<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTEGRATED DEVICE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 94-2669985
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
2975 STENDER WAY
SANTA CLARA, CALIFORNIA 95054
(408) 727-6116
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ALAN F. KROCK
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
2975 STENDER WAY
SANTA CLARA, CALIFORNIA 95054
(408) 727-6116
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
DENNIS R. DEBROECK, ESQ. STEVEN J. TONSFELDT, ESQ.
ROBERT A. FREEDMAN, ESQ. DAVID C. LEE, ESQ.
JEFFERY L. DONOVAN, ESQ. CARL L. SPATARO, ESQ.
CRAIG A. MENDEN, ESQ. JAMES D. FAY, ESQ.
R. GREGORY ROUSSEL, ESQ. VENTURE LAW GROUP
FENWICK & WEST LLP 2800 SAND HILL ROAD
TWO PALO ALTO SQUARE MENLO PARK, CALIFORNIA 94025
PALO ALTO, CALIFORNIA 94306 (650) 854-4488
(650) 494-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
Upon consummation of the merger described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(2) FEE(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par
value(4)......................... 6,251,968 not applicable $31,009,759 $8,621
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</TABLE>
(1) The number of shares of common stock, par value $0.001 per share, of
Integrated Device Technology, Inc., to be registered has been determined
based upon the product of (i) up to 9,093,771 shares of common stock of
Quality Semiconductor, Inc., par value $0.001 per share, outstanding or
subject to options to purchase QSI common stock as of March 19, 1999 and
(ii) an exchange ratio of 0.6875 shares of IDT common stock per share of QSI
common stock as provided for in the merger agreement.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(f)(1) of the Securities Act of 1933. Pursuant to Rule 457(f)(1),
the maximum aggregate offering price is the product of (i) $3.41,
representing the average of the high and low sales price of QSI common stock
as reported on the Nasdaq National Market on March 19, 1999, and (ii) up to
9,093,771 shares of QSI common stock to be acquired by IDT or subject to
options to purchase shares of QSI common stock to be assumed by IDT pursuant
to the merger agreement.
(3) Calculated in accordance with Section 6(b) of the Securities Act and Rule
457(f)(1) promulgated thereunder. The amount of the registration fee
includes $5,939 previously paid pursuant to Section 14(g) of the Securities
Exchange Act of 1934 in connection with the filing by QSI of a Preliminary
Proxy Statement/Prospectus on December 3, 1998.
(4) Associated with the IDT common stock are preferred stock purchase rights
which will not be exercisable or be evidenced separately from the common
stock prior to the occurrence of certain events.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 3)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [X] Confidential, for Use of the Commission
Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
QUALITY SEMICONDUCTOR, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 3
[LOGO]
QUALITY SEMICONDUCTOR, INC.
March , 1999
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders
of Quality Semiconductor, Inc., a California corporation, to be held at 11:00
a.m. local time, on April 30, 1999, at the offices of QSI at 851 Martin Avenue,
Santa Clara, California 95050. At the special meeting, you will be asked to vote
on a proposal to approve the Agreement and Plan of Merger, dated November 1,
1998, between QSI and Integrated Device Technology, Inc., a Delaware
corporation, and a subsidiary of IDT.
As a result of the merger, each outstanding share of QSI common stock will
be converted into shares of IDT common stock at an exchange ratio of 0.6875. In
addition, each outstanding option to purchase QSI common stock will be deemed to
constitute the right to acquire, on the same terms and conditions, a number of
shares of IDT common stock at a price based on the exchange ratio.
Assuming the same exchange ratio and based on the capitalization of IDT and
QSI on March 19, 1999, the shares of IDT common stock to be issued in the merger
would represent approximately 6.2% of the shares of IDT common stock outstanding
following the merger. IDT's common stock trades on the Nasdaq Stock Market under
the symbol "IDTI." QSI's common stock trades on the Nasdaq Stock Market under
the symbol "QUAL."
YOUR BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AND
HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF QSI AND ITS
SHAREHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD UNANIMOUSLY RECOMMENDS A
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
On behalf of the board of directors,
R. Paul Gupta
President and Chief Executive Officer
THE MERGER INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 12.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE IDT COMMON STOCK TO BE ISSUED UNDER
THIS PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS MARCH , 1999 AND IS FIRST BEING
MAILED TO SHAREHOLDERS ON OR ABOUT MARCH , 1999.
<PAGE> 4
QUALITY SEMICONDUCTOR, INC.
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 30, 1999
To the Shareholders of Quality Semiconductor, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of
Quality Semiconductor, Inc., a California corporation, will be held at 11:00
a.m. local time, on April 30, 1999, at the offices of QSI at 851 Martin Avenue,
Santa Clara, California 95050, to vote upon the following proposals:
1. To approve the Agreement and Plan of Merger, dated November 1,
1998, between QSI and Integrated Device Technology, Inc., a Delaware
corporation, and to approve the merger of IDT and QSI under the merger
agreement. Each outstanding share of QSI common stock will be converted
into the right to receive 0.6875 shares of IDT common stock and each
outstanding option to purchase QSI common stock will be deemed the right to
acquire, on the same terms and conditions, shares of IDT common stock at a
price based on the exchange ratio.
2. To transact such other business as may properly come before the
special meeting or at any postponements or adjournments of the special
meeting.
The board of directors has fixed the close of business on March 23, 1999,
as the record date for the determination of the holders of QSI common stock
entitled to notice of, and to vote at, the special meeting. The affirmative vote
of a majority of the shares of QSI common stock is necessary to approve proposal
1.
Details of the proposed merger and other important information concerning
IDT and QSI are more fully described in the accompanying proxy
statement/prospectus. Please give this material your careful attention.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER ATTENDING
THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF THAT SHAREHOLDER HAS RETURNED A
PROXY.
By order of the board of directors,
Stephen H. Vonderach
Secretary
Santa Clara, California
March , 1999
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
What the Companies Do..................................... 3
The QSI Special Meeting to Consider Approval of the
Merger................................................. 3
Dissenters' Rights........................................ 4
QSI's Reasons for the Merger.............................. 4
IDT's Reasons for the Merger.............................. 4
Opinion of Financial Advisor as to the Fairness of the
Exchange Ratio......................................... 4
Federal Income Tax Treatment.............................. 5
Markets and Market Prices................................. 5
Regulatory Approvals Required Before the Merger Can Be
Completed.............................................. 5
Accounting Treatment of the Merger........................ 5
Interests of Certain Persons in the Merger................ 5
Terms of the Merger....................................... 6
SELECTED HISTORICAL AND SELECTED PRO FORMA FINANCIAL
INFORMATION............................................... 7
COMPARATIVE PER SHARE DATA.................................. 9
COMPARATIVE PER SHARE MARKET DATA........................... 11
RISK FACTORS................................................ 12
Risks Related to the Merger............................... 12
Risks Related to IDT...................................... 14
Risks Related to QSI...................................... 21
FORWARD-LOOKING STATEMENTS.................................. 28
WHERE YOU CAN FIND MORE INFORMATION......................... 29
THE QSI SPECIAL MEETING..................................... 31
Date, Time and Place of Meeting........................... 31
Purpose of the Special Meeting............................ 31
Record Date; Voting Rights; Proxies....................... 31
Solicitation of Proxies................................... 31
Quorum.................................................... 32
Required Vote............................................. 32
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............. 33
Background of the Merger.................................. 33
QSI's Reasons for the Merger.............................. 37
IDT's Reasons for the Merger.............................. 39
Opinion of QSI's Financial Advisor........................ 40
Material Federal Income Tax Considerations................ 45
Regulatory Matters........................................ 47
Accounting Treatment...................................... 47
Dissenters' Rights........................................ 48
TERMS OF THE MERGER......................................... 50
General................................................... 50
Effective Time; Closing Date.............................. 50
Corporate Matters......................................... 50
Merger Consideration...................................... 50
Conversion of Shares; Procedures for Exchange of Stock
Certificates........................................... 51
Termination of QSI Employee Stock Purchase Plan........... 52
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Representations and Warranties............................ 52
No Negotiation or Solicitation............................ 53
Additional Covenants...................................... 54
Indemnification and Insurance............................. 56
Conditions to the Merger.................................. 56
Termination; Termination Fee.............................. 59
Expenses.................................................. 62
Affiliate Agreements...................................... 62
INTERESTS OF CERTAIN PERSONS................................ 63
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS... 64
SHARES USED IN PRO FORMA PER SHARE CALCULATIONS............. 69
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
OF QSI.................................................... 70
COMPARISON OF CAPITAL STOCK................................. 72
COMPARISON OF RIGHTS OF HOLDERS OF IDT COMMON STOCK AND
HOLDERS OF QSI COMMON STOCK............................... 75
MARKET PRICE OF AND DIVIDENDS ON IDT COMMON STOCK AND QSI
COMMON STOCK.............................................. 85
EXPERTS..................................................... 86
LEGAL MATTERS............................................... 86
</TABLE>
APPENDICES
A -- Agreement and Plan of Merger
B -- Opinion of Needham & Company, Inc.
C -- Chapter 13 of the California Corporations Code
ii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS QSI PROPOSING THE MERGER? HOW WILL I BENEFIT?
A: The board of directors of QSI believes that the merger is in the best
interest of QSI's shareholders because the combined company will be more
competitive in the market and enhance the future value of the shares held by
QSI's shareholders.
Q: WHAT DO I NEED TO DO NOW?
A: Please mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special meeting. In
addition, you may attend the special meeting in person, rather than signing
and mailing your proxy card.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. Without instructions, your shares will
not be voted.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will send QSI shareholders written
instructions for exchanging their share certificates. IDT stockholders will
keep their certificates.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, QSI shareholders will have the right to receive
0.6875 shares of IDT common stock in exchange for each share of QSI common
stock they own.
Example:
If you currently own 10,000 shares of QSI common stock, then after the merger
you will receive 6,875 shares of IDT common stock. The value of the IDT common
stock that you will receive depends on the price of IDT common stock
immediately after the merger.
IDT will not issue fractional shares. Instead, you will receive cash for any
fractional shares of IDT common stock owed to you based on a price of $6.4625
per share of IDT common stock.
Q: DOES IDT PAY DIVIDENDS?
A: Like QSI, IDT does not pay dividends. IDT's board does not currently
anticipate paying cash dividends in the future.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. In
addition to QSI shareholder approval, QSI and IDT must also obtain regulatory
approvals. We hope to complete the merger by May 4, 1999.
Q: WHAT IF I ALSO OWN SHARES OF IDT COMMON STOCK?
A: IDT common stock will not be affected by the merger. If you currently own
shares of IDT common stock, you will continue to own those shares after the
merger.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have any questions about the merger, please call Stephen H. Vonderach
at (408) 450-8004.
ADDITIONAL QUESTIONS AND ANSWERS ABOUT THE MERGER FOR QSI EMPLOYEES
Q: WHAT WILL HAPPEN TO EMPLOYEE STOCK OPTIONS HELD BY QSI EMPLOYEES?
A: The outstanding options will convert into options for IDT common stock, at
the same 0.6875 exchange ratio that applies to QSI
1
<PAGE> 8
common stock. Thus, for each share of QSI common stock on which you have an
option, you will receive an option to purchase 0.6875 shares of IDT common
stock. In addition, the exercise price per share will be adjusted by dividing
the current exercise price by 0.6875.
Example:
An option to purchase 10,000 shares of QSI common stock at an exercise price
of $10.00 per share will convert to an option to purchase 6,875 shares of IDT
common stock (10,000 x 0.6875) at an exercise price of $14.55 per share
($10.00/0.6875).
Q: MAY I EXERCISE STOCK OPTIONS AND SELL QSI COMMON STOCK BETWEEN NOW AND THE
COMPLETION OF THE MERGER?
A: Yes, subject to the timing limitations included in the QSI insider trading
policy and the additional limitations on trading by persons defined as QSI
"affiliates."
Q: WHAT WILL HAPPEN TO QSI'S 1993 EMPLOYEE STOCK PURCHASE PLAN?
A: The 1993 Purchase Plan will be terminated upon completion of the merger. The
participation period then in process will end. The funds that are accumulated
through your payroll deductions up until that time will be applied to
purchase shares of QSI common stock. Those shares of QSI common stock will
then be exchanged in the merger for IDT common stock.
Q: HOW MANY SHARES OF IDT COMMON STOCK WILL QSI'S SHAREHOLDERS OWN AFTER THE
MERGER?
A: QSI's shareholders will own approximately 5,197,623 shares of IDT common
stock after the merger, representing approximately 6.2% of IDT's total shares
outstanding.
2
<PAGE> 9
SUMMARY
Following is a summary of the information contained elsewhere in this
document. You should read all of this document and the appendices because the
summary does not contain a complete description of the merger agreement or the
merger.
WHAT THE COMPANIES DO
Integrated Device Technology, Inc.
2975 Stender Way
Santa Clara, California 95054
(408) 727-6116
Nasdaq stock symbol: IDTI
IDT provides semiconductor solutions to system designers in communications
and computing. IDT's product mix consists of communications memories, networking
devices, both RISC and x86 microprocessors, high-speed static random access
memory circuits and high-performance logic. IDT employs approximately 4,600
people worldwide and has manufacturing facilities in California, Oregon, the
Philippines and Malaysia.
Quality Semiconductor, Inc.
851 Martin Avenue
Santa Clara, California 95050
(408) 450-8000
Nasdaq stock symbol: QUAL
QSI designs, develops and markets high-performance logic and networking
semiconductor products. QSI targets systems manufacturers principally in the
networking, personal computer and workstation markets. QSI's products include
high-speed, low-noise interface logic devices, high-speed, low-resistance bus
switches, low-skew clock management products, analog switch devices and advanced
integrated circuits for fast ethernet networking applications. QSI employs
approximately 190 people worldwide with manufacturing and product design
facilities located in Sydney, Australia.
THE QSI SPECIAL MEETING TO CONSIDER APPROVAL OF THE MERGER (PAGE 31)
Record Date and Vote Required
If you held QSI common stock at the close of business on March 23, 1999,
you are entitled to vote at the special meeting. On that day, there were
7,560,180 shares of QSI common stock outstanding. You are entitled to one vote
for each outstanding share of QSI common stock you held on that date. Approval
of the merger requires the affirmative vote of at least a majority of the shares
of QSI common stock outstanding on that date. QSI officers and directors and
their affiliates held approximately 10.6% of the outstanding QSI common stock on
that date.
QSI Board's Recommendation to the Shareholders
THE QSI BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THE MERGER IS FAIR TO YOU
AND IN THE BEST INTERESTS OF QSI AND ITS SHAREHOLDERS AND HAS APPROVED AND
ADOPTED THE MERGER AGREEMENT AND APPROVED THE MERGER. THE BOARD UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER.
3
<PAGE> 10
DISSENTERS' RIGHTS (PAGE 48)
Under California law you have dissenters' right of appraisal in the merger
if you vote against the merger and follow certain procedures provided by law.
Please note that a signed proxy which does not indicate a vote will be voted for
the proposal. Your dissenters' right of appraisal is governed by specific legal
provisions contained in Chapter 13 of the California Corporations Code. A
summary of some of the provisions of Chapter 13 pertaining to the rights of
dissenting shareholders in the merger is included in this document in the
section entitled "Approval of the Merger and Related Transactions -- Dissenters'
Rights." The complete text of Chapter 13 is set forth as Appendix C to this
document.
QSI'S REASONS FOR THE MERGER (PAGE 37)
QSI's management believes that the merger will benefit QSI for a number of
reasons, including:
- the opportunity for shareholders to reduce their exposure to risks
inherent in QSI's reliance on a limited number of products, and the
difficulties in competing against larger companies with more diversified
product lines and greater financial resources;
- the opportunity to take advantage of IDT's greater financial and
marketing resources to reduce the risks associated with developing a new
generation of networking products;
- the opportunity for QSI to gain greater market strength by combining with
a larger company;
- the opportunity of QSI to utilize the resources of the combined companies
to develop additional products and new applications for existing
products; and
- the opportunity for QSI to market its products through IDT's channels and
sell its products with IDT's products.
IDT'S REASONS FOR THE MERGER (PAGE 39)
IDT's management believes that the merger will benefit IDT for a number of
reasons, including:
- the opportunity to enhance IDT's product portfolio with the addition of
QSI's product line;
- the potential to take advantage of IDT's underutilized manufacturing
capacity and capabilities;
- to enhance IDT's ability to compete for preferred supplier positions with
major customers due to broader product offerings; and
- the addition of stable, capable design teams, which will augment IDT's
ability to deliver new products to the marketplace.
OPINION OF FINANCIAL ADVISOR AS TO THE FAIRNESS OF THE EXCHANGE RATIO (PAGE 40)
In deciding to approve the merger, the QSI board considered the opinion of
its financial advisor, Needham & Company, Inc., as to the fairness of the
exchange ratio from a financial point of view. The fairness opinion is attached
as Appendix B to this document. WE ENCOURAGE YOU TO READ THE OPINION CAREFULLY.
4
<PAGE> 11
FEDERAL INCOME TAX TREATMENT (PAGE 45)
IDT and QSI must each receive opinions from their outside legal counsels
that the merger constitutes a "reorganization" for federal income tax purposes.
If the merger is a "reorganization," no gain or loss will generally be
recognized by you upon your receipt of IDT common stock in the merger in
exchange for your outstanding shares of QSI common stock. However, you will need
to pay tax on cash received for fractional shares.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
MARKETS AND MARKET PRICES (PAGE 85)
To help you in your analysis of the merger, the following table shows the
closing prices per share of the IDT and QSI stock on October 30, 1998 and March
19, 1999:
<TABLE>
<CAPTION>
IDT QSI
------ ------
<S> <C> <C>
October 30, 1998, the last trading day before the
announcement of the merger............................ $6.938 $2.938
March 19, 1999.......................................... $5.438 $3.375
</TABLE>
After the merger, IDT common stock will continue to be traded on the Nasdaq
National Market under the symbol "IDTI" and QSI common stock will no longer be
traded on the Nasdaq National Market or on any other exchange. The stock prices
of both IDT and QSI can fluctuate broadly, even over short periods of time. It
is impossible to predict the actual price of IDT or QSI common stock prior to
the effective time of the merger or at any other time.
REGULATORY APPROVALS REQUIRED BEFORE THE MERGER CAN BE COMPLETED (PAGE 47)
We are prohibited by U.S. antitrust laws from completing the merger until
after we have furnished certain information and materials to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and a
required waiting period has ended. Both IDT and QSI have filed the required
notification and report forms. The waiting period ended on January 5, 1999.
However, the Department of Justice and the Federal Trade Commission continue to
have the authority to challenge the merger on antitrust grounds before or after
the merger is complete. The merger must also satisfy the requirements of federal
and certain state securities laws.
We cannot predict whether we will obtain all required regulatory approvals
for the merger, or whether any approvals will include conditions that would be
detrimental to QSI or IDT.
ACCOUNTING TREATMENT OF THE MERGER (PAGE 47)
The merger is intended to qualify as a pooling of interests, which means
that we will treat our companies as if they had always been combined for
accounting and financial reporting purposes in accordance with generally
accepted accounting principles.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 63)
You should note that certain directors, executive officers and key
employees of QSI have interests in the merger that are different from, or in
addition to, your interests as a shareholder. For instance, the directors,
President, Vice Presidents and certain employees will receive benefits under
5
<PAGE> 12
pre-existing "change in control" agreements. These agreements provide for the
acceleration of vesting of some of the options held by such persons, as well as
certain severance payments which could be paid if the officers or key employees
are terminated following the consummation of the merger. The value that each
member of QSI's management may receive for the accelerated vesting of options
under the change in control agreements, if the merger is consummated, is
summarized in the table on page 63, and may be as high as $37,200 based upon an
expected effective time of May 4, 1999 and the closing price of IDT common stock
on March 19, 1999.
TERMS OF THE MERGER (PAGE 50)
When the merger will become effective (page 50)
The merger will become effective upon the filing of an agreement of merger
with the Secretary of State of the State of California. We currently anticipate
that the merger will become effective on or about May 4, 1999.
Conversion of your common stock and assumption of options (page 50)
Each share of QSI common stock issued and outstanding immediately prior to
the effective time of the merger will be canceled and extinguished and
automatically converted into 0.6875 of a share of IDT common stock. In addition,
you will also receive a check for a small amount of cash instead of any
fractional number of shares you might otherwise receive. At the effective time,
each outstanding option to purchase shares of QSI common stock will be assumed
by IDT and will become options exercisable for shares of IDT common stock with
appropriate adjustments to be made to the number of shares issuable and the per
share exercise price based on the exchange ratio. Shortly after the merger, IDT
will file a registration statement on Form S-8 for the shares of IDT common
stock issuable under the QSI options it assumes.
How to exchange your stock certificates (page 51)
Promptly after the effective time, the transfer agent for IDT will mail to
you a letter of transmittal and instructions for use in surrendering
certificates of QSI common stock so they may be exchanged for certificates of
IDT common stock. PLEASE DO NOT SURRENDER YOUR CERTIFICATES UNTIL YOU RECEIVE
THE LETTER OF TRANSMITTAL FROM THE TRANSFER AGENT.
QSI cannot solicit another possible acquirer (page 53)
QSI has agreed not to solicit or participate in any discussions with any
person about a proposed acquisition of QSI other than by IDT. However, if the
QSI board of directors determines in good faith, after consultation with outside
legal counsel, that the board's fiduciary duties require it to do so, QSI may
participate in discussions or negotiations with any person who has delivered to
QSI a written unsolicited acquisition proposal which the QSI board of directors
believes would be more favorable to QSI shareholders.
QSI may have to pay a termination fee to IDT (page 59)
QSI has agreed to pay IDT a termination fee of $1,500,000 upon the
occurrence of certain events which terminate the merger agreement.
6
<PAGE> 13
SELECTED HISTORICAL AND SELECTED PRO FORMA FINANCIAL INFORMATION
We have derived the following selected historical annual financial
information of IDT and QSI from their audited historical consolidated financial
statements. You should read these in conjunction with such consolidated
financial statements and the notes to the financial statements. We have
incorporated by reference some of these financial statements and notes from
periodic reports currently on file with the Commission. We have derived the
selected historical consolidated financial information for the nine months ended
December 28, 1997 and December 27, 1998 and as of December 27, 1998 for IDT from
the unaudited financial statements of IDT, which in the opinion of IDT
management reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of this unaudited interim
financial information. We have derived the selected historical consolidated
financial information for the three months ended December 31, 1998 for QSI from
the unaudited financial statements of QSI, which in the opinion of QSI
management reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of this unaudited interim
financial information. We have derived the selected unaudited pro forma combined
financial information of IDT and QSI from the unaudited pro forma condensed
combined financial statements included in this document, which give effect to
the merger as a pooling of interests, and you should read these in conjunction
with the unaudited pro forma statements and the relevant notes.
We present these unaudited pro forma financial information for illustrative
purposes only. They are not necessarily indicative of the operating results or
financial position that would have occurred if the merger had been consummated.
In addition, they do not necessarily represent or predict future operating
results or the financial position of the combined companies.
IDT SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------- ---------------------------
APRIL 3, APRIL 2, MARCH 31, MARCH 30, MARCH 29, DECEMBER 28, DECEMBER 27,
1994 1995 1996 1997 1998 1997 1998
-------- -------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................. $330,462 $422,190 $679,497 $537,213 $587,136 $436,915 $ 400,812
Operating income (loss)................... 52,269 99,515 163,733 (65,910) 12,868 10,048 (254,648)
Income (loss) before extraordinary item... 40,165 78,302 118,249 (42,272) 8,247 6,873 (291,619)
Net income (loss)......................... 40,165 78,302 120,170 (42,272) 8,247 6,873 (291,619)
Income (loss) before extraordinary item
per share:
Basic................................... $ 0.66 $ 1.12 $ 1.54 $ (0.54) $ 0.10 $ 0.09 $ (3.55)
Diluted................................. $ 0.61 $ 1.05 $ 1.42 $ (0.54) $ 0.10 $ 0.08 $ (3.55)
Net income (loss) per share:
Basic................................... $ 0.66 $ 1.12 $ 1.56 $ (0.54) $ 0.10 $ 0.09 $ (3.55)
Diluted................................. $ 0.61 $ 1.05 $ 1.44 $ (0.54) $ 0.10 $ 0.08 $ (3.55)
Shares used in per share calculation:
Basic................................... 60,832 69,684 77,026 78,454 80,359 80,119 82,149
Diluted................................. 66,232 74,765 87,753 78,454 84,022 83,614 82,149
</TABLE>
<TABLE>
<CAPTION>
APRIL 3, APRIL 2, MARCH 31, MARCH 30, MARCH 29, DECEMBER 27,
1994 1995 1996 1997 1998 1998
-------- -------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................... $143,248 $261,246 $286,200 $280,168 $265,522 $177,960
Total assets.............................. 349,571 561,975 939,434 903,584 968,955 689,938
Convertible subordinated notes............ -- -- 182,558 183,157 183,756 184,205
Other long-term obligations............... 45,979 44,165 46,049 62,547 79,727 105,034
Total stockholders' equity................ 224,367 414,531 549,727 524,238 546,391 263,327
</TABLE>
7
<PAGE> 14
QSI SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------------ -----------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $36,966 $46,189 $44,688 $62,691 $ 60,818 $18,534 $10,646
Operating income (loss)......................... 5,189 6,386 (3,530) 720 (12,308) (1,369) (7,101)
Net income (loss)............................... 3,243 4,766 (1,310) 210 (15,334) (989) (7,218)
Net income (loss) per share:
Basic......................................... $ 2.51 $ 1.00 $ (0.24) $ 0.03 $ (2.06) $ (0.13) $ (0.96)
Diluted....................................... $ 0.83 $ 0.85 $ (0.24) $ 0.03 $ (2.06) $ (0.13) $ (0.96)
Common and common stock equivalent shares used
in per share calculation:
Basic......................................... 1,294 4,750 5,524 6,361 7,428 7,383 7,508
Diluted....................................... 3,900 5,589 5,524 7,053 7,428 7,383 7,508
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------ DECEMBER 31,
1994 1995 1996 1997 1998 1998
------- ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................. $ 8,460 $27,379 $14,103 $27,775 $ 9,211 $ 3,543
Total assets.................................... 23,146 42,779 52,521 69,832 46,313 38,617
Long-term obligations........................... 896 288 4,843 9,147 5,978 3,719
Total shareholders' equity...................... 11,888 31,221 30,345 43,637 26,290 19,413
</TABLE>
IDT AND QSI
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------------- ---------------------------
MARCH 31, MARCH 30, MARCH 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998 1997 1998
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $724,185 $599,904 $658,810 $492,493 $ 437,646
Operating income (loss).................................. 160,203 (65,190) 9,753 8,459 (271,162)
Income (loss) before extraordinary item.................. 116,939 (42,062) 4,688 5,591 (310,905)
Net income (loss)........................................ 118,860 (42,062) 4,688 5,591 (310,905)
Net income (loss) before extraordinary item per share:
Basic.................................................. $ 1.45 $ (0.51) $ 0.05 $ 0.07 $ (3.56)
Diluted................................................ $ 1.35 $ (0.51) $ 0.05 $ 0.06 $ (3.56)
Net income (loss) per share:
Basic.................................................. $ 1.47 $ (0.51) $ 0.05 $ 0.07 $ (3.56)
Diluted................................................ $ 1.37 $ (0.51) $ 0.05 $ 0.06 $ (3.56)
Common and common stock equivalent shares used in per
share calculation:
Basic.................................................. 80,824 82,827 85,270 84,969 87,289
Diluted................................................ 91,769 82,827 89,237 88,902 87,289
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 27,
1998
------------
<S> <C>
PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Working capital............................................. $180,603
Total assets................................................ 728,555
Convertible subordinated notes, net......................... 184,205
Other long-term obligations................................. 108,753
Total stockholders' equity.................................. 281,840
</TABLE>
8
<PAGE> 15
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of IDT and
QSI and unaudited pro forma combined per share data after giving effect to the
merger on a pooling of interests basis assuming that 0.6875 of one newly issued
share of IDT common stock is issued in exchange for each outstanding share of
QSI common stock in the merger. This data should be read in conjunction with the
selected financial information included elsewhere in this document and the
separate historical financial statements of IDT and QSI and attached notes. We
have incorporated certain of these financial statements and notes by reference
into this document. We present the unaudited pro forma combined financial data
for illustrative purposes only. This data is not necessarily indicative of the
operating results that would have been achieved had the merger been consummated
as of the beginning of the periods presented and should not be construed as
representative of future operating results or financial condition.
In reviewing the table below, please note that historical book value per
share is computed by dividing stockholders' equity by the number of shares of
common stock outstanding at the end of each period.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
--------------------------------- ENDED
MARCH 31, MARCH 30, MARCH 29, DECEMBER 27,
1996 1997 1998 1998
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Historical -- IDT
Income (loss) before extraordinary item per
share (basic)............................ $1.54 $(0.54) $0.10 $(3.55)
Income (loss) before extraordinary item per
share (diluted).......................... $1.42 $(0.54) $0.10 $(3.55)
Net income (loss) per share (basic)......... $1.56 $(0.54) $0.10 $(3.55)
Net income (loss) per share (diluted)....... $1.44 $(0.54) $0.10 $(3.55)
Book value per share........................ $6.72 $ 3.20
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED
--------------------------------- DECEMBER 31,
1996 1997 1998 1998
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Historical -- QSI
Net income (loss) per share (basic)......... $(0.24) $0.03 $(2.06) $(0.96)
Net income (loss) per share (diluted)....... $(0.24) $0.03 $(2.06) $(0.96)
Book value per share........................ $ 3.50 $ 2.58
</TABLE>
In reviewing the table below, please note that the pro forma combined net
income (loss) for the years ended March 31, 1996 and March 30, 1997 include
QSI's net income (loss) for the QSI fiscal years ended September 30, 1996 and
1997, respectively. The pro forma net income for the year ended March 29, 1998
includes QSI's net income (loss) for the quarterly periods ended June 30, 1997,
September 30, 1997, December 31, 1997 and March 31, 1998 as reported in or
derived from QSI's published, historical financial information. The pro forma
net loss for the nine months ended December 27, 1998 includes the net loss of
QSI for the nine months ended December 31, 1998.
The IDT pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of IDT common stock
which would have been outstanding had the merger been consummated as of the
balance sheet date.
9
<PAGE> 16
QSI equivalent pro forma combined amounts are calculated by multiplying the
IDT pro forma combined per share amounts by the exchange ratio of 0.6875.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
--------------------------------- ENDED
MARCH 31, MARCH 30, MARCH 29, DECEMBER 27,
1996 1997 1998 1998
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Pro Forma Combined -- IDT
Pro forma income (loss) before extraordinary
item income per IDT share (basic)........ $1.45 $(0.51) $0.05 $(3.56)
Pro forma income (loss) before extraordinary
item income per IDT share (diluted)...... $1.35 $(0.51) $0.05 $(3.56)
Pro forma net (loss) income per IDT share
(basic).................................. $1.47 $(0.51) $0.05 $(3.56)
Pro forma net (loss) income per IDT share
(diluted)................................ $1.37 $(0.51) $0.05 $(3.56)
Pro forma book value per IDT share.......... $6.78 $ 3.22
Equivalent Pro Forma Combined -- QSI
Pro forma net income (loss) per QSI share
(basic).................................. $1.01 $(0.35) $0.03 $(2.45)
Pro forma net income (loss) per QSI share
(diluted)................................ $0.94 $(0.35) $0.03 $(2.45)
Pro forma book value per QSI share.......... $4.66 $ 2.21
</TABLE>
10
<PAGE> 17
COMPARATIVE PER SHARE MARKET DATA
IDT common stock is traded on the Nasdaq National Market under the symbol
"IDTI" and QSI common stock is traded on the Nasdaq National Market under the
symbol "QUAL." To help you in your analysis of the proposed merger we have
included the following table which sets forth the closing prices per share of
IDT common stock and QSI common stock on the Nasdaq National Market on October
30, 1998, which was the last trading day before the announcement on November 2,
1998 of the proposed merger, and on March 19, 1999. Also set forth is the
equivalent per share price for QSI common stock, which equals the closing price
per share of IDT common stock on such dates multiplied by the exchange ratio of
0.6875. Among other things, you should compare the equivalent per share price of
the IDT stock that you will receive if the merger is consummated to the
historical trading prices of IDT and QSI common stock and to your expected per
share value of QSI stock if the merger is not consummated. Please remember,
however, that both IDT and QSI stock prices can fluctuate significantly and that
we cannot predict what the stock prices will be at or after the effective time
of the merger. See "Risk Factors -- Risks Related to Merger -- Fixed exchange
ratio may limit value of QSI stock being exchanged."
<TABLE>
<CAPTION>
IDT QSI EQUIVALENT
COMMON STOCK COMMON STOCK PER SHARE PRICE
------------ ------------ ---------------
<S> <C> <C> <C>
October 30, 1998............................... $6.938 $2.938 $4.770
March 19, 1999................................. $5.438 $3.375 $3.738
</TABLE>
We believe that the QSI common stock presently trades on the basis of the
value of the IDT common stock expected to be issued in exchange for the QSI
common stock in the merger, discounted primarily for the uncertainties
associated with the merger. Apart from the publicly disclosed information
concerning IDT which is included and incorporated by reference in this document,
neither we nor IDT can state with certainty what factors account for changes in
the market price of the IDT common stock.
We urge you to obtain current market quotations for IDT common stock and
QSI common stock before making any decision with respect to the merger. The
current market information for shares of IDT and QSI can be obtained on the
World Wide Web at http://www.nasdaq-amex.com. Because the exchange ratio is
fixed, the exchange ratio will not be adjusted to compensate QSI shareholders
for decreases in the market price of IDT common stock which could occur before
the merger becomes effective. In the event the market price of IDT common stock
decreases or increases prior to the effective time, the value at the effective
time of the IDT common stock to be received in the merger in exchange for QSI
common stock would correspondingly decrease or increase.
Following the merger, all QSI common stock will be owned by IDT and, as a
result, QSI common stock will no longer be listed on the Nasdaq National Market.
11
<PAGE> 18
RISK FACTORS
In addition to the other material in this document, you should carefully
consider the following risk factors in evaluating whether or not to approve the
merger.
RISKS RELATED TO THE MERGER
FIXED EXCHANGE RATIO MAY LIMIT VALUE OF QSI STOCK BEING EXCHANGED
Each outstanding share of QSI common stock will be converted into the right
to receive 0.6875 of a share of IDT common stock at the effective time of the
merger. There will be no adjustment of the exchange ratio based on fluctuations
in the price of either IDT common stock or QSI common stock. Consequently, the
value of the equivalent per share price that you expect to receive for each
share of QSI common stock exchanged in the merger could decrease from the date
that you submit your proxy and the effective date of the merger. If the market
price for IDT common stock decreases before the effective time, the market value
at the effective time of the IDT common stock would correspondingly decrease
and, as noted above, QSI shareholders will not be compensated for decreases in
the market price of IDT common stock. QSI shareholders voting on the merger are
urged to obtain recent market quotations for IDT common stock and QSI common
stock. We cannot predict or give any assurance as to the market prices of IDT
common stock or QSI common stock at any time before the effective time or at any
time after the consummation of the merger.
IF IDT AND QSI CANNOT EFFECTIVELY INTEGRATE THEIR OPERATIONS, THEN
POTENTIAL BENEFITS OF THE MERGER WILL NOT BE REALIZED
IDT and QSI will have to integrate their management teams as well as their
manufacturing, research and development and sales and marketing efforts. If the
companies are not successful in this integration, then the results of operations
of the combined company could be adversely affected, employee morale could
decline, key employees could leave, and customers could cancel existing orders
or choose not to place new ones. In addition, until QSI's existing customers
have had the opportunity to determine how well the combined companies will
operate, they may cancel existing orders or delay placing new ones. If the
combined companies' operations do not meet the expectations of QSI's existing
customers, then these customers may reduce their future orders or cease doing
business with the company altogether.
THE COSTS ASSOCIATED WITH THE MERGER ARE DIFFICULT TO ESTIMATE, MAY BE
HIGHER THAN EXPECTED AND MAY HARM THE FINANCIAL RESULTS OF THE COMBINED
COMPANIES
IDT and QSI estimate that they will incur aggregate direct transaction
costs of approximately $1.2 million associated with the merger, indirect
severance costs of approximately $0.5 million, and additional costs associated
with consolidation and integration of operations, which cannot be estimated
accurately at this time. If the total costs of the merger exceed estimates or
the benefits of the merger do not exceed the total costs of the merger, then the
financial results of the combined companies could be adversely affected.
12
<PAGE> 19
THE MARKET PRICE OF IDT COMMON STOCK COULD DECLINE AS A RESULT OF THE
MERGER
The market price of the IDT common stock may decline significantly as a
result of the merger if:
- the integration of IDT's and QSI's operations is not successful;
- the combined company does not experience the benefits of the merger as
quickly or to the extent as may be expected by financial analysts; or
- if the accretive/dilutive effect of the merger is not in line with the
expectation of financial analysts.
BUSINESS OF QSI COULD SUFFER DUE TO ANNOUNCEMENT OF THE MERGER
The announcement of the merger may increase the likelihood of a number of
changes to QSI's business, any of which could have a material adverse effect.
Such changes include but are not limited to:
- loss of key management, development or other personnel of QSI;
- deterioration of QSI's distributor relationships;
- returns of QSI's products;
- decreases or cessation of orders for QSI's products;
- cancellation of agreements by distributors of the QSI product line; and
- delays in product development.
Even if the merger is not completed, QSI could be harmed by the expectation
of these changes and restoring QSI's business to its pre-announcement value
could take a long time and be costly. As a result of the factors described
above, the failure to consummate the merger could have a material adverse effect
on QSI's business, operating results, financial condition and stock trading
price.
IF THE MERGER DOESN'T QUALIFY AS A POOLING OF INTEREST, THEN IDT WOULD HAVE
TO ACCOUNT FOR THE TRANSACTION USING PURCHASE ACCOUNTING, WHICH WOULD
REDUCE IDT'S EARNINGS AND COULD CAUSE THE IDT STOCK PRICE TO DECLINE
The pro forma combined financial results in this document are based on the
merger being treated as a pooling of interest under accounting and financial
reporting rules. If the merger fails to qualify for pooling of interests
accounting treatment for financial reporting purposes for any reason then IDT's
reported earnings and, potentially, the price of IDT's common stock would be
materially adversely affected. If the merger fails to qualify as a pooling of
interests, then IDT would be required to account for the transaction under the
purchase method of accounting for business combinations. Under the purchase
method, IDT would be required to record the excess of the purchase price of QSI
over the fair market of QSI's assets as goodwill. This goodwill would be
depreciated over its useful life, resulting in an increased cost of goods and
other expenses for IDT, which may reduce IDT's earnings.
While the consummation of the merger is conditioned upon each company
receiving from its independent accountants a letter concurring with management's
conclusions regarding the ability of the companies to account for the merger as
a pooling of interests, there are also events after the
13
<PAGE> 20
merger that can effect the availability of pooling of interests accounting that
may not be within the control of IDT or the QSI shareholders. Such events
include but are not limited to:
- there being no significant changes in the business of IDT, including
dispositions of assets by IDT, for two years following the merger; and
- affiliates of both companies not selling their shares of common stock of
IDT and QSI for a period of time following the merger.
RISKS RELATED TO IDT
In deciding whether to approve the merger and exchange QSI common stock for
IDT common stock, QSI shareholders should consider the following risks
associated with IDT's business and operations, which also impact the value of
IDT common stock.
IDT'S OPERATING RESULTS CAN FLUCTUATE DRAMATICALLY
IDT's operating results can fluctuate dramatically. For example, IDT had a
net loss of $291.6 million in the first nine months of fiscal 1999 compared to
net income of $6.9 million in the first nine months of fiscal 1998. The net loss
for the first nine months of fiscal 1999 exceeded IDT's cumulative net income
for all of fiscal 1994, 1995, 1996 and 1998, which totaled $246.8 million. In
addition, IDT had a net loss of $42.3 million for fiscal 1997. IDT's operating
results fluctuate due to a wide variety of factors, including:
- the timing of or delays in new product and process technology
announcements and introductions by IDT or its competitors;
- competitive pricing pressures, particularly in the SRAM commodity
semiconductor memory and x86 microprocessor markets;
- fluctuations in manufacturing yields;
- changes in the mix of products sold;
- availability and costs of raw materials;
- the cyclical nature of the semiconductor industry;
- industry-wide wafer processing capacity;
- economic conditions in various geographic areas; and
- costs associated with other events, such as underutilization or expansion
of production capacity, intellectual property disputes, or other
litigation.
In addition, many of these factors also impact the recoverability of the
cost of manufacturing, taxes and other assets. As business conditions change,
future writedowns or abandonment of these assets may occur. Also, IDT ships a
substantial portion of its products in the last month of a quarter. If
anticipated shipments in any quarter do not occur, IDT's operating results for
that quarter could be harmed. Further, IDT may not be able to compete
successfully in the future against existing or potential competitors, and IDT's
operating results could be adversely affected by increased competition. The
economic downturn and continued uncertainties in some Asian economies, including
Korea, have reduced demand for IDT's products. Should economic conditions in
Asia deteriorate further, especially in Japan, IDT's sales and business results
would be harmed.
14
<PAGE> 21
THE CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY EXACERBATES THE VOLATILITY OF
IDT'S OPERATING RESULTS
The semiconductor industry is highly cyclical. Market conditions
characterized by excess supply relative to demand and resultant pricing declines
have occurred in the past and may occur in the future. Such pricing declines
adversely affect IDT's operating results and force IDT and its competitors to
modify their capacity expansion programs. As an example, in prior years a
significant increase in manufacturing capacity of commodity SRAMs caused
significant downward trends in pricing, which adversely affected IDT's gross
margins and operating results. IDT is unable to accurately estimate the amount
of worldwide production capacity dedicated to industry-standard commodity
products, such as SRAM, that it produces. Our operating results can be adversely
affected by such cyclical factors in the semiconductor industry as:
- a material increase in industry-wide production capacity;
- a shift in industry capacity toward products competitive with IDT's
products; and
- reduced demand or other factors that may result in material declines in
product pricing and could affect the portion of IDT's operating results
derived from the sale of industry-standard products.
Although, IDT seeks to manage costs, these efforts may not be sufficient to
offset the adverse effect of these factors.
DEMAND FOR IDT'S PRODUCTS DEPENDS ON DEMAND IN THE COMPUTER AND
COMMUNICATIONS INDUSTRY
IDT's customers incorporate a substantial percentage of IDT's products,
including SRAM and x86 microprocessor products, into computer and
computer-related products, which have historically been characterized by
significant fluctuations in demand. Demand for certain other IDT products
depends upon growth in the communications market. Any slowdown in the computer
and related peripherals or communications markets could materially adversely
affect IDT's operating results.
IDT'S EXPANSION INTO THE X86 MICROPROCESSOR MARKET MAY NOT BE SUCCESSFUL
IDT's operating results and financial condition could be harmed if IDT is
unable to generate the expected amount of revenues or sustain the level of
profit expected from the WinChip product family. The WinChip products represent
IDT's first offering to the PC microprocessor market and IDT has invested
heavily in the development, production capacity and marketing of the WinChip
microprocessor because IDT believes that sales of new products such as WinChip
could be a significant source of future revenues. IDT commenced shipments of the
WinChip microprocessor, the first member of its x86 microprocessor product
family, in the third quarter of fiscal 1998. Sales of such products accounted
for less than 10% of IDT's revenues in fiscal 1998 and the first nine months of
fiscal 1999.
INTEL'S ABILITY TO INFLUENCE X86 MICROPROCESSOR AND PC STANDARDS THAT ARE
INCOMPATIBLE WITH THE WINCHIP COULD HARM IDT
Intel Corporation's dominant position in the PC microprocessor market has
allowed it to set and control x86 microprocessor standards and thus dictate many
aspects of the of products the PC market requires of Intel's competitors.
Accordingly, Intel may dictate standards that are not compatible with the
WinChip. Such standards could limit the ability of IDT to sell its products and
could require IDT to expend significant resources to redesign its products in
order to be compatible with Intel designs and standards.
15
<PAGE> 22
For customers to purchase IDT's x86 microprocessors, IDT's products must
also be compatible with other components supplied to PC manufacturers and
dealers, such as core logic chips sets, motherboards, BIOS software and other
parts. These components in turn must be compatible with the Intel
microprocessors and are often manufactured by Intel, companies in which Intel
has strategic investments or independent companies. Accordingly, in marketing
its microprocessors to PC manufacturers and dealers, IDT is dependent upon
companies other than Intel for the design and manufacturer of these components.
There could be no assurance that these third party designers and manufacturers,
who may also be dependent upon Intel for early access to Intel proprietary
information regarding microprocessor standards, will continue to gain such
access or be able to compete with Intel, which could have an adverse effect on
IDT.
IDT'S X86 MICROPROCESSORS DEPENDS ON THE SOCKET 7 INFRASTRUCTURE
All sales of IDT's x86 microprocessor products since their introduction in
fiscal 1998 were from products configured for the Socket 7 motherboard
infrastructure. To the extent Intel reduces or ceases support for the Socket 7
infrastructure and if IDT and other companies serving the x86 microprocessor
market are not successful in offering products that extend the life of the
Socket 7 infrastructure, IDT would be required to expend potentially significant
resources to redesign its microprocessor product offerings. IDT may not be
successful in such efforts. New versions of microprocessor products that Intel
sells are available primarily in the form of a chip module that is not
compatible with Socket 7 motherboards. IDT's processor is designed to be Socket
7 compatible, and will not work with motherboards designed for Intel's new chip
module.
THE MARKET FOR X86 MICROPROCESSORS IS COMPETITIVE, PARTICULARLY FROM
INTEL, AND HAS SHORT PRODUCT LIFE CYCLES AND DECLINING PRICES
The market for x86 microprocessors is currently highly competitive and
characterized by short product life cycles, rapid decreases in average selling
prices and migration to increasingly higher performance microprocessors. IDT may
be unable to produce sufficient quantities of WinChip microprocessors at a
competitive cost and with the speed and other performance characteristics
desired by customers. Intel has held its dominant position over all other x86
microprocessor competitors for a substantial period of time, and has
significantly greater financial, technical, manufacturing and marketing strength
than IDT. Intel's financial strength and market dominance have enabled it to
reduce prices on its microprocessor products within a short period of time
following their introduction, which reduces the margins and profitability of its
competitors, including IDT. IDT does not have the financial resources to compete
with Intel on such a large scale. In addition to Intel, AMD and National
Semiconductor's Cyrix subsidiary also currently offer commercial quantities of
x86 microprocessors for sale.
In 1992, in exchange for payments towards product development costs, IDT
licensed the right to make, use and sell an initial version of the WinChip
C6(TM) microprocessor to a third party, NKK Corporation of Japan. Although NKK
does not have rights with respect to subsequent WinChip products, IDT may face
competition from NKK in the future.
IDT HAS LIMITED EXPERIENCE MANUFACTURING ITS X86 MICROPROCESSOR PRODUCTS
The pace at which IDT is able to enter its target market category for x86
microprocessors depends, in part, on how quickly it is able to ramp production
of its microprocessor products in its wafer fabrication and assembly and test
facilities. Before fiscal 1998, IDT had not previously manufactured x86
microprocessors and has processed only limited quantities of x86 microprocessors
to date. If IDT is unable to ramp production of its x86 microprocessor
successfully, IDT's operating
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results would be adversely affected. As production volumes of x86
microprocessors increase, IDT could encounter unexpected production problems or
delays as a result of, among other things, changes required to process
technologies, product design limitations, installation of equipment, and
development of programs and methodologies which test overall product quality.
IDT'S IBM MANUFACTURING CONTRACT EXPOSES US TO INVENTORY SHORTAGES OR
EXCESSES
If IDT does not accurately forecast demand, IDT may have a shortage of or
excess inventory to the extent it relies on its new IBM manufacturing contract.
In fiscal 1998, IDT contracted with IBM for x86 microprocessor wafer
manufacturing services using IBM's CMOS process technology. Although IDT does
not currently use these services, IDT plans to utilize IBM's manufacturing
services for the next generation of the WinChip product family. The terms and
conditions of the IBM manufacturing services agreement require IDT to forecast
in advance production quantities that it will purchase. Once production
quantities are ordered, the contract limits IDT's ability to change desired
quantities of IBM manufactured products.
Furthermore, products purchased under the IBM manufacturing services
agreement must meet certain acceptance criteria. However, these acceptance
criteria do not include the number of usable WinChip processors per wafer or the
speed at which they will operate. Should the number of good WinChip processors
per IBM manufactured wafer and the speed at which they operate not meet or
exceed similar characteristics of IDT manufactured products, IDT could have a
shortage of usable inventory or excess unusable inventory.
IDT'S X86 MICROPROCESSOR PRODUCTS MUST BE COMPATIBLE WITH SOFTWARE AND
PERFORMANCE CERTIFICATIONS
IDT has obtained WinChip certifications from Microsoft Corporation and
other appropriate certifications from recognized testing organizations. Failure
to obtain and maintain such certifications for future microprocessor products
could substantially impair IDT's ability to market and sell its future x86
products.
IDT'S SUCCESS IN THE X86 MICROPROCESSOR MARKET REQUIRES PC MARKET GROWTH
Because IDT's target market for its x86 microprocessor products is
initially limited to certain segments of the PC industry, the growth and
acceptance of these products are closely tied to trends in and growth of the PC
industry. The success of the x86 microprocessor product will depend on whether
PC manufacturers continue their trend towards accepting and using microprocessor
products manufactured by companies other than Intel and whether the market for
PCs and related components continues to grow. Should these industry trends and
growth patterns not occur or if IDT is not able to produce products which meet
customers' needs, IDT's ability to sell x86 microprocessor products would be
impaired.
IDT FACES CHALLENGES IN BRINGING FUTURE PRODUCTS TO THE X86 MICROPROCESSOR
MARKET
IDT's ability to bring future x86 products to market depends on several
primary factors including:
- it must be able to finance such future development;
- to compete with Intel and other competitors in the market for future x86
microprocessors, IDT must be able to design and develop the
microprocessors themselves, and must ensure
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they can be used in PC platforms, including motherboards, designed to
support future Intel or other microprocessors; and
- a failure, for whatever reason, of the designers and producers of
motherboards, chip sets and other system components to support IDT's x86
microprocessor offerings, including Socket 7 compatibility, would limit
IDT's ability to sell products to the PC market.
IDT'S PRODUCT MANUFACTURING OPERATIONS ARE COMPLEX AND SUBJECT TO
INTERRUPTION
IDT has increased the production capacity of its Oregon facility to
manufacture IDT WinChip products and is absorbing production volumes from its
San Jose, California, wafer fabrication facility, which IDT has closed. From
time to time, IDT has experienced production difficulties, including reduced
manufacturing yields or products that do not meet IDT's specifications, that
have caused delivery delays and quality problems. While production deliveries
and delays have been infrequent and generally short in duration, IDT could
experience manufacturing problems and product delivery delays in the future
which could adversely affect IDT's operations on financial results, as a result
of, among other things, changes to its process technologies, increasing
production and installing new equipment at its facilities.
IDT's remaining older wafer fabrication facility is located in Salinas,
California. If IDT were unable to use this facility, as a result of a natural
disaster or otherwise, IDT's operations would be materially adversely affected
until IDT was able to obtain other production capability. IDT does not carry
earthquake insurance on its facilities, as adequate protection is not offered at
economically justifiable rates.
Historically, IDT has utilized subcontractors for the majority of its
incremental assembly requirements, typically at higher costs than its own
Malaysian and Philippines assembly and test operations. IDT expects to continue
utilizing subcontractors extensively to supplement its own production volume
capacity. Due to production lead times, any failure by IDT to adequately
forecast the mix of product demand could adversely affect IDT's sales and
operating results.
IDT'S OPERATING RESULTS CAN BE SUBSTANTIALLY IMPACTED BY FACILITY
EXPANSION,
UTILIZATION AND CONSOLIDATION
Facility and capacity additions have resulted in a significant increase in
fixed and variable operating expenses which may not be fully offset by
additional revenues for some time. IDT expenses as R&D the operating costs
associated with bringing a new fabrication facility to commercial production
status in the period such expenses were incurred. However, as commercial
production at a new fabrication facility commences, the operating costs are
classified as cost of revenues, and IDT begins to recognize depreciation expense
relating to the facility. Accordingly, because the Oregon fabrication facility
contributes to revenues, IDT recognizes substantial operating expenses
associated with the facility as cost of revenues, which has reduced gross
margins. As commercial production continues and IDT consolidates manufacturing
volumes from its closed San Jose facility in fiscal 1999, IDT anticipates
incurring additional operating costs in Oregon. Accordingly, if revenue levels
do not increase sufficiently and cost savings from closing the San Jose plant do
not offset these additional expense levels, or if IDT is unable to achieve gross
margins from products produced at the Oregon facility that are comparable to
IDT's other products, IDT's future results of operations could be adversely
impacted. Further, IDT does not currently fully utilize the capacity available
at the Oregon facility. Due to cyclical market conditions in the semiconductor
industry and the significant impact of such cycles on many of the industry
standard products manufactured in Oregon, IDT is not able to forecast when the
Oregon facility will become fully utilized.
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IDT has announced plans to improve its operating results through
consolidation of certain manufacturing and other activities, together with
headcount reductions and other actions. For example, in fiscal 1999, IDT closed
its San Jose facility, resulting in a $46.4 million restructuring charge, and
revalued certain assets at its Oregon facility, resulting in a $131.9 million
asset impairment and other charge. The expected cost savings from these actions
might not be sufficient to return IDT to profitability.
IDT'S RESULTS ARE DEPENDENT ON THE SUCCESS OF NEW PRODUCTS
New products and process technology costs associated with the Oregon wafer
fabrication facility will continue to require significant R&D expenditures.
However, we may not be able to develop and introduce new products in a timely
manner, our new products may not gain market acceptance, and we may not be
successful in implementing new process technologies. If IDT is unable to develop
new products in a timely manner, and to sell them at gross margins comparable to
or better than IDT's current products, its future results of operations could be
adversely impacted.
IDT IS DEPENDENT ON A LIMITED NUMBER OF SUPPLIERS
IDT'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 IDT 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 IDT due to capacity constraints. IDT'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.
Historically, IDT has been significantly dependent on the design
capabilities of Quantum Effect Design, Inc., an equity affiliate of IDT, for the
design and development of derivatives of 64-bit MIPS(R)RISC-based
microprocessors. Currently there are no development contracts in effect between
Quantum and IDT, and IDT is now designing and developing derivatives of MIPS
RISC-based microprocessors in-house. From time to time, IDT contracts with third
party semiconductor designers other than Quantum. As with all new products,
there is risk that IDT or its contractors will not be successful in their
efforts to design new products.
TO REMAIN COMPETITIVE, IDT MAY NEED ADDITIONAL CAPITAL ON SATISFACTORY
TERMS
The semiconductor industry is extremely capital intensive. To remain
competitive, IDT must continue to invest in advanced manufacturing and test
equipment. IDT expects to expend approximately $15 million for capital additions
during the fourth quarter of fiscal 1999, and anticipates significant continuing
capital expenditures, especially in connection with the introduction of products
for the WinChip microprocessor family, in the next several years. IDT could be
required to seek financing to satisfy its cash and capital needs, and such
financing might not be available on terms satisfactory to IDT. If such financing
is required and if such financing is not available on terms satisfactory to IDT,
our operations could be adversely affected.
IDT HAS BEEN NOTIFIED THAT IT MAY BE INFRINGING ON THE INTELLECTUAL
PROPERTY RIGHTS OF OTHERS
AND IDT'S OPERATING RESULTS MAY BE AFFECTED AS A RESULT OF THESE OR SIMILAR
FUTURE CLAIMS.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights, which have resulted in significant and
often protracted and expensive litigation. In recent years, there has been a
growing trend by companies to resort to litigation to protect their
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semiconductor technology from unauthorized use by others. IDT has been involved
in patent litigation in the past, which adversely affected its operating
results. Currently IDT has been notified that it may be infringing patents
issued to other parties and is involved in several license negotiations. IDT
might not be able to obtain such licenses on acceptable terms or to develop
non-infringing technology. Because the patents others are asserting primarily
involve manufacturing processes, revenues from substantially all of IDT's
products could be subject to the alleged infringement claims. Additional claims
alleging infringement of intellectual property rights could be asserted in the
future. Although IDT has obtained patent licenses from certain semiconductor
manufacturers, IDT does not have licenses from a number of semiconductor
manufacturers that have a broad portfolio of patents. The intellectual property
claims that have been made or that may be asserted against IDT could require
that IDT 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 non-infringing technology. Further, the failure to renew
or renegotiate existing licenses on favorable terms, or the inability to obtain
a key license, could adversely affect IDT.
INTERNATIONAL OPERATIONS ADD INCREASED VOLATILITY TO IDT'S OPERATING
RESULTS
A substantial percentage of IDT's revenues are derived from non-U.S. sales.
During fiscal 1998, 1997 and 1996, non-US sales accounted for 39%, 38% and 40%
of IDT's revenues, respectively. During these periods, Asian-Pacific sales
accounted for 10%, 8% and 9% of IDT's revenues, respectively. In addition, IDT's
offshore assembly and test operations incur payroll, facilities and other
expenses in local currencies. Accordingly, movements in foreign currency
exchange rates, such as those seen recently in the Far East, can impact both
pricing and demand for IDT's products as well as its cost of goods sold. IDT's
offshore operations and export sales are also subject to risks associated with
foreign operations, including:
- political instability;
- currency controls and fluctuations;
- changes in local economic conditions and import and export controls; and
- changes in tax laws, tariffs and freight rates.
Contract pricing for raw materials used in the fabrication and assembly
processes, as well as for subcontract assembly services, can also be impacted by
currency exchange rate fluctuations.
IDT IS SUBJECT TO RISKS ASSOCIATED WITH USING HAZARDOUS MATERIALS IN ITS
MANUFACTURING
IDT is subject to a variety of environmental and other regulations related
to hazardous materials used in its manufacturing process. Any failure by IDT 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.
IDT'S COMMON STOCK IS SUBJECT TO PRICE VOLATILITY
IDT's common stock has experienced substantial price volatility. Such
volatility may occur in the future, particularly as a result of
quarter-to-quarter variations in the actual or anticipated financial results of
IDT, the companies in the semiconductor industry or in the markets served by IDT
and announcements by IDT or its competitors regarding new product introductions.
In addition, our stock price can fluctuate due to price and volume fluctuations
in the stock market, especially those that have affected the market price of
technology stocks.
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THE TRANSITION TO THE YEAR 2000 MAY HARM IDT'S OPERATIONS
IDT will face issues caused by hardware and numerous software programs used
throughout our operations which may not properly handle the transition to the
Year 2000. IDT also relies upon products and information from critical
suppliers, large customers and other outside parties, in the normal course of
business, whose software programs maybe subject to the same problems. IDT may
also be affected by Year 2000 issues arising from its building facilities,
security systems and office equipment. Furthermore, in the worst case, IDT or
the parties on which it depends may, for an extended period of time, be
incapable of conducting critical business activities, which include
manufacturing and shipping products, invoicing customers and paying vendors. We
expect to exert substantial effort and incur additional costs in analyzing our
exposure to Year 2000 problems with the software programs we use, our hardware
and products and information from third parties. As of February 21, 1999, we
have incurred approximately $165,000 in consulting fees to Keane, Inc., to
address Year 2000 issues. However, there can be no assurance that we will have
identified or procured all of the resources necessary to address all critical
Year 2000 deficient hardware and software systems on a timely basis and we may
need to spend additional amounts to identify, modify or repair these systems. In
the event IDT is unsuccessful with remediation efforts currently underway, IDT
will be required to take contingency actions which might adversely affect IDT's
products, systems and business processes. Please refer to the section entitled
"Impact of Year 2000 on Our Operations" in the IDT Quarterly Report on Form 10-Q
for the quarter ended December 27, 1998.
REQUIREMENTS ASSOCIATED WITH THE INTRODUCTION OF THE EURO
IDT is in the process of addressing the issues raised by the introduction
of the Single European Currency, or "Euro," for initial implementation as of
January 1, 1999 and through the transition period to January 1, 2002. IDT does
not expect the cost of any system modifications to be material and does not
currently expect that introduction and use of the Euro will materially affect
its foreign exchange and hedging activities or will result in any material
increase in transaction costs. IDT will continue to evaluate the impact over
time of the introduction of the Euro; however, based on currently available
information IDT's management does not believe that the introduction of the Euro
will have a material adverse impact on IDT's financial condition or the overall
trends in results of operations.
RISKS RELATED TO QSI
OUR QUARTERLY AND ANNUAL OPERATING RESULTS ARE DIFFICULT TO PREDICT BECAUSE
THEY CAN FLUCTUATE
DRAMATICALLY FOR A VARIETY OF REASONS, MANY OF WHICH WE CANNOT CONTROL
Our quarterly and annual operating results can fluctuate dramatically. For
example, in fiscal 1997, we had net earnings per share of $0.03 per share, while
in fiscal 1996, we lost $0.24 per share and in fiscal 1998, we lost $2.06 per
share. This net loss of $2.06 per share in 1998 exceeded our cumulative net
income for fiscal years 1994, 1995 and 1997 by $0.35 per share and the fiscal
combined losses for the years 1994 through 1998 exceed the cumulative income for
such years by $0.59 per share. Many of the factors affecting our results are
beyond our control. Some of these factors include:
- market demand for our new and existing products;
- the ability of our competitors to offer better products or to offer
similar products at lower prices; and
- the cyclicality of the semiconductor industry in general.
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In addition, the factors affecting our quarterly and annual results over
which we have some control include:
- our ability to accurately forecast demand for our existing products;
- our ability to introduce successful new products on a timely basis;
- our ability to control our expenses; and
- our ability to effectively manage our semiconductor fabrication facility
in Australia.
Each of the above factors is described in more detail below.
OUR REVENUES ARE UNPREDICTABLE AND SUBJECT TO RAPID DECLINE BECAUSE THEY
DEPEND SIGNIFICANTLY ON TWO EXISTING PRODUCT LINES
Logic and logic related products and networking products account for
substantially all of our revenue.
LOGIC AND LOGIC RELATED PRODUCTS. Logic and logic related products
accounted for approximately 64%, 69% and 93% of our revenues for the fiscal
years 1998, 1997 and 1996. Demand for our logic products depends heavily on the
market for personal computers. As a result, any adverse change in the demand for
personal computers will adversely affect our ability to sell our logic products.
In addition, the market for logic products is highly competitive. As a result,
if our competitors offer similar products at lower prices we may be forced to
reduce our sales prices to maintain market share or to clear inventory. This
would adversely affect our gross margin and, consequently, our operating and
financial results. Finally, if the designers of microprocessors incorporate the
logic functions that our products perform into their microprocessors, the demand
for our logic products could diminish significantly, which would adversely
affect our revenues, margins, operating results and financial condition.
NETWORKING PRODUCTS. In early winter 1997 we introduced our 10 Base T and
100 Base Tx products. These networking products accounted for 31% of our revenue
in fiscal year 1998 and 26% in fiscal year 1997. These products are CMOS
transceiver chips that are used in adapters, repeaters, switches and bus cards
in Fast Ethernet networks. They are also used for multiplexers and
demultiplexers and switches in Asynchronous Transmission Mode networks. During
the remainder of fiscal 1997 and fiscal 1998, we derived significant revenue
from the sale of these networking chips, although quarterly revenues from these
products declined continually from the first quarter to the fourth quarter of
fiscal year 1998. In late fiscal 1998, our competitors introduced similar chips
with either better performance or lower prices. As a result of declines in
demand and increased competition, sales for these chips have not met our
forecasts and we have had to reduce our sales prices and, in some cases, reduce
our inventory valuation to reflect the reduced sales prices. We have taken
reserves to account for expected future declines in sales prices, but there can
be no assurance that our reserves are adequate. Any further declines in sales
prices will adversely affect our revenues, gross margins, operating results and
financial condition. Although we are developing new products for this market,
which we believe we will be able to sell at higher prices and margins, there can
be no assurance that we will successfully develop such products in time, that
the demand for these products will meet expectations, that our customers will
like these new products or that we will not face similar price competition for
these products as well.
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WE MUST SUCCESSFULLY DEVELOP AND INTRODUCE NEW PRODUCTS TO STAY COMPETITIVE
For QSI to be successful, we must continually introduce new products at
better price/performance levels than are currently available. Such development
and introduction involves a significant use of cash and if we are unable to
generate sufficient cash to invest in developing and introducing new products,
or to introduce new products that are successful, our results of operations and
financial condition will be adversely affected. New product development and
introduction requires us to invest significantly in:
- research and development;
- prototype testing;
- the production of high precision quartz plates, known as "photomasks,"
which are used to transfer circuit patterns onto semiconductor wafers;
and
- initial inventory build.
In addition, we have to invest in obtaining "design wins." However, it can
be more than a year before a design win results in significant revenues. For
these reasons, we have an ongoing need for liquid assets to fund new product
development and introduction. This requires cash, which we must generate from
operations, divert from other uses or obtain from external financing. In
addition, even if we successfully develop and introduce new products, there can
be no assurance that the products will be successful. Our new products must be
timely, must perform to specifications and must offer a better price/performance
level than existing products.
THE SEMICONDUCTOR INDUSTRY IS CHARACTERIZED BY PRICE EROSION, DECLINING
GROSS MARGINS, PRODUCT OBSOLESCENCE AND HEIGHTENED INTERNATIONAL
COMPETITION IN MANY MARKETS
As a result, we must continually develop new products with higher average
selling prices and manage our costs in order to compete. We cannot assure you
that we will be able to do this successfully, and any failure on our part to
reduce costs or introduce new products in response to competitive pressures will
have a material adverse effect on our business. Our competitors include large
semiconductor companies like IDT, Texas Instruments Incorporated, National
Semiconductor Corporation, Level One and Cypress Semiconductor Corporation.
These larger companies have greater financial, technical, marketing and
distribution and other resources and offer broader product lines than we do. In
addition, they have longer standing relationships with their customers and
suppliers. Therefore, these companies may be better able to withstand a downturn
in the market for QSI's products or sustained price reductions in the markets in
which we compete.
OPERATING THE AUSTRALIAN SEMICONDUCTOR FABRICATION FACILITY IS CAPITAL
INTENSIVE AND COMPLEX
We rely on the Australian fabrication facility for most of the wafer
requirements of our logic product family. Although the facility is currently
fully operational, any disruption in production or failure to maintain
acceptable yields would adversely affect us because:
- we could be unable to meet the demand for our products;
- we would need to seek another source for our wafers, which would probably
raise our cost per wafer; and
- we would continue to incur the fixed expenses associated with maintaining
the facility even though it wasn't producing wafers for us.
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To date, we have invested more than $14.0 million in equipment and other
capital improvements since we purchased the facility in February 1996.
The manufacture of semiconductor wafers is complex and yields are highly
dependent on maintaining a clean environment. Although the fabrication process
is highly controlled, the equipment may not perform flawlessly. A substantial
percentage of wafers could be rejected or individual dies on a wafer could be
nonfunctional due to minor impurities, difficulties in the production process or
defects in the masks. In addition, we rely on external sources for the raw
materials used in the wafer fabrication process. Although we have tried to
qualify multiple vendors, any shortage of raw materials or increase in the cost
of raw materials would adversely impact our ability to produce enough wafers to
meet our demands and would raise our cost per wafer.
WE STORE, USE AND DISPOSE OF HAZARDOUS MATERIALS IN OUR FABRICATION PROCESS
AND WE COULD INCUR SUBSTANTIAL FINES OR REMEDIATION COSTS ASSOCIATED WITH
ANY VIOLATION OF THE LAWS OR REGULATIONS OR ANY ENVIRONMENTAL DAMAGE
ATTRIBUTED TO OUR USE, STORAGE OR DISPOSAL OF THESE MATERIALS
In addition, the storage, use and disposal of these chemicals and gases are
subject to laws and regulations at the national, state and local level. Because
the public is focusing more on environmental issues and the safety hazards
associated with handling hazardous and toxic material, the laws and regulations
governing them may become more stringent. As a result, we may have to incur
additional expenses in the future in order to comply with more stringent rules
or regulations governing the handling of the chemicals and gases used in our
Australian fabrication facility.
WE HAVE LIMITED CONTROL OVER THE FABRICATION, ASSEMBLY AND TESTING OF OUR
PRODUCTS BECAUSE WE DEPEND ON THIRD PARTIES FOR THESE FUNCTIONS
FABRICATION. Although we fabricate a majority of our wafers in our
Australia facility, we still rely on Taiwan Semiconductor Manufacturing Company,
Ltd., for a substantial number of wafers for small geometry networking products.
Under the terms of our agreements with TSMC, they can terminate the relationship
at any time, and we would need to find an alternative source for these wafers,
which could be a time-consuming and expensive process, and could cause us to
miss order deadlines, experience reduced revenues and incur higher costs of
goods sold. In addition, there are other risks involved in relying on TSMC as a
supplier of wafers which include:
- we have less control over delivery schedules;
- we can't be assured that TSMC will always have the capacity available to
meet our needs;
- we have less control over quality assurance processes;
- TSMC may experience technical and/or production problems that would
prevent them from being able to fill our orders; and
- there is an increased risk that our intellectual property may be
misappropriated.
In addition, the dependence on a third party wafer supplier tends to slow
the product development cycle because of the need to coordinate design activity
and qualify processes. Because we have little control over whether TSMC
continues to improve its processes, such as fabrication in finer geometries, our
competitors who do not rely on third party wafer fabrication may be better able
to transition to improved processes and, as a consequence, offer products at a
better price/performance level than our products.
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ASSEMBLY AND TESTING. Substantially all of our assembly is performed by
Digital Testing Services. In addition, we rely on SPIC Electronics Laboratory in
India. We also rely on SPIC and Digital Testing to perform substantially all of
our testing for our networking products. Consequently, we have less control over
the quality and availability of the services that they provide. If the quality
or reliability of these vendors degrades, or if we have to find alternate
sources of assembly and testing, the process of qualifying alternate vendors
could delay product development and product shipment and could result in loss of
customers, limitations or reductions in our revenues and other adverse effects
on our operating results.
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS BECAUSE WE
DEPEND ON FOREIGN SUPPLIERS AND FOREIGN BUYERS
We purchase a significant amount of our wafers and substantially all of our
assembly services from foreign suppliers, primarily in Taiwan and India and we
sell a significant amount of our products to foreign buyers. Export sales to
Asia constituted 26% of our net revenues in fiscal 1998 and 34% of our net
revenues in fiscal 1997, while export sales to Europe accounted for 9% of our
net revenue in fiscal 1998 and 8% of our net revenue in fiscal 1997. As a
result, we are subject to the risks generally associated with doing business
abroad. These risks include, but are not limited to:
- the need to comply with foreign government regulations;
- currency fluctuation; and
- greater risk of disruptions or delays in shipments due to political
unrest, or economic instability.
For example, our revenues from our Asian customers declined by 49% during
the fourth quarter of fiscal 1998 from the same period in fiscal 1997 as the
result of uncertainties in the Asian capital markets.
In addition, to the extent that we make yen-denominated purchases of wafers
from our Japanese suppliers, we may be exposed to the risk that the exchange
rate of yen for dollars may decrease from the date that the purchases are agreed
upon and the wafers are delivered and, therefore, we would have underestimated
the cost of such wafers.
OUR REVENUES AND OPERATING RESULTS CAN BE ADVERSELY AFFECTED BY LITIGATION
INVOLVING PATENTS AND PROPRIETARY RIGHTS
The semiconductor industry is characterized by substantial litigation
regarding patent and other intellectual property rights. Intellectual property
litigation can be expensive and can divert the energy of our management and
engineers. In addition, if any of our products are found to infringe a third
party's valid patent, then we might be subject to injunctions and significant
damages. Furthermore, we would have to either design around such patents or
obtain a license. If we are unable to successfully design around the patents or
obtain a license, then we might be unable to offer the product and our revenues
and operating results could be materially adversely affected. In the past we
have received correspondence from Cypress Semiconductor, Inc., the Lemelson
Medical, Education & Research Foundation, International Business Machines
Corporation and MUSIC Semiconductor, Inc., claiming that we may have infringed
certain patents. Our patent counsel is reviewing these claims. Although we
believe that we have valid defenses against such claims, we cannot assure you
that we will not have to litigate such claims or enter into a settlement or
license agreement to dismiss the claims. However, because the patents others are
asserting primarily involve manufacturing
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processes, revenues from substantially all of our products could be subject to
the alleged infringement claims.
WE DEPEND ON CERTAIN KEY PERSONNEL TO MANAGE OUR OPERATIONS AND DEVELOP NEW
PRODUCTS
Our success depends on our ability to recruit and retain highly skilled
engineers, marketing personnel and managers. In particular, we have a strong
need for highly skilled design, process and test engineers, for whom competition
is intense. We cannot assure you that we will be successful in hiring or
retaining such key personnel or that any of our key personnel will remain
employed with us.
OUR CUSTOMERS ARE HIGHLY CONCENTRATED AND OUR REVENUES COULD BE ADVERSELY
AFFECTED BY THE LOSS OF KEY CUSTOMERS
Most of our revenue typically comes from a relatively small number of
customers. For example, in fiscal year 1998, our top seven customers accounted
for 53% of our total revenue. If we were to lose any of these customers, our
revenues and operating results would be materially adversely affected. In
addition, we typically have to provide volume pricing discounts to these
customers, which reduces our gross margin.
WE HAVE LESS CONTROL OVER THE DISTRIBUTION OF OUR PRODUCTS BECAUSE WE
DEPEND SIGNIFICANTLY ON MANUFACTURING REPRESENTATIVES AND DISTRIBUTORS
We market and distribute our products primarily through manufacturers'
representatives and independent distributors. If our distributors or
representatives were to reduce the number of our products they carry or to
terminate their relationships with us, we could experience reduced revenues and
would incur additional sales expenses associated with finding a replacement. In
addition, if we don't respond to rapid changes in the channel due to factors
such as consolidation or distributor financial difficulties.
IF WE ARE NOT ADEQUATELY PREPARED FOR THE TRANSITION TO THE YEAR 2000, OUR
OPERATIONS WILL BE HARMED
If our company-wide Year 2000 readiness program does not successfully
address the issue of computer programs and embedded computer chips being unable
to distinguish between the Year 1900 and the Year 2000, we may suffer an
interruption in or failure of our normal business activities and operations. In
addition, even if we successfully identify and correct any products or internal
systems that are not Year 2000 compliant, the third parties on whom we rely for
such things as telephones, banking, manufacturing, supplies and shipping may not
have systems that are Year 2000 compliant. Although we cannot determine the full
extent of effects of a Year 2000 failure by us or by our key suppliers and
customers, the most reasonably likely worst case scenario could result in delays
in the production or shipment of products to our customers or delays in our
ability to collect accounts receivable from our customers. In the aggregate,
these delays could adversely affect our results of operations, liquidity or
supplier and customer relations.
Through December 1998, we had spent approximately $230,000 on our Y2K
program. We estimate that we may spend up to an additional $300,000 for other
repairs, replacements or upgrades and for coordinating our Y2K compliance
efforts with key suppliers and customers. However, we cannot assure you that we
will not have to spend significantly more to ensure that our products and
internal systems are Year 2000 compliant or to remedy any situations caused by a
Year 2000 failure. We do not have a contingency plan to address the Year 2000
problem, in the event that our current program is unsuccessful, but we expect to
create one by June 1999. Please refer to the section
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<PAGE> 33
entitled "Impact of Year 2000 on QSI's Operations" in our Quarterly Report on
Form 10-Q for the quarter ended December 31, 1998.
OUR OPERATING RESULTS AND FINANCIAL CONDITION ARE DIFFICULT TO PREDICT
BECAUSE THE SEMICONDUCTOR INDUSTRY IS CYCLICAL AND SUBJECT TO RAPID CHANGE
We may experience substantial period-to-period fluctuations in future
operating results due to general semiconductor industry conditions, overall
economic conditions or other factors. The semiconductor industry has
historically been cyclical and subject to significant economic downturns at
various times and has been characterized by diminished product demand,
accelerated erosion of average selling prices and overcapacity. In addition, the
end-markets for systems that incorporate QSI's products are characterized by
rapidly changing technology and evolving industry standards.
OUR STOCK PRICE IS VOLATILE
Our earnings and stock price have been, and may be, subject to significant
volatility, particularly on a quarterly basis due to changes in our operating
results and financial conditions as well as to conditions that generally affect
technology companies. Any shortfall in revenue, gross margins or earnings from
expected levels could have an immediate and significant adverse effect on the
trading price of our stock in any given period. We may not learn of, or be able
to confirm, revenue, gross margin or earnings shortfalls until late in the
quarter, or following the end of the quarter, because a significant portion of
our revenue in a quarter typically is shipped in the last few weeks of that
quarter. In addition, future announcements concerning us or our competitors,
including technological innovations, new product introductions, governmental
regulations, litigation, or changes in earnings estimates by analysts, may cause
the market price of our stock to fluctuate substantially. Stock prices for many
technology companies fluctuate widely for reasons that may be unrelated to
operating results, such as general economic, political and market conditions.
Because of the typically low daily trading volumes of our stock, our stock price
is particularly volatile and you may find it difficult to buy or sell a large
quantity of our stock.
WE ARE EVALUATING THE ISSUES RAISED BY THE INTRODUCTION OF THE EURO
We are in the process of addressing the issues raised by the introduction
of the Single European Currency, or "Euro," for initial implementation as of
January 1, 1999, and through the transition period to January 1, 2002. We do not
expect the costs of any system modifications to be material and do not currently
expect that introduction and use of the Euro will materially affect our foreign
exchange and hedging activities or will result in any material increase in
transaction costs. We will continue to evaluate the impact over time of the
introduction of the Euro; however, based on currently available information we
do not believe that the introduction of the Euro will have a material adverse
impact on our financial condition or the overall trends in results of
operations.
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<PAGE> 34
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," variations of such words and similar expressions are intended to
identify these forward-looking statements. In particular, statements regarding
expected synergies, advantages and other effects of the merger described in
"Approval of the Merger and Related Transactions -- QSI's Reasons for the
Merger," and "-- IDT's Reasons for the Merger" and elsewhere in this document
are forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements as a result of many factors,
including those described under "Risk Factors."
We make no representation as to the whether the projected or estimated
financial information referenced under "Approval of the Merger and Related
Transactions -- Opinion of QSI's Financial Advisor" or elsewhere herein will be
attained. Projections or estimations of future performance are necessarily
subject to a high degree of uncertainty and may vary materially from actual
results. Neither IDT nor QSI undertakes any obligation to release publicly the
results of any revision to these forward-looking statements which may be made to
reflect events or circumstances arising after the date of this document.
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<PAGE> 35
WHERE CAN YOU FIND MORE INFORMATION
IDT and QSI are each required by the Securities Exchange Act of 1934 to
give certain information about itself to the Securities and Exchange Commission.
Therefore, each company files reports, proxy statements and other information
with the Commission. You may inspect and copy this information at the following
locations:
Securities and Exchange Commission
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
Securities and Exchange Commission
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661
Securities and Exchange Commission
7 World Trade Center
New York, New York 10048
http://www.sec.gov (the Commission's web site)
National Association of Securities Dealers, Inc.
9513 Key West Avenue
Rockville, Maryland 20850
Copies of these materials can also be obtained at prescribed rates by
writing to the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
You may obtain further information about the Public Reference Section by
calling 1-800-SEC-0330.
The Commission allows us to "incorporate by reference" information into
this document. This means that we can disclose important information to you by
referring you to another document filed separately with the Commission by IDT or
QSI. The information incorporated by reference is deemed to be part of this
document, except for any information superseded by information in this document.
This document incorporates by reference the following documents filed by IDT
with the Commission:
1. IDT's Annual Report on Form 10-K for the year ended March 29, 1998.
2. IDT's Quarterly Reports on Form 10-Q for the quarters ended June 28,
1998, September 27, 1998 and December 27, 1998.
3. The description of IDT's common stock as set forth on Form 8-B dated
September 23, 1987, as amended by IDT's Form 8 dated March 28, 1989 and
Form 8-B/A dated October 19, 1995.
4. The description of IDT's preferred share purchase rights as set forth on
Form 8-A dated December 23, 1998.
We will provide upon written or oral request, without charge, copies of all
documents with respect to IDT incorporated by reference, not including exhibits
to the documents incorporated by reference unless such exhibits are specifically
incorporated into the documents incorporated by
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<PAGE> 36
reference, to each person to whom a copy of this document is delivered. You
should direct requests for such copies to:
Alan F. Krock
Integrated Device Technology, Inc.
2975 Stender Way
Santa Clara, California 95054
(408) 727-6116
All documents filed by IDT and QSI under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this document and prior to final
adjournment of the QSI special meeting, shall be deemed to be incorporated by
reference into this document from the date of the filing of those documents.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, YOU SHOULD MAKE YOUR
REQUEST BY APRIL 23, 1999.
This document also incorporates by reference QSI's Annual Report on Form
10-K for the year ended September 30, 1998, as amended by Form 10-K/A filed on
March 22, 1999 and QSI's Form 10-Q for the quarter ended December 31, 1998, as
amended by Form 10-Q/A filed on March 22, 1999. This document is accompanied by
QSI's Form 10-K/A for the year ended September 30, 1998.
You can find more information about the common stock that is offered by
this document if you read IDT's registration statement on Form S-4 which has
been filed with the Commission under the Securities Act of 1933. We will refer
to it and any amendments to it as the "registration statement." This document
does not contain all of the information contained in the registration statement
and its exhibits and schedules. In this document, we may discuss the contents of
contracts or other documents. Our statements about these other documents are not
necessarily complete, and therefore in each instance we will refer you to a copy
of the contract or other document that is filed as an exhibit to the
registration statement. You should read the contract or other document for a
complete description.
You may inspect the registration statement and its exhibits and schedules
at the Commission's offices at 450 Fifth Street, N.W., Washington, D.C. 20549.
You may also obtain copies of the registration statement and its exhibits and
schedules from the Public Reference Section of the SEC at the same address at
prescribed rates.
You should rely only on the information contained or specifically
incorporated by reference in this document to vote on the merger. We have not
authorized anyone to give you any information that is different from what is
contained or incorporated by reference in this document.
This document is dated March , 1999. You should not assume that the
information contained in this document is accurate as of any date other than
March , 1999 and neither the delivery of this document to you nor the issuance
of the IDT common stock to you should create an implication that there has been
no change in the information.
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<PAGE> 37
THE QSI SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The special meeting of the shareholders of QSI will be held at the offices
of QSI located at 851 Martin Avenue, Santa Clara, California 95050, on April 30,
1999, at 11:00 a.m., local time.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, holders of QSI common stock will vote upon a
proposal to approve the merger agreement. QSI shareholders will also be asked to
vote upon any other matters as may be properly submitted at the special meeting
and may also be asked to vote upon a proposal to adjourn or postpone the special
meeting. Any adjournment or postponement could be used for the purpose of
allowing additional time for the soliciting of additional votes to approve the
merger agreement.
THE QSI BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT. THE QSI BOARD
BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST
INTERESTS OF, QSI AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT HOLDERS
OF SHARES OF QSI COMMON STOCK VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
RECORD DATE; VOTING RIGHTS; PROXIES
Only holders of QSI common stock at the close of business on March 23,
1999, the record date, are entitled to notice of and to vote at the special
meeting.
As of the record date, there were 7,560,180 shares of QSI common stock
issued and outstanding, each of which entitled the holder thereof to one vote.
The accompanying form of proxy is for use at the special meeting if a
shareholder will be unable to attend the special meeting. All shares of QSI
common stock represented by properly executed proxies will, unless such proxies
have been previously revoked, be voted in accordance with the instructions
indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF QSI
COMMON STOCK REPRESENTED BY SUCH PROXIES WILL BE VOTED "FOR" ADOPTION AND
APPROVAL OF THE MERGER AGREEMENT. QSI does not know of any matters other than as
described in the Notice of Special Meeting that are to come before the special
meeting. If any other matter is properly presented for action at the special
meeting, the persons named in the enclosed form of proxy will have the
discretion to vote on such matters in accordance with their best judgment. A
shareholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice to the Secretary of QSI, by signing and
returning a later dated proxy, or by voting in person at the special meeting.
However, mere attendance at the special meeting will not in and of itself have
the effect of revoking the proxy. Votes cast by proxy or in person at the
special meeting will be tabulated by the inspector of election appointed for the
special meeting.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the QSI board. QSI will
bear all expenses in connection with such solicitation. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of QSI in person or by telephone, telegram or other means
of communication. Such directors, officers and employees will not be
additionally compensated for, but may be reimbursed for out-of-pocket expenses
incurred in connection with, such solicitation. Arrangements have also been made
with brokerage firms, banks, custodians, nominees and fiduciaries for the
forwarding of proxy and solicitation materials to owners of QSI common stock
held of record
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<PAGE> 38
by such persons, and such firms will be reimbursed for reasonable expenses
incurred in forwarding such materials. QSI has retained Corporate Investors
Communications, Inc., to aid in the solicitation of proxies from shareholders of
QSI. The fees for the solicitation of proxies from the shareholders of QSI are
estimated to be $4,500 plus reimbursement of out-of-pocket expenses.
QUORUM
The presence in person or by properly executed proxies of holders of a
majority of all the issued and outstanding shares of QSI common stock entitled
to vote is necessary to constitute a quorum at the special meeting. For purposes
of determining whether a quorum is present, the inspector of election will
include shares that are present or represented by proxy, even if the holders of
such shares abstain from voting on any particular matter. The inspector of
election will exclude shares that are held of record by brokers for which the
brokers indicate that they do not have discretionary authority to vote on any
particular matter, also referred to as broker non-votes.
REQUIRED VOTE
Approval of the merger agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of QSI common stock entitled to
vote thereon at the special meeting.
For purposes of determining whether the merger agreement has been approved,
the inspector of election will include abstentions and broker non-votes as a
portion of the number of shares deemed to have voted on such matter at the
special meeting. Accordingly, abstentions and broker non-votes will have the
effect of a "No" vote on the proposal to approve the merger agreement.
As of March 19, 1999, directors and executive officers of QSI and their
affiliates were beneficial owners of an aggregate of 804,976 shares of QSI
common stock, or approximately 10.6% of the 7,560,180 shares of QSI common stock
that were issued and outstanding as of that date. Each of the directors and
executive officers of QSI has indicated an intention to vote all shares of QSI
common stock beneficially owned by him or her in favor of approval of the merger
agreement.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE SHAREHOLDERS OF QSI. ACCORDINGLY, SHAREHOLDERS ARE URGED TO READ AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS DOCUMENT, AND TO COMPLETE,
DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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<PAGE> 39
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
This section contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," variations of such words and similar expressions are intended to
identify these forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements as a result of
certain factors, including those under "Risk Factors." You should not place
undue reliance on forward-looking statements in this document, which reflect the
analysis of the management of either IDT or QSI only as of the date of this
document.
BACKGROUND OF THE MERGER
As a result of an unsolicited offer from Cypress Semiconductor Corporation
proposing to acquire all of the outstanding stock of QSI and to assume all of
QSI's outstanding stock options for $30 million in cash and Cypress stock, the
QSI board held a special meeting on August 6, 1998. In evaluating its
alternatives, the board considered the fact that revenues for the company's
networking products had been declining since the first quarter of fiscal 1998
and that the company needed to introduce a new generation of networking products
in order to reverse this trend of declining revenues and to increase gross
margins. The board noted that, according to QSI's management, the potential to
increase revenues from a new generation of networking products was consistent
with management's previous goals of 30% to 35% growth, and the overall growth
potential of the company was consistent with management's previous goals of 25%
total revenue growth. However, the board also observed that even if the
development and introduction of a new generation of networking products could
result in a substantial increase in revenue and profitability, the company's
current financial condition made the pursuit of this development as an
independent company particularly risky. Specifically, the board noted that the
cash required to complete designs, develop masks and prototypes and build
inventory represented approximately all of the available liquid assets that QSI
had. The board also considered that if networking revenues from a new generation
of products did not increase as expected, or if the company was not successful
in launching the new networking products in a timely manner, then QSI would not
have sufficient liquidity to continue to operate. The board considered whether
the company could remain independent by raising cash through an equity offering,
but with the stock price at approximately $2.00 per share, the board concluded
that any such issuance would substantially dilute existing shareholders.
Consequently, the board concluded that it would be in the best interests of
shareholders to seek a merger with another semiconductor company that had
sufficient liquidity to enable QSI to develop new products and whose product
mix, business strategy and management philosophy were complementary to QSI's.
Management indicated that, although they had not contacted Cypress about a
merger prior to receiving the Cypress offer, they had recently discussed merging
with two other semiconductor companies and, because of differences in product
development strategy and product mix, neither QSI nor the other companies had
pursued further negotiations. The board then directed the officers of the
company to continue discussions with Cypress and also to contact IDT to discuss
a possible merger.
On August 7, 1998, at the request of Mr. Gupta, director, President and
Chief Executive Officer of QSI, and Mr. Chun Chiu, a founder, director and Chief
Technical Officer of QSI, Mr. Leonard Perham, President and Chief Executive
Officer of IDT, met with Mr. Gupta and Mr. Chiu for the first time to determine
if IDT had an interest in acquiring QSI. At the meeting, they discussed the
strategic plans of each company and the potential benefits of the combination.
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On August 12, 1998, and again on August 21, 1998, members of QSI's and
IDT's management met off-site and held preliminary discussions on the
possibility of combining the two companies. QSI's management provided background
information on QSI.
On August 24, 1998, Mr. Chiu received a letter from Mr. Perham outlining
the terms of a non-binding proposal for IDT's acquisition of QSI. The
non-binding proposal appeared to be in good faith and reasonable because it
clearly set forth the parameters under which IDT would determine whether it
would pursue the merger and it did not preclude QSI from attempting to solicit
or negotiate with other potential acquirors. In addition, it contemplated
continuing QSI as a going concern. The company determined that, given the
reasonableness of the non-binding proposal and the nature of the good faith
negotiations that had been going on with IDT, it would focus on trying to
finalize a definitive merger agreement with IDT.
From August 24, 1998, to September 19, 1998, information was provided to
IDT under a non-disclosure agreement signed on August 24, 1998.
On September 2, 1998, members of QSI's and IDT's management met off-site.
David Sear, the Executive Vice President and Chief Operating Officer of QSI,
gave a presentation on QSI's logic and networking products and related
information.
On September 3, 1998, at a special meeting of the QSI board, the directors
discussed the status of discussions with IDT. The QSI board also discussed the
status of discussion with Cypress. Management informed the board that after an
initial exchange in which QSI indicated to Cypress that its offer was too low
and that QSI had questions regarding the integration of the companies, Cypress
informed them that it was not interested in pursuing further discussions related
to its offer letter of July, 1998. The QSI board also discussed whether another
party would be available for a merger with QSI. Management informed the board
that, other than its earlier discussions with two other semiconductor companies,
it had not attempted to contact any other potential acquirors and that no other
party had shown interest. In addition, the board and the officers of QSI
discussed their belief that QSI and IDT would be able to operate effectively
together as a combined company and that the only significant issue to negotiate
was the exchange ratio for the merger. The board also discussed whether QSI
should remain independent. After discussion of these points, the board
determined that it would be in the best interest of QSI to continue its
discussions with IDT regarding a merger of the two companies.
On September 4, 1998, at a special meeting of the IDT board, IDT's
management made a presentation regarding initial conversations with QSI about a
possible merger. The IDT board also reviewed and discussed QSI's product lines,
the strategic fit between IDT and QSI, and the potential benefits resulting from
a merger.
On September 17, 1998, Mr. Perham and Mr. Gupta met off-site and discussed
a framework for establishing a proposed valuation for QSI.
On September 19, 1998, the IDT board held a special meeting. At that
meeting, management reviewed findings of its preliminary due diligence
investigation of QSI. The IDT board authorized IDT management to proceed with
non-binding negotiations to acquire QSI.
On September 19, 1998, Mr. Perham sent Mr. Gupta a letter outlining a
possible valuation framework and identifying certain issues which were
outstanding in order to move forward. Mr. Gupta signed the letter on behalf of
QSI.
On September 27, 1998, IDT provided QSI with a list of additional due
diligence items required.
On October 1, 1998, IDT delivered the initial draft merger agreement to
QSI.
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On October 5, 1998, QSI engaged Needham & Company, Inc. to provide the QSI
board with a fairness opinion.
On October 8, 1998, QSI delivered its comments to the draft merger
agreement to IDT.
On October 12 and 13, 1998, members of IDT's management met with
representatives of Needham, QSI's financial advisor. IDT and Needham reviewed,
among other things: the overall strategic direction of IDT; IDT's financial
projections, with and without the proposed merger; the stock price history of
both IDT and QSI; the strategic fit between IDT's and QSI's product lines; the
financial condition of both IDT and QSI; and IDT's reasons for the merger.
On October 15, 1998, at the IDT board's regularly scheduled quarterly
meeting, IDT management presented an update on the status of its due diligence
investigation of QSI and discussions with QSI regarding the framework for
addressing and negotiating the exchange ratio.
On October 22, 1998, Steve Vonderach, the Chief Financial Officer of QSI,
Paul Gupta, Jack Menache, the Vice President, General Counsel and Secretary of
IDT and Brian C. Boisseree, the Vice President and Treasurer of IDT met,
together with outside legal counsel for IDT and QSI, to further negotiate the
terms of the draft merger agreement.
On October 26, 1998, Chun Chiu, Paul Gupta and Steve Vonderach of QSI and
Len Perham and Brian Boisseree of IDT met to discuss structuring the potential
acquisition of QSI as a pooling of interests rather than a purchase for
accounting purposes and to discuss other parameters of the potential
acquisition.
On October 30, 1998, Len Perham of IDT delivered a letter to Chun Chiu of
QSI which updated the terms of the proposed acquisition of QSI by IDT.
On October 30, 1998, the IDT board convened a special meeting. The IDT
board and IDT's management discussed various issues in the transaction,
including, among other things: final results of the due diligence investigation
of QSI; financial projections, including the impact of the merger on IDT's
revenues and earnings going forward; the recommended structure of the
transaction from legal and accounting perspectives; the opinions of financial,
legal, and other experts who had been retained by IDT to assist in the
transaction; and the covenants, conditions of closing, and conduct of business
by QSI in the pre-closing period. Based on these discussions, and consideration
of the factors listed in "Approval of the Merger and Related Transactions --
IDT's Reasons for the Merger," the IDT board unanimously:
- determined that proceeding with the merger would serve the best interests
of IDT;
- agreed upon an exchange ratio to propose to QSI;
- approved the terms of the merger agreement; and
- authorized IDT's officers to execute the merger agreement and to take
such further actions as might be necessary or appropriate to effect the
merger.
On November 1, 1998, the parties reached final agreement on the terms for
the merger.
On November 1, 1998, QSI held a special meeting of the board of directors.
At the meeting, following a review by Needham of its financial analysis of the
transaction, Needham delivered to the QSI board its written opinion that, as of
that date, the exchange ratio was fair, from a financial point of view, to the
holders of QSI common stock. QSI's legal counsel reviewed the terms of the final
draft of the merger agreement and the resolution of previously outstanding
issues relating to the merger agreement. After considering the presentations of
its financial and legal advisors and the
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factors described in the "Approval of the Merger and Related
Transactions -- QSI's Reasons for the Merger," the QSI board unanimously:
- determined that the terms of the merger were fair to, and in the best
interests of, holders of QSI common stock;
- approved the terms of the merger agreement and authorized QSI's officers
to execute the merger agreement and to undertake all acts necessary or
desirable to complete the merger;
- recommended approval of the merger agreement by the holders of QSI common
stock; and
- ratified and approved all actions taken previously by QSI's officers and
directors in connection with the merger.
On November 1, 1998, the appropriate officers of IDT and QSI signed the
merger agreement.
From August 7, 1998 through November 1, 1998, there were also various phone
conversations between QSI and IDT to discuss the possibility of an acquisition
of QSI by IDT and the terms and potential valuation of such a transaction.
The table below tracks the stock price of IDT and QSI at various events
that took place in the course of the merger negotiations:
<TABLE>
<CAPTION>
DATE ACTIVITY IDT STOCK PRICE QSI STOCK PRICE
---- -------- --------------- ---------------
<S> <C> <C> <C>
August 7, 1998 Parties began discussions about a $6.75 $2.00
possible merger
August 24, 1998 IDT delivered a non-binding proposal to 6.00 2.06
acquire QSI
September 3, 1998 QSI's board met to discuss IDT and 4.72 1.88
strategic alternatives
September 18, 1998 QSI and IDT sign letter regarding merger 4.53 1.63
October 1, 1998 QSI received a first draft of the merger 5.47 1.81
agreement
October 12, 1998 IDT met with Needham 4.94 2.00
October 30, 1998 QSI received a letter updating terms of 6.94 2.94
the merger
November 2, 1998 First trading day after the signing and 6.19 3.69
announcement of the merger agreement
</TABLE>
Prior to reaching agreement on the final exchange ratio on October 30,
1998, the parties discussed the framework for establishing the exchange ratio at
various times during the three month period preceding the announcement of the
merger. The factors that were discussed and that impacted the determination of
the exchange ratio included:
- the structure of the merger including the proposed tax and accounting
treatment;
- the results of IDT's due diligence review of QSI, including an
understanding of QSI's capital structure and the assets and liabilities
of QSI; and
- IDT's stock price at or about the time of the signing of the merger
agreement.
As part of the ongoing negotiations over the three months preceding the
announcement of the merger IDT and QSI each expressed objectives and approaches
for determining valuation of QSI and the resulting exchange ratio. QSI's initial
goal was a 1-for-1 exchange ratio, which IDT never accepted. Based upon
preliminary information and discussions in late August, IDT's preliminary
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<PAGE> 43
framework for addressing valuation and deal structure would have yielded an
exchange ratio lower than the final exchange ratio. IDT's September 19, 1998
letter to Mr. Gupta expressed a framework for addressing valuation and deal
structure which could have yielded an exchange ratio of between 0.75 and 0.875,
depending on IDT's stock price at or about the time of signing the merger
agreement. IDT's letter of September 19, 1998 to QSI acknowledged QSI's desire
for a target valuation of $35 million and assumed a target IDT stock price of
$5.00, which would have resulted in approximately 7 million shares of IDT stock
and options being issued in the merger. The letter also addressed approaches if
there were changes in the IDT stock price, and contemplated a minimum of 6
million shares if IDT's stock price increased, and the ability of IDT to add
cash if the price decreased below $5 per share. However, the number of shares to
be issued and the resulting exchange ratio was also dependent upon verification
of a number of contingencies and subject to further due diligence related to
QSI's business, assets and liabilities. Among the contingencies and diligence
that were considered in arriving at the final exchange ratio were costs
associated with QSI's Australian facilities and employee severance or change of
control obligations. As a result of IDT's determination that there were several
million dollars of increased costs and contingencies associated with the merger
and the fact that IDT's stock price had increased, IDT offered on October 30,
1998 an exchange ratio of 0.6875 shares. This ratio was based upon approximately
5.5 million shares of IDT common stock and options being exchanged for
approximately 8 million shares of QSI common stock and options. Based on IDT's
stock price on October 29, 1998 of $6 13/16, this offer valued the deal at
approximately $37.5 million. Based upon QSI's closing price on October 29, 1998
of $2.875, the QSI per share deal value at that time was $4.69, or a premium of
over 60%.
QSI'S REASONS FOR THE MERGER
The QSI board has determined that the terms of the merger agreement and the
transactions contemplated thereby are fair to, and in the best interests of, QSI
and its shareholders. Accordingly, the QSI board has unanimously approved the
merger agreement and recommends unanimously that the shareholders of QSI vote
"For" adoption of the merger agreement. In reaching its determination, the QSI
board consulted with QSI's management, as well as its legal counsel and
financial advisor, and considered the following material factors:
- the opportunity that the merger affords QSI's shareholders to reduce
their exposure to the risks inherent in QSI's reliance on a limited
number of products, and the difficulties in competing against larger
companies with more diversified product lines and greater financial
resources, and the fact that the consideration per share of QSI common
stock in the merger appropriately recognizes the significant value of
QSI's business;
- the possible opportunity for QSI to gain greater market strength by
combining with a large company, thereby realizing economies of scale with
respect to financial resources, product distribution channels, a larger
installed base of customers and marketing visibility, and the opportunity
for QSI as a result of the merger to offer its products as part of a
broader range of products;
- the fact that IDT's greater financial resources and marketing and
distribution capabilities reduce the risk associated with developing a
new generation of networking products to take advantage of the
significant potential for growth in the market for networking products.
In August 1998, our management believed that if we could develop such
products as an independent company, we could potentially experience
growth of 30% to 35% per year in this market. Although our management
cannot project what kind of growth potential we may experience once we
complete the merger with IDT, we still believe that this market
represents a significant opportunity for us;
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- the ability the merger affords QSI to utilize the resources of the
combined companies to develop additional products and new applications
for existing products for customers and to develop those products more
rapidly;
- the opportunity to market QSI's products through IDT's distribution
channels and to sell QSI's products together with IDT's products;
- the potential to reduce operating costs through consolidation and
integration of certain manufacturing, distribution, sales and
administrative operations and functions;
- information concerning the financial performance and condition, business
operations and prospects of each of IDT and QSI;
- the fact that the merger would allow holders of QSI common stock to
retain an equity interest of approximately 6.2% in the combined company
and to achieve greater liquidity than could be achieved by continuing to
hold QSI common stock;
- the exchange ratio, recent trading prices for QSI common stock and IDT
common stock, including the fact that the consideration per share of QSI
common stock that may be received under the merger agreement represents a
premium of approximately 50% over recent historical trading price of QSI
common stock and appropriately recognizes the significant value of QSI's
business, the downward trend of QSI's stock price and QSI's belief that
prospects for future share price appreciation would be greater in the
merged company than as an independent company;
- the likelihood of consummation of the merger, including the terms and
conditions of the merger agreement, and the conditions to the
consummation of the merger;
- the expectation that the merger will be nontaxable to the shareholders of
QSI for federal income tax purposes;
- the financial analyses of Needham, described herein and the opinion of
Needham, that, as of November 1, 1998, the exchange ratio was fair to the
holders of QSI common stock from a financial point of view (See
"-- Opinion of QSI's Financial Advisor");
- the opportunity for shareholders of QSI to vote on whether to adopt the
merger agreement; and
- the fact that certain employees may perceive the combined company, with
its greater financial resources and diversity of products, as providing
greater stability as well as greater ability to provide financial
incentives in order to recruit and retain employees.
The QSI board of directors also considered negative factors relating to the
merger, including:
- the risks that the benefits sought in the merger would not be fully
achieved;
- the fact that certain employees would likely have their employment
terminated;
- the risk that the merger would not be consummated; and
- the effect of the public announcement of the merger on QSI's sales and
operating results.
The QSI board of directors believed that these risks were outweighed by the
potential benefits to be gained by the merger.
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In view of the wide variety of factors considered by the QSI board, it did
not find it practicable to quantify, or otherwise attempt to assign relative
weights to, the specific factors considered in making its determination.
Consequently, the QSI board did not quantify the assumptions and results of its
analysis in reaching its determination that the merger is fair to, and in the
best interests of, QSI and its shareholders. THE QSI BOARD UNANIMOUSLY
RECOMMENDS THAT QSI SHAREHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
IDT'S REASONS FOR THE MERGER
The IDT board has determined that the terms of the merger agreement and the
transactions contemplated thereby provide an opportunity that serves the best
interests of IDT, and that IDT should proceed with the merger at this time. In
making this determination, the IDT board consulted extensively with IDT's
management and reviewed the results of management's due diligence investigation
and analysis of QSI.
The following are among the reasons why the IDT Board believes that the
merger will benefit IDT:
- High-performance logic products are important to IDT's overall product
strategy. The addition of QSI's portfolio of bus switch, clock
management, and fast 5-volt and 3.3-volt logic devices could further
enhance IDT's product portfolio and position as a leader in the
high-performance logic market;
- Over the past four years, IDT has made substantial investments in new
semiconductor manufacturing technology, and IDT currently has excess
capacity to produce wafers and to assemble and test finished parts. IDT's
near-term strategy to recover these investments includes initiatives to
expand its product portfolio and revenue base. IDT believes that the
addition of the QSI semiconductor products creates the potential to
utilize IDT's existing manufacturing capacity and capabilities;
- IDT believes its customers are in the process of reducing costs by
standardizing across a much smaller group of suppliers, and exacting
pricing and other concessions from preferred suppliers in exchange for
higher volume commitments. IDT believes that QSI's products complement
IDT's existing logic and networking portfolio. IDT further believes that,
following the merger, the broader combined product offerings will enhance
IDT's ability to compete for preferred supplier positions with major
customers;
- At various points in the past, the breadth of IDT's new product
development programs and the time schedules for delivering new logic
products have been constrained by inability to find key design and
engineering talent. IDT believes that QSI has established a highly
stable, capable logic design team and that the addition of this team will
significantly augment IDT's ability to deliver new logic products to the
marketplace;
- IDT believes that the merger creates an opportunity to leverage its
worldwide team of sales, marketing, and customer engineering personnel
into increased sales of QSI's existing and development-stage products;
and
- Over the last few years, IDT has attempted to enter the market for
advanced networking products. Over the same period, QSI has also entered
the market with their line of advanced integrated circuits, or "IC's,"
for Fast Ethernet networking applications. IDT believes that combining
IDT's and QSI's design, engineering, and marketing resources will improve
IDT's competitive position and likelihood of achieving its objectives in
this market segment.
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In the course of its deliberations the IDT board, with IDT management,
reviewed and considered a number of other factors relevant to the merger. In
particular, the IDT board considered, among other things:
- information concerning IDT's and QSI's respective businesses, prospects,
financial performance and condition, operations and product development
schedules;
- the comparative stock prices of IDT and QSI at various points in time
prior to execution of the merger agreement;
- the costs expected to be incurred in connection with the merger, in
future quarters, including merger-related costs and potential costs or
charges to combine operations;
- for growing revenue in the high-performance logic and advance networking
IC markets;
- the results of management's due diligence investigation of QSI; and
- the potential benefits expected to be realized after the merger from cost
reduction, and increased utilization of manufacturing capacity.
The IDT board also considered a variety of potentially negative factors in
deliberating the merits of the proposed merger, including but not limited to:
- the declining trend in QSI's revenue and the trend of operating losses
over the last several quarters;
- the uncertainty surrounding QSI's plans for major new product
introductions of networking IC's over the next several quarters, and the
dependence of QSI's financial projections on the success of those new
products;
- the potential dilutive effect of the issuance of IDT stock in the merger;
- the risk that relationships with customers, distributors, and sales
agents would be disrupted in implementing the merger, and the potential
detrimental impact on QSI product revenues;
- the risk that key technical personnel of QSI might not be retained
through the merger; and
- the possibility that some of the benefits sought to be obtained through
the merger may not be realized.
OPINION OF QSI'S FINANCIAL ADVISOR
Under an engagement letter dated October 5, 1998, QSI retained Needham &
Company, Inc., as financial advisor with respect to the proposed merger and to
render an opinion as to the fairness, from a financial point of view, of the
proposed exchange ratio to the holders of QSI common stock. The amount of
consideration to be paid for QSI in the merger was determined through arm's
length negotiations between QSI and IDT and not by Needham.
At a meeting of the board of directors of QSI on November 1, 1998, Needham
delivered its written opinion that, as of such date and based upon and subject
to certain assumptions and other matters described in the Needham opinion, the
proposed exchange ratio is fair to the holders of QSI common stock from a
financial point of view. THE NEEDHAM OPINION IS ADDRESSED TO THE QSI BOARD, IS
DIRECTED ONLY TO THE FINANCIAL TERMS OF THE MERGER AGREEMENT AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF QSI AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE SPECIAL MEETING.
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The complete text of the Needham opinion, which sets forth the assumptions
made, matters considered, limitations on and scope of the review undertaken by
Needham, is attached to this document as Appendix B. YOU SHOULD READ THE NEEDHAM
OPINION CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES
FOLLOWED, THE FACTORS CONSIDERED, AND THE ASSUMPTIONS MADE BY NEEDHAM.
In arriving at its opinion, Needham, among other things:
- reviewed a draft of the merger agreement dated October 29, 1998 and a
letter from IDT to QSI dated October 30, 1998 proposing the exchange
ratio; these documents contained the same exchange ratio as the exchange
ratio in the executed merger agreement;
- reviewed certain publicly available information concerning QSI and IDT
and certain other relevant financial and operating data of QSI and IDT
made available from the internal records of QSI and IDT;
- reviewed the historical stock prices and trading volumes of QSI common
stock and IDT common stock;
- held discussions with members of senior management of QSI and IDT
concerning their current and future business prospects;
- reviewed certain financial forecasts and projections prepared by the
respective managements of QSI and IDT;
- compared certain publicly available financial data of companies whose
securities are traded in the public markets and that Needham deemed
relevant to similar data for QSI;
- reviewed the financial terms of certain other business combinations that
Needham deemed generally relevant; and
- performed and/or considered such other studies, analyses, inquiries and
investigations as Needham deemed appropriate.
Without independent verification, Needham relied upon and assumed:
- the accuracy and completeness of the information reviewed by or discussed
with it for purposes of rendering the Needham opinion; and
- that QSI's and IDT's financial forecasts provided to Needham by their
respective managements reflect the best currently available estimates and
judgments of the two companies' managements of the companies' future
operating and financial performance.
Needham did not assume any responsibility for or make or obtain any
independent evaluation, appraisal or physical inspection of the assets or
liabilities of QSI or IDT. The Needham opinion states that it was based on
economic, monetary and market conditions as they existed and could be evaluated
as of the date of such opinion. Needham expressed no opinion as to what the
value of IDT common stock will be when issued to the shareholders of QSI
pursuant to the merger or the prices at which the IDT common stock will actually
trade at any time. In addition, Needham was not asked to consider, and the
Needham opinion does not address:
- QSI's underlying business decision to engage in the merger;
- the relative merits of the merger as compared to any alternative business
strategies that might exist for QSI; or
- the effect of any other transaction in which QSI might engage.
No other limitations were imposed by QSI on Needham with respect to the
investigations made or procedures followed by Needham in rendering the Needham
opinion.
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Based on this information, Needham performed a variety of financial
analyses of the merger and the exchange ratio. The following paragraphs
summarize the material financial analyses performed by Needham in arriving at
the Needham opinion.
CONTRIBUTION ANALYSIS
Needham reviewed and analyzed the pro forma contribution of each of QSI and
IDT to pro forma combined operational and financial information as of September
30, 1998, and projected calendar 1998 and 1999 operating results. Needham
reviewed, among other things, the pro forma contributions to net sales, net
income, assets and shareholders' equity. This analysis indicated that QSI would
have contributed 9% of projected calendar 1998 pro forma combined net sales, 10%
of projected calendar 1999 pro forma combined net sales, 5% of projected
calendar 1998 pro forma combined net income, and 6% of projected calendar 1999
pro forma combined net income. In addition, QSI would have contributed 6% of the
pro forma combined total assets as of September 30, 1998, and 9% of the pro
forma combined shareholders' equity as of September 30, 1998. Based on the
exchange ratio, QSI's shareholders will own approximately 6.2% of the
outstanding shares of IDT immediately after the merger. The results of the
contribution analysis are not necessarily indicative of the contributions that
the respective businesses may have in the future.
SELECTED COMPANY ANALYSIS
Using publicly available information, Needham compared selected historical
and projected financial and market data ratios for QSI to the corresponding data
and ratios of certain other publicly traded semiconductor companies that Needham
deemed relevant because their lines of business are similar to QSI's line of
business: Cypress Semiconductor Corporation, Integrated Circuit Systems, Inc.,
IDT, and Pericom Semiconductor Corporation, together the "Selected Companies."
Such data and ratios included total market capitalization to historical and
projected revenue, price per share to historical and projected earnings per
share, and market value to historical book value.
The following table sets forth information concerning the following
multiples for the Selected Companies and for QSI:
- total market capitalization as a multiple of last twelve months'
revenues, or "LTM Revenues;"
- total market capitalization as a multiple of projected calendar 1998
revenues;
- total market capitalization as a multiple of projected calendar 1999
revenues;
- market value of common stock as a multiple of projected 1999 earnings per
share, or "Price/ Earnings Multiple;" and
- market value as a multiple of historical book value.
Needham calculated multiples for the Selected Companies based on the
closing stock prices for those companies on October 30, 1998 and for QSI based
on the closing price for IDT common stock on October 30, 1998, of $6.94 and,
based upon the exchange ratio of 0.6875, the resulting equivalent price per
share for the QSI common stock of $4.77.
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<TABLE>
<CAPTION>
SELECTED COMPANIES QSI
----------------------------- IMPLIED BY
HIGH LOW MEAN MEDIAN MERGER
----- ---- ----- ------ ----------
<S> <C> <C> <C> <C> <C>
Total market capitalization to LTM revenues......... 2.0x 0.5x 1.1x 0.9x 0.7x
Total market capitalization to projected calendar
1998 revenues..................................... 2.0x 0.5x 1.0x 0.8x 0.8x
Total market capitalization to projected calendar
1999 revenues..................................... 1.6x 0.3x 0.8x 0.7x 0.6x
Projected calendar 1999 Price/Earnings Multiple..... 25.7x 6.7x 14.9x 13.6x 5.5x
Market value to historical book value............... 2.1x 1.2x 1.8x 1.9x 1.5x
</TABLE>
Needham also analyzed the Price/Earnings Multiples for the last twelve
months and for projected calendar 1998, but determined that the results were not
meaningful because of QSI's net losses for the last twelve months and projected
net losses for calendar 1998.
SELECTED TRANSACTION ANALYSIS
Needham also analyzed publicly available financial information for 28
selected completed and pending mergers and acquisitions of companies in the
electronics industry that represent transactions since January 1, 1990, with
transaction values of between $10 million and $700 million, together the
"Selected Transactions." In examining the Selected Transactions, Needham
analyzed:
- the premium of consideration offered to the acquired company's stock
price one day prior to the announcement of the transaction;
- the premium of consideration offered to the acquired company's stock
price four weeks prior to the announcement of the transaction;
- the aggregate transaction value as a multiple of sales for the last
twelve months, or "LTM Sales;"
- the aggregate transaction value as a multiple of earnings before
interest, taxes, depreciation and amortization for the last twelve
months, or "LTM EBITDA;" and
- the market value as a multiple of historical book value.
Needham also analyzed the multiples of aggregate transaction value to
earnings before interest and taxes for the last twelve months and to net income
for the last twelve months but determined that the results were not meaningful
because of QSI's net losses for the last twelve months. In certain cases,
complete financial data was not publicly available for the selected transactions
and only partial information was used in such instances.
The following table sets forth information concerning the stock price
premiums in the Selected Transactions and the stock price premiums implied by
the proposed merger. The premiums implied by the proposed merger were based on
the closing price of IDT common stock on October 30, 1998 and the exchange ratio
of 0.6875.
<TABLE>
<CAPTION>
SELECTED TRANSACTIONS
-------------------------------- IDT/QSI
HIGH LOW MEAN MEDIAN MERGER
---- ----- ---- ------ -------
<S> <C> <C> <C> <C> <C>
One day stock price premium................. 66.7% (64.9)% 19.5% 27.7% 62.4%
Four week stock price premium............... 68.7% (83.7)% 31.2% 44.6% 131.0%
</TABLE>
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The following table sets forth information concerning the multiples of
aggregate transaction value to LTM Sales and LTM EBITDA and the multiples of
market value to historical book value for the Selected Transactions and the same
multiples implied by the proposed merger. The multiples for the proposed merger
were based on the closing price of IDT common stock on October 30, 1998 and the
exchange ratio of 0.6875.
<TABLE>
<CAPTION>
SELECTED TRANSACTIONS
----------------------------- IDT/QSI
HIGH LOW MEAN MEDIAN MERGER
----- ---- ----- ------ -------
<S> <C> <C> <C> <C> <C>
Aggregate transaction value to LTM Sales....... 4.4x 0.1x 1.5x 1.5x 0.7x
Aggregate transaction value to LTM EBITDA...... 65.2x 3.8x 19.4x 15.0x 30.2x
Market value to historical book value.......... 40.6x 0.5x 5.0x 2.7x 1.6x
</TABLE>
No company, transaction or business used in the "Selected Company Analysis"
or "Selected Transaction Analysis" as a comparison is identical to QSI, IDT or
the combined companies after completion of the merger. Accordingly, these
analyses are not simply mathematical; rather, they involve complex
considerations and judgments concerning differences in the financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the Selected Companies, Selected Transactions,
or the business segment, company or transaction to which they are being
compared.
OTHER ANALYSES
In rendering its opinion, Needham considered certain other analyses,
including, among other things, a history of trading prices and volumes for the
QSI common stock and IDT common stock, a comparative analysis of institutional
ownership of QSI and IDT, and a comparison of QSI's and IDT's stock price
performance relative to the Standard & Poor's 500 Index.
The summary set forth above does not purport to be a complete description
of the analyses performed by Needham in connection with the rendering of the
Needham opinion. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant quantitative and
qualitative methods of financial analyses and the application of those methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, Needham believes that its
analyses must be considered as a whole and that considering any portions of such
analyses and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
its opinion. In its analyses, Needham made numerous assumptions with respect to
industry performance, general business and economic and other matters, many of
which are beyond the control of QSI or IDT. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable as set
forth therein. Additionally, analyses relating to the values of business or
assets do not purport to be appraisals or necessarily reflect the prices at
which businesses or assets may actually be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. The Needham opinion
and Needham's related analyses were only one of many factors considered by QSI's
board of directors in its evaluation of the proposed merger and should not be
viewed as determinative of the views of QSI's board of directors or management
with respect to the exchange ratio or the proposed merger.
Under the engagement letter, QSI agreed to pay Needham a fee for rendering
the Needham opinion and for financial advisory services of $175,000. None of
Needham's fee is contingent on consummation of the merger. QSI has also agreed
to reimburse Needham for its reasonable out-of-pocket expenses and to indemnify
it against certain liabilities relating to or arising out of services performed
by Needham as financial advisor to QSI.
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Needham is a nationally recognized investment banking firm. As part of its
investment banking services, Needham is frequently engaged in the evaluation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and other purposes. Needham was retained by the QSI board of
directors to act as QSI's financial advisor in connection with the merger based
on Needham's experience as a financial advisor in mergers and acquisitions as
well as Needham's familiarity with the semiconductor industry. In the normal
course of its business, Needham may actively trade the equity securities of QSI
or IDT for its own account or for the account of its customers and, therefore,
may at any time hold a long or short position in such securities.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
Following is a description of the opinions of Fenwick & West LLP, counsel
to IDT, and Venture Law Group, A Professional Corporation, counsel to QSI,
regarding the material federal income tax consequences of the merger that are
generally applicable to holders of QSI common stock. As a condition to the
consummation of the merger, these firms must render tax opinions to their
clients that (a) the merger will be a "reorganization" for federal income tax
purposes within the meaning of Section 368(a) of the Internal Revenue Code and
(b) each of IDT, Penguin Acquisition and QSI will be a "party to the
reorganization" within the meaning of section 368(b) of the code. This means and
these firms are of the opinion that, subject to the limitations and
qualifications described below in this section:
- No gain or loss will be recognized by QSI shareholders solely upon their
receipt of IDT common stock in the merger in exchange for QSI common
stock, except to the extent of cash received in lieu of a fractional
share;
- The aggregate tax basis of the IDT common stock received in the merger,
including any fractional share not actually received, will equal the
aggregate tax basis of QSI common stock surrendered in exchange;
- The holding period of the IDT common stock received in the merger by a
QSI shareholder will include the period during which the shareholder held
the QSI common stock surrendered in exchange, provided that the QSI
common stock is held as a capital asset at the time of the merger;
- A fractional share of IDT common stock for which cash is received in lieu
will be treated as if a fractional share of IDT common stock had been
issued in the merger and then redeemed by IDT. A QSI shareholder
receiving such cash will generally recognize gain or loss upon such
payment equal to the difference between such shareholder's tax basis in
the fractional share and the amount of cash received. Such gain or loss
will be a capital gain or loss if, at the time of the merger, the QSI
common stock is held as a capital asset; and
- A QSI shareholder who exercises dissenters' rights with respect to all of
such holder's shares of QSI common stock will generally recognize gain or
loss for federal income tax purposes, measured by the difference between
the holder's basis in such shares and the amount of cash received,
provided that the payment is neither essentially equivalent to a dividend
within the meaning of section 302 of the code nor has the effect of a
distribution of a dividend within the meaning of section 356(a)(2) of the
code. This gain or loss will be capital gain or loss, provided that the
QSI common stock is held as a capital asset at the time of the merger.
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WHEN THESE TAX CONSEQUENCES WILL NOT APPLY
This discussion does not deal with all federal income tax considerations
that may be relevant to particular QSI shareholders in light of their specific
circumstances, such as shareholders who are dealers in securities, banks,
insurance companies, tax-exempt organizations, or shareholders:
- who are subject to the alternative minimum tax provisions of the Internal
Revenue Code of 1986;
- who hold their shares as a hedge or as part of a hedging, straddle,
conversion or other risk reduction transaction;
- who are foreign persons; or
- who acquired their shares in connection with stock option or stock
purchase plans or in other compensatory transactions.
In addition, the discussion above does not address the tax consequences of
transactions effectuated prior to or after the merger, whether or not those
transactions are in connection with the merger, including transactions in which
shares of QSI common stock were or are acquired or shares of IDT common stock
were or are disposed. Furthermore, no foreign, state or local tax considerations
are addressed by this discussion. The discussion is based on federal income tax
law as currently in effect, which could change at any time, possibly with
retroactive effect.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR ABOUT THE SPECIFIC FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF THE MERGER AND THE RELATED TAX
REPORTING REQUIREMENTS.
LIMITATIONS OF THE TAX OPINIONS
The parties are not requesting a ruling from the Internal Revenue Service
in connection with the merger. The tax opinions will neither bind the IRS nor
preclude the IRS from adopting a contrary position. In addition, the tax
opinions are based on assumptions, are subject to qualifications and limitations
and are based on the truth and accuracy of representations and covenants made by
IDT, Penguin Acquisition and QSI in certificates to be delivered to counsel by
the managements of IDT, Penguin Acquisition and QSI prior to the effective time
of the merger.
CONSEQUENCES OF A CONTRARY IRS DETERMINATION
A successful IRS challenge to the "reorganization" status of the merger
would result in all QSI shareholders being treated as if they sold their QSI
common stock in a fully taxable transaction. In this event, each QSI shareholder
would recognize gain or loss with respect to each share of QSI common stock
surrendered equal to the difference between the shareholder's adjusted tax basis
in the share and the fair market value, as of the effective time of the merger,
of the IDT common stock received in exchange and any cash received in lieu of
fractional shares. In this event, a QSI shareholder's aggregate basis in the IDT
common stock received would equal its fair market value as of the effective time
and the shareholder's holding period for the IDT common stock would begin the
day after the merger.
CONSEQUENCES OF EXCHANGES THAT ARE NOT QSI COMMON STOCK FOR IDT COMMON
STOCK
Whether or not the merger is a reorganization, a QSI shareholder will
recognize gain to the extent shares of IDT common stock received in the merger
are treated as received in exchange for services or property other than solely
QSI common stock. All or a portion of any of these gains could
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<PAGE> 53
be taxable as ordinary income. Gain also will be recognized to the extent a QSI
shareholder is treated as receiving consideration other than IDT common stock in
exchange for QSI common stock or to the extent the QSI common stock surrendered
in the merger is not equal in value to the IDT common stock and cash received in
exchange.
REGULATORY MATTERS
Transactions such as the merger are reviewed by the Department of Justice
and the Federal Trade Commission to determine whether they comply with
applicable antitrust laws. Under the provisions of the Hart-Scott-Rodino
Anti-Trust Improvements Act of 1976, the merger may not be consummated until
such time as certain information has been furnished to the Department of Justice
and the FTC and the specified waiting period requirements of the HSR Act have
been satisfied. The notification and waiting period imposed upon IDT and QSI
under the HSR Act expired on January 5, 1999.
At any time, the Department of Justice, the FTC, state attorneys general,
foreign regulatory agencies or a private person or entity could challenge the
merger under the antitrust laws and seek, among other things, to enjoin the
merger, to cause IDT to divest itself of significant assets of IDT and QSI, or
to impose conditions on IDT with respect to the business operations of the
combined companies. Based on information available to them, IDT and QSI believe
that the merger will not violate federal or state antitrust laws. However, there
can be no assurance that a challenge to the merger on antitrust grounds will not
be made or that, if such a challenge is made, IDT would prevail or would not be
required to terminate the merger agreement or would not be required to accept
certain conditions in order to consummate the merger. IDT does not have any
obligation under the merger agreement to dispose of any assets, discontinue or
make any changes to its operations or proposed operations, or make any
commitment to any governmental body or otherwise regarding its future operations
or the future operations of QSI, even if such actions would facilitate the
consummation of the merger.
IDT and QSI each conduct operations in a number of foreign countries where
regulatory filings may be required as a result of the merger. IDT and QSI will
make such filings as they determine are necessary or appropriate.
IDT and QSI are aware of no other material governmental or regulatory
approvals required for consummation of the merger, other than compliance with
the federal securities laws and applicable securities and "blue sky" laws of
various states.
ACCOUNTING TREATMENT
The merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Consummation of the merger is conditioned upon (1) receipt by IDT of a letter
from IDT's independent accountants that no conditions exist related to IDT that
would preclude IDT from accounting for the merger as a pooling of interests and
(2) a letter from QSI's independent auditors that no conditions exist related to
QSI that would preclude IDT from accounting for the merger as a pooling of
interests.
Further, to satisfy certain criteria for qualifying as a pooling of
interests, affiliates of IDT and QSI have entered into agreements restricting
their ability to sell or otherwise reduce their risk with respect to, any of
either IDT and QSI capital stock, except for a de minimus number, during the
period beginning 30 days before the effective time of the merger and continuing
until the day that IDT publicly announces financial results covering at least 30
days of combined operations of IDT and QSI after the merger.
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DISSENTERS' RIGHTS
RIGHTS OF QSI SHAREHOLDERS
The following is a brief summary of the rights of shareholders of QSI who
dissent from the merger. The summary is materially complete, but you should read
the full text of section 1300 of the California Corporations Code attached as
Appendix C which is incorporated herein by reference.
If holders of QSI common stock exercise dissenters' rights in connection
with the merger under sections 1300 - 1312 of the California Corporations Code,
any shares of QSI common stock as to which such dissenters' rights are exercised
will not be converted into the right to receive shares of IDT common stock by
virtue of the merger. Instead, they will be converted into the right to receive
such consideration as may be determined to be due with respect to such
dissenting shares under the laws of the State of California. It is a condition
to IDT's obligation to close the merger that no more than 10% of the shares of
QSI common stock are eligible to be dissenting shares.
If the merger is approved by the required vote of QSI's shareholders, each
holder of shares of QSI common stock who does not vote in favor of the merger
and who follows the procedures set forth in section 1300 will be entitled to
have shares of QSI common stock purchased by QSI for cash at their fair market
value. The fair market value of shares of QSI common stock will be determined as
of the day before the first announcement of the terms of the proposed merger,
which was October 30, 1998, excluding any appreciation or depreciation in
consequence of the proposed merger. This has the effect of valuing the shares of
QSI common stock as if the merger had not occurred.
Within ten days after approval of the merger by QSI shareholders, QSI must
mail a notice of such approval to all shareholders who have not voted in favor
of the merger, together with:
- a statement of the price determined by QSI to represent the fair market
value of the applicable dissenting shares;
- a brief description of the procedures to be followed in order for the
shareholder to pursue dissenters' rights; and
- a copy of sections 1300 - 1304 of the California Corporations Code.
The statement of price by QSI constitutes an offer by QSI to purchase all
dissenting shares at the stated amount.
A shareholder of QSI electing to exercise dissenters' rights must, within
30 days after the date in which the approval notice is mailed to such
shareholder, mail or deliver the written demand to QSI enclosing the share
certificates for endorsement by QSI and stating:
- that the shareholder is demanding purchase of the shareholder's shares of
QSI common stock;
- the number of shares which QSI must purchase; and
- what the shareholder claims to be the fair market value of such shares.
If QSI and the shareholder agree that the shares are dissenting shares and
agree upon the price of the shares, QSI must pay the shareholder the agreed upon
price plus interest at the legal rate for judgments for the period of time from
the date of the agreement to the date of the payment. Unless otherwise agreed,
the payment must be paid within thirty days from the later of:
- the date of the agreement on dissenting shares, or
- the date all contractual conditions to the merger are satisfied.
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If QSI denies that the shares are dissenting shares, or if QSI and the
shareholder fail to agree upon the fair market value of shares of QSI common
stock, then within six months after the date the approval notice was mailed to
shareholders, any shareholder who has made a valid written purchase demand and
who has not voted in favor of approval and adoption of the merger may file a
complaint in California superior court requesting a determination as to whether
the shares are dissenting shares or as to the fair market value of such holder's
shares of QSI common stock, or both.
RIGHTS OF IDT STOCKHOLDERS
Under Delaware law, IDT stockholders are not entitled to dissenters' right
of appraisal with respect to the proposed merger.
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TERMS OF THE MERGER
The following discussion summarizes the material provisions of the merger
agreement and the other related agreements and transactions. The following is
not, however, a complete statement of all the provisions of the merger agreement
and related agreements. Detailed terms of and conditions to the merger and
certain related transactions are contained in the merger agreement, a copy of
which is attached to this document as Appendix A and is incorporated herein by
reference. For a complete presentation of this information, you are urged to
read the more detailed information set forth in the Appendices.
GENERAL
The merger agreement provides for the merger of Penguin Acquisition with
and into QSI. As a result of the merger, the separate existence of Penguin
Acquisition shall cease to exist. QSI shall be the surviving corporation of the
merger and will become a wholly owned subsidiary of IDT. The former shareholders
of QSI will become shareholders of IDT.
EFFECTIVE TIME; CLOSING DATE
The merger shall become effective upon the filing of the Agreement of
Merger with the Secretary of State of the State of California, or at such later
time as may be agreed by IDT and QSI. The closing will occur at a time and date
to be specified by IDT and QSI after the satisfaction or waiver of the
conditions to the merger, or at such other time as IDT and QSI agree. Assuming
all conditions to the merger are satisfied or waived, it is currently
anticipated that the closing and effective time will be on or about May 4, 1999.
CORPORATE MATTERS
At the effective time, the articles of incorporation and bylaws of Penguin
Acquisition shall be the articles of incorporation and bylaws of QSI. In
addition, the directors and officers of Penguin Acquisition shall be the initial
directors and officers of QSI.
MERGER CONSIDERATION
CONVERSION OF COMMON STOCK
At the effective time, each share of QSI common stock that is issued and
outstanding immediately prior to the effective time shall be converted into the
right to receive 0.6875 shares of IDT common stock. Each share of QSI common
stock that is held in the treasury of QSI or IDT immediately prior to the
effective time shall not be converted but shall be canceled and retired, and no
consideration shall be delivered in exchange.
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ASSUMPTION OF OPTIONS
At the effective time, each QSI option to purchase outstanding QSI common
stock shall be converted into options to purchase IDT common stock. IDT shall
assume each QSI option in accordance with the terms of the stock option plan
under which it was issued and the stock option agreement by which it is
evidenced. After the effective time:
- each QSI option assumed by IDT may be exercised solely for shares of IDT
common stock;
- the number of shares of IDT common stock subject to each QSI option shall
be equal to the number of shares of QSI common stock subject to each such
QSI option multiplied by 0.6875 rounded down to the nearest whole share;
- the per share exercise price under each such QSI option shall be adjusted
by dividing the per share exercise price under each such QSI option by
0.6875 and rounding up to the nearest cent; and
- any restriction on the exercise of any such QSI option shall continue in
full force and effect, and the term, exercisability, vesting schedule and
other provisions of such QSI option shall otherwise remain unchanged.
Soon after the effective time, IDT will file with the Commission a
registration statement on Form S-8, or amendments to existing registration
statements on Form S-8, in order to register the shares of IDT common stock
issuable upon exercise of the converted QSI options.
NO FRACTIONAL SHARES
No fractional shares of IDT common stock shall be issued in the merger.
Instead, cash will be paid for any fractional share of IDT common stock that
would otherwise be issuable. The amount of such cash shall be the product of
such fraction of a share of IDT common stock multiplied by $6.4625.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF STOCK CERTIFICATES
Soon after the effective time, IDT's exchange agent will mail to each
holder of record of QSI common stock a letter of transmittal to effect the
surrender of the stock certificates for QSI common stock in exchange for stock
certificates for IDT common stock, cash instead of fractional shares and any
dividends or other distributions with a record date after the effective time
payable with respect to such whole shares of IDT common stock. STOCK
CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF QSI COMMON STOCK UNTIL
SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
Until you surrender your QSI certificate for exchange, you shall not be
entitled to receive any dividends or distributions declared with respect to IDT
common stock nor to any cash to be paid instead of fractional shares.
In the event a stock certificate has been lost, stolen or destroyed, you
will have to make an affidavit of that fact, and the exchange agent will then
issue in exchange for such lost, stolen or destroyed stock certificate the
appropriate number of whole shares of IDT common stock and cash instead of
fractional shares. IDT and/or the exchange agent may require the owner of such
lost, stolen or destroyed stock certificate to give IDT and/or the exchange
agent a bond in such sum as it may direct as indemnity, or such other form of
indemnity, against any claim that may be made against IDT or the exchange agent
with respect to the stock certificate alleged to have been lost, stolen or
destroyed.
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TERMINATION OF QSI EMPLOYEE STOCK PURCHASE PLAN
QSI's 1993 Employee Stock Purchase Plan shall be terminated at the
effective time of the merger. As a result, QSI's board of directors shall
shorten the offering period then in progress under the 1993 Purchase Plan by
setting a new exercise date, and by notifying each participant under the 1993
Purchase Plan in writing at least ten days prior to the new exercise date. The
new exercise date shall be the business day prior to the effective time. IDT
shall provide, as of the effective time, the same or a comparable benefit or
plan to each employee of QSI as is provided to IDT's employees who are similarly
situated. The IDT benefit plans shall give full credit for each participant's
period of service with QSI prior to the effective time of the merger for all
purposes for which such service was recognized under IDT's benefit plans prior
to the effective time.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties,
including representations and warranties of QSI as to:
- the due organization and good standing of QSI and its subsidiaries;
- QSI's corporate power and authority to conduct its business, own and use
its assets, perform its obligations under its contracts and, subject to
shareholder approval, to enter into the merger agreement and consummate
the merger;
- the capitalization and ownership of QSI common stock;
- the absence of certain changes from the time that QSI delivered its
financial statements to IDT for review and the date that the merger
agreement was signed;
- QSI's title to and the condition of assets, including equipment, real
property, leases and inventory;
- the proprietary assets and intellectual property owned or licensed by
QSI;
- the existence of certain kinds of contracts and QSI's delivery of such
contracts for IDT to review;
- QSI's timely and properly filed tax returns and its compliance with
applicable tax law;
- QSI's compliance with the laws and regulations related to employees,
ERISA and other labor matters;
- QSI's compliance with the laws and regulations related to environmental
matters;
- judicial proceedings and orders which might otherwise challenge the
validity of the merger;
- the non-contravention of the merger agreement and the consents required
for the merger;
- QSI's full disclosure;
- QSI's securities law compliance;
- fairness opinion of QSI's financial advisors; and
- unanimous approval by the QSI board of the merger agreement and the
merger.
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The merger agreement also contains representations and warranties of IDT
and Penguin Acquisition, including as to:
- the due organization and good standing of IDT and its subsidiaries;
- IDT's corporate power and authority;
- judicial proceedings and orders;
- non-contravention and consents;
- full disclosure and Commission reports;
- valid issuance of IDT common stock;
- compliance with laws; and
- absence of certain changes or events.
The representations and warranties of IDT, QSI and Penguin Acquisition will
terminate after the closing of the merger.
NO NEGOTIATION OR SOLICITATION
Until the earlier of the effective time or termination of the merger
agreement by its terms, QSI:
- will not solicit, initiate or encourage the making, submission or
announcement of, any acquisition proposal;
- will not participate in any discussions or negotiations with, or enter
into any agreement or understanding in connection with any acquisition
proposal;
- will cease any and all existing activities, discussions or negotiations
regarding any acquisition proposal; and
- will not make or authorize any public statement in support of any
acquisition proposal.
To the extent the board of directors of QSI determines, in good faith, that
the board's fiduciary duties require it to do so, QSI may participate in
discussions or negotiations with any person, entity or group that delivers to
QSI in writing an unsolicited bona fide acquisition proposal that would result
in a transaction more favorable than the merger to the shareholders of QSI. If
QSI receives such a proposal, QSI's board may recommend it to QSI's shareholders
if QSI's board determines in good faith that such action is required by its
fiduciary duties. In such case, QSI's board may withdraw, modify or refrain from
making its recommendations for the merger with IDT. However, QSI shall remain
obligated to convene the special meeting and shall have the vote on the merger
with IDT considered by the shareholders of QSI prior to any vote on the new
proposal. In addition, QSI cannot recommend to its shareholders a new proposal
for a period of at least 72 hours after IDT's receipt of a copy of such proposal
and the identity of the third party.
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ADDITIONAL COVENANTS
COVENANTS REGARDING THE CONDUCT OF BUSINESS OF QSI
In the merger agreement, QSI has generally agreed that from the date of
execution of the merger agreement until the earlier of the termination of the
merger agreement or the effective time, QSI and each of its subsidiaries shall
conduct its operations exclusively in the ordinary course of business and in the
same manner as such operations have been conducted prior to the date of the
merger agreement, and use best efforts to:
- preserve intact its current business organization;
- keep available the services of its current officers and employees;
- maintain its relations and goodwill with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other persons
having business relationships with QSI;
- maintain in full force all insurance policies and obtain any additional
insurance required consistent with past practices for its business and
property; and
- immediately notify IDT in writing of any inquiry, proposal or offer from
any person relating to any acquisition proposal.
QSI has also agreed to refrain from taking a variety of actions that could
affect its business prior to the closing without the prior consent of IDT. For
instance, QSI will not:
- sell, reprice or otherwise issue any shares of capital stock or any other
securities, except the issuance of shares of QSI common stock under
option grants to employees made in the ordinary course of business prior
to the date of the merger agreement;
- establish or adopt any QSI benefit arrangement, or pay any bonus or make
any profit sharing or similar payment to, or increase the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees,
except under existing disclosed agreements;
- change any of its methods of accounting or accounting practices in any
respect unless required by GAAP;
- commence any proceeding, or spend or incur liabilities with respect to
costs and fees of, more than $100,000 in the aggregate in connection with
pursuing existing proceedings in which QSI is the plaintiff or
petitioner;
- acquire, dispose of or encumber any fixed or other assets or make any
capital expenditures, other than assets acquired or capital expenditures
that total no more than $10,000 individually or $100,000 in the
aggregate, and other than inventory sold in the ordinary course of
business;
- incur, assume or prepay any indebtedness, liability or obligation, other
than in the ordinary course of business;
- issue any debt securities;
- make any loans, advances or capital contributions to, or investments in,
any other person, other than normal travel advances in the ordinary
course of business;
- transfer any proprietary asset;
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- enter into or amend any agreements under which any other person is
granted distribution, marketing or other rights of any type or scope with
respect to any of its services, products or technology;
- pay, discharge or satisfy, in any amount in excess of $100,000 in any one
case or $250,000 in the aggregate, any claim, liability or obligation
arising other than in the ordinary course of business, other than the
payment, discharge or satisfaction of liabilities reflected or reserved
against in the financial statements;
- hire any new employee;
- enter into any transaction with a value greater than $10,000, or enter
into any other transaction, regardless of value, or take any other
action, outside the ordinary course of business, except as otherwise
contemplated under the merger agreement;
- enter into any transaction or take any other action that likely would
cause a breach of any representation or warranty made by QSI or any of
QSI's affiliates in the merger agreement; or
- enter into any inbound or outbound licensing agreements other than
outbound licenses in connection with the sale of QSI's products in the
ordinary course of business.
A complete list of the actions QSI may not take is set forth in Section 6.2
of the merger agreement, which is included as Appendix A.
In addition, QSI has agreed to provide operation of business incentives,
totaling no more than $750,000, to certain of its key non-officers specified by
IDT.
ACCESS AND INVESTIGATION
QSI has agreed to provide IDT with free and complete access at all times
during the pre-closing period, except with respect to technical trade secrets,
at reasonable times and with reasonable notice from IDT to QSI, to all of QSI's
premises and assets, to all existing books and other documents and information
relating to QSI, and to responsible officers and employees of QSI, as IDT may
request in good faith. In connection with its obligations, QSI has established
an office for an IDT liaison at QSI's principal place of business.
CERTAIN OTHER COVENANTS OF THE PARTIES
The merger agreement also contains certain additional covenants of QSI and
IDT including covenants relating to:
- QSI's suppliers;
- information regarding QSI's employees;
- QSI accruals and reserves;
- interim review and interim financial statements of QSI;
- IDT's maintenance of indemnification agreements with QSI directors and
officers;
- IDT's conduct of business;
- listing of the IDT common stock on the Nasdaq National Market;
- filings and submissions under the HSR Act;
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- QSI employee benefit plan matters;
- integration matters;
- public statements with respect to the merger; and
- obtaining required consents of third parties.
INDEMNIFICATION AND INSURANCE
IDT has agreed that the indemnification obligations set forth in QSI's
articles and bylaws shall survive the merger. After the effective time, these
obligations shall be the joint and several obligations of IDT and QSI, its
wholly-owned subsidiary. In addition, QSI will maintain in effect, for two years
after the effective time, directors' and officers' liability insurance policies
covering the persons who are directors and officers of QSI as of the date of the
merger agreement. Generally, the terms of the insurance policies will not be
materially less favorable than the insurance coverage provided at the date of
the merger agreement under QSI's existing directors' and officers' liability
insurance policies, for matters occurring prior to the effective time.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER
The obligations of each party to consummate the merger shall be subject to
the satisfaction of each of the following conditions, any of which may be waived
to the extent permitted by applicable law by both QSI and IDT, in whole or in
part:
- the termination or expiration of any waiting period applicable to the
consummation of the merger under the HSR Act;
- the effectiveness of the registration statement and the absence of any
stop order or proceeding seeking a stop order relating to the
registration statement;
- the receipt of all necessary approvals under federal and state securities
laws and other authorizations relating to the issuance or trading of the
IDT common stock to be issued to QSI shareholders;
- the approval for listing on the Nasdaq National Market of shares of IDT
common stock to be issued in the merger;
- the approval and adoption of the merger agreement and the merger by the
requisite vote of the QSI shareholders;
- the absence of any preliminary or permanent injunction or other order by
any court which prohibits the consummation of the merger;
- the absence of any statute, rule, regulation, executive order, stay,
decree, or judgment by any court or governmental authority which
prohibits or restricts the consummation of the merger;
- all material authorizations, consents or filings with any governmental
body which are necessary for the consummation of the merger shall have
been filed, occurred or been obtained; and
- the absence of any action taken by any federal or state governmental body
which, in connection with the grant of a regulatory approval, imposes any
condition or restriction upon
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QSI, or, in the case of any disposition of assets required in connection
with such regulatory approval, upon IDT or QSI.
ADDITIONAL CONDITIONS TO IDT'S AND PENGUIN ACQUISITION'S OBLIGATION TO
CONSUMMATE THE MERGER
IDT's and Penguin Acquisition's obligations to consummate the merger and to
take the other actions required to be taken by them at the closing is subject to
the satisfaction of certain conditions, any of which may be waived by IDT,
including:
- in general, all of the representations and warranties made by QSI and
each of the QSI shareholders deemed an "affiliate" of QSI within the
meaning of the Securities Act in the merger agreement shall have been
accurate in all material respects as of the date of the merger agreement,
and shall be accurate in all material respects as of the closing;
- QSI and the QSI affiliates shall have executed and delivered the
agreements, instruments and documents required to be executed and
delivered, and performed all actions required by QSI or any of QSI
affiliates;
- QSI shall have complied with or performed each of the other covenants and
obligations of QSI under the merger agreement or any other related
agreement at or prior to the closing in all material respects;
- each of the required consents shall have been obtained and shall be in
full force and effect;
- as more fully described in the merger agreement, there shall not have
been certain changes in QSI's business, condition, assets, liabilities,
operations or financial performance since the date of the merger
agreement;
- IDT shall have received, among other things, the following documents:
- an opinion letter from Venture Law Group, counsel to QSI;
- a certificate, dated as of the closing, duly executed by QSI,
certifying that the conditions required of QSI in the merger agreement
have been satisfied and each of the covenants and obligations that QSI
is required to have complied with or performed under the merger
agreement or any related agreements at or prior to the closing has
been duly complied with and performed in all material respects;
- executed QSI affiliate agreements from each QSI affiliate;
- certified resolutions of QSI, and of the meeting of shareholders of
QSI, each authorizing the execution, delivery and performance of the
related agreements;
- updated capitalization information for QSI, certified as true and
correct by an executive officer of QSI;
- a letter from Ernst & Young LLP, independent auditors for QSI, stating
that they concur with QSI's management conclusion that no conditions
exist related to QSI that would preclude IDT from accounting for the
merger as a pooling of interests;
- a letter from PricewaterhouseCoopers LLP, independent accountants for
IDT, stating that they concur with IDT's management conclusion that no
conditions exist that would preclude IDT from accounting for the
merger as a pooling of interests;
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- the audit opinion of Ernst & Young LLP, on September 30, 1998
financial statements, which shall have been delivered to IDT by no
later than December 4, 1998; and
- a letter from Ernst & Young LLP, stating that in conducting its audit
on the September 30, 1998 financial statements, it is not aware of any
material weaknesses with respect to QSI;
- there shall not have been commenced or threatened in writing against IDT
or any person affiliated with IDT, any legal proceeding that challenges,
or seeks damages or other relief in connection with the merger that
prevents or otherwise interferes with the transactions related to the
merger, or that could reasonably be expected to have a material adverse
effect on IDT or QSI;
- no person shall have made or threatened in writing any material claim
asserting that such person owns or has the right to acquire any capital
stock or other securities of QSI, or may be entitled to all or any
portion of the consideration to be issued in connection with the merger;
- neither the consummation nor the performance of any of the transactions
related to the merger will contravene or conflict with or result in a
violation of, or cause IDT or any person affiliated with IDT to suffer
any material adverse consequence under any applicable laws, statutes or
other legal requirements or orders, judgments or other proceedings;
- IDT shall have received an opinion of Fenwick & West LLP to the effect
that the merger will be treated for federal income tax purposes as a
reorganization;
- the holders of no more than ten percent of the outstanding shares of QSI
common stock shall have demanded dissenters' rights;
- QSI shall have received consents from Kanematsu USA Inc. and Siemens
Credit Corporation to the assignment of contracts to IDT as a result of
the merger;
- the Acknowledgment and Agreement by and between Soft Mixed Signal
Corporation and QSI, dated October 26, 1998, shall continue to be in
effect, shall not have been modified in any way and no other agreement or
understanding shall have been entered into between the parties without
IDT's consent;
- each of the persons entitled to benefits under various change in control
agreements shall have certified and agreed in writing that his or her
rights and benefits set forth therein are accurate in all respects and
are the sole remedies available to him or her as a result of the change
in control of QSI;
- SPEL shall have certified and agreed in writing that certain QSI
representations and warranties are accurate in all respects; and
- the registration requirements with respect to the shares QSI common stock
issued under QSI's May 28, 1997 private placement shall have been
terminated as of the effective time.
ADDITIONAL CONDITIONS TO QSI'S OBLIGATION TO CONSUMMATE THE MERGER
QSI's obligation to consummate the merger and to take the other actions
required to be taken by QSI at the closing shall be subject to the satisfaction
of certain conditions, any of which may be waived by QSI, including:
- in general, all of the representations and warranties made by IDT and
Penguin Acquisition in the merger agreement and the other related
agreements shall have been accurate in all
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material respects as of the date of the merger agreement and shall be
accurate in all material respects as of the closing;
- QSI shall have received a certificate, dated the day of the closing, duly
executed by IDT, certifying that each of the representations and
warranties made by IDT and the Penguin Acquisition in the merger
agreement and in the related agreements was accurate in all material
respects, each of the covenants and obligations that IDT or Penguin
Acquisition has been duly complied with and performed in all material
respects, and each of the applicable conditions set forth in the merger
agreement has been satisfied in all respects;
- each of the covenants and obligations that either IDT or Penguin
Acquisition is required to comply with or to perform under the merger
agreement shall have been duly complied with and performed in all
material respects;
- IDT and Penguin Acquisition each shall have executed and delivered prior
to or on the date of the closing all agreements to the merger to which it
is to be a party;
- neither the consummation nor the performance of any of the transactions
related to the merger will conflict with or result in a violation of any
applicable laws, statutes or other legal requirements or orders,
judgments or other proceedings;
- there shall not have been any change in IDT's business, condition,
assets, liabilities, operations or financial performance since the date
of the merger agreement that would have a material adverse effect on IDT,
although a decrease in the trading price of IDT common stock shall not of
itself be considered to have a material adverse effect on IDT;
- QSI shall have received an opinion of Venture Law Group to the effect
that the merger will be treated for federal income tax purposes as a
reorganization; and
- QSI shall have received an opinion letter from Fenwick & West LLP.
TERMINATION; TERMINATION FEE
CONDITIONS FOR TERMINATION
The merger agreement may be terminated and the merger abandoned at any time
prior to the effective time, whether before or after approval by the
shareholders of QSI:
- by mutual written consent of IDT and QSI;
- by either IDT or QSI, in the event of a tender or an exchange offer
relating to the securities of QSI which is accepted by more than fifty
percent of the outstanding shares of QSI common stock;
- by either IDT or QSI, if QSI does not obtain the required vote of the
shareholders of QSI at a duly held meeting of QSI shareholders;
- by either IDT or QSI, if any governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining
or otherwise prohibiting the merger and such order, decree, ruling or any
other action shall have become final and non-appealable as long as the
party seeking to terminate the merger agreement shall have used all
reasonable efforts to remove such order, decree or ruling;
- by QSI if the closing has not taken place on or before May 31, 1999, as
long as QSI has complied with or performed its covenants and obligations;
59
<PAGE> 66
- by QSI if there is an uncured material breach of any covenant or
obligation of IDT or Penguin Acquisition or QSI reasonably determines
that the timely satisfaction of the applicable conditions to its
obligation to consummate the merger has become impossible or impractical,
other than as a result of any failure on the part of QSI to comply with
or perform any covenant or obligation;
- by IDT if there is an uncured material breach of any covenant or
obligation of QSI or IDT reasonably determines that the timely
satisfaction of the applicable conditions to its obligation to consummate
the merger has become impossible or impractical, other than as a result
of any failure on the part of IDT to comply with or perform its covenants
and obligations;
- by IDT if the closing has not taken place on or before May 31, 1999, as
long as IDT has complied with or performed its covenants and obligations;
- by IDT, if at any time prior to the approval of the merger by the
shareholders of QSI, the board of directors of QSI accepts, publicly
endorses, recommends or executes a letter of intent or similar document
with respect to a superior proposal or resolves to do so;
- by IDT if QSI shall have failed to include in the document the unanimous
recommendation of the board of directors of QSI in favor of approval and
adoption of the merger agreement and the merger, or the board of
directors of QSI shall have amended or modified in a manner adverse to
IDT such board of directors' unanimous recommendation in favor of the
merger or approval or adoption of the merger agreement;
- by IDT if the board of directors of QSI shall have approved, publicly
endorsed, recommended or executed a letter of intent or similar document
with respect to any acquisition proposal;
- by IDT if a tender or exchange offer relating to securities of QSI shall
have been commenced and QSI shall not have sent to its security holders,
within ten business days after the commencement of such tender or
exchange offer, a statement that QSI recommends rejection of such tender
or exchange offer; or
- by IDT if an acquisition proposal, other than a tender or exchange offer
relating to the securities of QSI, is publicly announced, and, upon IDT's
request, QSI fails to issue a press release announcing its opposition to
such acquisition proposal within five business days after such request.
TERMINATION FEE
QSI shall pay to IDT, in cash, a non-refundable termination fee in the
amount of $1,500,000 if the merger agreement is:
- terminated by IDT or QSI in the event of a tender or an exchange offer
relating to the securities of QSI which is accepted by more than fifty
percent of the outstanding shares of QSI common stock; or
- terminated by IDT if:
- there is a material breach of any covenant or obligation of QSI;
- at any time prior to the approval of the merger by the shareholders of
QSI, the board of directors of QSI accepts, publicly endorses,
recommends or executes a letter of intent or similar document with
respect to a superior proposal or resolves to do so;
60
<PAGE> 67
- QSI shall have failed to include in this document the unanimous
recommendation of the board of directors of QSI in favor of approval
and adoption of the merger agreement and the merger, or the board of
directors of QSI shall have amended or modified in a manner adverse to
IDT such board of directors' unanimous recommendation in favor of the
merger or approval or adoption of the merger agreement;
- the board of directors of QSI shall have approved, publicly endorsed,
recommended or executed a letter of intent or similar document with
respect to any acquisition proposal;
- a tender or exchange offer relating to securities of QSI shall have
been commenced and QSI shall not have sent to its security holders,
within ten business days after the commencement of such tender or
exchange offer, a statement that QSI recommends rejection of the
tender or exchange offer; or
- an acquisition proposal, other than a tender or exchange offer
relating to the securities of QSI, is publicly announced, and, upon
IDT's request, QSI fails to issue a press release announcing its
opposition to such acquisition proposal within five business days
after such request.
EXPENSE REIMBURSEMENT
QSI shall pay to IDT, in cash, a non-refundable reimbursement fee of
$500,000 if the merger agreement is terminated by IDT or QSI because QSI fails
to obtain the required vote of the shareholders of QSI in favor of the merger at
the special meeting, and on the date of the meeting the average per share
closing sales price of IDT common stock for the five trading days immediately
prior to the special meeting, was at least $4.00 per share.
ADDITIONAL TERMINATION PROVISIONS
If the merger agreement is terminated for any of the reasons described
above, all further obligations of the parties under the merger agreement shall
terminate, except that:
- the parties shall remain bound by and continue to be subject to the
applicable provisions set forth in the merger agreement with respect to
expenses, public announcements and certain other miscellaneous
provisions;
- the parties shall remain bound by the terms and provisions of the
nondisclosure agreement between the parties;
- the parties and their officers and directors shall have no liability
under the merger agreement and all rights and obligations of any party
shall cease, except the obligation to pay the termination fee or expense
reimbursement and, except for the exclusivity of termination rights,
nothing shall relieve any party from liability for the willful breach of
any of its representations, warranties, covenants or agreements;
If the merger agreement is terminated, both IDT and QSI shall be entitled
to announce the termination of the merger agreement. In addition, in the event
QSI is not obligated to pay the termination fee, IDT shall reimburse QSI for
one-half of the expenses QSI has incurred through the date of termination.
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<PAGE> 68
EXPENSES
All costs and expenses incurred in connection with the merger, whether or
not the merger is consummated, shall be paid by the party incurring such
expenses, except as otherwise provided in the merger agreement or in the related
agreements.
AFFILIATE AGREEMENTS
QSI AFFILIATE AGREEMENTS
Each person determined by QSI to be an "affiliate" of QSI within the
meaning of Rule 145 under the Securities Act, has signed an agreement that
prohibits:
- the sale, transfer or other disposition of IDT common stock received by
such person in connection with the merger unless
- such transaction is permitted under Rule 145(d);
- appropriate legal counsel shall have advised IDT that such sale,
transfer or other disposition will be exempt from registration under
the Securities Act;
- a registration statement under the Securities Act has been filed with,
and declared effective by, the Commission covering all shares of IDT
common stock that are or may be issued by IDT in connection with the
merger, or to any former holder of QSI options, warrants or rights to
acquire shares of QSI common stock proposed to be sold, transferred or
otherwise disposed of; or
- the Commission shall have rendered written advice to the effect that
the Commission would take no action with respect to the proposed
disposition of such IDT common stock if consummated; and
- the sale, transfer or other disposition of any securities of IDT or QSI,
during the period beginning thirty days preceding the closing of the
merger through the date on which financial results covering at least 30
days of combined operations of IDT and QSI are published by IDT, unless
the sale or disposition is in accordance with the "de minimis" test set
forth in SEC Staff Accounting Bulletin No. 76 and the stockholder has
obtained IDT's prior written approval of such sale or disposition.
These persons have also made certain representations pertaining to the
"continuity of interest" requirements for the merger to constitute a
"reorganization" within the meaning of section 368(a) of the code. See "Approval
of the Merger and Related Transactions -- Material Federal Income Tax
Considerations."
IDT AFFILIATE AGREEMENTS
IDT and QSI have also entered into agreements with each of the IDT
affiliates, under which these IDT affiliates have agreed that they will not sell
or otherwise dispose of any IDT securities for thirty days prior to the closing
of the merger through the date on which financial results covering at least
thirty days of combined operations of IDT and QSI are published by IDT.
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<PAGE> 69
INTERESTS OF CERTAIN PERSONS
QSI entered into Change in Control Agreements, dated as of August 28, 1997,
with the president, vice presidents and certain employees of QSI. Under these
agreements the employees are entitled to receive certain benefits upon a change
in control of QSI.
If the merger is consummated, it will be deemed a change of control for
purposes of the change in control agreement.
The estimated value that each member of QSI's management and directors may
receive, based on the exchange ratio of 0.6875 and $5.438 the closing price per
share of IDT common stock on March 19, 1999, is set forth in the table below.
Upon a change in control, the change in control agreements provide for the
unvested QSI common stock or options to purchase QSI common stock to be
accelerated by two years regardless of whether the employee is terminated in
connection with the change in control. Should the employees be involuntarily
terminated within one year after a change in control, the president, vice
presidents and select employees of QSI shall receive both a severance payment,
comprised of a lump sum salary payment for a specified severance period and a
target bonus pro-rated over the severance period and a target bonus pro-rated
for the number of months the employee was employed by QSI for the current fiscal
year. The severance period for the president, vice presidents and select
employees is 18 months, 12 months and 6 months respectively. The names of the
officers and key employees who will receive severance payments, bonuses,
benefits and outplacement services if terminated within one year of the
consummation of the merger, and the approximate total maximum amount of such
severance payments, bonuses, benefits and outplacement service fees, based on an
effective date of May 4, 1999, are summarized below. The approximate value of
accelerated option vesting was calculated by subtracting the aggregate exercise
price for the accelerated options from the fair market value of the accelerated
options as of May 4, 1999, based on the closing price of IDT common stock on
March 19, 1999.
<TABLE>
<CAPTION>
APPROXIMATE VALUE OF
TOTAL SEVERANCE ACCELERATED OPTION
NAME PAYMENTS VESTING
---- --------------- --------------------
<S> <C> <C>
Dan Andersen................................... $ 60,000 $ 5,022
Rick Bowers.................................... 252,000 37,200
Edward Bradley................................. 252,000 --
Chun Chiu...................................... 411,000 --
Albert Enamait................................. 303,000 --
Kelvyn Evans................................... 121,000 18,600
R. Paul Gupta.................................. 875,750 --
Gilbert Jones.................................. 252,000 16,709
Suren Kodical.................................. 135,550 19,927
Steve Liu...................................... 267,000 26,351
Beng-Kui Ng.................................... 84,050 9,300
Kalki Radhakrishnan............................ 103,875 10,959
Anthony Sa..................................... 109,000 14,880
David Sear..................................... 387,000 --
Arvind Shenoy.................................. 113,900 18,299
Stephen Vonderach.............................. 316,000 --
Gale Waggoner.................................. 92,500 10,850
</TABLE>
QSI also entered into change in control agreements, dated as of August 28,
1997, with the directors of QSI whereby unvested QSI common stock or options to
purchase QSI common stock will be accelerated by two years regardless of whether
the directors' engagement with QSI is terminated in connection with the change
in control. The directors' change in control agreements have no provisions for
severance payments, target bonuses or other lump sum cash payments.
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<PAGE> 70
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
have been prepared to give effect to the merger, using the pooling of interests
method of accounting.
The unaudited pro forma combined balance sheet as of December 27, 1998
gives effect to the merger as if it had occurred on December 27, 1998, and
combines the unaudited consolidated balance sheet of IDT as of December 27, 1998
and the unaudited consolidated balance sheet of QSI as of December 31, 1998.
The unaudited pro forma combined statements of operations for all periods
presented give effect to the merger as if it had occurred on April 1, 1995.
Since the fiscal years of IDT and QSI differ, for the purposes of preparing the
fiscal 1998 pro forma combined statement of operations, we have recast the
consolidated statements of operations of QSI and presented them for the 12-month
period ended March 29, 1998. IDT expects that upon consummation of the merger,
QSI will change its fiscal year to coincide with IDT's. We have combined QSI's
consolidated statements of operations for the quarterly periods ended June 30,
1997, September 30, 1997, December 31, 1997 and March 31, 1998, as reported in
or derived from QSI's published historical information, with IDT's consolidated
statements of operations for the fiscal year ended March 29, 1998. In addition,
for purposes of the pro forma statements of operations for fiscal years 1996 and
1997, we have combined QSI's consolidated statements of operations for each of
the fiscal years ended September 30, 1996 and 1997 with IDT's consolidated
statements of operations for the fiscal years ended March 31, 1996 and March 30,
1997, respectively. We have also combined QSI's consolidated statements of
operations for the nine month periods ended December 31, 1997 and 1998 with
IDT's consolidated statements of operations for the nine months ended December
28, 1997 and December 27, 1998. Accordingly, QSI's results of operations for the
nine month period ended December 28, 1997 have been included in the pro forma
statements of operations for both of the two fiscal years ended March 30, 1997
and March 29, 1998.
IDT and QSI estimate they will incur direct transaction costs of
approximately $1.2 million associated with the merger, consisting primarily of
transaction fees for attorneys, accountants, financial printing and other
related charges and severance costs of approximately $0.5 million. These costs
are being charged to operations as incurred. As of December 27, 1998,
approximately $0.8 million in merger expenses had been incurred and charged to
operations. Also, the combined entity expects to incur certain costs, which
could be material but cannot be reasonably estimated at the current time, to
integrate IDT and QSI. Such actions might include elimination of duplicate
facilities and operations; integration of internal and customer related
activities; and cancellation and continuation of contractual obligations. We
have not reflected these costs in the pro forma condensed balance sheet or pro
forma condensed statements of operations because such costs cannot be accurately
estimated at this time pending finalization of certain operating decisions by
management as to the manner and timing of consolidating the operations.
Between September 30, 1998 and October 15, 1998, IDT repurchased 856,000
shares of its common stock. These repurchases were made on the open market and
pursuant to a board of directors authorization announced on September 21, 1998.
On November 6, 1998, IDT announced that it had terminated the stock repurchase
program. IDT is treating the repurchased shares as tainted. In order to account
for the combination as a pooling of interests, tainted shares must represent
less than 10% of the total shares issued to effect the combination. IDT plans to
cure the taint associated with its treasury shares by issuing the tainted shares
for normal recurring corporate purposes such as IDT's employee stock purchase
plan and the exercise of stock options by employees. During the quarter ended
December 27, 1998, approximately 18,900 shares were issued for these purposes.
As of February 27, 1999, an additional 497,300 treasury shares had been issued
during the
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<PAGE> 71
fourth quarter of the fiscal year ended March 28, 1999. At the closing of the
merger, it is anticipated that the number of remaining tainted shares will be
well below the 10% threshold.
No significant adjustments are necessary to conform the accounting policies
of the combining companies.
The unaudited pro forma combined consolidated financial information has
been presented for illustrative purposes only and is not necessarily indicative
of the financial position or results of operations that would have actually been
reported had the merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma combined financial statements are based
upon the respective historical consolidated financial statements and notes
thereto of IDT and QSI incorporated by reference in this document, and neither
include nor assume any benefits from cost savings resulting from the merger.
65
<PAGE> 72
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
REFLECTING IDT
AFTER GIVING EFFECT TO THE MERGER
DECEMBER 27, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
IDT QSI ADJUSTMENTS(2) COMBINED
-------- ------- -------------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and short term investments............. $171,002 $ 6,274 $ -- $177,276
Accounts receivable, net.................... 52,983 4,815 -- 57,798
Inventories, net............................ 53,869 6,765 -- 60,634
Prepayments and other current assets........ 37,478 1,174 -- 38,652
-------- ------- -------- --------
Total current assets................ 315,332 19,028 -- 334,360
Property, plant and equipment, net............ 304,279 19,111 -- 323,390
Other assets.................................. 70,327 478 -- 70,805
-------- ------- -------- --------
Total assets........................ $689,938 $38,617 $ -- $728,555
======== ======= ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 31,013 $ 5,624 $ -- $ 36,637
Accrued merger costs........................ 100 -- 380 480
Deferred income on shipments to
distributors............................. 34,562 2,059 -- 36,621
Other accrued liabilities................... 71,697 7,802 520 80,019
-------- ------- -------- --------
Total current liabilities........... 137,372 15,485 900 153,757
Convertible subordinated notes, net........... 184,205 -- -- 184,205
Other liabilities............................. 105,034 3,719 -- 108,753
-------- ------- -------- --------
Total liabilities................... 426,611 19,204 900 446,715
-------- ------- -------- --------
Common stock and additional paid in capital... 326,771 41,879 -- 368,650
Accumulated deficit........................... (62,695) (20,174) (900) (83,769)
Accumulated other comprehensive loss.......... (749) (2,292) -- (3,041)
-------- ------- -------- --------
Total stockholders' equity.......... 263,327 19,413 (900) 281,840
-------- ------- -------- --------
Total liabilities & stockholders'
equity........................... $689,938 $38,617 $ -- $728,555
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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<PAGE> 73
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
REFLECTING IDT AFTER THE MERGER
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------------- ---------------------------
MARCH 31, MARCH 30, MARCH 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998 1997 1998
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues....................................... $724,185 $599,904 $658,810 $492,493 $ 437,646
Cost of revenues............................... 323,921 365,741 414,033 308,939 300,059
Asset impairment and other..................... -- 45,223 -- -- 160,860
Restructuring charges.......................... -- -- -- -- 46,384
-------- -------- -------- -------- ---------
Gross profit (loss)........................ 400,264 188,940 244,777 183,554 (69,657)
-------- -------- -------- -------- ---------
Operating expenses:
Research and development..................... 140,299 160,701 131,952 99,535 113,734
Selling, general and administrative.......... 99,762 93,429 103,072 75,560 87,771
-------- -------- -------- -------- ---------
Total operating expenses.............. 240,061 254,130 235,024 175,095 201,505
-------- -------- -------- -------- ---------
Operating income (loss)............... 160,203 (65,190) 9,753 8,459 (271,162)
Interest expense............................... (9,702) (13,140) (15,365) (11,785) (10,960)
Interest income and other, net................. 21,380 16,488 13,349 10,899 3,378
-------- -------- -------- -------- ---------
Income (loss) before income taxes.............. 171,881 (61,842) 7,737 7,573 (278,744)
Provision (benefit) for income taxes........... 54,942 (19,780) 3,049 1,982 32,161
-------- -------- -------- -------- ---------
Income (loss) before extraordinary item.... 116,939 (42,062) 4,688 5,591 (310,905)
Extraordinary item:
Gain from early extinguishment of debt....... 1,921 -- -- -- --
-------- -------- -------- -------- ---------
Net income (loss).......................... $118,860 $(42,062) $ 4,688 $ 5,591 $(310,905)
======== ======== ======== ======== =========
Net income (loss) before extraordinary item per
share:
Basic........................................ $ 1.45 $ (0.51) $ 0.05 $ 0.07 $ (3.56)
Diluted...................................... $ 1.35 $ (0.51) $ 0.05 $ 0.06 $ (3.56)
Net income (loss) per share:
Basic........................................ $ 1.47 $ (0.51) $ 0.05 $ 0.07 $ (3.56)
Diluted...................................... $ 1.37 $ (0.51) $ 0.05 $ 0.06 $ (3.56)
Common and common stock equivalent shares used
in per share calculation:
Basic........................................ 80,824 82,827 85,270 84,969 87,289
Diluted...................................... 91,769 82,827 89,237 88,902 87,289
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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<PAGE> 74
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(1) PRO FORMA BASIS OF PRESENTATION
Since the fiscal years of IDT and QSI differ, the financial statements of
QSI have been recast for the most recently completed fiscal year of IDT and are
presented for the 12-month period ended March 29, 1998. The periods combined for
purposes of the pro forma combined financial statements are as follows:
<TABLE>
<CAPTION>
IDT QSI
--- ---
<S> <C>
Fiscal year ended March 29, 1998 Twelve months ended March 31, 1998
Fiscal year ended March 30, 1997 Fiscal year ended September 30, 1997
Fiscal year ended March 31, 1996 Fiscal year ended September 30, 1996
Nine months ended December 27, 1998 Nine months ended December 31, 1998
Nine months ended December 28, 1997 Nine months ended December 31, 1997
</TABLE>
QSI's results of operations for the nine month period ended December 31,
1997, have been included in the pro forma statements of operations for both of
the two fiscal years ended March 30, 1997 and March 29, 1998. Revenues and net
loss of QSI for the nine month period ended December 31, 1997, were $55.6
million and $(1.3) million, respectively.
These unaudited pro forma combined financial statements reflect the
issuance of 5,173,129 shares of IDT common stock in exchange for an aggregate of
7,524,551 shares of QSI common stock, outstanding as of December 31, 1998, in
the merger, based on the exchange ratio of 0.6875 set forth in the following
table:
<TABLE>
<S> <C>
QSI common stock outstanding as of December 31, 1998........ 7,524,551
Exchange Ratio.............................................. 0.6875:1.0
Number of shares of IDT common stock exchanged.............. 5,173,129
Number of shares of IDT common stock outstanding at December
27, 1998.................................................. 82,310,013
----------
Number of shares of combined company common stock
outstanding after the completion of the merger............ 87,483,142
==========
</TABLE>
The actual number of shares of IDT common stock to be issued will be
determined at the effective time based on the number of shares of QSI common
stock outstanding at that date.
(2) PRO FORMA COMBINED BALANCE SHEET
(a) IDT and QSI estimate they will incur direct transaction costs of
approximately $1.2 million associated with the merger, consisting of transaction
fees for attorneys, accountants, financial printing and other related charges
and severance costs of approximately $0.5 million. These costs are being charged
to operations as incurred. As of December 27, 1998, approximately $0.8 million
in merger expenses had been incurred and charged to operations. The remaining
costs have been reflected in the unaudited pro forma combined balance sheet but
have not been included in the unaudited pro forma combined statements of
operations.
(b) It is expected that following the merger, the combined company will
incur significant additional costs or charges, which are not currently
reasonably estimable, to reflect costs associated with integrating the two
companies. These costs or charges have not been reflected in the pro forma
condensed balance sheet or condensed statements of operations as such costs
cannot be accurately estimated at this time pending finalization of certain
operating decisions by management as to the
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<PAGE> 75
manner and timing of consolidating the operations. There can be no assurance
that the combined company will not incur additional merger-related costs or
charges or that management will be successful in its efforts to integrate the
operations of the two companies.
(3) PRO FORMA NET INCOME (LOSS) PER SHARE
The following table reconciles the number of shares used in the pro forma
per share computations to the numbers set forth in IDT's and QSI's historical
statements of operations:
SHARES USED IN PRO FORMA PER SHARE CALCULATIONS
(IN THOUSANDS EXCEPT CONVERSION NUMBER)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------------- ---------------------------
MARCH 31, MARCH 30, MARCH 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998 1997 1998
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
SHARES USED IN BASIC PER SHARE
CALCULATIONS
Historical -- IDT...................... 77,026 78,454 80,359 80,119 82,149
------ ------ ------ ------ ------
Historical -- QSI...................... 5,524 6,361 7,143 7,055 7,477
Conversion number...................... 0.6875 0.6875 0.6875 0.6875 0.6875
------ ------ ------ ------ ------
As converted -- QSI.................... 3,798 4,373 4,911 4,850 5,140
------ ------ ------ ------ ------
Pro forma combined..................... 80,824 82,827 85,270 84,969 87,289
------ ------ ------ ------ ------
SHARES USED IN DILUTED PER SHARE
CALCULATIONS
Historical -- IDT...................... 87,753 78,454 84,022 83,614 82,149
------ ------ ------ ------ ------
Historical -- QSI...................... 5,841 6,361 7,586 7,692 7,477
Conversion number...................... 0.6875 0.6875 0.6875 0.6875 0.6875
------ ------ ------ ------ ------
As converted -- QSI.................... 4,016 4,373 5,215 5,288 5,140
------ ------ ------ ------ ------
Pro forma combined..................... 91,769 82,827 89,237 88,902 87,289
------ ------ ------ ------ ------
</TABLE>
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SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT OF QSI
The following table sets forth the beneficial ownership of the QSI's common
stock as of March 19, 1999 for:
- each person who is known by QSI to beneficially own more than five
percent of QSI's common stock;
- each of QSI's directors;
- each of the five most highly compensated executive officers for the
fiscal year ended September 27, 1998, otherwise referred to as the "Named
Executive Officers;" and
- all directors and executive officers as a group.
Except as indicated in the footnotes to this table and under applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock. Options exercisable
on or before May 18, 1999, are included as shares beneficially owned. For the
purposes of calculating percent ownership, as of March 19, 1999, 7,560,180
shares were issued and outstanding, and, for any individual who beneficially
owns shares represented by options exercisable on or before May 18, 1999, such
shares are treated as if outstanding for that person, but not for any other
person.
<TABLE>
<CAPTION>
OPTIONS
SHARES BENEFICIALLY EXERCISABLE
5% SHAREHOLDERS, DIRECTORS, OWNED ON OR BEFORE
NAMED EXECUTIVE OFFICERS, ---------------------- MAY 18,
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER PERCENT 1999
----------------------------------------------- ----------- ------- ------------
<S> <C> <C> <C>
Dimensional Fund Advisors, Inc....................... 430,100 5.7% --
Chun P. Chiu, Chairman of the Board & Chief Technical
Officer............................................ 375,105(1) 4.9 71,663
Andrew J. S. Kang, Director.......................... 330,150(2) 4.4 10,000
R. Paul Gupta, Director, President & Chief Executive
Officer............................................ 320,974 4.1 204,053
Masaharu Shinya, Director............................ 68,333(3) * 10,000
Robert L. Puette, Director........................... 5,000 * 5,000
David D. Tsang, Director............................. 7,500 * 7,500
David Sear, Executive Vice President and Chief
Operating Officer.................................. 50,963 * 50,000
Edward J. Bradley, Jr., Vice President of
Manufacturing...................................... 21,980 * 16,813
Albert R. Enamait, Vice President of Sales and
Marketing.......................................... 26,042 * 26,042
All current executive officers and directors as a
group (10 persons)................................. 1,206,047(4) 15.1 414,613
</TABLE>
- -------------------------
* Less than 1%
(1) Includes 4,500 shares held by Mr. Chiu's children as to which Mr. Chiu
disclaims beneficial ownership.
(2) Includes 234,751 shares owned by Technology Associates Corporation and
79,400 shares owned by TechGains as to which Mr. Kang disclaims beneficial
ownership except to the extent of his pecuniary interest therein. Mr. Kang
is a director of Technology Associates and is the Managing Director of
Technology Associates Management Company which controls TechGains.
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(3) Includes 50,000 shares held by Kanematsu Semiconductor Corporation as to
which Mr. Shinya disclaims beneficial ownership. Mr. Shinya is the president
of Kanematsu Semiconductor Corporation.
(4) Includes 314,157 shares described in footnote 2 above owned by an affiliate
of Mr. Kang, a director of QSI, as to which Mr. Kang has disclaimed
beneficial ownership. Also includes 50,000 shares described in footnote 3
above owned by an affiliate of Mr. Shinya, a director of QSI, as to which
Mr. Shinya has disclaimed beneficial ownership.
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COMPARISON OF CAPITAL STOCK
DESCRIPTION OF QSI CAPITAL STOCK
The authorized capital stock of QSI consists of 30,000,000 shares of common
stock, $0.001 par value per share, and 1,000,000 shares of preferred stock,
$0.001 par value per share.
QSI COMMON STOCK
As of March 19, 1999, 7,560,180 shares of QSI common stock were
outstanding. The holders of QSI common stock are entitled to one vote per share
on all matters to be voted upon by the shareholders. The shareholders have a
right to take action by written consent. Shareholders may cumulate votes in
connection with the election of directors. The holders of QSI common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the QSI board of directors out of funds legally available. In the
event of a liquidation, dissolution or winding up of QSI, the holders of QSI
common stock are entitled to share ratably in all assets remaining after payment
of liabilities. QSI common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to QSI common stock. All outstanding shares of QSI common stock are
fully paid and non-assessable, and the shares of QSI common stock to be
outstanding immediately prior to completion of the merger will be fully paid and
non-assessable.
QSI PREFERRED STOCK
QSI has 1,000,000 shares of preferred stock authorized, of which, as of
March 19, 1999, no shares were outstanding. The QSI board of directors has the
authority to issue these shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions granted to or imposed
upon any unissued and undesignated shares of preferred stock and to fix the
number of shares constituting any series and the designations of such series,
without any further vote or action by the shareholders. The QSI board of
directors, without shareholder approval, can issue preferred stock with voting
and conversion rights which could adversely affect the voting power or other
rights of the holders of QSI common stock and the issuance of preferred stock
may have the effect of delaying, deferring or preventing a change in control of
QSI.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of QSI common stock is Boston Equiserve
and its telephone number is (781) 575-2138.
QSI RIGHTS PLAN
The QSI rights plan assigns a purchase price to each right and then gives
each holder of a right who is not deemed to be an unfriendly acquiror, the
ability to acquire that number of shares of QSI common stock having a market
value equal to twice the purchase price. For example, the current purchase price
is $70.00 per right. Once the rights become exercisable, any holder of a right
could acquire QSI common stock worth $140.00 by making payment of the $70.00
purchase price to QSI.
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The rights will expire on the earliest of (a) September 17, 2007 or (b) the
redemption or exchange of the rights by QSI. The rights will become exercisable
and will trade separately from the QSI common stock, unless postponed by action
of QSI's disinterested directors, on the earlier of:
- the close of business on the tenth day after a public announcement that a
person or group of affiliated or associated persons has become an
"unfriendly acquiror" by acquiring or obtaining the right to acquire
beneficial ownership of 15% or more of the outstanding QSI common stock
without the approval of the board of directors;
- or the close of business on the tenth day after the commencement of a
tender offer or exchange offer which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding QSI
common stock. For example, if any person or group acquires 15% or more of
the QSI common stock without approval of the QSI board, then, at the
close of the tenth business day after the public announcement of such
acquisition, the rights will become exercisable. In addition, the
purchase price, number of rights, and number of shares of QSI common
stock or common stock of any unfriendly acquiror that may be acquired for
the purchase price will be adjusted to prevent dilution.
QSI may redeem the rights in whole, but not in part, at a price of $.01 per
right at any time prior to the close of business on the earlier of (1) the tenth
day after the date of public announcement that someone has become an unfriendly
acquiror or (2) a later date as determined by a majority of the board of
directors, excluding any affiliate of an unfriendly acquiror and publicly
announced by QSI or (3) the final expiration date of the rights.
Under the terms of the merger agreement, QSI has agreed to take all
necessary action to render rights issued under the QSI rights plan inapplicable
to the merger.
DESCRIPTION OF IDT CAPITAL STOCK
The authorized capital stock of IDT consists of 210,000,000 shares of
capital stock, of which 200,000,000 shares are designated as common stock with
$0.001 par value per share and 10,000,000 shares are designated as preferred
stock with $0.001 par value per share.
IDT COMMON STOCK
As of March 19, 1999, 83,179,163 shares of IDT common stock were
outstanding. The holders of IDT common stock are entitled to one vote per share
on all matters to be voted upon by the stockholders. Stockholders may cumulate
votes in connection with the election of directors. The holders of IDT common
stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by IDT's board out of funds legally available. In the event of
a liquidation, dissolution or winding up of IDT, the holders of IDT common stock
are entitled to share ratably in all assets remaining after payment of
liabilities and payment of liquidation preferences to holders of IDT preferred
stock, if any. IDT common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to IDT common stock. All outstanding shares of IDT common stock are
fully paid and non-assessable, and the shares of IDT common stock to be
outstanding upon completion of the merger will be fully paid and non-assessable.
Each share of IDT common stock has associated with it certain rights to acquire
shares of IDT capital stock under a "poison pill" rights plan. See "-- IDT
Preferred Stock" and "-- IDT Stockholders Rights Plan."
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IDT PREFERRED STOCK
IDT has 10,000,000 shares of IDT preferred stock authorized, of which, as
of March 19, 1999, no shares were outstanding. Subject to the terms of the
governance agreement, IDT's board of directors has the authority to issue these
shares of IDT preferred stock in one or more series, to fix the rights,
preferences, privileges and restrictions, qualifications and limitations granted
to or imposed upon any unissued and undesignated shares of IDT preferred stock
and to fix the number of shares constituting any series and the designations of
such series, without any further vote or action by the stockholders. IDT's
board, without stockholder approval, may issue IDT preferred stock with voting
and conversion rights which could adversely affect the voting power or other
rights of the holders of IDT common stock, and the issuance of IDT preferred
stock may have the effect of delaying, deferring or preventing a change in
control of IDT. IDT has initially reserved 100,000 shares of Series A Junior
Participating Preferred Stock, par value $0.001 per share, for potential
issuance under the exercise of rights under the rights plan, as described below.
See "-- IDT Stockholders Rights Plan."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of IDT common stock is Boston EquiServe
and its telephone number is (650) 947-3239.
IDT RIGHTS PLAN
The IDT Board implemented a stockholder rights plan on December 21, 1998.
Each stockholder of record on January 4, 1999, received a dividend of one
preferred share purchase right for each outstanding share of IDT common stock.
This dividend right entitles the stockholder to purchase 1/100th of a share of
Series A Junior Participating Preferred Stock at an exercise price of $45.00.
This preferred stock is structured so that the value of 1/100th of a share of
the preferred stock approximates the value of one share of common stock.
The rights are currently neither exercisable nor traded separately from the
common stock. If a person or a group acquires 15% or more of IDT's common stock,
or announces an intention to make a tender offer for IDT's common stock which
would result in a person or group acquiring 15% or more of IDT's common stock,
the rights will become exercisable and thereafter trade separately from the
common stock. A person or group who does this is called an acquiring person.
Upon a person or group becoming an acquiring person, the holder of rights,
other than the acquiring person, will have the right to acquire shares of IDT at
a substantially discounted price. Additionally, if a person becomes an acquiring
person and IDT is acquired in a merger or other business combination, or 50
percent or more of its assets are sold in a transaction with an acquiring
person, the holders of rights, other than the acquiring person, will have the
right to acquire shares of common stock of the acquiring corporation at a
substantially discounted price. After a person has become an acquiring person,
IDT's board of directors may exchange the outstanding rights, other than those
held by the acquiring person, for common stock of IDT at an exchange ratio of
one share of common stock per right.
The board of directors may redeem outstanding rights at any time prior to a
person becoming an acquiring person at a price of $0.001 per right. Prior to
such time, the terms of the rights may be amended by the board of directors. The
rights will expire on December 21, 2008.
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COMPARISON OF RIGHTS OF HOLDERS OF IDT COMMON STOCK AND HOLDERS OF QSI COMMON
STOCK
IDT is incorporated in the State of Delaware and QSI is incorporated in the
State of California. Following the effective time, QSI will continue to be
governed by the California Corporations Code and IDT will continue to be
governed by the Delaware General Corporation Law. Shareholders of QSI, however,
will hold IDT common stock rather than QSI common stock. Therefore, the rights
of such shareholders will be governed by Delaware law, and the provisions of the
IDT certificate of incorporation and the IDT bylaws, rather than the QSI
articles of incorporation and the QSI bylaws. The following is a summary
comparison of certain provisions of California law and Delaware law and the
charters and bylaws of the corporations. This summary is not complete and you
should therefore read the full text of the states' corporate statutes and the
corporate charters and bylaws of IDT and QSI. For information as to how these
documents may be obtained, see "Where You Can Find More Information."
DIVIDENDS AND REPURCHASES OF SHARES
California law permits a corporation, unless otherwise restricted by its
articles of incorporation, to make distributions to its shareholders if either
of the following factors are satisfied on a consolidated basis:
- the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution, or
- immediately after giving effect to the distribution (1) the corporation's
assets, not including goodwill, capitalized research and development
expenses and deferred charges, would be at least equal to 1 1/4 times its
liabilities, not including deferred taxes, deferred income and other
deferred credits, and (2) the corporation's current assets would be at
least equal to (x) its current liabilities or (y) 1 1/4 times its current
liabilities if the average pre-tax and pre-interest expense earnings for
the preceding two fiscal years were less than the average interest
expense for such years.
The QSI articles do not otherwise restrict the ability of QSI's board to
make distributions to its shareholders. In addition, California law generally
provides that a corporation may redeem or repurchase its shares.
Delaware law retains the concepts of par value, capital and surplus.
Delaware law permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year. However, if the
amount of capital of the corporation following the declaration and payment of
the dividend is less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets, the directors may not declare and pay out a dividend
from the corporation's net profits. In addition, Delaware law generally provides
that a corporation may redeem or repurchase its shares only if the capital of
the corporation is not impaired and such redemption or repurchase would not
impair the capital of the corporation.
POWER TO CALL SPECIAL MEETING OF STOCKHOLDERS
Under California law, a special meeting of shareholders may be called by
the board of directors or by any other person authorized to do so in the
articles of incorporation or the bylaws or the holders of at least 10% of all
votes entitled to the cast at such meeting. The QSI bylaws provide that a
special meeting of shareholders may be called at any time by the board of
directors, the chairman
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of the board, the president or by one or more shareholders holding not less than
10% of the outstanding shares entitled to vote at the meeting.
Under Delaware law, a special meeting of stockholders maybe called by the
board of directors or any other person as may be provided in the certificate of
incorporation or bylaws. The IDT certificate and bylaws do not grant
stockholders the right to call a special meeting of the stockholders. The IDT
bylaws provide that special meetings of the stockholders maybe called at any
time by the board of directors, the chairman of the board or the president.
Former QSI shareholders would thus not retain the right to call a special
meeting of shareholders.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS
Under California law, any action required or permitted to be taken at a
meeting of the shareholders may be taken without a meeting if the written
consent sets forth the action so taken and is signed by all shareholders
entitled to vote on the actions.
Under Delaware law, unless otherwise provided in the certificate of
incorporation, any action which may be taken at a meeting of the stockholders
may be taken without a meeting and without prior notice if a consent in writing
is signed by the holders of outstanding shares having at least the minimum
number of votes that would be necessary to take such action at a meeting at
which all shares entitled to vote thereon were present and voted. The IDT bylaws
expressly permit stockholders to vote by written consent.
INSPECTION OF STOCKHOLDER LIST
California law allows any shareholder to inspect the shareholder list
beginning two days after notice of a meeting is given for which the list was
prepared and continuing through the meeting.
Delaware law allows any stockholder to inspect the stockholder list for a
purpose reasonably related to such person's interest as a stockholder. Delaware
law also provides for inspection rights as to a list of stockholders entitled to
vote at a meeting within a ten day period preceding a stockholders' meeting for
any purpose germane to the meeting.
STOCKHOLDER VOTING ON BUSINESS COMBINATIONS
STATUTORY MERGERS
Both California law and Delaware law generally require that the holders of
a majority of the outstanding voting shares of the acquiring and target
corporations approve statutory mergers. Delaware law does not require a
stockholder vote of the surviving corporation in a merger if:
- the merger agreement does not amend the existing certificate of
incorporation;
- each share of the surviving corporation outstanding before the merger is
equal to an identical outstanding or treasury share after the merger; and
- the number of shares to be issued by the surviving corporation in the
merger does not exceed 20% of the shares outstanding immediately prior to
the merger.
California law contains a similar exception to its voting requirements for
reorganizations where shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
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SALE OF ASSETS
Both California law and Delaware law require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
CLASS VOTING
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. By contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares, increases or decreases the number of
authorized shares of a class of shares or increases or decreases the par value
of the shares of a class of shares.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
In the last several years, a number of states, but not California, have
adopted special laws designed to make certain kinds of two-step corporate
takeovers, or other transactions involving a corporation and one or more of its
significant shareholders, more difficult. Under section 1203 of the California
Corporations Code, certain business combinations with certain interested
shareholders are subject to conditions, including a requirement that a fairness
opinion must be obtained and delivered to the corporation's shareholders.
California law requires that holders of non-redeemable common stock receive
non-redeemable common stock in a merger of the corporation with the holder of
more than 50%, but less than 90%, of such capital stock or its affiliate unless
all of the holders of such common stock consent to the transaction.
Under section 203 of the Delaware General Corporation Law, a Delaware
corporation is prohibited from engaging in a business combination with an
interested stockholder, as defined below, for three years following the date
that such person or entity becomes an interested stockholder.
An "interested stockholder" is, with certain exceptions, a person or entity
who or which owns, individually or with or through certain other persons or
entities, 15% or more of the corporation's outstanding voting stock, including
any rights to acquire stock under an option, warrant, agreement, arrangement or
understanding, or upon the exercise of conversion or exchange rights, and stock
with respect to which the person has voting rights only.
The three-year moratorium imposed by section 203 on certain business
combinations does not apply if one or more of the following applies:
- prior to the date on which such stockholder becomes an interested
stockholder, the board of directors of the subject corporation approves
either the business combination or the transaction that resulted in the
person or entity becoming an interested stockholder;
- upon consummation of the transaction that made him or her an interested
stockholder, the interested stockholder owns at least 85% of the
corporation's voting stock outstanding at the time the transaction
commenced, excluding from the 85% calculation shares owned by directors
who are also officers of the subject corporation and shares held by
employee stock plans that do not give employee participants the right to
decide confidentially whether to accept a tender or exchange offer; or
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- on or after the date such person or entity becomes an interested
stockholder, the board of directors approves the business combination and
it is also approved at a stockholder meeting by 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
Although a Delaware corporation to which section 203 applies may elect not
to be governed by section 203, the IDT board of directors intends that IDT be
governed by section 203. IDT believes that most Delaware corporations have
availed themselves of this statute and have not opted out of section 203.
IDT believes that section 203 will encourage any potential acquiror to
negotiate with IDT's board. section 203 also might have the effect of limiting
the ability of a potential acquiror to make a two-tiered bid for IDT in which
all stockholders would not be treated equally. Stockholders should note,
however, that the application of section 203 to IDT will confer upon IDT's board
the power to reject a proposed business combination in certain circumstances,
even though a potential acquiror may be offering a substantial premium for IDT's
shares over the then-current market price. section 203 would also discourage
certain potential acquirors unwilling to comply with its provisions.
The IDT certificate requires the affirmative vote of the holders of not
less than 75% of the outstanding shares of voting stock of IDT, including not
less than 66 2/3% of the outstanding shares of voting stock not owned by a
"related person," as defined below, for the approval or authorization of any
business combination of IDT with any related person. However, this 66 2/3%
voting requirement shall not be applicable if the business combination is
approved by the affirmative vote of the holders of not less than 90% of the
outstanding share of voting stock. Furthermore, the 75% and 66 2/3% voting
requirements shall not be applicable if the business combination is a merger or
consolidation and the fair market value of the consideration received per share
by holders of IDT common stock in such transaction is not less than the highest
per share price paid by the related person for IDT common stock in the two years
prior to the business combination.
Under the IDT certificate a "related person" is essentially a person,
corporation, partnership or other entity which, together with its affiliates and
associates, as these terms are defined in the Exchange Act, that is the
beneficial owner, in the aggregate, of 10% or more of the outstanding voting
stock of IDT and any affiliate or associate of such person or entity.
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A stockholder may then cast all such votes for a single
candidate or may allocate them among as many candidates as the stockholder may
choose. Without cumulative voting, the holders of a majority of the shares
present at an annual meeting or any special meeting held to elect directors
would have the power to elect all the directors to be elected at that meeting,
and no person could be elected without the support of holders of a majority of
the shares voting at such meeting.
California law provides any shareholder with the right to cumulate his or
her votes in the election of directors upon proper notice of his or her
intention to do so. The QSI articles provide that QSI shareholders may cumulate
their votes for the election of directors. Under Delaware law, cumulative voting
in the election of directors is a permitted option. The IDT certificate and the
IDT bylaws permit cumulative voting for the election of directors.
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STOCKHOLDER DERIVATIVE SUITS
California law provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. California law
also provides that the corporation or the defendant in a derivative suit may
make a motion to the court for an order requiring the plaintiff shareholder to
furnish a security bond. Delaware does not have a similar bonding requirement.
Under Delaware law, a stockholder may only bring a derivative action on behalf
of the corporation if the stockholder was a stockholder of the corporation at
the time of the transaction in question or his or her stock thereafter devolved
upon him or her by operation of law.
DISSENTERS' RIGHT OF APPRAISAL
Under California law and Delaware law, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to dissenters' right of appraisal under which such
stockholder may receive cash in the amount of the fair market value of the
shares held by such stockholder in lieu of the consideration such stockholder
would otherwise receive in the transaction. The fair market value of the shares
is determined by either a court or an agreement between the corporation and the
stockholder. The limitations on the availability of dissenters' rights under
California law are different from those under Delaware law.
Shareholders of a California corporation whose shares are listed on a
national securities exchange or on a list of over-the-counter margin stocks
issued by the Board of Governors of the Federal Reserve System generally do not
have dissenters' rights unless the holders of at least 5% of the class of
outstanding shares claim the right or unless the corporation or any law
restricts the transfer of such shares. Dissenters' rights are unavailable under
the California Corporations Code if the shareholders of a corporation or the
corporation itself, or both, immediately prior to the reorganization will own
immediately after the reorganization equity securities constituting more than
five sixths of the voting power of the surviving or acquiring corporation or its
parent entity, and if the shares of the surviving corporation have the same
rights, preferences, privileges and restrictions as the shares of the
disappearing corporation that are surrendered in exchange. For more specific
information regarding the dissenters' right to appraisal available to
shareholders of QSI with respect to the merger, see "Approval of the Merger and
Related Transactions -- Dissenters' Rights."
Under Delaware law, such fair market value is determined exclusive of any
element of value arising from the merger or consolidation, and such appraisal
rights are not available:
- in the sale, lease or exchange of all or substantially all of the assets
of a corporation;
- in a merger or consolidation by a corporation the shares of which are
either listed on a national securities exchange or are held of record by
more than 2,000 holders if such stockholders receive only shares of the
surviving corporation or shares of any other corporation that are either
listed on a national securities exchange or held of record by more than
2,000 holders, plus cash in lieu of fractional shares of such
corporations; or
- to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the
merger under Delaware law.
SIZE OF THE BOARD OF DIRECTORS
Under California law, although changes in the number of directors must
generally be approved by a majority of the outstanding shares, the board of
directors may fix the exact number of directors within a stated range set forth
in the articles of incorporation or bylaws, if that stated range has been
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approved by the shareholders. The QSI bylaws provide that the size of QSI's
board, within the stated range of four to seven directors, may be changed by
amending the QSI bylaws either with the approval of QSI's board acting alone or
by QSI's shareholders. Currently, the QSI bylaws provide for a board of
directors consisting of six members.
Delaware law permits the board of directors alone to change the authorized
number, or the range, of directors by amendment to the bylaws, unless the
directors are not authorized to amend the bylaws or the number of directors is
fixed in the certificate of incorporation, in which case a change in the number
of directors may be made only by amendment to the certificate of incorporation
following approval of such change by the stockholders. The IDT bylaws provide
that the size of IDT's board may be changed by amending the IDT bylaws either
with the approval of IDT's board acting alone or by IDT's stockholders. The IDT
bylaws specify a five member board.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one on which a certain number of directors, but not
necessarily all, are elected on a rotating basis each year. Under California
law, directors generally must be elected annually. However, a "listed
corporation," as defined below, is permitted to adopt a classified board.
Neither the QSI articles nor the QSI bylaws provide for a classified board of
directors.
A "listed corporation" is defined under the California Code as a
corporation with outstanding securities designated as qualified for trading as a
national market system security on the National Association Quotation System (or
any successor national market system).
Delaware law permits, but does not require, a classified board of
directors, under which the directors can be divided into as many as three
classes with staggered terms of office, with only one class of directors
standing for election each year. The IDT certificate provides for a classified
board of directors with three classes of directors. IDT's board is currently
divided into three classes: Class I, whose term expires at the annual meeting of
stockholders held in 2000 and consists of one member; Class II, whose term
expires at the annual meeting of stockholders held in 2001 and consists of two
members; and Class III, whose term expires at the annual meeting of stockholders
held in 1999 and consists of two members. Subsequently, each term shall expire
at each third succeeding annual meeting of stockholders.
REMOVAL OF DIRECTORS
Under California law, any director or the entire board of directors may be
removed, with or without cause, by a majority of the outstanding shares entitled
to vote. However, without removing the entire board, no individual director may
be removed if the number of votes cast against such removal would be sufficient
to elect the director under cumulative voting.
Under Delaware law, any director or the entire board of directors of a
corporation that does not have a classified board of directors or cumulative
voting may be removed with or without cause with the approval of a majority of
the outstanding shares entitled to vote at an election of directors. The IDT
certificate and the IDT bylaws provide for a classified board of directors and
provide for the removal of a director for cause by a majority of all shares of
IDT. The IDT certificate and the IDT bylaws provide for the removal of a
director without cause by the affirmative vote of the holders of at least
66 2/3% of shares entitled to vote at an election of directors. However, without
removing the entire board, no individual director may be removed if the number
of votes cast against such removal would be sufficient to elect the director
under cumulative voting. Consequently, members of IDT's board can be removed for
any reason by a supermajority of the outstanding shares entitled to vote.
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DIRECTORS' COMMITTEES
The QSI bylaws contain provisions for the delegation of all the authority
by QSI's board to a committee of members of the board except:
- the approval of any action which also requires shareholders' approval or
approval of the outstanding shares under California law;
- the filing of the vacancies on the board or in any committee;
- the fixing of compensation of the directors for serving on the board or
any committee;
- the amendment or repeal of QSI bylaws or the adoption of new bylaws;
- the amendment or repeal of any resolution of the board which by its
express terms is not so amenable or repealable;
- a distribution to the shareholders of QSI, except at a rate or in a
periodic amount or within a price range determined by the board; and
- the appointment of any other committees of the board or the members of
such committees.
Under the IDT bylaws, IDT's board may, by resolution passed by a majority
of the whole board, delegate certain limited powers normally held only by the
board in its entirety to a committee comprised of one or more members of the
board. These committees may exercise any power normally held by the entire
board, but may not:
- amend the IDT certificate, except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the board as provided by Delaware law, fix the
designations and any of the preferences or rights of such shares relating
to dividends, redemption, dissolution, any distribution of assets of IDT,
or the conversion into, or the exchange of such shares for, shares of any
other class or classes or any other series of the same or any other class
or classes of stock of IDT or fix the number of shares of any series of
stock or authorized the increase or decrease of the shares of any series;
- adopt an agreement of merger or consolidation under Delaware law;
- recommend to the stockholders the sale, lease, or exchange of all or
substantially all of IDT's property and assets;
- recommend to the stockholders a dissolution of IDT or a revocation of a
dissolution; or
- amend the IDT bylaws.
The IDT bylaws further specify that unless the board resolution
establishing the committee, the IDT bylaws or the IDT certificate expressly so
provide, no such committee shall have the power or authority to:
- declare a dividend;
- to authorize the issuance of stock; or
- adopt a certificate of ownership and merger under Delaware law.
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TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS
Under California law, any loan or guaranty to or for the benefit of a
director or officer of the corporation or its parent requires approval of the
shareholders unless such loan or guaranty is provided under a plan approved by
shareholders owning a majority of the outstanding shares of the corporation. In
addition, under California law, shareholders of any corporation with 100 or more
shareholders of record may approve a bylaw authorizing the board of directors
alone to approve loans or guarantees to or on behalf of officers whether or not
such officers are directors if the board of directors determines that any such
loan or guaranty may reasonably be expected to benefit the corporation. The QSI
bylaws permit loans to officers upon approval of QSI's board.
Furthermore, under California law, if shareholder approval is sought for a
transaction in which one or more of a corporation's directors has an interest,
the interested director is not entitled to vote his shares at a shareholder
meeting with respect to any action regarding such contract or transaction. If
board approval is sought, the contract of transaction must be approved by a
majority vote of a quorum of the directors, without counting the vote of any
interested directors. However, interested directors may be counted for purposes
of establishing a quorum.
Under Delaware law, any corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation, including any officer or employee who is also a director of the
corporation, whenever, in the judgment of the directors, such loan, guaranty or
assistance may reasonably be expected to benefit the corporation.
Furthermore, under Delaware law, contracts or transactions between a
corporation and either any of its directors or a second corporation of which a
director is also a director, are not void or voidable if either:
- the material facts as to the transaction and as to the director's
interest are fully disclosed, and either the disinterested directors or a
majority of the disinterested shareholders approve or ratify the
transaction in good faith; or
- the person asserting the validity of the contract or transaction sustains
the burden of proving that the contract or transaction was just and
reasonable as to the corporation at the time it was authorized, approved
or ratified.
INDEMNIFICATION AND LIMITATION OF LIABILITY
California law and Delaware law have similar provisions relating to
indemnification by a corporation of its officers, directors, employees and other
agents. The laws of both states permit corporations to adopt a provision in
their charters eliminating the liability of a director to the corporation or its
shareholders for monetary damages for breach of the director's fiduciary duty of
care. There are nonetheless certain differences between the laws of the two
states with respect to indemnification and limitation of liability.
Under California law, such provisions may not eliminate or limit a
director's liability for:
- intentional misconduct or knowing and culpable violation of law;
- acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the
absence of good faith on the part of the director;
- receipt of an improper personal benefit;
82
<PAGE> 89
- acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of
serious injury to the corporation or its shareholders;
- acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the corporation
and its shareholders;
- interested transactions between the corporation and a director in which a
director has a material financial interest; or
- liability for improper distributions, loans or guarantees.
California corporations may include in their charter a provision which
extends the scope of indemnification through agreements, bylaws or other
corporate action beyond that specifically authorized by statute. Both the QSI
articles and the QSI bylaws include a provision providing that QSI shall
indemnify its directors and officers to the maximum extent permissible under
California law. QSI has entered into separate indemnification agreements with
each officer and director consonant with this authority.
Under Delaware law, such provision may not eliminate or limit director
monetary liability for:
- breaches of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or involving intentional misconduct
or knowing violations of law;
- the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
- transactions in which the director received an improper personal benefit.
Such limitation of liability provisions also may not limit a director's
liability for violation of, or otherwise relieve the company or its directors
from the necessity of complying with federal or state securities laws, or affect
the availability of nonmonetary remedies such as injunctive relief or
rescission.
Delaware law generally permits indemnification of expenses, including
attorneys' fees actually and reasonably incurred in the defense or settlement of
a derivative or third-party action, provided there is a determination by a
majority vote of a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the stockholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in best interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of his
or her duty to the corporation. Delaware law requires indemnification of
expenses to the extent the individual being indemnified has successfully
defended any action, claim, issue or matter therein, on the merits or otherwise.
Under Delaware law expenses incurred by an officer or director in defending
any action may be paid in advance, if such director or officer undertakes to
repay such amounts if it is ultimately determined that he or she is not entitled
to indemnification. In addition, Delaware law authorizes a corporation's
purchase of indemnity insurance for the benefit of its officers, directors,
employees and agents whether or not the corporation would have the power to
indemnify against the liability covered by the policy. Delaware law also permits
a Delaware corporation to provide indemnification in excess of that provided by
statute. Delaware law does not require authorizing provisions in the certificate
of incorporation. Limitations on indemnification may be imposed by a court based
on principles of public policy. Both the IDT certificate and the IDT bylaws
eliminate the liability of directors to the
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<PAGE> 90
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permissible under Delaware law. IDT has
entered into separate indemnification agreements with each officer and director
consonant with this authority.
DISSOLUTION
Under California law, shareholders holding 50% or more of the total voting
power may authorize a corporation's dissolution, with or without the approval of
the corporation's board of directors, and this right may not be modified by the
articles of incorporation.
Under Delaware law, unless the board of directors approves the proposal to
dissolve, the dissolution must be unanimously approved by all the stockholders
entitled to vote thereon. Only if the dissolution is initially approved by the
board of directors may the dissolution be approved by a simple majority of the
outstanding shares of the corporation's stock entitled to vote. In the event of
such a board-initiated dissolution, Delaware law allows a Delaware corporation
to include in its certificate of incorporation a supermajority voting
requirement in connection with dissolutions. The IDT certificate contains no
such supermajority voting requirement.
84
<PAGE> 91
MARKET PRICE OF AND DIVIDENDS ON
IDT COMMON STOCK AND QSI COMMON STOCK
The following table sets forth the range of high and low sale prices
reported on the Nasdaq National Market for IDT common stock for the periods
indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL YEAR ENDING MARCH 28, 1999
Fourth Quarter (through March 19, 1999)................... $ 9.73 $5.31
Third Quarter............................................. 7.38 4.50
Second Quarter............................................ 8.19 4.22
First Quarter............................................. 15.00 6.63
FISCAL YEAR ENDED MARCH 29, 1998
Fourth Quarter............................................ $16.13 $9.19
Third Quarter............................................. 13.56 9.13
Second Quarter............................................ 14.13 10.19
First Quarter............................................. 15.00 9.69
FISCAL YEAR ENDED MARCH 30, 1997
Fourth Quarter............................................ $14.06 $9.38
Third Quarter............................................. 14.25 7.75
Second Quarter............................................ 11.00 7.38
First Quarter............................................. 15.50 10.13
</TABLE>
The following table sets forth the range of high and low sale prices
reported on the Nasdaq National Market for QSI common stock for the periods
indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDING SEPTEMBER 30, 1999
Second Quarter (through March 19, 1999)................... $ 6.00 $ 3.25
First Quarter............................................. 4.00 1.69
FISCAL YEAR ENDED SEPTEMBER 30, 1998
Fourth Quarter............................................ $ 2.38 $ 1.50
Third Quarter............................................. 4.25 2.13
Second Quarter............................................ 5.69 3.75
First Quarter............................................. 14.75 3.88
FISCAL YEAR ENDED SEPTEMBER 30, 1997
Fourth Quarter............................................ $16.75 $10.38
Third Quarter............................................. 11.75 7.25
Second Quarter............................................ 10.13 7.00
First Quarter............................................. 9.25 6.13
</TABLE>
IDT and QSI have never paid cash dividends on their shares of common stock.
QSI has agreed not to pay cash dividends pending the consummation of the merger
without the written consent of IDT. Neither the QSI board nor the IDT board
currently anticipates paying cash dividends in the foreseeable future.
85
<PAGE> 92
EXPERTS
The consolidated financial statements of IDT incorporated in this Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K for the year
ended March 29, 1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Quality Semiconductor, Inc.,
appearing in Quality Semiconductor, Inc.'s Annual Report (Form 10-K) for the
year ended September 30, 1998, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the IDT common stock issuable in the merger and certain
other legal matters related to the Merger will be passed on by Fenwick & West
LLP, Palo Alto, California. Venture Law Group, A Professional Corporation, Menlo
Park, California, is acting as counsel for QSI in connection with certain legal
matters relating to the merger.
86
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to grant indemnification to directors, officers and other agents in terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities, including expenses, arising in connection with the Securities Act
of 1933. Pursuant to the Bylaws of the Registrant (or "IDT"), directors and
officers of the Registrant are indemnified to the fullest extent permitted by
law against all expenses (including attorneys' fees), judgments, fines or
settlement amounts incurred or paid by them in any action or proceeding,
including any action by or on behalf of the Registrant, on account of their
service as an officer or director of the Registrant. The Bylaws further provide
that the rights conferred under such Bylaws shall not be deemed exclusive of any
other right to which such persons may be entitled under Delaware General
Corporation Law, the Registrant's Restated Certificate of Incorporation, any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
The Restated Certificate of Incorporation of the Registrant precludes, with
certain exceptions, the Registrant and its stockholders from recovering monetary
damages from directors for business decisions that breach such directors'
fiduciary duty.
The Registrant also maintains directors and officers insurance policies
which insure directors and officers against losses arising from certain wrongful
acts in their official capacities and reimburses the Registrant for such loss
for which the Registrant has lawfully indemnified the directors and officers. In
addition, the Registrant has entered into an Indemnification Agreement with each
of its directors and officers whereby the Registrant has agreed to indemnify
each director and officer from and against any and all expenses, losses, claims,
damages and liabilities incurred by such director or officer while acting in his
or her official capacity.
The Underwriting Agreement among the Registrant and the underwriters of the
Registrant's June 1995 public offering contains certain provisions pursuant to
which the underwriters may, under certain circumstances, indemnify the directors
and officers of the Registrant. Directors and officers of the Registrant may
also be indemnified in certain circumstances under the terms of other
underwriting agreements entered into by the Registrant in connection with prior
public offerings.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
II-1
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <S>
2.01* Agreement and Plan of Reorganization dated as of October 1,
1996, by and among IDT, Integrated Device Technology Salinas
Corp. and Baccarat Silicon, Inc. (previously filed as
Exhibit 2.1 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended December 29, 1996).
2.02* Agreement of Merger dated as of October 1, 1996, by and
among IDT, Integrated Device Technology Salinas Corp. and
Baccarat Silicon, Inc. (previously filed as Exhibit 2.2 to
the Quarterly Report on Form 10-Q for the Fiscal Quarter
Ended December 29, 1996).
2.03 Agreement and Plan of Merger, dated as of November 1, 1998,
by and among IDT, Penguin Acquisition, Inc. and Quality
Semiconductor (included as Appendix A to the proxy
statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference).
3.01* Restated Certificate of Incorporation (previously filed as
Exhibit 3A to Registration Statement on Form 8-B dated
September 23, 1987).
3.02* 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).
</TABLE>
II-1.1
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <S>
3.03* 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).
3.04* Certificate of Designations specifying the terms of the
Series A Junior Participating Preferred Stock of IDT, as
filed with the Secretary of State of Delaware on December
22, 1998 (previously filed as Exhibit 3.6 to Registration
Statement on Form 8-A filed December 23, 1998).
3.05* Bylaws of IDT, as amended and restated, effective December
21, 1998 (previously filed as Exhibit 3.1 to Current Report
on Form 8-K filed December 23, 1998).
4.01* Rights Agreement, dated December 21, 1998, between IDT and
BankBoston, N.A. as Rights Agent (previously filed as
Exhibit 4.1 to Registration Statement on Form 8-A filed
December 23, 1998).
4.02* Form of Indenture between IDT 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).
5.01 Legal Opinion of Fenwick & West LLP.
8.01 Tax Opinion of Fenwick & West LLP.
8.02 Tax Opinion of Venture Law Group, A Professional
Corporation.
10.01* Assignment of Lease dated October 30, 1985 between IDT 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).
10.02* Assignment of Lease dated October 30, 1985 between IDT 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).
10.03* 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).
10.04* First Deed of Trust and Assignment of Rents, Security
Agreement and Fixture Filing dated March 28, 1990 between
IDT 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).
10.05* Amended and Restated 1984 Employee Stock Purchase Plan
(previously filed as Exhibit 4.10 to the Registration
Statement on Form S-8 filed September 29, 1998).
10.06* 1994 Stock Option Plan, as amended through April 25, 1996
(previously filed as Exhibit 4.5 to the Registration
Statement on Form S-8 (File Number 333-15871) filed on
November 8, 1996).
10.07* 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).
10.08* Form of Indemnification Agreement between IDT 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).
10.09* Manufacturing, Marketing and Purchase Agreement between IDT
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).
</TABLE>
II-2
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <S>
10.10* Preferred Stock Purchase Agreement dated January 14, 1992
among IDT, 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).
10.11* Patent License Agreement between IDT 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).
10.12* Patent License Agreement dated September 22, 1992 between
IDT and Motorola, Inc. (previously filed as Exhibit 19.1 to
Quarterly Report on Form 10-Q for the Quarter Ended
September 27, 1992) (Confidential Treatment Granted).
10.13* Agreement between IDT 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).
10.14* 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).
10.15* 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).
10.16* 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).
10.17* Domestic Distributor Agreement between IDT 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).
10.18* Promissory Note dated April 28, 1995 between L. Robert
Phillips and IDT 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).
10.19* Sublease of the Land and Lease of the Improvement by and
between Sumitomo Bank Leasing and Finance, Inc. and IDT
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).
10.20* 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).
10.21* Letter amending Patent License Agreement between IDT and
AT&T dated December 4, 1995 (previously filed as Exhibit
10.23 to the Annual Report on Form 10-K for the Fiscal Year
Ended March 31, 1996) (Confidential Treatment Granted).
10.22* Lease dated July 1995 between IDT and American National
Insurance Company relating to 3250 Olcott Street, Santa
Clara, California (previously filed as Exhibit 10.25 to the
Annual Report for the Fiscal Year Ended March 31, 1996).
10.23* Registration Rights Agreement dated as of October 1, 1996
among IDT, Carl E. Berg and Mary Ann Berg (previously filed
as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended December 29, 1996).
10.24* 1997 Stock Option Plan, as amended to date (previously filed
as Exhibit 4.9 to the Registration Statement on Form S-8
filed September 25, 1998).
</TABLE>
II-3
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <S>
10.25* Custom Sales Agreement between IDT and International
Business Machines Corporation effective January 19, 1998
(previously filed as Exhibit 10.25 to the Annual Report on
Form 10-K for the Fiscal Year Ended March 29, 1998)
(Confidential Treatment Granted).
10.26* Employment Agreement between IDT and Glenn Henry (previously
filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q
for the Fiscal Quarter Ended December 28, 1998).
10.27 Purchase and Sale Agreement and Joint Escrow Instructions
between IDT and Cadence Design Systems, Inc., dated December
15, 1998.
10.28 Lease between IDT and James S. Lindsey dated March 3, 1999.
21.01 Subsidiaries of IDT.
23.01 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.02 Consent of Ernst & Young LLP, Independent Auditors.
23.03 Consent of Fenwick & West LLP (included in Exhibits 5.1 and
8.1).
23.04 Consent of Venture Law Group, A Professional Corporation
(included in Exhibit 8.2).
24.01 Power of Attorney (see page II-6).
27.01* Financial Data Schedule (previously filed as Exhibit 27 to
the Quarterly Report on Form 10-Q for the Fiscal Quarter
Ended September 27, 1998).
99.01 Consent of Needham & Company, Inc.
99.02 Form of Proxy Card.
</TABLE>
- -------------------------
* These exhibits were previously filed with the Commission as indicated and are
incorporated herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are filed herewith: No
financial data schedules are required for the Registrant.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above.
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Registrant's Restated Certificate of Incorporation.......... 3.01
Amendment to Certificate of Incorporation................... 3.02
Amendment to Certificate of Incorporation................... 3.03
Registrant's Bylaws......................................... 3.09
Form of Registrant's Indemnification Agreement.............. 10.08
</TABLE>
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Document pursuant to
Items 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(2) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved
II-4
<PAGE> 98
therein, that was not the subject of and included in the Registration Statement
when it became effective.
(3) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, (the "Act"), each
filing of the Registrant's annual report pursuant to Section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and the Bylaws, as amended (the "Bylaws"), of
the Registrant, the Delaware General Corporation Law or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(6) The undersigned Registrant undertakes that every prospectus: (i) that
is filed pursuant to paragraph (5) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-5
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Santa Clara, State of
California, on the 24th day of March, 1999.
INTEGRATED DEVICE TECHNOLOGY, INC.
By: /s/ ALAN F. KROCK
------------------------------------
Alan F. Krock
Vice President, Chief Financial
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alan F. Krock and Jack Menache, and each
or any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462 promulgated
under the Securities Act, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ LEONARD C. PERHAM Chief Executive Officer and Director March 24, 1999
- ---------------------------------------------
Leonard C. Perham
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER:
/s/ ALAN F. KROCK Vice President, Chief Financial March 24, 1999
- --------------------------------------------- Officer
Alan F. Krock
</TABLE>
II-6
<PAGE> 100
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
ADDITIONAL DIRECTORS:
/s/ D. JOHN CAREY Chairman of the Board March 24, 1999
- ---------------------------------------------
D. John Carey
/s/ CARL E. BERG Director March 24, 1999
- ---------------------------------------------
Carl E. Berg
/s/ JOHN C. BOLGER Director March 24, 1999
- ---------------------------------------------
John C. Bolger
/s/ FEDERICO FAGGIN Director March 24, 1999
- ---------------------------------------------
Federico Faggin
</TABLE>
II-7
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<S> <C>
2.01* Agreement and Plan of Reorganization dated as of October 1,
1996, by and among IDT, Integrated Device Technology Salinas
Corp. and Baccarat Silicon, Inc. (previously filed as
Exhibit 2.1 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended December 29, 1996).
2.02* Agreement of Merger dated as of October 1, 1996, by and
among IDT, Integrated Device Technology Salinas Corp. and
Baccarat Silicon, Inc. (previously filed as Exhibit 2.2 to
the Quarterly Report on Form 10-Q for the Fiscal Quarter
Ended December 29, 1996).
2.03 Agreement and Plan of Merger, dated as of November 1, 1998,
by and among IDT, Penguin Acquisition, Inc. and Quality
Semiconductor (included as Appendix A to the proxy
statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference).
3.01* Restated Certificate of Incorporation (previously filed as
Exhibit 3A to Registration Statement on Form 8-B dated
September 23, 1987).
3.02* 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).
3.03* 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).
3.04* Certificate of Designations specifying the terms of the
Series A Junior Participating Preferred Stock of IDT, as
filed with the Secretary of State of Delaware on December
22, 1998 (previously filed as Exhibit 3.6 to Registration
Statement on Form 8--A filed December 23, 1998).
3.05* Bylaws of IDT, as amended and restated, effective December
21, 1998 (previously filed as Exhibit 3.1 to Current Report
on Form 8-K filed December 23, 1998).
4.01* Rights Agreement, dated December 21, 1998, between IDT and
BankBoston, N.A. as Rights Agent (previously filed as
Exhibit 4.1 to Registration Statement on Form 8--A filed
December 23, 1998).
4.02* Form of Indenture between IDT 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).
5.01 Legal Opinion of Fenwick & West LLP.
8.01 Tax Opinion of Fenwick & West LLP.
8.02 Tax Opinion of Venture Law Group, A Professional
Corporation.
10.01* Assignment of Lease dated October 30, 1985 between IDT 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).
10.02* Assignment of Lease dated October 30, 1985 between IDT 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).
10.03* 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).
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<S> <C>
10.04* First Deed of Trust and Assignment of Rents, Security
Agreement and Fixture Filing dated March 28, 1990 between
IDT 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).
10.05* Amended and Restated 1984 Employee Stock Purchase Plan
(previously filed as Exhibit 4.10 to the Registration
Statement on Form S-8 filed September 29, 1998).
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<S> <C>
10.06* 1994 Stock Option Plan, as amended through April 25, 1996
(previously filed as Exhibit 4.5 to the Registration
Statement on Form S-8 (File Number 333-15871) filed on
November 8, 1996).
10.07* 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).
10.08* Form of Indemnification Agreement between IDT 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).
10.09* Manufacturing, Marketing and Purchase Agreement between IDT
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).
10.10* Preferred Stock Purchase Agreement dated January 14, 1992
among IDT, 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).
10.11* Patent License Agreement between IDT 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).
10.12* Patent License Agreement dated September 22, 1992 between
IDT and Motorola, Inc. (previously filed as Exhibit 19.1 to
Quarterly Report on Form 10-Q for the Quarter Ended
September 27, 1992) (Confidential Treatment Granted).
10.13* Agreement between IDT 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).
10.14* 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).
10.15* 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).
10.16* 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).
10.17* Domestic Distributor Agreement between IDT 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).
10.18* Promissory Note dated April 28, 1995 between L. Robert
Phillips and IDT 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).
10.19* Sublease of the Land and Lease of the Improvement by and
between Sumitomo Bank Leasing and Finance, Inc. and IDT
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).
10.20* 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).
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<S> <C>
10.21* Letter amending Patent License Agreement between IDT and
AT&T dated December 4, 1995 (previously filed as Exhibit
10.23 to the Annual Report on Form 10-K for the Fiscal Year
Ended March 31, 1996) (Confidential Treatment Granted).
10.22* Lease dated July 1995 between IDT and American National
Insurance Company relating to 3250 Olcott Street, Santa
Clara, California (previously filed as Exhibit 10.25 to the
Annual Report for the Fiscal Year Ended March 31, 1996).
10.23* Registration Rights Agreement dated as of October 1, 1996
among IDT, Carl E. Berg and Mary Ann Berg (previously filed
as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended December 29, 1996).
10.24* 1997 Stock Option Plan, as amended to date (previously filed
as Exhibit 4.9 to the Registration Statement on Form S-8
filed September 25, 1998).
10.25* Custom Sales Agreement between IDT and International
Business Machines Corporation effective January 19, 1998
(previously filed as Exhibit 10.25 to the Annual Report on
Form 10-K for the Fiscal Year Ended March 29, 1998)
(Confidential Treatment Granted).
10.26* Employment Agreement between IDT and Glenn Henry (previously
filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q
for the Fiscal Quarter ended December 28, 1998).
10.27 Purchase and Sale Agreement and Joint Escrow Instructions
between IDT and Cadence Design Systems, Inc., dated December
15, 1998.
10.28 Lease between IDT and James S. Lindsey dated March 3, 1999.
21.01 Subsidiaries of IDT.
23.01 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.02 Consent of Ernst & Young LLP, Independent Auditors.
23.03 Consent of Fenwick & West LLP (included in Exhibits 5.1 and
8.1).
23.04 Consent of Venture Law Group, A Professional Corporation
(included in Exhibit 8.2).
24.01 Power of Attorney (see page II-6).
27.01* Financial Data Schedule (previously filed as Exhibit 27 to
the Quarterly Report on Form 10-Q for the Fiscal Quarter
Ended September 27, 1998).
99.01 Consent of Needham & Company, Inc.
99.02 Form of Proxy Card.
</TABLE>
- -------------------------
* These exhibits were previously filed with the Commission as indicated and are
incorporated herein by reference.
<PAGE> 105
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INTEGRATED DEVICE TECHNOLOGY, INC.,
PENGUIN ACQUISITION, INC.
AND
QUALITY SEMICONDUCTOR, INC.
NOVEMBER 1, 1998
<PAGE> 106
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 THE MERGER.................................................. 1
1.1 The Merger.................................................. 1
1.2 Effective Time of the Merger................................ 1
1.3 Tax and Accounting Consequences............................. 1
ARTICLE 2 THE SURVIVING CORPORATION................................... 2
2.1 Articles of Incorporation................................... 2
2.2 Bylaws...................................................... 2
2.3 Directors and Officers of Surviving Corporation............. 2
ARTICLE 3 CONVERSION OF SHARES........................................ 2
3.1 Conversion of Shares........................................ 2
3.2 Options and Warrants........................................ 3
3.3 Exchange of Shares.......................................... 3
3.4 Dividends; Transfer Taxes................................... 4
3.5 No Fractional Shares........................................ 4
3.6 Closing of Company Transfer Books........................... 4
3.7 Closing..................................................... 4
3.8 Supplementary Action........................................ 5
3.9 Dissenting Shares........................................... 5
Adjustments to Exchange Ratio...............................
3.10 5
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 5
Due Organization; Good Standing; Authority; Binding Nature
4.1.. of Agreements............................................... 6
4.2 Articles of Incorporation and Bylaws; Records............... 7
4.3 Capitalization; Ownership of Stock; Solvency, Etc........... 7
4.4 SEC Filings; Financial Statements........................... 8
4.5 Absence of Changes.......................................... 9
4.6 Title to Assets; Equipment; Real Property, Leases;
Inventory................................................... 11
4.7 Receivables; Major Customers................................ 13
4.8 Accounts Payable; Major Suppliers........................... 13
4.9 Proprietary Assets.......................................... 13
Contracts...................................................
4.10 14
Compliance with Legal Requirements..........................
4.11 16
Certain Business Practices..................................
4.12 17
Governmental Authorizations.................................
4.13 17
Tax Matters.................................................
4.14 17
Employees, ERISA and Other Compliance.......................
4.15 19
Environmental Matters.......................................
4.16 21
Sale of Products; Performance of Services...................
4.17 22
Insurance...................................................
4.18 22
Proceedings; Orders.........................................
4.19 23
No Existing Discussions.....................................
4.20 23
Vote Required...............................................
4.21 24
Non-Contravention; Consents.................................
4.22 24
</TABLE>
i
<PAGE> 107
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Brokers.....................................................
4.23 25
Full Disclosure.............................................
4.24 25
Powers of Attorney..........................................
4.25 25
Securities Law Compliance...................................
4.26 25
Transactions with Affiliates................................
4.27 26
Voting Arrangements.........................................
4.28 26
Ownership of Shares of IDT Common Stock.....................
4.29 26
Opinion of Financial Advisors...............................
4.30 26
Shareholder Rights Plan.....................................
4.31 26
Board Approval..............................................
4.32 26
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF IDT AND MERGER SUB........ 26
Due Organization; Good Standing; Authority; Binding of
5.1.. Nature of Agreements........................................ 26
5.2 Proceedings; Orders......................................... 27
5.3 Non-Contravention; Consents................................. 27
5.4 Brokers..................................................... 28
5.5 Full Disclosure; SEC Reports................................ 28
5.6 Valid Issuance of IDT Common Stock.......................... 28
5.7 Compliance with Laws........................................ 29
5.8 Interim Operations of Sub................................... 29
5.9 Stockholders' Consent....................................... 29
Absence of Certain Changes or Events........................
5.10 29
ARTICLE 6 PRE-CLOSING PERIOD COVENANTS OF THE COMPANY................. 29
6.1 Access and Investigation.................................... 29
6.2 Operation of Business....................................... 30
6.3 Filings and Consents; Cooperation........................... 32
6.4 Notification; Updates to Disclosure Schedule................ 33
6.5 No Negotiation or Solicitation.............................. 33
6.6 Best Efforts................................................ 35
6.7 Proprietary Information and Inventions Agreements........... 35
6.8 Letters of the Company's Auditors........................... 35
6.9 Affiliates.................................................. 35
Takeover Statutes...........................................
6.10 36
Bank Accounts...............................................
6.11 36
Supplier Information........................................
6.12 36
Employee Information........................................
6.13 36
Insurance Information.......................................
6.14 37
Company Accruals and Reserves...............................
6.15 37
Interim Review and Interim Financial Statements.............
6.16 37
Pooling of Interests........................................
6.17 38
ARTICLE 7 PRE-CLOSING PERIOD COVENANTS OF IDT......................... 38
7.1 Notification................................................ 38
7.2 Best Efforts................................................ 38
7.3 Filings and Consents; Cooperation........................... 38
7.4 Indemnification............................................. 39
</TABLE>
ii
<PAGE> 108
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
7.5 Conduct of Business of IDT.................................. 40
7.6 Blue Sky Laws............................................... 40
7.7 Pooling of Interests........................................ 40
ARTICLE 8 ADDITIONAL AGREEMENTS....................................... 40
8.1 Proxy Statement and Prospectus.............................. 40
8.2 Company Shareholder Approval................................ 41
8.3 Nasdaq National Market...................................... 41
8.4 Antitrust Laws.............................................. 41
8.5 Certain Employee Benefit Plan Matters....................... 42
8.6 Integration Matters......................................... 42
8.7 Stock Options and Warrants; Purchase Plan; Rights Plan...... 42
8.8 Expenses.................................................... 43
8.9 Additional Agreements....................................... 43
Public Announcements........................................
8.10 43
Tax-Free Reorganization.....................................
8.11 44
ARTICLE 9 CONDITIONS TO CONSUMMATION OF THE MERGER.................... 44
9.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... 44
Additional Conditions to IDT's and Merger Sub's Obligation
9.2.. to Consummate
the Merger.................................................. 45
Additional Conditions to the Company's Obligation to
9.3.. Consummate the Merger....................................... 48
ARTICLE 10 TERMINATION................................................ 49
10.1 Termination................................................. 49
10.2 Termination Procedures...................................... 51
10.3 Effect of Termination....................................... 51
10.4 Exclusivity of Termination Rights........................... 52
ARTICLE 11 MISCELLANEOUS PROVISIONS................................... 52
11.1 Further Assurances.......................................... 52
11.2 Fees and Expenses........................................... 52
11.3 Attorneys' Fees............................................. 52
11.4 Notices..................................................... 52
11.5 Time of the Essence......................................... 53
11.6 Headings.................................................... 53
11.7 Counterparts................................................ 53
11.8 Governing Law; Venue........................................ 53
11.9 Successors and Assigns...................................... 54
Remedies Cumulative; Specific Performance...................
11.10 54
Waiver......................................................
11.11 54
Amendments..................................................
11.12 55
Severability................................................
11.13 55
Parties in Interest.........................................
11.14 55
Entire Agreement............................................
11.15 55
No Survival.................................................
11.16 55
Investigation...............................................
11.17 55
Construction................................................
11.18 55
</TABLE>
iii
<PAGE> 109
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of November 1, 1998, by and
among INTEGRATED DEVICE TECHNOLOGY, INC. ("IDT"), a Delaware corporation,
PENGUIN ACQUISITION, INC. ("Merger Sub"), a California corporation, and QUALITY
SEMICONDUCTOR, INC. (the "Company"), a California corporation. Certain
capitalized terms used in this Agreement are defined in Exhibit A.
WHEREAS, the Boards of Directors of IDT, Merger Sub and the Company each
have determined that the acquisition of the Company by IDT is in the best
interests of their respective companies and stockholders and presents an
opportunity for their respective companies to achieve long-term strategic and
financial benefits, and accordingly have agreed to effect the merger provided
for herein upon the terms and subject to the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the merger
contemplated herein shall qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, it is also intended by the parties hereto that the merger shall
qualify for accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger.
Subject to the terms and conditions of this Agreement, at the Effective
Time, Merger Sub shall be merged with and into the Company, the Company shall be
the surviving corporation (the "Surviving Corporation"), and the separate
existence of Merger Sub shall thereupon cease (the "Merger"). The Merger shall
have the effects set forth in the applicable provisions of the California
General Corporation Law (the "CGCL"). Without limiting the generality of the
foregoing, at and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties, of each of the constituent corporations in the Merger.
1.2 Effective Time of the Merger.
The Merger shall become effective when a properly executed agreement of
merger (the "Agreement of Merger"), in such form as may be agreed by the parties
hereto and as required by the relevant provisions of the CGCL, is duly filed
with the Secretary of State of the State of California, which filing shall be
made in connection with the closing of the Transactions in accordance with
Section 3.7 upon satisfaction or waiver of the conditions set forth in Article
9. When used in this Agreement, the term "Effective Time" shall mean the date
and time at which such Agreement of Merger has been so filed or at such later
time as is provided in the Agreement of Merger.
1.3 Tax and Accounting Consequences.
It is intended by the parties that (i) the Merger shall constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Code, (ii) this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code and (iii) the Merger shall qualify for
1
<PAGE> 110
"pooling of interests" accounting treatment under Accounting Principles Board
Opinion No. 16 and SEC Accounting Series Release Numbers 130 and 135, as
amended.
ARTICLE 2
THE SURVIVING CORPORATION
2.1 Articles of Incorporation.
The Articles of Incorporation of Merger Sub shall be the Articles of
Incorporation of the Surviving Corporation, until duly amended in accordance
with the terms thereof and the CGCL.
2.2 Bylaws.
The Bylaws of Merger Sub as in effect at the Effective Time shall be the
Bylaws of the Surviving Corporation, until duly amended in accordance with the
terms thereof and the CGCL.
2.3 Directors and Officers of Surviving Corporation.
(a) The directors of Merger Sub shall be the initial directors of the
Surviving Corporation and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified, or until
their earlier death, resignation or removal in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
(b) The officers of Merger Sub at the Effective Time shall be the initial
officers of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified, or until their earlier death, resignation or removal in accordance
with the Articles of Incorporation and Bylaws of the Surviving Corporation, or
as otherwise provided by law.
ARTICLE 3
CONVERSION OF SHARES
3.1 Conversion of Shares.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of the holders thereof, each share of the Common Stock, $0.001 par
value per share, of the Company ("Company Common Stock") that is issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive, upon surrender of the certificate (the "Certificate") formerly
representing such share of Company Common Stock, 0.6875 shares (the "Exchange
Ratio") of the Common Stock, $0.001 par value per share, of IDT ("IDT Common
Stock"); provided, however, that each share of Company Common Stock that is held
in the treasury of the Company, by any subsidiary of the Company, by IDT or by
any subsidiary of IDT immediately prior to the Effective Time shall not be so
converted but shall be canceled and retired, and no consideration shall be
delivered in exchange therefor. Unless otherwise stated: (i) all references in
this Agreement to Company Common Stock shall be deemed to include the associated
preferred share purchase rights ("Rights") issued pursuant to the Preferred
Share Rights Agreement dated as of August 29, 1997 (the "Rights Agreement")
between the Company and BankBoston, N.A.; and (ii) all references in this
Agreement to IDT Common Stock shall be deemed to include the associated
preferred stock purchase rights issued pursuant to the Amended and Restated
Rights Agreement dated as of February 27, 1992 between IDT and The First
National Bank of Boston.
2
<PAGE> 111
(b) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each share of the Common Stock, no par value
per share, of Merger Sub that is issued and outstanding immediately prior to the
Effective Time shall be converted into and continue as one share of the Common
Stock of the Surviving Corporation.
3.2 Options and Warrants.
At the Effective Time, all stock options and warrants to purchase Company
Common Stock then outstanding will be assumed by IDT in accordance with Section
8.7.
3.3 Exchange of Shares.
(a) Prior to the Effective Time, IDT shall select, and enter into an
agreement (in form and substance reasonably satisfactory to the Company) with, a
bank or trust company to act as exchange agent hereunder (the "Exchange Agent").
On the Closing Date, IDT shall deposit with the Exchange Agent the shares of IDT
Common Stock required to be delivered hereunder in connection with the
conversion of Company Common Stock at the Effective Time. After the Effective
Time, each holder of shares of Company Common Stock (other than Dissenting
Shares) will be entitled to receive, upon surrender to the Exchange Agent of one
or more Certificates and a duly executed letter of transmittal as described
below, certificates representing the number of whole shares of IDT Common Stock
and cash in lieu of fractional shares into which such shares of Company Common
Stock are converted in the Merger. The shares of IDT Common Stock into which the
shares of Company Common Stock shall be converted in the Merger shall be deemed
to have been issued at the Effective Time.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of Company Common Stock (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as IDT may reasonably specify that are not inconsistent with the
terms of this Agreement) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of IDT Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor (i)
a certificate representing that number of whole shares of IDT Common Stock and
(ii) a check representing the amount of cash in lieu of fractional shares which
such holder has the right to receive in respect of the Certificate so
surrendered pursuant to the provisions of this Article 3.
(c) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, the Exchange Agent will issue
or cause to be issued in exchange for such lost, stolen or destroyed Certificate
the number of whole shares of IDT Common Stock and cash in lieu of fractional
shares into which the shares of Company Common Stock represented by the
Certificate are converted in the Merger in accordance with this Article 3. When
authorizing such issuance in exchange therefor, IDT and/or the Exchange Agent
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificate to give IDT
and/or the Exchange Agent a bond in such sum as it may direct as indemnity, or
such other form of indemnity, as it shall direct, against any claim that may be
made against IDT or the Exchange Agent with respect to the Certificate alleged
to have been lost, stolen or destroyed.
3
<PAGE> 112
3.4 Dividends; Transfer Taxes.
(a) No dividends that are declared on shares of IDT Common Stock after the
Effective Time (if any) will be paid to persons entitled to receive certificates
representing shares of IDT Common Stock until such persons surrender their
Certificates. Upon such surrender, there shall be paid to the person in whose
name the certificates representing such shares of IDT Common Stock shall be
issued any dividends which shall have become payable with respect to such shares
of IDT Common Stock between the Effective Time and the time of such surrender.
In no event shall the person entitled to receive such dividends be entitled to
receive interest on such dividends.
(b) If any certificates for any shares of IDT Common Stock are to be issued
in a name other than that in which the Certificate surrendered in exchange
therefor is registered, it shall be a condition of such exchange that the Person
requesting such exchange shall (i) pay to the Exchange Agent any transfer or
other taxes required by reason of the issuance of certificates for such shares
of IDT Common Stock in a name other than that of the registered holder of the
Certificate surrendered or (ii) establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
(c) Notwithstanding anything in this Agreement to the contrary, neither the
Exchange Agent nor any party hereto shall be liable to a holder of shares of
Company Common Stock for any shares of IDT Common Stock or dividends thereon or
the cash payments otherwise due hereunder delivered to a public official
pursuant to applicable escheat laws following the passage of time specified
therein.
3.5 No Fractional Shares.
Notwithstanding anything herein to the contrary, no fractional shares of
IDT Common Stock shall be issued pursuant to the Merger. In lieu of the issuance
of any such fractional share of IDT Common Stock, cash will be paid in respect
of any fractional share of IDT Common Stock that would otherwise be issuable.
The amount of such cash shall be the product of (i) such fraction of a share of
IDT Common Stock (after aggregating all the shares of IDT Common Stock to be
issued to a holder) multiplied by (ii) $6.4625.
3.6 Closing of Company Transfer Books.
At the Effective Time, the stock transfer books of the Company shall be
closed and no transfer of shares of Company Common Stock shall thereafter be
made. If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for certificates representing
shares of IDT Common Stock and cash in lieu of fractional shares in accordance
with the terms hereof. At and after the Effective Time, the holders of shares of
Company Common Stock to be exchanged for shares of IDT Common Stock pursuant to
this Agreement shall cease to have any rights as shareholders of the Company,
except for the right to surrender such Certificates in exchange for shares of
IDT Common Stock as provided hereunder or such dissenters' rights as are
provided under applicable law.
3.7 Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, California 94306 at 9:00 a.m., local time, on the first
business day (the "Closing Date") following the date on which the Company's
shareholders have given any requisite approvals of this Agreement and the
Transactions in accordance with Legal Requirements; provided, however, that if
all of the other conditions set forth in Article 9 hereof are not satisfied or
waived at such date, the Closing Date shall be the business day following the
day on which all such conditions have been satisfied or waived, or at such other
date, time and place as IDT, Merger Sub and the Company shall agree.
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3.8 Supplementary Action.
If, at any time after the Effective Time, any further assignments or
assurances in law or any other things are necessary or desirable to vest or to
perfect or confirm of record in the Surviving Corporation the title to any
property or rights of the Company, or otherwise to carry out the provisions of
this Agreement, the officers and directors of the Surviving Corporation are
hereby authorized and empowered on behalf of the Company in the name of and on
behalf of the Company to execute and deliver any and all things necessary or
proper to vest or to perfect or confirm title to such property or rights in the
Surviving Corporation, and otherwise to carry out the purposes and provisions of
this Agreement.
3.9 Dissenting Shares.
(a) Notwithstanding any provisions of this Agreement to the contrary, any
shares of Company Common Stock held by a holder who has exercised such holder's
dissenters' rights in accordance with the CGCL and who, as of the Effective
Time, has not effectively withdrawn or lost such dissenters' rights ("Dissenting
Shares"), shall not be converted into or represent a right to receive the
consideration described in Section 3.1, but the holder of the Dissenting Shares
shall only be entitled to such rights as are granted by the CGCL.
(b) Notwithstanding the provisions of subsection (a) above, if any holder
of shares of Company Common Stock who demands dissenters' rights with respect to
such shares shall effectively withdraw or lose (through the failure to perfect
or otherwise) such holder's dissenters' rights under the CGCL, then, as of the
Effective Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
consideration described in Section 3.1 upon surrender of the applicable
Certificate(s) as provided herein.
(c) The Company shall give IDT (i) prompt written notice of any written
demands for payment with respect to any shares of Company Common Stock pursuant
to dissenters' rights, and any withdrawals of such demands or losses of such
rights, and any other instruments served pursuant to the CGCL, and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for dissenters' rights. The Company shall not, except with the prior
written consent of IDT, voluntarily make any payment with respect to demands for
dissenters' rights or offer to settle or settle any such demands.
3.10 Adjustments to Exchange Ratio.
The Exchange Ratio shall be adjusted to reflect appropriately the effect of
any stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into IDT Common Stock or Company Common
Stock), reorganization, reclassification or other like change with respect to
IDT Common Stock or Company Common Stock occurring or having a record date on or
after the date hereof and prior to the Effective Time.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the disclosure schedule provided by the
Company simultaneously herewith (the "Disclosure Schedule"), the parts of which
are numbered to correspond
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to the Section numbers of this Agreement, the Company hereby represents and
warrants to IDT and Merger Sub as follows:
4.1 Due Organization; Good Standing; Authority; Binding Nature of
Agreements.
(a) Each of the Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all necessary corporate power and
authority: (i) to conduct its business in the manner in which its business is
currently being conducted and in the manner in which its business is proposed to
be conducted prior to the Closing; (ii) to own and use its assets in the manner
in which its assets are currently owned and used and in the manner in which its
assets are proposed to be owned and used prior to the Closing; (iii) to perform
its obligations under all Company Contracts; and (iv) subject to shareholder
approval of this Agreement and the Merger, to enter into and perform all of its
obligations under the Transactional Agreements and to consummate the
transactions contemplated by this Agreement and the other Transactional
Agreements.
(b) Neither the Company nor any of its subsidiaries has ever conducted
directly or through any subsidiary any business under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name, assumed name, trade name or
other name.
(c) Each of the Company and its subsidiaries is duly qualified and in good
standing as a foreign corporation in each of the jurisdictions in which the
nature of its business or the ownership or leasing of its properties requires
such qualification, except where the failure to qualify or be in good standing
would not have a Material Adverse Effect on the Company. Section 4.1(c) of the
Disclosure Schedule sets forth a true and complete list of each jurisdiction in
which the Company or any of its subsidiaries have an officer or a paid
representative (employee or consultant) or owns or leases property and of each
jurisdiction in which the Company or any of its subsidiaries are qualified to do
business.
(d) Section 4.1(d) of the Disclosure Schedule accurately sets forth (i) the
names of the members of the Company's Board of Directors, (ii) the names and
titles of the Company's officers and (iii) the names and members of the
committees of the Company's Board of Directors.
(e) Neither the Company nor any of its shareholders has ever approved, or
commenced any proceeding or made any election contemplating, the dissolution or
liquidation of the Company or the winding up or cessation of the Company's
business or affairs.
(f) Except as indicated in Section 4.1(f) of the Disclosure Schedule, the
Company has no subsidiaries, and the Company has never owned, beneficially or
otherwise, any shares or other securities of, or any direct or indirect interest
of any nature in, any Entity. All of the Company's subsidiaries are wholly-owned
by the Company. Each Entity in which the Company owns equity interests,
indicated in Section 4.1(f) of the Disclosure Schedule, is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The shares of capital stock owned by the Company
in its subsidiaries or in any other Entity as indicated in Section 4.1(f) of the
Disclosure Schedule have been duly authorized and validly issued, are fully paid
and non-assessable, and are owned beneficially and of record by the Company free
and clear of any Encumbrances.
(g) The execution, delivery and performance of the Transactional Agreements
have been duly authorized by all necessary action on the part of Company, its
officers, and its Board of Directors, subject to the approval of the
shareholders of the Company.
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(h) The Transactional Agreements each constitute, or when executed will
constitute, the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms and conditions, subject to the
approval of the shareholders of the Company.
4.2 Articles of Incorporation and Bylaws; Records.
(a) The Company has delivered to IDT accurate and complete copies of: (i)
the Articles of Incorporation and Bylaws of the Company and its subsidiaries,
including all amendments thereto; (ii) the stock records of the Company and its
subsidiaries; and (iii) the minutes and other records of the meetings and other
proceedings (including any actions taken by written consent or otherwise without
a meeting) of the shareholders of the Company and its subsidiaries and the
Boards of Directors of the Company and its subsidiaries. There have been no
meetings or other proceedings of the shareholders of the Company and its
subsidiaries or the Board of Directors of the Company and its subsidiaries that
are not reflected in such minutes or other records.
(b) There has not been any violation of any of the provisions of the
Articles of Incorporation or Bylaws of the Company or any of its subsidiaries or
of any resolution adopted by the shareholders of the Company or any of its
subsidiaries or the Boards of Directors of the Company or any of its
subsidiaries, and to the Knowledge of the Company, no event has occurred, and no
condition or circumstance exists, that likely would (with or without notice or
lapse of time) constitute or result directly or indirectly in such a violation.
(c) The books of account, stock records, minute books and other records of
the Company and its subsidiaries are accurate, up to date and complete, and have
been maintained in accordance with sound and prudent business practices. All of
the records of the Company and its subsidiaries are in the actual possession and
direct control of the Company or its subsidiaries.
4.3 Capitalization; Ownership of Stock; Solvency, Etc.
As of the date of this Agreement:
(a) The authorized capital stock of the Company consists of (i) one
million (1,000,000) shares of Preferred Stock, $0.001 par value per share,
and (ii) thirty million (30,000,000) shares of Company Common Stock, $0.001
par value per share. As of November 1, 1998, (i) 7,502,690 shares of
Company Common Stock (together with a like number of the associated
Rights), (ii) no shares of Preferred Stock, (iii) options to purchase
1,600,919 shares of Company Common Stock and (iv) warrants to purchase
50,000 shares of Company Common Stock have been issued and are outstanding.
All of such Company Common Stock, warrants and options are owned of record
by the shareholders, warrant holders and option holders specified in
Section 4.3(a) of the Disclosure Schedule. On the Closing Date, the Company
shall deliver to IDT a true and correct update of the information in this
Section 4.3(a) as of the Closing Date (except that the list of shareholders
will be dated within five business days of the Closing Date).
(b) All of the shares of Company Common Stock currently outstanding
(i) have been duly authorized and validly issued, (ii) are fully paid and
non-assessable, and (iii) have been issued in full compliance with all
applicable securities laws and other applicable Legal Requirements.
(c) Other than as set forth in Section 4.3(a) above or in Section
4.3(a) of the Disclosure Schedule, there is no: (i) outstanding preemptive
right, subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire from the Company or any of its
subsidiaries or, to the Knowledge of the Company, affiliates any shares of
the capital stock or other securities of the Company or any of its
subsidiaries; (ii) outstanding security, instrument or obligation issued by
the Company or any of its subsidiaries or controlled affiliates that is or
may become
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convertible into or exchangeable for any shares of the capital stock or
other securities of the Company or any of its subsidiaries; (iii)
shareholders' rights plan (or similar plan commonly referred to as a
"poison pill") or Contract under which the Company or any of its
subsidiaries is or may become obligated to sell or otherwise issue any
shares of its capital stock or any other securities; (iv) Contract to which
the Company is a party relating to the voting or registration of or
restricting any person from purchasing, selling, pledging or otherwise
disposing of (or granting any option or similar right with respect to ),
any shares of Company Common Stock; or (v) to the Knowledge of the Company,
condition or circumstance that likely would directly or indirectly give
rise to or provide a basis for the assertion of a claim by any Person to
the effect that such Person is entitled to acquire or receive any shares of
capital stock or other securities of the Company or any of its
subsidiaries.
(d) The Company and its subsidiaries have not repurchased, redeemed or
otherwise reacquired (and, except as contemplated by this Agreement, has
not agreed, committed or offered (in writing or otherwise) to reacquire)
any shares of capital stock or other securities of the Company or any of
its subsidiaries. There are no shares of Company Common Stock held in the
Company treasury or held by any of the subsidiaries of the Company. Any
securities reacquired by the Company were (or will have been) reacquired in
full compliance with the applicable provisions of all applicable Legal
Requirements.
(e) As of November 1, 1998: (i) 1,600,919 shares of Company Common
Stock are reserved for future issuance pursuant to stock options granted
and currently outstanding under the Company's 1989 Stock Option Plan and
1995 Stock Option Plan (collectively, the "Option Plans"); (ii) 62,500
shares of Company Common Stock are reserved for future issuance pursuant to
stock options granted and currently outstanding under the Company's 1993
Directors' Stock Option Plan (the "Directors Plan"); and (iii) 16,738
shares of Company Common Stock are reserved for future issuance under the
Company's 1993 Employee Stock Purchase Plan (the "1993 Purchase Plan").
Stock options granted by the Company pursuant to the Option Plans and the
Directors Plan are referred to in this Agreement as "Company Options."
(f) Section 4.3(f) of the Disclosure Schedule sets forth the following
information with respect to each Company Option outstanding as of October
30, 1998: (i) the particular plan pursuant to which such Company Option was
granted; (ii) the name of the optionee; (iii) the number of shares of
Company Common Stock subject to such Company Option; (iv) the exercise
price of such Company Option; (v) the date on which such Company Option was
granted; (vi) the extent to which such Company Option is vested as of
October 30, 1998; and (vii) the date on which such Company Option expires.
The Company has delivered to IDT accurate and complete copies of all stock
option plans pursuant to which the Company or any of its subsidiaries has
ever granted stock options.
(g) Neither the execution and delivery of this Agreement or the other
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse
of time) result in the creation of any third party ownership interest in
any of the Company's subsidiaries.
4.4 SEC Filings; Financial Statements.
(a) The Company has delivered or made available to IDT accurate and
complete copies of each report, registration statement and definitive proxy
statement (excluding copies of exhibits) filed by the Company with the SEC since
November 17, 1994 (the "Company SEC Filings"). As of the time it was filed with
the SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the Company SEC Filings
complied in all
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material respects with the applicable requirements of the Securities Act or the
Exchange Act (as the case may be); and (ii) none of the Company SEC Filings
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The financial statements of the Company (including any related notes)
contained in the Company SEC Filings: (i) complied as to form in all material
respects with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC, and except that the unaudited
financial statements may not contain footnotes and are subject to normal and
recurring year-end adjustments which will not, individually or in the aggregate,
be material in amount); and (iii) fairly present the consolidated financial
position of the Company and its subsidiaries as of the respective dates thereof
and the consolidated results of operations and cash flows of the Company and its
subsidiaries for the periods covered thereby.
(c) The Company has delivered to IDT an unaudited consolidated balance
sheet of the Company and its subsidiaries as of September 27, 1998 (the
"Unaudited Balance Sheet"), and the related unaudited consolidated income
statement, statement of shareholders' equity and statement of cash flows of the
Company for the 12 months then ended (collectively, the "Financial Statements").
The Financial Statements referred to in this Section 4.4(c): (i) were prepared
in accordance with generally accepted accounting principles applied on a basis
consistent with the basis on which the financial statements referred to in
Section 4.4(b) were prepared (except that the Financial Statements referred to
in this Section 4.4(c) may not contain footnotes); and (ii) fairly present the
consolidated financial position of the Company and its subsidiaries as of
September 27, 1998 and the consolidated results of operations and cash flows of
the Company and its subsidiaries for the period covered thereby.
(d) As of the date of this Agreement, the Company has no Liabilities in
excess of $100,000 individually, or $250,000 in the aggregate, except for: (i)
Liabilities identified as such in the "liabilities" column of the Unaudited
Balance Sheet; and (ii) Liabilities scheduled in Section 4.4(d) or 4.5(r) of the
Disclosure Schedule.
4.5 Absence of Changes.
Since the date of the Unaudited Balance Sheet:
(a) there has not been any material adverse change in business,
condition, assets, liabilities, operations, financial performance or
results of operations of the Company or any of its subsidiaries, and no
event has occurred that likely would have a material adverse effect on the
business, condition, assets, liabilities, operations, financial performance
or results of operations of the Company and its subsidiaries;
(b) there has not been any material loss, damage or destruction to, or
any interruption in the use of, any of the assets (whether or not covered
by insurance) of the Company or any of its subsidiaries;
(c) neither the Company nor any of its subsidiaries has (i) declared,
accrued, set aside or paid any dividend or made any other distribution in
respect of any shares of capital stock, or (ii) repurchased, redeemed or
otherwise reacquired any shares of capital stock or other
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securities, other than pursuant to existing agreements with Company
employees at the original purchase price upon termination of such
employee's employment with the Company;
(d) neither the Company nor any of its subsidiaries has sold, issued,
granted or authorized the issuance or grant of: (i) any capital stock or
other security (except for Company Common Stock issued upon the exercise of
outstanding Company Options); (ii) any option, call, warrant or right to
acquire any capital stock or any other security (except for Company Options
and purchase rights under the Company's 1993 Purchase Plan); or (iii) any
instrument convertible into or exchangeable for any capital stock or other
security;
(e) neither the Company nor any of its subsidiaries has (i) amended
its Articles of Incorporation or Bylaws or (ii) effected or been a party to
any transaction relating to an Acquisition Proposal, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(f) neither the Company nor any of its subsidiaries has (i) received
any Acquisition Proposal, or (ii) solicited, initiated, encouraged or
induced, or provided any nonpublic information to or entered into any
discussions with any Person for the purpose of soliciting, initiating,
encouraging or inducing, the making or submission of any Acquisition
Proposal;
(g) neither the Company nor any of its subsidiaries has formed any
subsidiary or acquired any equity interest or other interest in any other
Entity;
(h) neither the Company nor any of its subsidiaries has purchased or
otherwise acquired any asset from any other Person, except for assets
acquired by the Company or any of its subsidiaries in the Ordinary Course
of Business;
(i) neither the Company nor any of its subsidiaries has leased or
licensed any asset from any other Person, except for assets leased or
licensed in the Ordinary Course of Business;
(j) neither the Company nor any of its subsidiaries has made any
capital expenditures outside the Ordinary Course of Business, except for
such capital expenditures as in the aggregate, measured by invoice amount,
do not exceed $10,000 or were consented to by IDT in writing;
(k) neither the Company nor any of its subsidiaries has sold or
otherwise transferred, or has leased or licensed, any asset to any other
Person, except for products sold by the Company or any of its subsidiaries
from its inventory in the Ordinary Course of Business;
(l) neither the Company nor any of its subsidiaries has written off as
uncollectible, or established any extraordinary reserve with respect to,
any account receivable or other indebtedness, except in the Ordinary Course
of Business;
(m) neither the Company nor any of its subsidiaries has pledged or
hypothecated any of its assets or otherwise permitted any of its assets to
become subject to any Encumbrance, except in the Ordinary Course of
Business or except for the liens identified as permitted in Section 4.6(d);
(n) neither the Company nor any of its subsidiaries has made any loan
or advance to any other Person, including without limitation, any
shareholder of the Company (other than normal employee travel advances in
the Ordinary Course of Business);
(o) neither the Company nor any of its subsidiaries has (i)
established, amended or adopted any Company Benefit Arrangement or (ii)
paid any bonus or made any profit sharing or similar payment to, or
increased the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors,
officers or employees, other
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than as required under agreements existing on the date hereof as disclosed
in Section 4.5(o) of the Disclosure Schedule;
(p) neither the Company nor any of its subsidiaries has entered into
any Contract, except in the Ordinary Course of Business; and no assets
owned or used by the Company or any of its subsidiaries has become bound by
any Contract, except in the Ordinary Course of Business;
(q) no Contract by which the Company or any of its subsidiaries or any
of the assets owned or used by the Company or any of its subsidiaries are
or were bound, or under which the Company or any of its subsidiaries has or
had any rights or interest, have been amended or terminated, other than in
the Ordinary Course of Business and other than expirations in accordance
with the terms of the Contracts;
(r) there has been no borrowing or agreement to borrow by the Company
or its subsidiaries or change in any guaranty, endorsement, indemnity,
warranty or other obligation of the Company or any of its subsidiaries in
respect of the obligations of others, or grant of a mortgage or security
interest in any property of the Company or any of its subsidiaries (other
than liens identified as permitted by Section 4.6(d)), and neither the
Company nor any of its subsidiaries has incurred, assumed or otherwise
become subject to any Liabilities in excess of $100,000 individually, or
$250,000 in the aggregate, other than those set forth in Section 4.4(d) or
4.5(r) of the Disclosure Schedule;
(s) neither the Company nor any of its subsidiaries has discharged any
Encumbrance or discharged or paid any indebtedness or other Liability,
except any that (i) are reflected as current liabilities in the Unaudited
Balance Sheet or have been incurred by the Company and its subsidiaries
since the date thereof in the Ordinary Course of Business, and (ii) have
been discharged or paid in the Ordinary Course of Business;
(t) neither the Company nor any of its subsidiaries has forgiven any
material debt or otherwise released or waived any material right or claim;
(u) neither the Company nor any of its subsidiaries has changed any of
its methods of accounting or accounting practices in any respect (other
than as may be required by GAAP);
(v) neither the Company nor any of its subsidiaries has entered into
any transaction or taken any other action outside the Ordinary Course of
Business; and
(w) neither the Company nor any of its subsidiaries has agreed or
committed (in writing or otherwise), to take any of the actions referred to
in clauses (c) through (v) above.
4.6 Title to Assets; Equipment; Real Property, Leases; Inventory.
(a) Each of the Company and its subsidiaries owns, and has good, valid and
marketable title to, all assets it purports to own, including: (i) all assets
reflected on the Unaudited Balance Sheet (except for inventory sold by the
Company and its subsidiaries since the date thereof in the Ordinary Course of
Business, and except for assets held under capitalized leases, which are
identified in Section 4.6(a) of the Disclosure Schedule); (ii) all assets
acquired by the Company and its subsidiaries since the date of the Unaudited
Balance Sheet (except for inventory sold by the Company and its subsidiaries
since the date of the Unaudited Balance Sheet in the Ordinary Course of
Business); (iii) all assets referred to in Sections 4.6(b), 4.7 and 4.9 of the
Disclosure Schedule, except leased assets identified in Section 4.6(b) of the
Disclosure Schedule or licensed assets identified in Section 4.9 of the
Disclosure Schedule, and all of the Company's and its subsidiaries' rights under
Company Contracts; and (iv) all other assets reflected in the books and records
of the Company or any of its subsidiaries as being owned by the Company or any
of its subsidiaries. Except
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as indicated in Section 4.6(a) of the Disclosure Schedule, all of said assets
are owned by the Company or its subsidiaries free and clear of any Encumbrances,
except liens for current taxes and assessments not delinquent and except for
mechanics', carriers', workers' and other similar liens arising in the Ordinary
Course of Business.
(b) Section 4.6(b) of the Disclosure Schedule identifies all items of
equipment, personal property and other tangible and intangible assets with an
individual net book value that exceeds $10,000 owned by or leased to the Company
and its subsidiaries and used by the Company or its subsidiaries in its
businesses, other than ordinary office furniture and office supplies. The
carrying value of the items identified on Section 4.6(b) of the Disclosure
Schedule are not impaired, as defined by GAAP.
(c) To the Knowledge of the Company, each asset identified in Section
4.6(b) of the Disclosure Schedule: (i) is in good condition and repair,
consistent with its age and intended use (ordinary wear and tear excepted); (ii)
complies in all material respects and is being operated and otherwise used in
material compliance with all applicable Legal Requirements; and (iii) is
adequate in all material respects for the uses to which it is being put.
(d) Neither the Company nor any of its subsidiaries owns any real property
or any interest in real property, except for the real property and leaseholds
created under the real property leases identified in Section 4.6(d) of the
Disclosure Schedule (collectively, the "Premises"). Section 4.6(d) of the
Disclosure Schedule provides an accurate and complete description of the
Premises and the facilities located on such Premises. The Company and its
subsidiaries enjoy peaceful and undisturbed possession of such Premises. The
Company has delivered to IDT complete copies of all agreements, including
leases, related to the Company's ownership interests in the Premises. The
Surviving Corporation will obtain a valid ownership or leasehold interests in
the Premises, in each case free and clear of all title defects, Encumbrances and
restrictions of any kind, except: (i) mechanics', carriers', workers' and other
similar liens arising in the Ordinary Course of Business; and (ii) liens for
current taxes not yet due and payable.
(e) [intentionally omitted.]
(f) All leases pursuant to which the Company or any of its subsidiaries
leases real or personal property are valid and effective in accordance with
their respective terms and, to the Company's Knowledge, there exists no default
thereunder or occurrence or condition which could result in a default thereunder
or termination thereof.
(g) The Company's and its subsidiaries' Premises are in a condition
adequate for the conduct of the Company's business in the Ordinary Course of
Business. The Company and its subsidiaries own, or have a valid leasehold
interest in or license to, all assets necessary for the conduct of its business
as presently conducted.
(h) Section 4.6(h) of the Disclosure Schedule identifies all items of
equipment and other tangible assets owned by or leased to the Company and its
subsidiaries and used at the location of SPIC Electronic and System Limited, a
public Limited Company incorporated under the provisions of the Indian Companies
Act ("SPEL"). SPEL has no ownership interest in such equipment and assets, and
the Company may, upon giving any prior notice that may be required under the
terms of the SPEL Agreement, repatriate such equipment and assets to the United
States without incurring any liability or obligation to SPEL or, to the
Knowledge of the Company, any Entity or Government Body.
(i) With respect to inventories listed on the Unaudited Balance Sheet, as
of the date of the Unaudited Balance Sheet: (a) inventories are stated at lower
of cost or market, cost being
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determined on the basis of FIFO and consistent with the prior year, and due
provision was made to reduce all slow-moving, obsolete or unusable inventories
to their estimated useful or scrap values; (b) inventory quantities were
determined from the Company's perpetual inventory records, which have been
adjusted on the basis of physical counts taken by competent employees; (c)
liabilities, if unpaid, for all items included in inventories are recorded, and
all quantities billed to customers, are excluded from the inventory balances;
(d) commitments for future purchases are for quantities not in excess of
anticipated requirements and at prices which will not result in loss; and (e)
provision has been made for any material loss to be sustained in the fulfillment
of, or from the inability to fulfill, any commitment.
4.7 Receivables; Major Customers.
(a) Section 4.7 of the Disclosure Schedule provides an accurate and
complete breakdown and aging of the accounts receivable and notes receivable of
each customer of the Company and its subsidiaries and a list of all other
receivables of the Company and its subsidiaries as of September 27, 1998,
categorized by period of aging (30, 60, 90 or 120 or more days).
(b) All existing accounts receivable of the Company and its subsidiaries
(including those accounts receivable reflected on the Unaudited Balance Sheet
that have not yet been collected and those accounts receivable that have arisen
since such date and have not yet been collected) represent valid obligations of
ongoing customers of the Company and its subsidiaries arising from bona fide
transactions entered into in the Ordinary Course of Business. The allowance for
doubtful accounts set forth on the Unaudited Balance Sheet was estimated by the
Company in accordance with GAAP applied on a basis consistent with its past
practice and, to the Knowledge of the Company, provides a sufficient reserve for
doubtful accounts.
(c) Neither the Company nor any of its subsidiaries has received any notice
or other communication (in writing or otherwise), or received any other
information, indicating that customers representing a material portion of the
Company's and its subsidiaries' revenues may cease dealing with the Company or
its subsidiaries or may otherwise reduce the volume of business transacted by
such Person with the Company and its subsidiaries below historical levels.
(d) The Company has provided to IDT a copy of each of the Company's
standard forms of customer contract. Customers covered by contracts in forms
other than such standard forms or with material deviations from such standard
forms do not constitute a material portion of the Company's revenues. Neither
the Company nor any of its subsidiaries has any oral contracts or agreements to
provide services.
4.8 Accounts Payable; Major Suppliers.
Section 4.8 of the Disclosure Schedule: (i) provides an accurate and
complete breakdown and aging of the Company's accounts payable as of September
27, 1998; and (ii) provides an accurate and complete breakdown of the Company's
long-term debt as of the date of this Agreement.
4.9 Proprietary Assets.
(a) Section 4.9 of the Disclosure Schedule sets forth each registered or
material Proprietary Asset that is owned by or licensed to the Company or any of
its subsidiaries or that is otherwise used in connection with the business of
the Company or any of its subsidiaries.
(b) The Company and its subsidiaries have taken all reasonable measures and
precautions necessary or appropriate to protect the confidentiality and value of
each Proprietary Asset identified or required to be identified in Section 4.9 of
the Disclosure Schedule.
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(c) All current and former consultants of the Company or any of its
subsidiaries involved in the development of Proprietary Assets have executed an
employee or consultant proprietary information and inventions agreement
substantially in the form attached as Exhibit C hereto. To the Knowledge of the
Company, no current or former employee or consultant is in violation thereof.
The Company does not believe it is or will be necessary to utilize in the
conduct of its business as presently conducted any inventions, trade secrets or
proprietary information of owned by any employee of Company or any of its
subsidiaries.
(d) Each of the Company and its subsidiaries has conducted its business
without infringement or claim of infringement of any license, patent, copyright,
service mark, trademark, trade name, trade secret or other intellectual property
right of others. The Company and its subsidiaries are not infringing and have
not at any time infringed or received any notice or other communication (in
writing or otherwise) of any actual, alleged, possible or potential infringement
of any Proprietary Asset owned or used by any other Person. To the Company's
Knowledge, no Person is infringing, and no Proprietary Asset owned or used by
any other Person infringes or conflicts with, any Proprietary Asset owned or
used by Company or any of its subsidiaries.
(e) There are no royalties, honoraria, fees or other payments payable by
the Company or any of its subsidiaries to any person by reason of the ownership,
use, license, sale or disposition of any Proprietary Asset of the Company.
(f) The Proprietary Assets identified in Section 4.9 of the Disclosure
Schedule constitute all of the material Proprietary Assets necessary to enable
each of the Company and its subsidiaries to conduct its business in the manner
in which its business is currently being conducted, and each of the Company and
any of its subsidiaries owns, or has the right to use, and to license others to
use, all such Proprietary Assets. Such ownership or right to use, and ability to
license others to use, are, or with respect to patents to the Company's
Knowledge are, free and clear of, and without liability under, all claims and
right of third parties.
(g) The Company has not licensed the right to make, use or sell any of its
products to any third party.
4.10 Contracts.
(a) All Company Contracts material to the Company's business ("Material
Contracts") are in writing. The Company has delivered to IDT accurate and
complete copies of all Material Contracts, including all amendments thereto.
Section 4.10 of the Disclosure Schedule identifies each Company Contract that
constitutes a Material Contract. For purposes of this Agreement, each of the
following shall be deemed to constitute a Material Contract:
(i) any Contract providing for the employment of, or the performance
of services by, any employee or consultant (to the extent such consultant
may not be terminated without penalty on no more than 30 days' notice), and
any Contract pursuant to which the Company or any of its subsidiaries is
required to make any severance, termination or similar payment, relocation
payment or any other payment (including any bonus payment, but excluding
payments in respect of salary or commissions earned by employees of the
Company or any of its subsidiaries in the Ordinary Course of Business and
consistent with past practices) in excess of $25,000, to any current or
former employee or director of the Company or any of its subsidiaries;
(ii) any Contract relating to the acquisition, transfer, development,
sharing, license (to or by the Company or any of its subsidiaries), use or
other exploitation of any Proprietary Asset (except for any Contract
pursuant to which (1) any Proprietary Asset is licensed to the Company or
any of its subsidiaries under any third party software license generally
available to
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the public and (2) any Proprietary Asset is licensed by any of the Company
to any Person on a non-exclusive basis);
(iii) any Contract which provides for indemnification of any officer,
director, employee or agent of the Company or any of its subsidiaries;
(iv) any Contract imposing any restriction on the right or ability of
the Company or any of its subsidiaries (A) to compete with any other
Person, (B) to acquire any product or other asset or any services from any
other Person, to sell any product or other asset to or perform any services
for any other Person or to transact business or deal in any other manner
with any other Person, or (C) develop or distribute any technology;
(v) any Contract (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities, (B) providing any Person
with any preemptive right, right of participation, right of maintenance or
any similar right with respect to any securities, or (C) providing the
Company or any of its subsidiaries with any right of first refusal with
respect to, or right to repurchase or redeem, any securities;
(vi) any Contract requiring that the Company or any of its
subsidiaries give any notice or provide any information to any Person prior
to accepting any Acquisition Proposal;
(vii) any Contract (A) that contemplates or involves the payment or
delivery of cash or other consideration in an amount or having a value in
excess of $25,000 in the aggregate, or contemplates or involves the
performance of services having a value in excess of $25,000 in the
aggregate, and (B) that has a term of more than 90 days and that may not be
terminated by the Company or any of its subsidiaries (other than for breach
of any such Contract and, in any event, without penalty) within 90 days
after the delivery of a termination notice by the Company or any of its
subsidiaries; and
(viii) any Contract (not otherwise identified in clauses "(i)" through
'(vii)" of this sentence) that is or would be material to any of the
Company or any of its subsidiaries, to the business, condition,
capitalization or operations of any of the Company or any of its
subsidiaries or to any of the transactions contemplated by this Agreement.)
(b) Each Material Contract is valid and in full force and effect, and is
enforceable by the Company and its subsidiaries in accordance with its material
terms. There is no Company Contract to which any Governmental Body is a party or
under which any Governmental Body has any rights or obligations.
(c) Neither the Company nor any of its subsidiaries is in default under any
Material Contract, and to the Company's Knowledge: (i) no Person acting for the
Company or any of its subsidiaries has violated or breached, or declared or
committed any material default under, any Material Contract; (ii) no event has
occurred, and no circumstance or condition exists, that likely would (with or
without notice or lapse of time) (A) result in a material violation or breach of
any of the provisions of any Material Contract, (B) give any Person the right to
declare a default or exercise any material remedy under any Material Contract,
(C) give any Person the right to accelerate the maturity or performance of any
Material Contract, or (D) give any Person the right to cancel, terminate or
modify any Material Contract; and (iii) neither the Company nor any of its
subsidiaries has waived any of its material rights under any Material Contract.
(d) Neither the Company nor any of its subsidiaries has received any notice
that any Person against which the Company or any of its subsidiaries have or may
acquire any rights under any Material Contract is not solvent and is not able to
satisfy all of such Person's current and future monetary obligations and other
obligations and Liabilities to the Company or any of its subsidiaries
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that would result separately or in the aggregate in a Material Adverse Effect
with respect to the Company.
(e) (i) Neither the Company nor any of its subsidiaries has ever guaranteed
or otherwise agreed to cause, insure or become liable for, and has never pledged
any of its assets to secure, the performance or payment of any obligation or
other Liability of any other Person except in the Ordinary Course of Business;
and (ii) neither the Company nor any of its subsidiaries has ever been a party
to or bound by (A) any joint venture agreement, partnership agreement, profit
sharing agreement, cost sharing agreement, loss sharing agreement or similar
Contract, or (B) any Contract that creates or grants to any Person, or provides
for the creation or grant of, any stock appreciation right, phantom stock right
or similar right or interest.
(f) To the Knowledge of the Company, the performance of the Company
Contracts will not result in any misdemeanor or felony, or any material
violation of or failure to comply in any material respect with any Legal
Requirement.
(g) No Person is currently materially renegotiating, nor has the
contractual right to materially renegotiate, any amount paid or payable to the
Company and its subsidiaries under any Material Contract or any other material
term or provision of any Material Contract.
(h) Schedule 4.10(h) of the Disclosure Schedule identifies and provides an
accurate and brief description, as of the date of this Agreement, of each
proposed material Contract as to which any bid, offer, written proposal, term
sheet or similar document has been submitted or received by the Company or any
of its subsidiaries that would commit the Company or any of its subsidiaries to
provide services and is outstanding and if entered would constitute a Material
Contract.
(i) No party to any Material Contract has notified the Company or any of
its subsidiaries or made a claim to the effect that the Company or any of its
subsidiaries has failed to perform any material obligation thereunder. In
addition, to the Knowledge of the Company, there is no plan, intention or
indication of any contracting party to any Material Contract to cause the
termination, cancellation or modification of such Contract or to reduce or
otherwise change its activity thereunder in any material respect so as to
adversely affect the benefits derived or expected to be derived therefrom by the
Company or any of its subsidiaries.
(j) Each of the Company and its subsidiaries has all material Company
Contracts necessary to conduct its business in the manner in which it is being
conducted or is proposed to be conducted prior to the Closing.
(k) The Agreement for Processing of Diffused Silicon Wafers dated February
1, 1994 between the Company and SPEL (the "SPEL Agreement") is the only
agreement or understanding, oral or written, between the Company and SPEL, and
such contract governs the entire relationship between such parties. Such
contract's term expires on February 1, 1999, and the Company would not incur any
liability to SPEL or, to the Knowledge of the Company, any other party in
connection with the termination of such contract. To the Knowledge of the
Company, there are no circumstances under which the Company has incurred or,
provided the terms of the SPEL Agreement are complied with in all material
respects, would incur any liabilities in connection with the SPEL Agreement
(other than in connection with the payment for products by the Company pursuant
to the terms of such agreement).
4.11 Compliance With Legal Requirements.
(a) To the Knowledge of the Company, each of the Company and its
subsidiaries is in compliance in all material respects with each Legal
Requirement that is applicable to it or to the conduct of its business or the
ownership or use of any of its assets.
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(b) To the Knowledge of the Company, no event has occurred, and no
condition or circumstance exists, that likely would (with or without notice or
lapse of time) constitute or result directly or indirectly in a material
violation by the Company or any of its subsidiaries of, or a failure on the part
of the Company or any of its subsidiaries to comply in any material respect
with, any Legal Requirement.
(c) Neither the Company nor any of its subsidiaries has received, at any
time, any notice or other communication (in writing or otherwise) from any
Governmental Body, or any other Person, regarding (i) any actual, alleged,
possible or potential violation of, or failure to comply with, any Legal
Requirement, or (ii) any actual, alleged, possible or potential obligation on
the part of the Company or any of its subsidiaries to undertake, or to bear all
or any portion of the cost of, any cleanup or any remedial, corrective or
response action of any nature.
4.12 Certain Business Practices.
Neither the Company and any of its subsidiaries nor any director, officer,
agent or employee of the Company or any of its subsidiaries has: (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity; (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or (iii) made any other unlawful payment.
4.13 Governmental Authorizations.
(a) Each Governmental Authorization held by the Company that is necessary
to the conduct of its business as presently conducted is valid and in full force
and effect.
(b) The Company and its subsidiaries have all Governmental Authorizations
necessary: (i) to enable each of the Company and its subsidiaries to conduct its
business in the manner in which its business is currently being conducted or is
proposed to be conducted prior to the Closing; and (ii) to permit each of the
Company and its subsidiaries to own and use its assets in the manner in which
they are currently owned and used.
4.14 Tax Matters.
(a) Each material Tax required to have been paid, or claimed by any
Governmental Body to be payable, by the Company and its subsidiaries (whether
pursuant to any Tax Return or otherwise) has been duly paid in full on a timely
basis, or the Company has established adequate reserves therefor (identified as
such) in the Financial Statements. Any material Tax required to have been
withheld or collected by the Company and its subsidiaries has been duly withheld
and collected, and (to the extent required) each such Tax has been paid to the
appropriate Governmental Body.
(b) All material Tax Returns of the Company and its subsidiaries (i) have
been or will be filed when due, and (ii) have been, or will be when filed,
prepared in material compliance with all applicable Legal Requirements. All
material amounts (individually or in the aggregate) shown on Tax Returns of the
Company and its subsidiaries to be due on or before the Closing Date, and all
material amounts (individually or in the aggregate) otherwise payable in
connection with the Tax Returns of the Company and its subsidiaries on or before
the Closing Date, have been or will be paid on or before the Closing Date. The
Company has delivered to IDT accurate and complete copies of Tax Returns of the
Company and its subsidiaries filed by the Company or its subsidiaries, as the
case may be.
(c) The liability of the Company and its subsidiaries for unpaid Taxes for
all periods ending on or before the date of the Financial Statements does not,
in the aggregate, exceed the amount of the
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current liability accruals for Taxes (excluding reserves for deferred taxes)
reported in the Financial Statements, and the liability of the Company and its
subsidiaries for unpaid Taxes for all periods or partial periods through the
Closing Date will not exceed such accruals, adjusted for operations in the
Ordinary Course of Business after the date of the Unaudited Balance Sheet.
(d) Section 4.14(d) of the Disclosure Schedule accurately identifies each
examination or audit of any Tax Return of the Company and its subsidiaries that
has been or is currently being conducted by any Governmental Body. The Company
has delivered to IDT accurate and complete copies of all audit reports and
similar documents relating to Tax Returns of the Company and its subsidiaries.
No extension or waiver of the limitation period applicable to any of the Tax
Returns of the Company and its subsidiaries has been granted (by the Company and
its subsidiaries or any other Person) that is still in effect, and no such
extension or waiver is currently being requested from the Company or its
subsidiaries.
(e) No claim or other Proceeding is pending or to the Company's Knowledge
has been threatened against or with respect to the Company or any of its
subsidiaries in respect of any Tax. There are no unsatisfied Liabilities for
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of proposed adjustment,
notice of deficiency or similar document received by the Company or any of its
subsidiaries. Neither the Company nor any of its subsidiaries has entered into
or become bound by any agreement or consent pursuant to Section 341(f) of the
Code. Neither the Company nor any of its subsidiaries has been, or will be,
required to include any adjustment in taxable income for any tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions or events
occurring, or accounting methods employed, prior to the Closing.
(f) There is no agreement, plan, arrangement or other Contract covering any
employee or independent contractor or former employee or independent contractor
of the Company or any of its subsidiaries that, individually or collectively,
could give rise directly or indirectly to the payment of any amount that would
not be deductible pursuant to Section 280G or Section 162(m) of the Code.
(g) Neither the Company nor any of its subsidiaries is a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
and has not been a United States real property holding corporation within the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(h) Neither the Company nor any of its subsidiaries is liable for Taxes
incurred by any individual, trust, corporation, partnership or other entity
other than Company or its subsidiaries, either as a transferee or successor or
pursuant to Treasury Regulations Section 1.1502-6, or pursuant to any other
provision of federal, state or local law or regulation. Neither the Company nor
any of its subsidiaries is, or has ever been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
Contract (other than any agreement to which the Company and one or more of such
subsidiaries are the only parties).
(i) Neither the Company nor any of its subsidiaries is a party to any joint
venture, partnership or other Entity, arrangement or contract which could be
treated as a partnership for United States federal income tax purposes. Neither
the Company nor any of its subsidiaries has any ownership interest in any
foreign entity which has elected under Treasury Regulation Section 301.7701-3 to
be disregarded as an entity separate from its owner.
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4.15 Employees, ERISA and Other Compliance.
(a) To the Knowledge of the Company, each of the Company and its
subsidiaries is in compliance in all material respects with all applicable laws,
agreements and contracts relating to employment, employment practices, wages,
hours, and terms and conditions of employment, including, but not limited to,
employee compensation matters. The Company and its subsidiaries do not have any
employment contracts or consulting agreements currently in effect that are not
terminable at will (other than agreements with the sole purpose of providing for
the confidentiality of proprietary information or assignment of inventions). All
independent contractors have been properly classified as independent contractors
for the purposes of federal and applicable state tax laws, laws applicable to
employee benefits and other applicable law, except where the failure to be so
classified, in the aggregate, results in actual or potential liability to the
Company of no more than $100,000.
(b) Neither the Company nor any of its subsidiaries: (i) now is, nor has
ever been, subject to a union organizing effort; (ii) is subject to any
collective bargaining agreement with respect to any of its employees; (iii) is
subject to any other contract, written or oral, with any trade or labor union,
employees' association or similar organization; or (iv) has any current labor
disputes that would materially impair the operations of the Company's business.
The Company and its subsidiaries generally have good labor relations, and the
Company has no Knowledge of any facts indicating that the consummation of the
Merger or any of the other transactions contemplated hereby will adversely
impact such labor relations in a material manner. As of the date of this
Agreement, the Company has no Knowledge that any of its or any of its
subsidiaries' key employees intends to leave his or her employ. There are no
controversies pending or, to the Knowledge of the Company or any of its
subsidiaries, threatened, between the Company or any of its subsidiaries (on the
one hand) and any of its employees (on the other hand) that would be reasonably
likely to result in the Company incurring any material liability. All of the
employees of the Company and its subsidiaries employed in the United States of
America are legally permitted to be employed by the Company or any of its
subsidiaries in the United States of America.
(c) Neither the Company nor any of its subsidiaries has any pension plan
which constitutes, or has since the enactment of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), constituted, a "multiemployer plan"
as defined in Section 3(37) of ERISA. No pension plan of the Company or any of
its subsidiaries is subject to Title IV of ERISA.
(d) Section 4.15(d) to the Disclosure Schedule lists each employment,
severance or other similar contract, arrangement or policy, each "employee
benefit plan" as defined in Section 3(3) of ERISA and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits for
employees, consultants or directors which is entered into, maintained or
contributed to by the Company or any of its subsidiaries and covers any employee
or former employee of the Company or any of its subsidiaries. Such contracts,
plans and arrangements as are described in this Section 4.15(d) are hereinafter
collectively referred to as "Company Benefit Arrangements." To the Knowledge of
the Company, each Company Benefit Arrangement has been maintained in compliance
in all material respects with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations that are applicable to such
Company Benefit Arrangement, and each such Company Benefit Arrangement that is
an "employee pension benefit plan" as defined in Section 3(2) of ERISA that is
intended to qualify under Section 401(a) of the Code has received a favorable
determination letter that such plan satisfied the requirements of the Tax Reform
Act of 1986 (a copy of which letter(s), if any, have been delivered to IDT and
its counsel). The Company has delivered
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to IDT or its counsel a complete and correct copy and description of each
Company Benefit Arrangement. The Company has timely filed and delivered to IDT
and its counsel the most recent annual report (Form 5500) for each Company
Benefit Arrangement that is an "employee benefit plan" as defined under ERISA.
To the Knowledge of the Company, the Company has never been a participant in any
"prohibited transaction," within the meaning of Section 406 of ERISA with
respect to any employee pension benefit plan (as defined in Section 3(2) of
ERISA) which the Company sponsors as employer or in which Company participates
as an employer, which was not otherwise exempt pursuant to Section 408 of ERISA
(including any individual exemption granted under Section 408(a) of ERISA), or
which could result in an excise tax under the Code. All contributions due from
the Company or any of its subsidiaries as of the date of the Unaudited Balance
Sheet with respect to any of the Company Benefit Arrangements have been made or
have been accrued on the Unaudited Balance Sheet and no further contributions
will be due or will have accrued thereunder as of the Closing Date other than
amounts consistent with the amounts paid or accrued in the periods reflected on
the Unaudited Balance Sheet. All individuals who, pursuant to the terms of any
Company Benefit Arrangement, are entitled to participate in any such Company
Benefit Arrangement, are currently participating in such Company Benefit
Arrangement or have been offered an opportunity to do so and have declined.
(e) There has been no amendment to, written interpretation or announcement
(whether or not written) by the Company relating to, or change in employee
participation or coverage under, any Company Benefit Arrangement that would
increase materially the expense of maintaining such Company Benefit Arrangement
above the level of the expense incurred in respect thereof for the Company's
fiscal year ended September 27, 1998.
(f) To the Knowledge of the Company, the group health plans (as defined in
Section 4980B(g) of the Code) that benefit employees of the Company are in
compliance, in all material respects, with the continuation coverage
requirements of Section 4980B of the Code as such requirements affect the
Company and its employees. As of the Closing Date, there will be no material
outstanding, uncorrected violations under the Consolidation Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any of the
Company Benefit Arrangements, covered employees, or qualified beneficiaries.
(g) No benefit payable or which may become payable by the Company pursuant
to any Company Benefit Arrangement or as a result of or arising under this
Agreement or the other Transactional Agreements will constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) which is
subject to the imposition of an excise Tax under Section 4999 of the Code or
which would not be deductible by reason of Section 280G of the Code. Except as
set forth on Section 4.15(g) of the Disclosure Schedule, the Company is not a
party to any: (i) agreement with any executive officer or other key employee
thereof (A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
in the nature of the Merger or any of the other transactions contemplated by
this Agreement or any Transactional Agreements, (B) providing any term of
employment or compensation guarantee, or (C) providing severance benefits or
other benefits after the termination of employment of such employee regardless
of the reason for such termination of employment; or (ii) agreement or plan,
including, without limitation, any stock option plan, stock appreciation rights
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of benefits of which will be accelerated, by the occurrence of the
Merger or any of the other transactions contemplated by this Agreement or any
Transactional Agreements, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement or any Transactional Agreements.
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(h) To the Company's Knowledge, no employee, consultant or independent
contractor of the Company or its subsidiaries: (i) is in material violation of
any term or covenant of any employment contract, patent disclosure agreement,
noncompetition agreement or any other contract or agreement with, or obligation
to, any other party by virtue of such employee's, consultant's, or independent
contractor's being employed by, or performing services for, the Company or such
subsidiary or using trade secrets or proprietary information of others; or (ii)
has developed any technology, software or other copyrightable, patentable, or
otherwise proprietary work for the Company or any of its subsidiaries that is
subject to any agreement under which such employee, consultant or independent
contractor has assigned or otherwise granted to any third party any rights
(including without limitation Proprietary Assets) in such technology, software
or other copyrightable, patentable or otherwise proprietary work. To the
Company's Knowledge, the employment of any employee of the Company or any
subsidiary of the Company does not subject the Company or any such subsidiary to
any liability to any third party.
(i) There are no material pending claims against the Company or any of its
subsidiaries under any workers' compensation plan or policy or for long-term
disability benefits.
4.16 Environmental Matters.
Each of the Company and its subsidiaries is and, to the Knowledge of the
Company, has been at all times in compliance in all material respects with all
Environmental Laws. Each of the Company and its subsidiaries has now and at all
times has had all the necessary permits required under Environmental Laws for
the operation of its business and material to the operation of such business,
and is not and has not been in material violation of any of the terms and
conditions of any of its permits. Neither the Company nor any of its
subsidiaries has received any notice or other communication (in writing or
otherwise), whether from a Governmental Body, citizens group, employee or
otherwise, that alleges that the Company or any of its subsidiaries is not in
compliance with any Environmental Law. Neither the Company nor any of its
subsidiaries has generated, manufactured, produced, transported, imported, used,
treated, refined, processed, handled, stored, discharged, released or disposed
of any Hazardous Materials (whether lawfully or unlawfully) at any of the
Premises occupied or controlled by the Company or any of its subsidiaries on or
at any time prior to the Closing Date, other than common household and office
products in de minimis quantities. To the Knowledge of the Company:
(a) there are not and have not been any releases or threatened releases of
any Hazardous Materials in any quantity (other than common household and office
products in de minimis quantities) at, on, or from the Premises;
(b) there are no circumstances that may prevent or interfere with either
the Company's or any of its subsidiaries' compliance with any Environmental Law;
(c) no current or former owner or user of the Premises engaged in any type
of manufacturing or commercial activity which might be reasonably expected to
generate, manufacture, produce, transport, import, use, treat, refine, process,
handle, store, discharge, release, or dispose of any Hazardous Materials
(whether lawfully or unlawfully) on the Premises;
(d) no current or former owner of any property owned, leased or controlled
by the Company or any of its subsidiaries has received any notice or other
communication (in writing or otherwise), whether from a Government Body,
citizens group, employee or otherwise, that alleges that such current or prior
owner or the Company or any of its subsidiaries is not in compliance with any
Environmental Law;
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(e) all property that is owned by, leased to, controlled by or used by the
Company or any of its subsidiaries, and all surface water, groundwater and soil
associated with or adjacent to such property is in clean and healthful condition
and is free of any material environmental contamination of any nature;
(f) the indemnification provisions contained in Article VII of that certain
Asset Purchase Agreement between AWA Microelectronics Pty. Limited and Quality
Semiconductor Australia Pty. Ltd. dated as of January 12, 1996 are valid and
enforceable in accordance with their terms; and
(g) there are no circumstances under which the Company has incurred or
would incur any liabilities associated with the compliance (or lack thereof)
with any Environmental Law by SPEL.
4.17 Sale of Products; Performance of Services.
(a) Neither the Company nor any of its subsidiaries will incur or otherwise
become subject to any material Liability arising directly or indirectly from any
product manufactured or sold, or any repair services or other services performed
by, the Company or any of its subsidiaries on or at any time prior to the
Closing Date, other than normal warranty claims in the Ordinary Course of
Business.
(b) No customer or other Person has ever asserted or threatened to assert
any material claim against the Company or any of its subsidiaries (i) under or
based upon any warranty provided by or on behalf of the Company or any of its
subsidiaries, or (ii) under or based upon any other warranty relating to any
services performed by the Company and its subsidiaries, other than normal
warranty claims in the Ordinary Course of Business, the costs of which in the
aggregate are not material. To the Knowledge of the Company, no event has
occurred, and no condition or circumstance exists, that likely would (with or
without notice or lapse of time) directly or indirectly give rise to or serve as
a basis for the assertion of any such claim.
(c) Each of the Company and its subsidiaries believes that its quality
control programs are adequate.
4.18 Insurance.
(a) Each of the Company and its subsidiaries maintains insurance that it
reasonably believes to be adequate and customary for the industry in which it
operates.
(b) Each of the insurance policies carried by the Company and its
subsidiaries is listed on Section 4.18 of the Disclosure Schedule, is valid,
enforceable and in full force and effect, and has been issued by an insurance
carrier that, to the Knowledge of the Company, is solvent, financially sound and
reputable. All of the information contained in the applications submitted in
connection with said policies was (at the times said applications were
submitted) accurate and complete, and all premiums and other amounts owing with
respect to said policies have been paid in full on a timely basis. To the
Company's Knowledge, the nature, scope and dollar amounts of the insurance
coverage provided by said policies are sufficient to adequately insure the
business, assets, operations, key employees, services and potential liabilities
of the Company and its subsidiaries and comply with all insurance coverage
requirements of Company Contracts.
(c) There is no pending claim under or based upon any of the insurance
policies of the Company and its subsidiaries, and to the Company's Knowledge, no
event has occurred, and no condition or circumstance exists, that likely would
(with or without notice or lapse of time) directly or indirectly give rise to or
serve as a basis for any such claim.
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(d) Neither the Company nor any of its subsidiaries has received: (i) any
notice or other communication (in writing or otherwise) regarding the actual or
possible cancellation or invalidation of any of the insurance policies of the
Company and its subsidiaries or regarding any actual or possible adjustment in
the amount of the premiums payable with respect to any of said policies; (ii)
any notice or other communication (in writing or otherwise) regarding any actual
or possible refusal of coverage under, or any actual or possible rejection of
any claim under, any of insurance policies of the Company and its subsidiaries;
or (iii) any indication that the issuer of any of the insurance policies of the
Company and its subsidiaries may be unwilling or unable to perform any of its
obligations thereunder.
4.19 Proceedings; Orders.
(a) There is no pending Proceeding, and to the Knowledge of the Company, no
Person has threatened to commence any Proceeding: (i) that involves the Company
or any of its subsidiaries or that otherwise relates to or likely would affect
the Company's or its subsidiaries' businesses or any of the assets owned or used
by the Company or any of its subsidiaries (whether or not the Company or any of
its subsidiaries are named as a party thereto), except in each case for
threatened Proceedings that would not, individually or in the aggregate, have a
Material Adverse Effect on the Company; or (ii) that challenges, or that may
have the effect of preventing, delaying, making illegal or otherwise interfering
with, any of the Transactions.
(b) The Company has delivered to IDT accurate and complete copies of all
pleadings, correspondence and other written materials to which the Company has
access that relate to the Proceedings identified in Section 4.19 of the
Disclosure Schedule.
(c) There is no Order expressly applicable to the Company or any of its
subsidiaries or any of the assets owned or used by the Company or any of its
subsidiaries.
(d) To the Knowledge of the Company, no officer or employee of the Company
or any of its subsidiaries is subject to any Order that prohibits such officer
or employee from engaging in or continuing any conduct, activity or practice
relating to the Company's or its subsidiaries' business.
(e) To the Knowledge of the Company, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that would reasonably be
expected to cause or provide a basis for a director, officer or other
Representative of the Company or any of its subsidiaries to seek indemnification
from, or commence a Proceeding against or involving the Company or any of its
subsidiaries.
(f) There is no Order or, to the Knowledge of the Company, proposed Order
that, if issued or otherwise put into effect: (i) likely would materially
adversely affect the business, condition, assets, liabilities, operations,
financial performance, net income or prospects (or on any aspect or portion
thereof) of the Company and its subsidiaries, taken as a whole, or adversely
affect the ability of the Company to comply with or perform any covenant or
obligation under this Agreement or any of the other Transactional Agreements; or
(ii) may have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the Transactions.
4.20 No Existing Discussions.
Neither the Company or any of its subsidiaries, nor Representative of the
Company or any of its subsidiaries, is engaged, directly or indirectly, in any
discussions or negotiations with any other Person relating to any Acquisition
Proposal.
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4.21 Vote Required.
The affirmative vote of the holders of a majority of the shares of Company
Common Stock outstanding on the record date for the meeting of such shareholders
to approve the Merger is the only vote of the holders of any class or series of
the Company's capital stock necessary to adopt and approve this Agreement, the
Merger and the Transactions.
4.22 Non-Contravention; Consents.
Neither the execution and delivery of this Agreement or the other
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Articles of Incorporation or Bylaws of the Company or
any of its subsidiaries, or (ii) any resolution adopted by the shareholders
of the Company or any of its subsidiaries, the Board of Directors of the
Company or any of its subsidiaries or any committee of the Board of
Directors of the Company or any of its subsidiaries;
(b) to the Knowledge of the Company, contravene, conflict with or
result in a violation of, or give any Governmental Body or other Person the
right to challenge any of the Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which the
Company and its subsidiaries, or any of the assets owned or used by the
Company or any of its subsidiaries, is subject (assuming approval under the
HSR Act and by the shareholders of the Company);
(c) to the Knowledge of the Company, cause the Company or any of its
subsidiaries to become subject to, or to become liable for the payment of,
any Tax;
(d) to the Knowledge of the Company, cause any of the assets owned or
used by the Company or any of its subsidiaries to be reassessed or revalued
by any taxing authority or other Governmental Body;
(e) to the Knowledge of the Company, contravene, conflict with or
result in a violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel, terminate
or modify, any Governmental Authorization that is held by the Company or
any of its subsidiaries or any of its employees or that otherwise relates
to the Company's or any of its subsidiaries' business or to any of the
assets owned or used by the Company or any of its subsidiaries;
(f) contravene, conflict with or result in a violation or breach of,
or result in a default under, any material provision of any of the Material
Contracts;
(g) give any Person the right to (i) declare a default or exercise any
remedy under any Material Contract, (ii) accelerate the maturity or
performance of any Material Contract, or (iii) cancel, terminate or modify
any Material Contract;
(h) give any Person the right to any payment (including salary, bonus
or other severance pay) by the Company or any of its subsidiaries or give
rise to any acceleration or change in the award, grant, vesting or
determination of options, warrants, rights, severance payments or other
contingent obligations of any nature whatsoever of the Company or any of
its subsidiaries in favor of any Person, in any such case as a result of
the change in control of the Company or any of its subsidiaries or
otherwise resulting from the Transactions, including any rights or benefits
to be received by a Person upon his or her termination of employment,
except as otherwise
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described in Section 4.22(h) of the Disclosure Schedule, which sets forth
for each such Person an accurate summary of the rights or benefits that
will be received by such Person as a result of the change in control of the
Company or any of its subsidiaries or otherwise resulting from the
Transactions, including any rights or benefits to be received by a Person
upon his or her termination of employment;
(i) to the Knowledge of the Company, result in the imposition or
creation of any Encumbrance upon or with respect to any asset owned or used
by the Company or any of its subsidiaries; or
(j) result in the creation of any benefit or entitlement, related to
employment or otherwise, to be received by any employee of any of the
Company's subsidiaries.
The Company and its subsidiaries will not be required to make any filing with or
give any notice to, or obtain any Consent from, any Person in connection with
the execution and delivery of this Agreement and the other Transactional
Agreements or the consummation or performance of any of the Transactions other
than those noted in Section 4.22 of the Disclosure Schedule.
4.23 Brokers.
Neither the Company nor any of its subsidiaries has agreed or become
obligated to pay, or taken any action that likely would result in any Person
claiming to be entitled to receive, any brokerage commission, finder's fee or
similar commission or fee in connection with any of the Transactions.
4.24 Full Disclosure.
(a) Neither this Agreement (including all Schedules and Exhibits hereto),
nor any of the other Transactional Agreements, contains or will contain any
untrue statement of material fact or omits or will omit to state any fact
necessary to make any of the representations, warranties or statements contained
therein on behalf of the Company or any of the Company Affiliates, in light of
the circumstances under which they were made, not misleading. To the extent any
representation or warranty permits omission of items otherwise required to be
disclosed because they are not material or do not or would not have a Material
Adverse Effect on the Company, such omissions in the aggregate will not and do
not have a Material Adverse Effect on the Company.
(b) The information relating to the Company and its subsidiaries and the
Company Affiliates to be contained in the Proxy Statement and Prospectus (to the
extent information is provided by or with respect to the Company), and any
amendment thereto, will not, at the time the Proxy Statement and Prospectus is
mailed to the shareholders of the Company, at the time of the meeting of the
Company's shareholders to approve the Merger or as of the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
4.25 Powers of Attorney.
Neither the Company nor any of its subsidiaries has given a power of
attorney to any Person.
4.26 Securities Law Compliance.
Each of the Company and its subsidiaries has complied with all federal and
state securities laws in connection with all offers and sales of securities
issued by the Company or its subsidiaries prior to the date of this Agreement.
Neither the Company nor any of its subsidiaries has heretofore granted any other
purchaser of its securities the right to require the Company or any of its
subsidiaries to register any securities under the Securities Act or to qualify
for any exemption thereunder.
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4.27 Transactions with Affiliates.
Except as set forth in the Company SEC Documents, since the date of the
Company's last proxy statement filed with the SEC, no event has occurred that
would be required to be reported by the Company pursuant to Item 404 of
Regulation S-K promulgated by the SEC.
4.28 Voting Arrangements.
There are no outstanding shareholder agreements, voting trusts, proxies or
other arrangements or understandings to which any of the Company and its
subsidiaries is a party or, to the Knowledge of the Company, to which any other
Person is a party, relating to the voting of any shares of the capital stock of
the Company.
4.29 Ownership of Shares of IDT Common Stock.
As of the date hereof, neither Company nor, to its Knowledge, any of its
affiliates or associates (as such terms are defined under the Exchange Act), (a)
beneficially owns, directly or indirectly, or (b) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of IDT Common Stock, except for shares of IDT
Common Stock in the aggregate representing less than 1% of the outstanding
shares of IDT Common Stock.
4.30 Opinion of Financial Advisors.
The Company's Board of Directors has received the written opinion of
Needham & Company, Inc., financial advisor to the Company, to the effect that,
as of the date hereof, the Exchange Ratio is fair to the holders of Company
Common Stock from a financial point of view.
4.31 Shareholder Rights Plan.
The Rights are not currently exercisable and will not become exercisable as
a result of the Company entering into this Agreement, the announcement of the
execution and delivery of this Agreement and the terms of the Merger, or the
consummation of the Transactions.
4.32 Board Approval.
The Board of Directors of the Company has, as of the date of this
Agreement, unanimously (i) approved this Agreement and the Merger, (ii)
determined that the Merger is fair to, and in the best interests of, the Company
and its shareholders and (iii) determined to recommend that the shareholders of
the Company approve and adopt this Agreement and approve the Merger.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF IDT AND MERGER SUB
Except as set forth in the disclosure letter delivered to the Company at or
prior to the execution of this Agreement ("IDT Disclosure Schedule"), IDT and
Merger Sub represent and warrant to the Company as follows:
5.1 Due Organization; Good Standing; Authority; Binding Nature of
Agreements.
(a) Each of IDT and Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, and has all necessary corporate power and authority: (i) to
conduct its business in the manner in which its business is currently being
conducted and in the manner in which its business is proposed to be conducted
prior to Closing;
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(ii) to own and use its assets in the manner in which its assets are currently
owned and used and in the manner in which its assets are proposed to be owned
and used prior to Closing; and (iii) to enter into and perform its obligations
under the Transactional Agreements to which it is or is to be a party and to
consummate the transactions contemplated by this Agreement and the other
Transactional Agreements.
(b) The execution, delivery and performance of each of the Transactional
Agreements to which it is or is to be a party have been duly authorized by all
necessary action on the part of each of IDT and Merger Sub and their respective
Boards of Directors.
(c) Each of the Transactional Agreements to which it is or is to be a party
constitutes the legal, valid and binding obligation of IDT and Merger Sub, as
the case may be, enforceable against IDT and Merger Sub, as the case may be, in
accordance with its terms.
5.2 Proceedings; Orders.
There is no pending Proceeding, and to IDT's Knowledge, no Person has
threatened to commence any Proceeding that challenges, or that may have the
effect of preventing, delaying, making illegal or otherwise interfering with,
any of the Transactions, or that would result in a Material Adverse Effect on
IDT. There is no Order that likely would, or, to the Knowledge of IDT, proposed
Order that if issued or otherwise put into effect likely would, have a Material
Adverse Effect on IDT, that would adversely impact the ability of IDT or Merger
Sub to comply with or perform any covenant or obligation under this Agreement,
or that may have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the Transactions.
5.3 Non-Contravention; Consents.
Neither the execution and delivery of this Agreement or the other
Transactional Agreements to which IDT or Merger Sub, as the case may be, is or
is to be a party, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of IDT's or Merger Sub's Certificate or Articles of
Incorporation or Bylaws, or (ii) any resolution adopted by IDT's or Merger
Sub's stockholders, IDT's or Merger Sub's Board of Directors or any
committee of IDT's or Merger Sub's Board of Directors;
(b) to IDT's Knowledge, contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Transactions or to exercise any remedy or obtain any
relief under, any Legal Requirement or any Order to which IDT or Merger
Sub, or any of the assets owned or used by IDT or Merger Sub, is subject
(assuming approval under the HSR Act); or
(c) contravene, conflict with or result in a violation or breach of,
or result in a material default under, any of IDT's material agreements.
With the exception of the filing of the Agreement of Merger in the State of
California and any necessary filings pursuant to federal and state securities
and antitrust laws, IDT and Merger Sub will not be required to make any filing
with or give any notice to, or to obtain any Consent from, any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Transactions.
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5.4 Brokers.
IDT has not agreed or become obligated to pay, and has not taken any action
that likely would result in any Person claiming to be entitled to receive, any
brokerage commission, finder's fee or similar commission or fee in connection
with any of the Transactions.
5.5 Full Disclosure; SEC Reports.
(a) Neither this Agreement (including all Schedules and Exhibits hereto),
nor any of the other Transactional Agreements, contains or will contain any
untrue statement of material fact or omits or will omit to state any fact
necessary to make any of the representations, warranties or statements contained
therein on behalf of IDT and Merger Sub, in light of the circumstances under
which they were made, not misleading with respect to IDT or Merger Sub. To the
extent that any representation or warranty permits omission of items otherwise
required to be disclosed because they are not material or do not or would not
have a Material Adverse Effect on IDT or Merger Sub, such omissions in the
aggregate will not and do not have a Material Adverse Effect on IDT or Merger
Sub. The Registration Statement and the Proxy Statement and Prospectus (to the
extent information is provided by or with respect to IDT or Merger Sub) and any
amendment thereto do not contain, and will not, at the time the Proxy Statement
and Prospectus is mailed to the shareholders of the Company, at the time of the
meeting of the Company's shareholders to approve the Merger and the Effective
Time, contain, any untrue statement of a material fact and do not omit, and will
not omit, to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they are made, not misleading.
(b) As of the date of this Agreement, IDT has provided the Company and the
Company's Representatives with full and complete access to all of IDT's records
and other documents and data requested by them.
(c) IDT has delivered or made available to the Company accurate and
complete copies of each report, registration statement and definitive proxy
statement (excluding copies of exhibits) filed by IDT with the SEC since
September 30, 1993 (the "IDT SEC Filings"). As of the time it was filed with the
SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the IDT SEC Filings
complied in all material respects with the applicable requirements of the
Securities Act or the Exchange Act (as the case may be); and (ii) none of the
IDT SEC Filings contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements (including any related
notes) contained in the IDT SEC Filings: (i) complied as to form in all material
respects with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC, and except that the unaudited
financial statements may not contain footnotes and are subject to normal and
recurring year-end adjustments which will not, individually or in the aggregate,
be material in amount); and (iii) fairly present the consolidated financial
position of IDT and its subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows of IDT and its subsidiaries
for the periods covered thereby.
5.6 Valid Issuance of IDT Common Stock.
The shares of IDT Common Stock to be issued pursuant to the Merger have
been duly authorized and reserved for issuance and, when issued in accordance
with the terms of this
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Agreement and the other Transactional Agreements, will be validly issued, fully
paid and non-assessable, will not be subject to any preemptive rights and will
be issued in compliance with all applicable federal or state securities laws.
The authorized, issued and outstanding capitalization of IDT is as set forth in
the IDT SEC Filings as of the dates of the financial statements or other
information included in the IDT SEC Filings.
5.7 Compliance with Laws.
IDT has complied with, is not in violation of, and has not received any
notices of violations with respect to, any federal, state or local statute, law
or regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for failures to comply or violations which
would not have a Material Adverse Effect on IDT.
5.8 Interim Operations of Sub.
Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, has engaged in no other business
activities and has conducted its operations only as contemplated by this
Agreement.
5.9 Stockholders' Consent.
No consent or approval of the stockholders of IDT is required for IDT to
enter into this Agreement or the other Transactional Agreements or to consummate
the transactions contemplated hereby and thereby.
5.10 Absence of Certain Changes or Events.
Since June 28, 1998, IDT has not suffered a Material Adverse Effect with
respect to its business.
ARTICLE 6
PRE-CLOSING PERIOD COVENANTS OF THE COMPANY
6.1 Access and Investigation.
The Company shall ensure that, at all times during the Pre-Closing Period:
(a) The Company and its Representatives provide IDT and its
Representatives with free and complete access (except with respect to
technical trade secrets), at reasonable times and with reasonable notice
from IDT to the Company, to all of the Company's premises and assets, to
all existing books, records, Tax Returns, work papers and other documents
and information relating to the Company, and to responsible officers and
employees of the Company, and the Company and its Representatives provide
IDT and its Representatives with copies of such existing books, records,
Tax Returns, work papers and other documents and information relating to
the Company as IDT may request in good faith (it being the understanding of
the parties that all such access and investigation shall be and remain
subject to the Non-Disclosure Agreement);
(b) The Company and its Representatives compile and provide IDT and
its Representatives with such additional financial, operating and other
data and information regarding the Company as IDT may reasonably request in
good faith; and
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(c) Notwithstanding anything to the contrary in Sections 6.1(a) and
(b), the Company and its Representatives confer as often as IDT deems
necessary with a representative (the "IDT Liaison") of IDT (who is
currently Brian Boisseree but may be any person IDT designates provided
such person has an educational and experiential background that is not
primarily related to the Company's technology), concerning operational
matters, the status of the Company's business, condition, assets,
liabilities, operations, financial performance and prospects and the
Company's compliance with the conditions of this Agreement, including,
without limitation, the Company's covenants contained in Section 6.2, and
promptly notify the IDT Liaison of: (i) any material change in the
Company's business, condition, assets, liabilities, operations, financial
performance or prospects; (ii) or any event reasonably likely to lead to
any such change; (iii) any failure to comply with the conditions to this
Agreement, including, without limitation, the Company's covenants contained
in Section 6.2; or (iv) any event reasonably likely to lead to any such
failure. In connection with its obligations under this Section 6.1(c), as
of the date of this Agreement, the Company will establish an office for the
IDT Liaison at the Company's principal place of business, located at 851
Martin Avenue, Santa Clara, CA 95050, and will allow the IDT Liaison full
and complete access to the Company's principal place of business, including
such office. In addition, the Company will provide the IDT Liaison with
such other documents as the IDT Liaison may request in good faith for the
purpose of (i) evidencing the accuracy of any representation or warranty
made by the Company, (ii) evidencing the compliance by the Company, or the
performance by the Company of, any covenant or obligation set forth in this
Agreement or any of the other Transactional Agreements, (iii) evidencing
the satisfaction of any condition set forth in Section 9.1 or Section 9.2,
or (iv) otherwise facilitating the consummation or performance of any of
the Transactions.
6.2 Operation of Business.
The Company shall ensure that, during the Pre-Closing Period, unless the
IDT Liaison otherwise consents:
(a) The Company conducts its operations exclusively in the Ordinary
Course of Business and in the same manner as such operations have been
conducted prior to the date of this Agreement, except as otherwise required
by this Section 6.2;
(b) The Company uses its Best Efforts to preserve intact its current
business organization, keep available the services of its current officers
and employees and maintain its relations and goodwill with all suppliers,
customers, landlords, creditors, licensors, licensees, employees and other
Persons having business relationships with the Company;
(c) The Company keeps in full force all insurance policies identified
in Section 4.18 of the Disclosure Schedule and obtains any additional
insurance required consistent with past practices for its business and
property;
(d) The Company immediately notifies IDT in writing of any inquiry,
proposal or offer from any Person relating to any Acquisition Proposal;
(e) The Company does not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and does not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities, except with respect to the repurchase of
shares of Company Common Stock upon termination of employees at the
original purchase price pursuant to agreements existing at the date hereof;
(f) The Company does not sell, reprice or otherwise issue (or grant
any warrants, options or other rights to purchase) any shares of capital
stock or any other securities, except the issuance
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of shares of Company Common Stock pursuant to option grants to employees
made in the Ordinary Course of Business prior to the date of this
Agreement;
(g) The Company does not amend its Articles of Incorporation or
Bylaws, and does not effect or become a party to any transaction related to
an Acquisition Proposal or any recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction;
(h) The Company does not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(i) The Company does not establish or adopt any Company Benefit
Arrangement, and does not pay any bonus or make any profit sharing or
similar payment to, or increase the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration payable
to, any of its directors, officers or employees, except pursuant to
existing agreements disclosed in Section 6.2(i) of the Disclosure Schedule;
(j) The Company does not change any of its methods of accounting or
accounting practices in any respect unless required by GAAP;
(k) The Company does not make any Tax election;
(l) The Company does not commence any Proceeding, and the Company does
not spend, or incur Liabilities with respect to costs and fees of, more
than $100,000 in the aggregate in connection with pursuing existing
Proceedings in which the Company is the plaintiff or petitioner;
(m) The Company does not: (i) acquire, dispose of, transfer, lease,
license, mortgage, pledge or encumber any fixed or other assets or make any
capital expenditures (including, without limitation, expenditures on
capital equipment, manufacturing systems or software systems), other than
assets acquired or capital expenditures that total no more than $10,000
individually or $100,000 in the aggregate, and other than inventory sold in
the Ordinary Course of Business; (ii) incur, assume or prepay any
indebtedness, Liability or obligation or any other liabilities, other than
in the Ordinary Course of Business; (iii) issue any debt securities; (iv)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person; or (v) make any loans, advances or capital contributions to,
or investments in, any other Person, other than normal travel advances in
the Ordinary Course of Business;
(n) The Company pays all debts and Taxes, and pays or performs all
other obligations, when due (other than matters being contested in good
faith to which contests the IDT Liaison has consented, such consent not to
be unreasonably withheld);
(o) The Company does not transfer to any Person any Proprietary Asset;
(p) The Company does not enter into or amend any agreements pursuant
to which any other Person is granted distribution, marketing or other
rights of any type or scope with respect to any of its services, products
or technology;
(q) The Company does not pay, discharge or satisfy, in any amount in
excess of $100,000 in any one case or $250,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the Ordinary Course of
Business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Financial Statements or which IDT has
consented to in writing;
(r) The Company does not hire any new employee;
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(s) The Company gives all notices and other information (including any
notices and information required based on any instructions reasonably given
by IDT related to post-Closing operations) required prior to the Closing to
be given to the employees of the Company and any applicable Governmental
Body under the National Labor Relations Act, the Code, COBRA and other
applicable law in connection with the Transactions;
(t) The Company does not take, or allow to be taken, or fail to take
any action, which act or omission would jeopardize qualification of the
Merger as a reorganization within the meaning of Section 368 of the Code;
(u) The Company does not revalue any of its assets, including, without
limitation, writing down the value of inventory or writing off notes or
accounts receivable, except as required under GAAP and in the Ordinary
Course of Business;
(v) Except as otherwise contemplated hereunder, the Company does not
enter into any transaction with a value greater than $10,000, or enter into
any other transaction, regardless of value, or take any other action,
outside the Ordinary Course of Business;
(w) The Company does not enter into any transaction or take any other
action that likely would cause or constitute a Breach of any representation
or warranty made by the Company or any of the Company Affiliates in this
Agreement or in any of the other Transactional Agreements;
(x) The Company does not enter into any inbound or outbound licensing
agreements other than outbound licenses in connection with the sale of the
Company's products in the Ordinary Course of Business; and
(y) The Company provides operation of business incentives, totaling no
more than $750,000, to key non-officer Company employees to be specified by
IDT on terms to be specified by IDT.
6.3 Filings and Consents; Cooperation.
The Company shall use its reasonable commercial Best Efforts to ensure
that:
(a) Each filing or notice required to be made or given (pursuant to
any applicable Legal Requirement, Order or Contract, or otherwise) by the
Company in connection with the execution and delivery of this Agreement or
the other Transactional Agreements, or in connection with the consummation
or performance of any of the Transactions, is made or given as soon as
possible after the date of this Agreement;
(b) Each Consent required to be obtained (pursuant to any applicable
Legal Requirement, Order or Contract, or otherwise) by the Company in
connection with the execution and delivery of this Agreement or the other
Transactional Agreements, or in connection with the consummation or
performance of any of the Transactions (including each of the Consents
identified in Section 4.22 of the Disclosure Schedule), is obtained as soon
as possible after the date of this Agreement and remains in full force and
effect through the Closing Date;
(c) The Company promptly delivers to IDT a copy of each filing made,
each notice given and each Consent obtained by the Company during the
Pre-Closing Period; and
(d) During the Pre-Closing Period, the Company and its Representatives
cooperate with IDT and IDT's Representatives, and prepare and make
available such documents and take such
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other actions as IDT may request in good faith, in connection with any
filing, notice or Consent that IDT is required or elects to make, give or
obtain.
6.4 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Company shall promptly notify IDT in
writing of:
(i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a Breach of any representation or
warranty made by the Company or any of the Company Affiliates in this
Agreement or any of the other Transactional Agreements;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement (except as a result of actions
taken pursuant to the written consent of IDT) and that would cause or
constitute a Breach of any representation or warranty made by the Company
or any of the Company Affiliates in this Agreement or any of the other
Transactional Agreements if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (B) such event, condition, fact
or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement or any of the other Transactional Agreements;
(iii) any Breach of any covenant or obligation of the Company; and
(iv) any event, condition, fact or circumstance that may make the
timely satisfaction of any of the conditions set forth in Section 9.1 or
Section 9.2 impossible or unlikely.
(b) If any event, condition, fact or circumstances that is required to be
disclosed pursuant to Section 6.4(a) requires any material change in the
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Disclosure Schedule were dated as of the date
of the occurrence, existence or discovery of such event, condition, fact or
circumstances, then the Company shall promptly deliver to IDT an update to the
Disclosure Schedule specifying such change (a "Disclosure Schedule Update");
provided, however, that no such update shall be deemed to supplement or amend
the Disclosure Schedule for the purpose of (i) determining the accuracy of any
of the representations and warranties made by the Company or any of the Company
Affiliates in this Agreement or any of the other Transactional Agreements, or
(ii) determining whether any of the conditions set forth in Article 9 has been
satisfied, unless the specific updated information has been consented to by IDT
in writing as a waiver of such inaccuracy or determination.
(c) The Company will promptly update any relevant and material information
provided to IDT after the date hereof pursuant to the terms of this Agreement.
6.5 No Negotiation or Solicitation.
(a) Subject to Section 6.5(b), from and after the date of this Agreement
until the earlier of the Effective Time or termination of this Agreement
pursuant to its terms, the Company and its subsidiaries shall not, and will
instruct their respective Representatives not to, directly or indirectly, (i)
solicit, initiate or knowingly or recklessly encourage the making, submission or
announcement of, any Acquisition Proposal (as defined below) by any person,
entity or group (other than IDT and its Representatives), or (ii) participate in
any discussions or negotiations with, or disclose any non-public information
concerning the Company or any of its subsidiaries to, or afford any access to
the properties, books or records of the Company or any of its subsidiaries to,
or otherwise assist or facilitate, or enter into any agreement or understanding
with, any person, entity or group (other than
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IDT and its Representatives), in connection with any Acquisition Proposal with
respect to the Company. Without limiting the generality of the foregoing, the
Company acknowledges and agrees that any violation of any of the restrictions
set forth in the preceding sentence by any Representative of the Company shall
be deemed to constitute a breach of this Section 6.5 by the Company. For the
purposes of this Agreement, an "Acquisition Proposal" with respect to an entity
means any proposal or offer relating to (i) any merger, consolidation, sale of
substantial assets or similar transactions involving the entity or any
subsidiaries of the entity (other than sales or licenses of assets or inventory
in the Ordinary Course of Business or as permitted under the terms of this
Agreement), (ii) sale of 15% or more of the outstanding shares of capital stock
of the entity (including without limitation by way of a tender offer or an
exchange offer), (iii) the acquisition by any person of beneficial ownership or
a right to acquire beneficial ownership of, or the formation of any "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) which beneficially owns, or has the right to acquire beneficial
ownership of, 15% or more of the then outstanding shares of capital stock of the
entity (except for acquisitions for passive investment purposes only in
circumstances where the person or group qualifies for and files a Schedule 13G
with respect thereto); or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing. The Company will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal. The Company will (i) notify IDT as promptly as
practicable if it receives any proposal or written inquiry or written request
for the Company in connection with an Acquisition Proposal or potential
Acquisition Proposal and (ii) as promptly as practicable notify IDT of the
significant terms and conditions of any such Acquisition Proposal, as well as
the identity of the third party submitting such Acquisition Proposal. In
addition, subject to the other provisions of this Section 6.5, from and after
the date of this Agreement until the earlier of the Effective Time and
termination of this Agreement pursuant to its terms, the Company and its
subsidiaries will not, and will instruct their respective Representatives not
to, directly or indirectly, make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Proposal made by
any person, entity or group (other than IDT); provided, however, that nothing
herein shall prohibit the Company's Board of Directors from taking and
disclosing to the Company's shareholders a position with respect to a tender
offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
(b) Notwithstanding anything contrary contained in Section 6.5(a) or
elsewhere in this Agreement, prior to the Effective Time, the Company may, to
the extent the Board of Directors of the Company determines, in good faith,
after consultation with outside legal counsel, that the Board's fiduciary duties
require it to do so, participate in discussions or negotiations with, and,
subject to the requirements of Section 6.5(c) below, furnish non-public
information, and afford access to the properties, books or records of the
Company to any person, entity or group after such person, entity or group has
delivered to the Company in writing an unsolicited bona fide Acquisition
Proposal (which has not been withdrawn) that would result in a transaction more
favorable than the Merger to the shareholders of the Company (a "Superior
Proposal"). In addition, notwithstanding the provisions of Section 6.5(a) above
or any other provision of this Agreement, in connection with a submitted,
written bona fide Acquisition Proposal, the Company may refer the proposing
third party to this Section 6.5 or make a copy of this Section 6.5 available to
such third party. In the event the Company receives a Superior Proposal, nothing
contained in this Agreement (but subject to the terms of this Section 6.5(b))
will prevent the Board of Directors of the Company from recommending such
Superior Proposal to the Company's shareholders, if the Board determines, in
good faith, after consultation with outside legal counsel, that such action is
required by its fiduciary duties; in such case, the Board of Directors of the
Company may withdraw, modify or refrain from making its recommendations set
forth in Section 8.2(a)(ii); provided that the Company shall remain obligated
under Section 8.2 to convene the meeting of the Company shareholders and shall
have the
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vote on the Merger considered by the shareholders of the Company prior to the
vote (if any) on the Superior Proposal; and provided, further, that the Company
shall not recommend to its shareholders a Superior Proposal for a period of not
less than 72 hours after IDT's receipt of a copy of such Superior Proposal (or a
description of the significant terms and conditions thereof, if not in writing)
and the identity of the third party.
(c) Notwithstanding anything to the contrary herein, the Company will not
provide any non-public information to a third party unless: (i) the Company
provides such non-public information pursuant to a nondisclosure agreement with
terms regarding the protection of oral or written confidential information at
least as restrictive as such terms in the letter agreement with respect to
confidentiality by and between IDT and the Company, dated as of August 24, 1998
(the "Nondisclosure Agreement"); and (ii) such non-public information has been
previously delivered to IDT.
6.6 Best Efforts.
During the Pre-Closing Period, the Company shall use its commercially
reasonable Best Efforts to cause the conditions set forth in Section 9.1 and
Section 9.2 to be satisfied on a timely basis, and shall not take any action or
omit to take any action, the taking or omission of which would or could
reasonably be expected to result in any of the representations and warranties of
the Company or the Company Affiliates set forth in this Agreement or any of the
other Transactional Agreements becoming untrue, or in any of the conditions of
Closing set forth in Section 9.1 or Section 9.2 not being satisfied.
6.7 Proprietary Information and Inventions Agreements.
On or prior to Closing, the Company shall use its reasonable commercial
Best Efforts to enter into Proprietary Information and Inventions Agreements,
substantially in the form attached as Exhibit C hereto or in such other form as
IDT may approve, with all of the Company's employees and consultants, except for
such employees and consultants as shall have previously entered into a form of
such agreement reasonably acceptable to IDT.
6.8 Letters of the Company's Auditors.
The Company shall use its Best Efforts to cause to be delivered to IDT at
or prior to the date two business days prior to the Closing a letter of Ernst &
Young LLP (the "Company Auditors"), the Company's independent auditors, dated a
date within two business days before the date on which the Registration
Statement shall become effective and addressed to IDT, in customary form and
substance reasonably satisfactory to IDT, and in scope and substance consistent
with applicable professional standards for letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement (the "Accounting Comfort Letter"). The Company shall use
its Best Efforts to cause to be delivered to IDT an update, dated the Closing
Date, of the letter of the Company Auditors described in the preceding sentence.
6.9 Affiliates.
(a) The Company shall deliver to IDT promptly following the date hereof a
list identifying all Persons ("Company Affiliates"), if any, who at the time the
Merger is submitted for approval to the shareholders of the Company, may be
deemed "affiliates" of the Company for purposes of Rule 145 under the Securities
Act. The Company shall use its Best Efforts to cause each Company Affiliate to
deliver to IDT, as promptly as practicable on or following the date hereof (and
in any event by no later than November 30, 1998, which shall not be later than
the date 30 days prior to the Effective Time) a written agreement ("Company
Affiliate Agreement"), in the form of Exhibit D-1 hereto, each of which will be
in full force and effect as of the Effective Time. IDT will be entitled to place
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appropriate legends on the certificates evidencing any IDT Common Stock to be
received by a Company Affiliate pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for IDT
Common Stock, consistent with the terms of the Company Affiliate Agreements.
(b) The Company shall promptly advise IDT if any Person becomes or ceases
to be a Company Affiliate.
6.10 Takeover Statutes.
If any Takeover Statute shall become applicable to any of the Transactions,
the Company and the members of the Board of Directors of the Company shall grant
such approvals and take such actions as are necessary so that the Merger and the
other Transactions may be commenced as promptly as practicable in the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
such statute or regulation in the Transaction.
6.11 Bank Accounts.
Promptly after the date hereof, the Company will deliver to IDT a written
statement which accurately sets forth, with respect to each account maintained
by or for the benefit of the Company at any bank or other financial institution:
(a) the name and location of the institution at which such account is
maintained;
(b) the name in which such account is maintained and the account
number of such account;
(c) a description of such account and the purpose for which such
account is used;
(d) the then-current balance in such account;
(e) the rate of interest then being earned on the funds in such
account; and
(f) the names of all individuals authorized to draw on or make
withdrawals from such account.
6.12 Supplier Information.
(a) Promptly following the date hereof, the Company shall provide IDT with
a written statement that accurately identifies, and provides an accurate and
complete breakdown of the amounts paid to, each supplier or other Person that
received more than $500,000 from the Company in the fiscal year ended September
27, 1998 other than amounts paid to employees or consultants and described in
Section 4.15 of the Disclosure Schedule.
6.13 Employee Information.
(a) Promptly following the date hereof, the Company will deliver to IDT a
written statement showing, with respect to each employee of the Company
(including any employee of the Company who is on a leave of absence or on layoff
status):
(i) the name of such employee and the date as of which such employee
was originally hired by the Company;
(ii) such employee's title;
(iii) such employee's annualized compensation as of the date of this
Agreement;
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(iv) each Company Benefit Arrangement in which such employee
participates or is eligible to participate; and
(v) any Governmental Authorization that is held by such employee and
that is used in connection with the Company's business.
6.14 Insurance Information.
Promptly following the Closing, the Company will deliver to IDT a written
statement stating, with respect to each insurance policy maintained by or at the
expense of, or for the direct or indirect benefit of, the Company:
(a) the name of the insurance carrier that issued such policy and the
policy number of such policy;
(b) whether such policy is a "claims made" or an "occurrences" policy;
(c) a description of the coverage provided by such policy and the
material terms and provisions of such policy (including all applicable
coverage limits, deductible amounts and co-insurance arrangements);
(d) the annual premium payable with respect to such policy, and the
cash value (if any) of such policy; and
(e) a description of any claims pending, and any claims that have been
asserted in the past, with respect to such policy.
Such statement shall also identify (1) each pending application for insurance
that has been submitted by or on behalf of the Company, and (2) each
self-insurance or risk-sharing arrangement affecting the Company or any of its
assets. The Company also shall deliver to IDT accurate and complete copies of
all of its insurance policies (including all renewals thereof and endorsements
thereto) and binders relating thereto indicating that such policies are in full
force and effect as of the date hereof.
6.15 Company Accruals and Reserves.
Prior to the Closing Date, the Company shall maintain accruals and reserves
determined with methodologies and principles consistent with the September 27,
1998 Financial Statements and in accordance with GAAP.
6.16 Interim Review and Interim Financial Statements.
The Company will cause its auditors to perform a limited quarterly review
of the unaudited consolidated balance sheet of the Company and its subsidiaries
as of the end of the Company's first fiscal 1999 quarter and as of the end of
the second fiscal 1999 quarter, if such quarter has been completed prior to the
Effective Time, and the related unaudited consolidated income statement and
statement of cash flows of the Company for the three months then ended for each
quarter (the "Interim Financial Statements") in accordance with Statement of
Accounting Standards 71 (for each quarter, an "Interim Review") within 21 days
of the end of each such quarter. Promptly after each Interim Review is complete,
the Company will deliver such Interim Financial Statements to IDT. The Company
will also cause its auditors to perform a limited quarterly review of the
unaudited consolidated balance sheet of the Company and its subsidiaries as of
the end of each of the Company's fiscal quarters in the two-year period ending
September 27, 1998 and the related unaudited consolidated income statement and
statement of cash flows of the Company for each three-month period then ended
(for each quarter) in accordance with Statement of Accounting
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Standards 71, and the Company will deliver such financial statements to IDT
promptly after such review is complete.
6.17 Pooling of Interests.
Prior to the earlier of termination of this Agreement and the Effective
Time, the Company will not take any action, and the Company will use its Best
Efforts to prohibit any Company Affiliates from taking any action, that would be
reasonably likely to interfere with IDT's ability to account for the Merger as a
pooling of interests, whether or not otherwise permitted by the provisions of
this Agreement.
ARTICLE 7
PRE-CLOSING PERIOD COVENANTS OF IDT
7.1 Notification.
During the Pre-Closing Period, IDT shall promptly notify the Company in
writing of:
(a) the discovery by IDT of any event, condition, fact or circumstance
that occurred or existed on or prior to the date of this Agreement and that
caused or constitutes a Breach of any representation or warranty made by
IDT in this Agreement or any of the other Transactional Agreements;
(b) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement (except as a result of actions
taken pursuant to the written consent of the Company) and that would cause
or constitute a Breach of any representation or warranty made by IDT or
Merger Sub in this Agreement or any of the other Transactional Agreements
if (i) such representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, or (ii) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement or
any of the other Transactional Agreements;
(c) any Breach of any covenant or obligation of IDT or Merger Sub; and
(d) any event, condition, fact or circumstance that may make the
timely satisfaction of any of the conditions set forth in Section 9.1 or
Section 9.3 impossible or unlikely.
7.2 Best Efforts.
During the Pre-Closing Period, IDT shall use its commercially reasonable
Best Efforts to cause the conditions set forth in Section 9.1 and 9.3 to be
satisfied on a timely basis, and shall not take any action or omit to take any
action, the taking or omission of which would or could reasonably be expected to
result in any of the representations and warranties or IDT set forth in this
Agreement or in any other Transactional Agreement becoming untrue or in any of
the conditions of closing set forth in Section 9.1 or Section 9.3 not being
satisfied.
7.3 Filings and Consents; Cooperation.
IDT shall use its reasonable commercial Best Efforts to ensure that:
(a) Each filing or notice required to be made or given (pursuant to
any applicable Legal Requirement, Order or Contract, or otherwise) by IDT
in connection with the execution and delivery of this Agreement or the
other Transactional Agreements, or in connection with the
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consummation or performance of any of the Transactions, is made or given as
soon as possible after the date of this Agreement;
(b) Each Consent required to be obtained (pursuant to any applicable
Legal Requirement, Order or Contract, or otherwise) by IDT in connection
with the execution and delivery of this Agreement or the other
Transactional Agreements, or in connection with the consummation or
performance of any of the Transactions, is obtained as soon as possible
after the date of this Agreement and remains in full force and effect
through the Closing Date;
(c) IDT promptly delivers to the Company a copy of each filing made,
each notice given and each Consent obtained by IDT during the Pre-Closing
Period;
(d) During the Pre-Closing Period, IDT and its Representatives
cooperate with the Company and the Company's Representatives, and prepare
and make available such documents and take such other actions as the
Company may request in good faith, in connection with any filing, notice or
Consent that the Company is required or elects to make, give or obtain; and
(e) IDT provides the Company with such other documents as the Company
may request in good faith for the purpose of (A) evidencing the accuracy of
any representation or warranty made by IDT and Merger Sub, (B) evidencing
the compliance by IDT and Merger Sub with, or the performance by IDT and
Merger Sub of, any covenant or obligation set forth in this Agreement or
any of the other Transactional Agreements, (C) evidencing the satisfaction
of any condition set forth in Article 9, or (D) otherwise facilitating the
consummation or performance of any of the Transactions.
7.4 Indemnification.
(a) IDT and the Surviving Corporation agree that the indemnification
obligations set forth in the Company's Articles of Incorporation and Bylaws, in
each case as of the date of this Agreement, shall survive the Merger and shall
not be amended, repealed or otherwise modified after the Effective Time in any
manner that would adversely affect the rights thereunder of the individuals who,
on or at any time prior to the Effective Time, were entitled to indemnification
thereunder. From and after the Effective Time, such obligations shall be the
joint and several obligations of IDT and the Surviving Corporation.
(b) IDT and the Surviving Corporation shall honor and fulfill in all
respects the obligations of the Company pursuant to indemnification agreements
with the Company's directors and officers existing at or before the Effective
Time, which indemnification agreements the Company has provided to IDT.
(c) IDT shall cause the Surviving Corporation to maintain in effect, for
two (2) years from and after the Effective Time, directors' and officers'
liability insurance policies covering the persons who are directors and officers
of the Company on the date of this Agreement, with respect to costs, expenses
and liabilities incurred in their capacities as such, on terms not materially
less favorable than the insurance coverage provided as of the date hereof under
the Company's directors' and officers' liability insurance policies that are in
existence on the date hereof, with respect to matters occurring prior to the
Effective Time; provided, however, that in no event shall the Surviving
Corporation be required to expend pursuant to this Section 7.4 more than an
amount per year equal to 150% of the current annual premiums paid by the Company
for such insurance policies; provided, further, that if such annual premiums
exceed such amount, then IDT shall only be obligated to cause the Surviving
Corporation to obtain a policy with the greatest coverage reasonably available
for a cost not exceeding such amount.
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(d) This Section 7.4 shall survive the consummation of the Merger, is
intended to benefit the Company, the Surviving Corporation and each indemnified
party, shall be binding, jointly and severally, on all successors and assigns of
the Surviving Corporation and IDT, and shall be enforceable by the indemnified
parties.
7.5 Conduct of Business of IDT.
During the Pre-Closing Period, IDT shall not directly or indirectly take
any action or fail to take any action that is reasonably likely to (i) result in
a delay in the declaration of effectiveness of the Registration Statement by the
SEC, (ii) require a post-effective amendment to the Registration Statement or
(iii) require a supplement or amendment to the Proxy Statement and Prospectus
following its mailing to the shareholders of the Company. Consistent with the
foregoing, IDT shall be permitted to make acquisitions of businesses or assets
of other businesses, or agree to make such acquisitions, during the Pre-Closing
Period so long as such actions in no way interfere with IDT's ability to comply
with the restrictions contemplated by this Section 7.5.
7.6 Blue Sky Laws.
IDT shall take such steps as may be necessary to comply with the securities
and blue sky laws of all U.S. jurisdictions which are applicable to the issuance
of IDT Common Stock in connection with the Merger, provided, however, that IDT
shall not be required to qualify to do business or execute a general consent to
service of process in any jurisdiction. The Company shall use its reasonable
commercial Best Efforts to assist IDT as may be necessary to comply with the
securities and blue sky laws of all U.S. jurisdictions which are applicable to
the issuance of IDT Common Stock in connection with the Merger.
7.7 Pooling of Interests.
Prior to the earlier of termination of this Agreement and the Effective
Time, IDT will not take any action, and IDT will use its Best Efforts to
prohibit any IDT Affiliates from taking any action, that would be reasonably
likely to interfere with IDT's ability to account for the Merger as a pooling of
interests. In addition, IDT will use its Best Efforts to deliver or cause to be
delivered to the Company, on or as promptly as practicable following the date
hereof (and in any event by no later than November 30, 1998, which shall not be
later than the date 30 days prior to the Effective Time), from each person who
may be deemed to be an "affiliate" of IDT within the meaning of Rule 145
promulgated under the Securities Act, a written agreement ("IDT Affiliate
Agreement"), in the form of Exhibit D-2 hereto, each of which will be in full
force and effect as of the Effective Time.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Proxy Statement and Prospectus.
(a) As promptly as reasonably practicable after the date hereof, IDT and
the Company shall prepare a document (the "Proxy Statement and Prospectus") to
be used as a Proxy Statement with respect to the solicitation by the Company
Board of Directors of the vote of the outstanding shares of Company Common Stock
and by IDT as part of a Registration Statement on Form S-4 under the Securities
Act and as a prospectus with respect to the shares of IDT Common Stock to be
issued in connection with the Closing pursuant to Section 3.1. As promptly as
reasonably practical after the preparation thereof, IDT and the Company shall
file the Proxy Statement and Prospectus with the SEC and respond to any comments
of the SEC with respect thereto. Such document, as filed by IDT
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under the Securities Act in connection with the registration of the shares of
IDT Common Stock to be issued in the Merger, is referred to herein as the
"Registration Statement."
(b) The Company shall cooperate fully with IDT in the preparation of the
Proxy Statement and Prospectus. In furtherance of the foregoing, the Company
shall provide IDT with all information concerning the Company and the holders of
its capital stock and shall take such other action as IDT may reasonably request
in connection with such document and the issuance of shares of IDT Common Stock.
(c) Whenever any event occurs which should be set forth in an amendment or
a supplement to the Proxy Statement and Prospectus or any filing required to be
made with the SEC, each party will promptly inform the other and will cooperate
in filing with the SEC such amendment or supplement.
8.2 Company Shareholder Approval.
(a) The Company, acting through its Board of Directors, shall, in
accordance with the requirements of applicable law and the Company's Articles of
Incorporation and Bylaws:
(i) cause the Proxy Statement and Prospectus to be mailed to the
Company shareholders promptly upon the effectiveness of the Registration
Statement and duly call, give notice of, convene and hold as soon as
practicable a meeting of its shareholders (the "Company Shareholders'
Meeting") for the purpose of voting to approve and adopt this Agreement and
the other Transactional Agreements, to the extent required in accordance
with Legal Requirements, and use its Best Efforts to obtain such
shareholders' approval (subject to the terms of Section 6.5(b)); and
(ii) subject to the terms of Section 6.5(b), recommend approval and
adoption of this Agreement and the other Transactional Agreements by the
shareholders of the Company, to the extent required in accordance with
Legal Requirements, which recommendation shall be included in the Proxy
Statement and Prospectus.
(b) Whenever any event occurs which should be set forth in an amendment or
a supplement to the Proxy Statement and Prospectus, the affected party will
promptly inform the other party, and the Company will mail to the Company's
shareholders such amendment or supplement.
(c) Notwithstanding the terms of this Section 8.2, the Company may adjourn
or postpone the Company Shareholders' Meeting for a period of no more than 30
days to the extent necessary to ensure that any necessary supplement or
amendment to the Proxy Statement and Prospectus shall be provided to the
Company's shareholders in advance of a vote on the Merger and this Agreement.
8.3 Nasdaq National Market.
IDT shall cause the shares of IDT Common Stock to be issued pursuant to the
Merger to be authorized for listing on the Nasdaq National Market.
8.4 Antitrust Laws.
As promptly as practicable, the Company and IDT shall make all filings and
submissions under the HSR Act as may be reasonably required to be made in
connection with this Agreement and the Transactions. The Company will furnish to
IDT, and IDT will furnish to the Company, such information and assistance as the
other may reasonably request in connection with the preparation of any such
filings or submissions. The Company will provide IDT, and IDT will provide the
Company, with copies of all correspondence, filings or communications (or
memoranda setting forth the substance thereof) between such party or any of its
Representatives, on the one hand, and any Governmental Body or members of their
respective staffs, on the other hand, with respect to this
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Agreement and the Transactions, except to the extent that IDT or the Company is
advised by independent counsel that the provision of such information would be
inadvisable under applicable antitrust laws.
8.5 Certain Employee Benefit Plan Matters.
The Company shall take no action from and after the date hereof to deposit
into any trust (including any "rabbi trust") amounts in respect of any employee
benefit obligations.
8.6 Integration Matters.
The Company and IDT will work cooperate in good faith to identify and, to
the extent practicable, resolve matters regarding the orderly integration of
their respective operations, including matters relating to acceptable positions
with IDT for key management personnel of the Company, and the retention of other
Company employees who will remain after the Merger. The Company and IDT will
work together to facilitate the development of a plan for the transition to
common network and back office systems, to the extent consistent with antitrust
laws.
8.7 Stock Options and Warrants; Purchase Plan; Rights Plan.
(a) At the Effective Time, all rights with respect to Company Common Stock
under each Company Option then outstanding shall be converted into and become
rights with respect to IDT Common Stock, and IDT shall assume each such Company
Option in accordance with the terms (as in effect as of the date of this
Agreement) of the stock option plan under which it was issued and the stock
option agreement by which it is evidenced. From and after the Effective Time:
(i) each Company Option assumed by IDT may be exercised solely for shares of IDT
Common Stock; (ii) the number of shares of IDT Common Stock subject to each
Company Option shall be equal to the number of shares of Company Common Stock
subject to each such Company Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded down to the nearest whole share; (iii)
the per share exercise price under each such Company Option shall be adjusted by
dividing the per share exercise price under each such Company Option by the
Exchange Ratio and rounding up to the nearest cent; and (iv) any restriction on
the exercise of any such Company Option shall continue in full force and effect,
and the term, exercisability, vesting schedule and other provisions of such
Company Option shall otherwise remain unchanged. IDT agrees that, as soon as
reasonably practicable after the Effective Time, it will cause to be filed with
the SEC one or more registration statements on Form S-8 under the Securities
Act, or amendments to existing registration statements on Form S-8 or amendments
to the Registration Statement, in order to register the shares of IDT Common
Stock issuable upon exercise of the aforesaid converted Company Options.
(b) As of the Effective Time, all warrants to purchase Company Common
Stock, which are outstanding and not expired as of the Effective Time, shall be
assumed by IDT and converted into warrants to purchase such shares of IDT Common
Stock as the holder thereof would have received in the Merger had such warrant
been exercised prior to the Effective Time, at an aggregate purchase price equal
to the aggregate purchase price applicable prior to such conversion. Except as
provided above, the converted stock warrants shall be subject to the same terms
and conditions (including, without limitation, expiration date, vesting and
exercise provisions) as were applicable to the warrants, as the case may be,
immediately prior to the Effective Time.
(c) No such warrant shall be converted into a warrant to purchase a partial
share of IDT Common Stock.
(d) The consummation of the Merger shall not be treated as a termination of
employment for purposes of such stock options or warrants.
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(e) IDT shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of IDT Common Stock for delivery upon exercise of
Company Options and warrants assumed in accordance with this Section 8.7.
(f) The Company shall terminate any Company Benefit Arrangement immediately
prior to the Effective Time upon the request of IDT. The 1993 Purchase Plan
shall be terminated as of the Effective Time. In lieu of the assumption of
options under the 1993 Purchase Plan or substitution of an equivalent option by
IDT, the Company's Board of Directors shall shorten the offering period then in
progress under the 1993 Purchase Plan by setting a New Exercise Date (as defined
in Section 18 of the 1993 Purchase Plan) and by notifying each participant under
the 1993 Purchase Plan in writing at least ten (10) days prior to the New
Exercise Date. The New Exercise Date shall be the business day prior to the
Effective Time.
(g) Provided that the Company terminates any Company Benefit Arrangement at
IDT's request as provided in Section 8.7(f), IDT shall provide, as of the
Effective Time, the same or a comparable benefit or plan to each employee of
Company as is provided to IDT's employees who are similarly situated (it being
understood that this Section shall not obligate IDT to grant options to
purchase, or sell, any particular number of shares of IDT Common Stock or other
equity securities to any employee of the Company). The IDT benefit plans shall
give full credit for each participant's period of service with the Company prior
to the Effective Time for all purposes for which such service was recognized
under IDT's benefit plans prior to the Effective Time.
8.8 Expenses.
All costs and expenses incurred in connection with this Agreement and the
Transactional Agreements and the transactions contemplated hereby and thereby
(whether or not the Merger is consummated) shall be paid by the party incurring
such expenses, except as otherwise provided herein or in the Transactional
Agreements.
8.9 Additional Agreements.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its Best Efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
Transactions, including using all reasonable efforts to obtain all necessary
waivers, consents and approvals, and to effect all necessary registrations and
filings. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of IDT and the Company (or of the Surviving
Corporation on behalf of the Company) shall take all such necessary action.
(b) IDT and the Company each will cooperate with one another and use all
reasonable efforts to prepare all necessary documentation to effect promptly all
necessary filings and to obtain all necessary permits, consents, approvals,
orders and authorizations of or any exemptions by, all third parties and
governmental bodies necessary to consummate the transactions contemplated by
this Agreement. Each party will keep the other party apprised of the status of
any inquiries made of such party by the Department of Justice, the SEC, or any
other governmental agency or authority or members of their respective staffs
with respect to this Agreement or the transactions contemplated herein.
8.10 Public Announcements.
The parties have agreed upon the form and substance of a joint press
release announcing the execution and delivery of this Agreement and the terms of
the Merger. Other than such joint press release and the other publicly documents
contemplated to be filed pursuant to this Agreement, the
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parties shall make no public announcement concerning this Agreement, their
discussions or any other memoranda, letters or agreements between the parties
relating to the Merger; provided, however, that the Company shall be permitted
to make such disclosure regarding this Agreement and the Merger as shall be
reasonably necessary in connection with the solicitation of its shareholders and
the consent of necessary third parties to the proposed transaction; and,
provided, further, that the parties, after reasonable prior consultation with
the other, may make disclosure if required under applicable law or by the rules
of the Nasdaq National Market.
8.11 Tax-Free Reorganization.
Neither IDT nor the Company shall take any action, or refrain from taking
any action, that could reasonably be expected to prevent the Merger from
constituting a reorganization within the meaning of Section 368 of the Code.
ARTICLE 9
CONDITIONS TO CONSUMMATION OF THE MERGER
9.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to consummate the Merger and to
take the other actions required to be taken by it at the Closing shall be
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived to the extent permitted by
applicable law by both the Company and IDT, in whole or in part):
(a) Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(b) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and shall be
effective at the Effective Time, no stop order suspending effectiveness of
the Registration Statement shall have been issued, and no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing.
(c) All necessary approvals under federal and state securities laws
and other authorizations relating to the issuance or trading of the IDT
Common Stock to be issued to Company shareholders in connection with the
Merger shall have been received.
(d) The shares of IDT Common Stock to be issued in the Merger shall
have been approved for listing on the Nasdaq National Market.
(e) This Agreement and the Merger shall have been approved and adopted
by the favorable vote of a majority of the shares of the outstanding
capital stock of the Company entitled to vote thereon at a shareholders
meeting at which a quorum is present in accordance with Legal Requirements.
(f) No preliminary or permanent injunction or other order by any
federal, state or foreign court of competent jurisdiction which prohibits
the consummation of the Merger shall have been issued and remain in effect.
No statute, rule, regulation, executive order, stay, decree, or judgment
shall have been enacted, entered, issued, promulgated or enforced by any
court or governmental authority which prohibits or restricts the
consummation of the Merger. Other than the filing of the Agreement of
Merger with the Secretary of State of California, all authorizations,
consents, orders or approvals of, or declarations or filings with, and all
expirations of waiting periods imposed by, any Governmental Body which are
necessary for the
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consummation of the Merger, other than those the failure to obtain which
would not materially adversely affect the consummation of the Merger or in
the aggregate have a material adverse effect on the Surviving Corporation
and its subsidiaries, taken as a whole, shall have been filed, occurred or
been obtained (all such permits, approvals, filings and consents and the
lapse of all such waiting periods being referred to as the "Requisite
Regulatory Approvals") and all such Requisite Regulatory Approvals shall be
in full force and effect.
(g) There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, by any federal or state Governmental Body which, in connection with
the grant of a Requisite Regulatory Approval, imposes any condition or
restriction upon the Surviving Corporation or its subsidiaries (or, in the
case of any disposition of assets required in connection with such
Requisite Regulatory Approval, upon IDT or its subsidiaries or the Company
or its subsidiaries), including, without limitation, requirements relating
to the disposition of assets, which in any such case would so materially
adversely impact the economic or business benefits of the Transactions as
to render inadvisable the consummation of the Merger.
9.2 Additional Conditions to IDT's and Merger Sub's Obligation to
Consummate the Merger.
IDT's and Merger Sub's obligations to consummate the Merger and to take the
other actions required to be taken by IDT and Merger Sub at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by IDT, in whole or in part):
(a) All of the representations and warranties made by the Company and
each of the Company Affiliates in this Agreement and the other
Transactional Agreements (considered collectively) shall have been accurate
in all material respects as of the date of this Agreement, and shall be
accurate in all material respects as of the Closing Time (without giving
effect to any Disclosure Schedule Update) (except for those representations
and warranties that address matters only as of a particular date, which
shall remain true as of such particular date, and other than any such
inaccuracies resulting from actions taken at the written request of or with
the written consent of IDT and such inaccuracies that result from or arise
out of changes that occur during the Pre-Closing Period that do not have a
Material Adverse Effect on the Company).
(b) The Company or the Company Affiliates, as the case may be, shall
have executed and delivered each of the agreements, instruments and
documents required to be executed and delivered, and performed all actions
required by the Company or any of the Company Affiliates, as the case may
be, except as IDT has otherwise consented in writing.
(c) Each of the other covenants and obligations that the Company is
required to comply with or to perform pursuant to this Agreement or any
other Transactional Agreement at or prior to the Closing shall have been
duly complied with and performed in all material respects.
(d) Each of the Consents identified or required to have been
identified in Section 4.22 of the Disclosure Schedule shall have been
obtained and shall be in full force and effect, other than those Consents
the absence of which shall not have a material adverse effect on the
Company.
(e) There shall not have been any change in the Company's business,
condition, assets, liabilities, operations or financial performance since
the date of this Agreement that would have a Material Adverse Effect on the
Company.
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(f) In addition to the documents required to be received under this
Section 9.2, IDT shall also have received the following documents:
(i) the opinion letter from Venture Law Group, counsel to the
Company, dated the Closing Date, in the form attached as Exhibit E-1;
(ii) a certificate (the "Company Closing Certificate"), dated the
Closing Date, duly executed by the Company, certifying that (A) the
conditions set forth in Section 9.2(a) have been satisfied, (B) each of
the covenants and obligations that the Company is required to have
complied with or performed pursuant to this Agreement or any of the
other Transactional Agreements at or prior to the Closing has been duly
complied with and performed in all material respects, and (C) each of
the conditions set forth in Section 9.2 has been satisfied in all
respects;
(iii) duly executed Company Affiliate Agreements from each Company
Affiliate;
(iv) copies of resolutions of the Company, certified by a
Secretary, Assistant Secretary or other appropriate officer of the
Company, authorizing the execution, delivery and performance of the
Transactional Agreements and the Transactions, and copies of resolutions
of the meeting of shareholders of the Company, certified by a Secretary,
Assistant Secretary or other appropriate officer of the Company,
authorizing the execution, delivery and performance of the Transactional
Agreements and the Transactions;
(v) good standing certificates for the State of California and for
the United Kingdom and Australia;
(vi) the updated capitalization information for the Company
required by Section 4.3(a), certified as true and correct by an
executive officer of the Company;
(vii) a letter from Ernst & Young LLP, independent auditors for the
Company, dated within two (2) business days prior to the Effective Time
(which may contain customary qualifications and assumptions), to the
effect that Ernst & Young LLP concurs with the Company's management
conclusion that no conditions exist related to the Company that would
preclude IDT from accounting for the Merger as a pooling of interests;
and the letter is to be in a form reasonably satisfactory to IDT and
customary in scope and substance for letters delivered by independent
public accountants in connection with pooling transactions such as the
Merger;
(viii) a letter from PricewaterhouseCoopers LLP, independent
auditors for IDT, dated the Closing Date (which may contain customary
qualifications and assumptions and which may be based in part on the
letter referred to above from Ernst & Young LLP to the Company) to the
effect that PricewaterhouseCoopers LLP concurs with IDT's management
conclusions that as of that date, no conditions exist that would
preclude IDT from accounting for the Merger as a pooling of interests;
(ix) the audit opinion of Ernst & Young LLP, independent auditors
for the Company, on the Financial Statements, which shall have been
delivered to IDT by no later than November 30, 1998, and which audit
opinion shall be issued with respect to the Financial Statements
delivered by the Company to IDT on the date of this Agreement, as such
Financial Statements may be modified after the date of this Agreement
with the consent of IDT; and
(x) a letter from Ernst & Young LLP, independent auditors for the
Company, stating that Ernst & Young LLP, in conducting its audit on the
Financial Statements, is not aware
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of any material weaknesses with respect to the Company in connection
with the Financial Statements.
(g) Since the date of this Agreement, there shall not have been
commenced or threatened in writing against IDT, or against any Person
affiliated with IDT, any Proceeding (i) involving any challenge to, or
seeking Damages or other relief in connection with, any of the
Transactions, (ii) that may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the Transactions or any of the
Transactional Agreements, or (iii) that could reasonably be expected to
have a Material Adverse Effect on IDT or the Company.
(h) No Person shall have made or threatened in writing any material
claim asserting that such Person (i) may be the holder or the beneficial
owner of, or may have the right to acquire or to obtain beneficial
ownership of, any capital stock or other securities of the Company, or (ii)
may be entitled to all or any portion of the consideration to be issued in
connection with the Merger pursuant to Section 3.1.
(i) Neither the consummation nor the performance of any of the
Transactions or any of the Transactional Agreements will, directly or
indirectly (with or without notice or lapse of time), contravene or
conflict with or result in a violation of, or cause IDT or any Person
affiliated with IDT to suffer any material adverse consequence under (i)
any applicable Legal Requirement or Order or (ii) any Legal Requirement or
Order that has been proposed by or before any Governmental Body.
(j) Each Person (other than IDT and Merger Sub) shall have executed
and delivered prior to or on the Closing Date all Transactional Agreements
to which it is to be a party.
(k) IDT shall have received an opinion of Fenwick & West LLP in the
form of Exhibit F hereto, on the basis of certain facts, representations
and assumptions set forth in such opinion, dated as of the Closing Date, to
the effect that the Merger will be treated for federal income tax purposes
as a reorganization qualifying under the provisions of Section 368 of the
Code and that each of IDT, Merger Sub and the Company will be a party to
the reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, Fenwick & West LLP shall be entitled to rely upon
representations of officers of IDT and the Company substantially in the
form of Exhibits G and H hereto and in the Transactional Agreements.
(l) The holders of no more than ten percent (10%) of the outstanding
shares of Company Common Stock shall have demanded and not lost or
withdrawn, or shall be eligible to demand, dissenters' rights.
(m) Each of the Company's employees and consultants shall have entered
into a Proprietary Information and Inventions Agreement substantially in
the form of Exhibit C hereto or such other form as shall have been provided
to and approved by IDT.
(n) The Company shall have received consents from the following
parties to the Merger including any assignment by operation of law or
otherwise of the following contracts: (i) Kanematsu USA Inc., Equipment
Finance Agreement (Limited) dated March 28, 1996; and (ii) Siemens Credit
Corporation, Master Equipment Lease Agreement dated March 5, 1998.
(o) The Acknowledgment and Agreement by and between Soft Mixed Signal
Corporation and the Company dated October 26, 1998 shall continue to have
full force and effect, shall not have been withdrawn or modified in any way
and no other agreement or understanding shall have been entered into
between the parties without IDT's consent.
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(p) Each of the Persons identified in Section 4.22(h) of the
Disclosure Schedule shall have certified and agreed in writing that his or
her rights and benefits set forth therein are accurate in all respects and
are the sole remedies available to him or her as a result of the change in
control of the Company or any of its subsidiaries or otherwise resulting
from the Transactions, including any rights or benefits to be received by a
Person upon his or her termination of employment.
(q) The Company shall have terminated the 1993 Purchase Plan and all
"options" outstanding thereunder as of the Effective Time.
(r) SPEL shall have certified and agreed in writing that the Company's
representations and warranties set forth in Sections 4.6(h) and 4.10(k) are
accurate in all respects.
(s) The registration requirements with respect to the shares of
Company Common Stock issued pursuant to the Company's May 28, 1997 private
placement shall have been terminated as of the Effective Time.
9.3 Additional Conditions to the Company's Obligation to Consummate the
Merger.
The Company's obligation to consummate the Merger and to take the other
actions required to be taken by the Company at the Closing shall be subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by the Company, in whole or in part):
(a) All of the representations and warranties made by IDT and Merger
Sub in this Agreement (considered collectively) shall have been accurate in
all material respects as of the date of this Agreement and shall be
accurate in all material respects as of the Closing Time (except for those
representations and warranties that address matters only as of a particular
date, which shall remain true as of such particular date, and other than
any inaccuracies that result from or arise out of changes that occur during
the Pre-Closing Period that do not have a Material Adverse Effect on IDT).
(b) The Company shall have received a certificate (the "IDT Closing
Certificate"), dated the Closing Date, duly executed by IDT, certifying
that (A) each of the representations and warranties made by IDT and the
Merger Sub in this Agreement and in the other Transactional Agreements was
accurate in all material respects as of the date of the applicable
Agreement and is accurate in all material respects as of the Closing Date
as if made on the Closing Date, (B) each of the covenants and obligations
that IDT or the Merger Sub is required to have complied with or performed
pursuant to this Agreement or any of the other Transactional Agreements at
or prior to the Closing has been duly complied with and performed in all
material respects, and (C) each of the conditions set forth in Section 9.3
has been satisfied in all respects.
(c) Each of the covenants and obligations that either IDT or Merger
Sub is required to comply with or to perform pursuant to this Agreement at
or prior to the Closing shall have been duly complied with and performed in
all material respects.
(d) Subject to the terms and conditions of this Agreement, IDT and
Merger Sub shall have executed and delivered prior to or on the Closing
Date all Transactional Agreements to which it is to be a party.
(e) Neither the consummation nor the performance of any of the
Transactions or any of the Transactional Agreements will, directly or
indirectly (with or without notice or lapse of time), contravene or
conflict with or result in a violation of (a) any applicable Legal
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Requirement or Order or (b) any Legal Requirement or Order that has been
proposed by or before any Governmental Body.
(f) There shall not have been any change in IDT's business, condition,
assets, liabilities, operations or financial performance since the date of
this Agreement that would have a Material Adverse Effect on IDT; provided,
however, that a decrease in the trading price of IDT Common Stock shall not
of itself be considered to have a Material Adverse Effect on IDT.
(g) The Company shall have received an opinion of Venture Law Group,
in substantially the form of Exhibit I hereto, on the basis of certain
facts, representations and assumptions set forth in such opinion, dated as
of the Closing Date, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization qualifying under the
provisions of Section 368 of the Code and that each of IDT, Merger Sub and
the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code. In rendering such opinion, Venture Law Group
shall be entitled to rely upon representations of officers of IDT and the
Company substantially in the form of Exhibits G and H hereto and in the
Transactional Agreements.
(h) The Company shall have received the opinion letter from Fenwick &
West LLP, counsel to IDT, dated the Closing Date, in the form attached as
Exhibit E-2;
ARTICLE 10
TERMINATION
10.1 Termination.
This Agreement may be terminated and the Merger abandoned at any time prior
to the Effective Time, whether before or after approval by the shareholders of
the Company:
(a) by mutual written consent of IDT and the Company;
(b) by IDT if (i) there is a material Breach of any covenant or
obligation of the Company set forth in this Agreement or any of the other
Transactional Agreements, or (ii) IDT reasonably determines that the timely
satisfaction of any condition set forth in Section 9.1 or 9.2 has become
impossible or impractical (other than as a result of any failure on the
part of IDT to comply with or perform its covenants and obligations under
this Agreement or any of the other Transactional Agreements); provided,
however, that, if such Breach or failure of condition shall be curable by
the Company through the exercise of commercially reasonable efforts, then
IDT may not terminate this Agreement under this subsection (b) for a period
of at least 10 business days after notice from the Company or IDT of such
Breach or failure of condition, provided that during such 10-business day
period, the Company continues to exercise such commercially reasonable
efforts to cure such Breach;
(c) by the Company if (i) there is a material Breach of any covenant
or obligation of IDT or Merger Sub set forth in this Agreement or any of
the other Transactional Agreements, or (ii) the Company reasonably
determines that the timely satisfaction of any condition set forth in
Section 9.1 or 9.3 has become impossible or impractical (other than as a
result of any failure on the part of the Company to comply with or perform
any covenant or obligation set forth in this Agreement or any of the other
Transactional Agreements); provided, however, that, if such Breach or
failure of condition shall be curable by IDT or Merger Sub through the
exercise of commercially reasonable efforts, then the Company may not
terminate this Agreement under this subsection (c) for a period of at least
10 business days after notice from the Company or IDT of
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such Breach or failure of condition, provided that during such 10-business
day period, IDT or Merger Sub, as the case may be, continues to exercise
such commercially reasonable efforts to cure such Breach;
(d) by IDT if the Closing has not taken place on or before May 31,
1999 (other than as a result of any failure on the part of IDT or Merger
Sub to comply with or perform its covenants and obligations under this
Agreement or in any other Transactional Agreement);
(e) by the Company if the Closing has not taken place on or before May
31, 1999 (other than as a result of the failure on the part of the Company
to comply with or perform its covenants or obligations set forth in this
Agreement or in any other Transactional Agreement);
(f) by either IDT or the Company if any Governmental Body shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or any other action shall have become final and non-appealable;
provided, however, that the party seeking to terminate this Agreement
pursuant to this clause (f) shall have used all reasonable efforts to
remove such order, decree or ruling;
(g) by the Company or IDT, upon written notice to the other party, if
any approval of the shareholders of the Company required for the
consummation of the Merger submitted for approval shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held meeting of shareholders or at any adjournment thereof;
(h) by IDT, if at any time prior to the approval of the Merger by the
shareholders of the Company, the Board of Directors of the Company accepts,
publicly endorses, recommends or executes a letter of intent or similar
document with respect to a Superior Proposal or resolves to do any of the
foregoing;
(i) by IDT, if any of the following shall occur:
(i) The Company shall have failed to include in the Proxy Statement
and Prospectus the unanimous recommendation of the Board of Directors of
the Company in favor of approval and adoption of this Agreement and the
Merger, or the Board of Directors of the Company shall have amended or
modified in a manner adverse to IDT such Board of Directors' unanimous
recommendation in favor of the Merger or approval or adoption of this
Agreement;
(ii) the Board of Directors of the Company shall have approved,
publicly endorsed, recommended or executed a letter of intent or similar
document with respect to any Acquisition Proposal other than the Merger;
(iii) a tender or exchange offer relating to securities of the
Company shall have been commenced and the Company shall not have sent to
its security holders, within ten (10) business days after the
commencement of such tender or exchange offer, a statement that the
Company recommends rejection of such tender or exchange offer; or
(iv) an Acquisition Proposal (other than a tender or exchange offer
relating to the securities of the Company) is publicly announced, and,
upon IDT's request, the Company fails to issue a press release
announcing its opposition to such Acquisition Proposal within five (5)
business days after such request; or
(j) by either IDT or the Company, in the event of a tender or an
exchange offer relating to the securities of the Company which is accepted
by more than fifty percent (50%) of the outstanding shares of the Company
Common Stock.
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10.2 Termination Procedures.
If IDT wishes to terminate this Agreement pursuant to Section 10.1, IDT
shall deliver to the Company a written notice stating that IDT is terminating
this Agreement and setting forth a brief description of the basis on which IDT
is terminating this Agreement. If the Company wishes to terminate this Agreement
pursuant to Section 10.1, the Company shall deliver to IDT a written notice
stating that the Company is terminating this Agreement and setting forth a brief
description of the basis on which the Company is terminating this Agreement.
10.3 Effect of Termination.
If this Agreement is terminated pursuant to Section 10.1, all further
obligations of the parties under this Agreement shall terminate; provided,
however, that:
(a) the parties shall, in all events, remain bound by and continue to
be subject to the applicable provisions set forth in Sections 8.8 and 8.10
and Article 11;
(b) if this Agreement is terminated by IDT or the Company pursuant to
Section 10.1(j), or by IDT pursuant to Section 10.1(b)(i), (h) or (i), then
the Company shall pay to IDT, in cash, a non-refundable fee in the amount
of $1,500,000 (the "Termination Fee"). If this Agreement is terminated by
IDT or the Company pursuant to Section 10.1(g), and on the date of the
Company Shareholders' Meeting the Meeting Date Stock Price shall have been
greater than or equal to $4.00 per share (as appropriately adjusted for any
reclassification, stock split (including a reverse stock split), stock
dividend or distribution, recapitalization, subdivision or other similar
transaction), then the Company shall pay to IDT, in cash, a non-refundable
fee in the amount of $500,000 (the "Expense Reimbursement"). In the case of
termination of this Agreement by the Company pursuant to Section 10.1(g) or
(j), the Termination Fee or Expense Reimbursement, as applicable, shall be
paid by the Company prior to or contemporaneous with notice of such
termination being provided to IDT and as a condition to the Company's right
to terminate under such provisions, and in the case of termination of this
Agreement by IDT pursuant to Section 10.1(b)(i), (g), (h), (i) or (j), the
Termination Fee or Expense Reimbursement, as applicable, shall be paid by
the Company within three (3) business days after such notice of such
termination;
(c) the parties shall, in all events, remain bound by the terms and
provisions of the Nondisclosure Agreement;
(d) there shall be no liability under this Agreement on the part of
IDT, Merger Sub or the Company or any of their respective officers and
directors, and all rights and obligations of any party hereto shall cease
(other than pursuant to Section 10.3(b)); provided, however, that, except
as contemplated by Section 10.4 below, nothing herein shall relieve any
party from liability for the willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement;
(e) notwithstanding the above, both IDT and the Company shall be
entitled to announce the termination of this Agreement; and
(f) in the event the Company is not obligated to pay the Termination
Fee, IDT shall reimburse the Company for one-half of the expenses the
Company has incurred through the date of termination pursuant to Section
6.2(y).
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10.4 Exclusivity of Termination Rights.
The termination rights and obligations provided in this Article 10 shall be
deemed to be exclusive. Consistent with the foregoing, the payment of any
Termination Fee or the Expense Reimbursement under Section 10.3(b) above by the
Company shall constitute the sole and exclusive remedy of IDT for termination of
this Agreement in the circumstances contemplated by such Section 10.3(b), and,
upon receipt of such Termination Fee or Expense Reimbursement, IDT shall have no
further recourse in law or equity against the Company as a result of this
Agreement or any breach hereof.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Further Assurances.
Each party hereto shall execute and cause to be delivered to each other
party hereto such instruments and other documents, and shall take such other
actions, as such other party may reasonably request (prior to, at or after the
Closing) for the purpose of carrying out or evidencing any of the Transactions.
11.2 Fees and Expenses.
(a) Subject to the provisions of Article 3, the Company shall bear and pay
all fees, costs and expenses that have been incurred or that are in the future
incurred by or on behalf of the Company.
(b) Subject to the provisions of Article 3, IDT shall bear and pay all
fees, costs and expenses that have been incurred or that are in the future
incurred by or on behalf of IDT.
11.3 Attorneys' Fees.
If any legal action or other legal proceeding relating to this Agreement,
or the other Transactional Agreements in connection herewith, or the enforcement
of any provision of such items is brought against any party hereto, each party
shall bear its own attorneys' fees, costs and disbursements.
11.4 Notices.
Any notice or other communication required or permitted to be delivered to
any party under this Agreement shall be in writing and shall be deemed properly
delivered, given and received when delivered (by hand, by registered mail, by
courier or express delivery service or by telecopier during business hours) to
the address or telecopier number set forth beneath the name of such party below
(or to such other address or telecopier number as such party shall have
specified in a written notice given to the other parties hereto):
if to the Company:
Quality Semiconductor, Inc.
851 Martin Avenue
Santa Clara, CA 95050
Attention: Paul Gupta
Facsimile: (408) 450-4909
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with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Steven J. Tonsfeldt, Esq.
Facsimile: (650) 233-8386
if to IDT or Merger Sub:
INTEGRATED DEVICE TECHNOLOGY, Inc.
2975 Stender Way
Santa Clara, CA 95054
Attention: Jack Menache, Esq.
Facsimile: (408) 492-8454
Attention: Brian Boisseree
Facsimile: (408) 654-6742
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Dennis R. DeBroeck, Esq.
Facsimile: (650) 494-1417
11.5 Time of the Essence.
Time is of the essence in the performance of each of the terms hereof with
respect to the obligations and rights of each party hereto.
11.6 Headings.
The headings contained in this Agreement are for convenience of reference
only, shall not be deemed to be a part of this Agreement and shall not be
referred to in connection with the construction or interpretation of this
Agreement.
11.7 Counterparts.
This Agreement may be executed in several counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one agreement.
11.8 Governing Law; Venue.
(a) This Agreement shall be construed in accordance with, and governed in
all respects by, the internal laws of the State of California (without giving
effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this Agreement
or the enforcement of any provision of this Agreement may be brought or
otherwise commenced in any state or federal court located in Santa Clara County,
California. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the jurisdiction
of each state and federal court located in Santa Clara County, California
(including each appellate court located in the State of California) in
connection with any such legal proceeding;
(ii) agrees that each state and federal court located in Santa Clara
County, California shall be deemed to be a convenient forum; and
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(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in Santa Clara County, California, any claim that such party
is not subject personally to the jurisdiction of such court, that such
legal proceeding has been brought in an inconvenient forum, that the venue
of such proceeding is improper or that this Agreement or the subject matter
of this Agreement may not be enforced in or by such court.
(c) The parties agree that if any Proceeding is commenced against the
Company, IDT or Merger Sub or any of their respective Representatives by any
Person in or before any court or other tribunal anywhere in the world, then such
party may proceed against the applicable party in such court or tribunal with
respect to any indemnification claim or other claim arising directly or
indirectly from or relating directly or indirectly to such Proceeding or any
matters alleged therein or any of the circumstances giving rise thereto.
(d) Nothing contained in Section 11.8(b) or (c) shall be deemed to limit or
otherwise affect the right of any party hereto to commence any legal proceeding
or otherwise proceed against any other party hereto in any other forum or
jurisdiction.
(e) Each of the parties irrevocably waives the right to a jury trial in
connection with any legal proceeding relating to this Agreement or the
enforcement of any provision of this Agreement.
11.9 Successors and Assigns.
This Agreement shall be binding upon the parties and their respective
successors and assigns. This Agreement shall inure to the benefit of the
Company, Merger Sub, IDT, and the respective successors and assigns (if any) of
the foregoing.
11.10 Remedies Cumulative; Specific Performance.
Except as otherwise provided herein, and not in limitation of any remedies
available under applicable law, the rights and remedies of the parties hereto
shall be cumulative (and not alternative). Each of the parties agrees that:
(a) in the event of any Breach or threatened Breach by a party of any
covenant, obligation or other provision set forth in this Agreement, the
other party or parties shall be entitled (in addition to any other remedy
that may be available to it under the Agreement) to (i) a decree or order
of specific performance or mandamus to enforce the observance and
performance of such covenant, obligation or other provision, and (ii) an
injunction restraining such Breach or threatened Breach; and
(b) neither IDT, on the one hand, nor the Company, on the other, shall
be required to provide any bond or other security in connection with any
such decree, order or injunction or in connection with any related action
or Proceeding.
11.11 Waiver.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise or waiver of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on
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behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
11.12 Amendments.
This Agreement may not be amended, modified, altered or supplemented other
than by means of a written instrument duly executed and delivered on behalf of
IDT and the Company.
11.13 Severability.
In the event that any provision of this Agreement, or the application of
any such provision to any Person or set of circumstances, shall be determined to
be invalid, unlawful, void or unenforceable to any extent, the remainder of this
Agreement, and the application of such provision to Persons or circumstances
other than those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law. The parties
agree to replace such invalid, unlawful, void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business or other purpose of the unenforceable
provision.
11.14 Parties in Interest.
Except as otherwise expressly stated, none of the provisions of this
Agreement is intended to provide any rights or remedies to any Person other than
the parties hereto and their respective successors and assigns (if any).
11.15 Entire Agreement.
The Transactional Agreements (including Schedules and Exhibits thereto),
together with the Non-Disclosure Agreement, set forth the entire understanding
of the parties relating to the subject matter thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter thereof.
11.16 No Survival.
The representations and warranties contained herein shall terminate and be
of no further force and effect from and after the Closing. Notwithstanding
anything herein to the contrary, the agreements contained in Article 2, Article
3, Sections 8.8, and 8.9(a) and Article 11 shall survive the Effective Time.
11.17 Investigation.
The respective representations and warranties of the parties hereto
contained herein or in the certificates or other reports delivered prior to the
Closing shall not be deemed waived or otherwise affected by any investigation
made by any party hereto.
11.18 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
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(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections," "Exhibits" and "Schedules" are intended to refer to Sections of this
Agreement and Exhibits and Schedules to this Agreement.
IN WITNESS WHEREOF, each of IDT, Merger Sub and the Company has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
INTEGRATED DEVICE TECHNOLOGY, INC.
By: /s/ JERRY G. TAYLOR
-----------------------------------
Name: Jerry G. Taylor
Title: Executive Vice President
PENGUIN ACQUISITION, INC.
By: /s/ B.C BOISSEREE
-----------------------------------
Name: B.C Boisseree
Title: President
QUALITY SEMICONDUCTOR, INC.
By: /s/ R. PAUL GUPTA
-----------------------------------
Name: R. Paul Gupta
Title: President and Chief
Executive Officer
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INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS:
- ---------
<C> <S>
A. Certain Definitions
</TABLE>
<PAGE> 166
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACCOUNTING COMFORT LETTER. "Accounting Comfort Letter" shall have the
meaning specified in Section 6.8 of the Agreement.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall have the meaning
specified in Section 6.5(a) of the Agreement.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger to which
this Exhibit A is attached (including the Disclosure Schedule and all Exhibits),
as it may be amended from time to time.
AGREEMENT OF MERGER. "Agreement of Merger" shall have the meaning specified
in Section 1.2 of the Agreement.
BEST EFFORTS. "Best Efforts" shall mean the efforts that a prudent Person
desiring to achieve a particular result would use in order to ensure that such
result is achieved as expeditiously as possible. An obligation to use "Best
Efforts" under this Agreement does not require the Person subject to that
obligation to take actions that would result in a materially adverse change in
the benefits to such Person under the agreement or arrangement in question or
under this Agreement, the other Transactional Agreements and the Transactions.
BREACH. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been any
inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision, and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.
CERTIFICATE. "Certificate" shall have the meaning specified in Section
3.1(a) of the Agreement.
CGCL. "CGCL" shall have the meaning specified in Section 1.1 of the
Agreement.
CLOSING. "Closing" shall have the meaning specified in Section 3.7 of the
Agreement.
CLOSING DATE. "Closing Date" shall have the meaning specified in Section
3.7 of the Agreement.
COBRA. "COBRA" shall have the meaning specified in Section 4.15(f) of the
Agreement.
CODE. "Code" shall have the meaning specified in the Recitals of the
Agreement.
COMPANY. The "Company" shall have the meaning specified in the first
paragraph of the Agreement and shall include, unless the context clearly
indicates otherwise, all subsidiaries of the Company.
COMPANY AFFILIATE. "Company Affiliate" shall have the meaning specified in
Section 6.9(a) of the Agreement.
COMPANY AFFILIATE AGREEMENT. "Company Affiliate Agreement" shall have the
meaning specified in Section 6.9(a) of the Agreement.
COMPANY AUDITORS. "Company Auditors" shall have the meaning specified in
Section 6.10 of the Agreement.
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COMPANY BENEFIT ARRANGEMENTS. "Company Benefit Arrangements" shall have the
meaning specified in Section 4.15(d) of the Agreement.
COMPANY CLOSING CERTIFICATE. "Company Closing Certificate" shall have the
meaning specified in Section 9.2 of the Agreement.
COMPANY COMMON STOCK. "Company Common Stock" shall have the meaning
specified in Section 3.1(a) of the Agreement.
COMPANY CONTRACT. "Company Contract" shall mean any Contract:
(a) to which the Company is a party;
(b) by which the Company or any of its assets is or may become bound
or under which the Company has, or may become subject to, any obligation;
or
(c) under which the Company has or may acquire any right or interest.
COMPANY OPTIONS. "Company Options" shall have the meaning specified in
Section 4.3 of the Agreement.
COMPANY SEC FILINGS. "Company SEC Filings" shall have the meaning specified
in Section 4.4(a) of the Agreement.
COMPANY SHAREHOLDERS' MEETING. "Company Shareholders' Meeting" shall have
the meaning specified in Section 8.2 of the Agreement.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean, with respect to any Person, any written,
oral, implied or other agreement, contract, understanding, arrangement,
instrument, note, guaranty, indemnity, representation, warranty, deed,
assignment, power of attorney, certificate, purchase order, work order,
insurance policy, benefit plan, commitment, covenant, assurance, obligation,
promise or undertaking of any nature to which such Person is a party or by which
its properties or assets maybe bound or affected or under which it or its
business, properties or assets receive benefits.
DAMAGES. "Damages" shall mean the amount of any loss, damage, injury,
Liability, claim, fee (including any legal fee, expert fee, accounting fee or
advisory fee), demand, settlement, judgment, award, fine, penalty, Tax, charge
or cost (including any cost of investigation).
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall have the meaning specified
in Section 4 of the Agreement.
DISCLOSURE SCHEDULE UPDATE. "Disclosure Schedule Update" shall have the
meaning specified in Section 6.4(b) of the Agreement.
DISSENTING SHARES. "Dissenting Shares" shall have the meaning specified in
Section 3.9 of the Agreement.
EFFECTIVE TIME. "Effective Time" shall have the meaning specified in
Section 1.2 of the Agreement.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
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of first refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
ENVIRONMENTAL LAW. "Environmental Law" shall mean any federal, state, local
or foreign Legal Requirement relating to pollution or protection of human health
or the environment.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974.
ERISA AFFILIATE. "ERISA Affiliate" shall mean any Person that is, was or
would be treated as a single employer with the Company under Section 414 of the
Code.
EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
EXCHANGE AGENT. "Exchange Agent" shall have the meaning specified in
Section 3.3(a) of the Agreement.
EXCHANGE RATIO. "Exchange Ratio" shall have the meaning specified in
Section 3.1 of the Agreement.
EXPENSE REIMBURSEMENT. "Expense Reimbursement" shall have the meaning
specified in Section 10.3 of the Agreement.
FINANCIAL STATEMENTS. "Financial Statements" shall have the meaning
specified in Section 4.4 of the Agreement.
GAAP. "GAAP" shall mean Generally Accepted Accounting Principles, applied
on a basis consistent with the basis on which the Financial Statements were
prepared.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, concession, approval,
consent, ratification, permission, clearance, confirmation, endorsement,
waiver, certification, designation, rating, registration, qualification or
authorization that is issued, granted, given or otherwise made available by
or under the authority of any Governmental Body or pursuant to any Legal
Requirement; or
(b) right under any Contract with any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency,
bureau, branch, office, commission, council,
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board, instrumentality, officer, official, representative, organization,
unit, body or Entity and any court or other tribunal);
(d) multinational organization or body; or
(e) individual, Entity or body exercising, or entitled to exercise,
any executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature.
HAZARDOUS MATERIAL. "Hazardous Material" shall mean any substance,
chemical, waste or other material which is listed, defined or otherwise
identified as hazardous, toxic or dangerous under any applicable law; as well as
any petroleum, petroleum product or by-product, crude oil, natural gas, natural
gas liquids, liquefied natural gas, or synthetic gas useable for fuel, and
"source," "special nuclear," and "by-product" material as defined in the Atomic
Energy Act of 1954, 42 U.S.C. sec.sec. 2011 et seq.
HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1976, as amended.
IDT. "IDT" shall have the meaning specified in the first paragraph of the
Agreement.
IDT AFFILIATE AGREEMENT. "IDT Affiliate Agreement" shall have the meaning
specified in Section 7.7 of the Agreement.
IDT CLOSING CERTIFICATE. "IDT Closing Certificate" shall have the meaning
specified in Section 9.3 of the Agreement.
IDT COMMON STOCK. "IDT Common Stock" shall have the meaning specified in
Section 3.1 of the Agreement.
IDT LIAISON. "IDT Liaison" shall have the meaning specified in Section
6.1(c) of the Agreement.
IDT SEC FILINGS. "IDT SEC Filings" shall have the meaning specified in
Section 5.5 of the Agreement.
INTERIM FINANCIAL STATEMENTS. "Interim Financial Statements" shall have the
meaning specified in Section 6.16 of the Agreement.
INTERIM REVIEW. "Interim Review" shall have the meaning specified in
Section 6.16 of the Agreement.
KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such
fact or other matter.
A corporation shall be deemed to have "Knowledge" of a particular fact or
matter only if a director or officer of such corporation has or had Knowledge of
such fact or matter.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronounce-
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ment, requirement, specification, determination, decision, opinion or
interpretation that is or has been issued, enacted, adopted, passed, approved,
promulgated, made, implemented or otherwise put into effect by or under the
authority of any Governmental Body, and, where applicable, shall include any
rule or requirement of the Nasdaq National Market.
LIABILITY. "Liability" shall mean any debt, obligation, duty or liability
of any nature including any unknown, undisclosed, unmatured, unaccrued,
unasserted, contingent, indirect, conditional, implied, vicarious, derivative,
joint, several or secondary liability, regardless of whether such debt,
obligation, duty or liability would be required to be disclosed on a balance
sheet prepared in accordance with generally accepted accounting principles and
regardless of whether such debt, obligation, duty or liability is immediately
due and payable.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean, for purposes
of this Agreement, any change, event or effect that is materially adverse to the
business, condition, assets, liabilities, operations, financial performance or
results of a party to this Agreement and its subsidiaries, taken as a whole;
provided, however, that: (i) any occurrences directly attributable to conditions
affecting the economy in general or such party's industry in general and not
specifically relating to such party or its subsidiaries shall not be taken into
account in determining whether there has been or would be a "Material Adverse
Effect" with respect to such party (unless such conditions adversely affect the
party in a materially disproportionate manner); (ii) the delay or cancellation
of orders for the party's products from customers or distributors (or other
resellers) directly attributable to the announcement of this Agreement or the
pendency of the Merger shall not be taken into account in determining whether
there has been or would be a "Material Adverse Effect" with respect to the
party; (iii) a decrease in a party's sales revenue as compared to prior periods
or as compared to management's financial forecasts for the period following the
execution of this Agreement directly attributable to the announcement of this
Agreement or the pendency of the Merger shall not be taken into account in
determining whether there has been or would be a "Material Adverse Effect" with
respect to the party; (iv) the loss of one or more of a party's or its
subsidiaries' employees (including sales representatives) directly attributable
to the announcement of this Agreement or the pendency of the Merger shall not be
taken into account in determining whether there has been or would be a "Material
Adverse Effect" with respect to the party; and (v) the lack of or delay in
availability of components or raw materials from the party's or its
subsidiaries' suppliers directly attributable to the announcement of this
Agreement or the pendency of the Merger shall not be taken into account in
determining whether there has been or would be a "Material Adverse Effect" with
respect to the party.
MEETING DATE STOCK PRICE. "Meeting Date Stock Price" shall mean the average
per share closing sales price of IDT Common Stock on the Nasdaq National Market
for the five (5) consecutive trading days ending on, and including, the trading
day immediately prior to the date of the Company Shareholders' Meeting.
MERGER. "Merger" shall have the meaning specified in Section 1.1 of the
Agreement.
MERGER SUB. "Merger Sub" shall have the meaning specified in the first
paragraph of the Agreement.
NONDISCLOSURE AGREEMENT. "Nondisclosure Agreement" shall have the meaning
specified in Section 6.5(c) of the Agreement.
ORDER. "Order" shall mean any:
(a) order, judgment, injunction, edict, decree, ruling, pronouncement,
determination, decision, opinion, verdict, sentence, subpoena, writ or
award that is issued, made, entered,
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rendered or otherwise put into effect by or under the authority of any
court, administrative agency or other Governmental Body or any arbitrator
or arbitration panel; or
(b) Contract with any Governmental Body that is entered into in
connection with any Proceeding.
ORDINARY COURSE OF BUSINESS. An action taken by or on behalf of the Company
shall not be deemed to have been taken in the "Ordinary Course of Business"
unless:
(a) such action is recurring in nature, consistent with the Company's
past practices and taken in the ordinary course of the Company's normal day
to day operations;
(b) such action is taken in accordance with such party's customary
business practices;
(c) such action is not required to be authorized by the Company's
shareholders, the Company's board of directors or any committee of the
Company's board of directors and does not require any other separate or
special authorization of any nature; and
(d) such action is similar in nature and magnitude to actions
customarily taken, without any special or separate authorization, in the
ordinary course of the normal day to day operations of other Entities that
are employed in businesses similar to Company's business.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall mean the period commencing
as of the date of the Agreement and ending on the Closing Date.
PREMISES. "Premises" shall have the meaning specified in Section 4.6(d) of
the Agreement.
PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation,
commenced, brought, conducted or heard by or before, or otherwise has involved,
any Governmental Body or any arbitrator or arbitration panel.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service mark (whether registered or unregistered), service mark
application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know how, franchise,
system, computer software, invention, design, blueprint, proprietary product,
technology, proprietary right or other intellectual property right.
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. "Proprietary Information
and Inventions Agreement" shall mean an agreement substantially in the form of
Exhibit C to the Agreement.
PROXY STATEMENT AND PROSPECTUS. "Proxy Statement and Prospectus" shall have
the meaning specified in Section 8.1(a) of the Agreement.
REGISTRATION STATEMENT. "Registration Statement" shall have the meaning
specified in Section 8.1 of the Agreement.
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RELATED PARTY. Each of the following shall be deemed to be a "Related
Party":
(a) each individual who is, or who has at any time been, an officer of
the Company;
(b) each member of the family of each of the individuals referred to
in clause "(a)" above;
(c) any Entity (other than the Company) in which any one of the
Persons referred to in clauses "(a)" or "(b)" above holds (or in which more
than one of such individuals collectively hold), beneficially or otherwise,
a material voting, proprietary or equity interest.
REPRESENTATIVES. "Representatives" of a specified party shall mean
officers, directors, employees, attorneys, accountants, advisors, investment
bankers and representatives of such party, including, without limitation, in the
case of Company, all subsidiaries of Company and all such Persons with respect
to such subsidiaries. The Related Parties shall be deemed to be
"Representatives" of Company.
REQUISITE REGULATORY APPROVALS. "Requisite Regulatory Approvals" shall have
the meaning specified in Section 9.1 of the Agreement.
RIGHTS. "Rights" shall have the meaning specified in Section 3.1 of the
Agreement.
RIGHTS AGREEMENT. "Rights Agreement" shall have the meaning specified in
Section 3.1 of the Agreement.
SEC. "SEC" shall have mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SHAREHOLDER. "Shareholder" shall mean a holder of shares of the Company's
capital stock.
SPEL. "SPEL" shall have the meaning specified in Section 4.6 of the
Agreement.
SPEL AGREEMENT. "SPEL Agreement" shall have the meaning specified in
Section 4.10 of the Agreement.
SUPERIOR PROPOSAL. "Superior Proposal" shall have the meaning specified in
Section 6.5(b) of the Agreement.
SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning
specified in Section 1.1 of the Agreement.
TAKEOVER STATUTE. "Takeover Statute" shall mean any fair price, moratorium,
control share acquisition or other similar anti-takeover statute.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, estimated tax, gross receipts tax, value added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), (a) imposed,
assessed or collected by or under the authority of any Governmental Body, or (b)
payable pursuant to any tax sharing agreement or similar Contract.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
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determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
TRANSACTIONAL AGREEMENTS. 'Transactional Agreements" shall mean:
(a) the Agreement;
(b) the Company Affiliate Agreements and the IDT Affiliate Agreements;
and
(c) the Agreement of Merger.
TRANSACTIONS. "Transactions" shall mean (a) the execution and delivery of
the respective Transactional Agreements, and (b) all of the transactions
contemplated by the respective Transactional Agreements, including, without
limitation, the Merger, and the performance by Company, IDT, and the other
parties to the Transactional Agreements of their respective obligations under
the Transactional Agreements.
UNAUDITED BALANCE SHEET. "Unaudited Balance Sheet" shall have the meaning
specified in Section 4.4 of the Agreement.
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APPENDIX B
November 1, 1998
The Board of Directors
Quality Semiconductor, Inc.
851 Martin Avenue
Santa Clara, CA 95050
Members of the Board:
We understand that Integrated Device Technology, Inc. ("IDT"), Quality
Semiconductor, Inc. ("QSI") and a wholly-owned subsidiary of IDT ("Acquisition
Sub"), propose to enter into an Agreement and Plan of Merger (the "Merger
Agreement") whereby Acquisition Sub will be merged with and into QSI and QSI
will become a wholly-owned subsidiary of IDT (the "Merger"). The terms of the
Merger will be set forth more fully in the Merger Agreement.
Pursuant to the proposed Merger Agreement, we understand that at the
Effective Time (as defined in the Merger Agreement), each share of common stock,
$0.001 par value per share, of QSI ("QSI Common Stock") will be converted into
the right to receive 0.6875 fully paid and nonassessable shares (the "Exchange
Ratio") of common stock, $0.001 par value per share, of IDT ("IDT Common
Stock").
You have asked us to advise you as to the fairness, from a financial point
of view, of the Exchange Ratio to the holders of QSI Common Stock. Needham &
Company, Inc., as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes. We have acted as financial
advisor to QSI in connection with the Merger and will receive a fee for our
services, none of which is contingent on the consummation of the Merger. In
addition, QSI has agreed to indemnify us for certain liabilities arising from
our role as financial advisor and out of the rendering of this opinion.
For purposes of this opinion we have, among other things: (i) reviewed a
draft of the Merger Agreement dated October 29, 1998 (and a letter from IDT to
QSI dated October 30, 1998 proposing the Exchange Ratio); (ii) reviewed certain
publicly available information concerning QSI and IDT and certain other relevant
financial and operating data of QSI and IDT made available from the internal
records of QSI and IDT; (iii) reviewed the historical stock prices and trading
volumes of QSI Common Stock and IDT Common Stock; (iv) held discussions with
members of senior management of QSI and IDT concerning their current and future
business prospects; (v) reviewed certain financial forecasts and projections
prepared by the respective management's of QSI and IDT; (vi) compared certain
publicly available financial data of companies whose securities are traded in
the public markets and that we deemed relevant to similar data for QSI; (vii)
reviewed the financial terms of certain other business combinations that we
deemed generally relevant; and (viii) performed and/or considered such other
studies, analyses, inquiries and investigations as we deemed appropriate.
In connection with our review and in arriving at our opinion, we have
assumed and relied on the accuracy and completeness of all of the financial and
other information publicly available or furnished to or otherwise reviewed by or
discussed with us for purposes of rendering this opinion and have neither
attempted to verify independently nor assumed; responsibility for verifying any
of such information. In addition, we have assumed, with your consent, that (i)
the Merger will be accounted for under the pooling-of-interests method of
accounting, (ii) the Merger will constitute a tax-free reorganization, and (iii)
the terms set forth in the executed Merger Agreement will not differ materially
from the proposed terms provided to us in the draft Merger Agreement dated
October 29,
<PAGE> 175
1998 (and the aforementioned October 30, 1998 letter proposing the Exchange
Ratio). With respect to QSI's and IDT's financial forecasts provided to us by
their respective managements, we have assumed for purposes of our opinion that
such forecasts have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of such managements, at the time of
preparation, of the future operating and financial performance of QSI and IDT.
We express no opinion with respect to such forecasts or the assumptions on which
they were based. We have not assumed any responsibility for or made or obtained
any in dependent evaluation, appraisal or physical inspection of the assets or
liabilities of QSI and IDT. Further, our opinion is based on economic, monetary
and market conditions as they exist and can be evaluated as of the date hereof.
Our opinion as expressed herein is limited to the fairness, from a financial
point of view, to the holders of QSI Common Stock of the Exchange Ratio and does
not address QSI's underlying business decision to engage in the Merger. Our
opinion does not constitute a recommendation to any shareholder of QSI as to how
such shareholder should vote on the proposed Merger.
We are not expressing any opinion as to what the value of IDT Common Stock
will be when issued to the shareholders of QSI pursuant to the Merger or the
prices at which IDT Common Stock will actually trade at any time.
In the ordinary course of our business, we may actively trade the equity
securities of QSI and IDT for our own account or for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
This letter and the opinion expressed herein are provided at the request
and for the information of the Board of Directors of QSI and may not be quoted
or referred to or used for any purpose without our prior written consent, except
that this letter may be disclosed in connection with any registration statement
or proxy statement used in connection with the Merger so long as this letter is
quoted in full in such registration statement or proxy statement.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof the Exchange Ratio is fair to the holders of QSI Common Stock from a
financial point of view.
Very truly yours,
/s/ Needham & Company, Inc.
NEEDHAM & COMPANY, INC.
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APPENDIX C
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13 DISSENTERS' RIGHTS
SEC. 1300 RIGHT TO REQUIRE PURCHASE -- "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED
a. If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation is a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
b. As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
a. As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.
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SEC. 1301 DEMAND FOR PURCHASE
a. If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
b. Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
c. The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SEC. 1302 ENDORSEMENT OF SHARES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SEC. 1303 AGREED PRICE -- TIME FOR PAYMENT
a. If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
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market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
b. Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SEC. 1304 DISSENTER'S ACTION TO ENFORCE PAYMENT
a. If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
b. Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
c. On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SEC. 1305 APPRAISER'S REPORT -- PAYMENT -- COSTS
a. If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
b. If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
c. Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
d. Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
e. The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but if the appraisal
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exceeds the price offered by the corporation, the corporation shall pay the
costs (including in the discretion of the court attorneys' fees, fees of expert
witnesses and interest at the legal rate on judgments from the date of
compliance with Sections 1300, 1301 and 1302 if the value awarded by the court
for the shares is more than 125 percent of the price offered by the corporation
under subdivision (a) of Section 1301).
SEC. 1306 DISSENTING SHAREHOLDER'S STATUS AS CREDITOR
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SEC. 1307 DIVIDENDS PAID AS CREDIT AGAINST PAYMENT
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SEC. 1308 CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SEC. 1309 TERMINATION OF DISSENTING SHAREHOLDER STATUS
a. Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
b. The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
c. The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
d. The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
e. The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
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SEC. 1310 SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SEC. 1311 EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SEC. 1312 ATTACKING VALIDITY OF REORGANIZATION OR MERGER
a. No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
b. If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
c. If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
organization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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EXHIBIT 5.01
March 23, 1999
Integrated Device Technology, Inc.
2975 Stender Way
Santa Clara, CA 95054
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-4
(the "Registration Statement") filed by you with the Securities and Exchange
Commission (the "Commission") on or about March 24, 1999, in connection with the
registration under the Securities Act of 1933, as amended, of an aggregate of
6,251,968 shares of the common stock (the "Stock") of Integrated Device
Technology, Inc., a Delaware corporation (the "Company"), to be issued pursuant
to the Agreement and Plan of Merger dated as of November 1, 1998, among you,
Quality Semiconductor, Inc. and Penguin Acquisition, Inc., (the "Merger
Agreement").
In rendering this opinion, we have examined the following:
(1) your registration statement on Form 8-A filed with the Commission on
December 23, 1998;
(2) the Registration Statement, together with the Exhibits filed as a part
thereof;
(3) the Proxy Statement/Prospectus prepared in connection with the
Registration Statement;
(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books that are in our possession;
(5) the stock records for both you and Penguin Acquisition, Inc., that you
have provided to us (consisting of oral verification from your
transfer agent of even date herewith verifying the number of your
issued and outstanding shares of capital stock as of the date hereof
and a list of option and warrant holders respecting your capital and
of any rights to purchase capital stock that was prepared by you and
dated as of March 23, 1999 verifying the number of such issued and
outstanding securities);
(6) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations; and
(7) the Company's fiscal 1998 Annual Report on Form 10-K and subsequent
Quarterly Reports on Form 10-Q and current reports on Form 8-K.
By telephone call to the offices of the Commission, we have also confirmed
the continued effectiveness of the Company' registration under the Securities
Exchange Act of 1934, as
<PAGE> 2
amended (the "Exchange Act"), and the timely filing by you of all reports
required to be filed by you pursuant to Rules 13, 14 and 15 promulgated under
the Exchange Act.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals and completeness of all
documents submitted to us as copies, the legal capacity of all natural persons
executing the same, the lack of any undisclosed termination, modification,
waiver or amendment to any document reviewed by us and the due authorization,
execution and delivery of all documents where due authorization, execution and
delivery are prerequisites to the effectiveness thereof.
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from public officials
and/or records referred to above. We have made no independent investigation or
other attempt to verify the accuracy of any of such information or to determine
the existence or non-existence of any other factual matters; however, we are not
aware of any facts that would cause us to believe that the opinion expressed
herein is not accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California and (without reference to case law or secondary sources)
the existing Delaware General Corporation Law.
In connection with our opinion expressed below, we have assumed that, at or
prior to the time of the delivery of any shares of Stock, the Registration
Statement will have been declared effective under the Securities Act of 1933, as
amended, that the registration will apply to such shares of Stock and will not
have been modified or rescinded and that there will not have occurred any change
in law affecting the validity or enforceability of such shares of Stock.
Based upon the foregoing, it is our opinion that the up to 6,251,968 shares
of Stock to be issued by you, when issued, sold and delivered in accordance with
the terms of the Merger Agreement and as provided in the relevant Proxy
Statement/Prospectus and the Registration Statement, will be validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Proxy Statement/Prospectus constituting a part
thereof and any amendments thereto.
2
<PAGE> 3
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for the your use as an exhibit to the Registration
Statement for the purpose of the above issuance of the Stock and is not to be
relied upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
By: /s/ Fenwick & West
--------------------------------
Dennis DeBroeck, a partner
3
<PAGE> 1
EXHIBIT 8.01
March 24, 1999
INTEGRATED DEVICE TECHNOLOGY, INC.
2975 Stender Way
Santa Clara, CA 95954
Attention: Board of Directors
Re: Exhibit Tax Opinion to the S-4 Registration Statement Filed in
Connection With the Merger Transaction Involving Integrated
Device Technology, Inc. and Quality Semiconductor, Inc.
Ladies and Gentlemen:
We have been requested to render this opinion concerning certain
matters of U.S. federal income tax law in connection with the proposed merger
(the transaction collectively referred to as the "MERGER") involving Quality
Semiconductor, Inc., a California corporation ("QSI"), and Penguin Acquisition,
Inc., a California corporation ("MERGER SUB") and a wholly-owned subsidiary of
Integrated Device Technology, Inc., a Delaware corporation ("IDT"). The Merger
is further described in and is in accordance with the Securities and Exchange
Commission Form S-4 Registration Statement filed on March __, 1999, and
related Exhibits thereto, as thereafter amended at any time to and including
the date hereof (the "S-4 REGISTRATION STATEMENT"). This opinion has been
requested solely in connection with the filing of the S-4 Registration
Statement with the Securities and Exchange Commission with respect to the
Merger.
The Merger is structured as a statutory merger of Merger Sub with and
into QSL, with QSI surviving the merger and becoming a wholly-owned subsidiary
of IDT, all pursuant to the applicable corporate laws of the state of
California and in accordance with the Agreement and Plan of Merger by and among
QSI, IDT and Merger Sub, dated as of November 1, 1998, and exhibits thereto
(collectively, the "AGREEMENT"). Except as otherwise indicated, capitalized
terms used herein have the meanings set forth in the Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "CODE").
We have acted as legal counsel to IDT in connection with the Merger.
As such, and for the purpose of rendering this opinion, we have examined and
are relying upon (without any independent investigation or review thereof) the
truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all schedules and exhibits thereto), among others:
<PAGE> 2
Integrated Device Technology, Inc.
March 24, 1999
Page 2
1. The S-4 Registration Statement (including exhibits thereto);
2. The Agreement;
3. An Officers' Tax Certificate of IDT and Merger Sub dated February
__, 1999, signed by an authorized officer of each of IDT and Merger Sub and
delivered to us from IDT and Merger Sub and incorporated herein by reference; a
copy of this Certificate of Officers is attached hereto as Exhibit A; and
4. An Officer's Tax Certificate of QSI dated February 5, 1999, signed
by an authorized officer of QSI and delivered to us from QSI and incorporated
herein by reference; a copy of this Certificate of Officer is attached hereto as
Exhibit B.
In addition, we have reviewed such other instruments and documents
related to the formation, organization and operation of QSI, IDT and Merger Sub
or the consummation of the Merger and the transactions contemplated thereby as
we have deemed necessary or appropriate.
In connection with rendering this opinion, we have obtained
representations and are relying thereon (without any independent investigation
or review thereof) that:
(1) Neither IDT nor a person related to IDT (within the meaning of
Treas. Reg. Section 1.368-1(e)(3)) will redeem nor acquire any of the IDT Common
stock issued in the transaction or acquire any QSI stock prior to the
transaction, other than possible repurchases of unvested stock of employees,
directors and consultants in connection with termination of such employees,
directors and consultants, and other than pursuant to IDT's previously adopted
share repurchase plan whereby the company is permitted to purchase up to 10
million shares of IDT Common Stock (approximately 12 percent of its outstanding
shares) in open market transactions.
(2) Following the Merger, QSI will hold at least 90 percent of the fair
market value of its and Merger Sub's net assets, and at least 70 percent of the
fair market value of its and Merger Sub's gross assets such that it will hold
substantially all of its and Merger Sub's assets within the meaning of Section
368(a)(2)(E)(i) of the Code and the Treasury regulations promulgated thereunder
and will continue its historic business or use a significant portion of its
historic business assets in a business;
(3) No QSI stockholder has guaranteed or will guarantee any QSI
indebtedness outstanding during the period immediately prior to the Merger.
(4) None of QSI, IDT, or Merger Sub is, or will be at the time of the
Merger, an investment company as defined in Section 368(a)(2)(F) of the Code.
In addition, in connection with rendering this opinion, we have assumed
(without any independent investigation thereof) that:
<PAGE> 3
Integrated Device Technology, Inc.
March 24, 1999
Page 3
(1) To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treas. Reg. Section 1.368-1(c) with
respect to the Merger) are funded directly or indirectly by a party other than
the incurring party, such expenses will be reorganization expenses within the
guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187;
(2) At all relevant times prior to and including the Effective Date,
(i) no outstanding indebtedness of QSI, IDT, or Merger Sub has or will
represent equity for tax purposes; (ii) no outstanding equity of QSI, IDT, or
Merger Sub has represented or will represent indebtedness for tax purposes;
(iii) no outstanding security, instrument, agreement or arrangement that
provides for, contains, or represents either a right to acquire QSI capital
stock (or to share in the appreciation thereof) constitutes or will constitute
"stock" for purposes of Section 368(c) of the Code; and
(3) Original documents (including signature) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time of the Merger) due execution and delivery of
all documents where due execution and delivery are prerequisites to the
effectiveness thereof;
(4) Any representation or statement referred to above made "to the
best of knowledge" or otherwise similarly qualified is correct without such
qualification, and all statements and representations, whether or not qualified
are true and will remain true through the Effective Date and thereafter where
relevant;
(5) The Merger will be consummated pursuant to the Agreement and will
be effective under the laws of the state of California; and
In addition to the above, our opinion is conditioned on the delivery of
an opinion of counsel, substantially identical in substance to this opinion, to
QSI from the Venture Law Group, and that such opinion will not be withdrawn
prior to the Effective Date.
Based on the foregoing documents, materials, assumptions and information,
and subject to the qualifications and assumptions set forth herein and in the
S-4 Registration Statement, we are of the opinion that if the Merger is
consummated in accordance with the provisions of the Agreement (and without any
waiver, breach or amendment of any of the provisions thereof):
(a) the Merger will be a "reorganization" for federal income tax
purposes within the meaning of Section 368(a) of the Code;
(b) each of IDT, QSI and Merger Sub will be a "party to the
reorganization" within the meaning of Section 368(b) of the Code;
(c) no gain or loss will be recognized by QSI shareholders solely
upon their receipt of IDT common stock in the merger in exchange for QSI common
stock, except to the extent of cash received in lieu of a fractional share; and
<PAGE> 4
Integrated Device Technology, Inc.
March 24, 1999
Page 4
(d) the disclosure of the material federal income tax consequences of
the Merger to QSI shareholders in the S-4 Registration Statement under the
heading "Material Federal Income Tax Considerations" is correct in all material
respects, subject to the limitations set forth therein.
Our opinion set forth above is based on the existing provisions of
the Code, Treasury Regulations (including Temporary Treasury Regulations)
promulgated under the Code, published Revenue Rulings, Revenue Procedures and
other announcements of the Internal Revenue Service (the "SERVICE") and
existing court decisions, any of which could be changed at any time. Any such
changes might be retroactive with respect to transactions entered into prior to
the date of such changes and could significantly modify the opinion set forth
above. Nevertheless, we undertake no responsibility to advise you of any
subsequent developments in the application, operation or interpretation of the
U.S. federal income tax laws.
Our opinion concerning certain of the U.S. federal tax consequences
of the Merger is limited to the specific U.S. federal tax consequences
presented above. No opinion is expressed as to any transaction other than the
Merger, including any transaction undertaken in connection with the Merger. In
addition, this opinion does not address any estate, gift, state, local or
foreign tax consequences that may result from the Merger. In particular, we
express no opinion regarding: (i) the amount, existence, or availability after
the Merger, of any of the U.S. federal income tax attributes of QSI, IDT or
Merger Sub; (ii) any transaction in which QSI Common Stock is acquired or IDT
Common Stock is disposed other than pursuant to the Merger; (iii) the potential
application of the "disqualifying disposition" rules of Section 421 of the Code
to dispositions of QSI Common Stock; (iv) the effects of the Merger and IDT's
assumption of outstanding options to acquire QSI stock on the holders of such
options under any QSI employee stock option or stock purchase plan,
respectively; (v) the effects of the Merger on any QSI stock acquired by the
holder subject to the provision of Section 83(a) of the Code; (vi) the effects
of the Merger on any payment which is or may be subject to the provisions of
Section 280G of the Code; and (vii) the application of the collapsible
corporation provisions of Section 341 of the Code to QSI, IDT or Merger Sub as
a result of the Merger.
No ruling has been or will be requested from the Service concerning
the U.S. federal income tax consequences of the Merger. In reviewing this
opinion, you should be aware that the opinion set forth above represents our
conclusions regarding the application of existing U.S. federal income tax law
to the instant transaction. If the facts vary from those relied upon (including
if any representations, covenant, warranty or assumption upon which we have
relied is inaccurate, incomplete, breached or ineffective), our opinions
contained herein could be inapplicable. You should be aware that an opinion of
counsel represents only counsel's best legal judgment, and has no binding
effect or official status of any kind, and that no assurance can be given that
contrary positions may not be taken by the Service or that a court considering
the issues would not hold otherwise.
We consent to the use of this opinion as an exhibit to the S-4
Registration Statement, to references to this opinion in the S-4 Registration
Statement and to the use of our name in the S-4 Registration Statement under
the heading "Material Federal Income Tax
<PAGE> 5
Integrated Device Technology, Inc.
March 24, 1999
Page 5
Considerations". In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules or regulations promulgated thereunder.
The filing of this opinion as an exhibit to the S-4 Registration Statement and
the references to the opinion and our Firm therein are not intended to create
liability under applicable state law to any person other than IDT, our client.
Very truly yours,
/s/ FENWICK & WEST
-----------------------------------------
FENWICK & WEST LLP
A LIMITED LIABILITY PARTNERSHIP INCLUDING
PROFESSIONAL CORPORATIONS
EXHIBITS:
EXHIBIT A -- An Officers' Tax Certificate of Integrated Device Technology,
Inc. and Penguin Acquisition Corporation, dated February __, 1999, and
signed by authorized officers of Integrated Device Technology, Inc. and
Penguin Acquisition Corporation.
EXHIBIT B -- An Officer's Tax Certificate of Quality Semiconductor, Inc.,
dated February 5, 1999 and signed by an authorized officer of Quality
Semiconductor, Inc.
<PAGE> 1
EXHIBIT 8.02
March 24, 1999
Quality Semiconductor, Inc.
851 Martin Avenue
Santa Clara, CA 95050
Ladies and Gentlemen:
We have acted as counsel for Quality Semiconductor, Inc., a California
corporation (the "Company"), in connection with the preparation and execution of
the Agreement and Plan of Merger dated as of November 1, 1998, by and among the
Company, Integrated Device Technology, Inc., a Delaware corporation ("Parent"),
and Penguin Acquisition, Inc., a California corporation and a wholly owned
subsidiary of Parent ("Merger Sub"). Pursuant to the Agreement, Merger Sub will
merge with and into the Company (the "Merger"), and the Company will become a
wholly owned subsidiary of Parent. Unless otherwise defined, capitalized terms
referred to herein have the meanings set forth in the Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger. In delivering this opinion, we have
reviewed and relied upon (without any independent investigation) the facts,
statements, descriptions and representations set forth in the Agreement
(including Exhibits), the registration statement on Form S-4 filed with the
Securities and Exchange Commission (which includes a proxy statement-prospectus
relating to the Merger) (the "Registration Statement"), and such other documents
pertaining to the Merger as we have deemed necessary or appropriate. We have
also relied upon (without any independent investigation) certificates of
officers of Parent, Merger Sub and the Company, respectively (the "Officers'
Certificates") in forms attached hereto as Exhibits A and B.
In connection with rendering this opinion, we have obtained representations
and are relying thereon (without any independent investigation or review
thereof) that:
1. Neither Parent nor a person related to Parent (within the meaning of
Treas. Reg. Section 1.368-1(e)(3)) will redeem nor acquire any of the Parent
Common Stock issued in the transaction or acquire any Company stock prior to the
transaction, other than possible repurchases of unvested stock of employees,
directors and consultants in connection with termination of such employees,
directors and consultants, and other than pursuant to Parent's previously
adopted share repurchase plan whereby the company is permitted to purchase up to
10
<PAGE> 2
Quality Semiconductor, Inc.
March 24, 1999
Page 2
million shares of Parent Common Stock (approximately 12 percent of its
outstanding shares) in open market transactions.
2. Following the Merger, the Company will hold at least 90 percent of the
fair market value of its and Merger Sub's net assets, and at least 70 percent of
the fair market value of its and Merger Sub's gross assets such that it will
hold substantially all of its and Merger Sub's assets within the meaning of ss.
368(a)(2)(E)(i) of the Code and the Treasury regulations promulgated thereunder
and will continue its historic business or use a significant portion of its
historic business assets in a business.
3. No Company shareholder has guaranteed or will guarantee any Company
indebtedness outstanding during the period immediately prior to the Merger.
4. None of the Company, Parent, or Merger Sub is, or will be at the time
of the Merger, an investment company as defined in ss. 368(a)(2)(F) of the Code.
In addition, in connection with rendering this opinion, we have also
assumed (without any independent investigation) that:
1. To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treas. Reg. ss. 1.368-1(c) with respect to
the Merger) are funded directly or indirectly by a party other than the
incurring party, such expenses will be reorganization expenses within the
guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187.
2. At all relevant times prior to and including the Effective Date, (i)
no outstanding indebtedness of the Company, Parent, or Merger Sub has or will
represent equity for tax purposes; (ii) no outstanding equity of the Company,
Parent, or Merger Sub has represented or will represent indebtedness for tax
purposes; (iii) no outstanding security, instrument, agreement or arrangement
that provides for, contains, or represents either a right to acquire the
Company's capital stock (or to share in the appreciation thereof) constitutes or
will constitute "stock" for purposes of Section 368(c) of the Code.
3. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof.
4. Any representation or statement referred to above made "to the
knowledge of," "to the best of the knowledge" or otherwise similarly qualified
is correct without such qualification.
<PAGE> 3
Quality Semiconductor, Inc.
March 24, 1999
Page 3
As to all matters in which a person or entity making a representation referred
to above has represented that such person or entity either is not a party to,
does not have, or is not aware of, any plan, intention, understanding or
agreement, there is in fact no such plan, intention, understanding or agreement.
5. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us are true and correct in
all material respects and will continue to be true and correct in all material
respects as of the Effective Time and all other relevant times, and no actions
have been (or will be) taken which are inconsistent with such representations.
6. The Merger will be reported by Parent and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below.
7. The Merger will be consummated in accordance with the Agreement (and
without any waiver, breach or amendment of any of the provisions thereof) and
will be effective under the applicable state laws.
8. An opinion of counsel, substantially identical in substance to this
opinion, has been delivered to Parent from Fenwick & West LLP, and will not be
withdrawn prior to the Effective Date.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, and in
the S-4 Registration Statement we are of the opinion that if the Merger is
consummated in accordance with the provisions of the Agreement (and without any
waiver, breach or amendment of any of the provisions thereof) and the statements
set forth in the Officers' Certificates are true and correct as of the Effective
Time:
(a) the Merger will be a "reorganization" for federal income tax
purposes within the meaning of Section 368(a) of the Code;
(b) each of IDT, QSI and Merger Sub will be a "party to the
reorganization" within the meaning of Section 368(b) of the Code;
(c) no gain or loss will be recognized by QSI shareholders solely
upon their receipt of IDT common stock in the merger in exchange for QSI common
stock, except to the extent of cash received in lieu of a fractional share; and
<PAGE> 4
Quality Semiconductor, Inc.
March 24, 1999
Page 4
(d) the disclosure of the material federal income tax consequences of
the Merger to QSI shareholders in the S-4 Registration Statement under the
heading "Material Federal Income Tax Considerations" is correct in all material
respects, subject to the limitations set forth therein.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures. Our
opinion is not binding upon the Internal Revenue Service or the courts, and
there is no assurance that the Internal Revenue Service will not successfully
assert a contrary position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of any
new developments in the application or interpretation of the federal income tax
laws.
This opinion concerning certain of the U.S. federal tax consequences of the
Merger is limited to the specific U.S. federal tax consequences presented
above and does not address any other federal, state, local or foreign tax
consequences that may result from the Merger or any other transaction (including
any transaction undertaken in connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or to any transaction whatsoever, including the
Merger, if all the transactions described in the Agreement are not consummated
in accordance with the terms of such Agreement and without waiver or breach of
any material provision thereof or if all of the representations, warranties,
statements and assumptions upon which we relied are not true and accurate at all
relevant times. In the event any one of the statements, representations,
warranties or assumptions upon which we have relied to issue this opinion is
incorrect, our opinion might be adversely affected and may not be relied upon.
We consent to the use of this opinion as an exhibit to the S-4 Registration
Statement, to references to this opinion in the S-4 Registration Statement and
to the use of our name in the S-4 Registration Statement under the heading
"Material Federal Income Tax Consequences" therein. In giving this consent, we
do not admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
or regulations promulgated thereunder. The filing of this opinion as an exhibit
to the S-4 Registration Statement and the references to the opinion and our firm
therein are not intended to create liability under applicable state law to any
person other than the Company and Merger Sub, our clients.
Very truly yours,
VENTURE LAW GROUP
A Professional Corporation
/s/ VENTURE LAW GROUP
<PAGE> 1
Exhibit 10.27
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
by and between
Integrated Device Technology, Inc.
("Seller")
and
Cadence Design Systems, Inc.
("Buyer")
December 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. PURCHASE AND SALE OF PROPERTY........................................................1
1.1 Purchase and Sale.............................................................1
1.2 Description of Property.......................................................2
2. PURCHASE PRICE.......................................................................2
2.1 Amount........................................................................2
2.2 Deposit.......................................................................2
3. BUYER'S CONTINGENCIES................................................................3
3.1 Initial Contingencies.........................................................3
3.2 Decommissioning Contingency...................................................6
3.3 Buyer Improvements During Decommissioning Contingency Period.................10
3.4 Dispute Resolution...........................................................11
4. CONDITIONS TO CLOSING...............................................................12
4.1 Buyer's Closing Conditions...................................................12
4.2 Buyer's Remedies.............................................................13
4.3 Seller's Closing Conditions..................................................14
4.4 Seller's Remedies............................................................14
4.5 Liquidated Damages...........................................................15
5. SELLER'S COVENANTS AND AGREEMENTS...................................................16
5.1 Other Contracts..............................................................16
5.2 Mechanic's Liens.............................................................16
5.3 Existing Service Contracts...................................................16
5.4 Access to Property...........................................................16
6. REPRESENTATIONS AND WARRANTIES......................................................16
6.1 Seller's Representations and Warranties......................................17
6.2 Seller's Knowledge...........................................................19
6.3 Seller's Indemnification Against Breaches by Seller..........................19
6.4 Seller's Indemnification Regarding Hazardous Materials.......................19
6.5 Buyer's Representations and Warranties.......................................20
6.6 Survival.....................................................................20
7. CLOSING.............................................................................20
7.1 Escrow.......................................................................20
7.2 Closing......................................................................20
7.3 Seller's Closing Obligations.................................................21
7.4 Buyer's Closing Obligations..................................................22
7.5 Close of Escrow..............................................................22
7.6 Termination of Escrow........................................................22
7.7 Possession...................................................................22
7.8 Prorations...................................................................22
7.9 Closing Costs................................................................23
7.10 Commissions..................................................................23
7.11 Parties to Bear Own Expenses.................................................24
7.12 Acceptance of Title..........................................................24
8. RISK OF LOSS........................................................................24
8.1 Condemnation.................................................................24
8.2 Damage and Destruction.......................................................24
9. MISCELLANEOUS.......................................................................24
9.1 Definitions of Environmental Laws and Hazardous Material.....................24
9.2 Assignment; Binding Effect...................................................25
9.3 Severability.................................................................26
9.4 Entire Understanding.........................................................26
9.5 Amendments...................................................................26
9.6 California Law...............................................................26
9.7 Waiver.......................................................................26
9.8 Notices......................................................................26
9.9 Captions.....................................................................28
9.10 Exhibits.....................................................................28
9.11 Time of the Essence..........................................................28
9.12 Additional Cooperation.......................................................28
9.13 Confidentiality..............................................................28
9.14 Counterparts.................................................................28
9.15 Survival.....................................................................28
9.16 Extensions for Holidays......................................................28
</TABLE>
<PAGE> 3
TABLE OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT INTRODUCED
IN SECTION
<S> <C> <C>
Exhibit A Description of the Land Recital A
Exhibit B Grant Deed 1.2(b)
Exhibit C Access Agreement 3.1(d)
Exhibit D Regulatory Closure Plan 3.2(b)
Exhibit E IDT Building Condition/Statement of General 3.2(b)
Understanding
Exhibit F Architectural and MEP Plans 3.2(b)
</TABLE>
i
<PAGE> 4
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
This Purchase and Sale Agreement and Joint Escrow Instructions (the
"Agreement"), dated as of December 15, 1998 (the "Effective Date"), is made
between Integrated Device Technology, Inc., a Delaware corporation ("Seller"),
and Cadence Design Systems, Inc., a Delaware corporation ("Buyer").
RECITALS
A. Seller is the owner of certain real property located at 2670 Seely
Rd. in the City of San Jose ("City"), County of Santa Clara ("County"), State of
California ("State"), Assessor's Parcel No. 097-15-028, which consists of
approximately 9.23 acres of land (the "Land") improved with a two-story building
containing approximately 136,602 square feet (the "Building"). The Land is more
particularly described in Exhibit A attached hereto. As used herein, references
to the "Property" refer to the Land and the Building, together with the
Improvements and the Appurtenances (as defined in Section 1.2 below).
B. The Property is currently used by Seller as a semiconductor chip
wafer manufacturing plant, and the Building contains equipment (including both
fixtures and personal property) consistent with this use.
C. Seller desires to sell and Buyer desires to purchase the Property
after all manufacturing and other equipment has been removed therefrom and
Seller has decommissioned the Property as a semiconductor chip wafer
manufacturing plant as described below. Seller and Buyer intend that the
Building at Closing shall consist of a "warm shell" suitable for use as a
flex-office building with base building utilities, electrical, sprinkler,
plumbing and other such systems intact.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Seller and Buyer agree as follows:
1. PURCHASE AND SALE OF PROPERTY
1
<PAGE> 5
1.1 Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement, Seller shall sell to Buyer, and Buyer shall purchase from
Seller, the Property at the Closing (as defined in Section 7.2(a)).
1.2 Description of Property. The Property includes, in addition to the
Land and the Building as described in Recital A above, all of the following:
(a) Improvements. All improvements which are now located on the
Land other than fixtures in the Building which Seller is required to remove
therefrom as part of the Decommissioning (as defined in Section 3.2(a))
("Improvements"). Except as otherwise expressly stated, or as required by the
context, references to Improvements shall include the Building.
(b) Appurtenances. The interest of Seller in all rights,
privileges and easements appurtenant to the Land and Improvements, including all
minerals, oil, gas and other hydrocarbon substances on and under the Land, as
well as all development rights, air rights, water, water rights and water stock
relating to the Land and Improvements and any other easements, rights-of-way or
appurtenances used in connection with the beneficial use or enjoyment of the
Land and Improvements and, to the extent that they relate to the Land and
Improvements, all of Seller's rights, easements or other interests, if any, in
and to adjacent streets, alleys and rights-of-way, and water and sewer taps,
sanitary or storm sewer capacity or reservations and rights under utility
agreements with any applicable governmental or quasi-governmental entities or
agencies with respect to the providing of utility services to the Land
(excluding, however, termination of permits necessary for the operation of the
Improvements as a semiconductor chip wafer manufacturing plant) (collectively,
the "Appurtenances"). The Property shall be transferred to Buyer at the Closing
pursuant to a grant deed in the form of Exhibit B (the "Grant Deed").
2. PURCHASE PRICE
2.1 Amount. The purchase price for the Property (the "Purchase Price")
shall be Twenty-Seven Million Five Hundred Thousand Dollars ($27,500,000.00).
2.2 Deposit. Upon the full execution of this Agreement by the parties,
Buyer shall deliver to Chicago Title Insurance Company, Attn: Bill Magleby, 110
West Taylor St., San Jose, CA 95106 (the "Escrow Holder") cash in the amount of
Five Hundred Fifty Thousand Dollars ($550,000) (the "Initial Deposit"). In
addition, if Buyer's Initial Contingencies (as defined in Section 3.1) are
satisfied or waived during the Initial Contingency Period (as defined in Section
3.1), Buyer shall deliver to Escrow Holder an additional Nine Million
Seventy-Five Thousand Dollars ($9,075,000) (the "Additional Deposit") within two
(2) business days after the last of the Initial Contingencies has been waived or
satisfied. The Initial Deposit and Additional Deposit (when and if made),
together with all interest thereon, are collectively
2
<PAGE> 6
called the "Deposit." The Deposit shall be deposited by the Escrow Holder in an
escrow account at a bank and invested in investments, approved by Buyer and
Seller, whose approval shall not be unreasonably withheld. The Deposit shall be
(1) paid to Seller at Closing as a portion of the Purchase Price, (2) paid to
Seller as liquidated damages pursuant to Section 4.5, (3) returned to Buyer in
the event of Seller's breach in accordance with Section 4.2(b), the failure of
any Initial Contingency in accordance with Section 3.1, the failure of the
Decommissioning Contingency in accordance with Section 3.2 or the failure of
Buyer's Closing Conditions in accordance with Section 4.1, or (4) returned to
Buyer in the event Buyer terminates this Agreement pursuant to Section 8.1.
3. BUYER'S CONTINGENCIES
3.1 Initial Contingencies. Buyer's obligation to purchase the Property
is expressly conditioned on the matters ("Initial Contingencies") described in
this Section 3.1. Buyer shall deliver written notice to Seller that it (a)
approves or waives the Initial Contingencies or (b) disapproves the Initial
Contingencies, on or before 5:00 p.m. (California time) on the day that is
thirty (30) days after the Effective Date (the "Initial Contingency Date"), with
the period from the Effective Date to the Initial Contingency Date being the
"Initial Contingency Period".
(a) Title Matters
(i) ALTA Survey and Preliminary Report
(A) Buyer has obtained a preliminary report for the
Land dated as of August 28, 1998 ("Preliminary Report") from the Escrow Holder.
Buyer shall obtain a survey of the Land meeting the requirements for issuance of
an American Land Title Association policy of insurance ("ALTA Survey") at
Buyer's sole cost and expense during the Initial Contingency Period. It shall be
an Initial Contingency that Buyer approve the condition of title as reflected by
the ALTA Survey and the Preliminary Report.
(B) By 5:00 p.m. (California time) on the day which
is twenty (20) days after the Effective Date, Buyer shall review and inform
Seller of its approval or disapproval of title by giving Seller notice ("Buyer's
Title Notice") of any objection to the Preliminary Report or the ALTA Survey
(the "Title Objections"). Buyer shall review title in its sole discretion.
Buyer's Title Notice also shall identify such endorsements ("Required
Endorsements") as Buyer will require to be included in the Title Policy (as
defined in Section 4.1(a)). If Buyer fails timely to deliver Buyer's Title
Notice, Buyer shall be deemed to have approved the condition of title.
(C) If Buyer timely delivers Buyer's Title Notice,
then, by 5:00 p.m. (California time) on the day which is five (5) days after
receipt of Buyer's Title Notice ("Seller's Notice Period"), Seller shall notify
Buyer in writing whether Seller will eliminate or
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cure any Title Objections and/or whether Seller objects to any of Buyer's
Required Endorsements (the "Seller's Title Notice"). If Seller elects to
eliminate or cure one or more Title Objections, the elimination or curing by
Seller of the Title Objections shall be completed on or before the Closing. If
Seller elects to eliminate or cure a Title Objection but fails to do so by the
Closing, Buyer may pursue its remedies pursuant to Section 4.2 and the Deposit
and Additional Deposit shall be refunded.
(D) If Seller (1) does not deliver timely Seller's
Title Notice within Seller's Notice Period, or (2) notifies Buyer that Seller is
unable or unwilling to cure the Title Objections and/or that Seller objects to
any of the Required Endorsements, Buyer shall elect in its sole and absolute
discretion by 5:00 p.m. (California time) on the day which is five (5) days
after receipt of Seller's Title Notice (or, if Seller has failed to give
Seller's Title Notice, by 5:00 p.m. (California time) on the day five (5) days
after the expiration of Seller's Notice Period) either to waive such existing
Title Objections and/or Required Endorsements or deliver to Seller written
notice terminating this Agreement pursuant to Section 4.2(a). If Buyer fails to
give Seller notice of its election within the required period, Buyer shall be
deemed to have elected to waive such existing Title Objections and/or Required
Endorsements.
(ii) Additional Title Objections
(A) If, after issuance of Buyer's Title Notice,
Buyer receives notice from the Escrow Holder that it intends to revise the
Preliminary Report to include one or more additional exceptions to title, Buyer
may, within five (5) days of such notice, notify Seller ("Buyer's Amended Title
Notice") of the additional title exceptions to which it objects ("Additional
Title Objections"), provided, however, that (i) Buyer may object only if Buyer
reasonably determines that the exceptions materially and adversely affect the
use, value and enjoyment of the Property for Buyer's contemplated use and (ii)
the Additional Title Objections shall not include any matter approved by Buyer
pursuant to Section 3.1(a) (i). If Buyer fails to deliver timely notice within
the required period, Buyer shall be deemed to have approved the additional title
exceptions.
(B) Seller shall have the shorter of five (5) days
after Buyer's Amended Title Notice, or until two (2) days before the Closing
Date (as defined in Section 7.2(b)), within which to deliver to Buyer a notice
("Seller's Additional Title Notice") indicating whether Seller will eliminate or
cure such Additional Title Objections by the Closing. If Seller elects to
eliminate or cure an Additional Title Objection, the elimination or curing by
Seller of the Additional Title Objections shall be completed on or before the
Closing. If Seller elects to eliminate or cure a Title Objection but fails to do
so by the Closing, Buyer may pursue its remedies pursuant to Section 4.2. Seller
may cure Additional Title Objections relating to mechanic's liens arising from
the Decommissioning of the Property by posting a mechanic's lien release bond.
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(C) If Seller (1) does not deliver such Seller's
Additional Title Notice within the required time, or (2) notifies Buyer that
Seller is unable or unwilling to cure such Additional Title Objections, Buyer
shall have the lesser of three (3) days or until one (1) day before the Closing
to elect to waive such Additional Title Objections or deliver to Seller written
notice terminating this Agreement pursuant to Section 4.2(a). If Buyer fails to
give Seller notice of its election within the time set forth in the previous
sentence, Buyer shall be deemed to have elected to waive such Additional Title
Objections.
(iii) Permitted Exceptions. The term "Permitted
Exceptions" shall mean (i) the exceptions to title set forth on the Preliminary
Report and approved or deemed approved by Buyer; (ii) all matters shown on the
Survey unless objected to in Buyer's Title Notice or Buyer's Amended Title
Notice and cured by Seller; (iii) subsequent or revised non-delinquent
installments of taxes and assessments referred to in the Preliminary Report; and
(iv) any matter that is caused by Buyer, its employees, agents, representatives
or affiliates (including, without limitation, any matter arising out of Buyer's
performance of improvements on the Property in accordance with Section 3.3). The
standard printed exceptions that are deleted in an extended coverage policy
shall be Permitted Exceptions solely for purposes of the Preliminary Report.
(iv) Monetary Liens. Notwithstanding the foregoing, Seller
shall eliminate any and all title exceptions consisting of mechanics liens,
judgment liens, delinquent tax liens and/or loans secured by mortgages, deeds of
trust, security agreements or fixture filings, other than those caused or
permitted by Buyer, its employees, agents, representatives or affiliates.
(b) Environmental Review. It shall be an Initial Contingency that
Buyer investigate and approve, in its sole and absolute discretion, the
environmental condition of the Property, including the presence of Hazardous
Material (as defined in Section 9.1(b)) on the Property, and the results of all
tests, inspections, investigations and studies regarding the Property that Buyer
may elect, in its sole discretion, to obtain.
(c) Physical Inspection. It shall be an Initial Contingency that
Buyer investigate and approve, in its sole and absolute discretion, the soils,
location, access and the structural and physical condition of the Property.
(d) Books and Records. Within five (5) days after the Effective
Date, Seller shall deliver to Buyer at the address listed in Section 9.8, or
make available at the Property for inspection and copying by Buyer or Buyer's
authorized agents, originals or true and correct copies of all surveys,
subdivision applications, agreements, contracts, property tax bills for the past
three years, plans, construction drawings, licenses, permits, insurance policies
and other documents relating to or concerning the Property (the "Books and
Records") in Seller's possession, and Seller shall use its best efforts to
deliver to Buyer or make available at the Property for inspection and copying by
Buyer or Buyer's authorized agents within ten (10) days after the Effective
Date, originals or true and correct copies of all Books and Records not
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in Seller's possession but under Seller's control. The Books and Records shall
exclude all materials that are confidential communications between Seller and
its attorneys, the work product of Seller's attorneys, and Seller's internal
financial documents regarding the Property. Seller also shall make available for
interview(s) by Buyer and Buyer's authorized agents those personnel of Seller
who are responsible for the maintenance and operation of the Property,
including, without limitation, compliance with Environmental Laws (as defined in
Section 9.1(a)) affecting the Property. It shall be an Initial Contingency that
Buyer review and approve, in its sole and absolute discretion, the Books and
Records and the data gained through interviews with Seller's personnel. Access
to, and review and use of, the Books and Records and data gained through
interviews shall be subject to the terms and conditions of that certain Access
and Confidentiality Agreement dated as of November 25, 1998 between Seller and
Buyer (the "Access Agreement"), a copy of which is attached hereto as Exhibit C.
(e) Governmental Requirements. It shall be an Initial Contingency
that Buyer review and approve, in its sole and absolute discretion, all
operative or proposed governmental laws and regulations to which the Property
is, or may be, subject and that Buyer obtain or approve such permits,
entitlements, rezoning, agreements and assurances from the City as Buyer, in its
sole discretion, may require.
(f) Economic Analysis. It shall be an Initial Contingency that
Buyer review and approve, in its sole and absolute discretion, all economic,
financial and accounting matters relating to or affecting the Property or its
value, including without limitation the costs of converting the Property for use
as an office building.
(g) Disapproval of Initial Contingencies. If Buyer disapproves
any Initial Contingency, or if Buyer fails to deposit timely the Additional
Deposit in accordance with Section 2.2 despite having duly approved or waived
the Initial Contingencies, this Agreement will automatically terminate, and
thereafter the parties shall have no further obligation or liability under this
Agreement other than Buyer's indemnity obligation contained in Section 5.4, the
confidentiality provisions of Section 9.13, Buyer's obligations under the Access
Agreement, and as otherwise provided in this Section 3.1(g). Subject to Buyer's
remedies for Seller's default under Section 4.2, the Deposit shall be returned
to Buyer. Any cancellation fee or other costs of the Escrow Holder shall be
borne equally by Seller and Buyer and each party shall pay its own expenses.
3.2 Decommissioning Contingency. Buyer's obligation to purchase the
Property is further expressly conditioned on the matters described in this
Section 3.2 (collectively, "Decommissioning Contingency"). Buyer shall deliver
written notice to Seller that it (a) approves or waives the Decommissioning
Contingency or (b) disapproves the Decommissioning Contingency (which
disapproval may be given only in accordance with Section 3.2(i)) on or before
5:00 p.m. (California time) on the date which is thirty (30) days after receipt
of Seller's Decommission Notice (as defined in Section 3.2(g)) (the
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"Decommissioning Contingency Date"), with the period from the date on which
Buyer delivers the Additional Deposit to Escrow Holder to the Decommissioning
Contingency Date being the "Decommissioning Contingency Period".
(a) Decommissioning of Property. Seller shall decommission the
Property as a semiconductor chip wafer manufacturing facility ("Decommission" or
"Decommissioning") at its sole cost and expense, and Seller shall use all
reasonable efforts to complete the Decommissioning on or before April 12, 1998
(the "Decommissioning Completion Deadline"). The Decommissioning Completion
Deadline may be extended with Buyer's prior written approval, which approval
shall not be unreasonably withheld. The purpose of the Decommissioning shall be
to remove from the Property all manufacturing and other equipment associated
with the Property's use as a semiconductor chip wafer manufacturing facility, to
remove or remediate all Hazardous Material associated therewith in accordance
with applicable Environmental Laws, and to convert the Building into a "warm
shell" consisting of core, shell and base building utilities (including without
limitation the electrical, sprinkler, plumbing, mechanical and other base
building systems), all as more particularly set forth in the Closure Plan as
defined in Section 3.2(b), and the scope of work set forth in the Closure Plan
shall take precedence over the generalized description of the Decommissioning
set forth in this Section 3.2(a).
(b) Closure Plan. Seller has prepared and Buyer has approved the
Regulatory Closure Plan that is attached as Exhibit D to this Agreement. Buyer
and Seller jointly have prepared the document entitled IDT Building
Condition/Statement of General Understanding that is attached as Exhibit E to
this Agreement. Buyer and Seller also have jointly marked copies of the
Building's Architectural and MEP Plans to further identify changes to the
Building that are part of the Decommissioning, and these marked plans consisting
of six separate sheets executed on behalf of Buyer and Seller on December 4,
1998 are attached as Exhibit F to this Agreement. The items attached to this
Agreement as Exhibit D, Exhibit E and Exhibit F are collectively referred to
herein as the "Closure Plan." The Closure Plan encompasses activities required
by certain Environmental Laws applicable to the decommissioning of a
semiconductor chip wafer fabrication facility (the "Mandated Activities"), which
will be subject to approval by governmental agencies and authorities that are
responsible for assuring compliance with such Environmental Laws (the
"Responsible Agencies"). Additionally, the Closure Plan encompasses activities
beyond the Mandated Activities which have been agreed upon by Seller and Buyer
(the "Additional Activities"). From and after the Effective Date, no changes may
be made to the Closure Plan except for: (i) modifications to the Mandated
Activities which are required by the Responsible Agencies and are either (A)
immaterial, in that such changes pose no detriment to Buyer, or (B) have the
effect of enlarging, rather than diminishing, Seller's scope of work in
connection with the Decommissioning; and (ii) modifications to the Additional
Activities which are approved by Buyer in the exercise of Buyer's commercially
reasonable judgment. Buyer shall deliver to Seller written notice approving or
disapproving of any modification to the Closure Plan
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described in clause (ii) above within five (5) business days after Seller
delivers to Buyer a written request describing in reasonable detail the nature
of such modification. Buyer's failure to deliver to Seller written notice
disapproving such modification within such five (5) business day period shall be
conclusively deemed Buyer's approval thereof. In the event of any dispute
concerning or relating to whether or not Buyer's disapproval of any such
modification is reasonable, such dispute shall be resolved by binding
arbitration in accordance with the provisions of Section 3.4. References
elsewhere in this Agreement to the Closure Plan shall mean the Closure Plan and
such modifications thereto as are authorized by this Section 3.2(b).
(c) Performance of Decommissioning. In all events, the scope of
work for the Decommissioning shall include, without limitation, the remediation
of any Hazardous Material and corrections of any violations and threatened
violations of any Environmental Laws relating to the Property that may be
identified prior to or discovered during the Decommissioning, whether
preexisting or caused by the Decommissioning or otherwise occurring after the
Initial Contingency Period and prior to the Closing, excluding only such
Hazardous Material and violations of Environmental Laws that are demonstrated to
Buyer's reasonable satisfaction to have been present on or affecting the
Property prior to Seller's acquisition of the Property. Buyer hereby agrees that
all Hazardous Material and violations of Environmental Laws described in that
certain Environmental Property Assessment, prepared by Cummings Environmental,
dated March 26, 1990, were present on or affected the Property prior to Seller's
acquisition of the Property.
(d) Evidence of Completion. Subject to the provisions of Section
3.2(i), Seller's obligation to complete the Decommissioning shall be satisfied
when Seller has performed the scope of work set forth in the Closure Plan in all
material respects, and has delivered to Buyer the following documents evidencing
satisfactory closure of Seller's semiconductor chip wafer manufacturing
facility: (i) copies of each of Seller's permit submittals and notifications to
the San Jose Fire Department, the Santa Clara County Environmental Resources
Agency Department of Environmental Health ("DEH"), the California Department of
Toxic Substances Control, the Environmental Protection Agency, the Bay Area Air
Quality Management District, and the City of San Jose Department of Water
Pollution Control; (ii) the written certification by Seller's consulting
Professional Engineer, PES Environmental, Inc. ("PES") to the San Jose Fire
Department that Seller's semiconductor chip wafer manufacturing facility has
been closed in compliance with the Regulatory Closure Plan; (iii) a report
issued by PES containing all data obtained relative to all soil and groundwater
sampling of the Property conducted by Seller, PES or any other consultant on
behalf of Seller; (iv) the San Jose Fire Department's written acknowledgment
that Seller's semiconductor chip wafer manufacturing facility has been closed in
accordance with the Regulatory Closure Plan, together with any related report
issued by the San Jose Fire Department; and (v) the California Department of
Toxic Substances Control's and/or DEH's written acknowledgment that all
permitted units over which it has jurisdiction have been closed in accordance
with the Regulatory Closure Plan (collectively, the "Responsible Agencies'
Approvals"). Notwithstanding the foregoing, Seller
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shall not be obligated to deliver the acknowledgments described in Sections
3.2(d)(iv) and 3.2(d)(v) and such acknowledgments shall be excluded from the
Responsible Agencies' Approvals if it is not the standard practice of the San
Jose Fire Department, the California Department of Toxic Substances Control or
DEH, respectively, at the time of Seller's request to issue such documentation,
and under such circumstances Seller's obligation to complete the Decommissioning
shall be satisfied if Seller has performed the scope of work set forth in the
Closure Plan in all material respects and has delivered to Buyer the documents
described in Sections 3.2(d)(i)-(iii),
(e) Compliance With Laws. In completing the Decommissioning,
Seller shall comply in all material respects with all applicable federal, state
and local laws (whether under common law, statute, rule, ordinance, agreement,
regulation or otherwise), including without limitation all Environmental Laws.
(f) Buyer's Observation. Seller and Buyer acknowledge that it is
Buyer's intention to cause Buyer's consultant, Erler & Kalinowski, Inc., to
prepare a report upon delivery of the Decommission Notice as defined in Section
3.2 (g) assessing the Decommissioning work, including without limitation the
site conditions encountered and the remediation measures implemented in the
course thereof. Seller shall keep Buyer informed of the work schedule for the
Decommissioning, and shall permit Buyer's designated representatives to observe
the Decommissioning work (provided that Buyer's representatives comply with
Seller's construction safety rules and regulations and do not unreasonably
interfere with the Decommissioning work) and to confer with any contractors
performing the Decommissioning work, subject to Buyer's indemnity as provided in
Section 5.4. In addition, Buyer at its option shall be entitled to have its
designated representatives make test borings on the Property during the
Decommissioning Contingency Period subject to compliance with Seller's
construction safety rules, Buyer's indemnity as provided in Section 5.4, and the
Access Agreement, and provided that such representatives do not unreasonably
interfere with the Decommissioning work.
(g) Seller's Notice of Completion. On or before the
Decommissioning Completion Deadline, Seller shall deliver notice to Buyer that
the Decommissioning has been completed as described in Section 3.2(a) (the
"Decommission Notice"). The Decommission Notice shall be accompanied by the
Responsible Agencies' Approvals.
(h) Buyer's Additional Environmental Due Diligence. Between the
date of Seller's delivery of the Decommission Notice and the Decommissioning
Contingency Date, Buyer may inspect the Property to confirm that Seller has
performed the work set forth in the Closure Plan in all material respects as
provided herein, and may in Buyer's sole discretion conduct an additional
investigation of the environmental condition of the Property. It is the intent
of Buyer and Seller that Buyer have sufficient time during this period to
complete a Phase II environmental survey of the Property and other appropriate
investigations to (i) verify
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remediation of any Hazardous Material conditions arising from or discovered
during the Decommissioning, and (ii) to confirm that there are no Hazardous
Material conditions on or otherwise affecting the Property that were not known
to Buyer at the conclusion of the Initial Contingency Period, other than
Hazardous Material conditions that Buyer or its consultants discovered, or in
the exercise of reasonable diligence should have discovered, during the Initial
Contingency Period (the "Additional Environmental Investigation"). Buyer agrees
to diligently pursue such Additional Environmental Investigation. However, if
for reasons outside Buyer's control Buyer is unable to complete such Additional
Environmental Investigation within thirty (30) days of delivery of Seller's
Decommission Notice, the Decommissioning Contingency Date shall be extended for
such additional time (but in no event more than an additional thirty (30) days)
as is reasonably required to permit completion of the Additional Environmental
Investigation in the exercise of due diligence.
(i) Approval of Decommissioning Contingency. Buyer shall approve
or disapprove the Decommissioning Contingency in writing during the
Decommissioning Contingency Period. Buyer's failure to give notice of approval
or disapproval of the Decommissioning Contingency by the end of the
Decommissioning Contingency Period shall be conclusively deemed to be Buyer's
approval of the Decommission Contingency. Buyer may disapprove the
Decommissioning Contingency only if the Decommissioning has not been completed
in accordance with the Closure Plan in all material respects, or if Buyer
reasonably disapproves of any Hazardous Material condition on or affecting the
Property that was not known to or reasonably discoverable by Buyer or its
consultants during the Initial Contingency Period.
If Buyer gives timely notice disapproving the Decommissioning
Contingency ("Decommissioning Disapproval Notice"), Buyer shall specify in the
Decommissioning Disapproval Notice in reasonable detail the reasons and bases
for such disapproval (including, without limitation, the evidence that the
Decommissioning work has not been properly completed in accordance with this
Agreement) and all corrective or additional work Buyer reasonably requires for
satisfaction of the Decommissioning Contingency. Within five (5) business days
after receipt of the Decommissioning Disapproval Notice, Seller shall, by
written notice to Buyer, either: (i) undertake to complete such corrective or
additional work within a reasonable period of time (but in no event to exceed
eighteen (18) months from the date of Seller's receipt of the Decommissioning
Disapproval Notice); or (ii) dispute the corrective or additional work specified
in the Decommissioning Disapproval Notice on the grounds that (A) it is outside
the scope of work of the Decommissioning, or (B) it pertains to a Hazardous
Material condition on or affecting the Property (1) which was known to or
reasonably discoverable by Buyer or its consultants during the Initial
Contingency Period, or (2) as to which Buyer has no reasonable basis for
objecting. If Seller delivers a notice under clause (i) of the preceding
sentence, the Closing Date shall be extended until that date which is seven (7)
days after Seller demonstrates, to Buyer's reasonable satisfaction, that Seller
has completed in all material respects all corrective or additional work
required by Buyer's
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Decommissioning Disapproval Notice; and if Seller delivers a
notice under clause (ii) of the preceding sentence, the dispute shall be
resolved in accordance with the dispute resolution provisions in Section 3.4 of
this Agreement.
In no event shall Seller be in default of or in breach of this Agreement
for failure to complete the Decommissioning work unless and until either Seller
fails to complete in all material respects, within the eighteen (18) month
maximum period described above, the corrective or additional work that Seller
has undertaken to perform in accordance with clause (i) above, or an arbitrator
engaged to resolve a dispute between the parties under Section 3.4 has
determined that Seller must perform additional work and Seller has failed to
perform such work in all material respects within the later of (i) eighteen (18)
months after the date of Seller's receipt of the Decommissioning Disapproval
Notice or (ii) sixty (60) days after the arbitrator has issued such
determination.
3.3 Buyer Improvements During Decommissioning Contingency Period. Seller
anticipates that it will vacate between 40,000 and 60,000 square feet of open
office area located in that portion of the Building classified for occupancy
purposes as "B-2" under the Uniform Building Code (the "B-2 Space") before
December 31, 1998. In the event that the B-2 Space is vacated in part or in
whole during the Decommissioning Contingency Period, Buyer and Buyer's
representatives, consultants and contractors shall have access to such vacated
B-2 Space for the purpose of performing such improvements therein as may be
desirable for Buyer's intended use of the Property; provided, however, that as a
condition precedent to the exercise of Buyer's rights under this Section 3.3,
(a) Buyer shall deliver to Seller and Seller shall approve in writing (such
approval not to be unreasonably withheld or delayed) a written description of
the improvements to be performed; and (b) Buyer shall defend, indemnify and hold
Seller harmless from all claims (including claims of lien for work or labor
performed or materials or supplies furnished at Buyer's direction), demands,
liabilities, damages and expenses, including Seller's reasonable attorneys'
fees, costs and expenses, arising out of Buyer's entry onto and/or activities
in, on or about the Property as permitted under this Section 3.3. Buyer's work
under this Section 3.3 shall not unreasonably interfere with or disturb Seller's
employees in the Building. Buyer shall not be entitled to any compensation for
the value of any improvements made by Buyer in accordance with this Section 3.3,
and all such improvements shall become the property of Seller, in the event the
transaction described in this Agreement is not consummated.
3.4 Dispute Resolution. In the event of a controversy, dispute or claim
arising out of, from or relating to Seller's obligation to perform the work set
forth in the Closure Plan or Buyer's approval rights thereof pursuant to Section
3.2(i) (collectively, a "Dispute"), the parties' appointed representatives (the
"Designated Representatives") shall meet as often as reasonably possible (either
in person or by telephone) during the five (5) day period commencing on the date
that either party delivers to the other written notice of a Dispute to attempt
to resolve the Dispute in good faith. The Designated Representatives shall make
every
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effort jointly to reach a resolution of the Dispute. Seller's Designated
Representative shall be Alan F. Krock, and Buyer's Designated Representative
shall be John Bruno. Either party may change its Designated Representative by
delivering to the other party written notice of the new Designated
Representative. If the Designated Representatives are unable to resolve a
Dispute within that five (5) day period, either party may seek to resolve the
Dispute in accordance with Section 3.4(a) of this Agreement.
(a) Seller and Buyer agree that any Dispute which cannot be
resolved pursuant to the first paragraph of this Section 3.4 above shall be
settled at the request of any party to this Agreement by final and binding
arbitration conducted in the City and County of San Francisco, California,
administered by and in accordance with the Comprehensive Arbitration Rules and
Procedures of J.A.M.S./Endispute, or, if such rules no longer exist, the then
existing rules of practice and procedure of J.A.M.S./Endispute (both sets of
rules are collectively referred to as the "Rules of J.A.M.S./Endispute"), and
judgment upon any award rendered by the arbitrator may be entered by any state
or federal court having jurisdiction thereof. The single arbitrator shall be a
retired California or federal judge selected in accordance with the Rules of
J.A.M.S./Endispute. The arbitrator and not a jury will decide the Dispute. The
arbitrator shall be directed: (i) to require all testimony to be transcribed;
(ii) to require any award or decision to be accompanied by findings of fact and
a statement of reasons for such award or decision; (iii) not to award any
remedies available in court for breach of contract actions (including, without
limitation, damages) other than remedies (including damages) expressly set forth
in this Agreement and not vary the provisions of this Agreement; and (iv) to
allow reasonable discovery.
(b) The arbitrator shall determine the prevailing party and the
prevailing party of any Dispute submitted under this Section 3.4 shall be
entitled to recover out-of-pocket costs reasonably expended in the arbitration
proceeding (including the fees of J.A.M.S./Endispute) as well as in any
subsequent proceeding required to enforce the arbitration award, but each party
shall bear its own attorneys' fees.
(c) Except as otherwise required by law, the parties agree that
the arbitration procedure will be confidential, all conduct, statements,
promises, offers, views and opinions, oral or written, made during the
arbitration by any party or a party's agent, employee or attorney will remain
confidential and, where appropriate will be considered work product and
privileged, and the existence and the results of the arbitration will be
maintained by the parties and their respective agents, employees and attorneys
as confidential at all times.
(d) In the event that J.A.M.S./Endispute is no longer in
existence at the time that arbitration is requested, the Dispute shall be
submitted to arbitration in accordance with the rules and procedures of the
American Arbitration Association.
4. CONDITIONS TO CLOSING
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4.1 Buyer's Closing Conditions. Buyer's obligation to purchase the
Property is expressly conditioned on the satisfaction or written waiver of each
of the conditions precedent set forth in this Section 4.1 ("Buyer's Closing
Conditions"). Buyer's Closing Conditions are solely for Buyer's benefit and any
and all of Buyer's Closing Conditions may be waived in writing by Buyer in whole
or in part without prior notice. After the Closing, any Buyer's Closing
Condition that has not been satisfied shall be treated as having been waived in
writing. In the event that one or more of Buyer's Closing Conditions have not
been satisfied or waived in writing by Buyer prior to the scheduled Closing Date
as described in Section 7.2(b), upon Seller's delivery to Buyer of written
notice that Seller shall cause such Buyer's Closing Condition(s) to be
satisfied, the Closing Date shall be extended for such additional time (but not
to exceed ninety (90) days) as is reasonably required to permit Seller to
satisfy such Buyer's Closing Condition(s) in the exercise of due diligence.
(a) Title. Title to the Property shall be conveyed to Buyer by
Grant Deed subject only to the Permitted Exceptions. The Escrow Holder shall be
irrevocably and unconditionally committed to issue to Buyer an ALTA Extended
Coverage Owner's Policy (B-1970 form) insuring title to the Property in an
amount not exceeding the Purchase Price, subject only to the Permitted
Exceptions and the printed exclusions contained in such policy, together with
the Required Endorsements (the "Title Policy"). Except as provided in Section
5.2, indemnification of the Escrow Holder to induce it to insure any otherwise
unpermitted exception to title shall not be allowed except with the prior
written consent of Buyer after full disclosure to Buyer of the nature and
substance of such exception and indemnity, which consent shall not be
unreasonably withheld or delayed by Buyer for exceptions not material to
marketable title to the Property.
(b) Delivery of Closing Documents. Seller shall deliver through
Escrow the documents specified in Section 7.3.
(c) Representations and Warranties. Seller's representations and
warranties contained in Section 6.1 shall be true and correct in all material
respects when made and as of the Closing Date.
(d) Performance of Covenants. Seller shall have performed the
material covenants of Seller under this Agreement to be performed by Seller
before Closing.
(e) Adverse Actions. There shall exist no actions, suits,
arbitrations, claims, attachments, proceedings, assignments for the benefit of
creditors, insolvency, bankruptcy, reorganization or other proceedings, pending
or threatened against Seller or respecting the Property that would materially
and adversely affect Seller's ability to perform its obligations under this
Agreement or Buyer's title to the Property and there shall exist no pending or
threatened action, suit or proceeding with respect to Seller before or by any
court or administrative agency which seeks to restrain or prohibit, or to obtain
damages or a discovery
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order with respect to, this Agreement or the consummation of the transactions
contemplated hereby.
4.2 Buyer's Remedies
(a) Termination for Failure of Condition. If any of Buyer's
Closing Conditions is not satisfied, Buyer shall have the right, at its sole
election, either to waive the condition in question and proceed with the
purchase of the Property pursuant to all of the other terms of this Agreement,
reserving all of its other rights and remedies available to it under this
Agreement by reason of such failure of condition, or, in the alternative, to
terminate this Agreement upon giving notice of termination to Seller. Upon
termination under this Section 4.2(a), Seller and Buyer agree that Buyer shall
be entitled to immediate refund of the Deposit without offset for any charges or
claims, and each party shall bear its own expenses incurred in connection with
this Agreement.
(b) Termination Due to Seller's Breach. In the event of a
material default by Seller under any of its covenants, representations,
warranties or other obligations set forth in this Agreement, and if Seller does
not cure such default within five (5) days after notice is given by Buyer to
Seller specifying the basis for claiming the default and Buyer's intention to
invoke the provisions of this Section 4.2(b) (or within such other time period
as may be specified in this Agreement including, without limitation, Section
3.2(i)), Buyer may elect (i) nevertheless to proceed with the purchase of the
Property (it being expressly agreed that Buyer shall be entitled to specific
performance under this Agreement) or (ii) to terminate this Agreement by written
notice to Seller delivered on or before the later of one (1) business day before
the Closing Date or expiration of the applicable period to cure the default, and
upon such termination, Buyer shall be entitled to immediate refund of the
Deposit without offset for any charges or claims and be relieved of all further
obligations hereunder. If Buyer proceeds under clause (i) above, Buyer shall
retain the right to collect damages directly resulting from Seller's breach
including, without limitation, damages based upon the difference between the
value of the Property on the Closing Date in the absence of any breach by Seller
and the Purchase Price. However, Buyer shall not be entitled to recover (and
Buyer hereby waives) any consequential, indirect or special damages resulting
from Buyer's breach of this Agreement including, without limitation, lost
profits.
4.3 Seller's Closing Conditions. Seller's obligation to sell the
Property is expressly conditioned upon the satisfaction or written waiver by the
time periods described below of each of the conditions precedent set forth in
this Section 4.3 ("Seller's Closing Conditions"). Seller's Closing Conditions
are solely for Seller's benefit and any or all of Seller's Closing Conditions
may be waived in writing by Seller in whole or in part without prior notice.
(a) Waiver of Initial Contingencies. On or before 5:00 p.m.
Pacific Time on the Initial Contingency Date, Buyer shall have delivered to
Seller written notice approving or
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waiving all of the Initial Contingencies, and within two (2) business days
thereafter, Buyer shall have deposited the Additional Deposit in Escrow.
(b) Waiver of Decommissioning Contingency. Buyer shall have
delivered to Seller written notice approving or waiving the Decommissioning
Contingency before 5:00 p.m. Pacific Time on the last day of the Decommissioning
Contingency Period (as it may be extended).
(c) Delivery of Closing Documents and Funds. Buyer shall deliver
through Escrow the documents and funds specified in Section 7.4.
(d) Representations and Warranties. Buyer's representations and
warranties contained in Section 6.5 shall be true and correct when made and as
of the Closing Date.
(e) Performance of Covenants. Buyer shall have performed the
material covenants of Buyer under this Agreement.
4.4 Seller's Remedies
(a) Termination for Failure of Condition. If any of Seller's
Closing Conditions is not satisfied, Seller shall have the right, at its sole
election, either to waive the condition in question and proceed with the sale of
the Property pursuant to all of the other terms of this Agreement, reserving all
of its other rights and remedies available to it under this Agreement or
otherwise at law or in equity by reason of such failure of condition, or, in the
alternative, to terminate this Agreement upon giving notice of termination to
Buyer.
(b) Termination Due to Buyer's Breach. Notwithstanding anything
to the contrary elsewhere in this Agreement, in the event of a default by Buyer
of any of its covenants, representations, warranties or other obligations set
forth in this Agreement, and if Buyer does not cure such default within five (5)
days after notice is given by Seller to Buyer specifying the basis for claiming
the default and Seller's intention to invoke the provisions of Section 4.5,
Seller may elect to terminate this Agreement by written notice to Buyer
delivered on or before the later of Closing Date or expiration of the period
given under this Section 4.4(b) to cure the default, in which case Seller's
damages and remedies shall be governed by Section 4.5.
4.5 Liquidated Damages. IF THE CLOSING FAILS TO OCCUR BY REASON OF
DEFAULT OF BUYER UNDER THE TERMS OF THIS AGREEMENT, BUYER SHALL BE RESPONSIBLE
FOR ALL CANCELLATION CHARGES REQUIRED TO BE PAID TO ESCROW HOLDER AND ANY ESCROW
AND TITLE CHARGES. IN ADDITION, THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES SHALL TERMINATE AND THE DEPOSIT SHALL BE IMMEDIATELY DELIVERED BY
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ESCROW HOLDER TO SELLER ON SELLER'S REQUEST WITHOUT ANY FURTHER INSTRUCTIONS
FROM BUYER AND DESPITE ANY CONTRARY INSTRUCTIONS FROM BUYER. THE DEPOSIT SHALL
BE DEEMED LIQUIDATED DAMAGES FOR BUYER'S NONPERFORMANCE AS SELLER'S SOLE AND
EXCLUSIVE REMEDY AGAINST BUYER (INCLUDING, WITHOUT LIMITATION, SELLER'S RIGHTS
TO SEEK SPECIFIC PERFORMANCE OF THIS AGREEMENT AND TO RECEIVE DAMAGES) FOR
BUYER'S FAILURE TO PURCHASE THE PROPERTY, WHICH SUMS SHALL BE PRESUMED TO BE A
REASONABLE ESTIMATE OF THE AMOUNT OF ACTUAL DAMAGES SUSTAINED BY SELLER BY
REASON OF BUYER'S BREACH OF ITS OBLIGATION TO PURCHASE THE PROPERTY. FROM THE
NATURE OF THIS TRANSACTION, IT IS IMPRACTICABLE AND EXTREMELY DIFFICULT TO FIX
THE ACTUAL DAMAGES THAT SELLER WOULD SUSTAIN SHOULD BUYER BREACH SUCH
OBLIGATION. THE IMPRACTICABILITY AND DIFFICULTY OF FIXING ACTUAL DAMAGES IS
CAUSED BY, WITHOUT LIMITATION, THE FACT THAT THE PROPERTY IS UNIQUE. GIVEN THE
FOREGOING CONSIDERATION, AMONG OTHERS, BUYER AND SELLER AGREE THAT LIQUIDATED
DAMAGES ARE PARTICULARLY APPROPRIATE FOR THIS TRANSACTION AND AGREE THAT SAID
LIQUIDATED DAMAGES SHALL BE PAID IN THE EVENT OF BREACH BY BUYER OF ITS
OBLIGATION TO PURCHASE THE PROPERTY, NOTWITHSTANDING ANY WORDS OR
CHARACTERIZATIONS PREVIOUSLY USED OR HEREIN CONTAINED IMPLYING ANY CONTRARY
INTENT. THE PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A
FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275
OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO
CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677. NOTHING HEREIN SHALL,
HOWEVER, BE DEEMED TO LIMIT BUYER'S LIABILITY TO SELLER FOR DAMAGES OR
INJUNCTIVE RELIEF FOR BREACH OF BUYER'S INDEMNITY OBLIGATIONS UNDER SECTION 5.5
OR UNDER THE ACCESS AGREEMENT.
Seller's initials: /s/ AFK Buyer's initials: /s/ RLMK
------- --------
5. SELLER'S COVENANTS AND AGREEMENTS
5.1 Other Contracts. During the term of this Agreement, Seller shall
obtain Buyer's prior written consent before entering (or causing to be entered)
into, amending, modifying, extending or terminating (except as provided in
Section 5.3) any contracts, leases, agreements or understandings for or
pertaining to the Property or any portion thereof, which consent shall not be
unreasonably withheld or delayed; provided, however, that this Section 5.1 shall
not apply to any contracts or agreements entered into with respect to
performance of the Decommissioning work.
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5.2 Mechanic's Liens. On or before the Closing, Seller shall (i) pay for
all materials, supplies and work provided or ordered for the Property by Seller
or for which a labor, materialman's or mechanic's lien may be claimed under
applicable law with respect to work contracted for by Seller and (ii) if
required by the Escrow Holder, provide the Escrow Holder with such
indemnifications or security as it may require to insure title to the Property
at the Closing without exception for any unrecorded labor, materialman's or
mechanic's claim of lien other than those created by, through or under Buyer.
5.3 Existing Service Contracts. Effective as of the Closing Date, Seller
shall terminate or cause to be terminated any and all contracts for the
management, operation, repair, maintenance and security of the Property.
5.4 Access to Property. Buyer and Buyer's representatives, agents and
designees shall have the right at all reasonable times to enter upon the
Property, at Buyer's own cost, for any purpose in connection with its proposed
purchase or development of the Property, including, without limitation, the
right to make any inspections, examinations, tests, analyses, studies, surveys,
evaluations or any other investigations of the Property as Buyer may elect, all
on the terms of, and subject to the conditions set forth in, the Access
Agreement and, to the extent applicable, Section 3.3 of this Agreement. The
exercise by Buyer of any of the preceding or any other act by Buyer shall not
negate any representation, warranty or covenant of Seller or modify any of
Buyer's rights or Seller's obligations in the event of any breach by Seller of
any of its representations, warranties or covenants under this Agreement. Buyer
shall defend, indemnify and hold Seller harmless from all claims (including
claims of lien for work or labor performed or materials or supplies furnished),
demands, liabilities, damages and expenses, including Seller's reasonable
attorneys' fees, costs and expenses, arising out of Buyer's entry onto and/or
activities in, on or about the Property arising in connection with such entry as
permitted under this Section 5.4.
6. REPRESENTATIONS AND WARRANTIES
6.1 Seller's Representations and Warranties. Seller hereby warrants and
represents as of the date hereof and as of the Closing that:
(a) Due Incorporation. Seller is duly organized, validly existing
and in good standing under the laws of the State of Delaware, and is in good
standing and qualified to do business in the State of California.
(b) Authority of Seller. This Agreement and the performance of
Seller's obligations hereunder and all the documents executed by Seller which
are to be delivered to Buyer at the Closing are, or on the Closing Date will be,
duly authorized, executed and delivered by Seller and are, or at the Closing
Date will be, legal, valid and binding obligations of Seller, and do not, and on
the Closing Date will not, violate any provisions of any
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agreement or judicial order to which Seller is a party or to which Seller or the
Property is subject. No consent of any partner, shareholder, creditor, investor,
judicial or administrative body, government agency or other party is required
for Seller to enter into and/or to perform Seller's obligations under this
Agreement, except as has already been obtained.
(c) Condition of Property. To Seller's knowledge, there are now,
and at the Closing Date there will be, no structural or mechanical defects of
the Property, all systems and facilities in or serving the Property are in good
operating condition and repair and in material compliance with all applicable
laws and regulations and there are no other material physical defects or unusual
soil conditions on the Property.
(d) Compliance with Laws. Seller has received no written notice
from any governmental agency or private person that the condition, use or
operation of the Property violates any applicable laws or regulations. To
Seller's knowledge, the condition, use and operation of the Property now do not,
and at the Closing Date will not, violate any applicable laws, regulations and
ordinances in any material respect.
(e) Governmental Proceedings. Seller has received no notice of
any condemnation, environmental, zoning or other land use regulation
proceedings, either instituted or planned to be instituted, which could
detrimentally and materially affect the use of the Property or the appraised
value of the Property, nor any notice of any special assessment proceedings
affecting the Property.
(f) Books and Records, Contracts and Other Documents. All Books
and Records and other contracts or documents authored by Seller and delivered or
made available to Buyer are, and at the Closing Date will be, true and correct
copies. To Seller's knowledge, all Books and Records and other contracts or
documents authored by third parties and delivered or made available to Buyer
are, and at the Closing Date will be, true and correct copies.
(g) Contracts and Other Agreements. Seller has no agreement with,
and has not granted any rights to nor assumed any obligations for the benefit
of, any other party which in any way would, or will, burden or otherwise affect
Buyer or all or part of the Property.
(h) Litigation. To Seller's knowledge, there are no pending or
threatened actions, inquiries, suits, arbitrations, claims or proceedings, at
law or in equity that arise out of the ownership of the Property or that might
detrimentally and materially affect the use or operation of the Property for its
intended purpose or the appraised value of the Property or adversely affect the
ability of Seller to perform its obligations under this Agreement. No
attachments, execution proceedings, assignments for benefit of creditors,
insolvency, bankruptcy, reorganization or other proceedings are pending or, to
Seller's knowledge, threatened against Seller nor are any of such proceedings
contemplated by Seller.
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(i) Other Contracts to Convey Property. There are no rights to
purchase, lease or otherwise acquire any right, title or interest in or to the
Property held by any person other than Buyer and Seller has not committed nor
obligated itself in any manner whatsoever to sell the Property to any party
other than Buyer, and except as set forth in the Preliminary Report, Seller has
not hypothecated or assigned any interest in the Property in any manner.
(j) Hazardous Material. Other than as may be disclosed in the
Books and Records, all of Seller's operations or activities upon, or use of the
Property, or any portion thereof, are in all material respects in compliance
with the Environmental Laws, and Seller has not engaged in or permitted any
release, dumping, discharge, disposal, spillage or leakage (whether legal or
illegal, accidental or intentional) of Hazardous Material in any material
quantity at, on, in or about the Property, or any portion thereof.
(k) Property Tax Assessment. Other than as set forth in the
preliminary Report and the amounts disclosed by the tax bills delivered to Buyer
by Seller, no other real property taxes have been or, to Seller's knowledge,
will be assessed against the Property for the current year. With the exception
of (i) charges and assessments disclosed in the public records and (ii) charges
incurred by Seller in connection with the Decommissioning of the Property, there
are not any special assessments or charges which have been levied against the
Property or, to Seller's knowledge, which will result from work, activities or
improvements done to the Property by Seller. Seller has received no notice from
any governmental agency of any planned or completed public improvements which
will result in any charge being levied against or in the creation of any lien
upon the Property or any portion thereof. Notwithstanding any other provision of
this Agreement to the contrary, if Buyer shall become liable after the Closing
for payment of any property taxes assessed against the Property for any period
of time prior to Closing Date, Seller shall immediately pay to Buyer on demand
an amount equal to such tax assessment in accordance with Section 7.8(b).
(l) Foreign Person. Seller is not a foreign person and is a
"United States Person" as such term is defined in Section 7701(a)(30) of the
Internal Revenue Code of 1986, as amended (the "Code").
6.2 Seller's Knowledge. As used in this Agreement, the phrase "Seller's
knowledge" shall be limited to the actual knowledge, without inquiry or
investigation, of the following persons: Philip Pare, Alan Miyashiro, Dale
Gonzales and Deniz Gundogdu.
6.3 Seller's Indemnification Against Breaches by Seller. Seller shall
indemnify, defend and hold Buyer and its officers, directors, shareholders,
employees, agents and affiliated entities (collectively, "Buyer's Affiliates")
harmless from and against all claims, demands, liabilities, actions, causes of
action, losses, damages to which Buyer may be entitled under Section 4.2(b),
costs, fees and expenses, including, without limitation, reasonable attorneys'
fees and disbursements (collectively, "Claims") which arise out of, result from
or
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are related to Seller's breach of any representations, warranties or
covenants of Seller under this Agreement (subject to the limitations set forth
in Section 6.6). Seller's duty to indemnify and hold Buyer harmless under this
Section 6.3 shall include, without limitation, losses, damages, fees and
disbursements sustained and/or incurred by Buyer due to diminution in the value,
utility, marketability or financeability of the Property resulting from the
matters described in the first sentence of this Section 6.3. If Buyer receives
notice of a Claim by a third party against which Buyer is entitled to
indemnification, Buyer shall promptly give written notice thereof to Seller, and
Seller shall promptly take such measures as may be reasonably required to
properly and effectively defend such Claim, and may defend with counsel of its
own choosing approved by Buyer (which approval shall not be unreasonably
withheld or delayed). If Seller fails to properly and effectively defend such
third party Claim, then Buyer may defend such Claim with counsel of Buyer's own
choosing at Seller's expense.
6.4 Seller's Indemnification Regarding Hazardous Materials. Seller shall
indemnify, defend and hold Buyer and Buyer's Affiliates harmless from and
against all costs associated with (i) all remediation of the condition of the
Property required by any Responsible Agencies, (ii) all remediation of the
condition of the Property necessary to restore the Property to the condition
contemplated by the Decommissioning as described in Section 3.2(a) and Section
3.2(c), and (iii) any Claims by third parties concerning Hazardous Material
present on or migrating from the Property; provided, however, that Seller's duty
to indemnify, defend and hold harmless Buyer and Buyer's Affiliates under the
preceding clauses (i), (ii) and (iii) shall arise only to the extent that such
Claims result from acts or omissions of Seller relating to the Property
(including, without limitation, the presence, use, generation, manufacture,
storage, release or disposal of Hazardous Material) first occurring during the
period of Seller's ownership of the Property. It is the intention of Buyer and
Seller that the scope of the indemnity contained in this Section 6.4 be limited
to costs of remediation of the condition of the Property or of any other
property affected by Hazardous Material present on or migrating from the
Property, and Seller shall not be required to indemnify Buyer against other
Claims, harm or damages to Buyer or Buyer's Affiliates resulting from the
matters described in this Section 6.4, including, without limitation, death or
injury to any person, loss in value of the Property, or other consequential,
indirect or special damages (including, without limitation, lost profits).
6.5 Buyer's Representations and Warranties. In addition to its
representations and warranties made elsewhere in this Agreement, Buyer hereby
warrants and represents as of the date hereof and as of the Closing Date that:
(a) Organization; Authority. Buyer is a corporation organized,
validly existing and in good standing under the laws of the State of Delaware,
and is in good standing and qualified to do business in the State of California.
This Agreement and all documents executed by Buyer which are to be delivered to
Seller at the Closing are, or at the Closing Date will be, duly authorized,
executed, and delivered by Buyer, and are, or at the Closing Date will be,
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legal, valid and binding obligations of Buyer, and do not, and at the Closing
Date will not, violate any provisions of any agreement or judicial order to
which Buyer is a party or to which it is subject. No consent of any partner,
shareholder, creditor, investor, judicial or administrative body, governmental
agency or other party is required for Buyer to enter into and/or to perform
Buyer's obligations under this Agreement, except as has already been obtained.
(b) Litigation. Buyer has received no written notice of any
pending litigation or government proceeding to which Buyer is a party that may
affect this Agreement or the transaction contemplated hereby.
(c) Property Acquired "As Is". Except for the express covenants,
representations and warranties of Seller set forth in Section 6.1, Buyer is
acquiring the Property "as is," without any covenant, representation or warranty
of any kind or nature whatsoever, express or implied, and Buyer is relying
solely on Buyer's own investigation of the Property. In accordance with
California Health & Safety Code section 25359.7, Seller has delivered to Buyer a
copy of the report described in Section 3.2(c) and Seller has made available to
Buyer Seller's Books and Records containing certain environmental information
about the Property.
6.6 Survival. All representations, warranties and indemnities contained
in this Section 6 shall survive the Closing; provided, however, that each
party's representations and warranties (but not Seller's indemnity) shall
terminate on the day which is twelve (12) months after the Closing Date.
7. CLOSING
7.1 Escrow. An escrow ("Escrow") shall be opened with the Escrow Holder
upon the execution of this Agreement. Buyer and Seller shall promptly upon
request therefor execute such additional escrow instructions as are reasonably
required to consummate the transaction contemplated by this Agreement and are
not inconsistent herewith.
7.2 Closing.
(a) The "Closing" means the exchange of money and documents as
described herein, and will be deemed to have occurred when Seller's Grant Deed
to Buyer has been recorded, the Escrow Holder holds and can record and deliver
the remaining documents described in this Section 7, the Escrow Holder is
irrevocably and unconditionally committed to issue the Title Policy and Escrow
Holder has delivered the Purchase Price in immediately available funds to
Seller.
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(b) Seller and Buyer agree that the Closing shall occur on the
Closing Date. If Buyer has approved (or is deemed to have approved) the
Decommissioning Contingency during the Decommissioning Contingency Period, the
"Closing Date" shall be a date mutually agreeable to Buyer and Seller that is no
later than fifteen (15) days after the Decommissioning Contingency Date. If
Buyer has timely delivered the Decommissioning Disapproval Notice as provided in
Section 3.2(i) and Seller has undertaken to complete all corrective and/or
additional work required by Buyer thereunder, the Closing Date shall be a date
mutually agreeable to Buyer and Seller that is no later than seven (7) days
after Seller has demonstrated to Buyer's reasonable satisfaction that Seller has
completed in all material respects all such corrective and/or additional work.
In no event shall the Closing Date exceed eighteen (18) months from the date of
Seller's receipt of the Decommissioning Disapproval Notice. The Closing will be
at the offices of Escrow Holder or such other place as the parties may agree.
7.3 Seller's Closing Obligations. Not later than 1:00 pm on the business
day prior to the Closing Date, Seller shall deliver to the Escrow Holder for
delivery to Buyer (or the party noted below) through Escrow the following:
(a) The Grant Deed, duly executed and acknowledged by the Seller
and in recordable form;
(b) A certification or payoff demand from each lender holding a
deed of trust on the Property to secure a loan, stating the amounts required to
pay each such loan in full and to receive an executed request for reconveyance
of such deed of trust;
(c) Certificates required by Section 1445 of the Internal Revenue
Code of 1986, as amended, and California Revenue and Taxation Code Section 18815
executed by Seller and in a form satisfactory to Buyer, to relieve Buyer of any
potential transferee withholding liability under such Section;
(d) Such proof of Seller's authority and authorization to enter
into this Agreement and perform hereunder, and such proof of power and authority
of the individuals executing and/or delivering any instruments, documents or
certificates on behalf of Seller to act for and bind Seller as may reasonably be
required by Buyer or the Escrow Holder; and
(e) Other documents reasonably required to properly consummate
this transaction.
7.4 Buyer's Closing Obligations. Not later than 1:00 pm on the business
day prior to the Closing Date, Buyer will deliver to the Escrow Holder for
delivery to Seller through Escrow the following:
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(a) Immediately available federal funds in the amount of the
Purchase Price minus the amount of the Deposit, plus Buyer's closing costs in
accordance with Section 7.9;
(b) Such proof of Buyer's authority and authorization to enter
into this Agreement and perform hereunder, and such proof of power and authority
of the individuals executing and/or delivering any instruments, documents or
certificates on behalf of Buyer to act for and bind Buyer as may reasonably be
required by Seller and the Escrow Holder; and
(c) Other documents reasonably required to properly consummate
this transaction.
7.5 Close of Escrow. If on the Closing Date (i) the Escrow Holder holds
and can deliver the documents described in Sections 7.3 and 7.4, (ii) the Escrow
Holder is irrevocably and unconditionally committed to issue the Title Policy
with respect to the applicable Property, (iii) the Buyer has delivered the
applicable Purchase Price, in immediately available federal funds to the Escrow
Holder, and (iv) the Escrow Holder can record the Grant Deed for the Property,
then the Escrow Holder shall:
(a) Record the Grant Deed;
(b) Deliver the Purchase Price to Seller by wire transfer, less
Seller's share of proration and Closing costs;
(c) Deliver the remaining documents to the parties specified in
Sections 7.3 and 7.4; and
(d) Deliver the remaining funds to Seller or Buyer, as the case
may be, after taking into account all items chargeable to the account of Seller
and Buyer pursuant to Sections 7.8 and 7.9.
7.6 Termination of Escrow. If the Closing does not take place as set
forth in Section 7.2, then the Escrow shall terminate, all documents deposited
into Escrow shall be returned to the respective parties, this Agreement shall
terminate and, subject to Section 4.2 and 4.4, the Deposit shall be returned to
Buyer.
7.7 Possession. Seller shall retain possession of the Property until
Closing and shall deliver possession thereof to Buyer upon Closing, subject only
to the Permitted Exceptions.
7.8 Prorations.
(a) Prorations Paid Through Escrow. Real property taxes and
current installments of assessments applicable to the Property and other
expenses applicable to the
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Property and all income from the Property (if any) shall be prorated as of the
Closing Date with income and expenses allocable to the period on and after the
Closing Date to be for Buyer's account, and income and expenses allocable to the
period before the Closing Date to be for Seller's account. Any property taxes
assessed against the Property after the Closing Date, with respect to any period
of time before the Closing Date, shall be paid by Seller on demand. All
prorations shall be made as of 12:01 a.m. on the Closing Date, and Buyer shall
bear the burden of the expenses for such day.
(b) Adjustment After Closing. Any revenue or expense which cannot
be ascertained with certainty as of the Closing Date shall be prorated on the
basis of the parties' reasonable estimates of such amounts and shall be the
subject of a final proration as soon thereafter as the precise amounts can be
ascertained but in no event later than one hundred and eighty (180) days after
the Closing. A statement setting forth such agreed proration shall be delivered
to the Escrow Holder, provided Escrow Holder shall not be required to calculate
any prorations. Seller and Buyer shall each cooperate with the other diligently
and promptly to correct any errors in computations or estimates under this
Section 7.8 and shall promptly pay to the party entitled thereto any refund,
credit or other payment necessary to comply with this Section 7.8. This Section
7.8 shall survive the Closing. Either party owing the other party a sum of money
based on adjustments made to prorations after the Closing shall promptly pay
that sum to the other party, together with interest thereon at the rate of ten
percent (10%) per annum from the date of demand of payment to the date of
payment if payment is not made within ten (10) days after demand therefor.
7.9 Closing Costs. Seller shall pay the premium for a standard form
(CLTA) owner's policy of title insurance in the amount of the Purchase Price,
the county real property transfer taxes on this transaction, any prepayment fees
due under any loan secured by a deed of trust on the Property, any sales tax for
the Property and all escrow fees charged by Escrow Holder. Buyer shall pay any
additional premiums or charges with respect to the Title Policy, including the
excess of the ALTA premium over the CLTA premium and the costs of any
endorsements. Seller and Buyer shall each pay one-half of the city real property
transfer taxes, the costs of recording any necessary releases or reconveyances,
and the costs of recording the Grant Deed and any other documents. All other
Closing costs shall be split equally between Buyer and Seller.
This Section 7.9 shall survive the Closing.
7.10 Commissions. Buyer and Seller acknowledge that the transaction
contemplated by this Agreement is a principal-to-principal transaction. Both
parties represent that they have not been and will not be represented by any
real estate broker, finder or any other person or entity that might be entitled
to a commission or other compensation as a result of the this transaction.
Seller and Buyer each agrees to defend, indemnify and hold harmless the other
from and against any and all liabilities, claims, demands, damages, or costs of
any kind (including attorneys' fees, costs and expenses) arising from or
connected with any broker's or finder's fee or commission or charge claimed to
be due by any person or entity arising from or
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by reason of the indemnifying party's conduct with respect to this transaction.
The provisions of this Section 7.10 shall survive the Closing hereunder.
7.11 Parties to Bear Own Expenses. Each of the parties hereto shall pay
all the costs and expenses incurred or to be incurred by them in negotiating and
preparing this Agreement and in carrying out the transaction contemplated
hereby.
7.12 Acceptance of Title. Buyer's acceptance of the Grant Deed from the
Seller for the Property at the Closing on the Closing Date and the issuance of
the Title Policy to Buyer by the Escrow Holder on the Closing Date shall
conclusively establish that Seller conveyed the Property to Buyer as required by
this Agreement and shall discharge in full Seller's obligations under this
Agreement with respect to title to the Property.
8. RISK OF LOSS
8.1 Condemnation. By notice to Seller given within 10 days after Buyer
receives notice of proceedings in eminent domain that are contemplated,
threatened or instituted by any body having the power of eminent domain, and if
necessary the Closing Date shall be extended to give Buyer the full 10-day
period to make such election, Buyer may: (i) terminate this Agreement and the
Deposit shall be immediately returned to Buyer; or (ii) proceed under this
Agreement, in which event Seller shall, at the Closing, assign to Buyer its
entire right, title and interest in and to any condemnation award, and Buyer
shall have the sole right during the pendency of this Agreement to negotiate and
otherwise deal with the condemning authority in respect of such matter.
8.2 Damage and Destruction. Except as provided below, this Agreement
shall be governed by the provisions of California Civil Code Section 1662 in
effect as of the Effective Date. For the purposes of this Agreement, a
destruction is material if the cost of repairing or replacing it, without
deduction for depreciation, exceeds the sum of Two Million Seven Hundred Fifty
Thousand Dollars ($2,750,000) provided that, if the applicable building codes or
other laws or regulations require work exceeding the repair or replacement of
the actual damage, the cost shall be considered to include all of the work. If
before Closing a nonmaterial part of the Property is destroyed, any insurance
proceeds, (or, if not theretofore received, the right to receive such proceeds)
payable on account of the damage shall be transferred to Buyer and the amount of
any deductible under the insurance policy (or, in the case of an uninsured
casualty, the restoration cost as reasonably estimated by Seller and Buyer)
shall be a credit to Buyer against the Purchase Price.
9. MISCELLANEOUS
9.1 Definitions of Environmental Laws and Hazardous Material.
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(a) Environmental Laws. "Environmental Laws" shall mean any and
all present and future federal, state and local law (whether under common law,
statute, rule, ordinance, agreement, regulation or otherwise), requirement under
any permit issued with respect thereto, and other requirements of agencies
having jurisdiction thereunder relating to the protection of human health or the
environment, including (without limitation) the Federal Insecticide, Fungicide,
and Rodenticide Act, 7 U.S.C. Sections 136, et seq.; the Toxic Substances
Control Act, 15. U.S.C. Sections 2601, et seq.; Federal Asbestos Hazard
Emergency Response Act, 15 U.S.C. Sections 2641 et seq.; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Sections 9601, et seq. ("CERCLA"); the Resource Conservation and Recovery Act,
42 U.S.C. Sections 6901 et seq. ("RCRA"); the Federal Water Pollution Prevention
and Control Act, 33 U.S.C. Sections 1251 et seq. (the "Clean Water Act"); the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq.; the
Solid Waste Disposal Act, 42 U.S.C. Sections 6901, et seq.; the Federal Water
Pollution Control Act, 33 U.S.C. Sections 1321; 42 U.S.C. Sections 7401 et seq.
(the "Clean Air Act"); the California Hazardous Waste Control Act, Cal. Health &
Safety Code ("H.&S.C.") Sections 25100 et seq.; the California Hazardous
Substance Account Act, H.& S.C. Sections 25300 et seq.; the California Safe
Drinking Water and Toxic Enforcement Act, H.& S.C. Sections 25249.5, et seq.
("Proposition 65"); the California Hazardous Waste Management Act, H.&S.C.
Sections 25170.1 et seq.; H.&S.C. Sections 25501 et seq. (Hazardous Materials
Response Plans and Inventory); the Porter- Cologne Water Control Act, Cal. Water
Code Sections 13000 et seq. H.&S.C. Sections 25280, et seq. (Underground Storage
of Hazardous Substances); H.&S.C. Section 25915 et seq. (the "Connelly Act");
H.&S.C. Section 25359.7; H.&S.C. Sections 2595 et seq; Cal. Labor Code Sections
6501 et seq.; and Title 22 of the California Code of Regulations; all as amended
to the date hereof.
(b) Hazardous Material. "Hazardous Material" shall include any
chemical, compound, material, mixture or substance which is now or hereafter
defined or listed in, or otherwise classified pursuant to, any Environmental Law
as a "hazardous substance," "hazardous material," "reproductive toxicant,"
"hazardous waste," "extremely hazardous waste," "infectious waste,"
"biohazardous waste," "medical waste," "toxic substance," "toxic pollutant,"
"pollutant, contaminant" or any other formulation intended to define, list, or
classify substances by reason of deleterious properties to human health, safety
or the environment, such as ignitability, corrosivity, reactivity,
carcinogenicity, radioactivity or toxicity, including all petroleum hydrocarbon,
petroleum-derived material, natural gas, natural gas liquids, liquefied natural
gas, or synthetic gas usable for fuel (or mixtures of natural gas and such
synthetic gas), asbestos and those substances listed in the United States
Department of Transportation Table (49 CFR 172.101, as amended).
9.2 Assignment; Binding Effect. From the Effective Date through the date
on which Buyer deposits the Additional Deposit with Escrow Holder, Buyer may
assign this Agreement only with Seller's consent, which shall not be
unreasonably withheld or delayed. From and after the day immediately following
the date on which Buyer deposits the Additional Deposit with Escrow Holder,
Buyer may assign this Agreement in its sole and absolute discretion.
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<PAGE> 30
Notwithstanding anything to the contrary contained in this Section 9.2, Buyer in
its sole and absolute discretion may assign this Agreement at any time to a
corporation, partnership or limited liability company which acquires a
controlling interest in Buyer or in which Buyer holds a controlling interest.
Any assignment by Buyer shall not release Buyer from any of the obligations on
Buyer's part to be performed under this Agreement. This Agreement shall be
binding on and shall inure to the benefit of the parties to it and their
respective legal representatives, successors and assigns.
9.3 Severability. If any term, covenant, provision, paragraph or
condition of this Agreement shall be illegal, such illegality shall not
invalidate the whole Agreement, but, to the extent permitted by law, the
Agreement shall be construed to give effect to the intent manifested by the
portion held inoperative or invalid and the rights and obligations of the
parties shall be construed and enforced accordingly.
9.4 Entire Understanding. This Agreement and the Access Agreement
represent the entire understanding of the parties hereto and supersede all prior
written or oral agreements or representations, if any, relative to the subject
matter involved.
9.5 Amendments. This Agreement may not be modified, changed or
supplemented except by written instrument signed by both parties.
9.6 California Law. The interpretation and performance of this Agreement
shall be governed by the laws of the State of California applied to agreements
to be performed entirely within the State of California by residents of the
State of California.
9.7 Waiver. Other than deemed waivers provided for herein, all waivers
by either party shall be in writing. The waiver by either party of any breach of
any term, covenant or condition of this Agreement shall not be deemed a waiver
of such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition of this Agreement.
9.8 Notices. Any and all notices or other communication required or
permitted by this Agreement or by law to be served on or given to a party hereto
by the other party shall be in writing and given personally (including overnight
courier), by facsimile transmission (evidenced by a facsimile machine-generated
confirmation of delivery) or by registered or certified mail (postage fully
prepaid) addressed as follows:
To Seller: Integrated Device Technology, Inc.
Attention: Alan F. Krock
Vice President and Chief Financial Officer
2975 Stender Way
Santa Clara, CA 95054
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<PAGE> 31
Telephone No.: (408) 492-8481
Facsimile No.: (408) 492-8454
Copy To: Integrated Device Technology, Inc.
Attention: Jack Menache
Vice President and General Counsel
2975 Stender Way
Santa Clara, CA 95054
Telephone No.: (408) 492-8444
Facsimile No.: (408) 492-8454
Copy To: Pillsbury Madison & Sutro LLP
Attn: Mark A. Beskind, Esq.
235 Montgomery Street
San Francisco, CA 94104
Telephone No.: (415) 983-6364
Facsimile No.: (415) 983-1200
To Buyer: Cadence Design Systems, Inc.
Attn: Mr. John Bruno
Vice-President, Real Estate and Facilities
2655 Seely Road
San Jose, CA 95134
Telephone No.: (408) 576-3698
Facsimile No.: (408) 428-5519
Copy to: Crosby, Heafey, Roach & May, Professional Corporation
Four Embarcadero Center, Suite 1900
San Francisco, CA 94111
Attn: Charles H. Seaman, Esq.
Telephone No.: (415) 659-5910
Facsimile No.: (415) 391-8269
To Escrow
Holder: Chicago Title Insurance Company
Attn: Bill Magleby
110 West Taylor St.
San Jose, CA 95106
Telephone No.: (408) 292-4212, Ext. 314
Facsimile No.: (408) 282-1404
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Either party may change such address by written notice to the other. Any
notice delivered as described above shall be deemed received on the date of
delivery. Any notice under this Agreement may be given on behalf of a party by
the attorney for such party. Any notices or other communication required or
permitted by this Agreement or by law to be served on Seller shall be deemed
effective on the date of delivery to Alan Krock, but Buyer shall promptly
deliver copies to the other Seller parties noted in this Section 9.8. Any
notices or other communication required or permitted by this Agreement or by law
to be served on Buyer shall be deemed effective on the date of delivery to John
Bruno, but Seller shall promptly deliver copies to the other Buyer parties noted
in this Section 9.8.
9.9 Captions. The captions inserted herein are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Agreement or the intent of any of the provisions hereof.
9.10 Exhibits. All exhibits and schedules referred to herein are
incorporated by reference as though fully set forth herein.
9.11 Time of the Essence. Time is of the essence in this Agreement and
failure to comply with this provision shall be a material breach of this
Agreement.
9.12 Additional Cooperation. Seller and Buyer will execute such additional
documents or take such additional action, without cost or expense, as may be
reasonably necessary or desirable to carry out the provisions of this Agreement
or to further perfect the conveyance, transfer and assignment of the Property to
Buyer. This provision survives the Closing.
9.13 Confidentiality. The provisions of the Access Agreement concerning
confidentiality are incorporated by reference.
9.14 Counterparts. This Agreement may be executed in counterparts, each of
which when executed shall be deemed an original and all of which counterparts
taken together shall constitute but one and the same instrument. Signature pages
may be detached from the counterparts and attached to a single copy of this
Agreement to form one document.
9.15 Survival. Subject to the limitations set forth in Section 6.6, the
provisions of this Agreement shall survive the termination of the Agreement and
Closing.
9.16 Extensions for Holidays. If the Closing, Closing Date or any other day
for the performance of any act or delivery or recordation of any instrument or
document falls on a Saturday, Sunday or holiday on which the Santa Clara County
Recorder's office is closed, the time for performance, delivery or recordation
shall be extended to the next day which is not a Saturday or such holiday.
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<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
"Seller"
Integrated Device Technology, Inc.
a Delaware corporation
By: /s/ ALAN F. KROCK 12/15/98
-----------------------------------------
Alan F. Krock
Its: Vice President and Chief Financial
Officer
"Buyer"
Cadence Design Systems, Inc.
a Delaware corporation
By: /s/ R.L. MCKEITHEN 12/15/98
-----------------------------------------
R.L. Smith McKeithen
Its: Senior Vice President and General
Counsel
CONSENT OF ESCROW HOLDER
Chicago Title Company (the "Escrow Holder") accepts the foregoing Purchase
and Sale Agreement and Joint Escrow Instructions as escrow instructions, agrees
to act as escrow holder and agrees to be bound by the provisions therein
applicable to it as Escrow Holder.
Dated:_________________
Chicago Title Company,
a California corporation
By: _______________________________________
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Title: ____________________________________
31
<PAGE> 1
EXHIBIT 10.28
LEASE SUMMARY
PREMISES: 881 Martin Avenue, Santa Clara
SQUARE FEET: 55,913
LEASE COMMENCEMENT: April 1, 1999
LEASE EXPIRATION: March 31, 2003
LANDLORD: James S. Lindsey
LANDLORD CONTACT NUMBER: (415) 453-2583
TERM OF LEASE: Five (5) years
TENANT IMPROVEMENT ALLOWANCE: None
INITIAL RENT: $1.15
RENT ADJUSTMENTS: $0.05 per square foot per annum
SECURITY DEPOSIT: $75,482.55
OPTION TO TERMINATE: As of 3/31/2001, with notice on or prior
to 12/31/2000 and a payment of $681,591.00
OPTION TO EXTEND: One five (5) year option at market, less
$0.05 per square foot with 3% per year
increase. In no event shall the rent be
less than $1.35 per square foot.
OPTION TO EXPAND: Right to lease additional space in the project.
PRESENTED TO
Thomas Wroblewski
BY
Kalil Jenab
CPS, THE COMMERCIAL PROPERTY SERVICES COMPANY
475 EL CAMINO REAL, SUITE 100
SANTA CLARA, CA 95050
(408) 615-3400
MARCH 12, 1999
<PAGE> 2
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
March 3, 1999, is made by and between James S. Lindsey ("LESSOR") and Integrated
Device Technology, Inc. (IDT) ("LESSEE"), (collectively the "PARTIES," or
individually a "PARTY")
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 881 Martin Avenue, located in the City
of Santa Clara, County of Santa Clara, State of California, with zip code
95050, as outlined on Exhibit A attached hereto ("PREMISES"). The "BUILDING"
is that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): An approximately 55,913 square
foot free standing building which is part of a two building, approximately
156,282 square foot project. In addition to Lessee's rights to use and occupy
the Premises as hereinafter specified, Lessee shall have non-exclusive rights
to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter
specified, but shall not have any rights to the roof, exterior walls or utility
raceways of the Building or to any other buildings in the Industrial Center.
The Premises, the Building, the Common Areas, the land upon which they are
located, along with all other buildings and improvements thereon are herein
collectively referred to as the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: 224 unreserved vehicle parking spaces ("UNRESERVED PARKING
SPACES"). (Also see Paragraph 2.)
1.3 TERM: five years and zero months ("ORIGINAL TERM") commencing April
1, 1999 ("COMMENCEMENT DATE") and ending March 31, 2003 ("EXPIRATION DATE").
(Also see Paragraph 3).
1.4 EARLY POSSESSION: March 4, 1999 ("EARLY POSSESSION DATE"). Also see
Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $64,299.95 per month ("BASE RENT"), payable on the first
day of each month commencing April 1, 1999 (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum One, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $64,299.95 as Base Rent for the
period April 1, 1999 - April 30, 1999.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Thirty-five and
eight-tenths percent (35.8%) ("LESSEE'S SHARE") as determined by [x] prorata
square footage of the Premises as compared to the total square footage of the
building or [ ] other criteria as described in Addendum _________.
1.7 SECURITY DEPOSIT: $75,482.55 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: Office, administration, light assembly, and storage of
integrated circuits and related legal uses. ("PERMITTED USE") (Also see
Paragraph 6.)
1.9 INSURING PARTY. Lessor as the "INSURING PARTY." (Also see Paragraph
8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes);
[ ] ___________________________________represents Lessor exclusively
("LESSOR'S BROKER");
[ ] ___________________________________represents Lessee exclusively
("LESSEE'S BROKER"; or
[X] CPS represents both Lessor and Lessee ("DUAL AGENCY"). Also see Paragraph
15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both Parties,
Lessor shall pay to said Broker(s) jointly, or in such separate shares as they
may mutually designate in writing, a fee as set forth in a separate written
agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$______________) for brokerage services rendered by said Broker(s) in
connection with this transaction.
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum of Addenda consisting
of Paragraphs 49 through 76 and Exhibits A through B, all of which constitute a
part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems, and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date. Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be
reasonable or appropriate to rectify the non-compliance Lessor makes no
warranty that the Permitted Use in Paragraph 1.B is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and relations, and any
covenants
Initials: /s/ TW
-------
/s/ JL
-------
MULTI-TENANT MODIFIED NET
PAGE 1 OF 12
<PAGE> 3
or restrictions of record (collectively, "APPLICABLE LAWS") and the present and
future suitability of the Premises for Lessee's intended use; (b) that Lessee
has made such investigation as it deems necessary with reference to such
matters, is satisfied with reference thereto, and assumes all responsibility
therefore as the same relate to Lessee's occupancy of the Premises and/or the
terms of this Lease; and (c) that neither Lessor, nor any of Lessor's agents,
has made any oral or written representations or warranties with respect to said
matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED
SIZE VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease provide the
parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and
regulations or restrictions governing the use of the Industrial Center. Under
no circumstances shall the right herein granted to use the Common Areas be
deemed to include the right to store any property, temporarily or permanently,
in the Common Areas. Any such storage shall be permitted only by the prior
written consent of Lessor or Lessor's designated agent, which consent may be
revoked at any time. In the event that any unauthorized storage shall occur
then Lessor shall have the right, without notice, in addition to such other
rights and remedies that it may have, to remove the property and charge the
cost to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not
be responsible to Lessee for the non-compliance with said rules and regulations
by other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may in
the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation to
pay Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including, but not limited to, the obligations
to pay Lessee's Share of Common Area Operating Expenses and to carry the
insurance required by Paragraph 8) shall be in effect during such period. Any
such early possession shall not affect nor advance the Expiration Date of the
Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall
not, except as otherwise provided herein, be obligated to pay rent or perform
any other obligation of Lessee under the terms of this Lease until Lessor
delivers possession of the Premises to Lessee. If possession of the Premises is
not delivered to Lessee within sixty (60) days after the Commencement Date,
Lessee may, at its option, by notice in writing to Lessor within ten (10) days
after the end of said sixty (60) day period, cancel this Lease, in which event
the Parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect. Except as may
be otherwise provided, and regardless of when the Original Term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to the period during which the Lessee would have otherwise enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof, which is for less than one full month shall
be prorated based upon the actual number of days of the month involved. Payment
of Base Rent and other charges shall be made to Lessor at its address stated
herein or to such other persons or at such other addresses as Lessor may from
time to time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter
defined, during each calendar year of the term of this Lease, in accordance
with the following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to
be paid by Lessor for the Building and the Common Areas under Paragraph 10
hereof.
(vi) The costs of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
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(b) Any Common Area Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set forth
in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor
to either have said improvements or facilities or to provide those services
unless the Industrial Center already has the same, Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver
to Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit
the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the
Premises or the Building and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days after such request give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any Premises; (ii) regulated or
monitored by any governmental authority; or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substance shall include, but
not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products
by-products thereof. Lessee shall not engage in any activity in or about the
Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (a Lessee's sole cost and expense) with all
Application Requirements (as defined in Paragraph 6.3). "Reportable Use" shall
mean (i) the installation or use of any above or below ground storage tank;
(ii) the generatic possession, storage, use transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration business plan is required to be filed with, any
governmental authority; and (iii) the presence in, on or about the Premises of
a Hazardous Substance with respect which any Applicable Laws require that a
notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing Lessee may, without Lessor's prior
consent, but upon notice to Lessor and in compliance with all Applicable
Requirements, use any ordinary and customary material reasonably required to be
used by Lessee in the normal course of the Permitted Use, so long as such use
is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor. In addition, Lessor may (but without a obligation to
do so) condition its consent to any Reportable Use of any Hazardous Substance
by Lessee upon Lessee's giving Lessor such additional assurances Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and
liability therefor, including, but not limited to, the installation (and, at
Lessor's option, removal on or before Lease expiration or earlier termination)
of reasonable necessary protective modifications to the Premises (such as
concrete encasements) and/or the deposit of an additional Security Deposit
under Paragraph 5 hereof.
(b) Duty to inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action, or proceeding given to, or
received from, any government authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous
Substance including, but not limited to, all such documents as may be involved
in any Reportable Use involving the Premises. Lessee shall not cause or permit
any Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions record, permits, the requirements of any applicable fire insurance
underwriter or rating bureau, and the recommendations of Lessor's engineers
and/or consultation relating in any manner to the Premises (including, but not
limited to, matters pertaining to (i) industrial hygiene; (ii) environmental
conditions on, in, under or about the Premises, including soil and groundwater
conditions; and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation storage, spill, or release of
any Hazardous Substance), now in effect or which may hereafter come into effect.
Lessee shall, within five (5) days after receipt of Lessor's written request,
provide Lessor with copies of all documents and information, including, but not
limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure of Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection: Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, or otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Application.
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Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid b the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent
violation or contamination. In such case, Lessee shall upon request reimburse
Lessor or Lessor's Lender, as the case may be, for the costs and expenses of
such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damages or Destruction), and 14 (Condemnation), Lessee shall,
at Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion
of the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements
or the age of such portion of the Premises), including, without limiting the
generality of the foregoing, all equipment or facilities specifically serving
the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire hose connections if within the Premises, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices. Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the healing, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate
this Lease because of Lessor's failure to keep the Building, Industrial Center
or Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the Improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined
as Alterations and/or Utility Installations made by Lessee that are not yet
owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause
to be made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities; (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon; and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and be in
compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may (but without obligation to do so) condition its consent to
any requested Alteration or Utility Installation that costs $2,500.00 or more
upon Lessee's providing Lessor with a lien and completion bond in an amount
equal to one and one-half times the estimated cost of such Alteration or
Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's
or materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the commencement
of any work in, on, or about the Premises, and Lessor shall have the right to
post notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor, in an amount equal to
one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises
by Lessee shall be the property of and owned by Lessee, but considered a part
of the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clear
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease.
Except as otherwise agreed or specified herein, the Premises, as surrendered,
shall include the Alterations and Utility Installations. The obligation of
Lessee shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all
as may then be required by Applicable Requirements and/or good practice.
Lessee's Trade Fixtures shall remain the property of Lessor and shall be
removed by Lessee subject to its obligation to repair and restore the Premises
per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 LIABILITY INSURANCE.
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(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be
primarily to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
during the term of the Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available
and commercial appropriate, Lessor's policy or policies shall insure against
all risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or
replacement of any undamaged sections of the Building required to be demolished
or removed by reason of the enforcement or any building, zoning, safety or land
use laws as the result of a covered loss, but not including plate glass
insurance. Said policy or policies shall also contain an agreed valuation
provision in lieu of any co-insurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to
where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the
amount of coverage shall be adjusted annually to reflect the projected rental
income, Real Property Taxes, insurance premium costs and other expenses, if
any, otherwise payable, for the next 12-month period. Common Area Operating
Expenses shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas
or other buildings in the Industrial Center if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph
8.3(a). Such insurance shall be full replacement cost coverage with a
deductible not to exceed $1,000 per occurrence. The proceeds from any such
insurance shall be used by Lessee for the replacement of personal property and
the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility
Installations. Upon request from Lessor, Lessee shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located and maintaining during the policy term a "General Policyholders
Rating" of at lease B+, V, or such other rating as may be required by a Lender,
as set forth in the most current issue of "Best's Insurance Guide." Lessee
shall not do or permit to be done anything which shall invalidate the insurance
policies referred to in this Paragraph 8. Lessee shall cause to be delivered to
Lessor, within seven (7) days after the earlier of the Early Possession Date or
the Commencement Date, certified copies of, or certificates evidencing the
existence and amounts of, the insurance required under Paragraph 8.2(a) and
8.4. No such policy shall be cancelable or subject to modification except after
thirty (30) days' prior written notice to Lessor. Lessee shall, at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss or damage to their property arising out of or
incident to the perils required to be insured against under Paragraph 8. The
effect of such releases and waivers of the right to recover damages shall not
be limited by the amount of insurance carried or required, or by any
deductible applicable thereto. Lessor and Lessee agree to have their respective
insurance companies issuing property damage insurance waive any right to
subrogation that such companies may have against Lessor or Lessee, as the case
may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and
consultants' fees, expenses and/or liabilities arising out of, involving, or in
connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee, upon
notice from Lessor, shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in
such defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other lessee of Lessor nor from the failure by Lessor to enforce the
provisions of any other lease in the Industrial Center. Notwithstanding
Lessor's negligence or breach of this Lease, Lessor shall under no
circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is fifty percent (50%) or more
of the then Replacement Cost of the Premises (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures) immediately prior to
such damage or destruction. In addition, damage or destruction to the Building,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures of any lessees of the Building, the cost of which damage or destruction
if fifty percent (50%) or more of the then Replacement Cost (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building) of the Building shall, at the option of Lessor, be
deemed to be Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the Premises,
other than Lessee-Owed Alterations and Utility Installations and Trade
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Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or
coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may, at Lessor's
option, either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after
receipt by Lessor of knowledge of the occurrence of such damage of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the
date of such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the repair of such damage totally at Lessee's
expense and without reimbursement from Lessor. Lessee shall provide Lessor with
the required funds or satisfactory assurance thereof within thirty (30) days
following such commitment from Lessee. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as soon
as reasonably possible after the required funds are available. If Lessee does
not give such notice and provide the funds or assurance thereof within the
times specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense, repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provides such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair, remediation or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate Lease on a date not less than sixty (60) days following the giving
of such notice. If Lessee gives such notice to Lessor and such Lenders and such
repair or restoration is not commenced within thirty (30) days after receipt of
such notice, this Lease shall terminate as of the date specified in such notice.
If Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after the receipt of such notice, this Lease shall continue in
full force and effect. "Commence" as used in this Paragraph 9.6 shall mean
either the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may, at
Lessor's option, either (i) investigate and remediate such Hazardous Substance
Condition, if required,as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent of $100,000, whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent of
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to lessor and so much of Lessee's Security deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "Real Property
Taxes" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal
income or estate taxes) imposed upon the Industrial Center by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage, or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center
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or any portion thereof, Lessor's right to rent or other income therefrom, and/or
Lessor's business of leasing the Premises. The term "REAL PROPERTY TAXES" shall
also include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in Applicable Law taking
effect, during the term of this Lease, including, but not limited to, a change
in the ownership of the Industrial Center or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof,
and whether or not contemplated by the Parties. In calculating Real Property
Taxes for any calendar year, the Real Property Taxes for any real estate tax
year shall be included in the calculation of Real Property Taxes for such
calendar year based upon the number of days which such calendar year and tax
year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including, but not limited to, electricity,
telephone, security, gas and cleaning of the Premises, together with any taxes
thereon. If any such utilities or services are not separately metered to the
Premises or separately billed to the Premises, Lessee shall pay to Lessor a
reasonable proportion to be determined by Lessor of all such charges jointly
metered or billed with other premises in the Building, in the manner and within
the time periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease or Lessee's assets
occurs, which results or will result in a reduction of the Net Worth of Lessee,
as hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at
the time of full execution and delivery of this Lease or at the time of the
most recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting such
reduction, at whichever time said Net Worth of Lessee was or is greater, shall
be considered an assignment of this Lease by Lessee to which Lessor may
reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes of this
Lease shall be the net worth of Lessee (excluding any Guarantors) established
under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1, or a non-curable
Breach without the necessity of any notice and grace period. If Lessor elects
to treat such unconsented to assignment or subletting as a non-curable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days' written notice ("LESSOR'S NOTICE"), increase the monthly Base
Rent for the Premises to the greater of the then fair market rental value of
the Premises, as reasonably determined by Lessor, or one hundred ten percent
(110%) of the Base Rent then in effect. Pending determination of the new fair
market rental value, if disputed by Lessee, Lessee shall pay the amount set
forth in Lessor's Notice, with any overpayment credited against the next
installment(s) of Base Rent coming due, and any underpayment for the period
retroactively to the effective date of the adjustment being due and payable
immediately upon the determination thereof. Further, in the event of such
Breach and rental adjustment, (i) the purchase price of any option to purchase
the Premises held by Lessee shall be subject to similar adjustment to the then
fair market value as reasonably determined by Lessor (without the Lease being
considered an encumbrance or any deduction for depreciation or obsolescence,
and considering the Premises at its highest and best use and in good condition)
or one hundred ten percent (110%) of the price previously in effect, (ii) any
index-oriented rental or price adjustment formulas contained in this Lease
shall be adjusted to require that the base index be determined with reference
to the index applicable to the time of such adjustment, and (iii) any fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased in the same ratio as the new rental bears to the Base Rent in effect
immediately prior the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee. However, Lessor may consent to subsequent sublettings
and assignments of the sublease or any amendments or modifications thereto
without notifying Lessee or anyone else liable under this Lease or the sublease
and without obtaining their consent, and such action shall not relieve such
persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including, but not
limited to,the intended use and/or required modification of the Premises, if
any, together with a non-refundable deposit of $1,000 or ten percent (10%) of
the monthly Base Rent applicable to the portion of the Premises which is the
subject of the proposed assignment or sublease, whichever is greater, as
reasonable consideration for Lessor's considering and processing the request for
consent. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply
with each and every term, covenant, condition and obligation herein to be
observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that
the Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lease hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as
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otherwise provided in this Lease, receive, collect and enjoy the rents accruing
under such sublease. Lessor shall not, by reason of the foregoing provision or
any other assignment of such sublease to Lessor, not by reason of the
collection of the rents from a sublessee, be deemed liable to the sublessee for
any failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor
stating that a Breach exists in the performance of Lessee's obligations under
this Lease, to pay to Lessor the rents and other charges due and to become due
under the sublease. Sublessee shall rely upon any such statement and request
from Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary, Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by
said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to such sublessor or for any other prior
defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default, and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said default. A "DEFAULT" by Lessee is defined as a
failure by Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
by Lessee is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, and shall entitled Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3.
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure of Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination
of this Lease per Paragraph 30, (vi) the guaranty of the performance of
Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37,
(vii) the execution of any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice by or on behalf
of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this Lease
by Lessee if Lessee commences with such cure within said thirty (30) day period
and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided,
however, in the event that any provision of this Subparagraph 13.1(e) is
contrary to any applicable law, such provision shall be of no force or effect
and shall not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including, but not limited to, the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under
this Lease by Lessee to be made only by cashier's check. In the event of a
Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss in that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank
District in which the Premises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach
of this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraphs
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of the Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after
Lessee's Breach and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. Lessor and
Lessee agree that
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limitations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under this Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration upon Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by
the terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall not
be in breach of this Lease if performance is commenced within such thirty (30)
day period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall
be reduced in the same proportion as the rentable floor area of the Premises
taken bears to the total rentable floor area of the Premises. No reduction of
Base Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of
such power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease
is not terminated by reason of such condemnation, Lessor shall to the extent of
its net severance damages received, over and above Lessee's share of the legal
and other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKER'S FEES
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed
in writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined
in Paragraph 39.1) granted under this Lease or any Option subsequently granted,
or (b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the terms of this Lease
after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation
of an escalation clause herein, then as to any of said transactions, Lessor
shall pay said Broker(s) a fee in accordance with the schedule of said
Broker(s) in effect at the time of the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation
of law, shall be deemed to have assumed Lessor's obligation under this
Paragraph 15. Each Broker shall be an intended third party beneficiary of the
provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its
interest in any commission arising from this Lease and may enforce that right
directly against Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting
Party") execute, acknowledge and deliver to the Requesting Party a statement in
writing in a form similar to the then most current "TENANCY STATEMENT" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably
required by such lender or purchaser, including, but not limited to, Lessee's
financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such transfer
or assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed
by the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of
any other provisions hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due
at the prime rate charged by the largest state chartered bank in the state in
which the Premises are located plus four percent (4%) per annum, but not
exceeding the maximum rate allowed by law, in addition to the potential late
charge provided for in Paragraph 13.4.
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20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time thereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of monies or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the state in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its notice of Lessor's default
pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease and/or
any Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for an act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as provided for herein.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purposes of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary. Lessor may at any time place
on or about the Premises or Building any ordinary "For Sale" signs and Lessor
may at any time during the last one hundred eighty (180) days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of Rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
Initials: /s/ TW
--------
/s/ JL
--------
MULTI-TENANT - MODIFIED NET
Page 10 of 12
<PAGE> 12
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including, but not
limited to, architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including, but not
limited to, consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particularly condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease, including, but not limited to, the obligation to
provide the Tenancy Statement and Information required in Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. If shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor
(and of the party signing on Guarantor's behalf) to obligate such Guarantor on
said guaranty, and resolution of its board of directors authorizing the making
of such guaranty, together with a certificate of incumbency showing the
signatures of the persons authorized to sign on its behalf, (b) current
financial statements of Guarantor as may from time to time be requested by
Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty
is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "Option" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of
time any monetary obligation due Lessor from Lessee is unpaid (without regard
to whether notice thereof is given Lessee), or (iii) during the time Lessee is
in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee
three (3) or more notices of separate Default under Paragraph 13.1 during the
twelve (12) month period immediately preceding the exercise of the Option,
whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or affect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the Default
are cured, or (iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("RULES AND REGULATIONS") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was no legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Initials: /s/ TW
--------
/s/ JL
--------
MULTI-TENANT-MODIFIED NET
Page 11 of 12
<PAGE> 13
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS,
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN
A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<C> <C>
Executed at: Kentfield Executed at: Santa Clara
------------------------- ----------------------------
on: 3-11-99 on: 3-9-99
---------------------------------- -------------------------------------
By LESSOR: By LESSEE:
Integrated Device Technology, Inc. (IDT)
- ------------------------------------- ----------------------------------------
- ------------------------------------- ----------------------------------------
By: /s/ JAMES S. LINDSEY By: /s/ THOMAS B. WROBLEWSKI
---------------------------------- -------------------------------------
Name Printed: James S. Lindsey Name Printed: Thomas B. Wroblewski
------------------------ ---------------------------
Title: Title: Vice-President, Human Resources
------------------------------- ----------------------------------
By: By:
---------------------------------- -------------------------------------
Name Printed: Name Printed:
------------------------ ---------------------------
Title: Title:
------------------------------- ----------------------------------
Address: 18 Cypress Avenue Address: 2972 Stender Way
----------------------------- --------------------------------
Kentfield, CA 94904 Santa Clara, CA 95054
----------------------------- --------------------------------
Telephone: (415) 453-2583 Telephone: (408) 492-8593
--------------------------- ------------------------------
Facsimile: (415) 453-8465 Facsimile: (408) 492-8512
--------------------------- ------------------------------
BROKER: BROKER:
Executed at: Executed at:
------------------------- ---------------------------
on: on:
---------------------------------- ------------------------------------
By: By:
---------------------------------- ------------------------------------
Name Printed: Name Printed:
------------------------ --------------------------
Title: Title:
------------------------------- ---------------------------------
Address: Address:
----------------------------- -------------------------------
- ------------------------------------- ---------------------------------------
Telephone: Telephone:
--------------------------- -----------------------------
Facsimile: Facsimile:
--------------------------- -----------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
South Flower Street, Suite 600, Los Angeles, California 90017. (213)
687-8777.
Initials:
------
/s/ JL
------
MULTI-TENANT -- MODIFIED NET
Page 12 of 12
<PAGE> 14
ADDENDUM TO
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - MODIFIED NET
BETWEEN
JAMES S. LINDSEY
AND
INTEGRATED DEVICE TECHNOLOGY, INC.
This Addendum is entered into this March 3, 1999, by and between James S.
Lindsey ("Lessor") and Integrated Device Technology, Inc. ("Lessee") with
offices at 2975 Stender Way, Santa Clara, California 95054.
This Addendum modifies the Standard Industrial/Commercial Multi-Tenant
Lease - Modified Net ("Agreement"), and all "Section" references are to the
numbered paragraphs of the relevant portions of the Agreement. Notwithstanding
anything to the contrary set forth in the Agreement, any attachment, appendix
or other document, the following terms and conditions shall apply, and all
conflicting, inconsistent or additional terms or conditions shall be of no
force or effect.
49. RENT. Lessee shall pay to Lessor, for each calendar month of the term,
monthly base rent as shown below, in advance, on the first day of each calendar
month, without prior or notice or demand.
<TABLE>
<CAPTION>
Month Base Rent per month
----- -------------------
<S> <C>
April 1, 1999 thru March 1, 2000 $64,299.95
April 1, 2000 thru March 1, 2001 $67,095.60
April 1, 2001 thru March 1, 2002 $69,891.25
April 1, 2002 thru March 1, 2003 $72,686.90
April 1, 2003 thru March 1, 2004 $75,482.55
</TABLE>
50. Notwithstanding paragraph 4.2(a), Lessee shall engage and pay for its own
separate trash service.
51. Lessee shall not embark upon any construction on the roof nor penetrate
the roof membrane without specific written approval by Lessor.
52. Notwithstanding paragraph 4.2(a)(vii), if an insured loss occurs within
Lessee's demised premises, then Lessee shall pay the entire insurance
deductible amount, not to exceed $5000.00. In case of glass breakage upon the
premises from vandalism, Lessee shall pay for the costs of replacement in
excess of what is available from insurance.
53. Notwithstanding anything contained in the Lease, Lessor shall be
responsible to make repairs to the roof membrane. However, should Lessor cause
the roof membrane to be replaced during the term of this lease or any
extensions thereof, then this addendum paragraph shall not apply.
54. Paragraphs 15.2, 15.3, and 31 of the Lease are hereby deleted.
55. OPTION TO TERMINATE: Lessee shall have an option to terminate this lease
as of April 1, 2001, by giving written notice to Lessor on or before January 1,
2001. As a condition of termination, upon the termination date, Lessee shall
pay to Lessor the sum of $681,591.00 as consideration for lease termination.
56. In paragraph 2.3, fourth sentence, after "within six (6) months following
the Commencement Date, add "or within 90 days after the date upon which Lessee
becomes aware of such non-compliance, whichever is later."
<PAGE> 15
57. At the end of Paragraph 6.2(c), add "The foregoing indemnity does not apply
to any Hazardous Substance or other material which is present in, on or about
the Premises or the Property as of the Commencement Date or such Hazardous
Substance or material which migrates to or under the Premises or the Property
from outside the Property or Premises during the term of this Lease, unless due
to release by Tenant or its employees, agents, contractors and invitees. Lessor
hereby releases Tenant from any liability to Lessor for any such contamination
or release which existed as of the Commencement Date or was caused by someone
other than Tenant, its employees, agents, contractors or invitees."
58. In Section 6.3, prior to "recommendations of Lessor's engineers" add
"reasonable". At the end of the first sentence of Paragraph 6.3, add "except
that Tenant shall not be responsible for curing or correcting any defects which
existed as of the commencement Date."
59. In the last sentence of Paragraph 7.2, add "provided that if Lessor fails
to perform or preserve these obligations, Lessee may give Lessor notice
specifying the manner of default, and, if such default is not cured within 30
days (except that if such default cannot be cured within 30 days, Lessor
commences and diligently pursues such cure), Lessee may perform these
obligations and bill Lessor for the cost of such maintenance and repairs, and
receive reimbursement for reasonable amounts incurred in so doing."
60. In Section 7.3, change "$2,500" to "$50,000".
61. Delete the last sentence of Section 7.3(b).
62. The first sentence of Section 8.6 of the Lease shall be amended to read as
follows: "Without affecting any other rights or remedies, Lessor and Lessee
each hereby release and relieve the other, and waive their entire right to
recover damages (whether in contract or in tort) against the other, for
personal injury or death to persons or loss or damage to their property arising
out of or incident to the perils required to be insured against under paragraph
8 or which is actually covered by insurance, regardless of the negligence of
the person causing the harm.
63. In Section 8.8, beginning of first sentence, add "except as resulting from
Lessor's negligence or breach of this Agreement, but subject to the provisions
of Section 8.6,"
64. In Section 9.6(a), delete the remainder of the sentence after "in
proportion to the degree to which Lessee's use of the Premises is impaired".
65. In Section 9.6(b), first sentence, change "(90)" to "(60)".
66. Add a new sentence at the end of Section 9.7: "To the extent Lessee's
occupation is impaired, Lessee's rent obligations shall be abated during the
period that a Hazardous Substance Condition occurs, unless Lessee is legally
responsible therefore.".
67. At the end of Paragraph 10.2, add "nothing herein shall be construed to
obligate Lessee to pay Lessor's Federal or California income taxes."
68. In Paragraph 12.1, delete "or by operation of law".
69. Delete Paragraphs 12.1(b) and 12.1(c) and replace with "notwithstanding
anything to the contrary herein, a corporate reorganization, merger,
acquisition, spin-off or other corporate restructuring, or any other
transaction approved by the majority of Lessee's shareholders shall not
constitute an assignment."
<PAGE> 16
70. In Paragraph 12.2(e), after "modification of the Premises", delete the
remainder of the sentence and replace with "a deposit of $500 to be applied
towards Lessor's actual costs and fees incurred in order to review and process
the request, which costs and fees shall not exceed $1,500."
71. In paragraph 13.4, second sentence, replace "without any requirement for
notice to Lessee" with "unless such amount is received within 2 days of receipt
of notice by Lessee."
72. Lessor acknowledges that Lessee intends to construct substantial
improvements to the Premises, including Utility Installations and Alterations,
at Lessee's expense. Subject to Lessee's compliance with all applicable
building codes and regulations, Lessor shall not unreasonably withhold or delay
consent to such improvements. If the parties cannot reach agreement after
negotiations in good faith regarding the nature and scope of such improvements
within 45 days of the Lessee's submission of improvement plans to Lessor, then
Lessee may terminate this Agreement upon 30 day notice to Lessor, with no
further liability."
73. OPTION TO RENEW - ARBITRATED RENT: Lease is given the option to extend the
term subject to all the provisions contained in this Lease, except for base
monthly rent, for a period of FIVE(5) years ("extended term") following the
expiration of the initial term, by giving notice of exercise of the option
("option notice") to Lessor at least four (4) months but no more than six (6)
months before the expiration of the initial term. Provided that, if Lessee is
in default on the date of giving the option notice, the option notice shall be
totally ineffective, or if Lessee is in default on the date the extended term
is to commence, Lessor may elect that the extended term shall not commence and
this Lease shall expire at the end of the initial term. The base rent shall be
set at the commencement of the option period at fair market (highest and best
use) rent less five cents per square foot. The parties shall have fifteen (15)
days after Lessor receives the option notice in which to agree on base monthly
rent during the extended term. If the parties agree on the base monthly rent
for the extended term during that period, they shall immediately execute an
amendment to this Lease stating the base monthly rent for the extended term. If
the parties are unable to agree on the base monthly rent for the extended term
within that period, then within ten days after the expiration of that period,
each party, at its cost and by giving notice to the other party, shall appoint
a real estate appraiser with at least five years' full-time commercial
appraisal experience in the area in which the premises are located, to appraise
and set the base monthly rent for the extended term. If a party does not
appoint an appraiser within ten 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 base monthly rent for the extended term. If the two
appraisers are appointed by the parties as stated in this paragraph they shall
meet promptly and attempt to set the base monthly rent for the extended term.
If they are unable to agree within ten days after the second appraiser has been
appointed, they shall attempt to elect a third appraiser meeting the
qualifications stated in this paragraph within ten days after the last day the
two appraisers are given to set the base monthly rent. If they are unable to
agree on the third appraiser, either of the parties to this Lease, by giving
ten days' notice to the other party can apply to the then President of the
county real estate board of Santa Clara County, or the Presiding Judge of the
Superior Court of that county, for the selection of a third appraiser who meets
the qualifications stated in this paragraph. Each of the parties shall bear on
behalf of the cost of 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 days
after the selection of the third appraiser, a majority of the appraisers shall
set the base monthly rent for the extended term. If a majority of the
appraisers are unable to set the base monthly rent within the stipulated period
of time, the three appraisers shall be added together and their total divided
by three; the resulting quotient shall be the base monthly rent for the
premises during the extended term. If no event shall the base rent at the
commencement of the option period be less than the rent for the last month of
the initial term. Following the exercise of the option, the rent shall be
increased annually on each anniversary of the beginning of the extended term by
three percent (3%).
<PAGE> 17
74. Right to Lease Additional Space: If, at any time during the term of the
Lease, including the Option Period, if exercised, space becomes available in
the building whose address is 801 Martin Avenue, Lessor shall provide Lessee
notice of the availability of the space and shall negotiate with Lessee in good
faith for a period not exceeding ten days towards leasing of that additional
space, provided that Lessee is interested in leasing the space.
75. Lessor acknowledges that Lessee is in the process of acquiring Quality
Semiconductor, Inc., the tenant of the building owned by Lessor which is
located at 851 Martin Avenue, and will thereby acquire its interest in the
Lease of 851 Martin. Lessor hereby agrees to permit Lessee to terminate the
lease for that building in accordance with the terms and conditions of Exhibit
"B" to this Addendum.
76. Changes to the common areas pursuant to paragraph 2.10 of the Lease shall
be reasonable.
In Witness Whereof, IDT and Lessor have executed this Addendum to the Agreement
as of the date first written above.
Integrated Device Technology, Inc. James S. Lindsey
By: /s/ TOM WARBLENSKI By: /s/ JAMES S. LINDSEY
--------------------------------- ------------------------------------
Name: Tom Warblenski Name: James S. Lindsey
------------------------------- ----------------------------------
Title: VP Human Resources Title:
------------------------------ ---------------------------------
Date 3-9-94 Date: 5-11-94
-------------------------------- ----------------------------------
<PAGE> 18
EXHIBIT "A"
[Floor Plan 881 and 871 Martin Avenue]
<PAGE> 19
LEASE TERMINATION AGREEMENT
Exhibit "B" to lease
This Lease Termination Agreement ("Agreement") is entered into as of March 15,
1999 by and between James S. Lindsey ("Landlord") and Quality Semiconductor,
Inc. ("Tenant").
Recitals
A. Landlord's predecessor and Tenant entered into the Lease Agreement
("Lease") dated December 12, 1990 for the premises ("Premises") located at 851
Martin Ave., Santa Clara, California, consisting of approximately 50,000
rentable square feet. The Lease was amended by, and all references to the Lease
herein shall include that certain amendment dated July 22, 1997.
B. The term of the Lease is scheduled to expire on March 10, 2001. Tenant
desires the right to early termination of the Lease.
Agreement
In consideration of their mutual covenants and other valuable consideration,
receipt of which is hereby acknowledged, Landlord and Tenant agree as follows:
1. TERMINATION. The Lease and all rights, obligations and liabilities of
Landlord and Tenant under the Lease, except LESSOR'S OBLIGATIONS REGARDING
TENANT'S SECURITY DEPOSIT AND those which arise from either party's breach of
this Agreement shall terminate as of 45 days after Tenant's written notice to
Landlord (the "Termination Date"). Effective as of the Termination Date, Tenant
surrenders, forfeits and quitclaims any and all right, title and interest of
Tenant under the Lease and to the Premises, including without limitation, all
options to extend the term (if any) and all tenant improvements and alterations
made within the Premises. NOTHING HEREIN REQUIRES TENANT TO TERMINATE THE LEASE
OR PROVIDE SUCH NOTICE, BUT TENANT MAY DO SO, AT ITS OPTION, AT ANY TIME DURING
THE TERM OF THE LEASE.
2. SURRENDER. Tenant shall surrender possession of the Premises no later than
the Termination Date. Tenant shall be entitled to remove its trade fixtures,
personal property and equipment, provided that it does so prior to the
Termination Date.
3. CONTINUED PERFORMANCE. Tenant shall continue to perform all obligations
under the Lease through the Termination Date, including, without limitation, the
obligation to pay rent in the time and manner provided for in the Lease, and its
obligation to maintain and repair the premises pursuant to paragraphs 10(a) and
18 of the Lease.
4. AUTHORIZATION. Each individual executing this Agreement represents and
warrants that he or she is authorize to bind the party on whose behalf he or she
is signing, and that all necessary approvals to enter into this Agreement have
been obtained.
5. ENTIRE AGREEMENT. This Agreement represent the entire agreement of the
parties with respect to the termination of the Lease, and supersedes any prior
or contemporaneous agreements, representations, negotiations or correspondence
between the parties and their agents or representatives. This Agreement may not
be modified or amended except in a written instrument signed by party to be
bound thereby.
In witness whereof, Landlord and Tenant have entered into this Agreement as of
the date first hereinabove written.
LANDLORD: TENANT:
BY: /s/ JAMES S. LINDSEY BY: /s/ (Signature Not Legible)
--------------------------------- ---------------------------------
TITLE: TITLE: President/CEO
------------------------------ ------------------------------
DATE: 3-11-99 DATE: 3-15-99
-------------------------------- --------------------------------
BY: BY:
--------------------------------- ---------------------------------
<PAGE> 1
Exhibit 21.1
LIST OF IDT'S SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF OWNED BY
INCORPORATION REGISTRANT
-------------- ----------
<S> <C> <C>
Centaur Technology, Inc. California 100%
Clear Logic, Inc. California 36
Baccarat Coyote, Inc. California 100
Baccarat Silicon, 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
IDT International Holdings, Inc. California 100
Integrated Device Technology, Inc. Cayman Islands 100
Integrated Device Technology, AB Sweden 100
Integrated Device Technology, Europe, Inc. California 100
Integrated Device Technology GmbH Germany 100
Integrated Device Technology (Israel) Ltd. Israel 100
Integrated Device Technology Italia S.r.l. Italy 100
Integrated Device Technology Korea, Inc. Korea 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
Integrated Device Technology Singapore (1997) Pte. Ltd. Singapore 100
Nippon IDT K.K. Japan 100
Penguin Acquisition, Inc. California 100
</TABLE>
<PAGE> 1
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Integrated
Device Technology, Inc. of our report dated April 17, 1998 appearing on page 28
of Integrated Device Technology, Inc.'s Annual Report on Form 10-K for the year
ended March 29, 1998. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
March 22, 1999
<PAGE> 1
EXHIBIT 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 28, 1998 with respect to the consolidated
financial statements of Quality Semiconductor, Inc. included in its Annual
Report (Form 10-K/A) for the year ended September 27, 1998 and the related
financial statement schedule included therein, incorporated by reference in the
Proxy Statement of Quality Semiconductor, Inc. that is made a part of the
Registration Statement (Form S-4) and Prospectus of Integrated Device
Technology, Inc. for the registration of its common stock.
/s/ Ernst & Young LLP
March 22, 1999
San Jose, California
<PAGE> 1
Exhibit 99.01
CONSENT OF NEEDHAM & COMPANY, INC.
We hereby consent to the inclusion in the Proxy Statement/Prospectus of
Integrated Device Technology, Inc. and Quality Semiconductor, Inc. ("Proxy
Statement/Prospectus") forming part of this Registration Statement on Form S-4
of our opinion dated November 1, 1998 to the Board of Directors of Quality
Semiconductor, Inc. attached as Appendix B to the Proxy Statement/Prospectus
and to the references to our opinion under the captions ""Summary--Opinion of
Financial Advisor as to the Fairness of the Exchange Ratio" and "Approval of
the Merger and Related Transactions--Background of the Merger," "--QSI's
Reasons for the Merger," and "--Opinion of QSI's Financial Advisor." In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 and the rules
and regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
/s/ Needham & Company, Inc.
---------------------------------
NEEDHAM & COMPANY, INC.
March 23, 1999
<PAGE> 1
EXHIBIT 99.02
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
QUALITY SEMICONDUCTOR, INC.
SPECIAL MEETING OF SHAREHOLDERS
P
R
O The undersigned shareholder of Quality Semiconductor, Inc.
X ("QSI"), a California corporation, hereby acknowledges receipt of the
Y Notice of Special Meeting of Shareholders and Proxy Statement, each
dated ________ __, 1999, and hereby appoints R. Paul Gupta and Stephen H.
Vonderach, and each of them, with full power to each of substitution, as
proxies and attorneys-in-fact, on behalf and in the name of the
undersigned, to represent the undersigned at the Special Meeting of
Shareholders of Quality Semiconductor, Inc. to be held on April 30,
1999 at 11:00 a.m. local time, at 851 Martin Avenue, Santa Clara,
California 95050, and at any adjournment or postponement thereof, and to
vote all shares of Common Stock which the undersigned would be entitled
to vote if then and there personally present, on the matters set forth
on the reverse side.
This Proxy will be voted as directed or, if no contrary direction is
indicated, will be voted FOR the proposal to approve and adopt the
Agreement and Plan of Merger, dated as of November 1, 1998, by and among
Integrated Device Technology, Inc., Penguin Acquisition, Inc. ("Merger
Sub"), and QSI, and to approve the merger of Merger Sub with and into QSI
pursuant to the Merger Agreement.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
<PAGE> 2
[x] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED SHAREHOLDER(S). THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL.
FOR AGAINST ABSTAIN
1. To approve and adopt the Agreement and
Plan of Merger, dated as of November 1, 1998,
by and among Integrated Device Technology, Inc., [ ] [ ] [ ]
Penguin Acquisition, Inc. ("Merger Sub"), and
QSI, and to approve the merger of Merger Sub
with and into QSI pursuant to the Merger
Agreement.
2. In their discretion, the proxies are
authorized to vote on such other
business as may properly come before the
meeting or any adjournment thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT
LEFT
[ ]
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears
hereon. Where shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee, or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership
by authorized person.
SIGNATURE ___________ DATE ___________ SIGNATURE ___________ DATE ___________
