (191) $3,312
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Name
---------- ----
10.23 Letter amending Patent License Agreement between the Company and AT&T
dated December 4, 1995 (Confidential Treatment Requested).
10.24 Letter agreement dated March 8, 1996 between the Company and Baccarat
regarding the acquisition of Baccarat by the Company.
10.25 Lease dated July 1995 between Integrated Device Technology, Inc. and
American National Insurance Company relating to 3250 Olcott Street, Santa
Clara, California.
11.0 Statement re: computation of earnings per share
21.1 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule (EDGAR version only)
December 4, 1995
Re: Patent License Agreement between American Telephone
and telegraph Company, now AT&T Corp. (AT&T) Integrated
Device Technology, Inc. (IDT) effective May 1, 1992 and
relating to Silicon Semiconductor Devices and Information
Handling Systems (the "Agreement")
Based upon recent discussions between our companies concerning modifying the
Agreement the following is proposed:
1. AT&T recently announced that it is restructuring itself to conduct its
business in the form of three separate legal entities. These three entities will
include a Service Company, a Systems and Technology Company, and AT&T Global
Information Solutions (GIS). AT&T shareholders will hold shares in each of these
entities. It is possible that either IDT or any of these three entities may at
some time in the future wish to divest all or part of its business.
Thus, we wish to clarify the licenses, rights and obligations under the
Agreement of IDT, the three entities, and any future divested present business.
First although each of the three entities will have its own patent portfolio,
IDT will have the same licenses and rights (and any corresponding obligations)
after the restructuring (including patents originating from the three entities
through April 30, 1997) as it would have had under the Agreement and this Letter
Agreement from AT&T if the restructuring had not occurred. Second, the three
entities will have the same licenses and rights (and any corresponding
obligations) after restructuring (including patents originating from IDT through
April 30, 1997) that AT&T had under the Agreement and this Letter Agreement
prior to such restructuring. Third, in the future, if IDT or any of the three
entities divest a portion of its present business, the licenses and rights
granted in the subject agreement may be sublicensed to the divested business by
the divesting company. Such sublicenses may be granted and retained only while
the future divested business operates as a separately identifiable business and
only to the extent applicable to products and services sold by the future
divested business prior to its divestiture. The payment obligations of IDT under
the Agreement and this Letter Agreement shall be only to one of the three
entities.
2. The Technology Credit which IDT granted to AT&T in Section 2.02 of the
Agreement may be used by any of the three entities at any time prior to April
30, 2002, however the total amount of the credit shall not exceed
[ REDACTED * ], including portions of the credit
previously used by AT&T.
3. IDT and the three entities agree that for the period from May 1, 1997 through
April 30, 2002, neither they nor any of their RELATED COMPANIES or assigns shall
bring any legal action against the other party or any of their RELATED COMPANIES
alleging infringement by such other party or any of their RELATED COMPANIES of
any patent issued from May 1, 1997 through April 30, 2002 with respect to any
product which is a LICENSED PRODUCT. Nothing herein, however, shall be construed
as a waiver of any party's (or any of their RELATED COMPANIES') rights against
the other party or any of their RELATED COMPANIES with
* Confidential treatment has been requested for certain portions of this
document.
<PAGE>
Amendment to Patent License Agreement
December 1, 1995
Page 2
respect to acts of infringement after April 30, 2002, nor shall any party (or
any of their RELATED COMPANIES) be estopped from bringing any legal action
against the other party or any of their RELATED COMPANIES after April 30, 2002,
to enforce any and all of their rights, including the rights to obtain monetary
damages and injunctive relief, based on any act of infringement occurring after
April 30, 2002. Nothing contained in the Agreement or this amendment thereto
shall be construed as granting to AT&T or IDT a patent or other license under
any of the other's patents having a first filing date after April 30, 1997.
4. In lieu of paying royalties to AT&T in accordance with Section 2.05 of the
Agreement for the period from May 1, 1997 until April 30, 2002 and for agreement
by the parties not to bring any legal action in paragraph 3 herein, the
following shall apply
(a) With respect to REPORTABLE PRODUCTS (as defined in the agreement) Sold,
leased or put into use from May 1, 1997 until April 30, 2002, IDT shall
semiannually pay to AT&T Corp. royalty at the rate of [
REDACTED * ] of all of IDT's gross
sales less MODULES plus the components in the MODULES which are
manufactured by IDT. The total of such payments shall not exceed
[ REDACTED * ].
(b) IDT shall, within sixty (60) days after the end of each of the following
semiannual periods:
October 31, 1997
April 30, 1998
October 31, 1998
April 30, 1999
October 31, 1999
April 30, 2000
October 31, 2000
April 30, 2001
October 31, 2001
April 30, 2002
send to Contract Administrator, Liberty Corner Division 150 Allen Road
Suite 2000, Liberty Corner, New Jersey 07938-1955, a statement certified
by a responsible official of IDT showing all of IDT's gross sales less
MODULES plus the components in the MODULES which are manufactured by
IDT during each semiannual period and pay AT&T, or their designee, at
Sun Bank, P.O. Box 913021, Orlando, Florida 32891-3021, or
alternatively, by bank wire transfers to AT&T's account: AT&T Licensing
Payments, Metrotech Center, Brooklyn, New
* Confidential treatment has been requested for certain portions of this
document.
<PAGE>
Amendment to Patent License Agreement
December 1, 1995
Page 3
York 11245, United States of America, the royalties payable in
accordance with such statement. After payment of [ REDACTED * ],
IDT will have no further obligation to issue reports to AT&T.
MODULES means any multiplicity of SILICON SEMICONDUCTIVE DEVICES on a
connectorized printed circuit board or equivalent.
5. The terms and conditions in Sections 2.07, 2.08, 2.09, 2.11 and 2.12 of the
Agreement shall apply to royalties payable pursuant to paragraph 4, above,
provided, however, that [ REDACTED * ] in Section
2.12 shall be deleted and the amount [ REDACTED * ]
shall be substituted in lieu thereof. Additionally, with regard to Section 2.12
only, the term LIMITED PERIOD shall extend until April 30, 2002.
6. Any term in capital letters which is defined in the Definitions Appendix of
the Agreement shall retain the meaning specified therein except as otherwise
herein specified.
To ensure that the parties are in agreement with respect to this matter and
can act with a common understanding, please indicate your confirmation of the
above by signing and dating this letter in the space provided below. Kindly
return an executed copy to AT&T in the enclosed envelope at your earliest
convenience. Thank you for your cooperation.
Very truly yours
AT&T Corp.
/s/ M. R. GREENE
M. R. Greene
Vice President, Intellectual Property
& Licensing Counsel
ACCEPTED AND AGREED:
Integrated Device Technology, Inc.
/s/ LEONARD C. PERHAM
Leonard C. Perham
President and Chief Executive Officer
* Confidential treatment has been requested for certain portions of this
document.
March 8, 1996
Mr. Carl Berg
President
Baccarat Silicon, Inc.
10050 Bandley Drive
Cupertino, CA 95014
Re: 1566 Moffett Street, Salinas, California - IDT FAB 2
Dear Carl:
The purpose of this letter is to confirm our agreement to acquire 100%
of the unregistered shares of Baccarat Silicon, Inc. in a tax-free exchange for
782,445 unregistered shares of IDTI common stock, representing a value of
Baccarat Silicon, Inc. of $8,509,090 and IDTI stock of $10.875 per share,
today's closing price.
The exchange shall be conditioned upon the approval of the transaction
by a majority of IDT's disinterested directors and the qualification of the
transaction as a tax free exchange. Further, the transaction shall be contingent
upon Baccarat Silicon, Inc. owning in fee simple all of the property subject to
the lease of the referenced premises, free of all liens, encumbrances, and
liabilities, other than routine easements of record and being free of all other
liabilities.
Please signify your agreement by signing and returning the enclosed
copy of this letter at your earliest convenience.
Very truly yours,
/s/ Jack Menache
___________________________
Jack Menache AGREED:
Vice President, Baccarat Silicon, Inc
General Counsel
/s/ Carl E. Berg
___________________________
Carl Berg
President
LEASE
BETWEEN
AMERICAN NATIONAL INSURANCE COMPANY,
A TEXAS CORPORATION,
AS LANDLORD,
AND
INTEGRATED DEVICE TECHNOLOGY, INC.
A DELAWARE CORPORATION,
AS TENANT
3250 OLCOTT STREET
SANTA CLARA, CALIFORNIA
<PAGE>
TABLE OF CONTENTS
Page
Section Description Number
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1. Premises 1
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2. Term 2
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3. Base Rent; Adjustment; General Rent Provisions 2
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4. Direct Costs 2
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5. Security Deposit 2
----------------
6. Restrictions on Use; Compliance with Laws 2
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7. Improvements and Alterations 3
----------------------------
8. Repairs and Maintenance 3
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9. Liens 3
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10. Assigning and Subleasing 3
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11. Waiver; Indemnity 5
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12. Insurance 5
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13. Services and Utilities 6
----------------------
14. Estoppel Certificate 6
--------------------
15. Holding Over 6
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16. Subordination; Requirements of Lenders 6
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17. Environmental Indemnities 6
-------------------------
18. Access by Landlord 7
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19. Default by Tenant 7
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20. Remedies of Landlord 7
--------------------
21. Default by Landlord; Limitation of Liability 9
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22. Damage and Destruction 9
----------------------
23. Eminent Domain 10
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24. Sale by Landlord 10
----------------
25. Surrender of Premises 10
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26. Quiet Enjoyment 10
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27. Notices 10
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28. Personal Property Taxes 10
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29. Interest and Late Charges 11
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30. Successors and Assigns 11
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31. Attorneys' Fees 11
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32. Light and Air 11
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33. Signs and Directory 11
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34. Parking 11
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35. Brokers 11
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36. Authority; Joint and Several Liability 11
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37. Option to Renew 11
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38. Miscellaneous 12
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i
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Exhibit "A" Outline of Premises
Exhibit "B" Form of Notice of Lease Term Dates and Areas
Exhibit "C" Work Agreement
Exhibit "D" Form of Estoppel Certificate
ii
<PAGE>
STANDARD OFFICE LEASE
THIS LEASE ("Lease") is made as of July ____, 1995 by and between
AMERICAN NATIONAL INSURANCE COMPANY, a Texas corporation ("Landlord"), and
INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation, ("Tenant"), upon the
following terms and conditions:
1. Premises.
1.1 Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, upon the terms and conditions set forth in this Lease, those
certain premises (the "Premises") described in Section 1.1.1 of the Basic Lease
Information (as defined below) and Section 1.2, all as more particularly
described in Exhibit "A" attached hereto and hereby made a part hereof. For
purposes of this Lease, the rentable area of the Premises has been or shall be
determined by Landlord by reference to the "Standard Method for Measuring Floor
Area in Office Buildings," adopted by the Building Owners and Managers
Association International and approved by the American National Standards
Institute, Inc., as reprinted May, 1981. The terms and conditions of this Lease
shall include, without limitation, the following basic Lease information (the
"Basic Lease Information"):
1.1.1 Premises (Section 1.1): 3250 Olcott Street, Santa Clara, California,
consisting of approximately 48,275 rentable square feet
1.1.2 Lease term (Section 2 and Section 37): Five (5) years and zero (0)
months, scheduled to commence as set forth in Section 2 of this Lease,
subject to three (3) options to renew of five (5) years each.
1.1.3 Base Rent (Section 3.1):
Monthly Rent Monthly
Months Per Rentable Square Foot Rent
------ ------------------------ ----
01 - 36 $0.75 $36,206.25
37 - 60 $0.80 $38,620.00
Base Rent is subject to increase pursuant to Section 4(d)(ii) of the
Work Agreement attached as Exhibit "C"
1.1.4 Security deposit (Section 5): $38,620.00
1.1.5 Permitted use (Section 6.1): General administrative offices and for no
other purpose
1.1.6 Address of Tenant
for notices Integrated Device Technology, Inc.
prior to 2972 Stender Way
Commencement Santa Clara, California 95054
Date Attention: Tom Wroblewski, Vice President
(Section 27): Telephone No.: (408) 727-6116
with a courtesy only copy to:
Integrated Device Technology, Inc.
2972 Stender Way
Santa Clara, California 95054
Attention: General Counsel
1.1.7 Address of Tenant
for notices Integrated Device Technology, Inc.
from and 3250 Olcott Street
including Santa Clara, California 95054
Commencement Date Attention: Tom Wroblewski, Vice President
(Section 27): Telephone No.: (408) 727-6116
with a courtesy only copy to:
Integrated Device Technology, Inc.
2972 Stender Way
Santa Clara, California 95054
Attention: General Counsel
1.1.8 Parking rights (Section 34): 100% of the parking spaces located on the
Premises, as more particularly identified in Exhibit "A"
1.1.9 Landlord's Broker (Section 35): Colliers Parish International, Inc.
1.1.10 Tenant's Broker (Section 35): BT Commercial
1.1.11 Landlord's Construction Representative (Exhibit "C"): Claud Jackson
1.1.12 Tenant's Construction Representative (Exhibit "C"): Tom Wroblewski
1.1.13 Tenant Improvement Allowance and Additional Tenant Improvement
Allowance (Exhibit "C"): Up to $20 per rentable square foot as provided
in Section 1.1.1, plus up to $5 per rentable square foot for certain
supplemental allowances.
Each reference in this Lease to any of the Basic Lease Information shall be
construed to incorporate, in addition to the Basic Lease Information, the terms
and conditions set forth in the particular Lease section in which such reference
is made.
1.2 The term "Premises" as used in this Lease shall mean the
land described in Exhibit "A", together with all buildings located thereon,
related facilities and appurtenances, walkways, parking facilities, landscaped
areas and sidewalks.
1
<PAGE>
2. Term.
The term of this Lease shall commence upon the later (the
"Commencement Date") of the following dates: (a) ninety (90) days following the
date of this Lease, or (b) the date that Landlord tenders possession of the
Premises to Tenant, provided that any work to be performed by Landlord pursuant
to the Work Agreement (as defined in Section 7.1 below) is substantially
completed as provided in said Work Agreement. Such term shall continue for the
balance of the month in which the Commencement Date occurs (if the Commencement
Date occurs on other than the first day of any calendar month) and thereafter
for the number of whole years and months specified in said Section 1.1.2, unless
sooner terminated pursuant to any provision hereof. The parties hereto shall
execute a written statement, substantially in the form attached hereto as
Exhibit "B" and hereby made a part hereof, setting forth the Commencement Date
and the date of expiration of this Lease, and related information, promptly
after same have been ascertained, but the enforceability of this Lease shall not
be affected should either party fail or refuse to execute such statement. If
permission is given to Tenant, in Landlord's sole discretion, to enter or occupy
the Premises prior to the Commencement Date, such early entrance or occupancy
shall be subject to all the terms of such permission and all the provisions of
this Lease which could be reasonably and logically construed as applying thereto
and Tenant shall not in any way interfere with or delay any work from being
substantially completed or otherwise cause additional cost or expense to
Landlord.
3. Base Rent; Adjustment; General Rent Provisions.
3.1 Tenant shall pay to Landlord as base rent ("Base Rent")
for the Premises, without prior notice or demand, throughout the term of this
Lease, the amount so specified in Section 1.1.3 of the Basic Lease Information
(subject to any increase provided for therein or in Section 4(d)(ii) of the Work
Agreement attached hereto as Exhibit "C"), in advance, in equal monthly
installments, on or before the first day of each and every calendar month during
the term hereof, except that Base Rent for the first full month for which Base
Rent shall be payable hereunder shall be paid upon substantial completion of the
Tenant Improvements pursuant to the Work Agreement.
3.2 Base Rent and any other rent due under this Lease for any
period during the term hereof which is for less than one (1) month shall be a
pro rata portion of the monthly amount due, based upon a thirty (30) day month.
Rent and all other amounts due to Landlord shall be paid to Landlord, without
deduction, offset or abatement, except as may otherwise be specifically set
forth in this Lease, at Landlord's address as specified in Section 27 below or
to such other firm or at such other place as Landlord may from time to time
designate in writing. Landlord shall have the right to accept all rent and other
payments, whether full or partial, and to negotiate checks in payment thereof
without any waiver of rights, irrespective of any conditions to the contrary
sought to be imposed by Tenant. Rent hereunder shall be deemed paid to Landlord
when received by Landlord, or its designee, at Landlord's address, or at such
other address as Landlord shall have designated.
4. Direct Costs.
4.1 "Direct Costs" shall mean both Tax Costs and Operating
Costs, as those terms are hereinafter defined, whether determined separately or
jointly.
4.2 "Tax Costs" shall mean the sum of the following: any and
all real property taxes, assessments (including, but not limited to, general and
special assessments), charges, surcharges, license and other fees, levies, costs
of improvement bonds, penalties and any and all other taxes (other than income,
franchise, estate and gift taxes of Landlord) on or relating to all or a portion
of the Premises (as it may exist from time to time) including, but not limited
to, any legal or equitable interest of Landlord therein which may be imposed,
levied, assessed or charged for any reason by any authority having the direct or
indirect power to tax including, but not limited to, the United States or the
state, county or city in which the Premises is located, or any other local
governmental authority, agency, district or political subdivision thereof,
together with personal property taxes, assessments, fees and charges (other than
those paid by Tenant pursuant to Section 28 below), and fees of tax consultants
and attorneys retained to seek a reduction, to contest or to act in some other
manner in connection with any of the foregoing Tax Costs, together with any tax,
assessment or other amount (including, without limitation, commercial rental
taxes) imposed, levied or charged as a substitute for or a supplement to the
foregoing. Tax Costs for each tax year shall be appropriately prorated to
determine the Tax Costs for the subject calendar year.
4.3 "Operating Costs" shall mean the sum of the following: any
and all costs, expenses and disbursements paid or incurred in connection with
the ownership, management, operation, security, maintenance and repair of the
Premises (as it may exist from time to time) including, but not limited to,
salaries, wages, benefits and related costs for employees; management fees;
charges for utilities and services (including any taxes thereon); the cost of
insurance (except for insurance to be maintained by Landlord as expressly
provided in Section 12 of this Lease); the cost of building and cleaning
supplies and materials. Without limiting the generality of the foregoing, and
notwithstanding any contrary provision herein, if at any time Landlord is
required by any rule, regulation or law to make any changes, alterations or
improvements to the Premises (including, but not limited to, electrical,
mechanical or other systems or components) ("Required Alterations") (but
excluding Required Alterations attributable exclusively to Tenant's specific use
and occupancy of the Premises, which alterations shall be Tenant's sole
responsibility), all costs relating to such Required Alterations (including, but
not limited to, all planning, legal, architectural, engineering, construction,
financing and other costs) fairly characterized as "expenses" under generally
accepted accounting principles shall be fully included in Operating Costs in the
year in which such charges accrue, or in such year as Landlord pays such
charges, as Landlord shall elect. Operating Costs shall not include the cost of
any of those items set forth in Section 1 of the Work Agreement.
4.4 Tenant shall, with Landlord's cooperation, arrange for all
Tax Costs, to the extent possible, to be billed directly to Tenant. Any Tax
Costs billed to Landlord shall be paid by Tenant within ten (10) days after
demand therefor, accompanied by bills or invoices for same, from Landlord.
Provided Landlord's interest in the Premises is not in any way affected, Tenant
may in good faith protest the payment of Tax Cost that Tenant believes is
unwarranted or excessive and may defer payment of such Tax Cost pending
conclusion of such contest if legally permitted to do so.
5. Security Deposit.
Concurrently with Tenant's execution hereof, Tenant shall pay
to Landlord a security deposit to secure the performance and observance of all
obligations and covenants of Tenant hereunder. The initial amount of such
deposit is specified in Section 1.1.6 of the Basic Lease Information. Landlord
may apply such deposit to remedy any failure by Tenant to perform or observe any
of its obligations and covenants hereunder. Should Landlord use any portion of
such deposit pursuant to the foregoing, Tenant shall forthwith replenish such
deposit in full. Landlord shall, upon the expiration or sooner termination
hereof, promptly return any unused portion of such deposit to Tenant (or the
last permitted assignee of Tenant's interest hereunder). Landlord shall not be
obligated to return any unused portion of the security deposit until all
obligations of Tenant are performed (including, without limitation, Tenant's
payment obligations under Section 4.3). Landlord shall not be required to keep
such deposit separate from its general funds, and Tenant shall not be entitled
to any interest on such deposit.
6. Restrictions on Use; Compliance with Laws.
6.1 Tenant shall use and occupy the Premises only as specified
in Section 1.1.5 of the Basic Lease Information. Tenant shall not use or allow
the Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause or maintain or permit any nuisance in or about
the Premises, nor shall Tenant cause or permit any hazardous or toxic waste,
substance or material to be
2
<PAGE>
brought to the Premises or used, handled, stored or disposed of in or about the
Premises. Tenant shall not commit or suffer the commission of any waste in or
about the Premises.
6.2 Tenant shall not use the Premises or permit anything to be
done in or about the Premises which shall in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall not do or permit anything to
be done on or about the Premises or bring or keep anything therein which will in
any way increase the rate of any insurance upon the Premises or any of its
contents or cause a cancellation of said insurance or otherwise affect said
insurance in any manner, and Tenant shall at its sole cost and expense promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
and requirements now in force or which may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises.
7. Improvements and Alterations.
7.1 Initial improvements to the Premises shall be governed by
the provisions of Exhibit "C" attached hereto and hereby made a part hereof (the
"Work Agreement") and the other provisions of this Lease not in conflict
therewith.
7.2 Without the prior written consent of Landlord, Tenant
shall not make or permit to be made any alterations, additions or improvements
in, on or to the Premises, except for interior, nonstructural alterations to the
Premises not exceeding Ten Thousand Dollars ($10,000) for any such single
alteration, addition or improvement. Notwithstanding any contrary provision
herein, Tenant shall not, in any event, make any alterations, additions or
improvements which affect structural portions or mechanical or electrical
systems of the Premises or which are visible from the exterior of the Premises.
Any alterations, additions or improvements desired by Tenant shall be made at
Tenant's sole cost and expense in compliance with Section 9 below and in
accordance with plans and specifications, and pursuant to governmental permits,
approved in advance by Landlord. Any contractor selected by Tenant to make same
must be licensed and be approved in advance by Landlord and must provide
insurance coverage acceptable to Landlord. Upon completion of any alterations,
additions or improvements, Tenant shall furnish to Landlord a set of "as built"
plans and specifications therefor, and, within ten (10) days after such
completion, Tenant shall cause an appropriate notice of completion to be
recorded in the Official Records of Santa Clara County, California. Tenant shall
cause all such alterations, additions or improvements to be completed in a good,
workmanlike, diligent, prompt and expeditious manner in compliance with all
applicable laws. Landlord's approval of Tenant's plans and specifications shall
not constitute a representation or warranty of Landlord as to the adequacy
thereof or compliance thereof with applicable laws. Tenant shall pay to Landlord
the reasonable costs actually incurred by Landlord for reviewing Tenant's plans
and specifications and Landlord's coordination, scheduling and review of the
subject work, regardless of whether Landlord or Tenant contracts for such work.
8. Repairs and Maintenance.
8.1 By taking possession of the Premises, Tenant shall accept
the Premises as being in the condition in which Landlord is obligated to deliver
them and otherwise in good order, condition and repair. Except as expressly set
forth in this Lease, Landlord has made no representation or warranty to Tenant
or any agent thereof regarding the condition of the Premises or their present or
future suitability for Tenant's intended use. Subject to the provisions of
Section 22 and Section 8.4 below, Tenant shall, at all times during the term
hereof and at Tenant's sole cost and expense, keep the Premises and every part
thereof in good order, condition and repair, including without limitation, all
interior and exterior walls (including paint as needed), the roof membrane,
interior surfaces of the ceilings, walls and floors, the plumbing, window glass,
plate glass and doors, heating, ventilation and air conditioning systems,
electrical wiring, switches and fixtures, landscaping, parking areas and
sidewalks.
8.2 If Tenant fails or neglects to repair or maintain the
Premises as described in Section 8.1 above within five (5) business days after
receipt of Landlord's written notice stating the repairs or maintenance required
to be made, or Tenant fails to complete such repairs or maintenance within
thirty (30) days of such notice, or such longer period as is reasonably
necessary, provided Tenant is pursuing such repairs or maintenance with
continuity and diligence, or in the event of an emergency, Landlord may make
such repairs or maintenance as it deems reasonably necessary for the account of
Tenant. Following Landlord's completion of such repair work, Tenant shall
promptly reimburse Landlord for all reasonable expenses incurred upon its
receipt of paid invoices.
8.3 Tenant hereby waives any and all rights under and benefits
of subsection 1 of Section 1932, and Sections 1941 and 1942, of the Civil Code
of California and any similar law, statute or ordinance now or hereafter in
effect. It is hereby understood and agreed that Landlord has no obligation to
alter, remodel, improve, repair, decorate or paint the Premises or any part
thereof, except as specified in Section 22 below or in the Work Agreement.
8.4 At Landlord's cost and expense, Landlord shall keep the
structural portions of the roof (expressly excluding therefrom the roof
membrane), the structural walls and the foundation of the Premises in good
condition and repair at all times during the term of this Lease. Notwithstanding
anything in this Lease to the contrary, if, during the first six (6) months of
the term of this, any repair and/or replacement of the existing mechanical and
electrical systems (including heating, ventilating and air conditioning), the
structural portions of the building located on Premises or the roof membrane are
required as a result of normal wear and tear, Landlord shall make such repairs
and/or replacements at Landlord's cost and expense.
9. Liens.
Tenant shall keep the Premises free from any liens arising
from any labor performed or materials furnished in connection with any work done
or caused to be done by Tenant or arising from any obligations incurred by
Tenant. In the event that Tenant shall not, within ten (10) days following the
imposition of any such lien, cause the same to be released of record by payment
or posting of a proper bond, Landlord shall have, in addition to all other
remedies provided herein and at law or in equity, the right to cause same to be
released by such means as it shall deem proper including, but not limited to,
payment (from the security deposit referred to in Section 5 above or otherwise)
of the claim giving rise to such lien. All such sums paid by Landlord and all
expenses incurred by it in connection therewith shall be considered additional
rent and shall be payable to it by Tenant on demand with interest at the
Interest Rate (as defined in Section 29 below). Landlord may require, at
Landlord's sole option, that Tenant cause to be provided to Landlord, at
Tenant's sole cost and expense, a performance and labor and materials payment
bond acceptable to Landlord with respect to any improvements, additions or
alterations to the Premises. Landlord shall have the right at all times to post
and keep posted on the Premises any notices permitted or required by law, or
which Landlord shall deem proper, for the protection of Landlord, the Premises
and any other party having an interest therein from mechanics' and materialmen's
liens, and Tenant shall give to Landlord at least five (5) business days' prior
notice of commencement of any work on the Premises.
10. Assigning and Subleasing.
10.1 Tenant shall not assign, sublease or otherwise transfer,
voluntarily, by operation of law or otherwise, any interest herein or in the
Premises, or permit any assignment, sublease or other transfer to occur, without
Landlord's prior written consent, which shall not be unreasonably withheld. For
purposes of this Section 10, the term "transfer" shall include, without
limitation, entering into any license or concession agreement or otherwise
permitting any third party other than Tenant and Tenant's employees,
contractors, invitees and guests to occupy or use the Premises or any portion
thereof. In determining whether to grant such consent, Landlord may consider
various factors
3
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including, but not limited to, the following: (a) business criteria relating to
the proposed transferee's background, experience, reputation, general operating
ability and ability to perform Lease obligations, and potential for succeeding
in its business, (b) financial criteria relating to the proposed transferee's
financial responsibility, credit rating and capitalization, (c) the identity and
personal characteristics of the proposed transferee and its invitees and guests,
and (d) the nature of the proposed use and business of the proposed transferee.
Without limiting the generality of the foregoing, Landlord hereby reserves the
right to condition any such consent upon Landlord's determination that (i) the
proposed transferee is at least as financially and morally responsible as Tenant
then is, or was upon the execution hereof, whichever is greater, and (ii) the
proposed transferee shall use the Premises in compliance with Section 6 above.
Notwithstanding any provision in this Lease to the contrary, Tenant shall not
enter into any proposed assignment, sublease or other transfer of any interest
herein or in the Premises which would result in (a) diminution in the value of
the Premises, (b) the Premises being occupied by more than two (2) tenants, or
(c) a breach by Landlord of any loan obligation or agreement, any covenants,
conditions and restrictions of record, or any insurance policy. Hypothecation
and encumbering of any of Tenant's interest herein is prohibited. Tenant shall
submit the following information with a written request for Landlord's consent
to any assignment, sublease or other transfer: (i) all transfer and related
documents, (ii) financial statements, (iii) business, credit and personal
references and history, and (iv) such other information as Landlord may
reasonably request relating to the proposed transfer and the parties involved
therein. Any transaction which does not comply with the provisions of this
Section shall be voidable at the option of Landlord.
10.2 Notwithstanding any provision in this Lease to the
contrary, if Tenant desires at any time to assign, sublease or transfer any
interest herein or in the Premises, it shall first notify Landlord of its desire
to do so and shall designate in such notice the space and time period involved.
Landlord shall have ten business (10) days after delivery of such notice in
which to elect, at its option, to recapture said space for said time period. If
Landlord does not, within such ten business (10) day period, deliver to Tenant
notice of its election to so recapture, Tenant may proceed with such assignment,
sublease or transfer in accordance with the terms designated in Tenant's notice,
subject to the other provisions of this Lease, including, but not limited to,
Landlord's reasonable consent thereto pursuant to the foregoing.
10.3 With respect to any assignment, sublease or other
transfer of any interest herein or in the Premises, Tenant shall,
notwithstanding any contrary provision herein, pay to Landlord, promptly
following Tenant's receipt thereof, seventy-five (75%) of the amount by which
all rental and other payments (whether paid in installments, as lump sums, or
otherwise) relating to the space in question received by Tenant exceed the Base
Rent, Direct Costs and other amounts paid pursuant to this Lease for the subject
period with respect to such space subleased (with the rental and other amounts
paid by Tenant for the Premises allocated on the basis of rentable area).
Amounts payable under this Section by Tenant to Landlord shall be based on gross
figures less only the actual, reasonable costs incurred by Tenant to procure
such assignment, sublease or other transfer, including the reasonable costs of
any leasehold improvements or other alterations to the Premises made in
connection therewith and approved in advance by Landlord in Landlord's
reasonable discretion. The provisions of this Section shall apply regardless of
whether such assignment, sublease or other transfer is made in compliance with
the provisions of this Lease. Any payments made to Landlord pursuant to this
Section shall not cure any default under this Lease arising from such
assignment, sublease or transfer. Tenant shall not artificially structure any
sublease, assignment or other transfer in order to reduce the amount payable to
Landlord under this Section, nor shall Tenant take any other steps for the
purpose of circumventing its obligation to pay amounts to Landlord under this
Section; in the event that Tenant does same, the amount payable to Landlord
under this Section shall be the amount that would have been payable to Landlord
had same not occurred.
10.4 Tenant shall reimburse Landlord for Landlord's reasonable
costs and expenses (including, but not limited to, reasonable attorneys',
accountants', architects', engineers' and consultants' fees) incurred in
connection with the processing and documentation of any requested assignment,
sublease or other transfer; provided, however, before incurring costs and
expenses for the services of any architect, engineer or consultant, Landlord
shall first provide Tenant the opportunity to supply promptly to Landlord the
information, documentation or advice Landlord would have otherwise sought from
professionals of Landlord's own selection, the sufficiency of which information,
documentation and advice shall be determined by Landlord in its reasonable
discretion.
10.5 No assignment, sublease or other transfer, even with the
consent of Landlord, shall result in Tenant's being released from any of its
obligations hereunder. Landlord's consent to any one transfer shall apply only
to the specific transaction thereby authorized and such consent shall not be
construed as a waiver of the duty of Tenant or any transferee to obtain
Landlord's consent to any other or subsequent transfer or as modifying or
limiting Landlord's rights hereunder in any way. Landlord's acceptance of rent
directly from any assignee, subtenant or other transferee shall not be construed
as Landlord's consent thereto nor Landlord's agreement to accept the attornment
of any subtenant in the event of any termination of this Lease. In no event
shall Landlord's enforcement of any provision of this Lease against any
transferee be deemed a waiver of Landlord's right to enforce any term of this
Lease against Tenant or any other person.
10.6 If Tenant is a corporation, an unincorporated
association, limited liability company or a partnership, any cumulative
transfer, assignment or hypothecation of any stock or interest in such
corporation, association, limited liability company or partnership greater than
twenty-five percent (25%) thereof, or any cumulative transfer, assignment or
hypothecation (other than in the ordinary course of business) of any assets of
such corporation, association, limited liability company or partnership greater
than twenty-five percent (25%) thereof, shall be deemed an assignment within the
meaning and provisions of this Section and shall be subject to the provisions
hereof; provided, however, that the foregoing shall not apply to corporations,
fifty percent (50%) or more of the stock of which is traded through a national
or regional exchange or over-the-counter.
10.7 Notwithstanding any of the foregoing provisions,
covenants and conditions to the contrary, in the event that this Lease is
assigned to any person or entity pursuant to the provisions of the Bankruptcy
Code, 11 U.S.C. 101 et seq. (the "Bankruptcy Code"), any and all monies or other
consideration payable or otherwise to be delivered in connection with such
assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or of
the estate of Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other consideration constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord shall be held in trust for
the benefit of Landlord and shall be promptly paid to or turned over to
Landlord. If Tenant proposes to assign this Lease pursuant to the provisions of
the Bankruptcy Code to any person or entity who shall have made a bona fide
offer to accept an assignment of this Lease on terms acceptable to Tenant, then
notice of such proposed assignment setting forth (i) the name and address of
such person, (ii) all of the terms and conditions of such offer, and (iii) the
adequate assurance to be provided by Tenant to assure such person's future
performance under the Lease including, without limitation, the assurance
referred to in Section 365 of the Bankruptcy Code, or any such successor or
substitute legislation or rule thereto, shall be given to Landlord by Tenant no
later than twenty (20) days after receipt by Tenant, but in any event no later
than ten (10) days prior to the date that Tenant shall make application to a
court of competent jurisdiction for authority and approval to enter into such
assignment and assumption. Landlord shall thereupon have the prior right and
option, to be exercised by notice to Tenant given at any time prior to the
effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if any,
as the bonafide offer made by such person, less any brokerage commissions which
may be payable out of the consideration to be paid by such person for the
assignment of this Lease. Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code shall be deemed without
further act or deed to have assumed all of the obligations arising under this
Lease on and after the date of such assignment. Any such assignee shall upon
demand execute and deliver to Landlord an instrument confirming such assumption.
10.8 Any transaction which does not comply with the provisions
of this Section 10 shall constitute a breach of and default under this Lease by
Tenant.
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11. Waiver; Indemnity.
11.1 Notwithstanding any contrary provision herein, and except
to the extent arising from the negligence or willful misconduct of Landlord,
Landlord shall not be liable and Tenant hereby waives all claims against
Landlord for any injury or damage to any person or property or any other loss
(including, but not limited to, loss of income) in or about the Premises, by or
from any cause whatsoever, and, without limiting the generality of the
foregoing, whether caused by water leakage of any character from the roof,
walls, basement or any other portion of the Premises, or by gas, fire, oil or
electricity, or by any interruption of utilities or services, or by any occupant
or other person, or by any other cause whatsoever in, on or about the Premises.
Notwithstanding any contrary provision in this Lease, Landlord shall in no event
be liable for consequential damages under this Section 11.1.
11.2 Except to the extent arising from the negligence or
willful misconduct of Landlord, Tenant shall indemnify Landlord and hold
Landlord harmless from and against any and all claims, demands, losses, damages,
liabilities, costs and expenses (including, but not limited to, reasonable
attorneys' fees) arising from Tenant's use or enjoyment of the Premises, from
the conduct of Tenant's business, from any act or omission, work or thing done,
permitted or suffered by Tenant (or any officer, employee, agent, contractor,
representative, licensee, guest, invitee or visitor thereof) in or about the
Premises, or from any default under this Lease by Tenant. If any action or
proceeding is brought against Landlord by reason of any such matter, Tenant
shall, upon Landlord's request, defend same at Tenant's expense by counsel
reasonably satisfactory to Landlord. Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property of
Tenant or injury to persons in or about the Premises, except to the extent
arising from the negligence or willful misconduct of Landlord, and Tenant hereby
waives all claims in respect thereof against Landlord. The provisions of this
Section shall survive the expiration or termination of this Lease with respect
to any claims or liability arising from events occurring prior to such
expiration or termination.
12. Insurance.
12.1 Throughout the term hereof, Tenant shall carry and
maintain, at its own expense, the following types, amounts and forms of
insurance:
12.1.1 Tenant shall carry and maintain a policy of
commercial general liability insurance with a combined single limit of Three
Million Dollars ($3,000,000) per occurrence in the name of Tenant (with Landlord
and, if requested by Landlord, any mortgagee, trust deed holder, ground lessor
or secured party with an interest in this Lease or the Premises named as an
additional insured). Such policy shall specifically include, without limitation,
personal injury, broad form property damage, and contractual liability coverage,
the last of which shall cover the insuring provisions of this Lease and the
performance by Tenant of the indemnity agreements in Section 11 above. Such
policy shall provide coverage on an occurrence basis. The amount of such
insurance required hereunder shall be subject to adjustment from time to time as
reasonably requested by Landlord.
12.1.2 Tenant shall carry and maintain a policy or
policies of property insurance in the name of Tenant (with Landlord or, if
requested by Landlord, any mortgagee, trust deed holder, ground lessor or
secured party with an interest in this Lease or the Premises named as loss payee
as their insurable interests appear) covering Tenant's leasehold improvements
and any property of Tenant at the Premises and providing protection against all
perils included within the classification of fire, earthquake, extended
coverage, vandalism, malicious mischief, special extended peril (all risk) and
sprinkler leakage, in an amount equal to at least one hundred percent (100%) of
the replacement cost thereof from time to time (including, without limitation,
cost of debris removal), with an agreed amount endorsement. Any proceeds from
such insurance shall be used for the repair or replacement of the property
damaged or destroyed, unless this Lease is terminated pursuant to the provisions
hereof. If the Premises are not repaired or restored following damage or
destruction, Landlord shall receive and retain any proceeds from such insurance
allocable to Tenant's leasehold improvements.
12.1.3 Tenant shall carry and maintain a policy or
policies of property insurance in the name of Tenant (with Landlord or, if
requested by Landlord, any mortgagee, trust deed holder, ground lessor or
secured party with an interest in this Lease or the Premises named as additional
insureds) covering the Premises and providing protection against all perils
included within the classification of fire, flood, extended coverage, vandalism,
malicious mischief, special extended peril (all risk) and sprinkler leakage, in
an amount equal to at least one hundred percent (100%) of the replacement cost
thereof from time to time (including, without limitation, cost of debris
removal), with an agreed amount endorsement. Any proceeds from such insurance
shall be used for the repair or replacement of the Premises, unless this Lease
is terminated pursuant to the provisions hereof. If the Premises are not
repaired or restored following damage or destruction, Landlord and Tenant shall
share in any proceeds from such insurance in proportion to their respective
contribution to the cost of Tenant's leasehold improvements pursuant to Section
4(d) of the Work Agreement.
12.1.4 Tenant shall carry and maintain a policy or
policies of workers' compensation and employers' liability insurance in
compliance with all applicable laws.
12.1.5 Landlord may from time to time require that
Tenant carry and maintain a policy or policies of insurance for business
interruption or rent loss insurance in an amount at least equal to 100% of the
sum of the annual Base Rent and Additional Rent due hereunder.
12.1.6 All of the policies required to be obtained by
Tenant pursuant to the provisions of this Section 12.1 shall be issued by
companies licensed to do business in California), and shall be in form and
content, reasonably acceptable to Landlord. Without limiting the generality of
the foregoing, any deductible amounts under said policies shall be subject to
Landlord's reasonable approval. All policies required to be obtained by Tenant
shall provide that the interests of Landlord and any other additional insureds
or loss payees designated by Landlord shall not be invalidated due to any breach
or violation of any warranties, representations or declarations contained in
such policies or the applications therefor. Each policy shall designate Landlord
as an additional insured or loss payee, subject to the foregoing, and shall
provide full coverage in the amounts set forth herein. Although named as an
additional insured, Landlord shall be entitled to recover under said policies
for any loss occasioned to it, its servants, agents and employees, by reason of
the negligence of Tenant. Tenant shall, prior to delivery of the Premises by
Landlord to Tenant, provide Landlord with copies of and certificates for all
insurance policies. All insurance policies shall provide that they may not be
modified or canceled until after thirty (30) days' written notice to Landlord
(by any means described in Section 27 below) and to any other additional
insureds thereunder. Tenant shall, at least fifteen (15) days prior to the
expiration of any of such policies, furnish Landlord with a renewal or binder
therefor. Tenant may carry insurance under a so-called "blanket" policy,
provided that such policy provides that the amount of insurance required
hereunder shall not be prejudiced by other losses covered thereby. All insurance
policies carried by Tenant shall be primary with respect to, and
non-contributory with, any other insurance available to Landlord. If Tenant
fails to carry any insurance policy required hereunder or to furnish copies
thereof and certificates therefor pursuant hereto, Landlord may, upon notice
(unless such policy has lapsed), obtain such insurance, and Tenant shall
reimburse Landlord for the costs thereof with the next monthly rental payments
due hereunder.
12.2 During the term of this Lease, Landlord shall keep and
maintain property insurance for the Premises in such reasonable amounts, and
with such reasonable coverages, as would be carried by a prudent owner of a
similar building in the general market area of the Premises or as any lienholder
may require. Tenant acknowledges that it shall not be a named insured in such
policies and that it has no right to receive any proceeds from any such
insurance policies carried by Landlord. Notwithstanding any contrary provision
herein, Landlord
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shall not be required to carry insurance covering the property described in
Section 12.1.2. Landlord may, in its sole and entire discretion, elect to carry
insurance covering flood and earthquake.
12.3 Each party hereto hereby waives any and all rights to
recover against the other party, or against the officers, employees or
principals thereof, for loss or damage arising from any peril to the extent
insured against under any property or workers' compensation insurance policy
carried by such waiving party. To the extent commercially reasonably available,
each such policy shall be endorsed to reflect the foregoing.
12.4 Tenant shall pay any increases in insurance premiums
relating to property in the Premises other than the Premises to the extent that
any such increase is specified by the insurance carrier as being caused by
Tenant's acts or omissions or use or occupancy of the Premises.
13. Services and Utilities.
13.1 Tenant shall be responsible for procuring all janitorial,
waste disposal and other services to the Premises during the times and in the
manner that such services are customarily furnished in comparable buildings in
the immediate market area.
13.2 Tenant shall be responsible for procuring, and Tenant
shall promptly pay the cost of, all utilities and other resources consumed
within the Premises.
13.3 Landlord shall not be in default hereunder or be liable
for any damages directly or indirectly resulting from any interruption of
utilities or services caused by (i) the installation or repair of any equipment
in connection with the furnishing of utilities or services, (ii) acts of God or
the elements, labor disturbances of any character, any other accidents or any
other conditions beyond the reasonable control of Landlord, or by the making of
repairs or improvements to the Premises or the Premises, or (iii) the
limitation, curtailment, rationing or restriction imposed by any governmental
agency or service or utility supplier on use of water or electricity, gas or any
other form of energy or any other service or utility whatsoever serving the
Premises. Furthermore, Landlord shall be entitled, without any obligation or
compensation to Tenant, to cooperate voluntarily in a reasonable manner with the
efforts of national, state or local governmental agencies or service or utility
suppliers in reducing energy or other resource consumption; if Landlord shall so
cooperate, Tenant shall also reasonably cooperate therewith.
14. Estoppel Certificate.
Within ten (10) days after any written request which Landlord
may make from time to time, Tenant shall execute and deliver to Landlord a
certificate (the "Certificate") substantially in the form attached hereto as
Exhibit "D" and hereby made a part hereof, together with such financial
information relating to Tenant or any guarantor as Landlord or any prospective
purchaser or lender may reasonably request. Landlord shall have the right to
amend or otherwise supplement the Certificate to include such other information
and provisions as may be reasonably requested by any existing or prospective
lender or by any prospective purchaser. Landlord and Tenant intend that the
Certificate may be relied upon by any existing or prospective lender or by any
prospective purchaser.
15. Holding Over.
If Tenant, with Landlord's written consent, remains in
possession of all or any portion of the Premises after the expiration or sooner
termination of the term hereof, such holding over shall be deemed to constitute
a tenancy from month to month only, upon such terms and conditions hereof as
could be reasonably and logically construed as applying thereto; provided,
however, that during such holding over, Base Rent shall be one hundred
twenty-five percent (125%) of the Base Rent in effect immediately prior to such
expiration or termination, and any and all options and rights of first refusal
or other preferential rights of Tenant shall be deemed to have lapsed and to be
of no further force or effect. Landlord may terminate such tenancy from month to
month by giving to Tenant at least seven (7) days' written notice thereof at any
time. Acceptance by Landlord of any rent after such expiration or termination
shall not be deemed to constitute Landlord's consent to such holding over.
16. Subordination; Requirements of Lenders.
16.1 Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, this Lease
shall be subject and subordinate at all times to (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting all or
any portion of the Premises, and (b) the lien of any mortgage or deed of trust
which may now exist or hereafter be executed affecting all or any portion of the
Premises. Notwithstanding the foregoing, Landlord shall have the right to
subordinate or cause to be subordinated any such ground leases or underlying
leases or any such liens to this Lease. In the event that any ground lease or
underlying lease terminates for any reason or any mortgage or deed of trust is
foreclosed or a deed in lieu of foreclosure is made for any reason, Tenant
shall, notwithstanding any subordination, attorn to and become the Tenant of the
successor-in-interest to Landlord at the option of such successor-in-interest.
So long as Tenant is not in default under this Lease, Tenant's possession of the
Premises shall not be disturbed as a result of such termination, foreclosure or
deed in lieu of foreclosure. Tenant shall execute and deliver, upon demand by
Landlord and in the form requested by Landlord, any additional documents
evidencing the priority or subordination of this Lease and the attornment of
Tenant with respect to any such ground leases or underlying leases or the lien
of any such mortgage or deed or trust.
16.2 If, in connection with the obtainment of financing for
the Premises or any portion thereof, the lender requests reasonable
modifications hereto as a condition to the furnishing of such financing, Tenant
shall not unreasonably withhold or delay its consent thereto, provided that such
modifications do not materially increase the obligations of Tenant hereunder or
materially adversely affect Tenant's rights hereunder.
17. Environmental Indemnities .
17.1 Tenant agrees that Tenant, its agents and contractors
shall not use, manufacture, store or dispose of any flammable explosives,
radioactive materials, hazardous wastes or materials, toxic wastes or materials,
or other similar substances (collectively "Hazardous Materials") on, under or
about the Premises, provided that Tenant may handle, store, use or dispose in a
safe and lawful manner of products containing small amounts of Hazardous
Materials, which products are of a type customarily found in offices and
households (such as aerosol cans containing insecticides, toner for copiers,
paints, paint removers and the like). Tenant shall indemnify and hold harmless
Landlord from and against any and all claims, losses, liabilities, damages,
costs and expenses, including without limitation attorneys fees and costs
actually incurred, arising out of or in any way connected with the use,
manufacture, storage, or disposal of Hazardous Materials by Tenant, its agents
or contractors on, under or about the Premises, including, without limitation,
the cost of any required or necessary repair, cleanup or detoxification and the
preparation of any closure or other required plans in connection herewith.
17.2 Landlord shall indemnify and hold harmless Tenant from
and against any and all claims, losses, liabilities, damages, costs and
expenses, including without limitation attorneys fees and costs actually
incurred, which arise during or after the term of this Lease from or in
connection with toxic or hazardous substances present in the soil, groundwater
or soil vapor on or under the Leased Premises before or during the term of this
Lease Agreement, except to the extent that Tenant, its officers, employees or
agents are responsible for the presence
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of toxic or hazardous substances or exacerbate the contamination resulting from
the presence of toxic or hazardous substances. Without limiting the generality
of the foregoing, the indemnification provided by this paragraph shall
specifically cover costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of the presence of toxic or hazardous substances in the soil, groundwater or
soil vapor on or under the Leased Premises, except to the extent Tenant, its
officers, employees or agents are responsible for the presence of toxic or
hazardous substances or exacerbate the contamination resulting from the presence
of toxic or hazardous substances.
17.3 Upon execution of this Lease, Tenant shall cause to be
conducted an environmental audit of the Premises to determine the environmental
condition of the Premises, and the soil, groundwater and soil vapor on or under
the Premises. The results of such tests shall be made available to Landlord upon
request.
17.4 The indemnities set forth in Section 17.2 and 17.3 hereof
shall survive any termination of this Lease.
18. Access by Landlord.
Subject to prior arrangement with Tenant (except in the event
of an emergency) and compliance with Tenant's security requirements, Landlord
reserves, and Landlord (and its agents, contractors and employees) shall at
reasonable times have, the right to enter the Premises to inspect same, to show
the Premises to any prospective purchaser, beneficiary, mortgagee or, during the
last six (6) months of the term hereof, tenant, to post notices of
nonresponsibility, and to make any alteration, improvement or repair to the
Premises, without abatement of rent, and may for that purpose erect, use and
maintain scaffolding, pipes, conduits and other necessary structures in and
through the Premises where reasonably required by the character of the work to
be performed, provided that entrance to the Premises shall not be blocked
thereby, and provided further that Landlord shall use reasonable efforts to
minimize any interference with Tenant's use of and access to the Premises
resulting from the foregoing. Tenant hereby waives any claim for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss occasioned
thereby, except to the extent arising from the negligence or willful misconduct
of Landlord. Any entry to the Premises or portions thereof obtained by Landlord
in an emergency shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction,
actual or constructive, of Tenant from the Premises or any portion thereof.
19. Default by Tenant.
The occurrence of any of the following shall constitute a
breach of and default under this Lease by Tenant:
19.1 Failure by Tenant to pay any amount (including, without
limitation, monthly installments of Base Rent and Direct Costs) when and as same
becomes payable in accordance with the provisions of this Lease, or to duly,
promptly and completely perform any obligation of Tenant under Section 14 or 16
above, and the continuation of such failure for a period of three (3) days after
written notice from Landlord to Tenant specifying the nature of such failure.
19.2 Failure by Tenant to duly, promptly and completely
perform or observe any other obligation or covenant of Tenant contained in this
Lease, and the continuation of such failure for a period of ten business (10)
days after written notice from Landlord to Tenant specifying the nature of such
failure; provided, however, that if any such failure not involving a hazardous
condition is curable, but cannot reasonably be cured within such period, Tenant
shall not be deemed to be in default hereunder if Tenant promptly commences such
cure within such period and thereafter diligently pursues such cure to
completion within a reasonable time, but in no event more than thirty (30) days
after such notice.
19.3 Tenant's vacating or abandoning of the Premises.
19.4 Any financial statement or any representation given to
Landlord by Tenant, or any assignee, sublessee, other transferee or successor of
Tenant or any guarantor of this Lease, proves to be materially false or
misleading.
19.5 The insolvency of Tenant; the making by Tenant of any
assignment for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged bankrupt or of a petition for reorganization or
arrangement under any law relating to bankruptcy, insolvency or creditors'
rights in general (unless in the case of a petition filed against Tenant, the
same is dismissed within sixty (60) days); the appointment of a trustee or
receiver to take possession of all or a substantial part of Tenant's assets or
of Tenant's interest under this Lease, where such seizure is not discharged
within thirty (30) days. The occurrence of any of the acts or events referred to
in this subsection with respect to any guarantor of this Lease shall also
constitute a default hereunder.
19.6 The attachment, execution or other judicial seizure of a
substantial portion of Tenant's assets or of Tenant's interest in this Lease,
where such seizure is not discharged within thirty (30) days.
The notices referred to in Sections 19.1 and 19.2 above shall
be in lieu of, and not in addition to, any notice required under Section 1161 et
seq. of the California Code of Civil Procedure.
20. Remedies of Landlord.
20.1 In the event of Tenant's breach of or default under this
Lease as provided in Section 19 above, Landlord, at Landlord's option, and
without limiting Landlord in the exercise of any other right or remedy Landlord
may have on account of such default, and without any further demand or notice,
may terminate this Lease and/or, to the extent permitted by law, remove all
persons and property from the Premises, which property shall be stored by
Landlord at a warehouse or elsewhere at the risk, expense and for the account of
Tenant.
20.2 If Landlord elects to terminate this Lease as provided in
Section 20.1 above, Landlord shall be entitled to recover from Tenant the
aggregate of:
20.2.1 The worth at the time of award of the unpaid rent
and charges equivalent to rent earned as of the date of the termination hereof;
20.2.2 The worth at the time of award of the amount by
which the unpaid rent and charges equivalent to rent which would have been
earned after the date of termination hereof until the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided;
20.2.3 The worth at the time of award of the amount by
which the unpaid rent and charges equivalent to rent for the balance of the term
hereof after the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided;
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20.2.4 Any other amount necessary to compensate Landlord
for the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which, in the ordinary course of things, would
be likely to result therefrom; and
20.2.5 Any other amount which Landlord may hereafter be
permitted to recover from Tenant to compensate Landlord for the detriment caused
by Tenant's default.
For the purposes of this Section, the "time of award" shall mean the date upon
which the judgment in any action brought by Landlord against Tenant by reason of
such default is entered or such earlier date as the court may determine; the
"worth at the time of award" of the amounts referred to in Sections 20.2.1 and
20.2.2 shall be computed by allowing interest at the Interest Rate, but not less
than the legal rate; and the "worth at the time of award" of the amount referred
to in Section 20.2.3 shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%) per annum. Tenant agrees that such charges shall be
recoverable by Landlord under California Code of Civil Procedure Section 1174(b)
or any similar, successor or related provision of law. Further, Tenant hereby
waives the provisions of California Code of Civil Procedure Section 1174(c) and
California Civil Code Section 1951.7 or any other similar, successor or related
provision of law providing for Tenant's right to satisfy any judgment in order
to prevent a forfeiture of this Lease or requiring Landlord to deliver written
notice to Tenant of any reletting of the Premises.
20.3 Nothing in this Section 20 shall be deemed to affect
Landlord's right to indemnification, under the indemnification clause or clauses
contained in this Lease, for claims or liability arising from events occurring
prior to the termination of this Lease.
20.4 Notwithstanding anything to the contrary set forth
herein, Landlord's reentry to perform acts of maintenance or preservation of, or
in connection with efforts to relet, the Premises, or any portion thereof, or
the appointment of a receiver upon Landlord's initiative to protect Landlord's
interest under this Lease shall not terminate Tenant's right to possession of
the Premises or any portion thereof and, until Landlord does elect to terminate
this Lease, this Lease shall continue in full force and Landlord may pursue all
its remedies hereunder including, without limitation, the right to recover from
Tenant as they become due hereunder all rent and other charges required to be
paid by Tenant under the terms of this Lease.
20.5 In the event of any default by Tenant as set forth above,
then in addition to any other remedies available to Landlord at law or in equity
or under this Lease, Landlord shall have the right to bring an action or actions
from time to time against Tenant, in any court of competent jurisdiction, for
all rental and other sums due or becoming due under this Lease, including all
damages and costs proximately caused thereby, notwithstanding Tenant's
abandonment or vacation of the Premises or other acts of Tenant, as permitted by
Section 1951.4 of the California Civil Code or any successor, related or similar
provision of law. Such remedy may be exercised by Landlord without prejudice to
its right thereafter to terminate this Lease in accordance with the other
provisions contained in this Section 20.
20.6 The terms "rent" and "rental," as used in this Section 20
and in any and all other provisions of this Lease, shall mean Base Rent, Direct
Costs and any and all other amounts payable by Tenant pursuant to the provisions
of this Lease.
20.7 In the event of Tenant's abandonment of the Premises or
if Landlord shall elect to reenter or shall take possession of the Premises
pursuant to any legal proceeding or pursuant to any notice provided by law, and
until Landlord elects to terminate this Lease, Landlord may, from time to time,
without terminating this Lease, recover all rental as it becomes due under
Section 20.5 above and/or relet the Premises or any part thereof for the account
of and on behalf of Tenant, on any terms, for any term (whether or not longer
than the term of this Lease), and at any rental as Landlord in its reasonable
discretion may deem advisable, and Landlord may make any alterations and repairs
to the Premises in connection therewith. In the event that Landlord shall elect
to so relet the Premises on behalf of Tenant, then rentals received by Landlord
from such reletting shall be applied:
20.7.1 First, to reimburse Landlord for the costs and
expenses of such reletting (including, without limitation, costs and expenses of
retaking or repossessing the Premises, removing persons and property therefrom,
securing new tenants, and, if Landlord shall maintain and operate the Premises,
the costs thereof) and necessary or reasonable alterations.
20.7.2 Second, to the payment of any indebtedness of
Tenant to Landlord other than Base Rent, Direct Costs and other sums due and
unpaid hereunder.
20.7.3 Third, to the payment of rent, Base Rent, Direct
Costs and other sums due and unpaid hereunder, and the residue, if any, shall be
held by Landlord and applied in payment of other or future obligations of Tenant
to Landlord as the same may become due and payable.
Should the rentals received from such reletting, when applied in the manner and
order indicated above, at any time be less than the total amount owing from
Tenant pursuant to this Lease, then Tenant shall pay such deficiency to
Landlord, and if Tenant does not pay such deficiency within five (5) days of its
receipt of written notice, Landlord may bring an action against Tenant for
recovery of such deficiency or pursue its other remedies hereunder or under
California Civil Code Section 1951.8, California Code of Civil Procedure Section
1161 et seq., or any similar, successor or related provision of law.
20.8 All rights, powers and remedies of either party hereunder
and under any other agreement now or hereafter in force between Landlord and
Tenant shall be cumulative and not alternative and shall be in addition to all
rights, powers and remedies given to either party at law or in equity. The
exercise of any one or more of such rights or remedies shall not impair
Landlord's right to exercise any other right or remedy including, without
limitation, any and all rights and remedies of Landlord under California Civil
Code Section 1951.8, California Code of Civil Procedure Section 1161 et seq., or
any similar, successor or related provision of law.
20.9 As security for Tenant's performance and satisfaction of
each and every one of its duties and obligations under this Lease, Tenant does
hereby assign and grant to Landlord a security interest under the California
Commercial Code in and to Tenant's right, power and authority, during the
continuance of this Lease, to receive the rents, issues, profits or other
payments received under any sublease or other transfer of part or all of
Tenant's interest in the Premises, reserving unto Tenant the right prior to any
default hereunder to collect and retain said rents, issues and profits as they
become due and payable, except that nothing contained herein shall be construed
to alter the provisions of Section 10 above. Upon any such default, Landlord
shall have the right at any time thereafter, without notice (except as may be
provided for herein), either in person, by agent or receiver to be appointed by
a court, to enter and take possession of the Premises and collect such rents,
issues, profits or other payments, including without limitation those past due
and unpaid, and apply same, less costs and expenses of collection, including
without limitation reasonable attorneys' fees upon any indebtedness secured
hereby and in such order as Landlord may determine.
20.10 If, after Tenant's abandonment of the Premises, Tenant
leaves behind any items of personal property, then Landlord shall store such
property at a warehouse or any other location at the risk, expense and for the
account of Tenant, and such property shall be released only upon Tenant's
payment of such charges, together with moving and other costs relating thereto
and all other sums due and owing under this Lease. If Tenant does not reclaim
such property within the period permitted by law, Landlord may sell such
property in accordance with law and apply the proceeds of such sale to any sums
due and owing hereunder, or retain said property, granting Tenant credit against
sums due and owing hereunder for the reasonable value of such property.
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20.11 To the extent any decisions, statutes, rules,
regulations and other laws of the State of California are inconsistent and in
conflict with specific terms and provisions hereof, the terms and provisions of
this Lease shall be controlling.
20.12 If, at any time during the term hereof, Tenant fails,
refuses or neglects to do any of the things herein provided to be done by
Tenant, Landlord may, after notice (except in the event of an emergency), do
same, but at the expense and for the account of Tenant. The amount of any money
so expended or obligations reasonably incurred by Landlord therefor, together
with interest thereon at the Interest Rate, shall be repaid to Landlord within
five (5) days after demand by Landlord.
21. Default by Landlord; Limitation of Liability.
21.1 Landlord shall not be deemed to be in default hereunder
unless obligations required of Landlord hereunder are not performed by Landlord,
or by any beneficiary under any deed of trust, mortgagee, ground lessor or other
lienholder with rights in all or any portion of the Premises, within thirty (30)
days after written notice thereof by Tenant to Landlord and to such other
parties whose names and addresses are furnished to Tenant in writing, which
notice specifies that there has been a failure to perform such obligations;
provided, however, that if the nature of such obligations is such that more than
thirty (30) days are reasonably required for their cure, Landlord shall not be
deemed to be in default hereunder if Landlord or any of such other parties
commences such cure within such thirty (30) day period and thereafter diligently
pursues such cure to completion.
21.2 If Landlord is in default hereunder and, as a consequence
thereof, Tenant obtains a judgment against Landlord, such judgment may be
satisfied first out of the right, title and interest of Landlord in the Premises
and out of the rent or other revenue receivable by Landlord from the Premises,
or out of the proceeds receivable by Landlord from the sale or other disposition
of all or any portion of Landlord's right, title and interest in the Premises.
22. Damage and Destruction.
22.1 If, at any time prior to the expiration or termination of
this Lease, the Premises is wholly or partially damaged or destroyed, the loss
to Landlord from which is (except for any applicable deductible) fully covered
by insurance maintained by Landlord or for Landlord's benefit, which casualty
renders the Premises totally or partially inaccessible or unusable by Tenant, in
the ordinary conduct of Tenant's business, then:
(a) Within sixty (60) days after notice to Landlord of
such damage or destruction, Landlord shall provide Tenant with notice of its
determination of whether the damage or destruction can be repaired within one
hundred eighty (180) days of such notice of damage or destruction without the
payment of overtime or other premiums. If all repairs to such Premises can, in
Landlord's judgment, be completed within said one hundred eighty (180) day
period without the payment of overtime or other premiums, Landlord shall, at
Landlord's expense, repair the same and this Lease shall remain in full force
and effect and a proportionate reduction of the Base Rent shall be allowed
Tenant for such portion of the Premises as shall be rendered inaccessible or
unusable to tenant, and which is not used by Tenant, during the period of time
that such portion is unusable or inaccessible and not used by Tenant; provided,
however, that there shall be such rent abatement only if (a) the damage so
repaired is not caused by the negligence or willful misconduct of Tenant or any
of its agents, contractors, employees, invitees or guests, and (b) a material
portion of the Premises is so rendered inaccessible or unusable for more than
five (5) consecutive business days.
(b) If all such repairs to the Premises cannot, in
Landlord's judgment, be completed within one hundred eighty (180) days following
the date of notice to Landlord of such damage or destruction without the payment
of overtime or other premiums, Landlord shall notify Tenant of such
determination and either Landlord or Tenant may, by written notice to the other
no later than ninety (90) days after the occurrence of such damage or
destruction elect to terminate this Lease as of the date of the occurrence of
such damage or destruction. If Landlord and Tenant elect to continue all or any
portion of this Lease, the terms and conditions thereof shall be mutually agreed
upon in writing by Landlord and Tenant within one hundred twenty (120) days
after the occurrence of such damage or destruction, otherwise this Lease shall
be deemed terminated as of the date of the occurrence of such damage or
destruction.
22.2 If, at any time prior to the expiration or termination of
this Lease, the Premises is wholly or partially damaged or destroyed from a
casualty, the loss to Landlord from which is not fully covered by insurance
maintained by Landlord or for Landlord's benefit, which damage renders the
Premises inaccessible or unusable to Tenant in the ordinary course of its
business, Landlord, at its option, upon written notice to Tenant within sixty
(60) days after notice to Landlord of the occurrence of such damage or
destruction, may elect to repair or restore such damage or destruction provided
such repair or restoration shall be completed within one hundred eighty (180)
days following such notice, or Landlord may elect to terminate this Lease. If
Landlord elects to repair or restore such damage or destruction, this Lease
shall continue in full force and effect, but Base Rent shall be proportionately
reduced as provided in Section 22.1(a). If Landlord does not elect by notice to
Tenant to repair such damage, or if the damage cannot, in Landlord's judgment,
be completed within one hundred eighty (180) days following the date of notice
to Landlord of such damage or destruction, the Lease shall terminate.
22.3 Notwithstanding anything to the contrary contained in
Section 22.1 and 22.2, if the Premises is wholly or partially damaged or
destroyed within the final twelve (12) months of the term of this Lease, either
party hereto may, by giving the other party notice within sixty (60) days after
notice to Landlord of the occurrence of such damage or destruction, elect to
terminate this Lease.
22.4 In the event of any damage to or destruction of the
Premises, under no circumstances shall Landlord be required to repair any
injury, or damage to, or make any repairs to or replacements of, Tenant's
personal property. However, Tenant shall deliver to Landlord the proceeds of
insurance received by Tenant from the "all risk" property policy carried by
Tenant on the Tenant Improvements (as that term is defined in the Work
Agreement), and Landlord shall, pursuant to its receipt thereof, repair same to
the extent Landlord shall receive such insurance proceeds from Tenant (but if
the amount of insurance proceeds shall not be sufficient to cause the repair of
the Tenant Improvements to be fully made by Landlord, Tenant shall pay to
Landlord, within ten (10) days of receipt of request therefor, the additional
amount of funds reasonably requested by Landlord in order to complete the repair
of the Tenant Improvements) and this Lease shall remain in full force and
effect. Landlord shall have no responsibility for any contents placed or kept in
or on the Premises by Tenant or Tenant's employees.
22.5 Notwithstanding any contrary provision herein, and
regardless of whether caused by casualty, (a) Landlord shall not be obligated to
repair or replace any paneling, decorations, railings, floor coverings,
alterations, additions, fixtures or improvements installed on the Premises by or
at the expense of Tenant (other than such items that were installed as a part of
the original Tenant Improvements), and (b) any damage caused by the negligence
or willful misconduct of Tenant or any of its agents, contractors, employees,
invitees or guests shall be promptly repaired by Tenant, at its sole cost and
expense, to the reasonable satisfaction of Landlord; provided, however, that
Landlord shall bear said cost and expense to the extent it receives proceeds
covering such damage. This Section 22 shall be Tenant's sole and exclusive
remedy in the event of damage or destruction to the Premises, and Tenant, as a
material inducement to Landlord entering into this Lease, hereby agrees that the
provisions of this Section 22 shall supersede the provisions of Section 1932,
subdivision 2, and Section 1933, subdivision 4, of the Civil Code of California,
and any similar law, statute or ordinance now or hereafter in effect. Except for
abatement of rent, if any, as expressly provided for in this Section 22, Tenant
shall have no claim against Landlord for any damage, compensation or claim by
reason of (i) any damage
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to the Premises, (ii) such repairs, or (iii) any inconvenience, interruption or
cessation of Tenant's business or annoyance caused by such damage, destruction
or repair.
23. Eminent Domain.
If the entire Premises, or so much thereof as to render the
balance thereof not reasonably usable for the conduct of Tenant's business,
shall be taken or appropriated under the power of eminent domain or conveyed in
lieu thereof, either party hereto may, by serving written notice upon the other
party hereto within thirty (30) days thereafter, immediately terminate this
Lease. In such event, Landlord shall receive (and Tenant shall assign to
Landlord upon demand by Landlord) any income, rent, award or any interest
therein which may be paid in connection therewith, and Tenant shall have no
claim against Landlord for any part of any sum so paid, whether or not
attributable to the value of the unexpired term of this Lease; provided,
however, that nothing herein shall prevent Tenant from pursuing a separate award
in connection with the taking of Tenant's removable tangible personal property
placed in the Premises solely at Tenant's expense and for Tenant's relocation
costs. If a part of the Premises shall be so taken, appropriated or conveyed and
neither party hereto shall elect to so terminate this Lease, (i) Base Rent
payable hereunder shall be abated in the proportion that the rentable area of
the portion of the Premises so taken, appropriated or conveyed bears to the
rentable area of the entire Premises, and (ii) if the Premises shall have been
damaged as a consequence of such partial taking, appropriation or conveyance,
Landlord shall, to the extent of any severance damages received by Landlord,
restore the Premises continuing under this Lease; provided, however, that
Landlord shall not be required to repair or restore any damage to the property
of Tenant or to make any repairs to or restoration of any alterations,
additions, fixtures or improvements installed on the Premises by or at the
expense of Tenant, and Tenant shall pay any amount in excess of such severance
damages required to complete such repairs or restoration. Notwithstanding
anything to the contrary contained in this Section, if the temporary use or
occupancy of any part of the Premises shall be taken or appropriated under the
power of eminent domain or conveyed in lieu thereof during the term of this
Lease, this Lease shall be and remain unaffected by such taking, appropriation
or conveyance and Tenant shall continue to pay in full all rent payable
hereunder by Tenant during the term of this Lease; in the event of any such
temporary taking, appropriation or conveyance, Tenant shall be entitled to
receive that portion of any award which represents compensation for loss of the
use or occupancy of the Premises during the term of this Lease, and Landlord
shall be entitled to receive the balance of such award. To the extent that it is
inconsistent with the above, each party hereto hereby waives the provisions of
Section 1265.130 of the California Code of Civil Procedure allowing either party
to petition a court to terminate this Lease in the event of a partial taking of
the Premises.
24. Sale by Landlord.
If Landlord sells or transfers the Premises, provided all of
Landlord's remaining obligations under this Lease are assigned to and assumed by
Landlord's successor-in-interest, Landlord shall, upon consummation of such sale
or transfer, be released from any liability relating to obligations or covenants
thereafter to be performed or observed under this Lease, and in such event
Tenant agrees to look solely to Landlord's successor-in-interest with respect to
such liability. Landlord may transfer or credit any security deposit or prepaid
rent to Landlord's successor-in-interest, and upon such transfer Landlord shall
be discharged from any further liability therefor.
25. Surrender of Premises.
Tenant shall, upon the expiration or sooner termination of the
term hereof, surrender to Landlord the Premises, and all repairs, changes,
alterations, additions and improvements thereto, in good order, condition and
repair, ordinary wear and tear excepted, clean and free of debris; provided,
however, that Landlord may require that Tenant remove changes, alterations,
additions and improvements, whether installed by Landlord or by Tenant, in which
event Tenant shall so remove same at its sole cost and expense. Tenant shall,
upon the expiration or sooner termination of the term hereof, and at Tenant's
sole cost and expense, remove all movable furniture, equipment and other
personal property belonging to Tenant placed in the Premises solely at Tenant's
expense. Tenant shall immediately, at its sole cost and expense, repair any
damage caused by the removal of any property.
26. Quiet Enjoyment.
So long as Tenant is not in default hereunder, Tenant shall
have the right to the quiet and peaceful enjoyment and possession of the
Premises and the common areas during the term of this Lease, subject to the
terms and conditions of this Lease.
27. Notices.
Whenever any notice, demand or other communication is to be
given under the provisions of this Lease by either party hereto to the other
party hereto, it shall be in writing and shall be (a) personally served, (b)
mailed by United States registered or certified mail, return receipt requested,
postage prepaid, or (c) sent by a nationally recognized courier service (e.g.,
Federal Express) for next-day delivery, to be confirmed in writing by such
courier, addressed as set forth in Sections 1.1.8 and 1.1.9 of the Basic Lease
Information with respect to Tenant and as follows with respect to Landlord:
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550
Attention: Real Estate Department
with a copy to each of the following:
Gibson Speno Property Management Company
1731 Technology Drive, Suite 340
San Jose, California 95110
Hill, Farrer & Burrill
445 South Figueroa Street, 34th Floor
Los Angeles, California 90071
Attention: Michelle A. Meghrouni, Esq.
Either party hereto may change the address or addresses to which notices,
demands and other communications shall thereafter be sent by giving notice to
the other party as aforesaid. Notices, demands and other communications given as
aforesaid shall be deemed complete when actually delivered to or refused by the
party to whom sent, unless mailed as aforesaid, in which event same shall be
deemed complete on the day of actual delivery as shown by the return receipt or
at the expiration of the third (3rd) business day after the date of mailing,
whichever first occurs.
28. Personal Property Taxes.
Tenant shall pay before delinquency all taxes, assessments,
license fees and other charges (collectively, "taxes") that are levied and
assessed against Tenant's trade fixtures and other personal property installed
or located in or on the Premises. On demand by
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Landlord, Tenant shall furnish Landlord with satisfactory evidence of such
payments. If any taxes are levied against Landlord or Landlord's property, or if
the assessed value of the Premises is increased by the inclusion of a value
placed on Tenant's personal property, as determined by Landlord, and if Landlord
pays such taxes or the tax based on such increased assessment, Tenant, on
demand, shall reimburse Landlord for such taxes and the tax resulting from such
increase in Landlord's assessment. Landlord shall have the right to pay these
amounts regardless of the validity of the levy.
29. Interest and Late Charges.
Any amount not paid by Tenant to Landlord when due hereunder
shall bear interest at a rate (the "Interest Rate") equal to the lesser of (a)
the rate per annum announced from time to time by Bank of America, N.A. as its
prime rate (or, if such bank fails to announce such a rate, then the prime rate
announced by The Chase Manhattan Bank, N.A.) plus four (4) percentage points, or
(b) the maximum rate permitted by law, from the due date until paid, unless
otherwise specifically provided herein, but the payment of such interest shall
not excuse or cure any such failure by Tenant under this Lease. In addition to
such interest, if any amount is not paid within ten (10) days after same is due,
a late charge equal to five percent (5%) of such amount shall be assessed, which
late charge Tenant hereby agrees is a reasonable estimate of the damages
Landlord shall suffer as a result of Tenant's late payment, which damages
include Landlord's additional administrative and other costs associated with
such late payment. The parties agree that it would be impracticable and
extremely difficult to fix Landlord's actual damages in such event. Such
interest and late charges are separate and cumulative and are in addition to and
shall not diminish or represent a substitute for any or all of Landlord's rights
or remedies under any other provision of this Lease. Notwithstanding any
provision of this Lease to the contrary, if a late charge is payable hereunder,
whether or not collected, for any three (3) installments of Base Rent during any
twelve (12) month period, then all further Base Rent shall automatically become
due and payable quarterly in advance, rather than monthly, until such time as
two (2) timely quarterly payments have been made and provided there have been no
other uncured defaults by Tenant under this Lease.
30. Successors and Assigns.
Subject to Sections 10 and 24 above, the provisions hereof
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, executors, administrators, successors and assigns.
31. Attorneys' Fees.
In any litigation or other action arising herefrom between the
parties hereto, the prevailing party shall be entitled to recover reasonable
attorneys' fees and costs incurred therein.
32. Light and Air.
Tenant covenants and agrees that no diminution of light, air
or view by any structure which may hereafter be erected (whether or not by
Landlord) shall entitle Tenant to any reduction of rent under this Lease, result
in any liability of Landlord to Tenant, or in any other way affect this Lease or
Tenant's obligations hereunder.
33. Signs and Directory.
33.1 Tenant shall have the right to place, construct and
maintain on or about the Premises signage identifying or relating to Tenant's
business conducted on the Premises. Tenant shall be responsible for the cost of
installation and removal of all such signage, and maintenance of such signage
shall be included in Operating Expenses. The installation and removal of
Tenant's signage shall be completed in a good, workmanlike, diligent, prompt and
expeditious manner in compliance with all applicable laws. Tenant shall provide
Landlord with the specific locations of and plans for all such signage.
34. Parking.
Tenant shall have parking rights hereunder with respect to the
parking facilities at the Premises. Tenant may not sell, assign or transfer its
parking rights hereunder, except pursuant to a permitted sublease or assignment
of this Lease. All responsibility for any loss or damage to vehicles, or to any
personal property therein, is assumed by the owners thereof.
35. Brokers.
Landlord has entered into an agreement with the real estate
broker specified as Landlord's broker in Section 1.1.11 of the Basic Lease
Information ("Landlord's Broker") pursuant to which Landlord has granted to
Landlord's Broker the exclusive right to lease the Premises. Landlord shall pay
any commissions or fees that are payable to Landlord's Broker with respect to
this Lease in accordance with the provisions of a separate commission contract.
Landlord shall have no further or separate obligation for payment of commissions
or fees to any other real estate broker, finder or intermediary. Tenant
represents that it has not had any dealings with any real estate broker, finder
or intermediary with respect to this Lease, other than Landlord's Broker and
Tenant's broker ("Tenant's Broker"), if any, specified in Section 1.1.12 of the
Basic Lease Information. Any commissions or fees payable to Tenant's Broker with
respect to this Lease shall be paid exclusively by Landlord's Broker and/or
Tenant. Subject to the foregoing, each party hereto shall indemnify and hold
harmless the other party hereto from and against any and all losses, damages,
liabilities, costs and expenses (including, but not limited to, reasonable
attorneys' fees and related costs) resulting from any claims that may be
asserted against such other party by any real estate broker, finder or
intermediary arising from any act of the indemnifying party in connection with
this Lease.
36. Authority; Joint and Several Liability.
36.1 If Tenant is a corporation, limited liability company,
trust or partnership, each individual executing this Lease on behalf of Tenant
represents and warrants that he or she is duly authorized to so execute and
deliver this Lease. If Tenant is a corporation, limited liability company, trust
or partnership, it shall, within ten (10) days after execution of this Lease,
deliver to Landlord satisfactory evidence of such authority. If Tenant is a
corporation, it shall, upon demand by Landlord, also deliver to Landlord
satisfactory evidence of (a) good standing in Tenant's state of incorporation,
and (b) qualification to do business in California.
36.2 All parties comprising Tenant herein shall be jointly and
severally liable for each and every obligation of Tenant under this Lease.
37. Option to Renew.
37.1 Tenant shall have three (3) options (the "Extension
Options") to extend the term of this Lease, as to not less than
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the entire Premises and each for a period (the "Option Periods") of five (5)
years commencing upon the date such term would otherwise expire, upon the same
terms and conditions previously applicable, except for the grant of the subject
Extension Option, the Work Agreement (which shall no longer be executory), and
rent (which shall be determined as set forth below). Each Extension Option may
be validly exercised only by notice in writing delivered by certified mail and
received by Landlord not earlier than nine (9) months, and not later than six
(6) months, prior to commencement of the subject Option Period (the "Option
Notice"); provided, however, that the Extension Option may be validly exercised
only if (a) Tenant is not then or at any time thereafter until such commencement
in default hereunder, (b) any and all prior Extension Options have been validly
exercised and this Lease continues in full force and effect until such
commencement, and (c) inasmuch as the Extension Options shall be personal to the
original Tenant hereunder, Tenant does not assign, sublease or otherwise
transfer any interest herein or in the Premises, or enter into any agreement to
do same, or then intend to do any of the foregoing, at any time prior to such
attempted exercise or thereafter until such commencement. If Tenant does not
exercise an Extension Option during the exercise period set forth above in
strict accordance with the provisions hereof, that Extension Option and all
subsequent Extension Options shall forever terminate and be of no further force
or effect.
37.2 Base Rent during each Option Period shall be equal to the
Fair Market Rental Rate (as hereinafter defined) as of commencement of the
subject Option Period. Tenant's obligation to pay Direct Costs during the Option
Period shall remain unchanged. For purposes hereof, "Fair Market Rental Rate"
shall mean the rent and other charges being charged to new tenants for
comparable space in similar buildings in the vicinity of the Premises with
similar amenities, taking into consideration the size, location, the proposed
term of the Option Period, the extent of the services in each instance to be
provided, the parking privileges and any other relevant terms and conditions,
but disregarding in each instance any "tenant concessions" (including, without
limitation, tenant improvement allowance, lease takeover and abatement
provisions reflecting free rental), if any, then being offered to prospective
new tenants such comparable buildings.
37.3 Landlord and Tenant shall, by using their good faith
judgment, attempt to agree upon the Fair Market Rental Rate within twenty (20)
days after Landlord receives the Option Notice. If Landlord and Tenant fail to
reach agreement within such twenty (20) day period, then each party, at its cost
and by giving notice to the other party, shall appoint a real estate appraiser,
with an MAI designation and at least five (5) years full time commercial
appraisal experience in the area in which the Premises are located to appraise
and set the Fair Market Rental Rate for the subject Option Period. If a party
does not appoint an appraiser within ten (10) days after the other party has
given notice of the name of its appraiser, the single appraiser appointed shall
be the sole appraiser and shall set the Fair Market Rental Rate for the subject
Option Period. If the two appraisers are appointed by the parties as stated in
this Section 37.3, they shall meet promptly and attempt to set the Fair Market
Rental Rate for the subject Option Period. If they are unable to agree within
thirty (30) days after the second appraiser has been appointed, they shall
attempt to elect a third appraiser meeting the qualifications set forth above
within ten (10) days after the last day the two appraisers are given to set the
Fair Market Rental Rate. If they are unable to agree on the third appraiser,
either of the parties to this Lease, by giving ten (10) days' notice to the
other party, can file a petition with the American Arbitration Association
solely for the purpose of selecting a third appraiser who meets the
qualifications stated in this paragraph. Each party shall bear half the cost of
the American Arbitration Association appointing the third appraiser and of
paying the third appraiser's fee. The third appraiser, however selected, shall
be a person who has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a majority
of the appraisers shall set the Fair Market Rental Rate for the subject Option
Period. If the majority of the appraisers are unable to set the Fair Market
Rental Rate within the stipulated period of time, the three appraisals shall be
added together and their total divided by three; the resulting quotient shall be
the Fair Market Rental Rate for the Premises during the subject Option Period.
In setting the Fair Market Rental Rate for the subject Option Period, the
appraiser or appraisers shall consider the use to which the Premises are
restricted under this Lease and shall not consider the highest and best use of
the Premises contained in this Lease. If, however, the low appraisal and/or the
high appraisal is/are more than ten percent (10%) lower and/or higher than the
middle appraisal, the low appraisal and/or the high appraisal shall be
disregarded. If only one appraisal is disregarded, the remaining two appraisals
should be added together and their total divided by two; the resulting quotient
shall be the Fair Market Rental Rate for the Premises during the subject Option
Period. If both the low appraisal and the high appraisal are disregarded as
stated in this Section 37.3, the middle appraisal shall be Fair Market Rental
Rate for the Premises during the subject Option Period. After the Fair Market
Rental Rate for the subject Option Period has been set, the appraiser shall
immediately notify the parties.
(b) The arbitrators shall, within thirty (30) days of
the appointment of the third (3rd) arbitrator, reach a decision as to whether
the parties shall use Landlord's or Tenant's submitted Fair Market Rental Rate
and shall notify Landlord and Tenant of such determination.
(c) The decisions of the arbitrators shall be binding
upon Landlord and Tenant, except as provided below.
(d) If Landlord and Tenant fail to appoint an
arbitrator, then the appointment of the arbitrator shall be made by the
Presiding Judge of the Los Angeles Superior Court, or, if he or she refuses to
act, by any judge having jurisdiction over the parties.
(e) The cost of arbitration shall be paid by Landlord
and Tenant equally.
38. Miscellaneous.
38.1 If Landlord waives the performance of any term, covenant
or condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any other breach of the same or of any other term, covenant or
condition contained herein. Furthermore, the acceptance of rent by Landlord
shall not constitute a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, other than the failure of Tenant to pay the
particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time Landlord accepted such rent. Failure by Landlord to
enforce any of the terms, covenants or conditions of this Lease for any length
of time shall not be deemed to waive or to affect the right of Landlord to
insist thereafter upon strict performance by Tenant. Waiver by Landlord of any
term, covenant or condition contained in this Lease may only be made by a
written document signed by Landlord.
38.2 Any voluntary or other surrender of this Lease by Tenant,
mutual termination hereof or termination hereof by Landlord shall not work a
merger, and shall, at the option of Landlord, terminate all or any existing
subleases or subtenancies, or may, at the option of Landlord, operate as an
assignment to Landlord of any or all such subleases or subtenancies.
38.3 This Lease shall not be recorded; no memorandum hereof
shall be recorded without Landlord's prior written consent.
38.4 Rent and all other sums payable under this Lease must be
paid in lawful money of the United States of America.
38.5 This Lease may be executed in counterparts with the same
effect as if both parties hereto had executed the same document. Both
counterparts shall be construed together and shall constitute a single lease.
38.6 Nothing contained in this Lease shall be construed to
create the relationship of principal and agent, partnership, joint venture or
any other relationship between the parties hereto, other than the relationship
of landlord and tenant.
38.7 Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof, and such other provisions shall remain in full force and
effect.
12
<PAGE>
38.8 The term "Premises" shall be deemed to include (unless,
based on the context, such meaning would be clearly unintended) the space
demised and improvements now or at any time hereafter comprising or built in
such space.
38.9 The term "Tenant" or any pronoun used in place thereof
shall indicate and include the masculine or feminine, the singular or plural
number, individuals, firms or corporations.
38.10 The section headings herein are for convenience of
reference only and shall in no way define, increase, limit or describe the scope
or intent of any provision of this Lease.
38.11 In any case where this Lease is entered into by
co-tenants, the obligations of such co-tenants hereunder shall be joint and
several.
38.12 Time is of the essence of this Lease and all of its
provisions.
38.13 This Lease shall in all respects be governed by the laws
of the State of California. In any action or proceeding arising herefrom, Tenant
hereby consents to (a) the jurisdiction of any competent court within the State
of California, (b) service of process by any means authorized by California law,
and (c) trial without a jury.
38.14 This Lease contains the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes any previous
negotiations. There have been no representations made by Landlord or any
representative thereof or understandings made between the parties other than
those set forth in this Lease. Without limiting the generality of the foregoing,
neither Landlord nor any broker, agent or representative thereof has made any
warranty or representation with respect to the profitability or suitability for
Tenant's use, except as may otherwise be specifically set forth herein.
38.15 This Lease may not be modified, except by a written
document executed by the parties hereto.
38.16 If any guarantee of this Lease is required by Landlord,
such guarantee shall be in form and content acceptable to Landlord.
38.17 The words "person" and "persons" as used herein shall
include individuals, firms, partnerships, associations and corporations.
38.18 The language in all parts of this Lease shall be in all
cases construed simply according to its fair meaning, and not strictly for or
against Landlord or Tenant. Any reference to any Section herein shall be deemed
to include all subsections thereof unless otherwise specified or reasonably
required from the context. Any reference to "days" or "months" herein shall
refer to calendar days or months, respectively, unless specifically provided to
the contrary. Unless clearly inconsistent with the context, any reference herein
to "the term hereof" or "the term of this Lease" shall refer to the term of this
Lease as the same may be extended pursuant to any extension option(s) contained
herein. The terms "herein," "hereunder" and "hereof" as used in this Lease shall
mean "in this Lease," "under this Lease" and "of this Lease," respectively,
except as otherwise specifically set forth in this Lease.
38.19 Any and all exhibits, addenda and riders referred to in
this Lease shall be deemed to be incorporated herein as a part hereof.
38.20 The submission of this Lease by Landlord or its agent or
representative for examination or execution by Tenant does not constitute an
option or offer to lease the Premises upon the terms and conditions contained
herein or a reservation of the Premises in favor of Tenant, it being intended
hereby that this Lease shall become effective only upon the execution hereof by
Landlord and delivery of a fully executed counterpart hereof to Tenant.
38.21 Tenant hereby warrants and represents that neither its
execution of nor performance under this Lease shall cause Tenant to be in
violation of any agreement, instrument, contract, law, rule or regulation by
which Tenant is bound, and Tenant agrees to indemnify Landlord against any loss,
cost, damage or liability including, without limitation, reasonable attorneys'
fees and related costs arising out of Tenant's breach of this warranty and
representation.
38.22 Rent shall not be abated, nor may this Lease be
terminated by Tenant, except as may otherwise be expressly provided herein.
38.23 Tenant covenants by and for itself, its successors and
assigns, and all persons claiming under or through them, and this Lease is made
and accepted upon and subject to the following conditions: That there shall be
no discrimination against or segregation of any person or group of persons, on
account of sex, marital status, age, race, color, religion, creed, national
origin or ancestry, in the leasing, subleasing, renting, transferring, use,
occupancy, tenure or enjoyment of the Premises herein leased, nor shall Tenant
itself, or any person claiming under or through it, establish or permit such
practice or practices of discrimination or segregation with reference to the
selection, location, number, use or occupancy of tenants, lessees, sublessees,
subtenants or vendees in the Premises.
IN WITNESS WHEREOF, the parties hereto have executed this
Lease as of the date first hereinabove set forth.
TENANT
INTEGRATED DEVICE TECHNOLOGY, INC.,
a Delaware corporation
By: /s/ Tom Wroblewski
----------------------------------------
Its: Vice President
______________________________
By: _______________________________________
Its: ______________________________
[SIGNATURES CONTINUED]
13
<PAGE>
[SIGNATURES CONTINUED]
LANDLORD
AMERICAN NATIONAL INSURANCE COMPANY,
a Texas corporation
By: /s/ Scott Brast
_______________________________________
Its: Assistant Vice President
______________________________
By: _______________________________________
Its: ______________________________
THIS LEASE HAS BEEN PREPARED FOR TENANT'S REVIEW AND FOR TENANT'S
SUBMISSION TO ITS LEGAL AND/OR TAX CONSULTANT. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY LANDLORD OR BROKER, OR THE AGENTS OR EMPLOYEES OF
EITHER, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTIONS RELATING HERETO.
A5212\060\LEASE3.AGT
14
<PAGE>
OUTLINE OF PREMISES
NONE
EXHIBIT "A"
Page 1 of 1
<PAGE>
FORM OF NOTICE
OF LEASE TERM DATES AND AREAS
___________________________
___________________________
___________________________
___________________________
Attention: ________________
Re: Lease Term Dates and Areas
Gentlemen:
The undersigned, as Landlord under that certain Lease (the "Lease") dated
______________, 19__, with you, as Tenant, relating to certain premises
designated as __________ (the "Premises") located at 3250 Olcott Street, Santa
Clara, California, hereby notifies you of the following:
1. The undersigned has tendered possession of the Premises to you, with
any work to be performed by the undersigned substantially completed,
and you have accepted and do occupy the Premises.
2. The term of the Lease commenced on _________________, 19__, and shall
expire on _________________, _____, unless sooner terminated pursuant
to any provision thereof.
3. The rentable area of the Premises is _______________ square feet.
4. The monthly and annual amounts of Base Rent (as defined in Section 3.1
of the Lease) are $________________ and $_______________,
respectively, subject to any period of free rent and any adjustment
provided for in the Lease.
5. The initial security deposit referred to in Section 5 of the Lease
shall be $_________.
Please acknowledge your agreement with the foregoing by executing the
enclosed copy hereof and returning same to the undersigned.
Dated: ____________, 19__.
AMERICAN NATIONAL INSURANCE COMPANY,
A TEXAS CORPORATION
By _____________________________
Its__________________________
By _____________________________
Its__________________________
AGREED TO AND ACCEPTED
-----------------------
EXHIBIT "B"
Page 1 of 1
<PAGE>
WORK AGREEMENT
1. Landlord's Work.
Upon execution hereof, Landlord shall, in compliance with all
applicable codes, laws, regulations and ordinances, including, without
limitation, all applicable governmental requirements included within Title 24
Regulations, Handicapped Access and the Americans with Disability Act (1988),
make such repairs as may be necessary to deliver to Tenant the following in good
order and condition; (a) foundation and structural portions of the Premises,
including the roof and roof membrane; (b) air conditioning and ventilation
systems; (c) ceiling tiles; (d) fire protection system; (d) existing fixtures;
(e) plumbing; (f) mechanical, electrical and lighting systems; and (g)
water-tight windows. Further, Landlord shall make such repairs or renovation as
may be necessary to bring the restroom facilities in the Premises into
compliance with all currently existing applicable codes, laws, regulations and
ordinances. Landlord shall paint the exterior walls of the Premises in a color
to be mutually agreed upon by Landlord and Tenant. All of the foregoing shall be
at Landlord's cost and expense. If any qualified consultant conducting an
environmental audit of the Premises recommends any environmental remediation to
the building located on the Premises in connection with the construction of the
Tenant Improvements, Landlord shall bear the cost and expense of such
remediation; provided, however, if the reasonable estimated cost of such
remediation is economically infeasible in Landlord's sole discretion, then
Landlord shall have the right to terminate this Lease upon written notice
thereof to Tenant within fifteen (15) days after Landlord's receipt of the
remediation estimate, in which event Landlord and Tenant shall be automatically
and fully released from any and all liabilities relative to this Lease without
further instrument.
2. Construction Representatives.
Tenant has designated the Tenant's Construction Representative as the
sole representative with respect to the matters set forth in this Work Agreement
with full authority and responsibility to act on behalf of the Tenant as
required in this Work Agreement. Landlord has designated the Landlord's
Construction Representative as the sole representative with respect to the
matters set forth in this Work Agreement with full authority and responsibility
to act on behalf of Landlord as required in this Work Agreement. Either party
may change the representative under this Work Agreement at any time by giving
ten (10) days' written notice to the other party.
3. Plans and Specifications.
(a) Landlord shall cooperate with Tenant and Tenant's space planner,
architect and engineer with respect to preparation of space plans for leasehold
improvement to the Premises (the "Tenant Improvements"), which plans shall
include, without limitation, the location of doors, partitions, electrical and
telephone outlets, plumbing fixtures, heavy floor loads and other special
requirements. Tenant's space planner shall prepare, at Tenant's sole expense,
preliminary space plans. Landlord shall approve or disapprove the space plans in
writing (specifying in detail the reasons for any disapproval) within seven (7)
days after receipt thereof. If Landlord disapproves the space plans, Tenant
shall resubmit the plans with changes reasonably required by Landlord, utilizing
the same delivery and approval periods set forth above.
(b) Based on the approved space plans, Tenant shall cause its space
planner, architect and engineer to prepare detailed plans and specifications for
construction of Tenant Improvements. Landlord shall approve or disapprove the
plans in writing (specifying in detail the reasons for any disapproval) within
seven (7) business days after receipt thereof. If Landlord disapproves the
detailed plans, Tenant shall resubmit the detailed plans with changes reasonably
required by Landlord, utilizing the same delivery and approval periods set forth
above. The final, approved detailed plans and specifications shall be referred
to herein as the "Plans."
(c) If Tenant desires any substantial or material changes,
alterations, or additions to the Plans, Tenant must submit a detailed written
request for approval thereof to Landlord ("Change Order"). If construction of
the portion of the Tenant Improvements Tenant seeks to change has not commenced
and if the requested changes are reasonable and practical and generally
consistent with the Plans, Landlord shall approve the Change Order. However
Tenant is obligated to reimburse Landlord for all reasonable costs incurred by
Landlord as a result of changes in accordance with the procedure set forth below
and for additional expenses incurred by Landlord as a result of Tenant Delays,
including, without limitation, loss of rents due from Tenant as a result of a
delay in the Commencement Date, architecture fees, increases in construction
costs (which amount shall be paid from the Tenant Improvement Allowance as
defined in Section 4(d)(i) below), and other proper charges caused by Tenant
Delays. If any additional plans, drawings of specifications, or modifications of
those items are required as a result of a Change Order, they will be prepared
and approved in the manner set forth in Section 3(a) and (b) of this Work
Agreement.
(d) Any approval of Landlord required under this Section 3 shall not
be unreasonably withheld.
4. Construction of Tenant Improvements and Allocation of Costs.
(a) Promptly following finalization and approval of the Plans, Tenant
shall apply for and use reasonable efforts to obtain the necessary permits and
approvals to allow construction of the Tenant Improvements and Landlord shall
cooperate with Tenant in connection therewith.
(b) Tenant agrees to diligently construct and complete the Tenant
Improvements in a good and workmanlike manner in conformity with the Plans. No
substantial or material changes from the approved Plans shall be incorporated
without the prior written approval of Landlord.
EXHIBIT "C"
Page 1 of 3
<PAGE>
(c) Prior to completion of the approved Plans, Tenant shall have
identified a general contractor who shall construct the Tenant Improvements.
Such contractor shall have substantial experience in the general construction
industry in the area of the Premises, shall be bonded and shall be licensed in
the State of California. The construction contract shall have been competitively
bid and Landlord shall have access to all of the information available in
connection with the bids submitted to Tenant and the construction contract
executed by Tenant.
(d) The cost of the Tenant Improvements shall be allocated as
follows:
(i) Landlord shall provide Tenant with a tenant improvement
allowance of Nine Hundred Sixty-Five Thousand and No/100 Dollars ($965,000.00),
which sum shall be allocated to the actual cost of design and installation of
the Tenant Improvements (the "Tenant Improvement Allowance"), including a
reasonable fee for Landlord's construction management, standard tenant
improvements, base building improvements (expressly excluding therefrom those
items to be completed by Landlord pursuant to Section 1 of this Work Agreement),
design development, mechanical and engineering drawings, architectural fees,
construction permitting and test planning fees.
(ii) In addition to the Tenant Improvement Allowance, Landlord
agrees to make available to Tenant an additional sum of Two Hundred Forty-One
Thousand Three Hundred Seventy-Five and No/Dollars ($241,375.00) for such Tenant
Improvements (the "Additional Tenant Improvement Allowance"). The parties
acknowledge and agree that the Base Rent provided for herein is based upon the
calculation that the Tenant Improvement Allowance will be sufficient to fund the
Tenant Improvements. In the event Tenant utilizes any portion of the Additional
Tenant Improvement Allowance, the full amount of the Additional Tenant
Improvement Allowance utilized by Tenant shall be charged to Tenant upon
completion of all such Tenant Improvements by an increase in the Base Rent
payable by Tenant hereunder based upon an amortization of such Additional Tenant
Improvement Allowance over the term of the Lease (without considering any
Extension Option) at the rate of ten percent (10%) per annum.
(iii) Notwithstanding anything herein to the contrary, should the
existing building located on the Premises require alterations or repairs
(including, but not limited to, any alterations or repairs required pursuant to
the Americans with Disabilities Act of 1990 and any other state, local or
municipal laws and ordinances) as a condition precedent to the issuance of the
Certificate of Occupancy, Landlord shall be responsible for such alteration or
repair. Landlord shall pay for the cost of any such alteration or repair and
such cost shall not be deducted from the Tenant Improvement Allowance; provided,
however, if any such alteration or repair is required as a result of any
specialized or non-standard improvements required by Tenant, Tenant shall pay
for the cost therefor either immediately upon demand for same by Landlord or, at
Tenant's election, by deduction from the Tenant Improvement Allowance.
(e) Subject to the limitations set forth in Section 4(d) of this Work
Agreement, upon presentation by Tenant to Landlord of invoices from Tenant's
general contractor, Landlord shall pay Tenant the total amount indicated on such
invoices less a retainage equal to ten percent (10%) of the total invoices so
requested to be paid. The retainage amount shall be disbursed to or for the
benefit of Tenant's general contractor upon the full and satisfactory
substantial completion of all Tenant Improvements, which shall not be
unreasonably withheld or delayed.
5. Tenant Delay; Unavoidable Delay.
(a) The term "Tenant Delay" shall mean any of the following:
(i) any delay resulting from Tenant's failure to approve any
matters requiring approval in a timely manner;
(ii) any delay resulting from change orders, including any delay
resulting from the need to revise any drawings as a result of any Change Order;
or
(iii) any delay of any other kind or nature in the completion of
the Tenant Improvements caused by Tenant (or Tenant's agents or employees) or
resulting from the performance of Tenant's Work.
(b) The term "Unavoidable Delay" shall mean any delay due to acts of
God, acts of public agencies, labor disputes, strikes, fires, freight embargoes,
rainy and stormy weather, inability to obtain supplies, materials, fuels or
permits, delays of contractors or subcontractors, or other causes or
contingencies beyond the reasonable control of Landlord.
6. Liens, Indemnification.
(a) It is understood and agreed by the parties hereto that each and
every provision of Section 9 of this Lease shall apply to the work to be
performed pursuant to this Work Agreement.
(b) Tenant does hereby agree, at its sole cost and expense, to
unconditionally indemnify, defend and hold Landlord, its affiliates, agents,
representatives, officers, directors, attorneys, successors and assigns harmless
against any loss, liability, damage (whether direct or consequential), expenses,
claims, penalties, fines, injunctions, suits, proceedings, disbursements or
expenses (including, without limitation, attorneys' and experts' fees and
disbursements and court costs) (collectively the "Liabilities") incurred by or
asserted against Landlord directly or indirectly in connection with or relating
to the installation or construction of the Tenant Improvements performed by or
on behalf of Tenant.
EXHIBIT "C"
Page 2 of 3
<PAGE>
7. Substantial Completion.
When the Tenant Improvements are substantially complete, Tenant shall
prepare and deliver in duplicate to Landlord a certificate certifying that the
Tenant Improvements are substantially complete in accordance with the Plans and
the date of that completion (the "Landlord's Certificate"), and Tenant shall
deliver to Landlord a copy of a certificate of occupancy, or the reasonable
equivalent thereof, issued by the local governmental authority responsible
therefor (the "Certificate of Occupancy"). The Tenant's Certificate and the
Certificate of Occupancy shall collectively be referred to herein as the
"Completion Certificate." The Tenant's Certificate must be certified by Tenant's
Architect. Upon receipt by Landlord of the Completion Certificate, the Premises
will be deemed delivered to Tenant for all purposes of the Lease, including
without limitation, Commencement Date and other obligations. Notwithstanding the
foregoing, if the substantial completion of the Tenant Improvements is delayed
as a result of any Tenant Delay or Unavoidable Delay lasting ten (10) days or
less ("Minimal Unavoidable Delay"), the term of the Lease and Tenant's
obligation to pay Base Rent and Direct Costs will be accelerated by the number
of days of the Tenant Delays and/or Minimal Unavoidable Delay, and Tenant must
reimburse Landlord for any additional reasonable costs and expenses incurred by
Landlord as a result of the Tenant Delays. Notwithstanding anything in the
foregoing to the contrary, the Premises shall be deemed substantially complete
for all purposes of this Lease, including but not limited to the Commencement
Date, on the date Tenant commences physical occupancy of the Premises,
regardless of the issuance of the Landlord's Certificate and/or the Certificate
of Occupancy. Tenant shall be responsible for the completion of any minor
details of construction or decoration or mechanical adjustments that do not
materially interfere with Tenant's occupancy of the Premises.
8. Effect of Delays.
Any delay in any of time periods or performance obligations of Landlord set
forth herein (including any item that must be redone due to Tenant's
disapproval) will automatically delay all subsequent deadlines by the same
amount of time. To the extent that any delay has been caused by Tenant, the
Commencement Date for all purposes under the Lease will be the date the Tenant
Improvements would have been substantially completed absent the Tenant Delays.
9. No Agency.
Nothing contained in this Work Agreement will make or constitute Tenant as
the agent of Landlord.
10. Miscellaneous.
All references in this Work Agreement to a number of days means to calendar
days unless otherwise expressly provided herein. In all instances where
Landlord's approval is required, if no written notice of disapproval is given
within the applicable time period, at the end of that period Landlord will be
deemed to have given approval and the next succeeding time period will commence.
If any item requiring approval is disapproved by Landlord in a timely manner,
the procedure for preparation of that item and approval will be repeated, unless
otherwise expressly provided herein.
EXHIBIT "C"
Page 3 of 3
<PAGE>
FORM OF ESTOPPEL CERTIFICATE
___________________________
___________________________
___________________________
___________________________
Attention: ________________
Re: Estoppel Certificate
Gentlemen:
The undersigned, as Tenant under that certain Lease (the "Lease") dated
___________, 19__, made with American National Insurance Company, a Texas
corporation, as Landlord ("Landlord"), relating to certain premises designated
as ____________ (the "Premises") located at 3250 Olcott Street, Santa Clara,
California, hereby certifies that, as of the date hereof and subject to only
those exceptions, if any, noted below:
1. A true, correct and complete copy of the Lease is attached as
Exhibit "A" hereto. There have been no amendments, modifications, extensions,
assignments or subleases of or relating to the Lease. The Lease is in full force
and effect, and Tenant hereby reaffirms all of its obligations thereunder.
2. No more than one (1) month's rent has been paid in advance, a
security deposit in the amount set forth in the Lease has been paid, and no
other amounts have been paid in advance to Landlord or deposited therewith by
the undersigned.
3. No defense or offset to the enforcement of the Lease by Landlord
exists. Landlord is not in default under the Lease and has not committed any
breach thereunder, nor has any event occurred which, with the passage of time or
the giving of notice, or both, would constitute a default or breach thereunder
by Landlord. Furthermore, Landlord has fully performed all of its accrued
obligations under the Lease and any and all agreements relating to the Lease or
the Premises (including, but not limited to, its obligations under the Work
Agreement constituting a part of the Lease and any inducement obligations).
4. The undersigned does not have any option or preferential right to
purchase all or any part of the Premises or any right, title or interest with
respect to the Premises other than as Tenant under the Lease.
The undersigned acknowledges that you are relying hereon and warrants,
represents and declares, for your benefit and that of your successors and
assigns, that each of the foregoing certifications is true, correct and
complete, subject to only the following exceptions, if any:
Dated: _______________, 19___.
_________________________________
_________________________________
By _____________________________
Its__________________________
By _____________________________
Its__________________________
EXHIBIT "D"
Page 1 of 1
EXHIBIT 11
<TABLE>
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<CAPTION>
Year Ended
31-Mar-96 2-Apr-95 3-Apr-94
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 77,026 69,684 60,832
Net effect of dilutive stock options 4,871 5,081 5,400
-------- -------- --------
Total 81,897 74,765 66,232
======== ======== ========
Income before extraordinary item $118,249 $ 78,302 $ 40,165
======== ======== ========
Net income $120,170 $ 78,302 $ 40,165
======== ======== ========
Primary earnings per share:
Income before extraordinary item $ 1.44 $ 1.05 $ 0.61
======== ======== ========
Net income $ 1.47 $ 1.05 $ 0.61
======== ======== ========
Fully diluted:
Weighted average shares outstanding 77,026 69,684 60,832
Net effect of dilutive stock options 4,871 5,742 6,428
Assumed conversion of convertible subordinated notes 5,856
-------- -------- --------
Total 87,753 75,426 67,260
======== ======== ========
Income before extraordinary item $118,249 $ 78,302 $ 40,165
Net income $120,170 $ 78,302 $ 40,165
Add:
Convertible subordinated notes interest and related expenses,
net of taxes $ 6,596
-------- -------- --------
Adjusted net income $126,766 $ 78,302 $ 40,165
======== ======== ========
Fully diluted earnings per share:
Income before extraordinary item $ 1.42 $ 1.04 $ 0.60
======== ======== ========
Net income $ 1.44 $ 1.04 $ 0.60
======== ======== ========
<FN>
On August 24, 1995, the Company's Board of Directors approved a two-for-one
stock split in the form of a stock dividend for stockholders of record on August
25, 1995. The distribution of additional shares was on September 15, 1995. Share
information for all periods presented has been retroactively adjusted to reflect
this stock dividend.
</FN>
</TABLE>
EX 21.1
<TABLE>
LIST OF REGISTRANT'S SUBSIDIARIES
<CAPTION>
State or Other Jurisdiction Owned
of Incorporation by Registrant
<S> <C> <C>
Centaur Technology, Inc. California 100
Integrated Device Technology,
Asia Ltd. Hong Kong 100
IDT ASIA, Ltd. Hong Kong 100
IDT Europe Limited United Kingdom 100
IDT France S.A.R.L France 100
IDT Foreign Sales Corporation Barbados 100
Integrated Device Technology, AB Sweden 100
Integrated Device Technology,
Europe, Inc. California 100
Integrated Device Technology
GmbH Germany 100
Integrated Device Technology
Italia S.r.l. Italy 100
Integrated Device Technology
(Malaysia) SDN. BHD Malaysia 100
Integrated Device Technology
Realty Holdings, Inc. Philippines 40
Integrated Device Technology
Holding, Inc. Philippines 40
Integrated Device Technology
(Philippines), Inc. Philippines 100
Nippon IDT K.K. Japan 100
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-46831, 33-34458 and 33-54937) of Integrated
Device Technology, Inc. of our report dated April 19, 1996, listed in the index
appearing under Item 8 of the Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
May 15, 1996
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