Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-151919
JAZZ TECHNOLOGIES, INC.
4321 Jamboree Road
Newport Beach, CA 92660
TO THE STOCKHOLDERS OF JAZZ TECHNOLOGIES, INC.:
You are cordially invited to attend a special meeting of the stockholders
of Jazz Technologies, Inc. (also referred to as "Jazz," "we" or "us") to be held
at 10:00 a.m. Pacific time, on September 17, 2008, at 4321 Jamboree Road,
Newport Beach, California 92660. Only stockholders who held shares of Jazz
common stock at the close of business on August 8, 2008, the record date for the
special meeting, will be entitled to receive notice of, and to vote at, the
special meeting and any adjournments or postponements of the special meeting.
At the special meeting, we will ask you to vote on a proposal to approve
and adopt the Agreement and Plan of Merger and Reorganization that we entered
into on May 19, 2008, with Tower Semiconductor Ltd., an Israeli company (also
referred to as "Tower"), and its wholly owned subsidiary, Armstrong Acquisition
Corp., a Delaware corporation, as such agreement may be amended from time to
time (also referred to as the "merger agreement") and approve the merger
provided for therein.
Upon completion of the proposed merger Armstrong Acquisition Corp. will
merge with and into Jazz, and each of your outstanding shares of Jazz's common
stock will be converted into the right to receive 1.8 ordinary shares of Tower,
as described in the merger agreement and under the section entitled "THE MERGER
AGREEMENT - MERGER CONSIDERATION." If the merger is completed, Jazz will become
a wholly owned subsidiary of Tower. Tower's ordinary shares are listed on the
NASDAQ Global Market under the symbol "TSEM" and on the Tel Aviv Stock Exchange
in Israel under the symbol "TSEM." On August 6, 2008, the closing sale price of
Tower ordinary shares was $0.69 as reported on the NASDAQ Global Market.
The merger cannot be completed unless Jazz stockholders approve and adopt
the merger agreement and approve the merger. Such adoption and approval requires
the affirmative vote of the holders of a majority of the shares of Jazz common
stock outstanding on the record date for the special meeting.
THE JAZZ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT JAZZ STOCKHOLDERS
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
MERGER.
The accompanying proxy statement/prospectus contains detailed information
about the merger and the special meeting. WE ENCOURAGE YOU TO READ CAREFULLY
THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE SECTION ENTITLED "RISK FACTORS
RELATING TO THE MERGER" BEGINNING ON PAGE 20.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER YOU
PLAN TO ATTEND THE SPECIAL MEETING OR NOT, PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, OR VOTE BY TELEPHONE OR INTERNET
AS PROVIDED IN THE ENCLOSED PROXY CARD, AS SOON AS POSSIBLE.
Sincerely,
/s/ Gilbert F. Amelio, Ph.D.
----------------------------
Gilbert F. Amelio, Ph.D.
Chairman and Chief Executive Officer
Newport Beach, California
August 8, 2008
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OF THE MERGER DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OR THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE
MERGER, OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated August 8, 2008 and is first being
mailed to our stockholders on or about August 12, 2008.
ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates by reference important
business and financial information about Tower from documents filed with the
United States Securities and Exchange Commission, or SEC, that are not included
in or delivered with this proxy statement/prospectus.
You can obtain any of the documents that Tower has filed with the SEC
through contacting Tower, at the address below, or from the SEC, at no cost,
through the SEC's website at http://www.sec.gov. These documents are available
from Tower without charge, excluding any exhibits to those documents, unless the
exhibit is specifically incorporated by reference as an exhibit in this proxy
statement/prospectus. Tower will provide to each person, including any
beneficial owner, to whom this proxy statement/prospectus is delivered, a copy
of these filings, at no cost, upon written or oral request to Tower at: Ramat
Gavriel Industrial Park, Post Office Box 619, Migdal Haemek, 23105 Israel, Attn:
Corporate Secretary, telephone number: 972-4-650-6611. Copies of these filings
may also be accessed at Tower's website, www.towersemi.com. Click on "Investor
Relations" and then "Filings."
IN ORDER FOR YOU TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF
THE JAZZ SPECIAL MEETING, TOWER SHOULD RECEIVE YOUR REQUEST NO LATER THAN
SEPTEMBER 10, 2008.
JAZZ TECHNOLOGIES, INC.
4321 Jamboree Road
Newport Beach, CA 92660
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 17, 2008
TO THE STOCKHOLDERS OF JAZZ TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Jazz
Technologies, Inc. (also referred to as "Jazz," "we" or "us"), a Delaware
corporation, will be held at 10:00 a.m., Pacific time, on September 17, 2008, at
4321 Jamboree Road, Newport Beach, California 92660, for the following purpose,
as more fully described in this proxy statement/prospectus:
o To vote upon a proposal to approve and adopt the Agreement and Plan
of Merger and Reorganization, dated as of May 19, 2008, by and among
Jazz, Tower Semiconductor Ltd., an Israeli company (also referred to
as "Tower"), and its wholly owned subsidiary, Armstrong Acquisition
Corp., a Delaware corporation, as such agreement may be amended from
time to time (also referred to as the "merger agreement"), and
approve the merger provided for therein; and
o To vote upon any proposal to adjourn or postpone the special meeting
if determined to be necessary or appropriate to solicit additional
proxies if there are insufficient votes at the time of the special
meeting to approve and adopt the merger agreement and approve the
merger.
Only the holders of record of Jazz's common stock on the close of business
on August 8, 2008, the record date for the special meeting, are entitled to
receive notice of, and to vote at, Jazz's special meeting and any adjournments
or postponements of the Jazz special meeting. The affirmative vote of the
holders of a majority of the shares of Jazz common stock outstanding on the
record date for the special meeting is required to approve and adopt the merger
agreement and approve the merger.
THE JAZZ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT JAZZ STOCKHOLDERS
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
MERGER. THE JAZZ BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER
AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE ADVISABLE AND FAIR
TO, AND IN THE BEST INTERESTS OF, JAZZ AND ITS STOCKHOLDERS AND HAS APPROVED THE
MERGER AGREEMENT, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE
MERGER AGREEMENT.
By Order of the Board of Directors
/s/ Allen R. Grogan
-------------------
Allen R. Grogan
Secretary
August 8, 2008
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY, OR VOTE OVER THE TELEPHONE OR THE INTERNET AS INSTRUCTED IN
THESE MATERIALS, AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION
AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE
UNITED STATES) IS ENCLOSED FOR YOUR CONVENIENCE. EVEN IF YOU HAVE VOTED BY
PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE,
HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED IN
YOUR NAME FROM THAT RECORD HOLDER.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER 1
SUMMARY 5
The Companies 5
The Merger 5
The Merger Consideration 5
Treatment of Jazz Warrants 6
Treatment of Jazz Units 6
Treatment of Jazz Convertible Notes 6
Treatment of Jazz Options 6
The Special Meeting 6
Recommendation of the Jazz Board of Directors 7
Reasons for the Merger 7
Opinion of Jazz's Financial Advisor 7
Share Ownership After the Merger 7
Share Ownership of Directors and Executive Officers 7
Interests of Jazz Directors and Executive Officers in the Merger 7
Tower Ordinary Shares Traded on NASDAQ and TASE; Delisting and Deregistration
of Jazz Securities 8
Cash in Lieu of Fractional Shares 8
No Dissenters' Appraisal Rights 8
Conditions to Completion of the Merger 8
Regulatory Filings and Approvals Necessary to Complete the Merger 8
Directors and Management of the Merged Company After the Merger 9
No Solicitation of Transactions 9
Termination 9
Expenses; Termination Fee 10
Certain Material U.S. Federal Income Tax Consequences of the Merger 10
Material Israeli Tax Considerations 11
Accounting Treatment 11
Comparative Rights of Tower and Jazz Shareholders 11
Exchange of Stock Certificates 11
Voting Rights 11
Solicitation of Proxies 12
TOWER SELECTED HISTORICAL FINANCIAL INFORMATION 13
JAZZ SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION 14
SUMMARY UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION 16
COMPARATIVE PER SHARE DATA 17
SECURITIES MARKET PRICE INFORMATION 18
Market Price 18
Dividend Policy 19
RISK FACTORS RELATING TO THE MERGER 20
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 26
TOWER RECENT DEVELOPMENTS 27
THE JAZZ SPECIAL MEETING OF STOCKHOLDERS 28
Date, Time and Place 28
Matters to be Considered at the Jazz Stockholders' Meeting 28
Stockholders Entitled to Vote 28
Quorum 28
Vote Required 28
Voting Rights 28
Voting Your Shares 28
Receipt of Multiple Proxy Cards 29
Revoking Your Proxy and Changing Your Vote 29
Abstentions and Broker Non-Votes 29
Adjournment and Postponement 30
Solicitation of Proxies 30
You Will Not Have Dissenter's Appraisal Rights in the Merger 30
Questions about Voting 30
Stockholder Proposals for Jazz's 2009 Annual Meeting of Stockholders 30
Jazz Stock Certificates 30
i
PAGE
----
THE MERGER 31
Background of the Merger 31
Jazz's Reasons for the Merger 33
Recommendation of Jazz's Board of Directors 36
Interests of Jazz's Directors and Officers in the Merger 36
Tower's Reasons for the Merger 37
Opinion of Jazz's Financial Advisor 38
Regulatory Filings and Approvals Necessary to Complete the Merger 42
Directors and Management of the Merged Company After the Merger 42
Accounting Treatment 42
Tower Ordinary Shares Traded on NASDAQ and TASE; Delisting and Deregistration
of Jazz Securities 43
Cash in Lieu of Fractional Shares 43
Effective Time of the Merger and the Share Exchange 43
No Dissenter's Appraisal Rights 44
THE MERGER AGREEMENT 45
The Merger 45
Effective Time of the Merger 45
Merger Consideration 45
Treatment of Jazz Warrants 46
Treatment of Jazz Units 46
Treatment of Jazz Convertible Notes 46
Treatment of Jazz Options 46
Payment Procedures 46
Representations and Warranties 47
Conduct Prior to Completion of the Transaction 47
Registration Statement; Proxy Statement/Prospectus and Jazz Stockholders
Meeting 49
No Solicitation of Transactions; Board Recommendation 49
Regulatory Matters 50
Publicity 51
Access 51
Directors' and Officers' Insurance; Indemnification 51
Survival of Representations and Warranties 51
Employee Matters 51
Conditions to Completion of the Merger 51
Termination of the Merger Agreement 52
Expenses; Termination Fee 53
Amendment 54
DESCRIPTION OF TOWER SHARE CAPITAL 55
General 55
Description of Ordinary Shares 55
Description of Other Securities 56
COMPARATIVE RIGHTS OF TOWER AND JAZZ SHAREHOLDERS 57
General 57
Summary of Material Differences Between the Rights of Jazz Stockholders and
the Rights of Tower Shareholders 57
INFORMATION ABOUT JAZZ 69
Overview 69
Formation 69
Jazz's Industry 69
Jazz's Solution 71
Jazz's Strategy 72
Process Technologies 72
Manufacturing 74
Jazz Services 75
Sales and Marketing 76
Customers, Markets and Applications 78
Competition 79
Research and Development 80
Intellectual Property 81
Environmental Matters 82
ii
PAGE
------
Employees 82
Risk Management and Insurance 82
Jazz's Properties 82
Legal Proceedings 83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF JAZZ 84
Overview 84
Critical Accounting Policies and Estimates 84
Results of Operations 87
Changes in Financial Condition 95
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF JAZZ 98
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF TOWER 102
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 104
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 2008 105
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 2007 106
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 2008 107
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 108
JAZZ RELATED PARTY TRANSACTIONS 113
Prior Share Issuances 113
Securities Purchases 113
Compensation Arrangements 114
Stockholder Loan 114
Indemnification of Officers and Directors 114
TAXATION 115
Certain Material U.S. Federal Income Tax Consequences of the Merger 115
Material Israeli Tax Considerations - Taxation of Tower Shareholders 116
EXCHANGE CONTROLS AND LIMITATIONS AFFECTING STOCKHOLDERS 118
ENFORCING CIVIL LIABILITIES 118
LEGAL MATTERS 118
EXPERTS 118
OTHER MATTERS 118
ABOUT THIS DOCUMENT 118
SHAREHOLDER PROPOSALS 119
HOUSEHOLDING OF PROXY MATERIALS 119
WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION OF INFORMATION BY REFERENCE 119
ANNEXES 121
Annex 1 Agreement and Plan of Merger and Reorganization A-1
Annex 2 Opinion of UBS Securities LLC B-1
Annex 3 Jazz Financial Statements F-1
iii
QUESTIONS AND ANSWERS ABOUT THE MERGER
THE FOLLOWING ARE SOME QUESTIONS THAT YOU MAY HAVE REGARDING THE PROPOSED
MERGER AND BRIEF ANSWERS TO THOSE QUESTIONS. WE URGE YOU TO READ CAREFULLY THE
REMAINDER OF THIS PROXY STATEMENT/PROSPECTUS BECAUSE THE INFORMATION IN THIS
SECTION DOES NOT PROVIDE ALL THE INFORMATION THAT MIGHT BE IMPORTANT TO YOU WITH
RESPECT TO THE PROPOSED MERGER. ADDITIONAL IMPORTANT INFORMATION IS ALSO
CONTAINED IN THE ANNEXES TO, AND THE DOCUMENTS INCORPORATED BY REFERENCE IN,
THIS PROXY STATEMENT/PROSPECTUS. UNLESS STATED OTHERWISE, ALL REFERENCES IN THIS
PROXY STATEMENT/PROSPECTUS TO TOWER ARE TO TOWER SEMICONDUCTOR LTD., A COMPANY
ORGANIZED UNDER THE LAWS OF ISRAEL, AND ITS WHOLLY-OWNED MARKETING SUBSIDIARY IN
THE UNITED STATES; ALL REFERENCES TO JAZZ ARE TO JAZZ TECHNOLOGIES, INC., A
DELAWARE CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES; ALL REFERENCES TO JAZZ
SEMICONDUCTOR ARE TO JAZZ SEMICONDUCTOR, INC., A DELAWARE CORPORATION AND A
WHOLLY-OWNED SUBSIDIARY OF JAZZ; ALL REFERENCES TO MERGER SUB ARE TO ARMSTRONG
ACQUISITION CORP., A DELAWARE CORPORATION AND A WHOLLY-OWNED SUBSIDIARY OF
TOWER; ALL REFERENCES TO THE MERGED COMPANY ARE TO TOWER, WITH JAZZ AS ITS
WHOLLY-OWNED SUBSIDIARY FOLLOWING COMPLETION OF THE MERGER; AND ALL REFERENCES
TO THE MERGER AGREEMENT ARE TO THE AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION, DATED AS OF MAY 19, 2008, BY AND AMONG JAZZ, TOWER AND MERGER
SUB, A COPY OF WHICH IS ATTACHED AS ANNEX 1 TO THIS PROXY STATEMENT/PROSPECTUS.
WHAT IS THE PROPOSED TRANSACTION?
Jazz, Tower and Merger Sub have entered into a merger agreement, pursuant
to which Merger Sub will merge with and into Jazz with Jazz surviving the merger
and continuing its existence as a wholly-owned subsidiary of Tower (referred to
in this proxy statement/prospectus as the merger). For a more complete
description of the merger, see "THE MERGER."
WHY AM I RECEIVING THIS DOCUMENT AND PROXY CARD?
You are receiving this document and proxy card because, as of August 8,
2008, the record date for the special meeting, you owned shares of Jazz common
stock. The affirmative vote of the holders of a majority of the shares of Jazz
common stock outstanding on the record date for the special meeting is required
to approve and adopt the merger agreement and approve the merger.
This proxy statement/prospectus contains important information about the
proposed merger, the merger agreement and the Jazz special meeting, which you
should read carefully. The enclosed voting materials allow you to vote your
shares without attending the Jazz special meeting.
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE ENCOURAGED TO
VOTE AS SOON AS POSSIBLE.
WHY ARE JAZZ AND TOWER PROPOSING THE MERGER?
The boards of directors of Jazz and Tower believe that the combination of
Jazz and Tower will provide substantial benefits to the shareholders of both
companies and will allow shareholders of both companies the opportunity to
participate in a larger, more diversified group of companies that is capable of
creating greater shareholder value than either Jazz or Tower could create on its
own. To review the reasons for the merger in greater detail, see "THE MERGER -
RECOMMENDATION OF THE JAZZ BOARD OF DIRECTORS AND ITS REASONS FOR THE MERGER"
and "THE MERGER - TOWER'S REASONS FOR THE MERGER."
WHAT WILL HOLDERS OF JAZZ COMMON STOCK RECEIVE IN THE MERGER?
If the proposed merger is completed, at the effective time of the merger,
Jazz stockholders will be entitled to receive 1.8 ordinary shares of Tower for
each share of Jazz common stock that they own (referred to as the "exchange
ratio"), and cash in lieu of fractional shares. See "THE MERGER AGREEMENT -
MERGER CONSIDERATION."
WHAT WILL HAPPEN IN THE PROPOSED MERGER TO THE WARRANTS, OPTIONS AND
CONVERTIBLE NOTES ISSUED BY JAZZ THAT COULD BE EXERCISED FOR OR CONVERTED INTO
JAZZ COMMON STOCK AT THE OPTION OF THE HOLDER?
After the merger, warrants, options and convertible notes issued by Jazz
will be exercisable for or convertible into Tower ordinary shares pursuant to
their existing terms. The number of ordinary shares of Tower receivable upon
exercise or conversion, and, in the case of warrants and options, the exercise
price to be paid, and in the case of the convertible notes, the conversion rate,
will be adjusted to reflect the exchange ratio. See "THE MERGER AGREEMENT -
TREATMENT OF JAZZ WARRANTS," "THE MERGER AGREEMENT - TREATMENT OF JAZZ OPTIONS"
and "THE MERGER AGREEMENT - TREATMENT OF JAZZ CONVERTIBLE NOTES."
WHEN IS THE MERGER TRANSACTION EXPECTED TO BE COMPLETED?
The merger is expected to be completed in the second half of 2008. Until
that time, both companies will continue to operate independently. However, Jazz
and Tower cannot predict the exact timing of the completion of the merger
because it is subject to approval by Jazz stockholders and other conditions. See
"THE MERGER AGREEMENT - CONDITIONS TO COMPLETION OF THE MERGER."
1
DOES THE JAZZ BOARD OF DIRECTORS RECOMMEND THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER?
Yes. The Jazz board of directors unanimously recommends that Jazz
stockholders vote "FOR" approval and adoption of the merger agreement and the
approval of the merger. The Jazz board of directors has unanimously determined
that the merger and the transactions contemplated by the merger agreement are
advisable and fair to, and in the best interests of, Jazz and its stockholders
and has approved the merger agreement, the merger and the other transactions
contemplated by the merger agreement. See "THE MERGER - JAZZ'S REASONS FOR THE
MERGER" and "THE MERGER - RECOMMENDATION OF THE JAZZ BOARD OF DIRECTORS."
WHAT VOTE OF JAZZ STOCKHOLDERS IS REQUIRED TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND APPROVE THE MERGER?
The affirmative vote of the holders of a majority of Jazz's common stock
outstanding on the record date for the special meeting is required to approve
and adopt the merger agreement and approve the merger.
IS A VOTE NEEDED BY TOWER SHAREHOLDERS?
A vote of Tower's shareholders is not required for approval of the merger
agreement or the merger.
WHEN AND WHERE WILL THE JAZZ SPECIAL MEETING BE HELD?
The Jazz special meeting will take place on September 17, 2008, beginning
at 10:00 a.m. Pacific time, at 4321 Jamboree Road, Newport Beach, California
92660.
WHO CAN ATTEND AND VOTE AT THE JAZZ SPECIAL MEETING?
All record holders of Jazz common stock as of the close of business on
August 8, 2008, the record date for the Jazz special meeting, are entitled to
notice of, and may attend and vote at, the special meeting. As of the close of
business on the record date, there were 19,031,276 shares of our common stock
outstanding, held by 5 stockholders of record.
WHAT SHOULD JAZZ STOCKHOLDERS DO NOW IN ORDER TO VOTE ON THE PROPOSAL
BEING CONSIDERED AT THE SPECIAL MEETING?
STOCKHOLDER OF RECORD: SHARES REGISTERED IN YOUR NAME. If on August 8,
2008 your shares of Jazz common stock were registered directly in your name with
Jazz's transfer agent, Continental Stock Transfer & Trust Company, then you are
a stockholder of record. If you are a stockholder of record, you may vote in
person at the special meeting or vote by proxy using the enclosed proxy card.
Whether or not you plan to attend the special meeting, we urge you to vote by
proxy to ensure your vote is counted. You may still attend the special meeting
and vote in person even if you have already voted by proxy. You may vote by
proxy in any of the following ways:
o INTERNET. You may vote by proxy over the Internet by going to the
website listed on your proxy card. Once at the website, follow the
instructions to vote your proxy.
o TELEPHONE. You may vote by proxy using the toll-free number listed
on your proxy card. Voice prompts will help you and confirm that
your voting instructions have been followed.
o MAIL. You may vote by proxy by signing, dating and returning your
proxy card in the pre-addressed postage-paid envelope provided.
All shares entitled to vote and represented by properly completed proxies
received prior to the Jazz special meeting, and not revoked, will be voted at
the Jazz special meeting as instructed on the proxies. IF YOU SIGN YOUR PROXY
BUT DO NOT INDICATE HOW YOUR SHARES OF JAZZ COMMON STOCK SHOULD BE VOTED ON A
MATTER, THE SHARES REPRESENTED BY YOUR PROPERLY COMPLETED PROXY WILL BE VOTED AS
THE JAZZ BOARD OF DIRECTORS RECOMMENDS AND THEREFORE "FOR" THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER, AND "FOR" A
PROPOSAL TO ADJOURN OR POSTPONE THE MEETING IF DETERMINED BY THE PROXY HOLDERS
TO BE NECESSARY OR APPROPRIATE TO SOLICIT ADDITIONAL PROXIES IF THERE ARE
INSUFFICIENT VOTES AT THE TIME OF THE SPECIAL MEETING TO APPROVE AND ADOPT THE
MERGER AGREEMENT AND APPROVE THE MERGER.
The method by which you vote by proxy will in no way limit your right to
vote at the Jazz special meeting if you later decide to attend the meeting in
person.
BENEFICIAL OWNER: SHARES REGISTERED IN THE NAME OF A BROKER OR BANK. If
you are a beneficial owner of shares registered in the name of your broker,
bank, or other agent, you should have received a proxy card and voting
instructions with these proxy materials from that organization rather than from
Jazz's transfer agent. Simply complete and mail the proxy card in accordance
with the instructions provided by your broker, bank or other agent, or follow
the instructions for voting in any other manner as provided by your broker, bank
or other agent, to ensure that your vote is counted. To vote in person at the
special meeting, you must obtain a valid proxy from your broker, bank or other
agent. Follow the instructions from your broker, bank or other agent included
with these proxy materials, or contact your broker or bank to request a proxy
form.
2
Your broker will vote your shares of Jazz common stock only if you provide
instructions on how to vote. You should follow the directions provided by your
broker regarding how to instruct your broker to vote your shares. Without
instructions, your shares of Jazz common stock will be a broker "non-vote,"
which will have the effect of a vote against the approval and adoption of the
merger agreement and approval of the merger.
ARE JAZZ STOCKHOLDERS ENTITLED TO DISSENTERS' APPRAISAL RIGHTS?
No. You will not have any appraisal rights under the Delaware General
Corporation Law, or under Jazz's certificate of incorporation, in connection
with the merger, and neither Jazz nor Tower will independently provide you with
any such rights.
WHAT WILL HAPPEN IF I ABSTAIN FROM VOTING OR FAIL TO VOTE?
An abstention or failure to vote by a Jazz stockholder will have the
effect of a vote against the approval and adoption of the merger agreement and
the approval of the merger. If you sign and return your proxy card but do not
indicate how you want to vote, your proxy will be counted as a vote in favor of
the approval and adoption of the merger agreement and the transactions
contemplated by the merger agreement.
CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY OR DIRECTION
FORM?
If you are a record holder of our common stock and you vote by proxy, you
may revoke your proxy or change your voting instructions at any time before your
proxy is exercised:
o If you mailed a proxy card, by timely mailing another proxy card
with a later date;
o If you voted by telephone or on the internet, by calling the same
telephone number or following the instructions on the internet;
o By timely notifying Jazz in writing before the special meeting that
you have revoked your proxy; or
o By attending the special meeting, revoking your proxy and voting in
person.
If your shares are held in "street name," consult your broker for
instructions on how to revoke your proxy or change your vote.
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
IF YOU ARE A RECORD HOLDER OF JAZZ COMMON STOCK, PLEASE DO NOT SEND YOUR
JAZZ COMMON STOCK CERTIFICATES TO US NOW. AFTER THE EFFECTIVE TIME OF THE
MERGER, THE EXCHANGE AGENT WILL MAIL A LETTER OF TRANSMITTAL TO YOU. YOU SHOULD
SEND YOUR JAZZ COMMON STOCK CERTIFICATES ONLY IN COMPLIANCE WITH THE
INSTRUCTIONS THAT WILL BE PROVIDED IN THE LETTER OF TRANSMITTAL.
WHAT ARE THE IMPLICATIONS OF TOWER BEING A "FOREIGN PRIVATE ISSUER"?
Tower is subject to the reporting requirements under the Securities
Exchange Act of 1934, or the Exchange Act, applicable to foreign private
issuers. Tower is required to file its annual report on Form 20-F with the SEC
within six months after the end of each fiscal year and to furnish reports on
Form 6-K. In addition, Tower must file reports with the Israel Securities
Authority and the Tel Aviv Stock Exchange regarding certain information required
to be publicly disclosed by Tower in the United States or that is filed with the
Securities and Exchange Commission, or regarding information distributed or
required to be distributed by Tower to its shareholders. Tower is exempt from
certain rules under the Exchange Act, including the proxy rules which impose
certain disclosure and procedural requirements for proxy solicitations under
Section 14 of the Exchange Act. Moreover, Tower is not required to file periodic
reports and financial statements with the SEC as frequently or as promptly as
U.S. companies whose securities are registered under the Exchange Act, and is
not required to comply with Regulation FD, which addresses certain restrictions
on the selective disclosure of material information. In addition, among other
matters, Tower's officers, directors and principal shareholders are exempt from
the reporting and "short-swing" profit recovery provisions of Section 16 of the
Exchange Act and the rules under the Exchange Act with respect to their
purchases and sales of Tower ordinary shares.
WHAT SHOULD I DO IF I RECEIVE MORE THAN ONE SET OF VOTING MATERIALS?
If you receive more than one proxy card, your shares are registered in
more than one name or are registered in different accounts. Please complete,
sign and return each proxy card to ensure that all of your Jazz common stock are
voted.
3
WHAT DO I NEED TO DO NOW?
Jazz urges all Jazz stockholders to read carefully and consider the
information contained in this proxy statement/prospectus, including the annexes,
and to consider how the merger will affect you as a stockholder of Jazz. You
should then vote as soon as possible in accordance with the instructions
provided in this proxy statement/prospectus and on the enclosed proxy card.
WHO CAN HELP ANSWER MY QUESTIONS?
If you have questions about the merger or if you need additional copies of
the proxy statement or the enclosed proxy card you should contact:
Chief Legal Officer, Mr. Allen R. Grogan, Jazz Technologies, Inc.
4321 Jamboree Road, Newport Beach, CA 92660
Tel: (949) 435-8000
Email: allen.grogan@jazztechnologies.com
You may also obtain additional information about Tower from documents
filed with the SEC by following the instructions in the section titled "WHERE
YOU CAN FIND MORE INFORMATION; INCORPORATION OF INFORMATION BY REFERENCE."
4
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT
TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF
THE LEGAL TERMS OF THE MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE PROXY
STATEMENT/PROSPECTUS, ITS ANNEXES, AND THE OTHER DOCUMENTS TO WHICH WE REFER
YOU, INCLUDING IN PARTICULAR THE ATTACHED MERGER AGREEMENT ITSELF, THAT ARE
ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AND INCORPORATED BY REFERENCE
HEREIN. IN ADDITION, TOWER AND JAZZ ENCOURAGE YOU TO READ THE INFORMATION
INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS, WHICH INCLUDES
IMPORTANT INFORMATION ABOUT TOWER THAT HAS BEEN FILED WITH THE SEC. YOU MAY
OBTAIN THE INFORMATION INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT/PROSPECTUS WITHOUT CHARGE BY FOLLOWING THE INSTRUCTIONS IN THE SECTION
ENTITLED "WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION OF INFORMATION BY
REFERENCE."
THE COMPANIES
TOWER. Tower is a pure-play independent specialty wafer foundry
established in 1993. Tower manufactures integrated circuits with geometries
ranging from 1.0 to 0.13-micron; it also provides complementary technical
services and design support. In addition to digital CMOS process technology,
Tower offers advanced mixed-signal & RF-CMOS, Power Management, CMOS
image-sensor and non-volatile memory technologies. To provide world-class
customer service, Tower maintains two manufacturing facilities, each with
standard and specialized process technology processes: Fab 1 ranging from 1.0 to
0.35 and Fab 2 featuring 0.18 and 0.13-micron.
Tower's ordinary shares are publicly traded on the NASDAQ Global Market
under the symbol "TSEM" and on the Tel Aviv Stock Exchange under the same
symbol.
Tower's manufacturing facilities and executive offices are located in the
Ramat Gavriel Industrial Park, Post Office Box 619, Migdal Haemek, 23105 Israel,
and Tower's telephone number is 972-4-650-6611.
JAZZ. Jazz is the parent company of Jazz Semiconductor, a leading
independent wafer foundry focused on Analog-Intensive Mixed-Signal (AIMS)
process technologies. Jazz's broad product portfolio includes digital CMOS and
specialty technologies, such as RF CMOS, Analog CMOS, SiGe BiCMOS, SiGe
C-BiCMOS, Power CMOS and High Voltage CMOS. These technologies are designed for
customers who seek to produce analog and mixed-signal semiconductor devices that
are smaller and more highly integrated, power-efficient, feature-rich and
cost-effective than those produced using standard process technologies.
Jazz's common stock is publicly traded on the American Stock Exchange, or
AMEX, under the symbol "JAZ."
Jazz's principal executive offices are located at 4321 Jamboree Road,
Newport Beach, CA 92660, and Jazz's telephone number is (949) 435-8000. Jazz's
U.S. wafer fabrication facilities are located in Newport Beach, CA and Jazz also
has engineering and manufacturing support in Shanghai, China.
ARMSTRONG ACQUISITION CORP. Merger Sub is a wholly owned subsidiary of
Tower. Merger Sub was formed on May 16, 2008 solely for the purpose of effecting
the merger. Merger Sub has not conducted any business operations other than
those incidental to its formation and in connection with the transactions
contemplated by the merger agreement. Upon consummation of the merger, Merger
Sub will merge with and into Jazz and cease to exist, with Jazz surviving the
merger and continuing its existence as a wholly owned subsidiary of Tower.
THE MERGER (PAGE 31)
Tower and Jazz have agreed to become part of the same group of companies
pursuant to the merger agreement described in this proxy statement/prospectus.
Under the terms of the merger agreement, Merger Sub will merge with and into
Jazz, with Jazz surviving the merger and continuing its existence as a wholly
owned subsidiary of Tower. The merger agreement is attached as Annex 1 to this
proxy statement/prospectus. Tower and Jazz encourage you to read the merger
agreement in its entirety because it is the legal document that governs the
merger.
THE MERGER CONSIDERATION (PAGE 45)
In the merger, each share of Jazz common stock outstanding immediately
prior to the effective time of the merger will be automatically converted into
the right to receive 1.8 ordinary shares of Tower, which is referred to as the
exchange ratio, together with the right, if any, to receive cash in lieu of
fractional shares of Jazz. No fraction of a Tower ordinary share will be issued
in the merger. Instead, each holder of shares of Jazz common stock who would
otherwise be entitled to receive a fractional Tower ordinary share in the merger
will be entitled to receive a cash payment in lieu of such fractional Tower
ordinary share.
Jazz stockholders of record will have to surrender their common stock
certificates to receive the merger consideration payable to them. PLEASE DO NOT
SEND ANY CERTIFICATES NOW. Tower or the exchange agent will send Jazz
stockholders written instructions on how to surrender Jazz common stock
certificates for Tower ordinary shares after the merger is completed.
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TREATMENT OF JAZZ WARRANTS (PAGE 46)
Under the merger agreement, Tower will assume all outstanding warrants to
purchase Jazz common stock that are outstanding immediately prior to the
effective time of the merger, and these warrants will become exercisable for
Tower ordinary shares. Each warrant to purchase Jazz common stock at the
effective time of the merger will become a warrant to purchase 1.8 Tower
ordinary shares at an exercise price of $2.78 per Tower ordinary share which is
equal to the existing exercise price of $5.00, divided by the exchange ratio of
1.8. No fractional ordinary shares of Tower will be issued upon the exercise of
the warrants, but rather the number of Tower ordinary shares to be issued shall
be rounded up to the nearest whole number. Tower intends to file with the SEC a
post-effective amendment to the registration statement of which this proxy
statement/prospectus is a part with respect to the Tower ordinary shares
issuable upon exercise of the Jazz warrants. Tower anticipates that following
the merger, the Jazz warrants will be delisted from the American Stock Exchange
and will be quoted on the Nasdaq Global Market. We cannot
assure you, however, that the Jazz warrants will or will continue to be quoted
on the Nasdaq Global Market.
TREATMENT OF JAZZ UNITS (PAGE 46)
At the effective time of the merger, each Jazz unit will be mandatorily
separated into one share of Jazz common stock and two Jazz warrants. The shares
of Jazz common stock will convert into Tower ordinary shares and the Jazz
warrants will become exercisable for Tower ordinary shares, each as described
above.
TREATMENT OF JAZZ CONVERTIBLE NOTES (PAGE 46)
Each holder of Jazz convertible notes will have the right to convert the
convertible note into the number of ordinary shares of Tower equal to 1.8
multiplied by the number of shares of common stock of Jazz that such holder
would have been entitled to receive if the convertible note was converted
immediately prior to the effective time of the merger. For example, each $1,000
in original principal amount of Jazz convertible notes will be convertible into
245.57 Tower ordinary shares, representing an implied conversion price of
approximately $4.07 per Tower ordinary share, which is equal to the existing
implied conversion price of $7.33 per share of Jazz common stock, divided by the
exchange ratio of 1.8. Tower intends to file with the SEC a post-effective
amendment to the registration statement of which this proxy statement/prospectus
is a part with respect to the Tower ordinary shares issuable upon conversion of
the Jazz convertible notes.
TREATMENT OF JAZZ OPTIONS (PAGE 46)
Under the merger agreement, Tower will assume all outstanding options to
purchase Jazz common stock that are outstanding immediately prior to the
effective time of the merger, whether vested or unvested, and these options will
become exercisable for Tower ordinary shares. Each option to purchase Jazz
common stock outstanding at the effective time of the merger will become an
option to purchase a number of Tower ordinary shares equal to 1.8 multiplied by
the number of shares of Jazz common stock that such option was exercisable for
prior to the effective time, rounded down to the nearest whole number of Tower
ordinary shares, and the per share exercise price of each option will equal the
per share exercise price of such option divided by 1.8, rounded up to the
nearest cent. For example, an option to purchase 100 shares of Jazz common stock
will become an option to purchase 180 Tower ordinary shares. Tower has
undertaken to file within ten business days of the effective time of the merger,
subject to applicable law, a Form S-8 registration statement with the SEC
covering the Tower ordinary shares issuable upon the exercise of the assumed
Jazz options.
THE SPECIAL MEETING (PAGE 28)
DATE, TIME & PLACE
The special meeting of Jazz stockholders will be held at 10:00 a.m.,
Pacific time, on September 17, 2008, at 4321 Jamboree Road, Newport Beach,
California 92660.
MATTERS TO BE CONSIDERED AT THE JAZZ STOCKHOLDERS' MEETING
The purposes of the Jazz stockholders' meeting are to vote upon a proposal
to approve and adopt the merger agreement and the approve the merger; and to
vote upon any proposal by Jazz to adjourn or postpone the special meeting if
determined to be necessary or appropriate to solicit additional proxies if there
are insufficient votes at the time of the special meeting to adopt the merger
agreement and approve the merger.
STOCKHOLDERS ENTITLED TO VOTE
You are entitled to notice of, and may vote at, the special meeting if you
were the record holder of our common stock as of the close of business on August
8, 2008, the record date for the special meeting. As of the close of business on
the record date, there were 19,031,276 shares of Jazz's common stock
outstanding, held by 5 stockholders of record.
6
QUORUM
A quorum of Jazz stockholders is necessary to hold a valid meeting. A
quorum will be present at the Jazz special meeting if a majority of Jazz's
outstanding shares of common stock entitled to vote at the special meeting are
represented in person or by proxy. Abstentions and broker non-votes will count
as present for the purposes of establishing a quorum.
VOTE REQUIRED
The affirmative vote of the holders of a majority of shares of Jazz common
stock outstanding on the record date for the special meeting is required to
approve and adopt the merger agreement and approve the merger.
RECOMMENDATION OF THE JAZZ BOARD OF DIRECTORS (PAGE 36)
The Jazz board of directors unanimously recommends that Jazz stockholders
vote "FOR" approval and adoption of the merger agreement and approve the merger.
The Jazz board of directors has unanimously determined that the merger and the
transactions contemplated by the merger agreement are advisable and fair to, and
in the best interests of, Jazz and its stockholders and has approved the merger
agreement, the merger and the other transactions contemplated by the merger
agreement. See also "THE MERGER - JAZZ'S REASONS FOR THE MERGER."
REASONS FOR THE MERGER (PAGE 33)
In making its determination, the board of directors of Jazz considered a
wide variety of factors in connection with its evaluation of Tower. In light of
the complexity of those factors, Jazz's board of directors did not consider it
practicable to, nor did it attempt to, quantify or otherwise assign relative
weights to the specific factors it considered in reaching its decision.
For a description of the factors considered by the Jazz board of
directors, see "THE MERGER - JAZZ'S REASONS FOR THE MERGER."
OPINION OF JAZZ'S FINANCIAL ADVISOR (PAGE 38)
In connection with the merger, Jazz's board of directors received a
written opinion, dated May 17, 2008, from Jazz's financial advisor, UBS
Securities LLC, referred to as UBS, as to the fairness, from a financial point
of view and as of the date of such opinion, of the exchange ratio provided for
in the merger. The full text of UBS' written opinion, dated May 17, 2008, is
attached to this proxy statement/prospectus as Annex 2. UBS' OPINION WAS
PROVIDED FOR THE BENEFIT OF JAZZ'S BOARD OF DIRECTORS IN CONNECTION WITH, AND
FOR THE PURPOSE OF, ITS EVALUATION OF THE EXCHANGE RATIO FROM A FINANCIAL POINT
OF VIEW AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER. THE OPINION DOES
NOT ADDRESS THE RELATIVE MERITS OF THE MERGER AS COMPARED TO OTHER BUSINESS
STRATEGIES OR TRANSACTIONS THAT MIGHT BE AVAILABLE WITH RESPECT TO JAZZ OR
JAZZ'S UNDERLYING BUSINESS DECISION TO EFFECT THE MERGER. THE OPINION DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE OR ACT WITH
RESPECT TO THE MERGER. Holders of Jazz common stock are encouraged to read UBS'
opinion carefully in its entirety for a description of the assumptions made,
procedures followed, matters considered and limitations on the review undertaken
by UBS.
SHARE OWNERSHIP AFTER THE MERGER
Based on the number of shares of Jazz common stock outstanding on July 31,
2008, Tower expects to issue approximately 34.3 million ordinary shares of Tower
at the effective time of the merger to Jazz stockholders. Based on the number of
shares of Jazz common stock and Tower ordinary shares outstanding on July 31,
2008, immediately after the effective time of the merger, former Jazz
stockholders will own Tower ordinary shares representing approximately 21.5% of
the then-outstanding Tower ordinary shares. In addition, Tower may issue up to
an additional 96.5 million Tower ordinary shares as a result of the future
exercise or conversion of outstanding Jazz options, warrants and convertible
notes.
SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS (PAGE 98)
At the close of business on July 31, 2008, directors and executive officers
of Jazz and their affiliates beneficially owned approximately 4,032,506 shares
of Jazz common stock, and owned and were entitled to vote 3,246,255 shares of
Jazz common stock, representing approximately 21.2%, and approximately 17.1%,
respectively, of the shares of Jazz common stock outstanding on that date.
For further information on share ownership of directors and officers of
Jazz see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
JAZZ."
INTERESTS OF JAZZ'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (PAGE 36)
In considering the recommendation of the board of directors of Jazz, you
should be aware that certain directors and executive officers of Jazz may have
interests in the merger that are different from, or in addition to, your
interests as a stockholder of Jazz generally and may create potential conflicts
of interest. The board of directors of Jazz was aware of these interests and
considered them when they approved and adopted the merger agreement, and the
merger contemplated thereby.
7
TOWER ORDINARY SHARES TRADED ON NASDAQ AND TASE; DELISTING AND DEREGISTRATION OF
JAZZ SECURITIES (PAGE 43)
Jazz common stock, warrants and units will continue to trade on the
American Stock Exchange until the completion of the proposed merger. Following
the completion of the proposed merger, Jazz common stock, and units will no
longer be listed on the AMEX and will be deregistered under the Exchange Act. In
the merger, holders of Jazz common stock will receive ordinary shares of Tower
which are publicly traded on the NASDAQ Global Market under the symbol "TSEM"
and the Tel Aviv Stock Exchange, or TASE, under the symbol "TSEM." At the
effective time of the merger, each Jazz unit will be mandatorily separated into
one share of Jazz common stock (which will convert into Tower ordinary shares as
described above) and two Jazz warrants. At the effective time of the merger,
Jazz warrants will remain outstanding and will become exercisable for Tower
ordinary shares as described in this proxy statement/prospectus. Tower
anticipates that following the merger, the Jazz warrants will be delisted from
the American Stock Exchange and will be quoted on the Nasdaq Global Market. We
cannot assure you, however, that the Jazz warrants will or will continue to be
quoted on the Nasdaq Global Market.
CASH IN LIEU OF FRACTIONAL SHARES (PAGE 43)
No fractions of Tower ordinary shares will be issued as consideration in
the merger and holders of Jazz common stock who would otherwise be entitled to a
fraction of a Tower ordinary share (after aggregating all fractional shares that
otherwise would be received by such holder), shall be entitled to receive a cash
payment in lieu thereof. The amount of cash received by such stockholder will be
equal to an amount of cash (rounded to the nearest whole cent), without
interest, equal to the product of (i) such fraction, multiplied by (ii) the
average closing price of one Tower ordinary share for the five most recent days
that Tower ordinary shares have traded ending on the trading day immediately
prior to the effective time, as reported on the Nasdaq Global Market.
NO DISSENTERS' APPRAISAL RIGHTS (PAGE 44)
Holders of Jazz common stock will not have any appraisal rights under the
Delaware General Corporation Law, or under Jazz's certificate of incorporation,
in connection with the merger, and neither Jazz nor Tower will independently
provide holders of Jazz common stock with any such rights. For further
information concerning the Jazz Special Meeting see "THE JAZZ SPECIAL MEETING OF
STOCKHOLDERS."
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 51)
A number of conditions must be satisfied or waived, if permissible under
legal requirements, before the proposed merger can be completed. These include,
among others:
o effectiveness of the registration statement on Form F-4; and
o adoption of the merger agreement by the stockholders of Jazz.
For a more detailed description of this provision see "THE MERGER
AGREEMENT - CONDITIONS TO COMPLETION OF THE MERGER."
REGULATORY FILINGS AND APPROVALS NECESSARY TO COMPLETE THE MERGER (PAGE 42)
In addition to the effectiveness of this registration statement, of which
this proxy statement/prospectus is a part, and compliance with applicable
provisions of Delaware and Israeli laws, several additional regulatory filings
and approvals are required in connection with the merger including:
o approval of the Office of the Chief Scientist of the Israeli
Ministry of Industry, Trade and Labor;
o approval of the Israeli Investment Center of the Israeli Ministry of
Industry, Trade and Labor;
o approval of the Israel Lands Administration; and
o approval of the Tel-Aviv Stock Exchange (listing of additional
shares).
Tower is also required to provide notice: (i) to the Directorate of
Defense Trade Controls under the International Traffic in Arms Regulations
("ITAR") at least 60 days prior to closing, (ii) prior to the closing date, to
the Nasdaq Global Market (on a Notification Form: Listing of Additional Shares);
and (iii) following the Effective Date, to the Investment Center, the Israeli
Office of the Chief Scientist and the Israel Lands Administration. The merger is
not expected to be subject to the Hart-Scott-Rodino Act.
On May 27, 2008, Tower submitted applications for the approval of the
change in the ownership of its shares resulting from the transactions
contemplated by the merger agreement, to each of the Office of the Chief
Scientist, Investment Center and Israel Lands Administration.
On June 3, 2008, Tower received the approval of the Office of the Chief
Scientist of the Israeli Ministry of Industry, Trade and Labor.
On June 10, 2008, Jazz filed, and on June 24, 2008, Tower filed, a notice
with the Directorate of Defense Trade Controls under ITAR.
8
Jazz and Tower have been in pre-notification discussions with the Committee
on Foreign Investment in the United States ("CFIUS") regarding the proposed
merger and intend to make a voluntary filing on or about August 8, 2008 seeking
CFIUS review of the proposed merger. There can be no assurance that CFIUS would
not request the parties to enter into a mitigation agreement that could impose
material conditions on the operations of the Jazz business.
An application to the Tel-Aviv Stock Exchange for the listing of additional
shares will be submitted on or around the closing date.
DIRECTORS AND MANAGEMENT OF THE MERGED COMPANY AFTER THE MERGER (PAGE 42)
The directors and officers of Tower will remain the directors and officers
of Tower following the merger until their successors are duly elected, appointed
or qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation of Tower and applicable law. As contemplated
by the merger agreement, the directors and officers of Jazz following the merger
will be determined prior to the effective time of the merger.
NO SOLICITATION OF TRANSACTIONS (PAGE 49)
After the date of the merger agreement and until the completion of the
merger, Jazz is prohibited from seeking any alternative transactions for the
acquisition of Jazz other than the merger transaction with Tower, subject to the
conditions and terms specified in the merger agreement. The prohibition includes
not soliciting, or initiating or inducing, encouraging or knowingly facilitating
any alternative proposals or inquiries, not furnishing any information regarding
Jazz or its subsidiaries to any third party in connection with any alternative
proposals or inquiries, not engaging in any discussions or negotiations with any
third party concerning any alternative proposals or inquiries, not approving or
recommending any alternative proposals or inquiries, and not entering into any
letter of intent or similar agreements otherwise relating to any alternative
acquisition transaction.
However, Jazz may, at any time prior to the adoption of the merger
agreement by Jazz's stockholders, take some of the actions otherwise prohibited
if Jazz's board of directors determines in good faith that an alternative
acquisition proposal constitutes or could reasonably be expected to lead to a
superior proposal, and that such actions are required in order for Jazz's board
of directors to comply with its fiduciary duties to Jazz's stockholders under
applicable law.
In addition, prior to the closing of the merger, neither Jazz's board of
directors nor any committee thereof may withdraw or modify in a manner adverse
to Tower, its recommendation that stockholders adopt the merger agreement,
unless, among other things, Jazz's board of directors has determined in good
faith that doing so is required in order for Jazz's board of directors to comply
with its fiduciary duties to Jazz's stockholders under applicable law.
TERMINATION (PAGE 52)
The merger agreement may be terminated at any time, prior to the effective
time of the merger (notwithstanding any approval by Jazz's stockholders) by
mutual written consent of Tower and Jazz, or as follows:
o by either Tower or Jazz if, among other things:
o the merger has not been completed by October 20, 2008; or
o the adoption of the merger agreement by Jazz's stockholders
has not been obtained; or
o any legal requirement or final and non-appealable
injunction enacted after May 19, 2008 prohibits the
consummation of the merger, and, if violated, would have
material negative consequences for Tower or Jazz or any of
their respective directors, officers or employees.
o by Tower if:
o at any time prior to the adoption of the merger agreement
by the Jazz stockholders, certain events specified in the
merger agreement occur, which events include the following:
o Jazz's board of directors fails to recommend
that the Jazz stockholders adopt the merger
agreement, withdraws or modifies its recommendation
in a manner adverse to Tower or fails to reaffirm
its recommendation after Tower requests,
o Jazz's board of directors approves, endorses or
recommends an alternative acquisition proposal, or
Jazz enters in a binding letter of intent or
agreement accepting any alternative acquisition
proposal, or
o a tender or exchange offer relating to Jazz's
securities has been commenced and Jazz has not sent
within 15 business days to its stockholders or filed
with the SEC a statement disclosing that it
recommends rejection of such offer.
o Jazz breaches any of its representations, warranties,
covenants or agreements, such that the applicable closing
conditions for Tower to effect the merger as set forth in
the merger agreement would not be satisfied and such breach
is not cured (if curable) within 30 days of delivery of
written notice by Tower to Jazz of Jazz's breach (so long
as Tower is not itself in breach of the any of its
representations, warranties, covenants or agreements so as
to cause the applicable closing conditions for Jazz to
effect the merger as set forth in the merger agreement not
to be satisfied); or
o by Jazz if Tower breaches any of its representations, warranties,
covenants or agreements, such that the applicable closing conditions
for Jazz to effect the merger as set forth in the merger agreement
would not be satisfied and such breach is not cured (if curable)
within 30 days of delivery of written notice by Jazz to Tower of
Tower's breach (so long as Jazz is not itself in breach of any of
its representations, warranties, covenants or agreements so as to
cause the applicable closing conditions for Tower to effect the
merger as set forth in the merger agreement not to be satisfied).
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For a more detailed description of these provisions see "THE MERGER
AGREEMENT - TERMINATION."
EXPENSES; TERMINATION FEE (PAGE 53)
Generally, each party to the merger agreement will bear its own expenses
incurred in connection with the merger agreement and the transactions
contemplated by the merger agreement.
Jazz has agreed to pay Tower a termination fee of $1.2 million and
reimburse Tower for up to $1 million in expenses incurred in connection with the
transaction, if the merger agreement is terminated under one of the following
circumstances:
o by Tower - if one of the following events specified in the merger
agreement occurs:
o Jazz's board of directors fails to recommend that the Jazz
stockholders adopt the merger agreement, withdraws or
modifies its recommendation in a manner adverse to Tower,
or fails to reaffirm its recommendation after Tower
requests,
o Jazz's board of directors approves, endorses or recommends
an alternative acquisition proposal, or Jazz enters into a
binding letter of intent or agreement accepting any
alternative acquisition proposal, or
o a tender or exchange offer relating to Jazz's securities
has been commenced and Jazz has not sent within 15 business
days to its stockholders or filed with the SEC a statement
disclosing that it recommends rejection of such offer; or
o by Tower or Jazz - if: (i) the adoption of the merger agreement by
Jazz's stockholders has not been obtained; and (ii) prior to the
time of the failure to adopt the merger agreement, an alternative
acquisition proposal will have been publicly disclosed; and (iii)
within 12 months of the date of termination, an alternative
acquisition of Jazz will have been consummated or Jazz will have
entered into an agreement or binding letter of intent providing for
such an acquisition (which is subsequently consummated); or
o by Tower or Jazz - if: (i) the merger has not been completed by
October 20, 2008; and (ii) prior to termination, an alternative
acquisition proposal will have been publicly disclosed (and such
alternative acquisition proposal shall not have been unconditionally
and publicly withdrawn prior to the date of the Jazz special
meeting); and (iii) within 12 months of the date of termination, an
alternative acquisition of Jazz will have been consummated or Jazz
will have entered into an agreement or binding letter of intent
providing for such an acquisition (which is subsequently
consummated), provided that, in the case of termination by Tower,
Tower can demonstrate that it would reasonably have been expected
that the merger would have been consummated prior to termination but
for the making or pendency of such alternative acquisition proposal.
In addition and subject to certain conditions, if the merger agreement is
terminated by either Jazz or Tower because the adoption of the merger agreement
by Jazz's stockholders has not been obtained, Jazz has agreed reimburse Tower
for up to $500,000 in expenses.
If Jazz fails promptly to pay when due any amounts payable by Jazz, then
it must reimburse Tower for all costs and expenses incurred in collection of
such amounts and must pay Tower interest on such overdue amounts at a rate per
annum equal to 5%.
For a more detailed description of this provision see "THE MERGER
AGREEMENT - EXPENSES; TERMINATION FEE."
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 115)
The merger has been structured to qualify as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended. Assuming the
Merger so qualifies, you will not recognize gain or loss on the exchange of your
Jazz common stock for Tower ordinary shares, although gain or loss may be
recognized upon the receipt of cash in lieu of fractional Tower ordinary shares.
Tower and Jazz cannot assure you that the Internal Revenue Service will agree
with the treatment of the merger as a tax-free reorganization.
Tax matters are complicated, and the tax consequences of the merger to a
particular stockholder will depend in part on such stockholder's circumstances.
Accordingly, we urge you to consult your own tax advisor for a full
understanding of the tax consequences of the merger to you, including the
applicability and effect of federal, state, local and foreign income and other
tax laws.
For further information, please refer to "TAXATION - CERTAIN MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
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MATERIAL ISRAELI TAX CONSIDERATIONS (PAGE 116)
According to Israeli tax law, the merger may be viewed as a taxable event
for Jazz shareholders who are Israeli resident individuals or companies.
Therefore, Tower may withhold tax from any Israeli resident shareholders of Jazz
that does not produce a valid withholding exemption certificate issued by the
Israeli tax authorities and applying to the transactions. In addition, Jazz
security holders who become Tower ordinary shareholders following the merger
will be subject to Israeli tax law which generally exempts from Israeli capital
gains tax gains derived by foreign residents holding shares of Israeli resident
companies traded on a recognized stock exchange, such as the NASDAQ Global
Market, subject to certain conditions.
For further information, please refer to "MATERIAL ISRAELI TAX
CONSIDERATIONS - TAXATION OF TOWER SHAREHOLDERS."
ACCOUNTING TREATMENT (PAGE 42)
In accordance with U.S. GAAP, the merger will be accounted for as a
purchase through the issuance of stock by Tower as the consideration for the net
assets of Jazz. The assets (tangibles and intangibles) and liabilities of Jazz
will be recorded as of the acquisition date at their assigned values based on
purchase price allocation determined, using their respective fair values.
Goodwill, if any, will be recorded as the residual amount of the excess of cost
over the fair values of identified assets, in accordance with the requirements
of Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, referred to as "SFAS 141."
COMPARATIVE RIGHTS OF TOWER AND JAZZ SHAREHOLDERS (PAGE 57)
As a result of the merger, each of your shares of Jazz common stock will
be converted into the right to receive Tower ordinary shares according to the
exchange ratio. Because Tower is a corporation organized under the laws of
Israel, there are material differences between the rights of Jazz stockholders
and the rights of holders of Tower ordinary shares. For a discussion of these
differences, see "COMPARATIVE RIGHTS OF TOWER AND JAZZ SHAREHOLDERS" and for a
description of Tower's ordinary shares, see "DESCRIPTION OF TOWER SHARE
CAPITAL."
EXCHANGE OF STOCK CERTIFICATES (PAGE 43)
After the completion of the merger, the exchange agent appointed in
connection with the merger will send to each record holder of Jazz common stock
a letter of transmittal and exchange instructions to Jazz stockholders for use
in exchanging such stock for Tower ordinary shares and cash in lieu of
fractional ordinary shares. You should not send in your Jazz stock certificates
before receiving this letter of transmittal.
VOTING RIGHTS (PAGE 28)
STOCKHOLDER OF RECORD: SHARES REGISTERED IN YOUR NAME. If on August 8,
2008 your shares of Jazz common stock were registered directly in your name with
Jazz's transfer agent, Continental Stock Transfer & Trust Company, then you are
a stockholder of record for purposes of the special meeting. If you are a
stockholder of record, you may vote in person at the special meeting or vote by
proxy using the enclosed proxy card. Whether or not you plan to attend the
special meeting, we urge you to vote by proxy to ensure your vote is counted.
You may still attend the special meeting and vote in person even if you have
already voted by proxy. You may vote by proxy in any of the following ways:
o INTERNET. You may vote by proxy over the Internet by going to the
website listed on your proxy card. Once at the website, follow the
instructions to vote your proxy.
o TELEPHONE. You may vote by proxy using the toll-free number listed
on your proxy card. Voice prompts will help you and confirm that
your voting instructions have been followed.
o MAIL. You may vote by proxy by signing, dating and returning your
proxy card in the pre-addressed postage-paid envelope provided.
All shares entitled to vote and represented by properly completed proxies
received prior to the Jazz special meeting, and not revoked, will be voted at
the Jazz special meeting as instructed on the proxies. IF YOU SIGN YOUR PROXY
BUT DO NOT INDICATE HOW YOUR SHARES OF JAZZ COMMON STOCK SHOULD BE VOTED ON A
MATTER, THE SHARES REPRESENTED BY YOUR PROPERLY COMPLETED PROXY WILL BE VOTED AS
THE JAZZ BOARD OF DIRECTORS RECOMMENDS AND THEREFORE "FOR" THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER, AND "FOR" A
PROPOSAL TO ADJOURN OR POSTPONE THE MEETING IF DETERMINED BY THE PROXY HOLDERS
TO BE NECESSARY OR APPROPRIATE TO SOLICIT ADDITIONAL PROXIES IF THERE ARE
INSUFFICIENT VOTES AT THE TIME OF THE SPECIAL MEETING TO APPROVE THE MERGER
AGREEMENT.
The method by which you vote by proxy will in no way limit your right to
vote at the Jazz special meeting if you later decide to attend the meeting in
person.
BENEFICIAL OWNER: SHARES REGISTERED IN THE NAME OF A BROKER OR BANK. If
you are a beneficial owner of shares registered in the name of your broker,
bank, or other agent, you should have received a proxy card and voting
instructions with these proxy materials from that organization rather than from
Jazz's transfer agent. Simply complete and mail the proxy card in accordance
with the voting instructions provided by your broker, bank or other agent, or
follow the instructions for voting in any other manner as provided by your
broker, bank or other agent to ensure that your vote is counted. To vote in
person at the special meeting, you must obtain a valid proxy from your broker,
bank or other agent. Follow the instructions from your broker, bank or other
agent included with these proxy materials, or contact your broker or bank to
request a proxy form.
11
Your broker will vote your shares of Jazz common stock only if you provide
instructions on how to vote. You should follow the directions provided by your
broker regarding how to instruct your broker to vote your shares. Without
instructions, your shares of Jazz common stock will be a broker "non-vote,"
which will have the effect of a vote against the approval and adoption of the
merger agreement and approval of the merger.
SOLICITATION OF PROXIES (PAGE 30)
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the Jazz board of directors for use at the Jazz stockholders' meeting.
Jazz is soliciting the enclosed proxy on behalf of the board of directors,
and will pay all costs of preparing, assembling and mailing the proxy materials.
In addition to mailing out proxy materials, Jazz's directors and officers may
solicit proxies by telephone or fax, without receiving any additional
compensation for their services. Jazz has requested brokers, banks and other
fiduciaries to forward proxy materials to the beneficial owners of its stock.
Jazz also intends to retain Morrow & Co., Inc., a proxy solicitation firm, to
assist in the proxy solicitation process. Jazz expects to pay Morrow & Co., Inc.
its customary fee of approximately $6,500 plus $6.50 per solicited stockholder
and out-of-pocket expenses.
12
TOWER SELECTED HISTORICAL FINANCIAL INFORMATION
Tower is providing the following financial information to assist you in
your analysis of the financial aspects of the merger. The information is only a
summary and should be read in conjunction with Tower's historical consolidated
financial statements and related notes incorporated by reference herein.
The Tower selected historical information is derived from (a) the audited
consolidated financial statements of Tower as of December 31, 2007 and 2006 and
for each of its fiscal years ended December 31, 2007, 2006 and 2005, which are
incorporated by reference in this proxy statement/prospectus, and which have
been audited by Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu,
independent registered public accounting firm, whose report is also incorporated
by reference in this proxy statement/prospectus, (b) from the audited
consolidated financial statements of Tower as of December 31, 2005, 2004 and
2003 and for each of its fiscal years ended December 31, 2004 and 2003, which
are not included or incorporated by reference in this proxy statement/prospectus
and (c) the unaudited consolidated financial statements of Tower as of March 31,
2008 and for the three months ended March 31, 2008, which are incorporated by
reference in this proxy statement/prospectus.
The historical results included below and incorporated by reference in
this proxy statement/prospectus are not indicative of the future performance of
Tower and the interim results included below and incorporated by reference in
this proxy statement/prospectus are not indicative of results for the full
fiscal year.
THREE MONTHS
ENDED MARCH 31, FISCAL YEARS ENDED DECEMBER 31,
--------------- ----------------------------------------------------------------------
2008 2007 2006 2005 2004 2003
--------------- ----------------------------------------------------------------------
(US$ IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue $ 57,607 $ 230,853 $ 187,438 $ 101,991 $ 126,055 $ 61,368
Loss from operations $ (21,392) $ (99,312) $ (120,961) $ (169,814) $ (140,705) $ (104,351)
Net loss $ (29,620) $ (134,196) $ (167,927) $ (203,082) $ (137,768) $ (114,261)
Net loss per share basic and diluted $ (0.24) $ (1.13) $ (2.03) $ (3.06) $ (2.13) $ (2.45)
AS OF MARCH 31, AS OF DECEMBER 31,
--------------- ----------------------------------------------------------------------
2008 2007 2006 2005 2004 2003
--------------- ----------------------------------------------------------------------
(US$ IN THOUSANDS)
BALANCE SHEET DATA:
Total assets $ 692,118 $ 686,782 $ 714,132 $ 690,624 $ 859,043 $ 796,799
Total current liabilities $ 92,275 $ 76,936 $ 84,126 $ 95,629 $ 76,004 $ 49,813
Total long-term liabilities $ 582,680 $ 565,137 $ 590,490 $ 624,223 $ 619,721 $ 547,461
Total shareholder's equity $ 17,163 $ 44,709 $ 39,516 $ (29,228) $ 163,318 $ 199,525
13
JAZZ SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
We are providing the following summary selected financial information to
assist you in your analysis of the financial aspects of the merger. The
following selected consolidated historical financial information is only summary
and should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF JAZZ" and Jazz's and Jazz
Semiconductor's consolidated financial statements and the related notes to those
statements included elsewhere in this prospectus/proxy statement.
o The consolidated statement of operations information for the three
months ended March 28, 2008 and the consolidated balance sheet
information as of March 28, 2008 have been derived from Jazz's
unaudited consolidated financial statements for the three months
ended March 28, 2008 included elsewhere in this prospectus/proxy
statement.
o The pro forma consolidated statement of operations information for
the three months ended March 30, 2007 presents pro forma results
assuming Jazz's acquisition of Jazz Semiconductor had occurred on
January 1, 2007 and has been derived from (i) Jazz's unaudited
condensed consolidated financial statements for the three months
ended March 30, 2007 included elsewhere in this prospectus/proxy
statement and (ii) the audited consolidated financial statements of
Jazz Semiconductor for the period from December 30, 2006 to February
16, 2007 (the date of the Jazz Semiconductor acquisition) included
elsewhere in this prospectus/proxy statement.
o The pro forma consolidated statement of operations information for
the years ended December 28, 2007 and December 31, 2006 and the pro
forma consolidated balance sheet information as of such dates
presents pro forma results assuming Jazz's acquisition of Jazz
Semiconductor had occurred on January 1, 2007 and January 1, 2006,
respectively, and have been derived from (i) Jazz's audited
consolidated financial statements for the year ended December 28,
2007 included elsewhere in this prospectus/proxy statement, (ii) the
audited consolidated financial statements of Jazz Semiconductor for
the period from December 30, 2006 to February 16, 2007 (the date of
the Jazz Semiconductor acquisition) included elsewhere in this
prospectus/proxy statement, (iii) Jazz's audited financial
statements for the year ended December 31, 2006 included elsewhere
in this prospectus/proxy statement and (iv) the audited consolidated
financial statements of Jazz Semiconductor for the year ended
December 29, 2006 included elsewhere in this prospectus/proxy
statement.
o The predecessor consolidated statement of operations information for
the year ended December 30, 2005 and the predecessor consolidated
balance sheet data as of December 30, 2005 have been derived from
the audited consolidated financial statements of Jazz Semiconductor,
the predecessor of Jazz, included elsewhere in this prospectus/proxy
statement.
o The predecessor consolidated statement of operations information for
the years ended December 26, 2003 and December 31, 2004 and the
predecessor consolidated balance sheet data as of December 26, 2003
and December 31, 2004 have been derived from the audited
consolidated financial statements of Jazz Semiconductor not included
in this prospectus/proxy statement. Jazz's financial results for the
period from August 12, 2005 (inception) to December 31, 2005 were
not material and are not included in the summary consolidated
historical financial information presented below.
The pro forma results included below are not necessarily indicative of the
results that may have actually occurred had the acquisition of Jazz
Semiconductor taken place on the dates noted. The pro forma adjustments are
based upon available information and assumptions that Jazz believes are
reasonable. The pro forma adjustments include adjustments for interest expense
(relating primarily to interest on the Jazz convertible notes issued in December
2006) and increased depreciation and amortization expense as a result of the
application of the purchase method of accounting. The pro forma results exclude
the write-off of in-process research and development that was expensed at the
time of the acquisition of Jazz Semiconductor and the net gain on the repurchase
of Jazz convertible notes.
The historical results included below and elsewhere in this proxy
statement/prospectus are not indicative of the future performance of Jazz and
the interim results included below and elsewhere in this proxy
statement/prospectus are not indicative of results for the full fiscal year.
14
CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED THREE MONTHS ENDED
---------------------------------------------------------------------- -------------------------
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER MARCH 30, MARCH 28,
26, 2003 31, 2004 30, 2005 29, 2006 28, 2007 2007 2008
------------- ------------- ------------- ----------- ----------- ----------- -----------
(UNAUDITED, (UNAUDITED, (UNAUDITED,
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) PRO FORMA) PRO FORMA) PRO FORMA) (UNAUDITED)
(US$ IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue $ 185,185 $ 219,535 $ 199,030 $ 212,526 $ 207,649 $ 48,096 $ 50,830
(Loss) income from
operations (16,181) 3,056 (12,405) (37,864) (33,051) (19,293) (1,775)
Net loss (17,706) (17,346) (25,723) (47,610) (39,653) (20,776) (4,044)
Net loss per share basic
and diluted n/a n/a n/a $ (2.10) $ (1.64) $ (0.69) $ (0.22)
CONSOLIDATED BALANCE SHEET INFORMATION
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER MARCH 28,
26, 2003 31, 2004 30, 2005 29, 2006 28, 2007 2008
------------- ------------- ------------- ----------- ----------- -----------
(UNAUDITED, (UNAUDITED,
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) PRO FORMA) PRO FORMA) (UNAUDITED)
(US$ IN THOUSANDS)
Total assets $ 177,732 $ 184,420 $ 168,757 $ 426,934 $ 265,898 $ 248,584
Total current liabilities 24,582 40,415 35,400 65,976 57,978 49,285
Total long-term liabilities 30,453 24,517 25,172 196,185 155,642 150,802
Total shareholders' equity 122,697 119,488 108,185 164,773 52,278 48,497
15
SUMMARY UNAUDITED CONDENSED COMBINED
PRO FORMA FINANCIAL INFORMATION
The following table sets forth summary unaudited condensed combined pro
forma financial information of Tower and Jazz after giving effect to the merger.
The summary unaudited condensed combined pro forma information is derived from,
and should be read in conjunction with, the "TOWER UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS" and related notes included elsewhere in this
proxy statement/prospectus. The pro forma adjustments are preliminary, and the
unaudited pro forma condensed combined financial statements are not necessarily
indicative of the financial position or results of operations that may have
actually occurred had the companies been combined for the periods presented or
the future financial position or operating results of Tower or Jazz. The merger
will be accounted for under the purchase method of accounting. Under the
purchase method of accounting, the total purchase price will be allocated to the
net tangible and intangible assets acquired and liabilities assumed, based on
various estimates of their respective fair values. Tower will determine the
estimated fair values of acquired assets and assumed liabilities with the
assistance of third party valuation specialists in accordance with SFAS 141. The
purchase price allocations set forth in the following unaudited pro forma
condensed combined financial statements are based on preliminary valuation
estimates of Jazz's tangible and intangible assets. The final valuations, and
any interim updated preliminary valuation estimates, may differ materially from
these preliminary valuation estimates and, as a result, the final allocation of
the purchase price may result in reclassifications of the allocated amounts that
are materially different from the purchase price allocations reflected below.
Any material change in the valuation estimates and related allocation of the
purchase price would materially impact Tower's depreciation and amortization
expenses, the unaudited pro forma condensed combined financial statements and
Tower's results of operations after the merger.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2008 DECEMBER 31, 2007
COMBINED COMBINED
-----------------------------------------
(US$ IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Revenue $ 108,437 438,502
Loss from operations $ (21,655) (133,398)
Net loss $ (33,644) (187,164)
Net loss per common share, basic and diluted $ (0.21) (1.22)
Depreciation and amortization $ 45,779 197,272
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2008
COMBINED
---------------------
(US$ IN THOUSANDS)
(UNAUDITED)
Total assets $ 908,303
Total current liabilities $ 152,379
Total long-term liabilities $ 694,302
Total stockholders' equity $ 61,622
16
COMPARATIVE PER SHARE DATA
The following table sets forth selected historical per share information
of Tower and Jazz and unaudited pro forma combined per share information of
Tower after giving effect to the merger. You should read this information in
conjunction with the selected historical financial information included
elsewhere in this proxy statement/prospectus, and the historical financial
statements of Tower and related notes that are incorporated into this proxy
statement/prospectus by reference and the historical financial statements of
Jazz and related notes that are included elsewhere in this proxy
statement/prospectus. The unaudited pro forma combined per share information is
derived from, and should be read in conjunction with, the "TOWER UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL STATEMENTS" and related notes included
elsewhere in this proxy statement/prospectus. The historical per share
information is derived from the financial statements of Jazz as of and for the
fiscal years ended December 28, 2007 and three months ended March 28, 2008 and
Tower consolidated financial statements as of and for the fiscal year ended
December 31, 2007 and three months ended March 31, 2008.
The pro forma adjustments are preliminary, and the unaudited pro forma
condensed combined financial statements are not necessarily indicative of the
financial position or results of operations that may have actually occurred had
the companies been combined for the periods presented or the future financial
position or operating results of Tower or Jazz.
PRO FORMA
TOWER JAZZ COMBINED
--------- --------- ---------
PERCENTAGE OF SHARES OF COMMON
STOCK OUTSTANDING UPON
CONSUMMATION OF THE MERGER 78.5 21.5 100
BOOK VALUE PER SHARE $ 0.14 $ 1.42 $ 0.39
LOSS PER SHARE (BASIC AND DILUTED)
2007 $ (1.13) $ (1.64) $ (1.22)
First quarter of 2008 $ (0.24) $ (0.22) $ (0.21)
17
SECURITIES MARKET PRICE INFORMATION
MARKET PRICE
TOWER ORDINARY SHARES
Tower's ordinary shares are listed on the NASDAQ Global Market under the
symbol "TSEM" and on the Tel Aviv Stock Exchange in Israel under the same
symbol. On August 6, 2008, the most recent trading day practicable before the
date of this proxy statement/prospectus, the closing price for the Tower
ordinary shares was $0.69 per share on the NASDAQ Global Market and NIS 2.52 per
share on the Tel Aviv Stock Exchange.
JAZZ SECURITIES
Jazz units, which consist of one share of Jazz common stock, par value
$0.0001 per share, and two warrants, each to purchase an additional share of
Jazz common stock, are listed on the American Stock Exchange under the symbol
"JAZ.U." Jazz common stock is listed on the American Stock Exchange under the
symbol "JAZ" and commenced trading separately on April 4, 2006. Jazz warrants
are listed separately on the American Stock Exchange under the symbol "JAZ.WS"
and commenced trading separately on April 4, 2006. Each warrant entitles the
holder to purchase from Jazz one share of Jazz common stock at an exercise price
of $5.00 commencing March 15, 2007. The warrants will expire at 5:00 p.m., New
York City time, on March 15, 2011, or earlier upon redemption. On August 6,
2008, the most recent trading day practicable before the date of this proxy
statement/prospectus, the closing price for Jazz's common stock was $1.04 per
share, for Jazz's units was $1.00 per unit and for Jazz's warrants was $0.01 per
warrant on the American Stock Exchange. As of August 6, 2008, there were 5
holders of record of Jazz's units, 5 holders of record of Jazz's common stock
and 1 holder of record of Jazz's warrants.
The following table sets forth, for the periods indicated, the high and
low reported sales prices of Tower's ordinary shares on the NASDAQ Global Market
and Tel Aviv Stock Exchange and the high and low reported sales prices of Jazz
common stock and the high and low reported closing prices of Jazz warrants and
units on the American Stock Exchange.
JAZZ TOWER
------------------------------------------------------------- -------------------------------------------
TOWER ORDINARY TOWER ORDINARY
JAZZ COMMON STOCK JAZZ WARRANTS ON SHARES ON NASDAQ SHARES ON TEL AVIV
ON AMEX JAZZ UNITS ON AMEX AMEX GLOBAL MARKET STOCK EXCHANGE
------------------ ------------------ ------------------- ------------------ ----------------------
PERIOD HIGH ($) LOW ($) HIGH ($) LOW ($) HIGH ($) LOW ($) HIGH ($) LOW ($) HIGH (NIS) LOW (NIS)
- ------------------- -------- ------- -------- ------- -------- ------- -------- ------- ---------- ---------
Last Six Months:
- ------------------
July 2008 1.24 1.00 1.10 1.00 0.02 0.01 0.86 0.66 2.80 2.35
June 2008 1.40 1.16 1.32 1.20 0.05 0.02 0.98 0.81 3.18 2.75
May 2008 1.63 0.59 1.48 0.61 0.04 0.01 1.25 0.84 4.13 2.9
April 2008 0.68 0.55 0.65 0.53 0.02 0.01 1.07 0.83 3.89 2.93
March 2008 0.96 0.57 0.90 0.63 0.03 0.01 1.06 0.79 3.69 2.63
February 2008 1.27 0.84 1.55 0.86 0.14 0.03 1.19 1.00 4.28 3.65
Last Nine Quarters:
- -------------------
Second quarter 2008 1.63 0.55 1.48 0.53 0.05 0.01 1.25 0.81 4.13 2.75
First quarter 2008 1.68 0.57 1.80 0.63 0.16 0.00 1.45 0.74 5.50 2.63
Fourth Quarter 2007 3.25 1.33 3.96 1.75 0.47 0.13 1.8 1.35 7.25 5.25
Third Quarter 2007 3.40 2.00 4.55 3.20 0.70 0.42 1.87 1.20 7.97 5.38
Second Quarter 2007 4.25 2.80 5.76 4.00 0.80 0.45 1.94 1.42 7.63 6.20
First quarter 2007 5.83 4.06 7.40 5.58 1.00 0.64 2.08 1.64 8.88 7.00
Fourth quarter 2006 5.70 5.40 7.38 6.31 0.83 0.47 2.18 1.41 9.14 6.16
Third quarter 2006 5.75 5.32 7.10 6.15 0.72 0.40 1.51 1.24 6.69 5.11
Second quarter 2006 5.89 5.35 7.72 6.21 0.90 0.47 1.75 1.22 7.91 6.00
Last Five Years:
- -------------------
2007 5.83 1.33 7.40 1.75 1.00 0.13 2.08 1.2 8.88 5.25
2006 5.89 5.32 7.72 6.15 0.90 0.40 2.18 1.22 9.14 5.11
2005 N/A N/A N/A N/A N/A N/A 2.38 0.92 10.30 5.10
2004 N/A N/A N/A N/A N/A N/A 10.80 1.62 46.39 7.70
2003 N/A N/A N/A N/A N/A N/A 7.90 2.16 35.00 10.25
18
DIVIDEND POLICY
TOWER
Since 1998, Tower has not declared or paid cash dividends on any of its
ordinary shares and has no current intention of paying any cash dividends in the
future. The facility agreement that Tower entered into with its banks, as
amended, prohibits the payment of dividends.
The Israel Companies Law also restricts Tower's ability to declare
dividends. Tower can only distribute dividends from profits (as defined in the
law), provided that there is no reasonable suspicion that the dividend
distribution will prevent Tower from meeting its existing and future expected
obligations as they come due.
JAZZ
Jazz has not paid any dividends on its common stock to date and do not
intend to pay dividends in the near future. It is Jazz's board of director's
current intention to retain all earnings, if any, for use in business operations
and, accordingly, Jazz's board of directors does not anticipate declaring any
dividends in the foreseeable future. The payment of dividends, if and when paid,
will be within the discretion of Jazz's then board of directors and will be
contingent upon Jazz's revenues and earnings, if any, capital requirements and
general financial condition.
19
RISK FACTORS RELATING TO THE MERGER
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS, INCLUDING THE MATTERS ADDRESSED UNDER "CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS," YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS BEFORE DECIDING WHETHER TO VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. THE FOLLOWING IS ONLY A SUMMARY
OF THE RISKS RELATED TO THE MERGER, AND IN ADDITION, YOU SHOULD READ AND
CONSIDER THE RISKS ASSOCIATED WITH EACH OF THE BUSINESSES OF TOWER AND JAZZ
BECAUSE THESE RISKS WILL RELATE TO THE MERGED COMPANY. CERTAIN OF THE RISKS
ASSOCIATED WITH TOWER CAN BE FOUND IN TOWER'S FORM 20-F, WHICH HAS BEEN
INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS. YOU SHOULD ALSO
CONSIDER THE OTHER INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS AND THE OTHER
DOCUMENTS INCORPORATED BY REFERENCE BY TOWER INTO THIS PROXY
STATEMENT/PROSPECTUS. SEE "WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION OF
INFORMATION BY REFERENCE."
BECAUSE THE MARKET PRICE OF TOWER ORDINARY SHARES MAY FLUCTUATE, THE VALUE OF
TOWER ORDINARY SHARES TO BE ISSUED IN THE MERGER MAY FLUCTUATE.
Upon completion of the merger, each share of Jazz common stock will be
converted into the right to receive 1.8 ordinary shares of Tower. There will be
no adjustment to the exchange ratio for changes in the market price of either
shares of Jazz common stock or Tower ordinary shares. Accordingly, the market
value of the Tower ordinary shares that holders of Jazz common stock will be
entitled to receive upon completion of the merger will depend on the market
value of the Tower ordinary shares at the time of the completion of the merger
and could vary significantly from the market value of Tower ordinary shares on
the date of this document or the date of the Jazz special meeting. For example,
during the first five months of 2008, the sale price of Tower ordinary shares
ranged from a low of $0.74 to a high of $1.45. See "SECURITIES MARKET PRICE
INFORMATION."
Such variations could be the result of changes in the business, operations
or prospects of Tower, market assessments of the likelihood that the merger will
be completed or the timing of the completion of the merger, regulatory
considerations, general market and economic conditions and other factors both
within and beyond the control of Tower. Because the completion of the merger
will occur after the date of the Jazz special meeting, Jazz stockholders will
not know at the time of the Jazz special meeting the market value of the Tower
ordinary shares they will receive upon completion of the merger.
THE MERGER IS SUBJECT TO NO INJUNCTION, LEGAL PROCEEDING OR LAW BEING ISSUED,
PENDING OR ENACTED PROHIBITING THE CONSUMMATION OF THE MERGER. IF SUCH ACTION IS
TAKEN, CONDITIONS MAY BE IMPOSED ON THE PARTIES TO THE MERGER THAT COULD HAVE AN
ADVERSE EFFECT ON JAZZ OR TOWER OR COULD CAUSE ABANDONMENT OF THE MERGER.
Completion of the merger is conditioned upon no injunction having been
issued by a court of competent jurisdiction prohibiting the consummation of the
merger, no pending legal proceeding by any governmental agency seeking to
prohibit the consummation of the merger and no law in effect since the date of
the merger agreement that prohibits the consummation of the merger. If such
injunction, legal proceeding or law is issued, pending or enacted, there can be
no assurance that Jazz and Tower will obtain the necessary consents, orders and
approvals or that any conditions imposed on the parties will not have a material
adverse effect on the financial condition, business or results of operations of
the merged company following the merger or cause the abandonment of the merger
by Jazz and Tower. See "THE MERGER AGREEMENT - CONDITIONS TO COMPLETION OF THE
MERGER."
ANY DELAY IN COMPLETING THE MERGER MAY SIGNIFICANTLY REDUCE THE BENEFITS
EXPECTED TO BE OBTAINED FROM THE MERGER.
The merger is subject to a number of conditions that are beyond the
control of Jazz and Tower and that may prevent, delay or otherwise materially
adversely affect its completion. See "THE MERGER AGREEMENT - CONDITIONS TO
COMPLETION OF THE MERGER." Tower and Jazz cannot predict whether and when these
other conditions will be satisfied. Further, the requirements for obtaining the
required clearances and approvals could delay the completion of the merger for a
significant period of time or prevent it from occurring. Any delay in completing
the merger may significantly reduce the synergies and other benefits that Tower
and Jazz expect to achieve if they successfully complete the merger within the
expected time frame.
THE PENDENCY OF THE MERGER COULD MATERIALLY ADVERSELY AFFECT THE FUTURE BUSINESS
AND OPERATIONS OF JAZZ AND TOWER.
In connection with the pending merger, some customers and strategic
partners of each of Jazz and Tower may delay or defer decisions, which could
negatively affect revenues, earnings and cash flows of Jazz and Tower, as well
as the market prices of shares of Jazz common stock and Tower ordinary shares,
regardless of whether the merger is completed.
20
DIRECTORS AND EXECUTIVE OFFICERS OF JAZZ MAY BE DEEMED TO HAVE POTENTIAL
CONFLICTS OF INTEREST IN RECOMMENDING THAT YOU VOTE IN FAVOR OF THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
Executive officers of Jazz negotiated the terms of the merger agreement
and the Jazz board of directors unanimously approved the merger agreement and
unanimously recommend that you vote in favor of the adoption of the merger
agreement and approval of the merger. These directors and executive officers may
have interests in the merger that are different from, or in addition to, or in
conflict with, yours. These interests include the continued employment of
certain executive officers of Jazz, and the indemnification of former Jazz
directors and officers by the merged company and change-of-control severance
agreements with several Jazz executive officers. You should be aware of these
interests when you consider the Jazz board of directors' recommendation that you
vote in favor of the proposal to adopt the merger agreement and approve the
merger. Additionally, the exercise of Jazz's directors' and officers' discretion
in agreeing to changes or waivers in the terms of the merger may result in a
conflict of interest when determining whether such changes or waivers are
appropriate and in Jazz's stockholders' best interest. For a discussion of the
interests of directors and executive officers in the merger, see "THE MERGER -
INTERESTS OF JAZZ'S DIRECTORS AND OFFICERS IN THE MERGER."
THE MERGER AGREEMENT RESTRICTS JAZZ'S ABILITY TO PURSUE ALTERNATIVES TO THE
MERGER AND REQUIRES JAZZ TO PAY A TERMINATION FEE UNDER CERTAIN CIRCUMSTANCES.
The merger agreement prohibits Jazz from soliciting, initiating,
encouraging or facilitating certain alternative acquisition proposals with any
third party, subject to exceptions set forth in the merger agreement. The merger
agreement also provides for the payment by Jazz of a termination fee if the
merger agreement is terminated in certain circumstances in connection with a
competing third-party acquisition proposal for one of the companies, and in
certain other circumstances as well. See "THE MERGER AGREEMENT - NO SOLICITATION
OF TRANSACTIONS; BOARD RECOMMENDATION." These provisions limit Jazz's ability to
pursue offers from third parties that could result in greater value to the Jazz
stockholders. The obligation to make the termination fee payment also may
discourage a third party from pursuing an alternative acquisition proposal. If
the merger is terminated and Jazz determines to seek another business
combination, Jazz cannot assure you that it will be able to negotiate a
transaction with another company on terms comparable to the terms of the merger,
or that it will avoid incurrence of any fees associated with the termination of
the merger agreement. See "THE MERGER AGREEMENT - EXPENSES; TERMINATION FEE."
TOWER WILL ISSUE A SUBSTANTIAL NUMBER OF ORDINARY SHARES IN CONNECTION WITH THE
MERGER TO JAZZ'S COMMON STOCKHOLDERS, WHICH WILL BE AVAILABLE FOR SALE IN THE
FUTURE. THIS MAY CAUSE A DECLINE IN THE MARKET PRICE OF TOWER'S ORDINARY SHARES.
FURTHERMORE, JAZZ'S OPTIONS OR WARRANTS MAY BE EXERCISED, AND ITS CONVERTIBLE
NOTES CONVERTED, INTO TOWER ORDINARY SHARES FOLLOWING THE MERGER, WHICH MAY
CAUSE A FURTHER DECLINE IN THE MARKET PRICE OF TOWER'S ORDINARY SHARES.
Pursuant to the merger agreement, Tower will issue ordinary shares to
Jazz's common stockholders as consideration for their common stock in Jazz. In
addition, pursuant to the merger agreement Jazz's outstanding options and
warrants will be exercisable to purchase the applicable amount of Tower ordinary
shares. See "THE MERGER AGREEMENT - MERGER CONSIDERATION." Furthermore, Jazz's
convertible notes will become convertible into Tower ordinary shares following
the merger.
As a result, the number of shares available for sale will increase
immediately upon consummation of the merger agreement as shares underlying the
warrants, options and convertible notes are issued upon their exercise or
conversion. Increases in the number of freely tradable shares may adversely
impact the market price of Tower's ordinary shares.
The sale, or even the possibility of sale, of the ordinary shares or the
shares underlying the Jazz warrants, options and convertible notes could have an
adverse effect on the market price for Tower's securities or on its ability to
obtain future public financing. If and to the extent these options or warrants
are exercised, or the convertible notes are converted, you may experience
dilution to your holdings.
THE MERGER AGREEMENT RESTRICTS JAZZ'S ABILITY TO PURSUE ALTERNATIVES TO THE
MERGER AND REQUIRES JAZZ TO PAY A TERMINATION FEE UNDER CERTAIN CIRCUMSTANCES.
The merger agreement prohibits Jazz from soliciting, initiating,
encouraging or facilitating certain alternative acquisition proposals with any
third party, subject to exceptions set forth in the merger agreement. The merger
agreement also provides for the payment by Jazz of a termination fee if the
merger agreement is terminated in certain circumstances in connection with a
competing third-party acquisition proposal for one of the companies. See "THE
MERGER AGREEMENT - NO SOLICITATION OF TRANSACTIONS; BOARD RECOMMENDATION." These
provisions limit Jazz's ability to pursue offers from third parties that could
result in greater value to the Jazz stockholders. The obligation to make the
termination fee payment also may discourage a third party from pursuing an
alternative acquisition proposal. If the merger is terminated and Jazz
determines to seek another business combination, Jazz cannot assure you that it
will be able to negotiate a transaction with another company on terms comparable
to the terms of the merger, or that it will avoid incurrence of any fees
associated with the termination of the merger agreement. See "THE MERGER
AGREEMENT - EXPENSES;TERMINATION FEE."
21
TOWER COULD BE A PASSIVE FOREIGN INVESTMENT COMPANY FOR U.S. FEDERAL TAX
PURPOSES WHICH MAY NEGATIVELY AFFECT U.S. HOLDERS OF TOWER ORDINARY SHARES.
It is possible that Tower could be a passive foreign investment company,
or PFIC. Generally, a foreign corporation will be a passive foreign investment
company, or PFIC, if in any taxable year either: (i) 75% or more of its GROSS
INCOME consists of passive income; or (ii) 50% or more of the value of its
assets is attributable to assets that produce, or are held for the production
of, passive income. Tower could be a PFIC based on the gross income test if, for
example, it earned a small gross loss from the sale of integrated circuits but
had gross income after taking into account its interest income. If Tower meets
either test in a taxable year, ordinary shares of Tower held by a U.S. holder in
that year will generally be treated as PFIC shares for that year and for all
subsequent years. If Tower were a PFIC, gain realized by the U.S. holder from
the sale of Tower ordinary shares would be taxed as ordinary income, as opposed
to capital gain, and subject to an interest charge. Certain elections may be
available to a U.S. holder to reduce or eliminate these adverse tax
consequences.
The PFIC rules are complex. A U.S. holder is encouraged to consult his or
her U.S. tax advisor to determine the tax consequences of holding and disposing
of PFIC shares and the U.S. tax elections that may be available to the U.S.
holder.
THE MERGED COMPANY MAY FAIL TO REALIZE THE ANTICIPATED COST SAVINGS, REVENUE
ENHANCEMENTS AND OTHER BENEFITS EXPECTED FROM THE MERGER, WHICH COULD ADVERSELY
AFFECT THE VALUE OF TOWER ORDINARY SHARES AFTER THE MERGER.
Tower and Jazz entered into the merger agreement with the expectation that
the merger is expected to create opportunities to achieve cost savings and
revenue synergies and to achieve other synergistic benefits. Delays encountered
by the merged company in the transition process could have a material adverse
effect on the revenues, expenses, operating results and financial condition of
the merged company. Although Tower and Jazz expect significant benefits to
result from the merger, there can be no assurance that the merged company will
actually realize these anticipated benefits.
The value of Tower ordinary shares following completion of the merger may
be affected by the ability of the merged company to achieve the benefits
expected to result from completion of the merger. Achieving the benefits of the
merger will depend in part upon meeting the challenges inherent in the
successful combination and integration of business enterprises of the size and
scope of Tower and Jazz and the possible resulting diversion of management
attention for an extended period of time. There can be no assurance that the
merged company will meet these challenges and that such diversion will not
negatively affect Tower's operations following the merger.
UNCERTAINTIES ASSOCIATED WITH THE MERGER MAY CAUSE KEY EMPLOYEES TO RESIGN AND
MAY OTHERWISE MATERIALLY ADVERSELY AFFECT THE FUTURE BUSINESS AND OPERATIONS OF
TOWER AND JAZZ.
The merged company's success after the merger will depend in part upon the
ability of the merged company to retain key employees of Tower and Jazz.
Competition for qualified personnel can be intense. Current and prospective
employees of Tower and Jazz may experience uncertainty about their post-merger
roles with the merged company following the merger. This may materially
adversely affect the ability of each of Tower and Jazz to attract and retain key
management, sales, marketing, technical and other personnel. In addition, key
employees may depart because of issues relating to the uncertainty and
difficulty of integration or a desire not to remain with the merged company
following the merger. Accordingly, no assurance can be given that the merged
company will be able to attract or retain key employees of Tower and Jazz to the
same extent that those companies have been able to attract or retain their own
employees in the past.
Technological innovation is important to the merged company's success and
depends, to a significant degree, on the work of technically skilled employees.
Competition for the services of these types of employees is vigorous. Neither
Tower nor Jazz can provide assurance that the merged company will be able to
attract and retain these employees following the merger. If, following the
merger, the merged company is unable to attract and retain technically skilled
employees, the competitive position of the merged company could be materially
adversely affected.
TOWER AND JAZZ EACH HAVE A LARGE AMOUNT OF DEBT WHICH COULD HAVE SIGNIFICANT
NEGATIVE CONSEQUENCES.
Each of Tower and Jazz have a large amount of debt, which could have
significant negative consequences. The indebtedness of Tower as of March 31,
2008 (including convertible debt) is approximately $595 million and Jazz's
indebtedness as of March 28, 2008 (including convertible debt) is approximately
$138 million and this indebtedness could have significant negative consequences,
including:
o requiring the dedication of a substantial portion of each company's
expected cash flow from operations to service its indebtedness;
o increasing each company's vulnerability to general adverse economic
and industry conditions;
o limiting each company's ability to obtain additional financing;
o limiting each company's flexibility in planning for, or reacting to,
changes in its business and the industry in which they compete;
o placing each company's at a competitive disadvantage to less
leveraged competitors and competitors that have better access to
capital resources; and/or
o affecting each company's ability to make interest payments and other
required debt service its indebtedness.
22
THE TRADING PRICE OF TOWER ORDINARY SHARES MAY BE AFFECTED BY FACTORS DIFFERENT
FROM THOSE AFFECTING THE PRICE OF JAZZ COMMON STOCK.
Upon completion of the merger, holders of Jazz common stock will become
holders of Tower ordinary shares. The results of operations of the merged
company, as well as the trading price of Tower ordinary shares after the merger,
may be affected by factors different from those currently affecting Jazz's
results of operations and the trading price of Jazz common stock. For a
discussion of the businesses of Tower and Jazz and of certain factors to
consider in connection with those businesses, see "INFORMATION ABOUT JAZZ"
included elsewhere in this proxy statement/prospectus, and the information
contained in Tower's Form 20-F and other public filings which are incorporated
by reference in this proxy statement/prospectus and referred to under "WHERE YOU
CAN FIND MORE INFORMATION; INCORPORATION OF INFORMATION BY REFERENCE."
TOWER IS A FOREIGN PRIVATE ISSUER UNDER THE RULES AND REGULATIONS OF THE SEC
AND, THUS, IS EXEMPT FROM A NUMBER OF RULES UNDER THE EXCHANGE ACT AND IS
PERMITTED TO FILE LESS INFORMATION WITH THE SEC THAN A COMPANY INCORPORATED IN
THE UNITED STATES.
As a foreign private issuer under the Exchange Act, Tower is exempt from
certain rules under the Exchange Act, including the proxy rules, which impose
certain disclosure and procedural requirements for proxy solicitations.
Moreover, Tower is not required to file periodic reports and financial
statements with the SEC as frequently or as promptly as U.S. companies with
securities registered under the Exchange Act; and is not required to comply with
Regulation FD, which imposes certain restrictions on the selective disclosure of
material information. In addition, Tower's officers, directors and principal
shareholders are exempt from the reporting and "short-swing" profit recovery
provisions of Section 16 of the Exchange Act and the rules under the Exchange
Act with respect to their purchases and sales of Tower ordinary shares.
Accordingly, after the merger, if you continue to hold Tower ordinary shares,
you may receive less information about the merged company than you currently
receive about Jazz, and be afforded less protection under the U.S. federal
securities laws than you are currently afforded. If the merged company loses its
status as a foreign private issuer, it will no longer be exempt from such rules
and, among other things, will be required to file periodic reports and financial
statements as if it were a company incorporated in the United States. The costs
incurred in fulfilling these additional regulatory requirements could be
substantial.
IF THE MERGER'S BENEFITS DO NOT MEET THE EXPECTATIONS OF FINANCIAL OR INDUSTRY
ANALYSTS, THE MARKET PRICE OF TOWER'S SECURITIES MAY DECLINE.
The market price of Tower's securities may decline as a result of the
merger if:
o Tower does not achieve the perceived benefits of the merger as
rapidly as, or to the extent anticipated by, financial or industry
analysts; or
o the effect of the merger on Tower's financial results is not
consistent with the expectations of financial or industry analysts.
THE MERGED COMPANY WILL OPERATE IN A HIGHLY COMPETITIVE INDUSTRY WITH MANY
PARTICIPANTS. ITS FAILURE TO COMPETE EFFECTIVELY WILL HARM ITS BUSINESS.
The merged company will operate in a highly competitive environment in
each of its businesses, competing on the basis of process offerings, technical
capabilities, quality, service and pricing. Competition for customers is
particularly intense and increasingly focused on price. The merged company will
offer existing and prospective customers many benefits in addition to
competitive pricing, including strong, technologically-advanced specialty
process offerings; however, in some situations, it may not be able to compete
effectively if purchasing decisions are based solely on the lowest price.
The merged company will have a number of competitors, many of which
currently compete with Tower, Jazz or both and some of which are very large,
with substantial technological and financial resources. Some of these
competitors have very low cost structures, support from governments in their
home countries, or both. In addition, new competitors may enter the industry. We
cannot assure you that the merged company will be able to compete successfully
with these companies. Competitors may be able to offer lower prices, a more
attractive mix of process technologies and lithographies, or other incentives
that the merged company cannot or will not match or offer. These competitors may
be in a stronger position to respond quickly to new or emerging technologies and
may be able to undertake more extensive capital expenditure programs, adopt more
aggressive pricing policies and make more attractive offers to customers,
prospective customers, employees and strategic partners. The inability of the
merged company to effectively compete could have a material adverse effect on
the business of the merged company.
IF THE MERGED COMPANY FAILS TO KEEP PACE WITH TECHNOLOGICAL ADVANCES IN THE
INDUSTRY, OR IF IT PURSUES TECHNOLOGIES THAT DO NOT BECOME COMMERCIALLY
ACCEPTED, CUSTOMERS MAY NOT USE ITS SERVICES.
The semiconductor manufacturing industry uses numerous and varied
manufacturing process technologies and large semiconductor manufactures often
invest substantially in new process technologies and smaller lithographies. The
industry also demands frequent and, at times, significant manufacturing process
technology upgrades. Furthermore, enhancing the merged company's revenues
requires that it develop and maintain leading semiconductor equipment. The
merged company will not have the resources to invest in all of these existing
and potential technologies. As a result, the merged company will concentrate its
resources on those specialized process technologies that it believes the merged
company has or will achieve substantial market share and in which the merged
company will have appropriate technical expertise. However, the merged company's
choices for specialized process technologies may prove incorrect if there is
insufficient customer demand for those process technologies or if the merged
company cannot provide foundry services in those process technologies at
competitive prices. The merged company's revenues and operating results will
depend to a significant extent on its ability to maintain a process technology
portfolio and foundry service capability that is attractive to its customers and
to continue to introduce new process technologies successfully and on a timely
basis.
23
A SMALL NUMBER OF THE MERGED COMPANY'S CUSTOMERS WILL ACCOUNT FOR A SUBSTANTIAL
PORTION OF ITS REVENUES. THE LOSS OF ONE OR MORE KEY CUSTOMERS OR REDUCED
SPENDING OF THESE CUSTOMERS COULD SIGNIFICANTLY REDUCE THE MERGED COMPANY'S
REVENUES, PROFITABILITY AND CASH FLOW.
A small number of large customers will account for a substantial portion
of the merged company's revenues. In addition, Tower's and Jazz's existing
customers are typically not obligated to purchase a certain amount over any
period of time from Tower or Jazz and may have the right to reduce, delay or
even cancel previous orders. The merged company, therefore, will have difficulty
projecting future revenues from existing customers with certainty. Although
historically Tower's and Jazz's customers have not made sudden supplier changes,
the merged company's customers could vary, as Tower's and Jazz's customers have
varied, their purchases from period to period, sometimes significantly. Combined
with its reliance on a small number of large customers, this could have an
adverse effect on the merged company's revenues, profitability and cash flow.
THE MERGED COMPANY'S CONCENTRATION OF BUSINESS IN THE SEMICONDUCTOR INDUSTRY
WILL MAKE IT EXTREMELY VULNERABLE TO CYCLICAL DOWNTURNS IN THAT INDUSTRY, AND
ITS BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY SUFFER IN FUTURE
DOWNTURNS.
The semiconductor industry is highly cyclical and is characterized by
constant and rapid technological change, rapid product obsolescence and price
erosion, evolving standards, short product life-cycles and fluctuations in
product supply and demand. The industry has experienced significant downturns,
often in connection with, or in anticipation of, maturing product cycles of both
semiconductor companies' and their customers' products and declines in general
economic conditions. These downturns have been characterized by diminished
product demand, production overcapacity, high inventory levels and accelerated
erosion of average selling prices. Merged company's concentration of business in
the semiconductor industry will make it extremely vulnerable to cyclical
downturns in that industry. Merged company may not be able to manage these
downturns. Any future downturns of this nature could have a material negative
impact on merged company's business, financial condition and results of
operations.
THE BUSINESS OF THE MERGED COMPANY WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH,
AND THE MERGED COMPANY MAY REQUIRE ADDITIONAL SOURCES OF FUNDS IF ITS SOURCES OF
LIQUIDITY ARE UNAVAILABLE OR INSUFFICIENT TO FUND ITS OPERATIONS.
The working capital requirements and cash flows of Tower and Jazz have
historically been, and the working capital requirements and cash flows of the
merged company are expected to continue to be, subject to quarterly and yearly
fluctuations, depending on a number of factors. If the merged company is unable
to manage fluctuations in cash flow, its business, operating results and
financial condition may be materially adversely affected. Factors which could
lead the merged company to suffer cash flow fluctuations include:
o the level of sales;
o the collection of receivables;
o the timing and size of capital expenditures; and
o the servicing of financing obligations.
In order to finance its business, Jazz and Tower expect the merged company
to use available cash and investments and existing credit facilities and to
access the public and private capital markets to raise additional capital or
secure additional sources of funding if required.
Neither Tower nor Jazz can provide any assurance that such funding will be
available on terms satisfactory to the merged company. If the merged company
were to incur higher levels of debt, this would require a larger portion of its
operating cash flow to be used to pay principal and interest on its
indebtedness. The increased use of cash to pay indebtedness could leave the
merged company with insufficient funds to finance its operating activities and
capital expenditures, which could have a material adverse effect on the merged
company's business. If the merged company were to access the public or private
capital markets to raise additional capital or secure additional sources of
funding you may experience dilution to your holdings.
As noted below under "TOWER RECENT DEVELOPMENTS - ADVANCED NEGOTIATIONS FOR
RESTRUCTURING OF DEBT AND INVESTMENT", Tower is currently negotiating a
restructuring arrangement with its banks and Israel Corporation Ltd. which, if
completed, is expected to include an investment in Tower by Israel Corporation
Ltd. There can be no assurance that any such agreement will be concluded.
THE MERGED COMPANY WILL HAVE SIGNIFICANT INTERNATIONAL OPERATIONS AND A
SIGNIFICANT AMOUNT OF THE MERGED COMPANY'S SALES WILL BE MADE OUTSIDE THE UNITED
STATES.
The merged company's international operations will be subject to a variety
of risks arising out of currency exchange rates, the economy, the political
outlook and the language and cultural barriers in countries where it has
operations or does business.
24
THE MERGED COMPANY'S EXPOSURE TO CURRENCY EXCHANGE FLUCTUATIONS MAY INCREASE ITS
COST OF OPERATIONS.
Since the merged company will conduct operations throughout the world, a
substantial portion of its assets, liabilities, revenues and expenses will be
denominated in various currencies other than the U.S. dollar. Because the merged
company's financial statements will be denominated in U.S. dollar, fluctuations
in currency exchange rates, especially the U.S. dollar against the New Israeli
Shekels, or NIS, could have a material impact on the merged company's reported
results. Almost all of the merged company's cash generated from operations and
financing and investing activities will be denominated in US dollars and NIS.
The merged company's expenses and costs will be denominated in NIS, US dollars,
Japanese Yen and Euros. The merged company will be, therefore, exposed to the
risk of currency exchange rate fluctuations.
Specifically, the recent devaluation of the US dollar in relation to the
NIS increased the merged company's dollar expenses related to the merged
company's NIS denominated debentures and its NIS denominated expenses.
Tower regularly engages in various hedging strategies to reduce its
exposure to some, but not all, of these risks and intend to continue to do so
after the merger in the future. However, despite any such hedging activity, the
merged company is likely to remain exposed to interest rate and exchange rate
fluctuations and inflation, which may increase the cost of the merged company's
operating and financing activities.
25
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus, including information included or
incorporated by reference in this proxy statement/prospectus, may contain
certain forward-looking statements within the meaning of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, including
statements concerning Tower's proposed merger with Jazz. Generally, the words
"expects," "anticipates," "targets," "goals," "projects," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions identify forward-looking statements and any statements regarding the
benefits of the merger, or Tower's or Jazz's future financial condition, results
of operations and business are also forward-looking statements. Without limiting
the generality of the preceding sentence, certain statements contained in the
sections "THE MERGER - BACKGROUND OF THE MERGER," "THE MERGER - TOWER'S REASONS
FOR THE MERGER," "THE MERGER - JAZZ'S REASONS FOR THE MERGER," AND "THE MERGER -
RECOMMENDATION OF JAZZ BOARD OF DIRECTORS" constitute forward-looking
statements.
These forward-looking statements involve certain risks and uncertainties.
Factors that could cause actual results to differ materially from those
contemplated by the forward-looking statements include, among others, the
following factors:
o the ability to complete the merger or whether the completion may be
delayed;
o costs related to the proposed merger;
o difficulties and delays in obtaining regulatory approvals for the
merger;
o expected benefits and the difficulties and delays in achieving
synergies and cost savings associated with the merger;
o potential difficulties in meeting conditions set forth in the merger
agreement;
o ability to implement or realize or success relating to integration
strategies;
o fluctuations in the semiconductor industry;
o prior to or after the completion of the merger, the businesses of
the companies may suffer due to uncertainty, as well as other risks
applicable to both Tower's and Jazz's business;
o continued compliance with government regulations;
o the extent to which the foundry services offered by Tower and Jazz
are demanded by the market;
o the actual number of customer orders received by the companies;
o cancellations, rescheduling or delays in product shipments;
o delays in developing and commercializing new process technologies;
o variations in manufacturing yields;
o fluctuations in customer demand;
o lengthy sales and qualification cycles;
o competition in the industry in which Tower or Jazz does business;
o timing of approval and market acceptance of new process
technologies;
o Tower and Jazz's business strategy and plans;
o exchange rate fluctuations;
o variability of interest rates;
o wafer selling price pressure;
o ability to finance or make payments on debt;
o availability of financing sources;
o availability of government funding;
o general economic conditions; and
o political, economic and military conditions in Israel.
Any forward-looking statements in this proxy statement/prospectus are not
guarantees of future performance, and actual results, developments and business
decisions may differ from those contemplated by those forward-looking
statements, possibly materially. Except as otherwise required by applicable law,
Tower and Jazz disclaim any duty to update any forward-looking statements, all
of which are expressly qualified by the statements in this section.
Additional discussions of risks and uncertainties that may affect the
accuracy of forward-looking statements included in proxy statement/prospectus or
which may otherwise affect Tower's business is included under the heading "RISK
FACTORS" in Tower's filings on Forms 20-F and 6-K, which are incorporated by
reference into this proxy statement/prospectus. See "WHERE YOU CAN FIND MORE
INFORMATION; INCORPORATION OF INFORMATION BY REFERENCE."
26
TOWER RECENT DEVELOPMENTS
ADVANCED NEGOTIATIONS FOR RESTRUCTURING OF DEBT AND INVESTMENT
Tower is currently negotiating a restructuring arrangement with its banks
and Israel Corporation Ltd. which would include a substantial reduction in the
level of Tower's indebtedness to its banks and Israel Corporation Ltd.,
deferrals of remaining principal and interest, and a waiver from compliance with
financial covenants for an extended period of time. This arrangement, when
completed, will include an investment in Tower by Israel Corporation Ltd. Tower
expects that these negotiations, currently in an advanced stage, will result in
an improved balance sheet and reduced level of debt. There can be no assurance
that an agreement will be concluded.
Additional discussions of related risks and uncertainties which may affect
Tower's business are included under the heading "RISK FACTORS - RISKS AFFECTING
OUR BUSINESS" in Tower's Form 20-F filed with the SEC on June 18, 2008 and which
are incorporated by reference into this proxy statement/prospectus. See "WHERE
YOU CAN FIND MORE INFORMATION; INCORPORATION OF INFORMATION BY REFERENCE."
NASDAQ NOTIFICATION REGARDING MINIMUM BID PRICE
On July 18, 2008, Tower issued a press release reporting that it had
received a Nasdaq Staff Deficiency Letter on July 15, 2008 regarding its failure
to comply with a minimum bid price requirement for continued listing on the
Nasdaq Global Market, a copy of which was furnished to the SEC on Form 6-K on
July 18, 2008 and which is incorporated by reference into this proxy
statement/prospectus.
ELECTION OF BOARD MEMBER AND RESIGNATION OF BOARD MEMBER
At a special meeting of Tower's stockholders held on August 7, 2008,
Tower's stockholders elected Mr. Alex Kornhauser as a director to Tower's board
of directors. On August 7, 2008, a member of Tower's board of directors, Mr.
Miin Wu, resigned from Tower's board.
27
THE JAZZ SPECIAL MEETING OF STOCKHOLDERS
DATE, TIME AND PLACE
This proxy statement/prospectus is being furnished in connection with the
solicitation of proxies by the board of directors of Jazz for the special
meeting of our stockholders to be held at 10:00 a.m. Pacific time, on September
17, 2008 at 4321 Jamboree Road, Newport Beach, California 92660. This proxy
statement, the attached notice of the special meeting and the accompanying proxy
card are first being sent or given to our stockholders on or about August 12,
2008.
MATTERS TO BE CONSIDERED AT THE JAZZ STOCKHOLDERS' MEETING
The purposes of the Jazz stockholders' meeting are to vote upon a proposal
to approve and adopt the merger agreement and approve the merger, and to vote
upon any proposal by Jazz to adjourn or postpone the special meeting if
determined to be necessary or appropriate to solicit additional proxies if there
are insufficient votes at the time of the special meeting to approve and adopt
the merger agreement and approve the merger.
The Jazz board of directors unanimously recommends that Jazz stockholders
vote "FOR" approval and adoption of the merger agreement and approval of the
merger and "FOR" approval of any proposal by Jazz to adjourn or postpone the
special meeting if determined to be necessary or appropriate to solicit
additional proxies if there are insufficient votes at the time of the special
meeting to approve the merger agreement. The Jazz board of directors has
unanimously determined that the merger and the transactions contemplated by the
merger agreement are advisable and fair to, and in the best interests of, Jazz
and its stockholders and has approved the merger agreement, the merger and the
other transactions contemplated by the merger agreement. See "THE MERGER -
JAZZ'S REASONS FOR THE MERGER" and "THE MERGER - RECOMMENDATION OF THE JAZZ
BOARD OF DIRECTORS."
STOCKHOLDERS ENTITLED TO VOTE
You are entitled to notice of, and may vote at, the special meeting if you
were the record holder of our common stock as of the close of business on August
8, 2008, the record date for the special meeting. As of the close of business on
the record date, there were 19,031,276 shares of our common stock outstanding,
held by 5 stockholders of record.
QUORUM
A quorum of Jazz stockholders is necessary to hold a valid meeting. A
quorum will be present at the Jazz special meeting if a majority of Jazz's
outstanding shares of common stock entitled to vote at the special meeting are
represented in person or by proxy. Abstentions and broker non-votes will count
as present for the purposes of establishing a quorum.
VOTE REQUIRED
The affirmative vote of the holders of a majority of Jazz's common stock
outstanding on the record date for the special meeting is required to approve
and adopt the merger agreement and approve the merger. The affirmative vote of
the holders of a majority of shares present and entitled to vote either in
person or by proxy at the special meeting would be needed for approval of any
proposal by Jazz to adjourn or postpone the special meeting if determined to be
necessary or appropriate to solicit additional proxies if there are insufficient
votes at the time of the special meeting to approve the merger agreement. Jazz's
issued and outstanding warrants, options and convertible notes do not have
voting rights and securities represented by Jazz's warrants, options or
convertible notes, which have not been exercised into Jazz common stock prior to
or on the record date, will not be entitled to vote at the special meeting.
VOTING RIGHTS
As of the record date, there were 19,031,276 shares of Jazz common stock
issued and outstanding, each of which entitles its holder to one vote. Jazz
options, warrants and convertible notes which remain unexercised or unconverted
do not have voting rights and the holders thereof will not be entitled to vote
at the special meeting.
VOTING YOUR SHARES
STOCKHOLDER OF RECORD: SHARES REGISTERED IN YOUR NAME. If on August 8,
2008 your shares of Jazz common stock were registered directly in your name with
Jazz's transfer agent, Continental Stock Transfer & Trust Company, then you are
a stockholder of record for purposes of the special meeting. If you are a
stockholder of record, you may vote in person at the special meeting or vote by
proxy using the enclosed proxy card. Whether or not you plan to attend the
special meeting, we urge you to vote by proxy to ensure your vote is counted.
You may still attend the special meeting and vote in person even if you have
already voted by proxy. You may vote by proxy in any of the following ways:
o INTERNET. You may vote by proxy over the Internet by going to the
website listed on your proxy card. Once at the website, follow the
instructions to vote your proxy.
28
o TELEPHONE. You may vote by proxy using the toll-free number listed
on your proxy card. Voice prompts will help you and confirm that
your voting instructions have been followed.
o MAIL. You may vote by proxy by signing, dating and returning your
proxy card in the pre-addressed postage-paid envelope provided.
All shares entitled to vote and represented by properly completed proxies
received prior to the Jazz special meeting, and not revoked, will be voted at
the Jazz special meeting as instructed on the proxies. IF YOU SIGN YOUR PROXY
BUT DO NOT INDICATE HOW YOUR SHARES OF JAZZ COMMON STOCK SHOULD BE VOTED ON A
MATTER, THE SHARES REPRESENTED BY YOUR PROPERLY COMPLETED PROXY WILL BE VOTED AS
THE JAZZ BOARD OF DIRECTORS RECOMMENDS AND THEREFORE "FOR" THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER, AND "FOR" A
PROPOSAL TO ADJOURN OR POSTPONE THE MEETING IF DETERMINED BY THE PROXY HOLDERS
TO BE NECESSARY OR APPROPRIATE TO SOLICIT ADDITIONAL PROXIES IF THERE ARE
INSUFFICIENT VOTES AT THE TIME OF THE SPECIAL MEETING TO APPROVE THE MERGER
AGREEMENT.
The method by which you vote by proxy will in no way limit your right to
vote at the Jazz special meeting if you later decide to attend the meeting in
person.
BENEFICIAL OWNER: SHARES REGISTERED IN THE NAME OF A BROKER OR BANK. If
you are a beneficial owner of shares registered in the name of your broker,
bank, or other agent, you should have received a proxy card and voting
instructions with these proxy materials from that organization rather than from
Jazz's transfer agent. Simply complete and mail the proxy card in accordance
with the voting instructions provided by your broker, bank or other agent, or
follow the instructions for voting in any other manner as provided by your
broker, bank or other agent, to ensure that your vote is counted. To vote in
person at the special meeting, you must obtain a valid proxy from your broker,
bank or other agent. Follow the instructions from your broker, bank or other
agent included with these proxy materials, or contact your broker or bank to
request a proxy form.
Your broker will vote your shares of Jazz common stock only if you provide
instructions on how to vote. You should follow the directions provided by your
broker regarding how to instruct your broker to vote your shares. Without
instructions, your shares of Jazz common stock will be a broker "non-vote,"
which will have the effect of a vote against the approval and adoption of the
merger agreement and approval of the merger.
RECEIPT OF MULTIPLE PROXY CARDS
If you receive more than one proxy card, your shares are registered in
more than one name or are registered in different accounts. Please complete,
sign and return each proxy card to ensure that all of your shares are voted.
REVOKING YOUR PROXY AND CHANGING YOUR VOTE
If you are a record holder of our common stock and you vote by proxy, you
may revoke your proxy or change your voting instructions at any time before your
proxy is exercised:
o If you mailed a proxy card, by timely mailing another proxy card
with a later date;
o If you voted by telephone or on the internet, by calling the same
telephone number or following the instructions on the internet;
o By timely notifying Jazz in writing before the special meeting that
you have revoked your proxy; or
o By attending the special meeting, revoking your proxy and voting in
person.
If your shares are held in "street name," consult your broker for
instructions on how to revoke your proxy or change your vote.
ABSTENTIONS AND BROKER NON-VOTES
An abstention or failure to vote by a Jazz stockholder will have the
effect of a vote against the approval and adoption of the merger agreement and
approval of the merger. An abstention by a Jazz stockholder will have the effect
of a vote against any proposal to adjourn or postpone the special meeting if
determined to be necessary or appropriate to solicit additional proxies if there
are insufficient votes at the time of the special meeting to approve the merger
agreement. A failure to vote will have no effect with respect to any proposal to
adjourn or postpone the special meeting.
If your broker holds your shares in its name and you do not give the
broker voting instructions, your broker may not vote your shares. If you do not
give your broker voting instructions and the broker does not vote your shares,
this is referred to as a "broker non-vote" which will have the effect of a vote
against the approval and adoption of the merger agreement and approval of the
merger. A "broker non-vote" will have no effect with respect to any proposal to
adjourn or postpone the special meeting if determined to be necessary or
appropriate to solicit additional proxies if there are insufficient votes at the
time of the special meeting to approve the merger agreement.
29
ADJOURNMENT AND POSTPONEMENT
Either the chairman of the meeting or the stockholders entitled to vote at
the meeting, present in person or represented by proxy, have the power to cause
the meeting to be adjourned, including for the purpose of soliciting additional
proxies, from time to time, without notice other than announcement at the
meeting. At an adjourned meeting at which a quorum is present or represented by
proxy, any business may be transacted which might have been transacted at the
meeting as originally notified. If the adjournment is for more than 30 days, or
if after the adjournment a new record date is fixed for the adjournment meeting,
a notice of the adjourned meeting will be given to each stockholder of record
entitled to vote at the adjourned meeting.
If you choose to vote by proxy, then the proxy you submit (whether by
mail, telephone or internet) will continue to be valid at any adjournment or
postponement of the special meeting.
SOLICITATION OF PROXIES
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the Jazz board of directors for use at the Jazz stockholders' meeting.
Jazz is soliciting the enclosed proxy on behalf of the board of directors,
and will pay all costs of preparing, assembling and mailing the proxy materials.
In addition to mailing out proxy materials, Jazz's directors and officers may
solicit proxies by telephone or fax, without receiving any additional
compensation for their services. Jazz has requested brokers, banks and other
fiduciaries to forward proxy materials to the beneficial owners of its stock.
Jazz also intends to retain Morrow & Co., Inc., a proxy solicitation firm, to
assist in the proxy solicitation process. Jazz expects to pay Morrow & Co., Inc.
its customary fee of approximately $6,500 plus $6.50 per solicited stockholder
and out-of-pocket expenses
YOU WILL NOT HAVE DISSENTERS' APPRAISAL RIGHTS IN THE MERGER
You will not have any appraisal rights under the Delaware General
Corporation Law, or under Jazz's certificate of incorporation, in connection
with the merger, and neither Jazz nor Tower will independently provide you with
any such rights.
QUESTIONS ABOUT VOTING
If you have any questions about how to vote or direct a vote in respect of
your Jazz common stock, you may call Jazz's Chief Legal Officer, Mr. Allen R.
Grogan at (949) 435-8000. You may also want to consult your financial and other
advisors about the vote.
STOCKHOLDER PROPOSALS FOR JAZZ'S 2009 ANNUAL MEETING OF STOCKHOLDERS
If the merger is not consummated and you wish to include a stockholder
proposal in the proxy materials for Jazz's 2009 Annual Meeting of Stockholders,
your proposal must be submitted in writing by December 10, 2008, to our
Secretary at 4321 Jamboree Road, Newport Beach, California 92660. If you wish to
submit a proposal that is not to be included in next year's proxy materials or
nominate a director, you must do so by no later than February 6, 2009 and no
earlier than January 7, 2009. If the merger is consummated prior to such dates,
the foregoing provisions will be inapplicable.
JAZZ STOCK CERTIFICATES
IF YOU ARE A RECORD HOLDER OF JAZZ COMMON STOCK, PLEASE DO NOT SEND YOUR
JAZZ COMMON STOCK CERTIFICATES TO US NOW. AFTER THE EFFECTIVE TIME OF THE
MERGER, THE EXCHANGE AGENT WILL MAIL A LETTER OF TRANSMITTAL TO YOU. YOU SHOULD
SEND YOUR JAZZ COMMON STOCK CERTIFICATES ONLY IN COMPLIANCE WITH THE
INSTRUCTIONS THAT WILL BE PROVIDED IN THE LETTER OF TRANSMITTAL.
THE MATTERS TO BE CONSIDERED AT THE JAZZ STOCKHOLDERS' MEETING ARE OF
GREAT IMPORTANCE TO THE JAZZ STOCKHOLDERS. ACCORDINGLY, JAZZ STOCKHOLDERS ARE
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE OR TO VOTE BY
TELEPHONE OR VIA THE INTERNET.
30
THE MERGER
BACKGROUND OF THE MERGER
The terms of the merger agreement are the result of arm's-length
negotiations between representatives of Jazz and Tower. The following is a brief
discussion of the background of these negotiations, the merger and related
transactions. Jazz's management has no relationship with Tower other than as
disclosed herein.
Prior to the completion of Jazz's acquisition of Jazz Semiconductor,
representatives of corporate development departments of Jazz Semiconductor and
Tower engaged in preliminary discussions regarding the potential for a strategic
transactions, culminating in the execution of a mutual non-disclosure agreement
and one meeting between corporate development personnel at Jazz Semiconductor's
offices in Newport Beach in March 2007. However, the discussions did not
progress because Jazz was then focused on planning the integration of Jazz
Semiconductor and because Jazz's corporate development strategy at that time was
directed principally toward possible acquisition of additional low cost
manufacturing capacity in East Asia. After March 2007, there were no further
discussions between Jazz and Tower regarding a possible business combination
until February 2008.
At the time of the acquisition by Jazz of Jazz Semiconductor, Inc., Jazz
planned to extend its business into new product segments with potentially higher
revenue growth and gross margins and also to expand capacity by acquiring low
cost off-shore fabrication capacity. Through these actions, Jazz expected to
improve efficiencies while cutting costs. Jazz believes it made substantial
progress in improving its operations, reducing costs and achieving positive
EBITDA and free cash flow during the eleven months between the closing of the
acquisition of Jazz Semiconductor on February 16, 2007 and January 15, 2008,
despite an industry-wide slowdown. Despite such improvements, during that
period, the trading price of Jazz's common stock fell from $5.19 to $1.50 per
share, a drop of approximately 71%. Some of this drop in stock price may be
attributable to a general slowdown in the highly cyclical semiconductor
industry, but the decline in Jazz's stock price was materially steeper than that
of many other semiconductor companies and the Philadelphia Semiconductor Index
during the same period. Jazz's declining stock price coupled with its declining
cash balance made it difficult for Jazz to execute key strategies by limiting
its financing options for expansion and impairing customer and supplier
confidence in Jazz.
By the beginning of 2008, members of Jazz's management were unable to agree
on an appropriate strategy to expand Jazz's business and improve its stock price
and market liquidity. As a result, in January 2008, Jazz's board of directors
directed management to contact several investment banking firms to discuss a
potential engagement to assist Jazz in evaluating strategic alternatives to
enhance stockholder value. In evaluating these investment banking firms, Jazz
considered the firms' respective reputations generally and in the semiconductor
industry and in multinational transactions in particular. Ten investment banks
submitted proposals. Based on Jazz's evaluation of these proposals, some
candidates were eliminated based on potential conflicts of interest and three
investment banks were invited to meet telephonically with Jazz's board of
directors on January 25, 2008. After extensive discussions, Jazz's board of
directors decided to engage UBS Securities LLC, or UBS, as Jazz's exclusive
financial advisor in connection with Jazz's review of various strategic
alternatives, including, without limitation, a potential sale of stock or assets
or a merger, business combination or similar transaction. At that meeting,
Jazz's board also considered a non-binding indication of interest received from
a private equity fund on January 24, 2008.
On February 1, 2008, an investment banker contacted Paul Pittman, Jazz's
executive vice president and chief financial and administrative officer, and
asked if Jazz management would be willing to take a call from Tower to discuss a
potential combination.
At a meeting of Jazz's board of directors on February 5, 2008, the board
discussed with UBS certain potential strategic alternatives, including potential
merger or business combinations, as well as the state of the semiconductor
industry in general. At that meeting, Jazz's board of directors also considered
another non-binding indication of interest received from a competitor on
February 2, 2008. After extensive discussions, the board decided that Jazz
should explore the potential for a merger or business combination beyond the two
parties that had submitted non-binding indications of interests. Jazz's board
then directed UBS to assist management in identifying additional potential
buyers for Jazz.
In early February, Jazz's management, with the assistance of UBS,
identified parties potentially interested in a strategic transaction with Jazz.
Beginning in February, in accordance with Jazz's directives, UBS contacted or
held discussions with 24 parties regarding a potential acquisition of, or merger
with, Jazz. Of these 24 parties, six (including Tower) executed non-disclosure
agreements with Jazz.
31
On February 7, 2008, a call took place among Russell Ellwanger, Tower's
CEO, Rafi Mor, Tower's vice president of business development, Gilbert F.
Amelio, Jazz's Chairman and CEO, Mr. Pittman and the investment banker that had
previously called Mr. Pittman. During that call, Tower expressed interest in a
potential transaction with Jazz and the parties agreed to continue discussions
and pursue due diligence.
On February 7, 2008, Jazz entered into an amendment to the previously
existing non-disclosure agreement between Jazz Semiconductor and Tower to
facilitate further discussions and allow more detailed due diligence to proceed.
On February 12, 2008, following questions from customers and suppliers
regarding rumors about Jazz exploring strategic options, Jazz publicly announced
that it had initiated a review of strategic alternatives and had engaged UBS as
its financial advisor to assist in this review.
A team from Tower and its financial advisor met onsite at Jazz on February
25 and 26, 2008 to conduct due diligence on finance, accounting, operations, R&D
and other matters. On March 10, 2008, Jazz's board of directors met
telephonically, and UBS updated the board regarding the progress of discussions
with potentially interested parties. As of that date, five potentially
interested parties had indicated an interest in continuing diligence and
discussions, four of which had submitted non-binding indications of interest.
The private equity fund that had submitted an earlier non-binding indication of
interest indicated that it was unwilling to continue with discussions based on
preliminary diligence.
On March 18, 2008, Jazz provided Tower with a virtual online datasite and
made available to the five potentially interested parties a substantial volume
of documents relating to Jazz to facilitate the parties' due diligence efforts.
Three of these parties also dispatched personnel to conduct detailed diligence
onsite at Jazz.
During March and April 2008, there were subsequent meetings and
discussions with the five potentially interested parties, including onsite
meetings at Jazz by Tower teams on March 12, 24, 25 and 26, 2008. Dr. Amelio and
Mr. Pittman met with Mr. Ellwanger and Dr. Rafi Nave, Tower's chief technology
officer, at John Wayne Airport on March 12, 2008. In addition, there were
numerous additional telephone calls and emails between representatives of Jazz
and representatives of Tower in March, April and May to discuss matters relating
to a potential business combination and to further the due diligence process.
On March 22, 2008, Jazz caused to be provided to the five potentially
interested parties a proposed form of merger agreement for their review and
consideration.
Jazz's board of directors met and received another update from UBS
regarding the solicitation process on March 24, 2008. On March 28, 2008, the
fifth party submitted an initial, non-binding indication of interest.
On April 2, 2008, Tower submitted a letter to Jazz reaffirming Tower's
interest in pursuing a transaction and requesting a period of exclusive
negotiations.
On April 2, 2008, prospective bidders were sent a letter instructing them
on the form and timing for submitting proposals for consideration by Jazz's
board of directors. In response, on April 11, 2008, one of the five interested
parties submitted a letter to Jazz setting forth a proposal for a business
combination. On April 15, 2008, Tower submitted a letter to Jazz proposing a
stock-for-stock business combination at a price per share of $1.50 for each
outstanding share of Jazz common stock, implying an exchange ratio of 1.667
Tower ordinary shares for each outstanding share of Jazz common stock based on
the then current price per share of Jazz common stock, together with preliminary
comments to the proposed form of merger agreement. Of the remaining three
interested parties, two conducted extensive due diligence but all three
indicated that they were not willing to proceed with a transaction.
Between April 15 and April 17, 2008, Tower and Jazz engaged in discussions
regarding other key terms of a potential merger, including the amount of any
break-up fee to be paid as well as whether Jazz would be willing to enter into a
period of exclusive negotiations with Tower.
On April 17, 2008, Jazz's board of directors met to consider two
proposals: the one submitted by Tower on April 15 and the proposal submitted by
another party on April 11. At that meeting, the board also heard a presentation
from a potential financial buyer that expressed interest in the possibility of a
strategic transaction with Jazz, but indicated that it had never financed a
technology transaction or a transaction of this size and was not prepared to
make any specific proposals or to assure Jazz that it would be able to make a
specific proposal in the future. Accordingly, the board decided not to further
consider the financial buyer's expression of interest in light of the other
proposals. After extensive discussions, Jazz's board of directors determined
that the proposal submitted by Tower was the more favorable proposal on the
basis that the other proposal, which involved the purchase by Jazz of a
non-operational fab facility in exchange for Jazz's common stock, was
significantly more dilutive to Jazz's stockholders, would not expand Jazz's
business into new product segments, would likely not improve the trading volume
and liquidity of Jazz's stock and was subject to greater risk and uncertainty,
including significant regulatory approvals and the uncertainty surrounding the
proper valuation of the fabrication facility. The board then authorized Jazz's
officers to pursue negotiations with Tower regarding a potential transaction and
authorized Jazz's officers to enter into an agreement with Tower providing for
an exclusive negotiation period of not longer than four weeks.
32
On April 17, 2008, at the direction of Jazz's board of directors, Jazz
proposed that Tower modify its proposal to reflect a fixed exchange ratio of 1.8
Tower ordinary shares per outstanding share of Jazz common stock. Between April
17 and April 23, 2008, Jazz and Tower engaged in preliminary negotiations
regarding other key terms of the proposed merger, including the amount of any
termination fees to be paid. On April 23, 2008, Jazz and Tower entered into an
agreement wherein Jazz agreed to negotiate exclusively with Tower through May
13, 2008 in an effort to enter into a definitive agreement. The exclusivity
agreement allowed Jazz to terminate the exclusivity arrangement if Tower advised
Jazz or its representatives of its intention to reduce the proposed exchange
ratio below 1.8 Tower ordinary shares for each outstanding share of Jazz's
common stock or to increase the proposed termination fee to an amount in excess
of $1.2 million, plus reasonable and documented out-of-pocket expenses not to
exceed $1.0 million.
In April, representatives of Jazz engaged in due diligence relating to
Tower and Tower's capital structure, finances, business and operations,
including onsite visits to Tower's headquarters in Israel on April 8, 2008 by
Mr. Pittman and on April 29, 2008 and April 30, 2008 by Andy Chan, Jazz's vice
president of corporate development and purchasing, Don Cerney, Jazz's quality
director, and Luca Fabbri, an independent consultant engaged by Jazz. Jazz
engaged Kost Forer Gabbay and Kasierer in Israel, a member of Ernst & Young
Global, to conduct financial and accounting due diligence, and representatives
of that firm were also onsite at Tower on April 29 conducting due diligence.
Jazz also engaged the Israeli law firm of Meitar Liquornik Geva & Leshem
Brandwein to assist with legal due diligence relating to Tower.
On April 27, 2008, Jazz submitted a revised draft of a merger agreement to
Tower for its consideration, reflecting some of the key terms negotiated by the
parties, including the exchange ratio and the termination fees. Between late
April and mid-May the parties engaged in extensive negotiations and the exchange
of multiple drafts of definitive transaction documents. In addition, during this
period, there were frequent communications between Jazz, Tower and their
respective counsel, including emails regarding the negotiation of transaction
terms, due diligence materials and supplemental due diligence requests and
drafts of various transaction documents.
On May 14, 2008, Jazz notified Tower that it was agreeing to extend
exclusivity through the end of that day. At Jazz's board of directors meeting
that day, UBS discussed with Jazz's board of directors financial aspects of the
proposed merger and members of management presented an update on the progress of
negotiations with Tower. In addition, Jazz's board of directors reviewed with
Dr. Amelio and Mr. Pittman the strategic rationale for the transaction and the
potential benefits of the transaction versus alternative strategies.
Representatives of Cooley Godward Kronish LLP then reviewed and discussed with
the board the terms and conditions of the merger agreement. The board then
agreed to authorize the extension of exclusivity with Tower through noon Pacific
time on May 19, 2008.
On May 17, 2008, Jazz's board of directors met to consider the proposed
merger agreement with Tower. At that board meeting, representatives of Cooley
Godward Kronish LLP again reviewed with the board the terms and conditions of
the merger agreement. Also at this meeting, UBS reviewed with Jazz's board of
directors UBS' financial analysis of the exchange ratio provided for in the
merger and delivered to Jazz's board of directors an oral opinion, which opinion
was confirmed by delivery of a written opinion dated May 17, 2008, to the effect
that, as of that date and based on and subject to various assumptions, matters
considered and limitations described in its opinion, the exchange ratio provided
for in the merger was fair, from a financial point of view, to holders of Jazz
common stock. After further discussions regarding the proposed merger, the board
unanimously approved the merger agreement and the merger.
At a Tower board of directors meeting on May 19, 2008, Tower's board of
directors unanimously approved the merger agreement and the merger.
Jazz and Tower signed the merger agreement on May 19, 2008 and publicly
announced it through a joint press release issued by Tower.
JAZZ'S REASONS FOR THE MERGER
Jazz's board of directors believes there are substantial benefits to
Jazz's stockholders that can be obtained as a result of the merger. If this
merger is completed, Jazz's stockholders will receive an equity interest in a
semiconductor company with a broad portfolio of specialty process technologies,
operational facilities in the United States and Israel and increased
manufacturing capacity. At a meeting held on May 17, 2008, Jazz's board of
directors unanimously determined that the merger agreement and the merger were
fair to and in the best interest of Jazz and its stockholders and declared the
merger to be advisable to its stockholders, approved the merger, the merger
agreement and the transactions contemplated by the merger agreement and resolved
to recommend the adoption of the merger agreement and the approval of the merger
agreement by Jazz's stockholders.
33
In evaluating the merger, Jazz's board of directors consulted with Jazz's
senior management as well as Jazz's legal counsel, Cooley Godward Kronish LLP,
and financial advisor, UBS. Among the matters considered by Jazz's board of
directors in its deliberations and in reaching its decision to approve the
merger, the merger agreement and the transactions contemplated by the merger
agreement and to recommend that Jazz's stockholders also vote to approve and
adopt the merger agreement and approve the merger, were the following material
factors:
o The strategic benefits of the merger, including:
o The enhanced strategic attractiveness of the merged company relative
to Jazz as a standalone entity in light of the current environment
in the semiconductor industry;
o The complementary nature of the respective customer bases and
technologies of Jazz and Tower;
o The potential for the merged company to be an industry leader with a
broad portfolio of specialty process technologies;
o The merged company's global presence and the potential for improved
geographic reach and distribution;
o Significant potential synergies in the merger, including the
potential for cost savings and revenue synergies for the merged
company, together with the risks associated with achieving these
synergies;
o The likelihood of a successful integration of Jazz's business,
operations and workforce with those of Tower and of successful
operation of the merged company despite the challenges of such
integration;
o The likelihood that the regulatory approvals needed to complete the
transaction will be obtained;
o The fact that the merger consideration is publicly traded stock, so
that the transaction will allow Jazz's stockholders a continuing
opportunity to realize value for their investment; and
o Greater liquidity and higher trading volume of Tower ordinary stock;
o The attractive financial terms of the merger in light of:
o The current and historical financial condition and results of
operations of Jazz and Tower;
o The historical and current market prices and trading volumes of
Jazz's common stock and Tower's ordinary stock;
o Jazz's knowledge of Tower's business, operations, financial
condition, earnings and prospects, taking into account the results
of Jazz's due diligence review of Tower;
o The consideration proposed by Tower represented the highest offer
(based on the closing price of Tower's ordinary shares on May 16,
2008 on the Nasdaq Global Market) that Jazz had received for the
acquisition of Jazz; and
o The current and historical market prices of Jazz's common stock,
including the fact that at the exchange ratio of 1.8 Tower ordinary
shares for each outstanding share of Jazz's common stock
represented:
o a 146% premium over the closing stock price of $0.85 on the
last trading day prior to announcing the proposed transaction;
o a 221% premium over the average closing stock prices over the
last 30 trading days prior to announcing the proposed
transaction; and
o a 86% premium over the closing stock price of $1.12 on
February 12, 2008, the last trading day prior to Jazz's public
announcement of its review of strategic alternatives;
o Jazz's financial performance and prospects if it remained an independent,
publicly traded entity, including:
o The current environment in the semiconductor industry, including
national and regional economic conditions, evolving trends in
technology and increasing nationwide and global competition, and the
likely effect of these factors on Jazz;
34
o The ability of Jazz to execute on its key strategies to acquire
additional fab capacity and significantly extend its business into
new product segments;
o The prospects for obtaining the additional financing likely needed
to significantly expand capacity or purchase a low-cost fab
facility;
o The current and historic trading multiples of Jazz's common stock
and the likelihood that such trading multiples could be sustained
over the long term in light of increasing competitive pressures and
trends in the businesses in which Jazz competes;
o The decline in the price per share of Jazz's common stock in the
eleven months between the closing of the acquisition of Jazz
Semiconductor on February 16, 2007 and January 15, 2008 from $5.19
to $1.50, a drop of approximately 71%, and the further decline of
the price per share of Jazz's common stock after Jazz's public
announcement of its review of strategic alternatives to $0.75 on the
day before the board voted to approve the merger, a drop of more
than 85% from the date Jazz closed of the acquisition of Jazz
Semiconductor;
o The low liquidity of Jazz's common stock, coupled with relatively
low turnover of Jazz's stock among its largest institutional
investors, which the board determined are likely to continue to
exert downward pressure on Jazz's stock price; and
o The impact of Jazz's low stock price on its ability to execute on
key strategies by limiting its financing options for expansion and
impairing customer and supplier confidence in Jazz;
o An assessment of alternatives to the merger, including:
o The risks and potential rewards of continuing to execute Jazz's
business strategy as an independent entity versus the potential for
increasing stockholder value through the merger;
o The prospects to acquire additional low-cost fab capacity in the
absence of a strategic transaction; and
o The potential for alternative strategic transactions, including the
alternative transactions considered by the board at the April 17,
2008 board meeting;
o The opinion of UBS, dated May 17, 2008, to Jazz's board of directors as to
the fairness, from a financial point of view and as of the date of the
opinion, of the exchange ratio provided for in the merger, as more fully
described below under the caption "THE MERGER - OPINION OF JAZZ'S
FINANCIAL ADVISOR;"
o The terms of the merger agreement, including:
o The limited number and nature of the conditions to Tower's
obligation to complete the merger and the limited risk of
non-satisfaction of such conditions;
o The provisions of the merger agreement that allow the board, under
certain limited circumstances if the failure to take such action
would reasonably be expected to be inconsistent with its fiduciary
duties under applicable law, to change its recommendation that
Jazz's stockholders vote in favor of the adoption of the merger
agreement; and
o The provisions of the merger agreement that allow Jazz, under
certain limited circumstances if failure to take such action would
reasonably be expected to be inconsistent with the board of
directors' or special committee's fiduciary duties under applicable
law, to furnish information to and participate in discussions or
negotiations with third parties who have made unsolicited proposals;
o The conclusion of Jazz's board of directors that the termination fee (and
the circumstances under which such fee would be payable) was reasonable in
light of the benefits of the merger, the process conducted by Jazz with
the assistance of Jazz `s management and financial advisor and commercial
practice; and
o Tower's willingness to enter into the merger agreement without having
first entered into any agreements or arrangements with the members of
Jazz's senior management team with respect to post-closing employment or
commitments to vote their shares in favor of the merger.
35
Jazz's board of directors also considered and balanced against the
potential benefits of the merger a number of risks and uncertainties concerning
the merger including the following:
o The risk that the merger might not be completed in a timely manner
or at all, including the risk that the merger will not occur if
required regulatory approvals from various governmental authorities
may not be obtained;
o The restrictions on the conduct of Jazz's business prior to
completion of the merger, which require Jazz to conduct its business
in the ordinary course and prohibit Jazz from taking numerous
specified actions without Tower's consent, and the fact that these
restrictions might delay or prevent Jazz from undertaking business
opportunities that may arise pending completion of the merger;
o The risk that the announcement of the proposed transaction or the
consummation of the merger could adversely affect Jazz's
relationships with its customers;
o The restrictions on Jazz's ability to solicit or engage in
discussions or negotiations with a third-party regarding specified
transactions involving Jazz and the requirement that Jazz pay Tower
a termination fee in order for Jazz to accept a superior proposal;
o The risk of diverting management focus and resources from other
strategic opportunities and from operational matters while working
to implement the merger, and the possibility of management and
employee disruption associated with the merger;
o The possibility of a decrease in the trading price of Tower's
ordinary shares between the date of the execution of the merger
agreement and the completion of the merger which would lessen the
value of the fixed number of Tower ordinary shares issuable in the
merger, and that the merger agreement does not provide Jazz with a
price-based collar or termination rights to protect against such
decreases in the trading price of Tower's ordinary shares;
o The substantial indebtedness of the companies on a combined basis,
which is expected to be more than $700 million (including
convertible debt), and the impact of such indebtedness on the merged
company's cash flow and ability to obtain additional financing to
execute its business strategy; and
o The other risks and uncertainties relating to Tower's and Jazz's
business described in the section entitled "RISK FACTORS RELATING TO
THE MERGER" above.
In view of the variety of factors and the quality and amount of
information considered, as well as the complexity of these matters, Jazz's board
of directors did not find it practicable to, and did not attempt to, assign
relative weights to the above factors or the other factors considered by it. In
addition, the board did not reach any specific conclusion on each factor
considered, but conducted an overall analysis of these factors. Individual
members of the board may have given different weights to different factors.
RECOMMENDATION OF JAZZ'S BOARD OF DIRECTORS
Based on its consideration of the foregoing factors, the Jazz board of
directors has unanimously determined that the merger and the transactions
contemplated by the merger agreement are advisable and fair to, and in the best
interests of, Jazz and its stockholders and has approved the merger agreement,
the merger and the other transactions contemplated by the merger agreement. THE
JAZZ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF JAZZ VOTE
"FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND APPROVE THE
MERGER.
In considering the recommendation of the Jazz board of directors with
respect to the merger agreement, Jazz stockholders should be aware that
directors and officers of Jazz have certain interests in the merger that are
different from, or are in addition to, the interests of Jazz stockholders
generally, as discussed below.
INTERESTS OF JAZZ'S DIRECTORS AND OFFICERS IN THE MERGER
When you consider the recommendation of Jazz's board of directors in favor
of adoption of the merger agreement and approval of the merger, you should keep
in mind that Jazz's directors and officers have interests in the merger that are
different from, or in addition to, your interests as a stockholder.
Certain executive officers and directors of Jazz have interests in the
merger agreement and the merger that are different from and in addition to your
interests as a stockholder. These interests exist based on change in control
severance agreements between Jazz and certain of its executive officers, as well
as certain provisions of the merger agreement itself. The board of directors of
Jazz was aware of and considered these interests when it considered and approved
the merger agreement and the merger.
36
"CHANGE IN CONTROL" SEVERANCE AGREEMENTS. Each of Dr. Amelio and Messrs.
Pittman and Grogan are party to a change in control severance agreement with
Jazz. Under his change of control severance agreement, Dr. Amelio will receive
2.99 times his annual base salary plus his target bonus, a total of $1,794,000,
and 18 months of continued COBRA coverage at an approximate cost of $14,000, if
a change of control occurs and he is terminated without cause or he terminates
his employment for good reason within one year of the change in control.
Similarly, Mr. Pittman will receive twice his annual base salary plus target
bonus, a total of $900,000, if a change of control occurs and he is terminated
without cause or he terminates his employment for good reason within one year of
the change of control. Mr. Grogan will receive twice his annual base salary plus
target bonus, a total of $700,000, and 18 months of continued COBRA coverage at
an approximate cost of $12,500, if a change of control occurs and he is
terminated without cause or he terminates his employment for good reason within
one year of the change in control. In addition, if Dr. Amelio and Messrs.
Pittman and Grogan are terminated without cause or they terminate their
employment for good reason within one year of a change in control, all stock
options grants or similar equity arrangements that are otherwise subject to
vesting over a period of 48 months following the termination will immediately
accelerate and vest. Pursuant to the merger agreement, Tower has agreed to cause
the surviving corporation to assume the obligations under the change of control
severance agreements to which Jazz is a party. The consummation of the merger
will constitute a change in control for purposes of these change in control
severance agreements.
CONTINUED DIRECTOR AND OFFICER INDEMNIFICATION. Jazz has entered into
indemnification agreements with certain officers and directors which provide,
among other things, that Jazz will indemnify such officer or director under the
circumstances and to the extent provided for therein, for expenses, judgments,
fines, penalties and settlements he or she may be required to pay in third-party
actions or proceedings which he or she is or may be made a party by reason of
his or her position as a director, officer or other agent, and otherwise to the
fullest extent permitted under Delaware law and Jazz's bylaws. Pursuant to the
merger agreement, as of the completion of the merger and thereafter, Tower has
agreed to, and is required to cause the surviving corporation to, (i) for six
years, fulfill the obligations under the existing indemnification agreements and
in Jazz's certificate of incorporation and bylaws for claims arising from acts
or omissions as directors and/or officers that occurred on or prior to the
completion of the merger, (ii) not amend the provisions regarding the
indemnification of officers and directors in the surviving corporation's
organizational documents so as to adversely affect the rights of certain Jazz
officers and directors and (iii) for six years, maintain the current level of
directors' and officers' liability insurance coverage for certain Jazz officers
and directors; provided that Tower or Jazz (as the surviving corporation) will
not be required to spend annually more than $880,196 for such coverage.
The Jazz board of directors was aware of these agreements and arrangements
during its deliberations on the merits of the merger and in determining to
recommend to its stockholders that they vote for the approval and adoption of
the merger agreement and the approval of the merger.
TOWER'S REASONS FOR THE MERGER
In reaching its decision to approve the merger agreement and the merger,
the Tower board of directors consulted with Tower's management and reviewed
various financial data, due diligence and evaluation materials. The Tower board
of directors considered a number of factors that it believes support its
decision to approve the merger agreement and the merger, including:
o the merged company's enhanced growth, margin and cash flow
prospects;
o Jazz process technologies and customer base, which appear to be
highly complementary to Tower with little overlap, thereby allowing
the merged company to diversify its process technology portfolio and
customer base;
o the merged company is expected to be an industry leader with a broad
portfolio of specialty process technologies;
o the merged company's global presence to improve geographic reach and
distribution;
o the merged company's increased capacity and scale to attract larger
customers;
o the significant synergy potential both in terms of revenue
enhancements and increased cost efficiencies;
o the likelihood that this acquisition will also enhance Tower's
ability to access capital to fund its strategic initiatives;
o the likelihood that the transaction with Tower would be completed;
o the Tower board of directors' knowledge and beliefs about the
current and prospective environments in which Tower operates,
including global economic conditions, competition in the
semiconductor industry and impact of these factors on Tower's
opportunities for maximizing shareholder value;
o the alternative of continuing without entering into the merger
agreement and Tower's opportunity to achieve comparable or better
shareholder value through that course rather than pursuant to the
merger; and
37
o the terms and conditions of the merger agreement, including the
conditions to closing and the termination provisions.
Tower's board of directors also considered and balanced against the
potential benefits of the merger a number of risks and uncertainties concerning
the merger, including, but not limited to:
o The risk that the merger may not be completed in a timely manner or
at all;
o the substantial expenses to be incurred in connection with the
merger, even if the merger is not completed; and
o the risk of diverting management's attention from other strategic
priorities to complete the merger as well as the fact that some of
Tower's officers and employees have and will experience significant
distraction from their work during the period in which the merger
will be pending.
The above discussion concerning the information and factors considered by
Tower's board of directors is not intended to be exhaustive, but includes the
material factors considered by it in making its determinations. In view of the
variety of factors considered in connection with the evaluation of the merger
agreement, Tower's board of directors did not quantify or otherwise attempt to
assign relative weight to the specific factors it considered in reaching its
determinations. In addition, individual directors may have considered various
factors to have different relative importance. Tower's board of directors
considered all of the factors as a whole and considered the factors in their
totality to be favorable and to support the decision to approve the merger
agreement.
OPINION OF JAZZ'S FINANCIAL ADVISOR
On May 17, 2008, at a meeting of Jazz's board of directors held to
evaluate the proposed merger, UBS delivered to Jazz's board of directors an oral
opinion, which opinion was confirmed by delivery of a written opinion dated May
17, 2008, to the effect that, as of that date and based on and subject to
various assumptions, matters considered and limitations described in its
opinion, the exchange ratio provided for in the merger was fair, from a
financial point of view, to holders of Jazz common stock.
The full text of UBS' opinion describes the assumptions made, procedures
followed, matters considered and limitations on the review undertaken by UBS.
This opinion is attached as Annex 2 and is incorporated into this proxy
statement/prospectus by reference. UBS' OPINION WAS PROVIDED FOR THE BENEFIT OF
JAZZ'S BOARD OF DIRECTORS IN CONNECTION WITH, AND FOR THE PURPOSE OF, ITS
EVALUATION OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW AND DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER. THE OPINION DOES NOT ADDRESS THE
RELATIVE MERITS OF THE MERGER AS COMPARED TO OTHER BUSINESS STRATEGIES OR
TRANSACTIONS THAT MIGHT BE AVAILABLE WITH RESPECT TO JAZZ OR JAZZ'S UNDERLYING
BUSINESS DECISION TO EFFECT THE MERGER. THE OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE OR ACT WITH RESPECT TO THE
MERGER. HOLDERS OF JAZZ COMMON STOCK ARE ENCOURAGED TO READ UBS' OPINION
CAREFULLY IN ITS ENTIRETY. The following summary of UBS' opinion is qualified in
its entirety by reference to the full text of UBS' opinion.
In arriving at its opinion, UBS, among other things:
o reviewed certain publicly available business and financial
information relating to Jazz and Tower;
o reviewed certain internal financial information and other data
relating to Jazz's business and financial prospects that were
provided to UBS and not publicly available, including financial
forecasts and estimates of Jazz's management that Jazz's board of
directors directed UBS to utilize for purposes of its analysis;
o reviewed certain internal financial information and other data
relating to Tower's business and financial prospects that were
provided to UBS and not publicly available, including financial
forecasts and estimates of Jazz's management that Jazz's board of
directors directed UBS to utilize for purposes of its analysis;
o reviewed certain estimates of synergies of the managements of Tower
and Jazz that were provided to UBS and not publicly available that
Jazz's board of directors directed UBS to utilize for purposes of
its analysis;
o discussed with the management of Jazz its assessment as to the value
of Jazz's unconsolidated investment in Shanghai Hua Hong NEC
Electronics Company Ltd., referred to as the HHNEC investment, that
Jazz's board of directors directed UBS to utilize for purposes of
its analysis;
o conducted discussions with members of the senior managements of Jazz
and Tower concerning the businesses and financial prospects of Jazz
and Tower, including the liquidity needs of, and capital resources
expected to be available to, the merged company and the merged
company's ability to fund, internally or through external financing
sources, its operations following consummation of the merger;
o reviewed publicly available financial and stock market data with
respect to certain other companies UBS believed to be generally
relevant;
o reviewed publicly available financial terms of certain other
transactions in the semiconductor foundry industry;
o reviewed current and historical market prices of Jazz common stock
and Tower ordinary shares;
o reviewed a draft dated May 17, 2008 of the merger agreement; and
38
o conducted such other financial studies, analyses and investigations,
and considered such other information, as UBS deemed necessary or
appropriate.
In connection with its review, with the consent of Jazz's board of
directors, UBS assumed and relied upon, without independent verification, the
accuracy and completeness in all material respects of the information provided
to or reviewed by UBS for the purpose of its opinion. In addition, with the
consent of Jazz's board of directors, UBS did not make any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Jazz or Tower, and was not furnished with any such evaluation or
appraisal. With respect to the financial forecasts, estimates, synergies and
assessment referred to above, UBS assumed, at the direction of Jazz's board of
directors, that such forecasts, estimates, synergies and assessment had been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the managements of Jazz and Tower, as the case may be, as to
the future financial performance of Jazz and Tower, such synergies and the value
of the HHNEC investment. In addition, UBS assumed with the approval of Jazz's
board of directors that such financial forecasts and estimates, including
synergies, would be achieved at the times and in the amounts projected. UBS
relied, at the direction of Jazz's board of directors, without independent
verification, upon the assessment of Jazz's management as to the value of the
HHNEC investment. UBS also relied, at the direction of Jazz's board of
directors, without independent verification, upon the assessments of the
managements of Jazz and Tower as to the liquidity needs of, and capital
resources expected to be available to, the merged company and the merged
company's ability to fund, internally or through external financing sources, its
operations following consummation of the merger. UBS assumed, with the consent
of Jazz's board of directors, that the merger would qualify for U.S. federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended. UBS' opinion was necessarily
based on economic, monetary, market and other conditions as in effect on, and
the information available to UBS as of, the date of its opinion.
At the request of Jazz's board of directors, UBS contacted third parties
to solicit indications of interest in a possible transaction with Jazz and held
discussions with certain of these parties prior to the date of UBS' opinion. At
the direction of Jazz's board of directors, UBS was not asked to, and it did
not, offer any opinion as to the terms, other than the exchange ratio to the
extent expressly specified in its opinion, of the merger agreement or the form
of the merger. In addition, UBS expressed no opinion as to the fairness of the
amount or nature of any compensation to be received by any officers, directors
or employees of any parties to the merger, or any class of such persons,
relative to the exchange ratio. UBS expressed no opinion as to what the value of
Tower ordinary shares would be when issued pursuant to the merger or the prices
at which Tower ordinary shares or Jazz common stock would trade at any time. In
rendering its opinion, UBS assumed, with the consent of Jazz's board of
directors, that (i) the final executed form of the merger agreement would not
differ in any material respect from the draft that UBS reviewed, (ii) Jazz and
Tower would comply with all material terms of the merger agreement and (iii) the
merger would be completed in accordance with the terms of the merger agreement
without any adverse waiver or amendment of any material term or condition of the
merger agreement. UBS also assumed that all governmental, regulatory or other
consents and approvals necessary for the consummation of the merger would be
obtained without any material adverse effect on Jazz, Tower or the merger.
Except as described above, Jazz imposed no other instructions or limitations on
UBS with respect to the investigations made or the procedures followed by UBS in
rendering its opinion. The issuance of UBS' opinion was approved by an
authorized committee of UBS.
In connection with rendering its opinion to Jazz's board of directors, UBS
performed a variety of financial and comparative analyses which are summarized
below. The following summary is not a complete description of all analyses
performed and factors considered by UBS in connection with its opinion. The
preparation of a financial opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. With respect to the selected companies analyses of Jazz and Tower
summarized below, no company used as a comparison was identical to Jazz or
Tower. These analyses necessarily involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the public trading values of the companies concerned.
UBS believes that its analyses and the summary below must be considered as
a whole and that selecting portions of its analyses and factors or focusing on
information presented in tabular format, without considering all analyses and
factors or the narrative description of the analyses, could create a misleading
or incomplete view of the processes underlying UBS' analyses and opinion. UBS
did not draw, in isolation, conclusions from or with regard to any one factor or
method of analysis for purposes of its opinion, but rather arrived at its
ultimate opinion based on the results of all analyses undertaken by it and
assessed as a whole.
The estimates of the future performance of Jazz and Tower in or underlying
UBS' analyses are not necessarily indicative of future results or values, which
may be significantly more or less favorable than those estimates. In performing
its analyses, UBS considered industry performance, general business and economic
conditions and other matters, many of which were beyond the control of Jazz and
Tower. Estimates of the financial value of companies do not purport to be
appraisals or necessarily reflect the prices at which companies actually may be
sold.
The exchange ratio was determined through negotiation between Jazz and
Tower and the decision by Jazz to enter into the merger was solely that of
Jazz's board of directors. UBS' opinion and financial analyses were only one of
many factors considered by Jazz's board of directors in its evaluation of the
merger and should not be viewed as determinative of the views of Jazz's board of
directors or management with respect to the merger or the exchange ratio.
39
The following is a brief summary of the material financial analyses
performed by UBS and reviewed with Jazz's board of directors on May 17, 2008 in
connection with UBS' opinion relating to the proposed merger. THE FINANCIAL
ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. IN
ORDER TO FULLY UNDERSTAND UBS' FINANCIAL ANALYSES, THE TABLES MUST BE READ
TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A
COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. CONSIDERING THE DATA BELOW
WITHOUT CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES,
INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD
CREATE A MISLEADING OR INCOMPLETE VIEW OF UBS' FINANCIAL ANALYSES.
JAZZ FINANCIAL ANALYSES
JAZZ SELECTED COMPANIES ANALYSIS. UBS compared selected financial and
stock market data of Jazz with corresponding data of the following seven
publicly traded companies in the semiconductor foundry industry:
o Advanced Semiconductor Manufacturing Corporation Limited
o Chartered Semiconductor Manufacturing Ltd
o China Resources Microelectronics Limited
o Semiconductor Manufacturing International Corporation
o Taiwan Semiconductor Manufacturing Company Ltd.
o United Microelectronics Corporation and
o Vanguard International Semiconductor Corporation
UBS reviewed, among other things, the enterprise values of the selected
companies, calculated as equity market value based on closing stock prices on
May 16, 2008, plus debt at book value, preferred stock at liquidation value and
minority interests at book value, less cash and cash equivalents, as multiples
of calendar years 2008 and 2009 estimated revenue and estimated earnings before
interest, taxes, depreciation and amortization, referred to as EBITDA. UBS then
compared these multiples derived for the selected companies with corresponding
multiples implied for Jazz based both on the closing price of Jazz common stock
on May 16, 2008 and the implied per share value of the merger consideration
utilizing the merger exchange ratio of 1.8x and the closing price of Tower
ordinary shares on NASDAQ on May 16, 2008. Financial data for the selected
companies were based on publicly available research analysts' estimates, public
filings and other publicly available information. Estimated financial data for
Jazz (including the estimated value of its HHNEC investment) were based on
internal estimates provided to UBS by Jazz's management. The estimated value of
Jazz's HHNEC investment was treated as a cash equivalent when calculating the
enterprise value of Jazz. This analysis indicated the following implied high,
mean, median and low multiples for the selected companies, as compared to
corresponding multiples implied for Jazz:
Implied Multiples Implied Multiples for Jazz
for Selected Companies Based on:
--------------------------------------- ------------------------------------------
Closing Stock Implied Per Share Value
High Mean Median Low Price on 5/16/08 of Merger Consideration
------- ------ -------- ------- ---------------- -----------------------
Enterprise Value as
Multiple of Estimated
Revenue:
Calendar Year 2008 4.5x 1.8x 1.6x 0.3x 0.7x 0.8x
Calendar Year 2009 4.2x 1.7x 1.6x 0.2x 0.7x 0.8x
Enterprise Value as
Multiple of Estimated
EBITDA:
Calendar Year 2008 7.9x 4.5x 4.9x 0.9x 4.2x 5.1x
Calendar Year 2009 6.7x 3.9x 4.1x 0.8x 4.0x 4.8x
40
JAZZ DISCOUNTED CASH FLOW ANALYSIS. UBS performed a discounted cash flow
analysis of Jazz using financial forecasts and estimates relating to Jazz
provided to UBS by Jazz's management for calendar year 2008 through calendar
year 2012 and Jazz management's estimate as to the value of Jazz's HHNEC
investment. UBS calculated a range of implied present values (as of June 30,
2008) of the standalone unlevered, after-tax free cash flows that Jazz was
forecasted to generate from July 1, 2008 until December 31, 2012 and of terminal
values for Jazz based on Jazz's calendar year 2012 estimated EBITDA. Implied
terminal values were derived by applying a range of latest 12 months estimated
EBITDA terminal value multiples of 3.5x to 5.5x. Present values of cash flows
and terminal values were calculated using discount rates ranging from 15.0% to
20.0%. The discounted cash flow analysis resulted in a range of implied present
values of approximately $(0.55) to $1.75 per outstanding share of Jazz common
stock, as compared to the implied per share value of the merger consideration of
approximately $2.21 utilizing the merger exchange ratio of 1.8x and the closing
price of Tower ordinary shares on NASDAQ on May 16, 2008. To the extent that the
implied present values of Jazz derived in this analysis were less than the
outstanding debt of Jazz, net of cash and the estimated value of Jazz's HHNEC
investment, negative per share values of Jazz were reflected for illustrative
purposes.
TOWER SELECTED COMPANIES ANALYSIS
UBS compared selected financial and stock market data of Tower with
corresponding data of the selected companies referred to above under "JAZZ
FINANCIAL ANALYSES - JAZZ SELECTED COMPANIES ANALYSIS." Among other things, UBS
compared multiples of calendar years 2008 and 2009 estimated revenue and
estimated EBITDA derived for the selected companies with corresponding multiples
implied for Tower based on the closing price of Tower ordinary shares on NASDAQ
on May 16, 2008. Financial data for the selected companies were based on
publicly available research analysts' estimates, public filings and other
publicly available information. Estimated financial data for Tower were based on
internal estimates provided to UBS by Jazz's management. This analysis indicated
the following implied high, mean, median and low multiples for the selected
companies, as compared to corresponding multiples implied for Tower:
Implied Multiples Implied Multiples for Tower Based on
for Selected Companies Closing Share Price on NASDAQ on 5/16/08
--------------------------------------- ----------------------------------------
High Mean Median Low
------ ------ -------- --------
Enterprise Value as
Multiple of Estimated
Revenue:
Calendar Year 2008 4.5x 1.8x 1.6x 0.3x 3.1x
Calendar Year 2009 4.2x 1.7x 1.6x 0.2x 2.4x
Enterprise Value as
Multiple of Estimated
EBITDA:
Calendar Year 2008 7.9x 4.5x 4.9x 0.9x 14.6x
Calendar Year 2009 6.7x 3.9x 4.1x 0.8x 7.2x
PRO FORMA MERGED COMPANY DISCOUNTED CASH FLOW ANALYSIS
UBS performed a discounted cash flow analysis of Jazz and Tower on a
combined basis using financial forecasts and estimates relating to Jazz and
Tower for calendar year 2008 through calendar year 2012 provided to UBS by
Jazz's management. UBS also utilized, at the direction of Jazz's board of
directors, Jazz management's estimate as to the value of Jazz's HHNEC investment
and estimates provided to UBS by Jazz's management as to potential synergies
anticipated by the managements of Tower and Jazz to result from the merger. UBS
calculated a range of implied present values (as of June 30, 2008) of the
unlevered, after-tax free cash flows that Jazz and Tower were forecasted to
generate on a combined basis (after giving effect to potential synergies and
utilization of Tower's net operating losses as of December 31, 2007) from July
1, 2008 until December 31, 2012 and of terminal values for the merged company
based on the merged company's calendar year 2012 estimated EBITDA after giving
effect to potential synergies. Implied terminal values were derived by applying
a range of latest 12 months estimated EBITDA terminal value multiples of 4.0x to
6.0x. Present values of cash flows and terminal values were calculated using
discount rates ranging from 14.0% to 18.0%. The discounted cash flow analysis of
the merged company resulted in a range of implied present values of
approximately $1.25 to $3.45 attributable to each outstanding share of Jazz
common stock based on the merger exchange ratio of 1.8x, as compared to the
range of implied present values of approximately $(0.55) to $1.75 per
outstanding share of Jazz common stock derived from the stand-alone discounted
cash flow analysis of Jazz described above under "JAZZ ANALYSES - JAZZ
DISCOUNTED CASH FLOW ANALYSIS."
41
MISCELLANEOUS
Under the terms of UBS' engagement, Jazz has agreed to pay UBS for its
financial advisory services in connection with the merger an aggregate fee
currently estimated to be $2.75 million, a portion of which was payable in
connection with UBS' opinion and a significant portion of which is contingent
upon consummation of the merger. In addition, Jazz has agreed to reimburse UBS
for its reasonable expenses, including fees, disbursements and other charges of
counsel, and to indemnify UBS and related parties against liabilities, including
liabilities under federal securities laws, relating to, or arising out of, its
engagement.
In the ordinary course of business, UBS and its affiliates may hold or
trade, for their own accounts and the accounts of their customers, securities of
Jazz and Tower and, accordingly, may at any time hold a long or short position
in such securities.
Jazz selected UBS as its financial advisor in connection with the merger
because UBS is an internationally recognized investment banking firm with
substantial experience in similar transactions. UBS is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive bids,
secondary distributions of listed and unlisted securities and private
placements.
REGULATORY FILINGS AND APPROVALS NECESSARY TO COMPLETE THE MERGER
Other than the effectiveness of this registration statement, of which this
proxy statement/prospectus is a part and compliance with applicable provisions
of Delaware and Israeli laws, several additional regulatory filings and
approvals are required in connection with the merger include:
o approval of the Office of the Chief Scientist of the Israeli
Ministry of Industry, Trade and Labor;
o approval of the Israeli Investment Center of the Israeli Ministry of
Industry, Trade and Labor;
o approval of the Israel Lands Administration; and
o approval of the Tel-Aviv Stock Exchange (listing of additional
shares).
Tower is also required to provide notice: (i) with the Directorate of
Defense Trade Controls under ITAR at least 60 days prior to closing, (ii) prior
to the closing date, to the Nasdaq Global Market (on a Notification Form:
Listing of Additional Shares); and (iii) following the Effective Date, to the
Investment Center, the Israeli Office of the Chief Scientist and the Israel
Lands Administration. The merger is not expected to be subject to the
Hart-Scott-Rodino Act.
On May 27, 2008, Tower submitted applications for the approval of the
change in the ownership of its shares resulting from the transactions
contemplated by the merger agreement, to each of the Office of the Chief
Scientist, Investment Center and Israel Lands Administration.
On June 3, 2008, Tower received the approval of the Office of the Chief
Scientist of the Israeli Ministry of Industry, Trade and Labor.
On June 10, 2008, Jazz filed, and on June 24, 2008, Tower filed, a notice
with the Directorate of Defense Trade Controls under ITAR.
Jazz and Tower have been in pre-notification discussions with CFIUS
regarding the proposed merger and intend to make a voluntary filing on or about
August 8, 2008 seeking CFIUS review of the proposed merger. There can be no
assurance that CFIUS would not request the parties to enter into a mitigation
agreement that could impose material conditions on the operations of the Jazz
business.
An application to the Tel-Aviv Stock Exchange for the listing of
additional shares will be submitted on or around the closing date.
DIRECTORS AND MANAGEMENT OF THE MERGED COMPANY AFTER THE MERGER
The directors and officers of Tower will remain the directors and officers
of Tower following the merger until their successors are duly elected, appointed
or qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation of Tower and applicable law. As contemplated
by the merger agreement, the directors and officers of Jazz following the merger
will be determined prior to the effective time of the merger.
ACCOUNTING TREATMENT
In accordance with U.S. GAAP, the merger will be accounted for as a
purchase through the issuance of stock by Tower as the consideration for the net
assets of Jazz. The assets (tangibles and intangibles) and liabilities of Jazz
will be recorded as of the acquisition date at their assigned values based on
purchase price allocation determined, using their respective fair values.
Goodwill, if any, will be recorded as the residual amount of the excess of cost
over the fair values of identified assets, in accordance with the requirements
of SFAS 141.
42
TOWER ORDINARY SHARES TRADED ON NASDAQ AND TASE; DELISTING AND DEREGISTRATION OF
JAZZ SECURITIES
Jazz common stock, warrants and units will continue to trade on the
American Stock Exchange until the completion of the proposed merger. Following
the completion of the proposed merger, Jazz common stock, and units will no
longer be listed on the American Stock Exchange and will be deregistered under
the Exchange Act. In the merger, holders of Jazz common stock will receive
ordinary shares of Tower which are publicly traded on the NASDAQ Global Market
under the symbol "TSEM" and the Tel Aviv Stock Exchange, or TASE, under the
symbol "TSEM." At the effective time of the merger each Jazz unit will be
mandatorily separated into one share of Jazz common stock (which will convert
into Tower ordinary shares as described above) and two Jazz warrants. At the
effective time of the merger, Jazz warrants will remain outstanding and will
become exercisable for Tower ordinary shares as described in this proxy
statement/prospectus. Tower anticipates that following the merger, the Jazz
warrants will be delisted from the American Stock Exchange and will be quoted on
the Nasdaq Global Market. We cannot assure you, however, that
the Jazz warrants will or will continue to be quoted on the Nasdaq Global
Market.
CASH IN LIEU OF FRACTIONAL SHARES
No fractions of Tower ordinary shares will be issued as consideration in
the merger and holders of Jazz common stock who would otherwise be entitled to a
fraction of a Tower ordinary share (after aggregating all fractional shares that
otherwise would be received by such holder), shall be entitled to receive a cash
payment in lieu thereof. The amount of cash received by such stockholder will be
equal to an amount of cash (rounded to the nearest whole cent), without
interest, equal to the product of (i) such fraction, multiplied by (ii) the
average closing price of one Tower ordinary share for the five most recent days
that Tower ordinary shares have traded ending on the trading day immediately
prior to the effective time of the merger, as reported on the Nasdaq Global
Market.
EFFECTIVE TIME OF THE MERGER AND THE SHARE EXCHANGE
The merger will be completed and become effective when, following the
approval and adoption of the merger agreement at the Jazz special meeting and
the satisfaction or waiver or each of the other closing conditions under the
merger agreement, the certificate of merger is duly filed with and accepted by
the Secretary of State of the State of Delaware or at such other time as may be
mutually determined by Tower and Jazz and specified in the certificate of
merger. The merger will be completed and the certificate of merger will be filed
after all of the conditions to the merger contained in the merger agreement are
satisfied or, where permissible, waived.
Upon the effective time of the merger, subject to the conditions discussed
below under "THE MERGER AGREEMENT - CONDITIONS TO COMPLETION OF THE MERGER,"
each outstanding share of Jazz common stock will be, by virtue of the merger and
without any further action on the part of Tower, Merger Sub, Jazz or any Jazz
stockholder, converted into the right to receive 1.8 Tower ordinary shares as
described under "MERGER AGREEMENT - MERGER CONSIDERATION."
No fractions of Tower ordinary shares will be issued to any holders of
Jazz common stock, and holders thereof who would otherwise be entitled to a
fraction of a Tower ordinary share (after aggregating all fractional shares that
otherwise would be received by such holder) shall be entitled to receive in lieu
thereof a cash payment, as set forth below. The cash payment to be received by
suck stockholder will be equal to an amount of cash (rounded to the nearest
whole cent) without interest, equal to the product of (i) such fraction,
multiplied by (ii) the average closing price of one Tower ordinary share for the
five most recent days that Tower ordinary shares have traded ending on the
trading day immediately prior to the effective time of the merger, as reported
on the Nasdaq Global Market.
The merger agreement provides that prior to the effective time of the
merger Tower shall cause to be made available to the exchange agent, the Tower
ordinary shares to be exchanged for converted shares of Jazz common stock, cash
amounts sufficient for payment in lieu of fractional shares, and any dividends
or other distributions payable pursuant to the merger agreement.
In addition, promptly after the effective time of the merger, and in no
event more than five business days thereafter, the exchange agent will mail to
each record holder of a certificate or certificates that represented outstanding
shares of Jazz common stock immediately prior to the effective time of the
merger, a letter of election and transmittal and instructions for use in
exchanging such stock certificates for Tower ordinary shares. You should not
send in your Jazz stock certificates before receiving this letter of
transmittal.
The merger agreement contemplates that, after the exchange agent receives
back from a record holder the stock certificates, the letter of election and
transmittal duly completed and validly executed in accordance with the
instructions thereto, the exchange agent will promptly mail to the record holder
a certificate or certificates representing the appropriate number of ordinary
shares of Tower to be issued to such record holder by Tower, payment in lieu of
fractional shares which such holders may be eligible to receive and any
dividends or other distributions payable pursuant to the merger agreement.
PLEASE DO NOT SEND YOUR JAZZ COMMON STOCK CERTIFICATES. AFTER THE
EFFECTIVE TIME OF THE MERGER, THE EXCHANGE AGENT WILL MAIL A LETTER OF
TRANSMITTAL TO YOU. YOU SHOULD SEND YOUR JAZZ COMMON STOCK CERTIFICATES ONLY IN
COMPLIANCE WITH THE INSTRUCTIONS THAT WILL BE PROVIDED IN THE LETTER OF
TRANSMITTAL.
Warrants and options to purchase Jazz common stock will not be exchanged
in the merger. PLEASE DO NOT SEND YOUR WARRANTS OR OPTIONS TO THE EXCHANGE AGENT
FOR EXCHANGE. Instead, any Jazz warrants and options outstanding at the
effective time of the merger shall thereafter automatically be deemed to
constitute warrants or options, as the case may be, to purchase Tower ordinary
shares.
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Jazz's convertible notes will not be exchanged in the merger. PLEASE DO
NOT SEND YOUR CONVERTIBLE NOTES TO THE EXCHANGE AGENT FOR EXCHANGE. Instead, any
Jazz convertible notes outstanding at the effective time of the merger shall be
deemed to constitute notes convertible into Tower ordinary shares at a
conversion rate of 245.57 shares per $1,000 principal amount.
NO DISSENTERS' APPRAISAL RIGHTS
Holders of Jazz common stock will not have any appraisal rights under the
Delaware General Corporation Law, or under Jazz's certificate of incorporation
in connection with the merger, and neither Jazz nor Tower will independently
provide holders of Jazz common stock with any such rights. For further
information concerning the Jazz Special Meeting, see "THE JAZZ SPECIAL MEETING
OF STOCKHOLDERS."
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THE MERGER AGREEMENT
THE FOLLOWING SUMMARY DESCRIBES SELECTED MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, WHICH IS INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS AS ANNEX 1 AND
IS INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS. THIS SUMMARY
MAY NOT CONTAIN ALL OF THE information ABOUT THE MERGER AGREEMENT THAT IS
IMPORTANT TO YOU. IN THE EVENT OF ANY DISCREPANCY BETWEEN THE TERMS OF THE
MERGER AGREEMENT AND THE FOLLOWING SUMMARY, THE MERGER AGREEMENT WILL CONTROL.
YOU ARE ENCOURAGED TO CAREFULLY READ THE MERGER AGREEMENT IN ITS ENTIRETY.
THE MERGER AGREEMENT HAS BEEN INCLUDED TO PROVIDE YOU WITH INFORMATION
REGARDING ITS TERMS. IT IS NOT INTENDED TO PROVIDE ANY OTHER FACTUAL INFORMATION
ABOUT TOWER OR JAZZ. SUCH INFORMATION CAN BE FOUND ELSEWHERE IN THIS DOCUMENT
AND, WITH RESPECT TO TOWER, IN THE PUBLIC FILINGS THAT TOWER MAKE WITH THE SEC,
WHICH ARE AVAILABLE WITHOUT CHARGE THROUGH THE SEC'S WEBSITE AT
HTTP://WWW.SEC.GOV.
THE REPRESENTATIONS AND WARRANTIES DESCRIBED BELOW AND INCLUDED IN THE
MERGER AGREEMENT WERE MADE BY EACH OF TOWER AND JAZZ TO THE OTHER. THESE
REPRESENTATIONS AND WARRANTIES WERE MADE AS OF SPECIFIC DATES AND ARE SUBJECT TO
IMPORTANT EXCEPTIONS, LIMITATIONS AND SUPPLEMENTAL INFORMATION CONTAINED IN THE
CONFIDENTIAL DISCLOSURE SCHEDULES PROVIDED BY EACH OF TOWER AND JAZZ TO THE
OTHER IN CONNECTION WITH THE SIGNING OF THE MERGER AGREEMENT, INCLUDING A
CONTRACTUAL STANDARD OF MATERIALITY DIFFERENT FROM THAT GENERALLY APPLICABLE
UNDER FEDERAL SECURITIES LAWS. IN ADDITION, THE REPRESENTATIONS AND WARRANTIES
MAY HAVE BEEN INCLUDED IN THE MERGER AGREEMENT FOR THE PURPOSE OF ALLOCATING
RISK BETWEEN TOWER AND JAZZ RATHER THAN TO ESTABLISH MATTERS AS FACTS. THE
MERGER AGREEMENT IS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS AND INCLUDED AS
ANNEX 1 HERETO ONLY TO PROVIDE YOU WITH INFORMATION REGARDING ITS TERMS AND
CONDITIONS, AND NOT TO PROVIDE ANY OTHER FACTUAL INFORMATION REGARDING TOWER,
JAZZ OR THEIR RESPECTIVE BUSINESSES. ACCORDINGLY, YOU SHOULD NOT RELY ON THE
REPRESENTATIONS AND WARRANTIES IN THE MERGER AGREEMENT AS CHARACTERIZATIONS OF
THE ACTUAL STATE OF FACTS ABOUT TOWER OR JAZZ, AND YOU SHOULD READ THE
INFORMATION PROVIDED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS AND, WITH
RESPECT TO TOWER, IN THE DOCUMENTS INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT/PROSPECTUS FOR INFORMATION REGARDING TOWER AND ITS BUSINESS. SEE
"WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION OF INFORMATION BY
REFERENCE."
THE MERGER
Following the satisfaction or waiver of all of the conditions to
completion of the merger contained in the merger agreement, including the
adoption of the merger agreement by the stockholders of Jazz, Merger Sub will
merge with and into Jazz, with Jazz continuing as the surviving corporation and
as a wholly-owned subsidiary of Tower.
EFFECTIVE TIME OF THE MERGER
The merger will become effective when the certificate of merger is duly filed
with the Secretary of State of the State of Delaware or such other time as
mutually determined by Tower and Jazz and specified in the certificate of
merger. The parties are working to complete the merger as quickly as possible.
The merger is expected to be completed promptly after the special meeting of
Jazz stockholders described in this proxy statement/prospectus. However, the
merger is subject to the satisfaction or waiver of various conditions as set
forth in the merger agreement. No assurances can be given that such conditions
will be satisfied or waived or that the parties will obtain any necessary
approvals in a timely manner, if at all.
MERGER CONSIDERATION
If the merger is completed, each share of Jazz common stock not held by
Tower, Merger Sub or Jazz outstanding as of immediately prior to the effective
time of the merger will automatically be converted into and represent the right
to receive 1.8 ordinary shares of Tower. Cash will be paid in lieu of fractional
shares. Any outstanding shares of Jazz held by Tower, Merger Sub or Jazz will be
canceled and cease to exist and no consideration will be delivered in exchange
for such shares.
After the merger is completed, you will have the right to receive the
merger consideration, but you will no longer have any rights as a Jazz
stockholder. You will receive written instructions from the exchange agent
appointed by Tower for sending in your stock certificates and receiving the
ordinary shares of Tower and cash (in lieu of fractional shares) to which you
will be entitled.
Former Jazz stockholders are currently expected to own approximately 21.5%
of the outstanding ordinary shares of Tower immediately after the merger, based
on the 125,364,021 Tower ordinary shares and 19,031,276 shares of Jazz common
stock outstanding as of July 31, 2008.
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TREATMENT OF JAZZ WARRANTS
Under the merger agreement, Tower will assume all outstanding warrants to
purchase Jazz common stock that are outstanding immediately prior to the
effective time of the merger, and these warrants will become exercisable for
Tower ordinary shares. Each warrant to purchase Jazz common stock at the
effective time of the merger will become a warrant to purchase 1.8 Tower
ordinary shares at an exercise price of $2.78 per Tower ordinary share, which is
equal to the existing exercise price of $5.00 divided by the exchange ratio of
1.8. No fractional ordinary shares of Tower will be issued upon the exercise of
the warrants, but rather the number of Tower ordinary shares to be issued shall
be rounded up to the nearest whole number. Tower intends to file with the SEC a
post-effective amendment to the registration statement of which this proxy
statement/prospectus is a part with respect to the Tower ordinary shares
issuable upon exercise of the Jazz warrants. Tower anticipates that following
the merger, the Jazz warrants will be delisted from the American Stock Exchange
and will be quoted on the Nasdaq Global Market. We cannot assure you, however,
that the Jazz warrants will or will continue to be quoted on the Nasdaq Global
Market.
TREATMENT OF JAZZ UNITS
At the effective time of the merger, each Jazz unit will be mandatorily
separated into one share of Jazz common stock and two Jazz warrants. The shares
of Jazz common stock will convert into Tower ordinary shares and the Jazz
warrants will become exercisable for Tower ordinary shares, each as described
above.
TREATMENT OF JAZZ CONVERTIBLE NOTES
Each holder of Jazz convertible notes will have the right to convert the
convertible note into the number of ordinary shares of Tower equal to 1.8
multiplied by the number of shares of common stock of Jazz that such holder
would have been entitled to receive if the convertible note was converted
immediately prior to the effective time of the merger. For example, each $1,000
in original principal amount of Jazz convertible notes would become convertible
into 245.57 Tower ordinary shares, representing an implied conversion price of
approximately $4.07 per Tower ordinary share, which is equal to the existing
implied conversion price of $7.33 per share of Jazz common stock, divided by the
exchange ratio of 1.8.
Prior to the effective time of the merger, Jazz and Tower will take such
actions as are required under the indenture governing the outstanding Jazz
convertible notes, including execution of a supplemental indenture, to establish
the rights of the holders of the notes to convert each note after the effective
time of the merger into the applicable merger consideration, upon the terms and
subject to the conditions and the other provisions of the indenture. Tower is
not required under such indenture or the merger agreement to guarantee Jazz's
payment obligations under the notes. Tower intends to file with the SEC a
post-effective amendment to the registration statement of which this proxy
statement/prospectus is a part with respect to the Tower ordinary shares
issuable upon exercise of the Jazz convertible notes.
After the effective time of the merger, Jazz will deliver to the holders of
the notes appropriate notices required by the terms of the indenture as a result
of the merger.
TREATMENT OF JAZZ OPTIONS
Under the merger agreement, Tower will assume all options to purchase Jazz
common stock that are outstanding immediately prior to the effective time of the
merger, whether vested or unvested, and these options will become exercisable
for Tower ordinary shares. Each option to purchase Jazz common stock outstanding
at the effective time of the merger will become an option to purchase a number
of Tower ordinary shares equal to 1.8 multiplied by the number of shares of Jazz
common stock that such option was exercisable for prior to the effective time,
rounded down to the nearest whole number of Tower ordinary shares, and the per
share exercise price of each option will equal the per share exercise price of
such option divided by 1.8, rounded up to the nearest cent. For example, an
option to purchase 100 shares of Jazz common stock will become an option to
purchase 180 Tower ordinary shares. Tower has undertaken to file within ten
business days of the effective time of the merger, subject to applicable law, a
Form S-8 registration statement with the SEC covering the Tower ordinary shares
issuable upon the exercise of the assumed Jazz options.
PAYMENT PROCEDURES
Prior to the effective time of the merger, Tower will select an exchange
agent reasonably acceptable to Jazz who, upon your proper surrender of your
certificate(s) representing Jazz common stock, will deliver to you the merger
consideration. As of the effective time of the merger, Tower will have made
available to the exchange agent a number of Tower ordinary shares and cash
sufficient to deliver the merger consideration to each Jazz stockholder.
Promptly after the effective time of the merger, the exchange agent will mail a
letter of transmittal and instructions to each stockholder for use in
surrendering your stock certificate(s). When you properly surrender your stock
certificate(s) to the exchange agent for cancellation, together with a properly
completed and duly signed letter of transmittal and any other documents that the
exchange agent may require, you will be entitled to receive the merger
consideration. From and after the effective time of the merger, until
certificate(s) representing common stock of Jazz have been properly surrendered,
each such certificate will be deemed to represent only the right to receive 1.8
ordinary shares of Tower, plus cash in lieu of fractional shares.
The exchange agent will only deliver the merger consideration in a name
other than the name in which a surrendered certificate representing Jazz stock
is registered if (i) such certificate(s) are properly endorsed and otherwise in
proper form for transfer and (ii) such other person who requests such exchange
(A) pays to Tower or any agent designated by Tower any transfer or other taxes
required by reason of the issuance of the Tower ordinary shares to such other
person or (B) has established to the reasonable satisfaction of Tower that such
tax has been paid or is not payable.
If a certificate representing Jazz stock is lost, stolen or destroyed,
Tower may require, as a condition to the receipt of the merger consideration,
that the holder of such certificate deliver a bond in such sum as it may direct
(and in accordance with the exchange agent's customary policies), with respect
to the lost, stolen or destroyed certificate.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by Jazz
relating to, among other things: organization, good standing and its
subsidiaries; certificate of incorporation and bylaws; capital structure of
Jazz; SEC filings, financial statements, absence of liabilities and financial
controls; absence of certain changes; intellectual property rights; title to
assets and property; equipment and leaseholds; material contracts; compliance
with legal requirements; legal proceedings and orders; governmental
authorizations; tax matters; employee benefit plans; labor matters;
environmental matters; insurance; certain business practices; product
warranties; transactions with affiliates; authority of Jazz related to the
merger agreement; required stockholder vote; conflicts, required filings and
consents; receipt of an opinion from Jazz's financial advisor; payment of fees
to brokers; accounts receivable; and accounts payable.
The merger agreement contains representations and warranties by Tower and
Merger Sub relating to, among other things: organization and good standing;
articles of association, certificate of incorporation and bylaws; capital
structure of Tower; SEC filings, financial statements and financial controls;
absence of certain changes; intellectual property rights; material contracts;
compliance with legal requirements; legal proceedings and orders; governmental
authorizations; certain business practices; transactions with affiliates;
authority of Tower related to the merger agreement; conflicts, required filings
and consents; and payment of fees to brokers.
Many of the representations of Jazz, Tower and Merger Sub are qualified by
materiality, knowledge or a material adverse effect standard.
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to read carefully the sections of the
merger agreement entitled "Representations and Warranties of the Company" and
"Representations and Warranties of Parent and Merger Sub."
CONDUCT PRIOR TO COMPLETION OF THE TRANSACTION
JAZZ AND TOWER
During the period between May 19, 2008 and the effective time of the
merger (or, if earlier, until the termination date) (the "Pre-Closing Period"),
each of Jazz and Tower will, and will ensure that each of their subsidiaries
will:
o use reasonable efforts to conduct its business in substantially the same
manner in which such business was being conducted prior to May 19, 2008;
o use commercially reasonable efforts to ensure that it preserves intact its
current business organization, keeps available the services of its present
officers and other employees and preserves its relations and goodwill with
suppliers, customers, landlords, creditors, licensors, licensees,
employees and other entities having business relationships with it and
with all relevant governmental entities;
o keep in full force all its insurance policies (except for replacement of
insurance policies providing substantially similar levels of coverage);
and
o in the case of Jazz, promptly notify Tower of any event that would have a
material adverse effect on Jazz and in the case of Tower, promptly notify
Jazz of any event that would have a material adverse effect on Tower.
JAZZ
Except as specifically permitted by the merger agreement, during the
Pre-Closing Period, without Tower's prior written consent, Jazz will not, and
will not permit any of its subsidiaries to:
o amend its organizational documents;
o split, combine or reclassify any shares of capital stock;
o declare, set aside or pay any dividend;
o (A) form any subsidiary; (B) or acquire any equity interest in any other
entity; or (C) effect or become a party to any merger, consolidation, plan
of arrangement, share exchange, business combination, amalgamation,
recapitalization, reclassification of shares, stock split, reverse stock
split, issuance of bonus shares, division or subdivision of shares,
consolidation of shares or similar transaction;
o issue or authorize the issuance of any shares of, or securities
convertible or exchangeable for, or options, warrants or rights to
acquire, any shares of its capital stock, other than (A) shares issuable
upon exercise of outstanding options and warrants, or upon conversion of
outstanding convertible notes or (B) up to 70,000 shares subject to
options or other equity awards issued in the ordinary course of business
to Jazz employees (other than directors or executive officers of Jazz);
o amend or waive any right under any option, warrant or the convertible
notes;
o (A) acquire any asset for a purchase price exceeding $200,000 or assets
for an aggregate purchase price exceeding $600,000 (other than the
acquisition of raw materials or supplies in the ordinary course of
business consistent with past practice and non-exclusive licenses in the
ordinary course of business); (B) sell or otherwise dispose of any
material asset; (C) enter into a lease or a license of any assets
involving the payment of $500,000 over the term of the lease or license
(other than the replacement or renewal of existing licenses); or (D)
knowingly waive or relinquish any rights outside of the ordinary course of
business;
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o repurchase, redeem or otherwise acquire any shares, options, warrants,
rights to acquire any Jazz stock or securities convertible into Jazz
stock;
o incur any indebtedness for borrowed money or guarantee any such
indebtedness, except for (A) borrowings (including letters of credit) up
to $13,000,000 in the aggregate under Jazz's Wachovia credit line, subject
to Jazz providing Tower with advance written notice of (1) the first
drawdown or letter of credit that brings the outstanding balance
(including letters of credit) to $10,000,000 or more; and (2) each
drawdown or letter of credit thereafter each, and (B) purchase money
financings and capital leases entered into in the ordinary course of
business;
o (A) establish, adopt or amend any employee benefit or pension plans or
employment agreements, (B) pay any bonus or make any profit sharing
payment, cash incentive payment or similar payment to, or increase the
compensation or fringe benefits of any director, officer or employee of
Jazz or any of its subsidiaries (except for (1) payments pursuant to
existing agreements or plans, (2) amendments required by law, (3)
increases required by existing collective bargaining agreements or benefit
plans, and (4) salary increases and bonuses to non-executive employees in
the ordinary course of business), (C) hire any new officers, (D) terminate
any existing officers (other than terminations for cause), or (E) grant
any severance pay or termination pay to any officers or employees, except
pursuant to existing agreements or in accordance with existing written
company policies;
o (A) enter into or become bound by a material contract, subject to certain
exceptions, or (B) amend, renew or prematurely terminate any material
contract or knowingly waive, release or assign any material rights or
claims under any material contracts, subject to certain exceptions;
o (A) abandon, disclaim, dedicate to the public, sell, assign or grant any
security interest in, to or under any intellectual property rights, (B)
grant to any third party any license with respect to intellectual property
rights, except in the ordinary course of business, (C) develop, create or
invent any intellectual property jointly with any third-party, except in
the ordinary course of business or in accordance with the terms of
existing agreements or arrangements, or (D) fail to notify Tower promptly
of any material infringement, misappropriation or other violation of
intellectual property Rights;
o lend money to any person, except that Jazz and its subsidiaries may make
advances to employees, officers, directors or independent contractors for
business expenses and Jazz may allow employees to acquire shares of Jazz
common stock in exchange for promissory notes upon exercise of Jazz
options, in each case in the ordinary course of business and consistent
with past practice;
o change any of its methods of tax or financial accounting or accounting
practices in any material respect other than as required by applicable law
or under GAAP;
o make, change or revoke any material tax election, amend any material tax
return, enter into any closing agreement with respect to a material amount
of taxes, settle any material tax claim or assessment; surrender any right
to claim a refund of a material amount of taxes, obtain any tax ruling or
consent to any waiver or extension of the statute of limitations for the
assessment of taxes;
o make any capital expenditure that individually exceeds $200,000 in amount
or when added to all other capital expenditures made since May 19, 2008,
would exceed $750,000 in the aggregate;
o commence any legal proceeding, except with respect to routine collection
matters in the ordinary course of business and consistent with past
practices;
o settle or discharge any legal proceeding or other claim or dispute, except
where the only obligations incurred by Jazz are payments below $100,000 in
the aggregate;
o (A) extend the payment terms of any customer, provide credit to any
customer (or any price adjustment) or make customer concessions, or (B)
advance payment terms of any supplier or service provider, in each case
except in the ordinary course of business and consistent with past
practice; or
o enter into an agreement to take any of the actions described above.
TOWER
Except as specifically permitted by the merger agreement, during the
Pre-Closing Period, without Jazz's prior written consent, Tower will not, and
will not permit any of its subsidiaries to:
o amend its organizational documents;
o declare, set aside or pay any dividend;
o (A) form any subsidiary; (B) or acquire any equity interest in any other
entity; or (C) effect or become a party to any merger, consolidation, plan
of arrangement, share exchange, business combination, amalgamation,
recapitalization, reclassification of shares, issuance of bonus shares or
similar transaction;
48
o repurchase, redeem or otherwise acquire any shares, options, warrants or
rights to acquire any shares of capital stock; or
o change any of its methods of accounting or accounting practices in any
material respect other than changes required under GAAP;
o enter into an agreement to take any of the actions described above.
REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS AND JAZZ STOCKHOLDERS MEETING
Jazz and Tower agreed to prepare this proxy statement/prospectus and Tower
agreed to file with the SEC the registration statement in which this proxy
statement/prospectus is included as a prospectus. Each of Jazz and Tower also
agreed to: (i) cause the registration statement and the proxy
statement/prospectus to comply in all material respects with the rules and
regulations promulgated by the SEC, Nasdaq Global Market and the American Stock
Exchange; and (ii) take all steps necessary to promptly cause the proxy
statement/prospectus and registration statement, as applicable, to be filed with
the SEC and disseminated to Jazz stockholders. Additionally, Jazz has agreed
that this proxy statement/prospectus would include the recommendation of Jazz's
Board of Directors to Jazz's stockholders to adopt the merger agreement, unless
such recommendation is modified or withdrawn in accordance with the terms of the
merger agreement.
Additionally, Jazz agreed to: (i) take all action necessary to convene a
Jazz stockholders meeting to vote to adopt the merger agreement; and (ii) unless
Jazz's Board of Directors modifies or withdraws its recommendation in accordance
with the terms of the merger agreement, solicit from Jazz stockholders proxies
in favor of the adoption of the merger agreement.
NO SOLICITATION OF TRANSACTIONS; BOARD RECOMMENDATION
During the Pre-Closing Period, Jazz, its subsidiaries and their respective
directors and officers will not, and Jazz will use commercially reasonable
efforts to ensure that its and its subsidiaries' non-officer employees,
affiliates, agents, attorneys, accountants and financial advisors and other
advisors and representatives, do not, directly or indirectly:
(i) solicit or initiate, or induce, encourage or knowingly facilitate the
making, submission or announcement of any alternative acquisition
proposal or alternative acquisition inquiry; or
(ii) furnish any information regarding Jazz or its subsidiaries to any third
party in connection with or in response to any alternative acquisition
proposal or alternative acquisition inquiry; or
(iii) enter into, participate, engage, maintain or continue in any
discussions or negotiations with any third party concerning any
alternative acquisition proposal or alternative acquisition inquiry; or
(iv) approve, endorse or recommend any alternative acquisition proposal or
alternative acquisition inquiry; or
(v) enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any
alternative acquisition transaction.
However, Jazz and its officers, directors, employees, affiliates,
investment bankers, financial advisors, attorneys, accountants or other advisors
or representatives may, at any time prior to the adoption of the merger
agreement by Jazz's stockholders, take any of the actions otherwise prohibited
by clauses (ii) or (iii) above in connection with or in response to any
alternative acquisition proposal if Jazz's Board of Directors determines in good
faith that such alternative acquisition proposal constitutes or could reasonably
be expected to lead to a superior proposal (as such term is defined in the
merger agreement), if (in each case) (1) Jazz's Board of Directors determines in
good faith (after consultation with Jazz's financial advisor and outside legal
counsel) that such action is required in order for Jazz's Board of Directors to
comply with its fiduciary duties to Jazz's stockholders under applicable law,
(2) neither Jazz nor its representatives shall have breached the
non-solicitation provisions described above in connection with such alternative
acquisition proposal, (3) at least 48 hours prior to taking any of the actions
otherwise prohibited by clauses (ii) or (iii) above in connection with or in
response to any alternative acquisition proposal, Jazz gives Tower written
notice of the identity of the third party making such alternative acquisition
proposal, the terms thereof and of Jazz's intention to take such actions, (4)
prior to furnishing any confidential information regarding Jazz or its
subsidiaries to any third party, Jazz receives from such third party an executed
confidentiality agreement containing limitations no less favorable to Jazz than
the provisions of the confidentiality agreement between Jazz and Tower, and (5)
prior to providing any such confidential information, Jazz furnishes such
confidential information to Tower (to the extent such confidential information
has not been previously furnished to Tower).
Jazz has agreed to immediately cease and terminate all existing
activities, discussions and negotiations with third parties conducted prior to
May 19, 2008, with respect to any alternative acquisition proposal or
alternative acquisition inquiry.
Jazz has also agreed not to release (and to cause its subsidiaries not to
release) any third party from, and not to waive (and to cause its subsidiaries
not to waive) any provision of, any confidentiality, non-disclosure,
non-solicitation, no hire, "standstill" or similar contract to which any of Jazz
or its subsidiaries is a party and will cause each such agreement to be enforced
to the extent requested by Tower.
If any alternative acquisition proposal or alternate acquisition inquiry
is made or submitted prior to the consummation of the merger, Jazz has agreed to
advise Tower in writing and keep Tower reasonably informed of the status of such
alternative acquisition proposal or alternate acquisition inquiry (including
notice of any meeting of Jazz's Board of Directors in which it is reasonably
expected to consider any such alternative acquisition proposal or alternate
acquisition inquiry or to recommend a superior proposal to Jazz's stockholders).
49
In addition, during the Pre-Closing Period, neither Jazz's Board of
Directors nor any committee thereof will withdraw, modify, amend, change,
rescind, condition or qualify in a manner adverse to Tower or Merger Sub, the
recommendation by such Board of Directors or committee of the adoption of the
merger agreement (together an "Adverse Recommendation Change"). However, at any
time prior to the adoption of the merger agreement by Jazz's stockholders,
Jazz's Board of Directors may make an Adverse Recommendation Change, provided
that: (i) neither Jazz nor its representatives breached the non-solicitation
provisions described above in connection with the Adverse Recommendation Change;
(ii) Jazz shall have provided Tower with at least two business days' prior
written notice of any meeting of Jazz's Board of Directors at which such Board
of Directors is expected to consider the possibility of making an Adverse
Recommendation Change; and (iii) Jazz determines in good faith that (after
consultation with outside legal counsel and its financial advisor) that except
for a decrease in Tower's stock price, in and of itself, making the Adverse
Recommendation Change is required in order for Jazz's Board of Directors to
comply with its fiduciary duties to Jazz's stockholders under applicable law.
Jazz is also required to provide Tower with notice of any Adverse Recommendation
Change together with the circumstances and details surrounding any such Adverse
Recommendation Change.
An Adverse Recommendation Change does not relieve Jazz from its obligation
to convene the Jazz stockholders meeting to vote to adopt the merger agreement.
An "alternative acquisition inquiry" means any inquiry, indication of
interest or request for non-public information from a third party (other than an
inquiry, indication of interest or request for non-public information made or
submitted by Tower or any of its affiliates) that could reasonably be expected
to lead to an alternative acquisition proposal.
An "alternative acquisition proposal" means any offer or proposal from a
third party (other than an offer or proposal made or submitted by Tower or any
of its affiliates) contemplating any alternative acquisition transaction between
such third party or any affiliate of such third party and Jazz.
An "alternative acquisition transaction" means any transaction or series
of related transactions (other than the transactions contemplated by the merger
agreement and other than any transactions of the type described below between
Jazz and Tower or any of its affiliates) involving:
o any merger, exchange, consolidation, business combination, plan of
arrangement, issuance of securities, acquisition of securities,
reorganization, recapitalization, takeover offer, tender offer, exchange
offer or other similar transaction: (i) in which a person or group
directly or indirectly would acquire, if consummated, beneficial or record
ownership of securities representing more than 15% of the outstanding
securities of Jazz; (ii) in which Jazz issues securities representing more
than 15% of its outstanding securities; or (iii) in which the Jazz
stockholders immediately preceding such transaction hold, directly or
indirectly, less than 85% of the equity interests in the surviving or
resulting entity of such transaction or in any parent entity immediately
following such transaction;
o any sale, lease, exchange, transfer, license or disposition of any
business or businesses or assets that constitute or account for 15% or
more of Jazz and its subsidiaries, taken as a whole; or
o any liquidation or dissolution of Jazz or certain of its subsidiaries.
REGULATORY MATTERS
Each party will: (i) promptly make and effect all registrations, filings
and submissions required to be made or effected by it pursuant to the Exchange
Act and other applicable legal requirements with respect to the merger; (ii) use
commercially reasonable efforts to take or cause to be taken, on a timely basis,
all other actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable for
the purpose of consummating and effectuating, in an expeditious manner, the
transactions contemplated by the merger agreement; (iii) promptly provide all
information requested by any governmental entity in connection with the merger
or any of the other transactions contemplated by the merger agreement; (iv) use
commercially reasonable efforts to promptly take, and cause its affiliates to
take, all actions and steps necessary to obtain any clearance or approval
required to be obtained from the U.S. Federal Trade Commission, the U.S.
Department of Justice, any state attorney general, any foreign competition
authority or any other governmental entity in connection with the transactions
contemplated by this Agreement; (v) give the other parties prompt notice of the
making or commencement of any request, inquiry, investigation, action or legal
proceeding by or before any governmental entity with respect to the merger or
any of the other transactions contemplated by the merger agreement; (vi) keep
the other parties informed as to the status of any such request, inquiry,
investigation, action or legal proceeding; and (vii) promptly inform the other
party of any communication to or from the Federal Trade Commission, the
Department of Justice or any other governmental entity regarding the merger.
Subject to restrictions that may be imposed by United States governmental
entities, Jazz will coordinate with Tower in connection with all notifications
and discussions with the Department of Defense concerning its trusted foundry
status or security clearance.
50
PUBLICITY
Tower and Jazz have agreed to consult with each other before issuing any
press release or otherwise making any public statement (except as otherwise
specifically provided in the merger agreement).
ACCESS
Subject to certain exceptions, during the Pre-Closing Period and upon
reasonable notice, Jazz has agreed to provide Tower's officers and other
authorized employees and representatives with reasonable access to Jazz's
properties, books, records and personnel and, to furnish Tower will all readily
available information concerning its business (including the status of product
development efforts, properties, results of operations and personnel) as Tower
may reasonably request.
DIRECTORS' AND OFFICERS' INSURANCE; INDEMNIFICATION
Pursuant to the merger agreement, following the effective time of the
merger and through the sixth anniversary of the effective time, Tower has agreed
to, and to cause Jazz (as the surviving corporation) to, maintain the current
level and scope of directors' and officers' liability insurance policy currently
in effect; provided that Tower or Jazz (as the surviving corporation) will not
be required to expend annually more than $880,196 for such coverage. All rights
to indemnification by Jazz or its subsidiaries and exculpation existing in favor
of their directors and officers for their acts and omissions occurring at or
prior to the effective time of the merger pursuant to certain indemnification
agreements listed in the disclosure schedules and Jazz's organizational
documents, will survive for a period of six years following the merger.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
None of the representations and warranties of Jazz contained in the merger
agreement, or contained in any certificate delivered pursuant to the merger
agreement or in connection with any of the transactions contemplated by the
merger agreement survive the effective time of the merger.
EMPLOYEE MATTERS
Tower has agreed, subject to any necessary transition period and subject
to any applicable plan provisions, contractual requirements or legal
requirements, that all employees of Jazz and its subsidiaries who continue their
employment, will, following the effective time of the merger, be eligible to
participate in Tower's applicable employee benefit plans to substantially the
same extent as similarly situated employees of Tower (based, among other things,
on location, responsibility, rank, seniority and job description). From and
after the effective time of the merger and through December 31, 2008, Tower will
ensure that Jazz (as the surviving corporation) continues to provide continuing
employees with the same benefits that were provided by Jazz to such employees
immediately prior to the effective time.
CONDITIONS TO COMPLETION OF THE MERGER
Jazz's and Tower's obligations to effect the merger are subject to the
satisfaction (or waiver in certain cases) of the following conditions:
o adoption of the merger agreement by the stockholders of Jazz;
o the registration statement in which this proxy statement/prospectus is
included as a prospectus shall have become effective;
o if during the period ending July 18, 2008: (i) either CFIUS or the
President of the United States takes any action, and (ii) in response to
any such action, Tower makes an appropriate filing providing notice to
CFIUS pursuant to Section 721, then either (A) the period of time for
any applicable review process by CFIUS pursuant to Section 721, will
have expired, and the President of the United States will not have taken
action to block or prevent the consummation of the transactions
contemplated by the merger agreement on the basis that they threaten to
impair the national security of the United States or (B) the Department
of Treasury will have provided notice to the parties to the effect that
action under Section 721 is concluded; and
o no injunction will have been issued by a court of competent jurisdiction
and will be continuing that prohibits the consummation of the merger, and
no law will have been enacted since May 19, 2008 and will remain in effect
that prohibits the consummation of the merger.
In addition, Tower's obligation to effect the merger is subject to the
satisfaction (or waiver in certain cases) of the following conditions:
o certain specified representations and warranties of Jazz shall be accurate
in all material respects as of the closing date except to the extent such
representations or warranties speak as of a specific date, in which case
such representations or warranties shall be accurate in all material
respects as of such date;
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o and all other representations and warranties of Jazz will be accurate in
all respects as of the closing date, except to the extent such
representations and warranties speak as of a specific date, in which case
such representations and warranties shall be accurate in all respects as
of such date and except that any inaccuracies in any such other
representations and warranties of Jazz will be disregarded if such
inaccuracies (considered collectively) do not have a material adverse
effect on Jazz as of the closing date;
o Jazz shall have performed or complied with in all material respects all
covenants and agreements required to be performed or complied with by it
under the merger agreement on or prior to the closing date;
o since May 19, 2008, no event shall have occurred or circumstance will
exist that, alone or in combination with any other events or circumstances
since May 19, 2008, has had or resulted in and continues to have or result
in a material adverse effect on Jazz, or would reasonably be expected to
have or result in a material adverse effect on Jazz following the closing
date;
o there will not be pending before any court of competent jurisdiction any
legal proceeding commenced by a governmental entity against Jazz or Tower
that seeks to prohibit the consummation of the merger and that (i) is
likely to result in a judgment adverse to Tower or Jazz and (ii) would
have a material adverse effect on Jazz or a material adverse effect on
Tower; and
o Tower shall have received the following agreements and documents:
o a written tax opinion;
o a certificate executed on behalf of Jazz by an executive officer;
and
o the Supplemental Indenture, including certain ancillary documents
thereto.
Jazz's obligation to effect the merger is subject to the satisfaction (or
waiver in certain cases) of the following conditions:
o certain specified representations and warranties of Tower shall be
accurate in all material respects as of the closing date except to the
extent such representations or warranties speak as of a specific date, in
which case such representations or warranties shall be accurate in all
material respects as of such date;
o and all other representations and warranties of Tower will be accurate in
all respects as of the closing date, except to the extent such
representations or warranties speak as of a specific date, in which case
such representations or warranties shall be accurate in all respects as of
such date and except that any inaccuracies in any such other
representations and warranties of Tower will be disregarded if such
inaccuracies (considered collectively) do not have a material adverse
effect on Tower as of the closing date;
o Tower shall have performed or complied with in all material respects all
covenants and agreements required to be performed or complied with by it
under the merger agreement on or prior to the closing date;
o since May 19, 2008, no event shall have occurred or circumstance will
exist that, alone or in combination with any other events or circumstances
since May 19, 2008, has had or resulted in and continues to have or result
in a material adverse effect on Tower, or would reasonably be expected to
have or result in a material adverse effect on Tower following the closing
date;
o there will not be pending before any court of competent jurisdiction any
legal proceeding commenced by a governmental entity against Jazz or Tower
that seeks to prohibit the consummation of the merger and that (i) is
likely to result in a judgment adverse to Tower or Jazz and (ii) would
have a material adverse effect on Tower; and
o Jazz shall have received the following agreements and documents, each of
which will be in full force and effect:
o a written tax opinion;
o a certificate executed on behalf of Tower by an executive officer;
and
o the Supplemental Indenture.
o Tower shall have delivered timely notice to the Nasdaq Global Market with
respect to the Tower ordinary shares being issued in the merger.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated (notwithstanding any approval by
Jazz's stockholders):
o by mutual written consent of Tower and Jazz at any time prior to the
effective time of the merger; or
o by either Tower or Jazz if:
o the merger has not been completed by October 20, 2008, provided that
this right to terminate is not available to any party whose failure
to fulfill any obligation under the merger agreement has resulted in
the failure of the merger to occur by October 20, 2008; or
o the adoption of the merger agreement by Jazz's stockholders has not
been obtained, provided that this right to terminate is not
available to any party whose failure to fulfill any obligation under
the merger agreement has resulted in the failure to obtain such
approval; or
o at any time prior to the effective time of the merger (i) there is
any legal requirement enacted after May 19, 2008 and remaining in
effect that prohibits the consummation of the merger, or any court
of competent jurisdiction will have issued a permanent injunction
prohibiting the consummation of the merger and such injunction will
have become final and non-appealable, and (ii) the violation of such
legal requirement or injunction that would arise from the
consummation of the Merger would have material negative consequences
for Tower or Jazz or any of their respective directors, officers or
employees; provided, that this right to terminate is not available
to any party if the issuance of any such injunction is attributable
to the failure of such party to perform in any material respect any
covenant or other agreement.
52
o by Tower if:
o a triggering event shall have occurred (at any time prior to the
adoption of the merger agreement by the Jazz stockholders). A
triggering event includes:
o Jazz's Board of Directors has failed to recommend that the Jazz
stockholders vote to adopt the merger agreement, or shall have
withdrawn or modified its recommendation in a manner adverse to
Tower,
o Jazz has failed to include the Board's recommendation in this
proxy statement/prospectus or a statement to the effect that the
Board has determined and believes that the merger is fair to and
in the best interests of Jazz's stockholders,
o Jazz's Board of Directors has failed to reaffirm its
recommendation in favor of the adoption of the merger agreement
within 15 business days after Tower requests in writing that such
recommendation be reaffirmed at any time following the public
announcement and during the pendency of an alternative
acquisition proposal,
o Jazz's Board of Directors has approved, endorsed or recommended
any alternative acquisition proposal,
o Jazz has entered into any binding letter of intent or similar
document or any agreement, contract or commitment accepting any
alternative acquisition proposal, or
o a tender or exchange offer relating to Jazz's securities has been
commenced and Jazz has not sent within 15 business days to its
stockholders or filed with the SEC a statement disclosing that it
recommends rejection of such offer;
o Jazz breaches any of its representations, warranties, covenants or
agreements, such that the applicable closing conditions for Tower to
effect the merger as set forth in the merger agreement would not be
satisfied and such breach is not cured (if curable) within 30 days
of delivery of written notice by Tower to Jazz of Jazz's breach (so
long as Tower is not itself in breach of the any of its
representations, warranties, covenants or agreements so as to cause
the applicable closing conditions for Jazz to effect the merger as
set forth in the merger agreement not to be satisfied); or
o by Jazz if Tower breaches any of its representations, warranties,
covenants or agreements, such that the applicable closing conditions for
Jazz to effect the merger as set forth in the merger agreement would not
be satisfied such failure or breach is not cured (if curable) within 30
days of delivery of written notice by Jazz to Tower of Tower's breach (so
long as Jazz is not itself in breach of any of its representations,
warranties, covenants or agreements so as to cause the applicable closing
conditions for Tower to effect the merger as set forth in the merger
agreement not to be satisfied).
EXPENSES; TERMINATION FEE
Generally, each party to the merger agreement will bear its own expenses
incurred in connection with the merger agreement and the transactions
contemplated by the merger agreement.
Jazz has agreed to pay Tower a termination fee of $1.2 million and
reimburse Tower for up to $1 million in expenses incurred in connection with the
transaction, if the merger agreement is terminated under one of the following
circumstances:
o by Tower if a triggering event has occurred; or
o by Tower or Jazz if: (i) the adoption of the merger agreement by Jazz's
stockholders has not been obtained; and (ii) prior to the time of the
failure to adopt the merger agreement, an alternative acquisition proposal
shall have been publicly disclosed and such alternative acquisition
proposal shall not have been unconditionally and publicly withdrawn prior
to the date of the Jazz special meeting; and (iii) within 12 months of the
date of termination, an acquisition shall have been consummated or Jazz
shall have entered into an agreement or binding letter of intent providing
for an acquisition (which is subsequently consummated); or
o by Tower or Jazz if: (i) the merger has not been completed by October 20,
2008; and (ii) prior to termination, an alternative acquisition proposal
shall have been publicly disclosed; and (iii) within 12 months of the date
of termination, an acquisition shall have been consummated or Jazz shall
have entered into an agreement or binding letter of intent providing for
an acquisition (which is subsequently consummated), provided that, in the
case of termination by Tower, Tower can demonstrate that it would
reasonably have been expected that the merger would have been consummated
prior to termination but for the making or pendency of such alternative
acquisition proposal.
An "acquisition" means any of the following transactions: (A) a merger,
consolidation, business combination, recapitalization or similar transaction
involving Jazz pursuant to which the stockholders of Jazz immediately preceding
such transaction do not hold at least 50% of the aggregate equity interests in
the surviving or resulting entity; (B) a transaction that involves a sale or
other disposition by Jazz of assets that represent in excess of 50% of the
consolidated assets of Jazz and its subsidiaries or a business or businesses
that constitute or account for at least 50% of the consolidated net revenues of
Jazz and its subsidiaries; or (C) the acquisition by any person or group of
beneficial ownership of shares representing in excess of 50% of the voting power
of Jazz.
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As described more completely in the merger agreement, subject to certain
conditions, if the merger agreement is terminated by either Jazz or Tower
because the adoption of the merger agreement by Jazz's stockholders has not been
obtained, Jazz has agreed reimburse Tower for up to $500,000 in expenses.
If Jazz fails promptly to pay when due any amounts payable by Jazz, then
it must reimburse Tower for all costs and expenses incurred in collection of
such amounts and must pay Tower interest on such overdue amounts at a rate per
annum equal to 5%.
AMENDMENT
The merger agreement may be amended at any time prior to the effective
time of the merger by an instrument in writing signed by the parties thereto.
54
DESCRIPTION OF TOWER SHARE CAPITAL
A SUMMARY OF THE MATERIAL PROVISIONS GOVERNING TOWER'S SHARE CAPITAL
IMMEDIATELY FOLLOWING THE COMPLETION OF THE MERGER IS EXPLAINED BELOW. THIS
SUMMARY IS NOT COMPLETE AND SHOULD BE READ WITH TOWER'S ARTICLES OF ASSOCIATION,
A COPY OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT ON
FORM S-8 NO. 333-138837 FILED WITH THE SEC ON NOVEMBER 20, 2006.
GENERAL
This section summarizes the material rights of Tower shareholders under
Israeli law, and the material provisions of Tower's articles of association, as
amended (referred to as Tower's articles of incorporation). This description of
Tower's share capital is only a summary and does not describe the articles of
association in their entirety. A copy of Tower's articles of association has
been filed with the SEC in the United States. For information regarding how to
obtain copies from the SEC, see the section entitled "WHERE YOU CAN FIND MORE
INFORMATION; INCORPORATION OF INFORMATION BY REFERENCE."
Based on Tower outstanding shares as of July 31, 2008, immediately
after the completion of the merger, 159,620,318 Tower ordinary shares are
expected to be issued and outstanding.
DESCRIPTION OF ORDINARY SHARES
Tower's articles of incorporation authorize up to 800 million ordinary
shares, par value NIS 1.00 per share. Under Tower's articles of association, the
ordinary shares do not have preemptive rights. Tower may from time to time, by
approval of a majority of its shareholders, increase its authorized share
capital. All ordinary shares are registered shares, rather than bearer shares.
The ownership or voting rights of Tower's ordinary shares by non-residents
of Israel is not restricted in any way by Tower's articles of association, as
amended. The State of Israel does not restrict in any way the ownership or
voting rights of ordinary shares of Israeli entities by non-residents of Israel,
except with respect to subjects of countries that are in a state of war with
Israel. Tower's ordinary shares do not have cumulative voting rights for the
election of directors. The affirmative vote of the shareholders present in
person or by proxy that represent more than 50% of the voting power present in
person or by proxy have the power to elect all nominees up for election to
Tower's board of directors.
In the event of Tower's liquidation, after satisfaction of liabilities to
creditors, Tower's assets will be distributed to the holders of Tower's ordinary
shares in proportion to the nominal value of their respective holdings. This
liquidation right may be affected by the grant of a preferential dividend or
distribution right to the holder of a class of shares with preferential rights
that may be authorized in the future. Dividends may be paid only out of profits,
as defined in the Israeli Companies Law. Tower's Board of Directors is
authorized to declare dividends, although Tower's bank covenants currently in
effect prohibit the payment of dividends on Tower's ordinary shares, unless such
payments are approved by Tower's banks.
Holders of ordinary shares have one vote for each ordinary share held on
all matters submitted to a vote of shareholders. Subject to the provisions set
forth in Section 46B of the Israeli Securities Law, these voting rights may be
affected by the grant of any special voting rights to the holders of a class of
shares with preferential rights that may be authorized in the future. Tower's
major shareholders do not have different voting rights from each other or other
shareholders.
Resolutions of shareholders (e.g. resolutions amending Tower's articles of
association, electing or removing directors, appointing an independent
registered public accounting firm, authorizing changes in capitalization or the
rights attached to Tower's shares or approving a wind-up or merger) require the
affirmative vote (at a meeting convened upon advance notice of no less than
thirty five days) of shareholders present in person or by proxy and holding
shares conferring, in the aggregate, at least a majority of the votes actually
cast on such resolutions.
The quorum required for a meeting of shareholders is at least two
shareholders present, in person or by proxy, within half an hour of the time
fixed for the meeting's commencement that together hold shares conferring in the
aggregate more than 33% of the total voting power of Tower's shares. A meeting
adjourned for lack of a quorum is adjourned to the same day in the following
week at the same time and place. At the reconvened meeting, in the event a
quorum is not present within half an hour of the time fixed for the meetings
commencement, the persons present shall constitute a quorum.
Tower's registration number at the Israeli Registrar of Companies is
52-004199-7.
The objective stated in Tower's articles of association is to engage in
any lawful activity.
Modification or abrogation of the rights of any existing class of shares
requires either the written consent of all of the holders of the issued shares
of such class or the adoption of a resolution by an ordinary majority of a
general meeting of holders of such class. The quorum required for a class
meeting is at least two shareholders present, in person or by proxy, within half
an hour of the time fixed for the meetings commencement that together hold
shares conferring in the aggregate at least 33% of the total voting power of the
issued shares of such class. If no quorum is present, the meeting shall be
adjourned to another time and at the adjourned meeting a quorum shall be
constituted in the presence of any number of participants, regardless of the
number of shares held by them.
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As of July 31, 2008 125,364,021 of Tower's ordinary shares were
outstanding. The above numbers of outstanding ordinary shares do not include 1.3
million treasury shares held by Tower through a trustee.
The transfer agent and registrar for Tower's ordinary shares is American
Stock Transfer & Trust Company, 59 Maiden Lane, New York, New York 10007.
OTHER SECURITIES
In addition to ordinary shares, Tower has the following securities issued
and outstanding:
o Options;
o Warrants (series 4, 5, 6, series I, and warrants issued to Bank
Hapoalim, B.M., Bank Leumi LE-Israel, B.M. and to the Israel
Corporation Ltd.);
o Convertible Debentures (series A, B, C and E);
o Non-Convertible Debentures (series D); and
o Capital Notes issued to Bank Hapoalim, B.M., Bank Leumi LE-Israel,
B.M. and the Israel Corporation Ltd.
Information about these securities is contained in Tower's annual report on
Form 20-F for the fiscal year ended December 31, 2007, filed with the SEC on
June 18, 2008. Please see the section titled "WHERE YOU CAN FIND MORE
INFORMATION; INCORPORATION OF INFORMATION BY REFERENCE."
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COMPARATIVE RIGHTS OF TOWER AND JAZZ SHAREHOLDERS
GENERAL
Tower is incorporated under the laws of the State of Israel. Jazz is
incorporated under the laws of the State of Delaware. If the merger is
completed, Jazz stockholders will exchange their respective shares of Jazz
common stock for Tower ordinary shares in accordance with the merger agreement.
The following is a summary comparison of material differences between the rights
of a Jazz common stockholder and a Tower ordinary shareholder arising from the
differences between the laws of the State of Delaware and of the State of Israel
and the governing instruments of the respective companies.
The following summary does not purport to be a complete statement of the
rights of holders of Tower ordinary shares under the applicable provisions of
the Israeli Companies Law, 1999, referred to herein as the "Israeli Companies
Law," and the Tower articles of association dated November 14, 2000, as amended,
or the rights of Jazz stockholders under the applicable provisions of the
Delaware General Corporation Law, referred to herein as the DGCL, and the Jazz
certificate of incorporation and bylaws, each as amended, or a complete
description of the specific provisions referred to herein. This summary contains
a list of the material differences but is not intended to be an exhaustive list
or a detailed description of the provisions discussed. You should refer to the
Israeli Companies Law and the DGCL, as well as Tower's articles of association,
as amended, and Jazz's certificate of incorporation and bylaws, as amended, for
a better understanding of the comparative rights of Tower shareholders and Jazz
stockholders. Jazz's certificate of incorporation and bylaws have been filed
separately as exhibit 3.1 to each of Jazz's Current Reports on Form 8-K filed
with the SEC on February 23, 2007 and November 30, 2007, respectively. Tower's
articles of association dated November 14, 2000, as amended, have been filed as
exhibit 3.1 to Tower's Registration Statement on Form F-1, File No. 333-126909,
while two amendments to Tower's articles have been filed as exhibit 4.2 to each
of Tower's Registration Statements on Form S-8, File Nos. 333-117565 and
333-138837, respectively. See the section entitled "WHERE YOU CAN FIND MORE
INFORMATION; INCORPORATION BY REFERENCE" for information on how to access these
documents.
SUMMARY OF MATERIAL DIFFERENCES BETWEEN THE RIGHTS OF JAZZ STOCKHOLDERS AND THE
RIGHTS OF TOWER SHAREHOLDERS
JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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Under the DGCL, Jazz's board of directors must Pursuant to Tower's articles of
consist of at least one member with the number incorporation, the number of directors on
fixed by the certificate of incorporation or Tower's board shall not be less than 5 nor
bylaws of the corporation. more than 11, including the external and
independent directors. Under the Israeli
NUMBER OF DIRECTORS Jazz's board of directors currently consists of Companies Law, a public company must have at
four directors. The number of directors shall be least two external directors.
fixed exclusively by resolutions adopted by a
majority of the authorized number of directors
constituting Jazz's board of directors.
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Directors may be elected at an annual meeting of Directors are elected at an annual meeting
stockholders at which a quorum is present, by a of shareholders at which a quorum,
plurality vote of the shares present at the meeting. constituted in the presence, in person or by
proxy, of two or more shareholders holding
at least 33% of the voting rights, within
half an hour of the time fixed for the
meeting's commencement, is present by a
majority of the participating votes cast by
holders of shares present or represented by
proxy. Under Israeli Companies Law, the
external directors are elected by a
qualified majority at a general meeting of
shareholders such that in counting the votes
ELECTION OF DIRECTORS of the majority at the general meeting at
least one-third of all the votes of
shareholders who are not holders of control
in Tower or representatives of such persons,
present at the time of voting are included;
whereby in counting the total votes of such
shareholders abstentions shall not be taken
into account. Alternatively, the Israeli
Companies Law provides that such appointment
shall be valid if the total number of votes
by non-controlling shareholders opposing
such appointment is no greater than one
percent of the total voting rights in Tower.
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JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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There are three classes of Jazz directors. Each Tower's directors are elected to the board
class serves for a three-year term and consists, as of directors for an annual term except for
nearly as possible, of one-third of the total external directors who according to the
TERM AND CLASSES OF number of directors. At each annual meeting of Jazz Israeli Companies Law, are elected for a
DIRECTORS stockholders, directors shall be elected for a full term of three years, which can be renewed
term of three years to succeed the directors of the for subsequent 3-year terms, subject to
class whose terms expire at such annual meeting. certain conditions.
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Jazz stockholders may only remove a director for Directors (other than the two external
cause. directors) may be removed by a resolution
passed by an ordinary majority in an
extraordinary general meeting if the
director is given a reasonable opportunity
to state his case. Otherwise, a director
shall also be removed from his office upon
the occurrence of any of the following
events:
(a) The director dies or is declared
legally incapacitated by a competent court.
(b) If the director is a company, upon its
winding-up;
(c) A court of competent jurisdiction
orders the termination of the director's
office due to either: (i) the court's
determination that the director is
permanently unable to fulfill his function;
or (ii) such director's conviction outside
Israel of the offenses of bribery, deceit,
offenses by managers of a corporate body or
offenses involving misuse of inside
information;
(d) The director is declared bankrupt; or
(e) If the director resigns his office
after giving notice of such.
REMOVAL OF DIRECTORS (f) Where a director has been convicted by a
final judgment of certain offenses in the
Israeli Penal Law, 5737-1977, Israeli
Securities Law, 5728-1968, or other offenses
deemed sufficiently grace by a competent
court, whereby such director shall so inform
Tower and his office shall terminate on the
date of giving of such notice, and shall not
be reappointed as a director unless five
years have passed.
In accordance with the relevant provisions
of the Israeli Companies Law, upon either
the ruling of a competent court or
resolutions of both Tower's board of
directors and the extraordinary general
meeting of Tower's shareholders (the
shareholder resolution must achieve the same
percentage as is required for the election
of an external director), the termination of
the office of an external director may be
ordered if the board of directors decides
that such director has ceased to fulfill one
of the conditions required under the Israeli
Companies Law for his appointment or that
such director has committed a breach of a
fiduciary duty to Tower.
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JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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If any vacancies occur in Jazz's board of If the office of a director is vacated, the
directors, by reason of death, resignation, board of directors may continue to act in
disqualification, removal, other causes or if the any matter so long as there are at least 5
authorized number of directors is increased, and directors. If the number of directors falls
unless Jazz's board of directors determines by below 5, the board of directors may not act
resolution that any such vacancies or newly created in any manner other than taking measures to
directorships shall be filled by the stockholders, convene a general meeting for the purpose of
the directors then in office may fill any such appointing additional directors.
VACANCIES ON THE BOARD vacancy by a majority of the directors then in
office, even though less than a quorum of Jazz's
board of directors.
Any director elected in accordance with the above
shall hold office for the remainder of the full
term of the director for which the vacancy was
created or occurred and until such director's
successor shall have been elected and qualified.
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A quorum of Jazz's board of directors, except with The quorum for commencing a Tower board of
regards to questions relating to indemnification, directors' meeting shall be a majority of
shall consist of a majority of the exact number of the members of the board of directors
directors fixed from time to time by Jazz's board holding office on the date of the meeting
of directors in accordance with Jazz's certificate who are lawfully entitled to participate in
of incorporation; however, at any meeting whether the meeting (as conclusively determined by
a quorum be present or otherwise, a majority of the the chairman of the board of directors),
directors present may adjourn the meeting from time including alternate directors, if there is a
BOARD QUORUM AND VOTE to time until the time fixed for the next regular meeting at which an appointing director is
REQUIREMENTS meeting of the Jazz board of directors, without not present. Each director shall have one
notice other than by announcement at the meeting. vote. Resolutions of the board of directors
With respect to questions related to shall be passed by a majority of votes of
indemnification, a quorum shall be one-third of the the directors present at the meeting and
exact number of Jazz's directors fixed from time to voting thereat, without taking into account
time. Except as otherwise required by law, the the votes of abstainees. The board of
act of a majority of the directors present at any directors' chairman shall not have an
meeting at which a quorum is present is sufficient additional or casting vote, in case of a tie.
for the act of the board of directors.
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Any action required or permitted to be taken at any Tower's board of directors may pass
meeting of Jazz's board of directors or of any resolutions without convening, provided that
committee thereof may be taken without a meeting, all the directors entitled to participate in
if all members of Jazz's board of directors or such the discussion and vote on a matter brought
ACTION OF THE BOARD OF committee, as the case may be, consent thereto in for a resolution agree thereto by giving
DIRECTORS WITHOUT A writing or by electronic transmission, and such their written consent.
MEETING writing or writings or transmission or
transmissions are filed with the minutes of
proceedings of Jazz's board of directors or such
committee.
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JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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The annual meeting of Jazz's stockholders shall be The annual general meeting of Tower's
held at such date and time as may be designated shareholders is to be held once in every
from time to time by the board of directors. Under calendar year at such date and time as may
the DGCL, special meetings of stockholders may be be designated by the board of directors, but
called by the board of directors and by such other no later than fifteen months after the last
person or persons authorized to do so by the annual general meeting. Not less than 35 days'
corporation's certificate of incorporation or prior notice shall be given of every
bylaws. Under Jazz's bylaws, a special meeting of shareholder meeting. The accidental omission
stockholders may be called by (a) the chairman of to give notice of a meeting to any
the board, (b) the chief executive officer or (c) shareholder, or the non-receipt of notice
Jazz's board of directors pursuant to a resolution sent to such shareholder, shall not
adopted by a majority of the total number of invalidate the proceedings at such meeting.
authorized directors (whether or not there exist Under the Israeli Companies Law and Tower's
any vacancies in previously authorized articles of association, Tower's board of
directorships at the time any such resolution is directors shall convene a special meeting
STOCKHOLDER MEETING presented to the Jazz board of directors for pursuant to its resolution and on the
adoption). Except as otherwise provided by law, requisition of any of the following: (i) two
notice, given in writing or by electronic directors or 1/4 of the members of the board
transmission, of each meeting of stockholders shall of directors; or (ii) one or more
be given not less than 10 nor more than 60 days shareholders holding at least 5% of the
before the date of the meeting to each stockholder Tower's issued share capital and 1% of
entitled to vote at such meeting. If mailed, notice Tower's voting rights; or (iii) one or more
is given when deposited in the United States mail. shareholders holding at least 5% of the
Notice of the meeting of stockholders may be waived voting rights in the company.
in writing, either before or after such meeting,
and will be waived by any stockholder by his
attendance thereat in person, by remote
communication, if applicable, or by proxy, except
when the stockholder attends a meeting for the
express purpose of objecting.
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The presence in person or by proxy of the holders Under Tower's articles of association, A
of a majority of the shares then outstanding and quorum with respect to a general meeting of
entitled to vote at a meeting of Jazz stockholders Tower's shareholders shall be constituted in
constitutes a quorum for the transaction of the presence, in person or by proxy, of two
business. or more shareholders holding at least 33% of
the voting rights, within half an hour of
the time fixed for the meeting's
commencement. If a quorum is not present at
the general meeting within half an hour of
QUORUM REQUIREMENTS the time fixed for the meeting's
commencement, the meeting shall be adjourned
for one week, to the same day, time and
place, without it being necessary to notify
the shareholders thereof, and if a quorum is
not present, as aforesaid, at the adjourned
meeting within half an hour of the time
fixed for the commencement thereof, the
persons present shall constitute a quorum.
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Any action required to be taken at any annual or Israeli law does not provide for public
special meeting of Jazz's stockholders, or any companies to have shareholder resolutions
action which may be taken at any annual or special adopted by means of a written consent in
meeting of such stockholders, may be taken without lieu of a shareholder meeting.
a meeting, without prior notice and without a vote,
if a consent in writing or by electronic
transmission setting forth the action so taken
shall be signed by the holders of outstanding stock
ACTION OF STOCKHOLDERS BY having not less than the minimum number of votes
WRITTEN CONSENT that would be necessary to authorize or take such
action at a meeting at which all shares entitled to
vote thereon were present and voted, and shall be
delivered to Jazz by delivery to its registered
office in the State of Delaware, its principal
place of business, or an officer or agent of Jazz
having custody of the book in which proceedings of
meetings of stockholders are recorded.
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JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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Under the DGCL, Jazz's charter may be amended by Tower does not have separate by-laws and its
resolution of the board of directors and the articles of association include many of the
affirmative vote of the holders of a majority of provisions ordinarily included in the
the outstanding shares of voting stock then by-laws. Tower's articles of association may
entitled to vote. Both Jazz's stockholders and its be amended by the affirmative vote of an
board of directors have the power to adopt, amend ordinary majority of the voting rights in
or repeal any bylaw. Any adoption, amendment or Tower represented at a shareholders' general
repeal of Jazz's bylaws by Jazz stockholders shall meeting.
require the affirmative vote of the holders of at
least two-thirds of the voting power of all of the Tower may, in a resolution passed at the
then-outstanding shares of the capital stock of the general meeting by an ordinary majority,
corporation entitled to vote generally in the modify the rights attached to a particular
election of directors, voting together as a single class of shares, provided that the written
class. Any adoption, amendment or repeal of Jazz's agreement of all the holders of the shares
bylaws by Jazz's board of directors shall require of such class is received or that the
the approval of a majority of the authorized number resolution is approved in a general meeting
of directors. of the holders of the shares of such class
by an ordinary majority or, where the issue
AMENDMENT OF ARTICLES OF terms of a particular class of Tower's
ASSOCIATION; BYLAWS; shares otherwise provide, as provided in
such issue terms.
All provisions in Tower's articles of
association regarding general meetings apply
mutatis mutadis to any class meeting,
provided that a quorum at a class meeting
shall be constituted in the presence at the
time the meeting proceeds to business, in
person or by proxy, of at least two
shareholders holding at least fifty one
percent of the issued shares of such class;
if no quorum is constituted as aforesaid,
the class meeting shall be adjourned to
another time and at the adjourned meeting a
quorum shall be constituted in the presence
of any number of participants, regardless of
the number of shares held by them.
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Pursuant to Jazz's certificate of incorporation and The Israeli Companies Law provides that a
in accordance with the DGCL, Jazz directors do not company cannot exculpate an officeholder
have personal liability to Jazz and its (which is defined under the Israeli
stockholders for monetary damages for a breach of Companies Law to include a director, general
fiduciary duty as a director, except in the manager, managing director, chief executive
following scenarios: (a) any breach of the officer, executive vice president, vice
director's duty of loyalty to the corporation or president, other managers directly
its stockholders; (b) acts or omissions in bad subordinate to the general manager and any
faith or which involve intentional misconduct or a other person fulfilling or assuming any of
knowing violation of law; (c) intentional or the foregoing positions or responsibilities
negligent payments of unlawful dividends or without regard to such person's title) from
unlawful stock purchases or redemption; or (d) any liability with respect to a breach of his or
transaction in which the director derives an her duty of loyalty. However, the Israeli
improper personal benefit. Companies Law allows companies to exculpate
EXCULPATION OF DIRECTORS in advance an officeholder from his or her
liability to the company, in whole or in
part, with respect to a breach of his or her
duty of care, except for a breach by a
director of his or her duty of care with
respect to dividends or other distributions
to shareholders.
Tower's articles of association provide that
Tower may in advance exempt officeholders of
from all or any of his liability for damage
in consequence of a breach of the duty of
care vis-a-vis Tower.
See also "INDEMNIFICATION OF DIRECTORS AND
OFFICERS."
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JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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Jazz is permitted to indemnify any person who was Tower's articles of association provide
or is a party or is threatened to be made a party Tower with the power to undertake to
to: (a) any action, suit or proceeding, whether indemnify its officeholders to the maximum
civil, criminal, administrative or investigative, extent allowed by the Israeli Companies Law,
other than an action by or in the right of Jazz, whether in advance or retroactively, for an
against expenses, including attorneys' fees, obligation or expense incurred by such
judgments, fines and reasonable settlement amounts officeholders, as detailed below, in
if such person acted in good faith and reasonably consequences of an act or omission to act in
believed that his or her actions were in or not his capacity as an officer of Tower. Such
opposed to the best interests of Jazz and, with applicable obligations or expenses for which
respect to any criminal proceeding, had no an officer may be indemnified by Tower are
reasonable cause to believe that his or her conduct as follows:
was unlawful; (b) any derivative action or suit on
behalf of Jazz against expenses, including (i) A monetary liability imposed on or
attorneys' fees, actually and reasonably incurred incurred by the officer pursuant to a
in connection with the defense or settlement of judgment in favor of another person,
such action or suit, if such person acted in good including a judgment imposed on such
faith and reasonably believed that his or her officeholder in a compromise or in an
actions were in or not opposed to the best interest arbitration decision that was approved by a
of Jazz. In the event that a person is adjudged to court of law;
be liable to Jazz in a derivative suit, the DGCL
prohibits indemnification unless either the (ii) Reasonable litigation expenses,
Delaware Court of Chancery or the court in which including attorneys' fees, incurred by the
such derivative suit was brought determines that officer due to an investigation or a
such person is entitled to indemnification for proceeding instituted against the officer by
those expenses which such court deems proper. To an authority competent to administrate such
the extent that a present or former director or an investigation or proceeding, and that was
officer of Jazz has been successful on the merits finalized without the filing of an
or otherwise in the defense of a third party or indictment against the officeholder and
derivative action, such person shall be indemnified without any financial obligation imposed on
against expenses actually and reasonably incurred the officer in lieu of criminal proceedings
by such person. (or that was finalized without the filing of
an indictment against the officer but with
financial obligation imposed on the officer
in lieu of criminal proceedings of a crime
which does not require proof of criminal
intent);
INDEMNIFICATION OF
DIRECTORS, OFFICERS AND (iii) Reasonable litigation expenses,
EMPLOYEES including attorneys professional fees,
incurred by the officer or which he is
ordered to pay by a court in proceedings
filed against him by Tower or on its behalf
or by another person, or in a criminal
indictment of which he is acquitted, or in a
criminal indictment in which he is convicted
of an offence not requiring proof of
criminal intent.
(iv) Any other obligation or expense which
shall be permitted by the Israeli Companies
Law with regards to the indemnification of
company officers. Such undertaking to
indemnify an officeholder in advance for the
obligations or expenses identified in (i)
above are conditioned on the fact that such
obligations or expenses regard events which,
in the opinion of Tower's board of
directors, are foreseeable in view of
Tower's activity at the time of such
undertaking, and to an amount or degree
which the board of directors has determined
to be reasonable in the circumstances of the
case.
Tower's articles of association provide that
Tower may also, beforehand or retroactively,
undertake to indemnify an officer of Tower
who holds or held office on Tower's behalf
at its request as a director in another
company in which Tower holds shares,
directly or indirectly, for an obligation or
expense as specified above (regarding
indemnification of Tower officers), for an
act done in his capacity as a director in
the other company.
See also "INDEMNIFICATION OF DIRECTORS AND
OFFICERS."
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62
JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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According to the Jazz bylaws, to the fullest extent Under the Israeli Companies Law, a company
permitted by the DGCL or any other applicable law may purchase insurance to cover the
and upon approval by the Jazz board of directors, liability of any officeholder, if the
Jazz may purchase insurance on behalf of its articles of association permit such
directors, officers, employees and other agents. insurance as a result of any of the
following acts or omissions performed by the
Jazz shall promptly notify its directors and officer in his or her capacity as an officer
officers of any change, lapse or cancellation of of the company: (a) breach of a duty of care
such insurance coverage. vis-a-vis the company or vis-a-vis another
person; (b) breach of a duty or loyalty
vis-a-vis the company, provided that the
officer acted in good faith and had
INSURANCE OF DIRECTORS, reasonable grounds to believe that the
OFFICERS AND EMPLOYEES action in question would not adversely
affect the company; or (c) financial
liability which shall be imposed upon said
officer in favor of another person as a
result of any action which was performed by
said officeholder.
Tower's articles of association provide that
it may insure its officers as aforesaid, as
well as in any other circumstances with
respect to which the company is permitted to
insure the officer.
See also "INDEMNIFICATION OF DIRECTORS AND
OFFICERS."
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63
JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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If the DGCL is amended to authorize corporate Pursuant to the Israeli Companies Law,
action further eliminating or limiting the personal indemnification of, exculpation of and
liability of directors, then the liability of a procurement of insurance coverage for,
Jazz director shall be further eliminated or officeholders in a public company must be
limited to the maximum extent allowable under the approved by the audit committee, the board
amended DGCL. of directors and, if the officeholder is a
director, by the company's shareholders.
The Israeli Companies Law provides that a
company may not exculpate or indemnify an
officeholder, nor enter into an insurance
contract which would provide coverage for
any monetary liability incurred as a result
of any of the following: (a) a breach by the
GENERAL PROVISIONS WITH officeholder of his or her duty of loyalty
RESPECT TO INSURANCE, unless, with respect to insurance and
INDEMNITY AND EXCULPATION indemnification, the officeholder acted in
good faith and had a reasonable basis to
believe that the act would not cause the
company harm; (b) a breach by the
officeholder of his or her duty of care if
such breach was done intentionally or in
disregard of the circumstances of the breach
or its consequences, except if such breach
is done only with negligence; (c) any act or
omission done with the intent to derive an
illegal personal gain; or (d) a fine or
monetary settlement imposed upon the
officeholder.
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64
JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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The DGCL provides that no contract or transaction The Israeli Companies Law codifies the
between a corporation and one or more of its fiduciary duties that officeholders,
directors or officers, or between a corporation and including directors and executive officers,
any other corporation, partnership, association, or owe to a company. An officeholder's
other organization in which one or more of its fiduciary duties consist of a duty of care
directors or officers, are directors or officers, and a duty of loyalty. The duty of loyalty
or have a financial interest, shall be void or includes avoiding any conflict of interest
voidable solely for this reason, or solely because between the officeholder's position in the
the director or officer is present at or company and his personal affairs or other
participates in the meeting of the board or position, avoiding any competition with the
committee of the board which authorizes the company's business, avoiding exploiting any
contract or transaction, or solely because any such business opportunity of the company in order
director's or officer's votes are counted for such to receive personal advantage for himself,
purpose, if: (a) the material facts as to the herself or others, and revealing to the
director's or officer's relationship or interest company any information or documents
and as to the contract or transaction are disclosed relating to the company's affairs which the
or are known to the board of directors or a officeholder has received due to his
committee of the board, and the board or committee position as an officeholder. Under the
of the board in good faith authorizes the contract Israeli Companies Law, compensation of
or transaction by the affirmative votes of a officeholders who are not directors
majority of the disinterested directors, even generally requires approval of the board of
though the disinterested directors may be less than directors.
a quorum; (b) the material facts as to the
director's or officer's relationship or interest Compensation of directors requires the
and as to the contract or transaction are disclosed approval of the audit committee, the board
or are known to the stockholders entitled to vote of directors and the shareholders. The
thereon, and the contract or transaction is Israeli Companies Law requires that an
specifically approved in good faith by vote of the officeholder promptly disclose any "personal
stockholders; or (c) the contract or transaction is interest" that he or she may have and all
fair as to the corporation as of the time it is related material information known to him or
authorized, approved or ratified, by the board of her, in connection with any existing or
directors, a committee of the board or the proposed transaction by the company. In the
stockholders. Common or interested directors may be case of a transaction with an officeholder
counted in determining the presence of a quorum at or with another person in which an
a meeting of the board of directors or of a officeholder has a "personal interest" which
CONFLICT OF INTEREST committee which authorizes the contract or is not an extraordinary transaction, subject
FIDUCIARY DUTY transaction. to the officeholder's disclosure of his or
her interest, board approval is generally
sufficient for the approval of the
transaction. If the transaction is an
extraordinary transaction, then, in addition
to any approval required by the articles of
association, it must also be approved by the
board of directors and the audit committee.
An extraordinary transaction is defined as a
transaction not in the ordinary course of
the company's business, not on market terms,
or that is likely to have a material impact
on the company's profitability, property or
obligations. In some circumstances, for
example when the officeholder is a director,
shareholder approval is also required. The
transaction must not be adverse to the
company's interest. Generally, a director
who has a personal interest in a matter that
is considered at a meeting of the board of
directors or the audit committee may not be
present at the meeting or vote thereon.
Under the Israeli Companies Law, a
shareholder has a duty to act in good faith
towards the company and the other
shareholders and refrain from abusing his,
her or its power in the company, including,
among other things, when voting in the
general meeting of shareholders on the
following matters: (a) any amendment to the
articles of association; (b) an increase of
the company's authorized share capital; (c)
a merger; or (d) approval of certain acts
and transactions, including interested party
transactions that require shareholder
approval, as specified in the Israeli
Companies Law.
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65
JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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Under Section 203 of the DGCL, a Delaware Under the Companies Law, a merger is
corporation is prohibited from engaging in mergers generally required to be approved by the
or dispositions of 10% or more of its assets, shareholders and board of directors of each
certain issuances of stock and other transactions of the merging companies. If the share
("business combinations") with a person or group capital of the company that will not be the
that owns 15% or more of the voting stock of the surviving company is divided into different
corporation (an "interested stockholder") for a classes of shares, the approval of each
period of three years after the interested class is also required, unless determined
stockholder crosses the 15% threshold. These otherwise by the court. A merger will not be
restrictions on transactions involving an approved if it is objected to by
interested stockholder do not apply if (a) before shareholders holding a majority of the
the interested stockholder owned 15% or more of the voting rights participating and voting at
voting stock, the board of directors approved the the meeting, after excluding the shares held
business combination or the transaction that by the other party to the merger, by any
resulted in the person or group becoming an person who holds 25% or more of the other
interested stockholder, (b) in the transaction that party to the merger and by the relatives of
resulted in the person or group becoming an and corporations controlled by these
interested stockholder, the person or group persons. Upon the request of a creditor of
acquired at least 85% of the voting stock other either party to the proposed merger, the
than stock owned by directors who are also officers court may delay or prevent the merger if it
and certain employee stock plans, or (c) after the concludes that there exists a reasonable
BUSINESS COMBINATIONS; person or group became an interested stockholder, concern that, as a result of the merger, the
ANTI-TAKEOVER EFFECTS the business combination was approved by the board surviving company will be unable to satisfy
of directors and authorized at a meeting of the obligations of any of the parties of the
stockholders by at least two-thirds of the voting merger. Also, a merger can be completed only
stock (other than stock owned by the interested after all approvals have been submitted to
stockholder). the Israeli Registrar of Companies and 30
days have passed from the time that
Section 203 does not apply to a corporation that shareholder resolutions were adopted in each
does not have a class of voting stock that is of the merging companies and 50 days have
listed on a national securities exchange or held by passed from the time that a merger proposal
more than 2,000 stockholders. was filed with the Israeli Registrar of
Companies.
Under the Israeli Companies Law, subject to
certain exceptions, the acquisition of
shares in a public company such as Tower
whereby a person would obtain a controlling
interest (an interest of 25% or more) is not
permitted if the company does not already
have a shareholder that has a controlling
interest, and an acquisition whereby the
acquiring shareholder would thereafter hold
more than 45% percent of the voting rights
in the company is not permitted if there is
no other shareholder that holds more than
45% of the voting rights in the company,
except by way of a tender offer in
accordance with the provisions of the
applicable sections of the Israeli Companies
Law (a special tender offer). These tender
offer requirements do not apply to companies
whose shares are only listed for trading
outside of Israel if, under local law or the
rules of the stock exchange on which their
shares are traded, there is a limitation on
the percentage of control which may be
acquired or the purchaser is required to
make a tender offer to the public.
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66
JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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Under the Israeli Companies Law, a person
may not acquire shares in a public company
if, after the acquisition, he will hold more
than 90% of the shares or more than 90% of
any class of shares of that company, unless
a tender offer is made to purchase all of
the shares or all of the shares of the
particular class.
The Israeli Companies Law also provides
(subject to certain exceptions with respect
to shareholders who held more than 90% of a
company's shares or of a class of its shares
as of February 1, 2000) that as long as a
shareholder in a public company holds more
than 90% of the company's shares or of a
class of shares, that shareholder shall be
precluded from purchasing any additional
shares. If a tender offer is accepted and
less than 5% of the shares of the company
are not tendered, all of the shares will
transfer to the ownership of the purchaser.
If 5% or more of the shares of the company
are not tendered, the purchaser may not
purchase shares in a manner which will grant
him more than 90% of the shares of the
company. The Israeli Companies Law provides
that an extraordinary transaction of a
public company with a controlling
shareholder thereof (which generally
includes a person holding 25% or more of the
outstanding shares) or of a public company
with another entity in which a controlling
shareholder has a personal interest,
including a private placement in which a
controlling member has a personal interest,
requires approval of such company's audit
committee, board of directors and a majority
of the shareholders voting on the matter,
where at least one-third of the shareholders
voting to approve the transaction do not
have a personal interest in the matter, or
where the total number of shareholders who
do not have a personal interest in the
matter voting against the transaction does
not exceed one percent of the voting rights
in the company. In addition, a private
placement in either of the following
situations requires the approval of the
board of directors and shareholders: (i) if
20% or more of the voting rights (as
existing prior to the issuance) in a company
shall be issued and for which any part of
the consideration is not given in cash or
registered securities or which is not on
market terms and as a result thereof a
substantial shareholder's (holding 5% or
more) holdings shall increase or a person
shall become a substantial shareholder; or
(ii) if, as a result of a private placement,
a person shall become a controlling
shareholder of the company.
In addition, the requirement under Israeli
Companies Law to have two external
directors, who cannot readily be removed
from office, may serve as an anti-takeover
mechanism.
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67
JAZZ STOCKHOLDER RIGHTS TOWER SHAREHOLDER RIGHTS
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Under the DGCL, a stockholder of a constituent The Israeli Companies Law does not provide
corporation in a merger may, under certain for shareholders' appraisal rights except
circumstances and upon meeting certain for the appraisal by a court under limited
requirements, dissent from the merger by demanding circumstances in connection with an
payment in cash for his or her share equal to the acquisition by means of a tender offer to
"fair value" (excluding any appreciation or increase a shareholder's holdings to over
depreciation as a consequence or in expectation of 90% of the shares of a publicly traded
the transaction) of such shares, as determined by company.
agreement with the corporation or by an independent
appraiser appointed by a court in an action brought
in a timely fashion by the corporation or the
dissenters.
APPRAISAL RIGHT Delaware law grants dissenters' appraisal rights
only in the case of certain mergers. Delaware law
does not grant appraisal rights in a merger to
holders of shares listed on a national securities
exchange or held of record by more than 2,000
stockholders unless the plan of merger converts
such shares into anything other than stock of the
surviving corporation or stock of another
corporation which is listed on a national
securities exchange or held of record by more than
2,000 stockholders (or cash in lieu of fractional
shares or some combination of the above). For a
more detailed discussion of appraisal rights of
Jazz stockholders in connection with the merger,
see the section above entitled "THE MERGER - NO
DISSENTER'S APPRAISAL RIGHTS."
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68
INFORMATION ABOUT JAZZ
OVERVIEW
Jazz is an independent semiconductor foundry focused on specialty process
technologies for the manufacture of analog and mixed-signal semiconductor
devices. Jazz believes its specialty process technologies attract customers who
seek to produce analog and mixed-signal semiconductor devices that are smaller
and more highly integrated, power-efficient, feature-rich and cost-effective
than those produced using standard process technologies. Jazz's customers'
analog and mixed-signal semiconductor devices are designed for use in products
such as cellular phones, wireless local area networking devices, digital TVs,
set-top boxes, gaming devices, switches, routers and broadband modems. Jazz's
major customers include Skyworks Solutions, Inc., Conexant Systems, Inc., RF
Micro Devices, Inc., and Toshiba Corporation.
FORMATION
Jazz, formerly known as Acquicor Technology Inc. was incorporated in
Delaware on August 12, 2005 as a blank check company by Dr. Gilbert F. Amelio,
Mrs. Ellen M. Hancock and Mr. Steve Wozniak for the purpose of acquiring,
through a merger, capital stock exchange, stock purchase, asset acquisition or
other similar business combination, one or more domestic and/or foreign
operating businesses in the technology, multimedia and networking sectors, which
we accomplished through the acquisition of Jazz Semiconductor, Inc. in February
2007.
On February 16, 2007, Jazz completed the acquisition of all of the
outstanding capital stock of Jazz Semiconductor, for $262.4 million in cash, and
acquired, as part of the assets of Jazz Semiconductor, $26.1 million in cash.
The consolidated financial statements for Jazz included elsewhere in this proxy
statement/prospectus include the results of operations for Jazz Semiconductor
following the date of acquisition. The acquisition was accounted for under the
purchase method of accounting in accordance with U.S. generally accepted
accounting principles for accounting and financial reporting purposes. Under
this method, Jazz Semiconductor was treated as the "acquired" company. In
connection with the acquisition, Jazz adopted Jazz Semiconductor's fiscal year.
In July 2007, we entered into an agreement with the former Jazz Semiconductor's
stockholders that reduced the purchase price by $9.3 million to $253.1 million.
The reduction has been reflected in the accompanying financial statements.
Prior to March 12, 2002, Jazz Semiconductor's business was Conexant's
Newport Beach, California semiconductor fabrication operations. Jazz
Semiconductor's business was formed upon Conexant's contribution of those
fabrication operations to its wholly-owned subsidiary, Newport Fab, LLC and
Conexant's contribution of Newport Fab, LLC to Jazz Semiconductor, together with
a cash investment in Jazz Semiconductor by affiliates of The Carlyle Group.
Conexant and affiliates of The Carlyle Group continued to be the largest
stockholders of Jazz Semiconductor, until its acquisition in February 2007.
Substantially all of Jazz Semiconductor's business operation was conducted by
its wholly-owned subsidiary, Newport Fab, LLC.
Since its formation in early 2002, Jazz Semiconductor has transitioned its
business from a captive manufacturing facility within Conexant to an independent
semiconductor foundry. Initially, Jazz Semiconductor's only significant
customers were Conexant and its spin-off, Skyworks, which are referred to as its
formation customers.
Since Jazz Semiconductor's formation, it has sought to grow and diversify
its revenues through the acquisition of new customers, which are referred to as
its post-formation customers. As a result, the percentage of revenues from
post-formation customers has grown from 9.7% of total revenues of Jazz
Semiconductor in 2003 to 64.5% of total revenues of Jazz in 2007. Jazz
Semiconductor has also experienced a significant increase in the number of
"design wins"-decisions by post-formation customers to use its process
technologies for the design of their future products. It typically takes 8 to 26
months for a successful product design to enter into volume production, at which
time a "design win" would be reclassified as a "design in volume production." At
March 28, 2008, Jazz had approximately 300 design wins with 88 post-formation
customers. As its design wins from post-formation customers continue to become
designs in volume production, Jazz expects that revenues from these customers
will continue to grow commensurately.
JAZZ'S INDUSTRY
Semiconductors are the building blocks of a broad range of electronic
systems such as personal computers, telecommunications equipment, wireless
devices, consumer electronics, automotive electronics and industrial
electronics. Although global semiconductor sales have experienced significant
cyclical variation in annual growth rates, they have increased significantly
over the long term. As electronic systems have become more sophisticated and
integrated, satisfying the demand for semiconductors used in these systems has
required advances in semiconductor design, manufacturing and packaging
technologies.
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DESEGREGATION OF THE SEMICONDUCTOR INDUSTRY AND THE SUCCESS OF FOUNDRIES
In the past, most semiconductor companies were vertically integrated. They
internally designed, fabricated, packaged, tested and marketed their own
semiconductors. These vertically integrated semiconductor companies are known as
integrated device manufacturers, or IDMs. As the complexity of semiconductor
designs has increased, semiconductors have become increasingly challenging to
manufacture, requiring both sophisticated manufacturing expertise and
significant investment in fabrication facilities, or fabs, and the development
of leading-edge process technologies.
As the cost and skills required for designing and manufacturing complex
semiconductors have increased, the semiconductor industry has become
increasingly desegregated. This desegregation has fueled the growth of three
segments of the semiconductor industry, which together perform the significant
functions of an IDM. These are:
o fabless semiconductor companies that design and market semiconductors;
o foundries that manufacture semiconductor wafers; and
o packaging and test companies that encapsulate and test semiconductors.
Fabless semiconductor companies are gaining an increasing share of the
semiconductor market. According to the Fabless Semiconductor Association, a
trade organization, sales of semiconductors by fabless companies as a percentage
of worldwide sales more than doubled from approximately 8% in 2000 to 20% in
2007. At the same time, many IDMs have announced that they have reduced their
investment in their existing and next-generation manufacturing facilities and
process technologies as they seek to increase their flexibility to reallocate
their resources and capital expenditures. Jazz believes that IDMs that have
adopted this "fab-lite" strategy will continue to outsource an increasing
percentage of their manufacturing requirements to foundry service providers.
Jazz believes that utilizing foundry service providers allows fabless
semiconductor companies and IDMs to reduce their manufacturing costs, more
efficiently allocate capital, research and development and management resources,
and gain access to manufacturing process technologies and production capacity
they do not possess.
Independent foundries have traditionally focused on standard complementary
metal oxide semiconductor, or CMOS, processes that are primarily used for
digital semiconductor applications. The proliferation of fabless semiconductor
companies and the increasing use of outsourcing by many IDMs for a portion of
their production have driven the growth of the CMOS foundry industry, including
the growth of global foundry revenues derived from the manufacture of analog and
mixed signal semiconductors. Jazz believes that many of these analog and mixed
signal semiconductors are manufactured using specialty process technologies. In
addition, according to estimates of Semico Research Corporation, a semiconductor
marketing and consulting research company, the percentage of total semiconductor
device revenues manufactured by third-party foundries has increased from 5.6% in
1995 to 20% in 2007, highlighting the increasing role foundries are playing in
the semiconductor supply chain.
PROLIFERATION OF ANALOG AND MIXED-SIGNAL SEMICONDUCTORS AND THE GROWING NEED FOR
SPECIALTY PROCESS TECHNOLOGIES
The two basic functional technologies for semiconductor products are
digital and analog. Digital semiconductors perform arithmetic functions on data
represented by a series of ones and zeroes. Digital semiconductors provide
critical processing power and have helped enable many of the computing and
communication advances of recent years. Analog semiconductors monitor and
manipulate real world signals such as sound, light, pressure, motion,
temperature, electrical current and radio waves, for use in a wide variety of
electronic products such as personal computers, cellular handsets,
telecommunications equipment, consumer electronics, automotive electronics and
industrial electronics. There is a growing need for analog functionality to
enable digital systems to interface with the real world. Analog-digital, or
mixed-signal, semiconductors combine analog and digital devices on a single chip
to process both analog and digital signals.
Integrating analog and digital components on a single, mixed-signal
semiconductor enables smaller and more highly integrated, power-efficient,
feature-rich and cost-effective semiconductor devices but presents significant
design and manufacturing challenges. For example, combining high-speed digital
circuits with sensitive analog circuits on a single, mixed-signal semiconductor
can increase electromagnetic interference and power consumption, both of which
cause a higher amount of heat to be dissipated and decrease the overall
performance of the semiconductor. Challenges associated with the design and
manufacture of mixed-signal semiconductors increase as the industry moves toward
finer, more advanced process geometries. Standard electronic design automation,
or EDA, tools used in the design of digital circuits have limited use in
predicting the performance of certain analog and mixed-signal designs. As a
result, analog and mixed-signal semiconductors can be complex to manufacture and
typically require sophisticated design expertise and strong application specific
experience and intellectual property. Analog and mixed-signal semiconductor
engineers typically require several years of practical experience and
application knowledge to become proficient in the design of complex analog and
mixed-signal semiconductors. Manufacturers may also need to make a significant
investment in specialty process technologies to manufacture these
semiconductors.
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Specialty process technologies enable greater analog content and can
reduce the die size of an analog or mixed-signal semiconductor, thereby
increasing the number of die that can be manufactured on a wafer and reducing
final die cost. In addition, specialty process technologies can enable increased
performance, superior noise reduction and improved power efficiency of analog
and mixed-signal semiconductors compared to traditional standard CMOS processes.
These specialty process technologies include advanced analog CMOS, radio
frequency CMOS, or RF CMOS, high voltage CMOS, bipolar CMOS, or BiCMOS, silicon
germanium BiCMOS, or SiGe BiCMOS, and bipolar CMOS double-diffused metal oxide
semiconductor, or BCD.
For many applications in the wireless and high-speed wireline
communications, consumer electronics, automotive and industrial end markets, the
performance characteristics of specialty process technologies can lead customers
to select them over digital CMOS process technologies. As semiconductor
performance needs continue to increase in these end markets, Jazz believes the
demand for specialty process technologies will also increase.
EMERGING TREND TO OUTSOURCE SPECIALTY PROCESS MANUFACTURING REQUIREMENTS
Jazz believes that many of the factors and conditions that have driven
growth in the outsourcing of manufacturing using standard process technologies
will fuel continued growth in the outsourcing of manufacturing using specialty
process technologies. There can be no assurance, however, that the factors and
conditions that have fueled growth in the outsourcing of manufacturing using
standard process technologies will also fuel growth in the outsourcing of
manufacturing using specialty process technologies or that any future growth
rate in global foundry revenues derived from specialty process technologies will
be the same as the growth rate for global foundry revenues derived from standard
process technologies. As many IDMs reduce their investment in their existing and
next-generation standard CMOS process technologies and manufacturing facilities,
it may become less cost-effective for these IDMs to develop, maintain and
operate specialty process technology manufacturing lines. Jazz believes these
IDMs will increasingly choose to also outsource their specialty process
technologies. In addition, Jazz believes that fabless semiconductor companies
are increasingly seeking access to specialty process technologies to produce
analog and mixed-signal semiconductors.
To date, most independent foundries have focused primarily on standard
CMOS processes instead of specialty process technologies. While some IDMs have
provided outsourced specialty process technologies, Jazz believes that competing
IDMs and fabless design companies may be reluctant to work with and provide
confidential information to IDMs that also manufacture products competitive with
theirs. Consequently, Jazz believes that there is significant growth potential
for independent foundries with a broad platform of specialty process
technologies, advanced design and support capabilities and product application
expertise that focus primarily on the specialty foundry opportunity.
JAZZ'S SOLUTION
Jazz is an independent semiconductor foundry, providing specialty process
technologies, design solutions and application knowledge for the manufacture of
analog and mixed-signal semiconductors. Key elements of its solution are as
follows:
o JAZZ OFFERS AN INDEPENDENT AND FOCUSED SOURCE FOR THE MANUFACTURE OF
SEMICONDUCTORS USING SPECIALTY PROCESS TECHNOLOGIES. Most other
independent foundries focus on standard process technologies, rather than
specialty process technologies. Some IDMs offer specialty process foundry
services but also manufacture their own semiconductor products, which may
be competitive with the products of their potential customers who seek
these services. Jazz combines the benefits of independence with a focus on
specialty process technologies.
o JAZZ OFFERS A SPECIALIZED DESIGN PLATFORM FOR ANALOG AND MIXED-SIGNAL
SEMICONDUCTORS. Jazz's design engineering support team assists its
customers with their advanced designs by leveraging Jazz's application
knowledge and experience to help guide their technology selection and
design implementation. Jazz's sophisticated design tools and services are
specifically tailored to meet analog and mixed-signal design needs, and
include specialized device modeling and characterization features that
allow simulation of a variety of real world situations, including
different temperatures, power levels and speeds.
o JAZZ OFFERS A BROAD RANGE OF SPECIALTY PROCESS TECHNOLOGIES. Jazz's
specialty process technology portfolio includes advanced analog CMOS, RF
CMOS, high voltage CMOS, BiCMOS and SiGe BiCMOS processes. In addition to
these specialty process technologies, Jazz has recently begun to offer BCD
processes optimized for analog semiconductors such as power management,
high efficiency audio amplification, and optical driver integrated
circuits. The breadth of Jazz's portfolio allows it to offer its customers
a wide range of solutions to address their high-performance, high-density,
low-power and low-noise requirements for analog and mixed-signal
semiconductors. These semiconductor devices are used in products such as
cellular phones, digital TVs, set-top boxes, gaming devices, wireless
local area networking devices, digital cameras, switches, routers and
broadband modems. Jazz benefits from the development of specialty process
technologies by Conexant and its predecessor, Rockwell Semiconductor
Systems, over a period of 35 years.
o JAZZ IS A LEADER IN HIGH-PERFORMANCE SIGE PROCESS TECHNOLOGIES. Jazz
offers high performance 150 GHz 0.18 micron SiGe BiCMOS technology, which
Jazz believes is one of the most advanced SiGe process technologies in
production today. In addition, Jazz recently announced the availability of
200 GHz 0.18 micron SiGe BiCMOS technology. Analog and mixed-signal
semiconductors manufactured with SiGe BiCMOS process technologies can be
smaller, require less power and provide higher performance than those
manufactured with standard CMOS processes. Moreover, SiGe BiCMOS process
technologies allow for higher levels of integration of analog and digital
functions on the same mixed-signal semiconductor device.
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JAZZ'S STRATEGY
Key elements of Jazz's strategy are as follows:
o FURTHER STRENGTHEN JAZZ'S POSITION IN SPECIALTY PROCESS TECHNOLOGIES FOR
THE MANUFACTURE OF ANALOG AND MIXED-SIGNAL SEMICONDUCTORS. Jazz is
continuing to invest in its portfolio of specialty process technologies to
address the key product attributes that make its customers' products more
competitive.
o TARGET LARGE, GROWING AND DIVERSIFIED END MARKETS. Jazz targets end
markets characterized by high growth and high performance for which it
believes its specialty process technologies have a high value proposition,
including the wireless and high-speed wireline communications, consumer
electronics, automotive and industrial markets. For example, Jazz believes
that its specialty process technologies can provide performance and cost
advantages over current CMOS solutions in the integration of power
amplifiers with RF transceivers for wireless local area networking
applications.
o CONTINUE TO DIVERSIFY JAZZ'S CUSTOMER BASE. Since its formation in early
2002, Jazz Semiconductor has transitioned its business from a captive
manufacturing facility within Conexant to an independent semiconductor
foundry with 120 post-formation customers as of December 2007. Jazz
intends to continue to grow and diversify its business through the
acquisition of new customers. Because Jazz Semiconductor's post-formation
customers primarily use its specialty process technologies, Jazz expects
that its continued acquisition of new customers will result in a
continuing increase in the percentage of its revenues that are derived
from specialty process technologies.
o MAINTAIN CAPITAL EFFICIENCY BY LEVERAGING ITS CAPACITY AND MANUFACTURING
MODEL. Jazz seeks to maximize the utilization of its Newport Beach,
California manufacturing facility and leverage its manufacturing
suppliers' facilities in China to meet increased capacity requirements
cost-effectively. Jazz can typically increase its specialty process
technology capacity and meet its customer performance requirements using
adapted semiconductor process equipment sets that are typically one or two
generations behind leading-edge digital CMOS process equipment. This
typically allows Jazz to acquire lower-cost semiconductor process
equipment to operate its Newport Beach, California fab. Jazz is also able
to access and adapt existing capacity cost-effectively through supply and
licensing agreements, such as those with Advanced Semiconductor
Manufacturing Corporation of Shanghai ("ASMC") and Shanghai Hua Hong NEC
Electronics Company Ltd ("HHNEC").
PROCESS TECHNOLOGIES
Process technologies are the set of design rules, electrical
specifications and process steps that Jazz implements for the manufacture of
semiconductors on silicon wafers. In addition to offering standard process
technologies, Jazz has a strong heritage of manufacturing analog and
mixed-signal semiconductors using specialty process technologies, including
advanced analog CMOS, RF CMOS, high voltage CMOS, BiCMOS and SiGe BiCMOS process
technologies. These analog and mixed-signal semiconductors are used in products
targeting the wireless and high-speed wireline communications, consumer
electronics, automotive and industrial end markets. Jazz also now offers BCD
process technologies optimized for analog semiconductors such as power
management, high-efficiency audio amplification and optical driver integrated
circuits.
JAZZ'S STANDARD PROCESS TECHNOLOGIES
Jazz refers to its digital CMOS and standard analog CMOS process
technologies as standard process technologies. Digital CMOS process technologies
are the most widely used process technologies in the semiconductor industry
because they require less power than other technologies for digital functions
and allow for the dense placement of digital circuits onto a single
semiconductor, such as a graphics or baseband processor. Jazz currently has
digital CMOS processes in 0.5 micron, 0.35 micron, 0.25 micron and 0.18 micron
and has announced availability of a 0.13 micron process. These digital CMOS
process technologies form the baseline for Jazz's standard analog CMOS
processes.
Standard analog CMOS process technologies have more features than digital
CMOS process technologies and are well suited for the design of low-frequency
analog and mixed-signal semiconductors. These process technologies generally
incorporate basic passive components, such as capacitors and resistors, into a
digital CMOS process. Jazz currently has standard analog CMOS processes in 0.5
micron, 0.35 micron, 0.25 micron and 0.18 micron and has announced availability
of a 0.13 micron process. These standard analog CMOS process technologies form
the baseline for Jazz's specialty process technologies.
While other foundries may offer standard analog processes, most do not
offer specialty process technologies. Other foundries, however, offer standard
analog processes at more advanced geometries than Jazz offers, such as 90
nanometer CMOS process technologies. In certain circumstances, such as when a
large amount of digital content is required in a mixed-signal semiconductor and
less analog content is required, a customer may choose to design a product in a
standard analog CMOS process technology at an advanced geometry, such as 90
nanometer CMOS, instead of choosing a specialty process technology at a larger
geometry.
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JAZZ'S SPECIALTY PROCESS TECHNOLOGIES
Jazz refers to its advanced analog CMOS, RF CMOS, high voltage CMOS,
BiCMOS, SiGe BiCMOS and BCD process technologies, as specialty process
technologies. Most of Jazz's specialty process technologies are based on CMOS
processes with added features to enable improved size, performance and cost
characteristics for analog and mixed-signal semiconductors. Products made with
Jazz's specialty process technologies are typically more complex to manufacture
than products made using standard process technologies employing similar line
widths. Generally, customers who use Jazz's specialty process technologies
cannot easily move designs to another foundry because the analog characteristics
of the design are dependent upon its implementation of the applicable process
technology. The relatively small engineering community with specialty process
know-how has also limited the number of foundries capable of offering specialty
process technologies. In addition, the specialty process design infrastructure
is complex and includes design kits and device models that are specific to the
foundry in which the process is implemented and to the process technology
itself.
Jazz's advanced analog CMOS process technologies have more features than
standard analog CMOS process technologies and are well suited for higher
performance or more highly integrated analog and mixed-signal semiconductors,
such as high-speed analog-to-digital or digital-to-analog converters and
mixed-signal semiconductors with integrated data converters. These process
technologies generally incorporate higher density passive components, such as
capacitors and resistors, as well as improved active components, such as native
or low voltage devices, and improved isolation techniques, into standard analog
CMOS process technologies. Jazz currently has advanced analog CMOS process
technologies in 0.5 micron, 0.35 micron, 0.25 micron and 0.18 micron and has
announced the availability of a 0.13 micron process. These advanced analog CMOS
processes form the baseline for Jazz's other specialty process technologies.
Jazz's RF CMOS process technologies have more features than advanced
analog CMOS process technologies and are well suited for wireless
semiconductors, such as highly integrated wireless transceivers, power
amplifiers, and television tuners. These process technologies generally
incorporate integrated inductors, high performance variable capacitors, or
varactors, and RF laterally diffused metal oxide semiconductors into an advanced
analog CMOS process technology. In addition to the process features, Jazz's RF
offering includes design kits with RF models, device simulation and physical
layouts tailored specifically for RF performance. Jazz currently has RF CMOS
process technologies in 0.25 micron and 0.18 micron and has announced
availability of a 0.13 micron process. These RF CMOS process technologies form
the baseline for some of our other specialty process technologies.
Jazz's high voltage CMOS and BCD process technologies have more features
than advanced analog CMOS processes and are well suited for power and driver
semiconductors such as voltage regulators, battery chargers, power management
products and audio amplifiers. These process technologies generally incorporate
higher voltage CMOS devices such as 5V, 8V, 12V and 40V devices, and, in the
case of BCD, bipolar devices, into an advanced analog CMOS process. Jazz
currently has high voltage CMOS offerings in 0.5 micron, 0.35 micron, 0.25
micron and 0.18 micron, and BCD offerings in 0.5 micron. Jazz is working on
extending the high voltage options to include a 0.35 micron BCD process
technology and 60V capabilities in the future to enable higher levels of analog
integration at voltage ranges that are suitable for automotive electronics and
line power conditioning for consumer devices.
Jazz's BiCMOS process technologies have more features than RF CMOS process
technologies and are well suited for RF semiconductors such as wireless
transceivers and television tuners. These process technologies generally
incorporate high-speed bipolar transistors into an RF CMOS process. The
equipment requirements for BiCMOS manufacturing are specialized and require
enhanced tool capabilities to achieve high yield manufacturing. Jazz currently
has BiCMOS process technologies in 0.35 micron.
Jazz's SiGe BiCMOS process technologies have more features than BiCMOS
processes and are well suited for more advanced RF semiconductors such as
high-speed, low noise, highly integrated multi-band wireless transceivers,
television tuners and power amplifiers. These process technologies generally
incorporate a silicon germanium bipolar transistor, which is formed by the
deposition of a thin layer of silicon germanium within a bipolar transistor, to
achieve higher speed, lower noise, and more efficient power performance than a
BiCMOS process technology. It is also possible to achieve speeds using SiGe
BiCMOS process technologies equivalent to those demonstrated in standard CMOS
processes that are two process generations smaller in line-width. For example, a
0.18 micron SiGe BiCMOS process is able to achieve speeds comparable to a 90
nanometer RF CMOS process. As a result, SiGe BiCMOS makes it possible to create
analog products using a larger geometry process technology at a lower cost while
achieving similar or superior performance to that achieved using a smaller
geometry standard CMOS process technology. The equipment requirements for SiGe
BiCMOS manufacturing are similar to the specialized equipment requirements for
BiCMOS. Jazz has developed enhanced tool capabilities in conjunction with large
semiconductor tool suppliers to achieve high yield SiGe manufacturing. Jazz
believes this equipment and related process expertise makes Jazz one of the few
silicon manufacturers with demonstrated ability to deliver SiGe BiCMOS products.
Jazz currently has SiGe BiCMOS process technologies at 0.35 micron and 0.18
micron and is developing a 0.13 micron SiGe BiCMOS process.
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Jazz continues to invest in technology that helps improve the performance,
integration level and cost of analog and mixed-signal products. This includes
improving the density of passive elements such as capacitors and inductors,
improving the analog performance and voltage handling capability of active
devices, and integrating advanced features in Jazz's specialty CMOS processes
that are currently not readily available. Examples of such features currently
under development include technologies aimed at integrating
micro-electro-mechanical-system (MEMS) devices with CMOS, adding
silicon-on-insulator (SOI) substrates to enable increased integration of RF and
analog functions on a single die and scaling the features Jazz offers today to
the 0.13 micron process technology.
MANUFACTURING
Jazz has placed significant emphasis on achieving and maintaining a high
standard of manufacturing quality. Jazz seeks to enhance its production capacity
for its high-demand specialty process technologies and to design and implement
manufacturing processes that produce consistently high manufacturing yields.
Jazz's production capacity in each of its specialty process technologies enables
Jazz to provide its customers with volume production, flexibility and
quick-to-market manufacturing services. All of Jazz's process research and
development is performed in its manufacturing facility in Newport Beach,
California.
CAPACITY
Jazz currently has the capacity in its Newport Beach, California fab to
commence the fabrication process for approximately 21,000 standard CMOS
eight-inch equivalent wafers per month based on 20 photo masking layers;
however, with a more representative mix of standard CMOS and high-variability
specialty process technology, Jazz typically would have the capacity to commence
the fabrication process for approximately 17,000 eight-inch wafers per month in
that fab. Jazz's fab generally operates 24 hours per day, seven days per week.
Jazz provides a variety of services in Newport Beach, California from full scale
production to small engineering qualification lot runs to probe services. Jazz
has the ability to rapidly change the mix of production processes in use in
order to respond to changing customer needs and maximize utilization of the fab.
To expand its manufacturing capacity, Jazz has entered into supply
agreements with each of ASMC and HHNEC, two of China's leading silicon
semiconductor foundries. These agreements are designed to provide Jazz with
low-cost, scalable production capacity and multiple location sourcing for its
customers. To date, Jazz has not utilized significant capacity from its
manufacturing suppliers. While these suppliers have substantially met its
requests for wafers to date, if Jazz had a sudden significant increase in demand
for their services, it is unlikely that they would be able to satisfy its
increased demand in the short term.
EQUIPMENT
Jazz's policy is to qualify the vendors from which it purchases equipment
to assure process consistency, expedite installation and production release,
reduce consumable inventories, combine equipment support resources and maximize
supplier leverage. The principal equipment Jazz uses to manufacture
semiconductor wafers are scanners, steppers, track equipment, etchers, furnaces,
automated wet stations, implanters and metal sputtering, chemical vapor
deposition and chemical mechanical planarization equipment. Jazz can expand its
specialty process manufacturing capacity by purchasing lower-cost equipment
because it is able to meet its customers' performance requirements using adapted
digital CMOS equipment sets that are typically one or two generations behind
leading-edge digital CMOS process equipment.
Jazz's Newport Beach, California fab is organized into bays based on
function with manufacturing operations performed in clean rooms in order to
maintain the quality and integrity of wafers that it produces. Clean rooms have
historically been rated on the number of 0.5 micron particles allowable within a
cubic foot of air, and Jazz generally refers to them as class-1, 10, 100, 1,000,
10,000, or 100,000 on that basis. A significant majority of Jazz's current clean
rooms operate at a class-10 level.
RAW MATERIALS
Jazz's manufacturing processes use highly specialized materials, including
semiconductor wafers, chemicals, gases and photomasks. These raw materials are
generally available from several suppliers. However, Jazz often selects one
vendor to provide it with a particular type of material in order to obtain
preferred pricing. In those cases, Jazz generally also seeks to identify, and in
some cases qualify, alternative sources of supply.
Jazz generally maintains sufficient stock of principal raw material for
production based its on historical usage. Jazz's vendors also generally keep
pre-approved material at their local warehouse in order to support changes that
may occur in Jazz's requirements and to respond to quality issues. Although some
of Jazz's purchase order contracts contain price and capacity commitments, these
commitments tend to be short term in nature. However, Jazz has agreements with
several key material suppliers under which they hold similar levels of inventory
at Jazz's warehouse and fab for its use. Jazz is not under any obligation under
these agreements to purchase raw material inventory that is held by its vendors
at its site until Jazz actually uses it, unless Jazz holds the inventory beyond
specified time limits.
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Jazz receives one of its liquid chemicals, EKC 652, which is used in the
etch process from E.I. du Pont de Nemours and Company. DuPont is the sole source
supplier of this chemical and its chemistry is unique. Jazz believes that it
would take between four and six months to replace this chemical in the event
DuPont were unable or unwilling to continue as a supplier.
Jazz uses a large amount of water in its manufacturing process. Jazz
obtains water supplies from the local municipality. Jazz also uses substantial
amounts of electricity supplied by Southern California Edison in the
manufacturing process. Jazz maintains back-up generators that are capable of
providing adequate amounts of electricity to maintain vital life safety systems,
such as toxic gas monitors, fire systems, exhaust systems and emergency lighting
in case of power interruptions, which it has experienced from time to time.
QUALITY CONTROL
Jazz seeks to attract and retain leading international and domestic
semiconductor companies as customers by establishing and maintaining a
reputation for high quality and reliable services and products. Jazz's Newport
Beach, California fab has achieved ISO9001:2000 certification and has also
obtained certification for implementing the standard requirements of ISO
14001:2004, ISO/IEC 27001:2005 and the specification OHSAS 18001:1999.
ISO9001:2000 sets the criteria for developing a fundamental quality management
system. This system focuses on continuous improvement, defect prevention and the
reduction of variation and waste. ISO 14001 consists of a set of standards that
provide guidance to the management of organizations to achieve an effective
environmental management system. ISO/IEC 27001:2005 replaces the previous BS7799
standard, and is the new global certification that focuses on security
information management activities associated with the reduction of security
breaches. OHSAS 18001:1999 is an internationally accepted specification that
defines the requirements for establishing, implementing and operating an
Occupational Health and Safety Management System, which is a framework that
allows an organization to consistently identify and manage operational risks,
reduce the potential for accidents, help achieve compliance with health and
safety legislation, and continually improve its performance.
Currently, Jazz is working on the implementation of ISO/TS 16949:2002, an
ISO Technical Specification written by the International Automotive Task Force
(IATF) which aligns existing US, German, French and Italian automotive quality
system standards within the global automotive industry. ISO/TS16949:2002
specifies the quality system requirements for the design, development,
production, installation and servicing of automotive-related products.
Jazz's implements quality assurance initiatives that are designed to
ensure high yields at its facilities. Jazz tests and monitors raw materials and
production at various stages in the manufacturing process before shipment to
customers. Quality assurance also includes on-going production reliability
audits and failure tracking for early identification of production problems.
Jazz also conducts routine second party audits at ASMC and HHNEC, to
assess their semiconductor manufacturing process. These quality audits involve
Jazz's engineers and management meetings with representatives of ASMC and HHNEC,
inspecting their core processes and orchestrating changes and enhancements
designed to ensure that each entity has effectively implemented standards
similar to Jazz's.
JAZZ'S SERVICES
Jazz primarily manufactures semiconductor wafers for its customers. Jazz
focuses on providing a high level of customer service in order to attract
customers, secure production from them and maintain their continued loyalty.
Jazz emphasizes responsiveness to customer needs, flexibility, on-time delivery,
speed to market and accuracy. Jazz's customer-oriented approach is evident in
two prime functional areas of customer interaction: customer design development
and manufacturing services. Throughout the customer engagement process, Jazz
offers services designed to provide its customers with a streamlined,
well-supported, easy to monitor product flow. Jazz believes that this process
enables its customers to get their products to market quickly and efficiently.
Wafer manufacturing requires many distinct and intricate steps, each of
which must be completed accurately in order for finished semiconductor devices
to work as intended. After a design moves into volume production, Jazz continues
to provide ongoing customer support through all phases of the manufacturing
process.
The processes required to take raw wafers and turn them into finished
semiconductor devices are generally accomplished through five steps: circuit
design, mask making, wafer fabrication, probe, and assembly and test. The
services Jazz offers to its customers in each of the five steps are described
below.
CIRCUIT DESIGN
Jazz interacts closely with customers throughout the design development
and prototyping process to assist them in the development of high performance
and low power consumption semiconductor designs and to lower their final die, or
individual semiconductor, costs through die size reductions and integration.
Jazz provides engineering support and services as well as manufacturing support
in an effort to accelerate its customers' design and qualification process so
that they can achieve faster time to market. Jazz has entered into alliances
with Cadence Design Systems, Inc., Synopsys, Inc. and Mentor Graphics Corp.,
leading suppliers of electronic design automation tools, and also licensed
technology from ARM Holdings plc and Synopsys, Inc., leading providers of
physical intellectual property components for the design and manufacture of
semiconductors. Through these relationships, Jazz provides its customers with
the ability to simulate the behavior of its processes in standard electronic
design automation, or EDA, tools. To provide additional functionality in the
design phase, Jazz offers its customers standard and proprietary models within
design kits that it has developed. These design kits, which collectively
comprise its design library, or design platform, allow Jazz's customers quickly
to simulate the performance of a semiconductor design in Jazz's processes,
enabling them to refine their product design before actually manufacturing the
semiconductor.
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The applications for which Jazz's specialty process technologies are
targeted present challenges that require an in-depth set of simulation models.
Jazz provides these models as an integral part of its design platform. At the
initial design stage, Jazz's customers' internal design teams use Jazz's
proprietary design kits to design semiconductors that can be successfully and
cost-effectively manufactured using Jazz's specialty process technologies.
Jazz's engineers, who typically have significant experience with analog and
mixed-signal semiconductor design and production, work closely with Jazz's
customers' design teams to provide design advice and help them optimize their
designs for Jazz's processes and their performance requirements. After the
initial design phase, Jazz provides its customers with a multi-project wafer
service to facilitate the early and rapid use of Jazz's specialty process
technologies, which allows them to gain early access to actual samples of their
designs. Under this multi-project wafer service, Jazz schedules a bimonthly
multi-project wafer run in which it manufactures several customers' designs in a
single mask set, providing its customers with an opportunity to reduce the cost
and time required to test their designs. Jazz believes its circuit design
expertise and its ability to accelerate its customers' design cycle while
reducing their design costs represents one of its competitive strengths.
PHOTOMASK MAKING
Jazz's engineers generally assist its customers to design photomasks that
are optimized for its specialty process technologies and equipment. Actual
photomask production occurs at independent third parties that specialize in
photomask making.
WAFER FABRICATION
Jazz provides wafer fabrication services to its customers using specialty
process technologies, including advanced analog CMOS, RF CMOS, high voltage
CMOS, BiCMOS, SiGe BiCMOS and BCD processes, as well as using standard CMOS
process technologies. During the wafer fabrication process, Jazz performs
procedures in which a photosensitive material is deposited on the wafer and
exposed to light through a mask to form transistors and other circuit elements
comprising a semiconductor. The unwanted material is then etched away, leaving
only the desired circuit pattern on the wafer. By using Jazz's ebizz web site,
customers are able to access their lot status and work-in-process information
via the Internet.
PROBE
After a visual inspection, individual die on a wafer are tested, or
"probed," electrically to identify die that fail to meet required standards. Die
that fail this test are marked to be discarded. Jazz generally offers wafer
probe services at the customer's request and conducts those services internally
in order to obtain accurate data on manufacturing yield rates more quickly. At
times when wafers are ordered in excess of Jazz's probe capacity in its Newport
Beach, California fab, Jazz may offer to coordinate shipping of completed wafers
to third-party vendors for probe services.
ASSEMBLY AND TEST
Following wafer probe, wafers go through the assembly and test process to
form finished semiconductor products. Jazz typically refers its customers to
third-party providers of assembly and test services.
SALES AND MARKETING
Jazz seeks to establish and maintain relationships with its customers by
providing a differentiated process technology portfolio, effective technical
services and support and flexible manufacturing. Jazz's sales process is a
highly technical and lengthy process. The entire cycle from design win to volume
production typically takes between eight and 26 months. During this cycle,
Jazz's customers typically dedicate anywhere from three to twelve engineers to
support the design, prototype and evaluation phases of their products.
JAZZ'S SALES PROCESS
The following chart portrays Jazz's sales process.
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- --------------------------------------------------------------------------------
OUR SALES PROCESS
- --------------------------------------------------------------------------------
DESIGN WIN DESIGN PROTOTYPE EVALUATION PRODUCTION
ACQUISITION ---> PHASE ---> PHASE ---> PHASE ---> PHASE
PHASE
- ------------- ------------ ------------ -------------
(1-12 MONTHS) (4-8 MONTHS) (2-6 MONTHS) (2-12 MONTHS)
| |
| |
-----------------------|------------------------
8-26 MONTHS
DESIGN WIN ACQUISITION PHASE. Jazz's sales personnel work closely with
current and potential customers to identify opportunities for them to pursue
product designs using Jazz's process technologies. The customer's decision to
design a semiconductor product using one of Jazz's process technologies is based
upon several technical and economic factors, including choosing the optimal
process technology to achieve a cost-effective solution for their semiconductor
device.
The decision to use a specialty process technology also generally requires
the customer to select Jazz's specialty process foundry. Customers do not
typically move a given design between foundries until the next generation of
that design is evaluated because of the highly sensitive and variable nature of
specialty process production. The same semiconductor design produced at
different specialty process foundries, or even at different times in the same
foundry, may have materially different performance characteristics. As a result,
customers place significant value upon a given foundry's ability to produce
devices that consistently meet specifications, and may be reluctant to shift to
another foundry once the process has been stabilized. Given the high switching
costs associated with specialty process devices, the design decision process
represents a significant commitment by the customer, consuming between one and
twelve months and often involving the customer's product architects, design
engineers, purchasing personnel and executive management. Jazz's customers will
often install Jazz's proprietary design platform, which runs on industry
standard EDA tools. The customer will often design a test circuit for Jazz's
process in order to evaluate how the circuit performs in an actual silicon
implementation. Jazz refers to a customer's decision to design a specific
semiconductor using one of its processes as a design win. As of any particular
date, Jazz defines a customer as any party from whom it has recognized revenues
in the prior twelve months. As of March 28, 2008, Jazz had approximately 355
design wins from 90 customers. A design win commences the design phase.
DESIGN PHASE. The design phase typically involves from three to twelve of
Jazz's customer's design engineers and one of Jazz's technical support
engineers. This phase generally takes from four to twelve months, after which
time the customer provides a circuit data file for which Jazz purchases mask
reticles for the manufacture of the semiconductor and commences manufacture of
the customer's design, which is considered a "tape-in," at which point the
prototype phase commences.
PROTOTYPE PHASE. During the prototype phase, Jazz manufactures the
customer's prototype semiconductor and ships the silicon wafers to the customer
for functional testing and verification. The customer may test the devices at
the wafer or die level, or may package and test the prototype semiconductor
devices. Once the customer tests its product design in an actual silicon
implementation, the customer may need to make modifications to its design in
order to increase performance, add features or correct a design error. The
prototype phase typically requires two to twelve months, depending on the number
of design modifications required. Once the customer determines that the
semiconductors they have developed are ready to ship to its end-customers for
evaluation, the evaluation phase commences.
EVALUATION PHASE. After the customer receives functioning semiconductors,
it typically provides them to its own end-customers for evaluation. These
semiconductors are generally application specific devices targeted for products
such as cellular phones, digital TVs, set-top boxes, gaming devices, wireless
local area networking devices, digital cameras, switches, routers and broadband
modems. If Jazz's customer successfully wins a sub-system or system level design
with its customers, which typically takes from two months to twelve months, it
in turn places orders with Jazz to satisfy its customer's requirements, and
production manufacturing commences. Once 100 wafers incorporating a particular
design have been ordered, the evaluation phase is complete, the design is
classified as being in volume production, and it is removed from the design win
total.
Of Jazz's design wins as of March 28, 2008, approximately 12% are in the
design phase, approximately 29% are in the prototype phase, approximately 23%
are in the evaluation phase, and approximately 36% are in the production phase.
If at any time during the process Jazz's customer determines to abandon its
design effort, Jazz considers the design a "lost design win," and no longer
counts it towards its total number of design wins.
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SALES CONTRACTS
A few of Jazz's major customers purchase services and products from it on
a contract basis. Most other customers purchase from Jazz using purchase orders.
Jazz prices its products for these customers on a per wafer or per die basis,
taking into account the complexity of the technology, the prevailing market
conditions, volume forecasts, the strength and history of its relationship with
the customer and its current capacity utilization.
Most of its customers usually place their orders only two to four months
before shipment; however a few of its major customers are obligated to provide
Jazz with longer forecasts of their wafer needs.
MARKETING
Jazz publishes press releases, opinion editorials and whitepapers,
performs presentations, participates in panel sessions at industry conferences,
holds a variety of regional and international technology seminars, and attends
and exhibits at a number of industry trade shows to promote its products and
services. Jazz discusses advances in its process technology portfolio and
progress on specific relevant programs with its prospective and major customers
as well as industry analysts and research analysts on a regular basis.
CUSTOMERS, MARKETS AND APPLICATIONS
Jazz's customers use its processes to design and market a broad range of
digital, analog and mixed-signal semiconductors for diverse end markets
including wireless and high-speed wireline communications, consumer electronics,
automotive and industrial. Jazz manufactures products that are used for
high-performance applications such as transceivers and power management for
cellular phones; transceivers and power amplifiers for wireless local area
networking products; power management, audio amplifiers and driver integrated
circuits for consumer electronics; tuners for digital televisions and set-top
boxes; modem chipsets for broadband access devices and gaming devices;
serializer/deserializers, or SerDes, for fiber optic transceivers; focal plan
arrays for imaging applications; and wireline interfaces for switches and
routers.
ORDER BACKLOG
Jazz's backlog, which represents the aggregate purchase price of orders
received from customers, but not yet recognized as revenues, was approximately
$42.4 million at March 28, 2008. Jazz expects to fill a significant majority of
orders in backlog at March 28, 2008, within the current fiscal year. All of
Jazz's orders, however, are subject to possible rescheduling by its customers.
Rescheduling may relate to quantities or delivery dates, but sometimes relates
to the specifications of the products it is shipping. Some of Jazz's supply
contracts with its largest customers provide for penalties if firm orders are
cancelled. Other customers do business with Jazz on a purchase order basis, and
some of these orders may be cancelled by the customer without penalty. Jazz also
may elect to permit cancellation of orders without penalty where management
believes it is in its best interests to do so. Consequently, Jazz cannot be
certain that orders on backlog will be shipped when expected or at all. For
these reasons, as well as the cyclical nature of its industry, Jazz believes
that its backlog at any given date is not a meaningful indicator of its future
revenues.
JAZZ'S MAJOR CUSTOMERS
SKYWORKS SOLUTIONS, INC. is an industry leader in radio solutions and
precision analog semiconductors servicing a diversified set of mobile
communications customers. Skyworks was formed upon the spin-off of Conexant's
wireless communications division and subsequent merger with Alpha Industries,
Inc. Jazz works closely with Skyworks to define the process technologies it
requires to design certain of its next-generation products for its target
markets. The products that Jazz manufactures for Skyworks include semiconductors
used in RF transceivers and power control devices for cellular phone
applications. Skyworks Solutions, Inc. accounted for 12.9% and 20% of Jazz's
revenues for the three months ended March 28, 2008 and the year ended December
28, 2007, respectively.
CONEXANT SYSTEMS, INC. is a leading semiconductor supplier providing
system solutions that enable digital information and entertainment networks.
Conexant's product portfolio includes the building blocks required for bridging
cable, satellite, and terrestrial data, digital video networks and wireless
local area networks. Jazz continues to produce a significant percentage of
Conexant's wafer requirements. Conexant remains a large and important customer
for it, and Jazz continues to work closely with Conexant to capture its new
design opportunities. The products that Jazz manufactures for Conexant include
semiconductors used in analog, DSL and cable modems, personal computers, set-top
boxes and gaming devices. Conexant Systems, Inc. accounted for 14.3% and 15% of
Jazz's revenues for the three months ended March 28, 2008 and the year ended
December 28, 2007, respectively.
RF MICRO DEVICES, INC. designs, develops, manufactures and markets
proprietary radio frequency integrated circuits, or RFICs, primarily for
wireless communications products and applications such as cellular phones and
base stations, wireless local area networking devices and cable modems. RF Micro
Devices offers a broad array of products, including amplifiers, mixers,
modulators/demodulators, and single-chip receivers, transmitters and
transceivers that represent a substantial majority of the RFICs required in
wireless handsets. The products that Jazz manufactures for RF Micro devices
include semiconductors used in cellular transceivers, power controllers and
wireless infrastructure components. RF Micro Devices, Inc accounted for 19% and
14% of Jazz's revenues for the three months ended March 28, 2008 and the year
ended December 28, 2007, respectively.
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TOSHIBA CORPORATION designs and manufactures high-quality flash
memory-based storage solutions, discrete devices, displays, advanced materials,
medical tubes, custom SoCs/ASICs, digital multimedia and imaging products,
microcontrollers and wireless components, that make possible today's leading
cell phones, MP3 players, cameras, medical devices, automotive electronics and
more. Through advanced and reliable electronic components, Toshiba enables its
customers to create market-leading designs and product breakthroughs from OEMs,
ODMs, CMs, distributors and fabless chip companies worldwide. Toshiba
Corporation is Japan's largest semiconductor manufacturer and the world's fourth
largest semiconductor manufacturer. Toshiba Corporation accounted for 1.4% and
13% of Jazz's revenues for the three months ended March 28, 2008 and the year
ended December 28, 2007, respectively.
NEW CUSTOMER DEVELOPMENT
Through Jazz's focus on developing new customer relationships, at March
28, 2008, Jazz had secured approximately 300 design wins with 88 post-formation
customers across a broad range of end markets. In addition, at March 28, 2008,
approximately 98 post-formation customer designs had moved to designs in volume
production. Jazz believes its continuous focus on achieving design wins as well
as on ramping up production volumes of its current design wins will allow it to
continue to diversify and grow its revenue base. The following table provides a
summary of end-user applications as well as representative products addressed by
its design wins and designs in volume production:
WIRELESS CONSUMER WIRELINE
COMMUNICATIONS ELECTRONICS COMMUNICATIONS OTHER MARKETS
---------------------- ------------------ ----------------- ----------------------
Representative end o Cellular phones o Digital TVs o Switches o Imaging products
market products o Wireless networking o DVD players o Optical o Military products
systems o Cordless phones transceivers o Automotive radar
o Gaming devices o Broadband o Sensors
o Set-top boxes modems
o Analog modems
Representative o GSM/GPRS/ EDGE o DSL and cable o SerDes for o Image sensors
semiconductors transceivers modem chipsets transceiver o Focal plane arrays
o Power amplifiers o Digital and modules
o WCDMA mobile TV o Analog to
transceivers tuners digital
o Ultra wideband o DVD laser converters
transceivers drivers
o Power
management
COMPETITION
Jazz competes internationally and domestically with dedicated foundry
service providers such as Taiwan Semiconductor Manufacturing Company, United
Microelectronics Corporation, Semiconductor Manufacturing International
Corporation and Chartered Semiconductor Manufacturing Ltd., which, in addition
to providing leading edge complementary metal oxide semiconductor process
technologies, also have capacity for some specialty process technologies. Jazz
also competes with integrated device manufacturers that have internal
semiconductor manufacturing capacity or foundry operations, such as IBM. In
addition, several new dedicated foundries have commenced operations and may
compete directly with Jazz. Many of Jazz's competitors have higher capacity,
longer operating history, longer or more established relationships with their
customers, superior research and development capability and greater financial
and marketing resources than Jazz. As a result, these companies may be able to
compete more aggressively over a longer period of time than Jazz.
IBM competes in both the standard CMOS segment and in specialty process
technologies. In addition, there are a number of smaller participants in the
specialty process arena. Jazz believes that most of the large dedicated foundry
service providers compete primarily in the standard CMOS segment, but they also
have capacity for specialty process technologies. Prior to Jazz's separation
from Conexant, Conexant entered into a long-term licensing agreement with Taiwan
Semiconductor Manufacturing Company under which Taiwan Semiconductor
Manufacturing Company licensed from Conexant the right to manufacture
semiconductors using Conexant's then existing 0.18 micron or greater SiGe BiCMOS
process technologies. Jazz does not believe that Taiwan Semiconductor
Manufacturing Company has focused its business on the SiGe BiCMOS market to
date. However, Taiwan Semiconductor Manufacturing Company publicly announced in
2001 that it planned to use the licensed technology to accelerate its own
foundry processes for the networking and wireless communications markets. Since
Jazz Semiconductor's formation, Jazz has continued to make improvements in its
SiGe BiCMOS process technology. Jazz has not licensed any of these improvements
to Taiwan Semiconductor Manufacturing Company. Jazz does not believe that the
license of SiGe BiCMOS process technology by Taiwan Semiconductor Manufacturing
Company has had any significant effect on its business. In the event Taiwan
Semiconductor Manufacturing Company determines to focus its business on the SiGe
BiCMOS market, it may use and develop the technology licensed to it in 2001 to
compete directly with Jazz in the specialty market, and such competition may
harm Jazz's business.
79
As Jazz's competitors continue to increase their manufacturing capacity,
there could be an increase in specialty semiconductor capacity during the next
several years. As specialty capacity increases there may be more competition and
pricing pressure on Jazz's services, and under utilization of its capacity may
result. Any significant increase in competition or pricing pressure may erode
its profit margins, weaken Jazz's earnings or increase its losses.
Additionally, some semiconductor companies have advanced their
complementary metal oxide semiconductor designs to 90 nanometer or smaller
geometries. These smaller geometries may provide the customer with performance
and integration features that may be comparable to, or exceed, features offered
by Jazz's specialty process technologies, and may be more cost-effective at
higher production volumes for certain applications, such as when a large amount
of digital content is required in a mixed-signal semiconductor and less analog
content is required. Jazz's specialty process technologies will therefore
compete with these advanced CMOS processes for customers and some of its
potential and existing customers could elect to design these advanced CMOS
processes into their next generation products. Jazz is not currently capable,
and does not currently plan to become capable, of providing CMOS processes at
these smaller geometries. If Jazz's existing customers or new customers choose
to design their products using these CMOS processes Jazz's business may suffer.
The principal elements of competition in the semiconductor foundry
industry include:
o technical competence;
o production speed and cycle time;
o time-to-market;
o research and development quality;
o available capacity;
o fab and manufacturing yields;
o customer service;
o price;
o management expertise; and
o strategic relationships.
There can be no assurance that Jazz will be able to compete effectively on
the basis of all or any of these elements. Jazz's ability to compete
successfully may depend to some extent on factors outside of its control,
including industry and general economic trends, import and export controls,
exchange controls, exchange rate fluctuations, interest rate fluctuations and
political developments. If Jazz cannot compete successfully in its industry, its
business and results of operations will be harmed.
RESEARCH AND DEVELOPMENT
The semiconductor industry is characterized by rapid changes in
technology. As a result, effective research and development is essential to
Jazz's success. Jazz invested approximately $14.1 million in 2007 in research
and development, which represented 7.7% of its revenues. Jazz plans to continue
to invest significantly in research and development activities to develop
advanced process technologies for new applications. As of March 28, 2008, Jazz
employed 61 professionals in its research and development department,
approximately 22 of whom hold Ph.D. degrees.
Jazz's research and development activities seek to upgrade and integrate
manufacturing technologies and processes. Although Jazz emphasizes firm-wide
participation in the research and development process, it maintains a central
research and development team primarily responsible for developing
cost-effective technologies that can serve the manufacturing needs of its
customers. A substantial portion of Jazz's research and development activities
are undertaken in cooperation with its customers and equipment vendors.
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INTELLECTUAL PROPERTY
Jazz's success depends in part on its ability to obtain patents, licenses
and other intellectual property rights covering and relating to wafer
manufacturing and production processes, semiconductor structures and other
structures fabricated on wafers. To that end, Jazz has acquired certain patents
and patent licenses and intends to continue to seek patents covering and
relating to wafer manufacturing and production processes, semiconductor
structures and other structures fabricated on wafers. As of March 28, 2008, Jazz
had 144 patents in force in the United States and 23 patents in force in foreign
countries. Jazz also had 21 pending patent applications in the United States, 22
pending patent applications in foreign countries and no patent pending
applications under the Patent Cooperation Treaty.
Jazz's issued patents have expiration dates ranging from 2008 to 2026.
Jazz considers its patent portfolio to be important to its business, but does
not view any single patent as material in relation to its overall revenues. Jazz
believes that its SiGe and BiCMOS portfolios are material to its business.
Patents within its SiGe portfolio expire at various times from 2020 to 2024.
Patents within its RF CMOS portfolio expire at various times from 2018 to 2024.
Patents within its BiCMOS portfolio expire at various times from 2008 to 2024.
Jazz's expired patents generally related to legacy technologies that were
developed by its predecessors, namely Rockwell. Due to the rapid pace of
technological changes and advancement in the field of semiconductor fabrication
and processing, Jazz does not believe that the expiration of these patents
materially affects its competitive position.
Jazz has entered into various patent licenses. For example, Jazz
Semiconductor entered into a technology license agreement under which it
licensed to ASMC, without the right to sublicense, CMOS, RF CMOS, BiCMOS and
SiGe BiCMOS process technologies and engineering assistance, for use in
connection with its manufacture of wafers for Jazz Semiconductor. Jazz
Semiconductor also licensed its process technologies, patents and know how
relating to the production of certain CMOS and RF CMOS wafers to HHNEC for its
own use and certain RF CMOS and SiGe BiCMOS process technologies for use solely
in connection with the manufacture of wafers for Jazz Semiconductor, in each
case without the right to sublicense.
Jazz Semiconductor entered into a technology license agreement that grants
to it worldwide perpetual license rights from PolarFab regarding certain process
technologies that it intends to incorporate into its BCD process technologies
for the manufacture of wafers by Jazz for its customers and customers of
PolarFab. Jazz Semiconductor also entered into an associated technology transfer
agreement for such processes. Jazz is able to adapt, prepare derivatives based
on, or otherwise exploit the licensed technology, however, Jazz is restricted
from using certain licensed BCD process technologies with respect to motor
controllers for hard disk drives. Jazz is also able to sublicense the process
technologies to ASMC, HHNEC and any of its future manufacturing suppliers to
manufacture for Jazz and its customers.
During 2004, Jazz Semiconductor entered into a cross license and release
agreement with an unrelated third party. The license includes technology
developed by the third party related to Jazz Semiconductor's manufacturing
process. In exchange for the license and release, Jazz Semiconductor agreed to
make certain payments through 2007. Jazz may choose to obtain additional patent
licenses or enter into additional patent cross-licenses in the future. However,
there can be no assurance as to whether future agreements will be reached or as
to the terms of any agreement that is consummated.
In connection with Jazz Semiconductor's separation from Conexant, Conexant
contributed to Jazz Semiconductor a substantial portion of its intellectual
property, including software licenses, patents and intellectual property rights
in know-how related to its business. Jazz Semiconductor agreed to license
intellectual property rights relating to the owned intellectual property
contributed to Jazz Semiconductor by Conexant back to Conexant and its
affiliates. Conexant may use this license to have Conexant products produced by
third-party manufacturers and to sell such products, but must obtain Jazz
Semiconductor's prior consent to sublicense these rights for the purpose of
enabling that third party to provide semiconductor fabrication services to
Conexant.
In connection with Jazz Semiconductor's formation, Conexant granted to
Jazz Semiconductor non-exclusive, royalty-free licenses:
o in patents and process technology materials for use at its facilities in
order to produce, sell, develop and improve semiconductor wafers and
devices;
o to use the design kits that Jazz Semiconductor offers to its customers;
and
o to certain other intellectual property used in Jazz Semiconductor's
business.
The agreement provides that in no event will Jazz Semiconductor's or
Conexant's aggregate liability to the other exceed $5.0 million, nor will Jazz
Semiconductor or they be liable for consequential or incidental damages. Because
the amount of Conexant's indemnity obligation to Jazz Semiconductor is capped,
it may not be sufficient to cover all damages Jazz might have to pay, or other
costs Jazz may incur in connection with the agreement.
81
Prior to Jazz Semiconductor's separation from Conexant, Conexant entered
into a long-term licensing agreement with Taiwan Semiconductor Manufacturing
Company under which Taiwan Semiconductor Manufacturing Company licensed from
Conexant the right to manufacture semiconductors using Conexant's then existing
0.18 micron or greater SiGe BiCMOS process technologies.
Jazz's ability to compete depends on its ability to operate without
infringing the proprietary rights of others. The semiconductor industry is
generally characterized by frequent litigation regarding patent and other
intellectual property rights. As is the case with many companies in the
semiconductor industry, Jazz has from time to time received communications from
third parties asserting that their patents cover certain of its technologies or
alleging infringement of their other intellectual property rights. Jazz expects
that it will receive similar communications in the future. Irrespective of the
validity or the successful assertion of such claims, Jazz could incur
significant costs and devote significant management resources to the defense of
these claims, which could seriously harm the Company. There is no material
litigation involving an infringement claim currently pending against Jazz.
ENVIRONMENTAL MATTERS
Semiconductor manufacturing processes generate solid, gaseous, liquid and
other industrial wastes in various stages of the manufacturing process. Jazz has
installed various types of pollution control equipment in its fab to reduce,
treat and, where feasible, recycle the wastes generated in its manufacturing
process. Jazz's operations are subject to strict regulation and periodic
monitoring by the United States Environmental Protection Agency along with
several state and local environmental agencies.
Jazz has implemented an environmental management system that assists Jazz
in identifying applicable environmental regulations, evaluating compliance
status and establishing timely waste preventive measures. Jazz has also obtained
certification for implementing the standard requirements of ISO 14001:2004. ISO
14001 consists of a set of standards that provide guidance to the management of
organizations to achieve an effective environmental management system.
Jazz believes that it has adopted pollution measures for the effective
maintenance of environmental protection standards substantially consistent with
U.S. federal, state and local environmental regulations. Jazz also believes that
it is currently in material compliance with applicable environmental laws and
regulations.
EMPLOYEES
As of March 28, 2008, Jazz had 719 employees, which included 599 employees
in manufacturing, 61 employees in research and development and 59 employees
performing sales, marketing and administrative functions. Of the total
employees, 713 were full-time and 6 were part-time employees.
As of March 28, 2008, 316 of Jazz's employees are covered by a collective
bargaining agreement and are members of the International Brotherhood of
Electrical Workers. Jazz believes that it has a good relationship with all of
its employees.
RISK MANAGEMENT AND INSURANCE
As part of its risk management program, Jazz surveyed its buildings and
fab for resistance to potential earthquake damage. As a result of this survey,
Jazz implemented additional measures to minimize its fab's exposure to potential
damage caused by future earthquakes and seismically qualified its fab for a high
magnitude earthquake.
Jazz maintains industrial special risk insurance for its facilities,
equipment and inventories that covers physical damage and consequential losses
from natural disaster and certain other risks up to the policy limits and except
for exclusions as defined in the policies. Jazz also maintains public liability
insurance for losses to others arising from its business operations and carries
insurance for business interruption resulting from such events and if its
suppliers are unable to provide Jazz with supplies. While Jazz believes that its
insurance coverage is adequate and consistent with industry practice,
significant damage to any of its or its manufacturing suppliers' production
facilities, whether as a result of fire or other causes, could seriously harm
its business and results of operations.
JAZZ'S PROPERTIES
Jazz's headquarters and manufacturing facilities are located in Newport
Beach, California. Jazz leases the use of these facilities from Conexant under
non-cancellable operating leases that expire March 12, 2017 and it has the
option to extend each lease for two consecutive five-year periods after March
12, 2017. Pursuant to the merger agreement, Jazz and Conexant have executed
amendments to the leases, which were effective upon completion of the
acquisition of Jazz Semiconductor. Under the amendments, Jazz's headquarters
office may be relocated one time no earlier than 12 months from the completion
of the acquisition of Jazz Semiconductor to another building within one mile of
its current location at Conexant's option and expense, subject to certain
conditions. Jazz also leases from third-parties office facilities in Shanghai,
China.
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The following table provides certain information as to Jazz's principal
general offices, manufacturing and warehouse facilities:
PROPERTY LOCATION USE FLOOR SPACE
- -------------------------- --------------------------------- -------------------
Newport Beach, California Headquarters office 68,227 square feet
Newport Beach, California Manufacturing facility 320,510 square feet
Shanghai, China Research and development facility 8,813 square feet
Jazz expects these office and warehouse facilities to be adequate for its
business purposes through 2008 and Jazz expects additional space to be available
to use on commercially reasonable terms at that time. Consistent with Jazz's
manufacturing strategy, Jazz plans to add manufacturing capacity as needed by
expanding its existing manufacturing supply relationships, entering into new
manufacturing supply relationships or acquiring existing manufacturing
facilities.
LEGAL PROCEEDINGS
Jazz is not currently involved in material litigation or other
proceedings. As is the case with many companies in the semiconductor industry,
Jazz has from time to time received notices alleging infringement of
intellectual property rights of others and breach of warranties.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF JAZZ
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF JAZZ SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES AS WELL AS OTHER INFORMATION
APPEARING ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE
INFORMATION IN THE SECTION ENTITLED "RISK FACTORS RELATING TO THE MERGER."
OVERVIEW
THE COMPANY
Jazz was incorporated in Delaware on August 12, 2005. Jazz was formed to
serve as a vehicle for the acquisition of one or more domestic and/or foreign
operating businesses through a merger, capital stock exchange, stock purchase,
asset acquisition or other similar business combination.
Jazz is based in Newport Beach, California and following the acquisition
of Jazz Semiconductor, Jazz became an independent semiconductor foundry focused
on specialty process technologies for the manufacture of analog intensive
mixed-signal semiconductor devices. Jazz's specialty process technologies
include advanced analog, radio frequency, high voltage, bipolar and SiGe
semiconductor processes, for the manufacture of analog and mixed-signal
semiconductors. Jazz's customer's analog and mixed-signal semiconductor devices
are used in cellular phones, wireless local area networking devices, digital
TVs, set-top boxes, gaming devices, switches, routers and broadband modems.
ACQUISITION OF JAZZ SEMICONDUCTOR
On February 16, 2007, Jazz completed the acquisition of all of the
outstanding capital stock of Jazz Semiconductor for $262.4 million in cash, and
acquired, as part of the assets of Jazz Semiconductor, $26.1 million in cash.
The audited consolidated financial statements include the results of operations
for Jazz Semiconductor following the date of acquisition. The acquisition was
accounted for under the purchase method of accounting in accordance with U.S.
generally accepted accounting principles for accounting and financial reporting
purposes. Under this method, Jazz Semiconductor was treated as the "acquired"
company. In connection with the acquisition, Jazz adopted Jazz Semiconductor's
fiscal year. In July 2007, Jazz entered into an agreement with the former Jazz
Semiconductor stockholders that reduced the purchase price by $9.3 million to
$253.1 million. The reduction has been reflected in the accompanying
consolidated financial statements.
Prior to March 12, 2002, Jazz Semiconductor's business was Conexant's
Newport Beach, California semiconductor fabrication operations. Jazz
Semiconductor's business was formed upon Conexant's contribution of those
fabrication operations to its wholly-owned subsidiary, Newport Fab, LLC and
Conexant's contribution of Newport Fab, LLC to Jazz Semiconductor, together with
a cash investment in Jazz Semiconductor by affiliates of The Carlyle Group.
Conexant and affiliates of The Carlyle Group continued to be the largest
stockholders of Jazz Semiconductor until its acquisition in February 2007.
Substantially all of Jazz Semiconductor's business operation was conducted by
its wholly-owned subsidiary, Newport Fab, LLC. Since its formation in early
2002, Jazz Semiconductor has transitioned its business from a captive
manufacturing facility within Conexant to an independent semiconductor foundry.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
ESTIMATES
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
net revenues and expenses in the reporting period. Jazz regularly evaluates
estimates and assumptions related to allowances for doubtful accounts, sales
returns allowances, inventory reserves, valuation of acquired assets and
liabilities, determination of asset lives for depreciation and amortization,
asset impairment assumptions, income taxes, stock compensation, post-retirement
medical plan and pension plan. Jazz bases its estimates and assumptions on
current facts, historical experience and various other factors that Jazz
believes to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
and the accrual of costs and expenses that are not readily apparent from other
sources. Accordingly, the actual results may differ materially and adversely
from its estimates. To the extent there are material differences between the
estimates and the actual results, future results of its operations will be
affected.
REVENUE RECOGNITION
Jazz's net revenues are generated principally by sales of semiconductor
wafers. Jazz derives the remaining balance of its net revenues from the resale
of photomasks and other engineering services. The majority of its sales occur
through the efforts of its direct sales force.
84
In accordance with SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements" ("SAB No. 101"), and SAB No. 104, "Revenue
Recognition" ("SAB No. 104"), Jazz recognizes product revenues when the
following fundamental criteria are met: (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred or services have been rendered,
(iii) the price to the customer is fixed or determinable and (iv) collection of
the resulting receivable is reasonably assured. These criteria are usually met
at the time of product shipment. However, Jazz does not recognize revenues until
all customer acceptance requirements have been met, when applicable.
Revenues for engineering services are recognized ratably over the contract
term or as services are performed. Revenues from contracts with multiple
elements are recognized as each element is earned based on the relative fair
value of each element and when there are no undelivered elements that are
essential to the functionality of the delivered elements and when the amount is
not contingent upon delivery of the undelivered elements. Advances received from
customers towards future engineering services, product purchases and in some
cases capacity reservation are deferred until products are shipped to the
customer, services are rendered or the capacity reservation period ends.
Jazz provides for sales returns and allowances relating to specific yield
or quality commitments as a reduction of revenues at the time of shipment based
on historical experience and specific identification of an event necessitating
an allowance. Actual allowances given have been within management's
expectations.
ACCOUNTS RECEIVABLE
Jazz performs ongoing credit evaluations of its customers and adjusts
credit limits based upon payment history and the customer's current credit
worthiness, as determined by its review of their current credit information.
Jazz monitors collections and payments from its customers and maintains an
allowance for doubtful accounts based upon historical experience, industry norms
and specific customer collection issues that it has identified. While Jazz's
credit losses have historically been within its expectations and the allowance
established, Jazz may not continue to experience the same credit loss rates as
it has in the past. Jazz's accounts receivable are concentrated among a
relatively small number of customers. Should there be a significant change in
the liquidity or financial position of any one customer, resulting in an
impairment of its ability to make payments, Jazz may be required to increase the
allowance for doubtful accounts, which could have a material adverse impact on
its consolidated financial position, results of operations and cash flows.
INVENTORIES
Jazz initiates production of a majority of its wafers once is has received
an order from a customer. Jazz generally does not carry a significant inventory
of finished goods except in response to specific customer requests or if it
determines to produce wafers in excess of orders because it forecasts future
excess demand and capacity constraints. Jazz seeks to purchase and maintain raw
materials at sufficient levels to meet lead times based on forecasted demand. If
forecasted demand exceeds actual demand, Jazz may need to provide an allowance
for excess or obsolete quantities on hand. Jazz also reviews its inventories for
indications of obsolescence or impairment and provides reserves as deemed
necessary. Jazz scraps inventory that has been written down after it is
determined that it cannot be sold. If actual market conditions are less
favorable than those projected by management, additional inventory reserves may
be required. Jazz states its inventories at the lower of cost, using the
first-in, first-out method, or market.
IMPAIRMENT OF ASSETS
The amounts and useful lives assigned to intangible assets acquired impact
the amount and timing of future amortization. The value of Jazz's intangible
assets could be impacted by future adverse changes such as: (i) future declines
in Jazz's operating results, (ii) a decline in its stock price, (iii) a
significant slowdown in the semiconductor industry, or (iv) any failure to meet
its projected performance of future operating results. Jazz periodically reviews
long-lived assets and intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable. If an asset is considered to be impaired, the impairment loss is
recognized immediately and is considered to be the amount by which the carrying
amount of the asset exceeds its fair value. Jazz does not have any intangible
assets with indefinite useful lives.
Jazz conducted its impairment review as of March 28, 2008, due to the
recent decline in its stock price. Jazz used the income approach methodology of
valuation that includes undiscounted cash flows to determine the fair value of
its intangible assets. Significant management judgment is required in the
forecasts of future operating results used for this methodology. These estimates
are consistent with the plans and forecasts Jazz uses to conduct its business.
As a result of this analysis, no assets were considered to be impaired and Jazz
has not recognized any impairment loss for any long-lived or intangible asset as
of March 28, 2008.
85
ACCOUNTING FOR INCOME TAXES
Effective January 1, 2007, Jazz adopted FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109" ("FIN No. 48"). Jazz is subject to U.S. federal income tax as
well as income tax in multiple state and foreign jurisdictions. Jazz believes
its tax return positions are fully supported, but tax authorities may challenge
certain positions, which may not be fully sustained. Jazz assesses its income
tax positions and record tax benefits for all years subject to examination based
upon its evaluation of the facts, circumstances, and information available at
the reporting date. For uncertain tax positions where it is more likely than not
that a tax benefit will be sustained, Jazz records the greatest amount of tax
benefit that has a greater than 50 percent probability of being realized upon
effective settlement with a taxing authority that has full knowledge of all
relevant information. For uncertain income tax positions where it is not more
likely than not that a tax benefit will be sustained, no tax benefit has been
recognized in the financial statements. Jazz's policy is to recognize interest
and penalties that would be assessed in relation to the settlement value of
unrecognized tax benefits as a component of income tax expense.
Jazz accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes," ("SFAS No. 109"). SFAS No. 109 requires that it
recognizes in its consolidated financial statements:
o deferred tax assets and liabilities for the future tax consequences of
events that have been recognized in its consolidated financial
statements or its tax returns; and
o the amount of taxes payable or refundable for the current year.
The tax consequences of most events recognized in the current year's
financial statements are included in determining income taxes currently payable.
However, because tax laws and financial accounting standards differ in their
recognition and measurement of assets, liabilities, equity, revenues, expenses
and gains and losses, differences arise between the amount of taxable income and
pretax financial income for a year and between the tax bases of assets or
liabilities and their reported amounts in its financial statements. It is
assumed that the reported amounts of assets and liabilities will be recovered
and settled, respectively, in the future. Accordingly, a difference between the
tax basis of an asset or a liability and its reported amount on the balance
sheet will result in a taxable or a deductible amount in some future years when
the related liabilities are settled or the reported amounts of the assets are
recovered.
To determine the amount of taxes payable or refundable for the current
year, Jazz is required to estimate its income taxes. Jazz's effective tax rate
may be subject to fluctuations during the fiscal year as new information is
obtained, which may affect the assumptions it uses to estimate its annual
effective tax rate, including factors such as valuation allowances against
deferred tax assets, reserves for tax contingencies, utilization of tax credits
and changes in or interpretation of tax laws in jurisdictions where it conducts
operations.
Utilization of net operating losses, credit carryforwards, and certain
deductions may be subject to a substantial annual limitation due to ownership
change limitations provided by the Internal Revenue Code and similar state
provisions. The tax benefits related to future utilization of federal and state
net operating losses, tax credit carryforwards, and other deferred tax assets
may be limited or lost if cumulative changes in ownership exceed 50% within any
three-year period. Additional limitations on the use of these tax attributes
could occur in the event of possible disputes arising in examinations from
various tax authorities. Jazz is not currently under examination.
PENSION PLANS
Jazz maintains a defined benefit pension plan for its employees covered by
a collective bargaining agreement. For financial reporting purposes, the
calculation of net periodic pension costs is based upon a number of actuarial
assumptions, including a discount rate for plan obligations, an assumed rate of
return on pension plan assets and an assumed rate of compensation increase for
employees covered by the plan. All of these assumptions are based upon
management's judgment, considering all known trends and uncertainties. Actual
results that differ from these assumptions would impact future expense
recognition and cash funding requirements of its retirement plans.
STOCK BASED COMPENSATION
Jazz records equity compensation expense in accordance with SFAS No. 123
(revised 2004), "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R requires
companies to estimate the fair value of stock options on the date of grant using
an option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as expense ratably over the requisite
service periods. Jazz has estimated the fair value of stock options as of the
date of grant using the Black-Scholes option pricing model, which was developed
for use in estimating the value of traded options that have no vesting
restrictions and that are freely transferable. The Black-Scholes model
considers, among other factors, the expected life of the award and the expected
volatility of Jazz's stock price. Although the Black-Scholes model meets the
requirements of SFAS No. 123R and SAB No. 107, "Share-Based Payment" ("SAB No.
107"), the fair values generated by the model may not be indicative of the
actual fair values of Jazz's equity awards, as it does not consider other
factors important to those awards to employees, such as continued employment,
periodic vesting requirements, and limited transferability. Jazz estimates stock
price volatility based on historical volatility of its own stock price and its
peers. Jazz recognizes compensation expense using the straight-line amortization
method for stock-based compensation awards with graded vesting.
86
The key assumptions used in the Black-Scholes model in determining the
fair value of options granted during the three months ended March 28, 2008 are
as follows:
Expected life in years 6
Expected price volatility 43.90 - 45.10%
Risk-free interest rate 2.47 - 3.15%
Dividend yield 0.00%
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 28, 2008 AND MARCH 30, 2007
For the three months ended March 28, 2008, Jazz had a net loss of $4.0
million compared to a net loss of $11.7 million for the corresponding period in
2007. The results for the three months ended March 30, 2007 include the results
of operations for Jazz Semiconductor only from February 17, 2007 through March
30, 2007. Jazz's primary source of income prior to the consummation of the
initial business combination with Jazz Semiconductor on February 16, 2007, was
interest earned on the funds held in trust and escrow accounts.
PRO FORMA FINANCIAL INFORMATION
The acquisition of Jazz Semiconductor is Jazz's first business combination
and accordingly, Jazz does not think a comparison of the results of operations
and cash flows for the three months ended March 28, 2008 versus the
corresponding periods in 2007 is very useful to its investors. In order to
assist investors in better understanding the changes in its business between the
three months ended March 28, 2008 and March 30, 2007, Jazz is presenting in the
discussion below pro forma results for Jazz and Jazz Semiconductor for the three
months ended March 30, 2007, as if the acquisition of Jazz Semiconductor
occurred on January 1, 2007. Jazz derived the pro forma results from (i) the
unaudited condensed consolidated financial statements of Jazz Semiconductor for
the period from December 30, 2006 to February 16, 2007 (the date of the Jazz
acquisition) and Jazz's unaudited condensed consolidated financial statements
for the three months ended March 30, 2007.
The pro forma results are not necessarily indicative of the results that
may have actually occurred had the acquisition taken place on the date noted, or
the future financial position or operating results of Jazz or Jazz
Semiconductor. The pro forma results exclude the write-off of in-process
research and development that was expensed during the three months ended March
30, 2007. The pro forma adjustments are based upon available information and
assumptions that Jazz believes are reasonable. The pro forma adjustments include
adjustments for interest expenses (relating primarily to interest on the 8%
Convertible Senior Notes due 2011 (referred to as the "convertible notes")
issued in December 2006) and increased depreciation and amortization expense as
a result of the application of the purchase method of accounting.
Under the purchase method of accounting, the total purchase price is
allocated to the net tangible and intangible assets acquired and liabilities
assumed, based on various estimates of their respective fair values. Jazz
performed a valuation of all the assets and liabilities in accordance with SFAS
141. The depreciation and amortization expense adjustments reflected in the pro
forma results of operations are based on the final valuation of Jazz
Semiconductor's tangible and intangible assets described in Note 3 to Jazz's
unaudited condensed consolidated financial statements for the three months ended
March 28, 2008, included elsewhere in this proxy statement/prospectus.
STATEMENTS OF OPERATIONS
(US$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------
THREE MONTHS ENDED
--------------------------------------------
MARCH 28, 2008 MARCH 30, 2007
(ACTUAL, UNAUDITED) (PRO FORMA, UNAUDITED)
------------------- ----------------------
Net revenues $ 50,830 $ 48,096
Cost of revenues 43,385 51,630
------------------- ----------------------
Gross profit 7,445 (3,534)
Operating expenses:
Research and development 3,910 4,979
Selling, general and administrative 4,964 10,239
Amortization of intangible assets 346 541
------------------- ----------------------
Total operating expenses 9,220 15,759
------------------- ----------------------
Loss from operations (1,775) (19,293)
Net interest expense 3,169 1,370
Other (income) expenses (900) 113
------------------- ----------------------
Net loss $ (4,044) $ (20,776)
=================== ======================
Pro forma net loss per share - basic and
diluted $ (0.22) $ (0.69)
=================== ======================
87
REVENUES
Jazz's revenues are generated principally from the sale of semiconductor
wafers and in part from the sale of photomasks and other engineering services.
Net revenues are net of provisions for returns and allowances. Revenues are
categorized by technology group into specialty process revenues and standard
process revenues. Specialty process revenues include revenues from wafers
manufactured using Jazz's specialty process technologies-advanced analog CMOS,
radio frequency CMOS or RF CMOS, high voltage CMOS, bipolar CMOS or BiCMOS, SiGe
BiCMOS, and bipolar CMOS double-diffused metal oxide semiconductor or BCD,
processes. Standard process revenues are revenues derived from wafers employing
digital CMOS and standard analog process technologies.
The following table presents net revenues for the three months ended March
28, 2008 and March 30, 2007:
NET REVENUES (US$ IN THOUSANDS, EXCEPT PERCENTAGES)
--------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 28, 2008 MARCH 30, 2007
(ACTUAL, UNAUDITED) (PRO FORMA, UNAUDITED)
------------------- ----------------------
% OF PRO
% OF NET FORMA NET INCREASE
AMOUNT REVENUES AMOUNT REVENUES (DECREASE) % CHANGE
------- -------- -------- --------- --------- --------
Specialty Process Revenues $39,184 77.1 $ 38,458 80.0 $ 726 1.9
Standard Process Revenues 11,646 22.9 9,638 20.0 2,008 20.8
Net Revenues $50,830 100.0 $ 48,096 100.0 $ 2,734 5.7
Jazz's net revenues increased by $2.7 million or 5.7% to $50.8 million for
the three months ended March 28, 2008 compared to $48.1 million of pro forma
revenues for the corresponding period in 2007. This increase is the result of a
$0.7 million or 1.9% increase in specialty process net revenues to $39.2 million
for the three months ended March 28, 2008 from $38.5 million of pro forma
specialty process revenues for the corresponding period in 2007 and a $2.0
million or 20.8% increase in standard process net revenues to $11.6 million for
the three months ended March 28, 2008, from $9.6 million of pro forma standard
process revenues for the corresponding period in 2007.
The increase in standard process revenues, and the change in revenue mix,
can be attributed in large part to the increase in orders from a single large
customer, whose purchases of Jazz's products have predominantly been standard
process wafers. Although revenues from Jazz's standard process technologies
increased for the 2008 first quarter due to the overall semiconductor industry
cycle, it has generally declined and Jazz believes this is attributable to some
of its customers transitioning new standard process designs to foundries that
focus on high volume and commodity oriented technologies and pricing, demand for
standard process technology from other new customers helped offset this decline.
The marginal increase in specialty process revenues can be mainly
attributed in part to stronger demand from some of Jazz's larger customers and
in part to changes in Jazz's customer mix for three months ended March 28, 2008
compared to the corresponding period in 2007.
Once the market strengthens, Jazz believes it will see standard process
and specialty process revenues stabilize or grow moderately quarter over
quarter. However, the semiconductor market is cyclical, and Jazz does not know
when the market will begin to improve.
The change in revenues mix of 77% specialty process revenues and 23%
standard process revenues for the three months ended March 28, 2008 compared to
80% and 20%, respectively, for the corresponding period in 2007, was largely the
result of an increase in standard process revenues primarily attributable to a
single customer. While Jazz intends to continue to offer full service solutions
to its customer base, it believes its competitive advantage is to focus on
specialty process revenues.
COST OF REVENUES
Cost of revenues consists primarily of purchased manufactured materials,
labor, manufacturing-related overheads and engineering services. Purchased
manufactured materials consists primarily of purchase price of raw wafers and
shipping costs incurred. Cost of revenues also includes the purchase of
photomasks, provision for test services and the cost of defective inventory
caused by fab and manufacturing yields as incurred. Jazz reviews its inventories
for indications of obsolescence or impairment and provide reserves as deemed
necessary. Royalty expenses incurred in connection with certain of Jazz's
process technologies, and depreciation and amortization expense on assets used
in the manufacturing process are also included within the cost of revenues.
88
The following table presents cost of revenues for the three months ended
March 28, 2008 and March 30, 2007:
COST OF REVENUES (US$ IN THOUSANDS, EXCEPT PERCENTAGES)
--------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 28, 2008 MARCH 30, 2007
(ACTUAL, UNAUDITED) (PRO FORMA, UNAUDITED)
------------------- ----------------------
% OF PRO
% OF NET FORMA NET INCREASE
AMOUNT REVENUES AMOUNT REVENUES (DECREASE) % CHANGE
-------- -------- -------- --------- ---------- --------
Cost of revenues (not including
depreciation & amortization of
intangible assets) $ 34,893 68.7 $ 42,574 88.5 $ (7,681) (18.0)
Cost of revenues - depreciation &
amortization of intangible assets 8,492 16.7 9,056 18.8 (564) (6.2)
-------- -------- -------- --------- ---------- --------
Total cost of revenues $ 43,385 85.4 $ 51,630 107.3 $ (8,245) (16.0)
======== ======== ======== ========= ========== ========
Jazz's cost of revenues decreased by $8.2 million or 16.0% to $43.4
million for the three months ended March 28, 2008, compared to $51.6 million of
pro forma cost of revenues for the corresponding period in 2007. Cost of
revenues as a percentage of revenues decreased to 85.4% for the three months
ended March 28, 2008 compared to 107.3% (on a pro forma basis) for the
corresponding period in 2007.
The decrease was mainly due to higher fabrication capacity utilization and
to a lesser extent due to management's continued cost-cutting efforts since 2007
resulting in lower labor and overhead costs during the three months ended March
28, 2008 as compared to the corresponding period in 2007. The higher fabrication
capacity utilization resulted in a lower allocation of fixed production costs
per unit to inventory resulting in decreased cost per unit sold and
correspondingly, decreased cost of revenues during the three months ended March
28, 2008 compared to the corresponding period in 2007.
The amortization of acquired technology and backlog has been allocated to
cost of revenues and primarily relates to the developed technology acquired from
the acquisition of Jazz Semiconductor on February 16, 2007.
GROSS PROFIT
The following table presents gross profit for the three months ended March
28, 2008 and March 30, 2007:
GROSS PROFIT (US$ IN THOUSANDS, EXCEPT PERCENTAGES)
--------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 28, 2008 MARCH 30, 2007
(ACTUAL, UNAUDITED) (PRO FORMA, UNAUDITED)
------------------- ----------------------
% OF PRO
% OF NET FORMA NET INCREASE
AMOUNT REVENUES AMOUNT REVENUES (DECREASE) % CHANGE
-------- -------- -------- --------- ---------- --------
Gross profit $ 7,445 14.6 $ (3,534) (7.3) $ 10,979 (310.7)
======== ======== ======== ========= ========== ========
Jazz's gross profit for the three months ended March 28, 2008, was $7.4
million or 14.6% of net revenues compared to negative pro forma gross profit of
$3.5 million of pro forma revenues for the corresponding period in 2007. The
increase in gross profit of $11.0 million during the three months ended March
28, 2008 is primarily attributed to the increase in revenues, lower labor and
overhead costs and decreased cost per unit sold due to higher fabrication
capacity utilization.
OPERATING EXPENSES
Operating expenses decreased to $9.2 million for the three months ended
March 28, 2008, compared to $10.6 million for the corresponding period in 2007.
The decrease in expenses is mainly attributed to the Jazz Semiconductor
acquisition expenses incurred in 2007.
The following table presents operating expenses for the three months ended
March 28, 2008 and March 30, 2007:
OPERATING EXPENSE (US$ IN THOUSANDS, EXCEPT PERCENTAGES)
--------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 28, 2008 MARCH 30, 2007
(ACTUAL, UNAUDITED) (PRO FORMA, UNAUDITED)
------------------- ----------------------
% OF PRO
% OF NET FORMA NET INCREASE
AMOUNT REVENUES AMOUNT REVENUES (DECREASE) % CHANGE
-------- -------- -------- --------- ---------- --------
Research and development $ 3,910 7.7 $ 4,979 10.4 $ (1,069) (21.5)
Selling, general and administrative 4,964 9.7 10,239 21.3 (5,275) (51.5)
Amortization of intangible assets 346 0.7 541 1.1 (195) (36.0)
-------- -------- -------- --------- ---------- --------
Total operating expenses $ 9,220 18.1 $ 15,759 32.8 $ (6,539) (41.5)
======== ======== ======== ========= ========== ========
89
Jazz's operating expenses decreased by $6.5 million or 41.5% to $9.2
million for the three months ended March 28, 2008, compared to $15.7 million of
pro forma operating expenses for the corresponding period in 2007. The expense
decrease is mainly attributed to lower selling, general and administrative
expenses for the three months ended March 28, 2008, primarily as a result of
Jazz Semiconductor acquisition related general and administrative costs incurred
during the corresponding period in 2007 and management's continued efforts to
reduce operating expenses since 2007.
RESEARCH & DEVELOPMENT EXPENSES. Research and development expenses consist
primarily of salaries and wages for process and technology research and
development activities, fees incurred in connection with the license of design
libraries and the cost of wafers used for research and development purposes.
Jazz's research and development expenses decreased by $1.1 million or 21.5% to
$3.9 million for the three months ended March 28, 2008, compared to $5.0 million
of pro forma research and development expenses for the corresponding period in
2007. The decrease in expenses of $1.1 million is mainly attributed to:
o $0.5 million due to lower photomask and other costs associated with
less engineering activity;
o $0.4 million due to lower labor and benefits costs realized from the
reduction in work force implemented in the first quarter of 2007;
o $0.2 million due to lower spending and changes in allocation of other
expenses
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of salaries and benefits for selling
and administrative personnel, which includes the human resources, executive,
finance, information technology and legal departments. These expenses also
include fees for professional services, legal services and other administrative
expenses associated with being a publicly traded company. Jazz's selling,
general and administrative expenses decreased by $5.2 million or 51.5% to $5.0
million for the three months ended March 28, 2008, compared to $10.2 million of
pro forma selling, general and administrative expenses for the corresponding
period in 2007. The decrease in expenses of $5.2 million is mainly attributed
to:
o $3.0 million in acquisition-related expenses incurred by Jazz
Semiconductor during the first quarter of 2007 prior to the
acquisition;
o $2.0 million in costs associated with the reduction in personnel and
the departure of the former chief executive officer of Jazz
Semiconductor during the first quarter of 2007;
o $0.5 million from reduction in business travel, bad debt and
depreciation expenses; offset by,
o $0.2 million increase in stock compensation expenses
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets of
$0.2 million reflects the change in pre-acquisition amortization expenses.
INTEREST AND OTHER (EXPENSE) INCOME, NET
The following table presents interest and other income for the three
months ended March 28, 2008 and March 30, 2007:
INTEREST AND OTHER INCOME (EXPENSE), NET
(US$ IN THOUSANDS, EXCEPT PERCENTAGES)
--------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 28, 2008 MARCH 30, 2007
(ACTUAL, UNAUDITED) (PRO FORMA, UNAUDITED)
------------------- ----------------------
% OF PRO
% OF NET FORMA NET INCREASE
AMOUNT REVENUES AMOUNT REVENUES (DECREASE) % CHANGE
-------- -------- -------- --------- ---------- --------
Interest income $ 37 0.0 $ 2,130 4.4 $ (2,093) (98.3)
Interest expense (3,206) (6.3) (3,715) (7.7) 509 (13.7)
-------- -------- -------- --------- ---------- --------
Interest (expense) income, net (3,169) (6.3) (1,585) (3.3) (1,584) 100.0
Other income (expense), net 900 1.8 (108) (0.2) 1,008 (933.3)
-------- -------- -------- --------- ---------- --------
Interest and other (expense)
income, net $ (2,269) (4.5) $ (1,693) (3.5) $ (576) 34.0
======== ======== ======== ========= ========== ========
90
Interest and other income for the three months ended March 28, 2008
represents $0.8 million of net gain realized from the purchase of $5.0 million
in principal amount of Jazz's convertible notes at a discount and $0.1 million
of interest and other non-operating income. Interest expense for the three
months ended March 28, 2008 mainly represents interest on Jazz's convertible
notes. Interest and other income for the three months ended March 30, 2007
mainly represents interest earned on the net proceeds of Jazz's initial public
offering and the private placement of Jazz's convertible notes for the period
from January 1, 2007 until the consummation of its acquisition in February 2007.
Interest expense for the three months ended March 30, 2007 mainly represents
interest on the convertible notes.
COMPARISON OF YEARS ENDED DECEMBER 28, 2007 AND DECEMBER 31, 2006
For the year ended December 28, 2007, Jazz had a net loss of $31.9 million
compared to net income of $3.3 million for the year ended December 31, 2006. The
results for the year ended December 28, 2007 include the results of operations
for Jazz Semiconductor only from February 17, 2007 (the date of acquisition)
through December 28, 2007. Jazz's primary source of income prior to the
consummation of the initial business combination with Jazz Semiconductor was
interest earned on the funds held in trust and escrow accounts.
PRO FORMA FINANCIAL INFORMATION
The acquisition of Jazz Semiconductor was Jazz's first business
combination and accordingly, Jazz does not think a comparison of the results of
operations and cash flows for the year ended December 28, 2007 versus the year
ended December 31, 2006 is very useful to its investors. In order to assist
investors in better understanding the changes in Jazz's business between the
year ended December 28, 2007 and December 31, 2006, Jazz is presenting in the
discussion below, pro forma results for Jazz and Jazz Semiconductor for the
years ended December 28, 2007 and December 31, 2006 as if the acquisition of
Jazz Semiconductor occurred on January 1, 2006. Jazz derived the pro forma
results from (i) the consolidated financial statements of Jazz for the year
ended December 28, 2007 and the consolidated financial statements of Jazz
Semiconductor for the period from December 30, 2006 to February 16, 2007 (the
date of the acquisition), and (ii) the financial statements of Jazz for the year
ended December 31, 2006 and the consolidated financial statements of Jazz
Semiconductor for the year ended December 29, 2006.
The pro forma results are not necessarily indicative of the results that
may have actually occurred had the acquisition taken place on the dates noted,
or the future financial position or operating results of Jazz or Jazz
Semiconductor. The pro forma adjustments are based upon available information
and assumptions that Jazz believes are reasonable. The pro forma adjustments
include adjustments for interest expense (relating primarily to interest on the
convertible notes issued in December 2006) and increased depreciation and
amortization expense as a result of the application of the purchase method of
accounting. The pro forma results exclude the write-off of in-process research
and development that was expensed and the net gain on purchase of convertible
notes during the year ended December 28, 2007.
Under the purchase method of accounting, the total purchase price of the
Jazz Semiconductor acquisition was allocated to the net tangible and intangible
assets acquired and liabilities assumed, based on various estimates of their
respective fair values. Jazz engaged a third party appraiser to assist it in
performing a valuation of all the assets and liabilities in accordance with SFAS
141. The depreciation and amortization expense adjustments reflected in the pro
forma results of operations are based on the fair values of Jazz Semiconductor's
tangible and intangible assets described in Note 3 of Jazz's consolidated
financial statements for the year ended December 28, 2007, included elsewhere in
this proxy statement/prospectus.
PRO FORMA STATEMENTS OF OPERATIONS
(US$ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------
YEAR ENDED YEAR ENDED INCREASE
DECEMBER 28, 2007 DECEMBER 31, 2006 (DECREASE) % CHANGE
----------------- ----------------- ---------- --------
Net revenues $ 207,649 $ 212,526 $ (4,877) (2.3)
Cost of revenues 196,343 203,714 (7,371) (3.6)
Gross profit 11,306 8,812 2,494 28.3
Operating expenses:
Research and development 17,105 20,566 (3,461) (16.8)
Selling, general and administrative 25,688 24,155 1,533 6.3
Amortization of intangible assets 1,564 1,955 (391) (20.0)
Total operating expenses 44,357 46,676 (2,319) (5.0)
Loss from operations (33,051) (37,864) 4,813 12.7
Net interest expense 11,269 8,270 2,999 36.3
Other (income) expenses (4,719) 933 (5,652) (605.8)
----------------- ----------------- ----------
Net loss before income tax $ (39,601) $ (47,067) $ 7,466 15.9
----------------- ----------------- ----------
Income tax provision 52 543 (491) (90.4)
Net loss $ (39,653) $ (47,610) $ 7,957 20.0
----------------- ----------------- ----------
Pro forma net loss per share-basic and diluted $ (1.64) $ (2.10) $ 0.46 21.9
----------------- ----------------- ----------
91
REVENUES
Jazz's revenues are generated principally from the sale of semiconductor
wafers and in part from the sale of photomasks and other engineering services.
Net revenues are net of provisions for returns and allowances. Revenues are
categorized by technology group into specialty process revenues and standard
process revenues. Specialty process revenues include revenues from wafers
manufactured using Jazz's specialty process technologies-advanced analog CMOS,
radio frequency CMOS or RF CMOS, high voltage CMOS, bipolar CMOS or BiCMOS, SiGe
BiCMOS, and bipolar CMOS double-diffused metal oxide semiconductor or BCD,
processes. Standard process revenues are revenues derived from wafers employing
digital CMOS and standard analog process technologies.
Prior to its acquisition of Jazz Semiconductor, Jazz had no revenues.
PRO FORMA NET REVENUES
The following table presents pro forma net revenues for the years ended
December 28, 2007 and December 31, 2006:
PRO FORMA NET REVENUES (US$ IN THOUSANDS, EXCEPT PERCENTAGES)
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 28, 2007 DECEMBER 31, 2006
-------------------------- --------------------------
% OF PRO FORMA % OF PRO FORMA INCREASE
AMOUNT NET REVENUES AMOUNT NET REVENUES (DECREASE) % CHANGE
--------- -------------- --------- -------------- ---------- --------
Specialty process revenues $ 161,912 78.0 $ 168,297 79.2 $ (6,385) (3.8)
Standard process revenues 45,737 22.0 44,228 20.8 1,509 3.4
--------- -------------- --------- -------------- ---------- --------
Net Revenues $ 207,649 100.0 $ 212,525 100.0 $ (4,876) (2.3)
--------- -------------- --------- -------------- ---------- --------
On a pro forma basis, Jazz posted a decrease in net revenues of $4.9
million or 2.3% from $212.5 million for the year ended December 31, 2006, which
includes a charge to revenues of $17.5 million for termination of the Conexant
wafer supply agreement, to $207.6 million for the corresponding period in 2007.
This decrease is the result of a $6.4 million or 3.8% decrease in specialty
process revenues from $168.3 million for year ended December 31, 2006 to $161.9
million for the corresponding period in 2007 offset by a marginal increase in
standard process revenues of $1.5 million or 3.4% from $44.2 million for the
year ended December 31, 2006 to $45.7 million for the corresponding period in
2007. Standard process revenues in 2006 included a second quarter charge against
revenues of $17.5 million in connection with the termination of the Conexant
wafer supply agreement. Excluding this charge, the standard process revenues for
the year ended 2006 were $61.7 million or 26.8% compared to $45.7 million or
22.0% for the corresponding period in 2007, a decline of $16.0 million or 25.9%.
The decline in pro forma standard process revenues can be attributed in
large part to the decline in orders from a single large customer, whose
purchases of Jazz products have predominantly been standard process wafers and
whose standard process technology products have reached a mature stage in their
product life cycle. Jazz also believes the decline in revenues from Jazz's
standard process technologies is attributable in part to some of its customers
transitioning new standard process designs to foundries that focus on high
volume and commodity oriented technologies and pricing. Standard process demand
from certain other customers helped offset this decline.
The decline in specialty process revenues can be mainly attributed to the
overall semiconductor industry cycle which resulted in weaker demand from some
of its larger customers and in part to changes in its customer mix.
The change in pro forma revenues mix of 78% specialty process revenues and
22% standard process revenues for the year ended December 28, 2007 compared to
79% and 21%, respectively, for the year ended December 31, 2006, was the result
of a continued decline in standard process revenues primarily attributable to a
single customer. While Jazz intends to continue to offer full service solutions
to its customer base, Jazz believes its competitive advantage is to focus on
specialty process revenues.
92
COST OF REVENUES
Cost of revenues consists primarily of purchased manufactured materials,
including the cost of raw wafers, gases and chemicals, shipping costs, labor and
manufacturing-related engineering services. Jazz's cost of revenues for wafers
manufactured by its manufacturing suppliers includes the purchase price and
shipping costs that Jazz pays for completed wafers. Cost of revenues also
includes the purchase of photomasks and the provision of test services. Jazz
expenses to cost of revenues defective inventory caused by fab and manufacturing
yields as incurred. Jazz also reviews its inventories for indications of
obsolescence or impairment and provide reserves as deemed necessary. Royalty
payments Jazz makes in connection with certain of its process technologies are
also included within the cost of revenues. Cost of revenues also includes
depreciation and amortization expense on assets used in the manufacturing
process.
Prior to its acquisition of Jazz Semiconductor, Jazz had no cost of
revenues.
PRO FORMA COST OF REVENUES
The following table presents pro forma cost of revenues for the years
ended December 28, 2007 and December 31, 2006:
PRO FORMA NET REVENUES (US$ IN THOUSANDS, EXCEPT PERCENTAGES)
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 28, 2007 DECEMBER 31, 2006
-------------------------- --------------------------
% OF PRO FORMA % OF PRO FORMA INCREASE
AMOUNT NET REVENUES AMOUNT NET REVENUES (DECREASE) % CHANGE
--------- -------------- --------- -------------- ---------- --------
Cost of revenues (not including
depreciation & amortization of
intangible assets) $ 159,413 76.8 $ 166,105 78.2 $ (6,692) (4.0)
Cost of revenues-depreciation &
amortization of intangible
assets 36,930 17.8 37,609 17.7 (679) (1.8)
---------
Total cost of revenues $ 196,343 94.6 $ 203,714 95.9 $ (7,371) (3.6)
--------- -------------- --------- -------------- ---------- --------
On a pro forma basis, cost of revenues decreased by $7.4 million or 3.6%
to $196.3 million for the year ended December 28, 2007, compared to $203.7
million for the year ended December 31, 2006, primarily due to the decrease in
pro forma revenues. As a percentage of revenues, pro forma cost of revenues
marginally decreased to 94.6% for the year ended December 28, 2007 compared to
95.9% for the year ended December 31, 2006, which includes the $17.5 million
charge against revenue and a $1.2 million credit to cost of revenue in the
second quarter of 2006 related to the termination of the Conexant wafer supply
agreement. Discounting the effect of the net charge of $16.3 million associated
with the termination of the Conexant wafer supply agreement, cost of revenues as
a percentage of revenues for the year ended December 31, 2006 was 89.0% compared
to 94.6% for the year ended December 28, 2007.
Market conditions and lower customer demand created under utilization in
the first half of 2007. In response, a company wide cost reduction effort was
implemented and the resulting reduction in costs brought operations costs closer
in line with utilization and revenue levels. Additionally, the mix of customers
and products delivered in 2007 compared to 2006 also resulted in an increase in
cost of revenues as a percentage of revenues. The combination of change in
customer mix and under utilization, partially offset by cost reduction efforts,
resulted in overall higher cost of revenues as a percentage of revenues,
compared to 2006 excluding the effect of the termination of the Conexant wafer
supply agreement.
The amortization of acquired technology and backlog has been allocated to
cost of revenues and primarily relates to the developed technology acquired from
the acquisition of Jazz Semiconductor on February 16, 2007.
GROSS PROFIT
Prior to its acquisition of Jazz Semiconductor, Jazz had no gross profit.
PRO FORMA GROSS PROFIT
The following table presents pro forma gross profit for the years ended
December 28, 2007 and December 31, 2006:
PRO FORMA NET REVENUES (US$ IN THOUSANDS, EXCEPT PERCENTAGES)
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 28, 2007 DECEMBER 31, 2006
-------------------------- --------------------------
% OF PRO FORMA % OF PRO FORMA INCREASE
AMOUNT NET REVENUES AMOUNT NET REVENUES (DECREASE) % CHANGE
--------- -------------- --------- -------------- ---------- --------
Gross profit $ 11,306 5.4 $ 8,812 4.1 $ 2,494 28.3
--------- -------------- --------- -------------- ----------
93
On a pro forma basis for the year ended December 28, 2007, gross margin
increased to $11.3 million compared to a gross margin of $8.8 million for the
year ended December 31, 2006. The increase in gross profit of $2.5 million is
primarily attributed to the $17.5 million charge against revenues and a $1.2
million credit to cost of revenues in the second quarter of 2006 related to the
termination of the Conexant wafer supply agreement. Discounting the effect of
the net charge of $16.3 million associated with the termination of the Conexant
wafer supply agreement, gross profit as a percent of revenues decreased to 5.4%
for the year ended December 28, 2007 compared to 10.9% for the year ended
December 31, 2006. The decrease is primarily attributable to lower revenues and
higher cost of revenues associated with lower capacity utilization and customer
mix during the year ended December 28, 2007.
OPERATING EXPENSES
Operating expenses increased to $40.5 million for the year ended December
28, 2007, compared to $0.7 million for the year ended December 31, 2006. The
expense increase is attributed to the acquisition of Jazz Semiconductor on
February 16, 2007.
PRO FORMA OPERATING EXPENSES
The following table presents pro forma operating expenses for the years
ended December 28, 2007 and December 31, 2006:
PRO FORMA NET REVENUES (US$ IN THOUSANDS, EXCEPT PERCENTAGES)
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 28, 2007 DECEMBER 31, 2006
-------------------------- --------------------------
% OF PRO FORMA % OF PRO FORMA INCREASE
AMOUNT NET REVENUES AMOUNT NET REVENUES (DECREASE) % CHANGE
--------- -------------- --------- -------------- ---------- --------
Research and development $ 17,105 8.2 $ 20,566 9.7 (3,461) (16.8)
Selling, general and
administrative 25,688 12.4 24,155 11.4 1,533 6.3
Amortization of intangible assets 1,564 0.8 1,955 0.9 (391) (20.0)
--------- -------------- --------- -------------- ----------
Total operating expenses $ 44,357 21.4 $ 46,676 22.0 (2,319) (5.0)
========= ============== ========= ============== ==========
On a pro forma basis, operating expenses decreased by $2.3 million to
$44.4 million for the year ended December 28, 2007, compared to $46.7 million
for the year ended December 31, 2006. The expense decrease is mainly attributed
to lower research and development expenses for the year ended December 28, 2007.
RESEARCH & DEVELOPMENT EXPENSES: Research and development expenses consist
primarily of salaries and wages for process and technology research and
development activities, fees incurred in connection with the license of design
libraries and the cost of wafers used for research and development purposes. Pro
forma research and development expenses decreased by $3.5 million to $17.1
million for the year ended December 28, 2007, compared to $20.6 million for the
year ended December 31, 2006. The decrease in expenses of $3.5 million is mainly
attributed to:
o $2.4 million of lower engineering expenses related to the Polar Fab
process qualification in 2006;
o $1.3 million lower expense on engineering activity including engineering
photomask as a result of customers delaying projects requiring engineering
services;
o $0.7 million reduced spending on software licensing, travel and other
miscellaneous services;
o $0.8 million reduced depreciation cost; offset by
o $1.7 million increase in other research and development expenditures as
lower costs were allocated to cost of revenues associated with billable
engineering services during the year ended December 28, 2007 compared to
the year ended December 31, 2006;
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses consist primarily of salaries and benefits for selling
and administrative personnel, including the human resources, executive, finance
and legal departments. These expenses also include fees for professional
services, legal services and other administrative expenses associated with being
a publicly traded company. Pro forma selling, general and administrative
expenses increased by $1.5 million to $25.7 million for the year ended December
28, 2007, compared to $24.2 million for the year ended December 31, 2006. The
increase in expenses of $1.5 million is mainly attributed to:
94
o $2.0 million increase in salary, benefits and bonuses paid in 2007;
o $1.0 million increase in stock-based compensation expense; offset by
o $0.6 million net decrease in cost associated with the merger and the
withdrawn Jazz Semiconductor initial public offering in 2007 compared to
2006;
o $0.5 million decrease in expenses associated with professional services,
legal fees and lower bad debt provision; and
o $0.4 million reduction in depreciation.
AMORTIZATION OF INTANGIBLE ASSETS: The decrease in amortization of
intangible assets of $0.4 million reflects the change in pre-acquisition
amortization expenses.
INTEREST AND OTHER (EXPENSE) INCOME, NET
The following table presents interest and other income for the years ended
December 28, 2007 and December 31, 2006:
INTEREST AND OTHER INCOME (EXPENSE), NET
(US$ IN THOUSANDS, EXCEPT PERCENTAGES)
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 28, 2007 DECEMBER 31, 2006
-------------------------- --------------------------
% OF PRO FORMA % OF PRO FORMA INCREASE
AMOUNT NET REVENUES AMOUNT NET REVENUES (DECREASE) % CHANGE
--------- -------------- --------- -------------- ---------- --------
Interest income $ 3,022 1.6 $ 4,935 2.3 $ (1,913) (38.8)
Interest expense (14,507) (8.00) (487) (0.2) (14,020) -
Interest (expense) income, net (11,485) (6.20) 4,448 2.1 (15,933) (358.2)
Other income (expense), net 4,715 2.6 - - 4,715 -
--------- --------------
Interest and other (expense)
income, net $ (6,770) (3.7) $ 4,448 2.1 (11,218) (148.1)
--------- -------------- --------- ---------
Interest and other income for the year ended December 28, 2007 represents
$3.0 million interest earned as income from investments and $4.6 million of net
gain realized from the purchase of $33.6 million in principal amount of Jazz's
convertible notes at a discount. Interest expense of $14.5 million for the year
ended December 28, 2007 mainly represents interest on our convertible notes.
Interest and other income for the year ended December 31, 2006 mainly represents
interest earned on the net proceeds of Jazz's initial public offering held in
trust until the consummation of the acquisition of Jazz Semiconductor in
February 2007.
CHANGES IN FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
As of March 28, 2008, Jazz had cash and cash equivalents of $9.2 million.
Additionally, as of March 28, 2008, Jazz had borrowed $10.0 million under its
line of credit with Wachovia and had $34.0 million of additional availability
under this credit line. As of December 28, 2007, Jazz had cash and cash
equivalents of $10.6 million. Additionally, as of December 28, 2007, Jazz had
borrowed $8.0 million under its line of credit with Wachovia and had $37.1
million of availability under this credit line.
Net cash provided by operating activities was $2.4 million during the
first three months of 2008. The primary categories of operating activities for
the three months ended March 28, 2008 include Jazz's net loss of $4.0 million,
non-cash operating expenses of $9.2 million and the net use of funds from the
changes in operating assets and liabilities of $2.8 million. Net cash used by
operating activities was $13.6 million for the corresponding period in 2007. The
primary categories of operating activities for the corresponding period in 2007
include Jazz's net loss of $11.7 million, non-cash operating expenses of $9.3
million and the net use of funds from the changes in operating assets and
liabilities of $11.2 million.
Net cash used by investing activities was $1.6 million for the first three
months of 2008 and primarily represents capital purchases of equipment. Net cash
provided by investing activities was $113.6 million for the corresponding period
in 2007 and primarily represented the funds used for the acquisition of Jazz
Semiconductor and the purchase of property and equipment, net of proceeds from
the sale of short term securities and funds released from the trust and escrow
account. On February 16, 2007, Jazz completed the acquisition of all of the
outstanding capital stock of Jazz Semiconductor for a preliminary net purchase
price of $236.3 million in cash, net of $26.1 million of cash that was acquired.
Net cash used by financing activities was $2.2 million for the first three
months of 2008 and represents $2.0 million of additional net borrowings from
Jazz's line of credit, $4.1 million paid to purchase $5.0 million in principal
amount of convertible notes, and $0.1 million payment of fees associated with
the line of credit and debt offering. Net cash used by financing activities was
$68.1 million for the corresponding period in 2007 and represents $33.2 million
of payments to common stockholders who elected to convert their shares into
cash, $25.0 million of funds used to repurchase common stock and warrants during
the first quarter of 2007, and the payment of $10.0 million in fees associated
with the acquisition and debt financings.
95
On January 11, 2007, Jazz announced that its Board of Directors authorized
a stock and warrant repurchase program under which Jazz may purchase up to $50
million of its common stock and warrants through July 15, 2007. On July 18,
2007, this program was extended until October 15, 2007. On November 2, 2007,
Jazz announced that the amount had been increased to $52 million and the stock
and warrant repurchase program had been further extended to January 15, 2008, on
which date it expired. As of December 28, 2007, Jazz had repurchased securities
worth $50.3 million under this program. There were no repurchases made during
the three months ended March 28, 2008.
As of March 28, 2008 and March 30, 2007, Jazz did not have any
relationships with unconsolidated entities or financial partners, such as
entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. As such,
Jazz is not exposed to any financing, liquidity, market or credit risk that
could arise if it had engaged in such relationships.
Jazz believes, based on its current plans and current levels of
operations, that its cash from operations, together with cash and cash
equivalents, and available line of credit, will be sufficient to fund its
operations for at least the next 12 months. Poor financial results,
unanticipated expenses, acquisitions of technologies or businesses or strategic
investments could give rise to additional financing requirements sooner than
Jazz would expect. Jazz would expect to raise funds for these purposes through
debt or equity transactions as appropriate. There can be no assurances that
equity or debt financing will be available when needed or, if available, that
the financing will be on terms satisfactory to Jazz and not dilutive to its then
current stockholders.
LEASE OF FACILITIES
Jazz leases its headquarters and Newport Beach, California fabrication and
probing facilities from Conexant Systems, Inc. under non-cancelable operating
leases through March 2017. Jazz have the unilateral option to extend the terms
of each of these leases for two consecutive five-year periods. Its rental
payments under these leases consist solely of its pro rata share of the expenses
incurred by Conexant in the ownership of these buildings and applicable
adjustments for increases in the consumer price index. Jazz has estimated future
minimum costs under these leases based on actual costs incurred during 2007.
Jazz is not permitted to sublease space that is subject to these leases without
Conexant's prior approval.
CONVERTIBLE SENIOR NOTES
On December 19, 2006 and December 21, 2006, Jazz completed private
placements of $166.8 million aggregate principal amount of convertible notes.
The convertible notes bear interest at a rate of 8% per annum payable
semi-annually on each June 30 and December 31, beginning on June 30, 2007. Jazz
may redeem the convertible notes on or after December 31, 2009 at agreed upon
redemption prices, plus accrued and unpaid interest. The holders of the
convertible notes have the option to convert the convertible notes into shares
of Jazz's common stock at an initial conversion rate of 136.426 shares per
$1,000 principal amount of convertible notes, subject to adjustment in certain
circumstances, which is equivalent to an initial conversion price of $7.33 per
share.
During the three months ended March 28, 2008, Jazz purchased on the open
market $5.0 million in principal amount of the convertible notes for a total
purchase price of $4.1 million. The convertible notes were purchased at a
discount to their face value, including prepayment of interest. As of March 28,
2008, $128.2 million in principal amount of convertible notes remained
outstanding.
WACHOVIA LINE OF CREDIT
On February 28, 2007, Jazz entered into an amended and restated loan and
security agreement, as parent guarantor, with Wachovia Capital Markets, LLC, as
lead arranger, bookrunner and syndication agent, and Wachovia Capital Finance
Corporation (Western), as administrative agent ("Wachovia"), and Jazz and
Newport Fab, LLC, as borrowers, with respect to a three-year senior secured
asset-based revolving credit facility in an amount of up to $65.0 million,
including up to $5.0 million for letters of credit. The borrowing availability
varies according to the levels of the borrowers' accounts receivable, eligible
equipment and other terms and conditions described in the loan agreement. The
maturity date of the facility is February 28, 2010, unless earlier terminated.
Loans under the facility will bear interest at a floating rate equal to, at
borrowers' option, either the lender's prime rate plus 0.75% or the adjusted
Eurodollar rate (as defined in the loan agreement) plus 2.75% per annum. The
facility is secured by all of the assets of the company and the borrowers.
Borrowing availability under the facility as of March 28, 2008 was $34.0
million. As of March 28, 2008, Jazz had short-term borrowings of $10.0 million
outstanding and $1.6 million in letters of credit committed under the facility.
The loan agreement contains customary affirmative and negative covenants
and other restrictions. If the sum of excess availability plus qualified cash is
at any time during any fiscal quarter less than $10.0 million, the borrowers
will be subject to a minimum consolidated EBITDA financial covenant, such that
Jazz and its subsidiaries (other than any excluded subsidiaries) shall be
required to earn, on a consolidated basis, consolidated EBITDA (as defined in
the loan agreement) of not less than the applicable amounts set forth in the
loan agreement.
96
In addition, the loan agreement contains customary events of default
including the following: nonpayment of principal, interest or other amounts;
violation of covenants; incorrectness of representations and warranties in any
material respect; cross default; bankruptcy; material judgments; ERISA events;
actual or asserted invalidity of guarantees or security documents; and change of
control. If any event of default occurs, Wachovia may declare due immediately,
all borrowings under the facility and foreclose on the collateral. Furthermore,
an event of default under the loan agreement would result in an increase in the
interest rate on any amounts outstanding.
ACQUISITION CONTINGENT PAYMENTS
As part of the acquisition of Jazz Semiconductor, Jazz acquired a 10%
interest in HHNEC (Shanghai Hau Hong NEC Electronics Company, Ltd.). The
investment is carried at $19.3 million which is the fair value based upon the
application of the purchase method of accounting. Jazz is obligated to pay
additional amounts to former stockholders of Jazz Semiconductor if it realizes
proceeds in excess of $10 million from a liquidity event during the three year
period following the completion of the acquisition of Jazz Semiconductor. In
that event, Jazz is required to pay the former Jazz Semiconductor stockholders
an amount equal to 50% of the proceeds over $10 million.
ROYALTY OBLIGATIONS
Jazz has agreed to pay to Conexant Systems, Inc. a percentage of its gross
revenues derived from the sale of SiGe products to parties other than Conexant
and its spun-off entities through March 2012. Under its technology license
agreement with Polar Semiconductor, Inc., or PolarFab, Jazz has also agreed to
pay PolarFab certain royalty payments based on a decreasing percentage of
revenues from sales of devices manufactured for PolarFab's former customers.
Jazz also has an agreement with ARM Holdings plc to pay them royalties for using
their intellectual property library to manufacture its customer's products.
LEASES
Jazz also has commitments consisting of software leases and facility and
equipment licensing arrangements.
Future minimum payments under non-cancelable operating leases as of March
28, 2008 are as follows:
PAYMENT OBLIGATIONS BY YEAR
----------------------------------------------------------------
REMAINDER
OF 2008 2009 2010 2011 THEREAFTER TOTAL
---------- ------- ------- ------- ---------- --------
(US$ IN THOUSANDS)
----------------------------------------------------------------
Operating leases $ 1,997 $ 2,468 $ 2,300 $ 2,300 $ 11,959 $ 21,024
========== ======= ======= ======= ========== ========
97
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF JAZZ
The following table sets forth information regarding the beneficial
ownership of our common stock as of July 31, 2008 by:
o each person known by us to be the beneficial owner of more than 5% of
our outstanding shares of common stock;
o each of our named executive officers and directors; and
o all of our executive officers and directors as a group.
Unless otherwise noted, the business address of the persons and entities
listed on the table is 4321 Jamboree Road, Newport Beach, CA 92660. This table
is based upon (i) information supplied to us by our officers, directors and
principal stockholders, (ii) any Schedules 13D or 13G or Forms 3, 4 or 5 filed
with the SEC and (iii) conversations with certain former 5% or greater
stockholders. Unless otherwise indicated in the footnotes to this table, and
subject to community property laws where applicable, we believe that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned.
We have calculated beneficial ownership in accordance with the rules of
the SEC. In computing the number of shares of common stock beneficially owned by
a person and the percentage ownership of that person, we deemed outstanding
shares of common stock subject to options or warrants held by that person that
are currently exercisable or exercisable within 60 days of July 31, 2008. We did
not deem these shares outstanding, however, for the purpose of computing the
percentage ownership of any other person.
We have based our calculation of the percentage of beneficial ownership on
19,031,276 shares outstanding on July 31, 2008.
APPROXIMATE
PERCENTAGE OF
AMOUNT AND NATURE OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
- --------------------------------------------------------------------- -------------------- -------------
Wellington Management Company, LLP(1) 7,324,700 31.1%
75 State Street
Boston, MA 02109
Silver Point Capital, L.P.(2) 7,106,608 28.9
Two Greenwich Plaza
Greenwich, Connecticut 06830
CRT Capital Holdings LLC(3) 3,225,443 15.1
262 Harbor Drive
Stamford CT 06902
Zazove Associates, LLC(4) 2,763,308 12.7
1001 Tahoe Blvd.
Incline Village, NV 89451
Morgan Stanley(5) 2,373,700 11.4
1585 Broadway
New York, NY 10036
Tennenbaum Capital Partners, LLC(6) 1,950,892 9.3
2951 28th Street, Suite 1000
Santa Monica, CA 90405
Lehman Brothers(7) 1,725,678 8.3
745 Seventh Street
New York, NY 10019
Millennium Management LLC(8) 1,725,121 8.3
666 Fifth Avenue
New York, NY 10019
Citigroup Inc.(9) 1,629,735 7.9
399 Park Avenue
New York, NY 10043
Jonathan M. Glaser(10) 1,420,136 7.5
11601 Wilshire Boulevard, Suite 2180
Los Angeles, California 90025
MHR Capital Partners Master Account LP(11) 1,018,400 5.2
West 57th Street, 24th Floor
New York, New York 10019
Acquicor Management LLC(12) 2,330,756 12.2
Gilbert F. Amelio, Ph.D.(13) 2,806,473 14.5
Paul Pittman(14) 535,110 2.8
Allen R. Grogan(15) 238,165 1.2
Shu Li(16) - -
Harold L. Clark, Ed.D.(17) 268,258 1.4%
Jon C. Madonna(18) 19,917 *
Liad Meidar(19) 164,583 *
All directors and executive officers as a group (6 individuals)(20) 4,032,506 20.3%
* Less than 1%.
98
(1) According to a Schedule 13G/A dated February 14, 2008, Wellington Management
Company, LLP ("Wellington") has shared voting power with respect to 5,100,800
shares of our common stock and shared dispositive power with respect to
7,324,700 shares of our common stock, including 2,440,500 shares of stock held
by Wellington Trust Company, NA. This number includes 4,548,200 shares issuable
upon exercise of warrants to purchase shares of our common stock. The securities
reported by Wellington, in its capacity as investment adviser, are owned of
record by clients of Wellington. Those clients have the right to receive, or the
power to direct the receipt of, dividends from, or the proceeds from the sale
of, such securities. No such client is known to have such right or power with
respect to more than five percent of our common stock, except for Wellington
Trust Company, NA.
(2) According to a Schedule 13D dated April 2, 2007, Silver Point Capital, L.P.
("Silver Point") has shared dispositive power with respect to 1,571,100 shares
of our common stock, 1,773,558 shares issuable upon the conversion of
convertible notes and 3,761,950 shares issuable upon exercise of warrants to
purchase shares of our common stock. Silver Point is the investment manager of
Silver Point Capital Fund, L.P. (the "Fund") and Silver Point Capital Offshore
Fund, Ltd. (the "Offshore Fund") and by virtue of such status may be deemed to
be the beneficial owner of the 5,559,100 shares, which are held in the name of
the Fund and the Offshore Fund. Silver Point Capital Management, LLC
("Management") is the general partner of Silver Point and as a result may be
deemed to beneficially own the shares held by the Fund and the Offshore Fund.
Each of Edward Mule and Robert O'Shea is a member of Management and has voting
and investment power with respect to the shares held by the Fund and Offshore
Fund and may be deemed to be beneficial owner of the 7,106,608 shares. Each of
Silver Point, Management and Messrs. Mule and O'Shea disclaim beneficial
ownership of the shares held by the Fund and Offshore Fund.
(3) According to a Schedule 13G dated March 12, 2007, CRT Capital Group LLC may
be deemed to beneficially own 902,705 shares of our common stock, 2,083,993
shares issuable upon exercise of warrants to purchase shares of our common
stock. Harbor Drive Management may be deemed to beneficially own 238,745 shares
issuable upon conversion of outstanding convertible notes. CRT Capital Holdings,
Harbor Drive Management, C. Michael Vaughn and J. Christopher Young own directly
no shares. Pursuant to an investment agreement, Harbor Drive Management has the
investment and voting power with respect to the securities held by Harbor Drive
Master Fund. CRT Capital Holdings owns all the equity interests in and is the
sole managing member of Harbor Drive Management and CRT Capital Group. C.
Michael Vaughn and J. Christopher Young are two of the three managing members of
CRT Associates. C. Michael Vaughn and J. Christopher Young are the two managing
members, and share control, of CRT Capital Holdings and through it each of CRT
Capital Group, Harbor Drive Management, and Harbor Drive Master Fund. The
foregoing reporting persons disclaim any beneficial ownership of our securities
for purposes of Section 16 of the Exchange Act, except to the extent of their
respective indirect pecuniary interests therein. All unit purchase options, as
reported under this filing by the reporting person, were repurchased by us
during fiscal 2007 and hence excluded from our calculation of CRT Capital
Group's beneficial ownership.
(4) According to a Schedule 13G filed on June 10, 2008, Zazove Associates LLC
beneficially owns 2,763, 308 shares of our common stock issuable upon conversion
of outstanding convertible notes.
(5) According to a Schedule 13G/A dated February 14, 2008, Morgan Stanley and
Morgan Stanley & Co. Incorporated beneficially own 573,700 shares of our common
stock and 1,800,000 shares issuable upon exercise of warrants to purchase shares
of our common stock. In accordance with SEC regulations, the filing reflects the
securities beneficially owned by certain operating units (collectively, the "MS
Reporting Units') of Morgan Stanley and its subsidiaries and affiliates
(collectively, "MS"). The filing does not reflect securities, if any,
beneficially owned by any operating units of MS whose ownership of securities is
disaggregated from that of the MS Reporting Units.
99
(6) According to a Schedule 13G dated February 22, 2008, Tennenbaum Capital
Partners, LLC ("TCP") beneficially own 1,950,892 shares of our common stock
issuable upon conversion of outstanding convertible notes. Tennenbaum
Multi-Strategy Master Fund, a fund managed by TCP, has the right to receive and
the power to direct the receipt of dividends from, or the proceeds from the sale
of, 1,950,892 shares of common Stock.
(7) According to a Schedule 13G dated February 13, 2008, Lehman Brothers
Holdings, Inc. and Lehman Brothers Inc., beneficially own 409,278 shares of our
common stock issuable upon conversion of outstanding convertible notes and
1,316,400 shares issuable upon exercise of warrants to purchase shares of our
common stock.
(8) According to a Schedule 13D filed on December 26, 2007, Millenco LLC
("Millenco") was the beneficial owner of 49 shares of common stock and warrants
to purchase 1,632,372 shares of common stock and Catapult Partners, Ltd.
("Catapult Partners") was the beneficial owner of 92,700 shares of common stock.
Catapult Capital Management, LLC ("Catapult Capital Management") as the
investment manager to Catapult Partners, may be deemed to beneficially own
securities owned by Catapult Partners. Millennium International Management LP
("Millennium International Management") as the managing member of Catapult
Capital Management, may be deemed to beneficially own securities deemed to be
beneficially owned by Catapult Capital Management. Millennium International
Management GP LLC ("Millennium International Management GP"), as the general
partner of Millennium International Management, may be deemed to beneficially
own securities deemed to be beneficially owned by Millennium International
Management. Integrated Holding Group, LP ("Integrated Holding Group") as 100%
shareholder of Catapult Partners, may be deemed to beneficially own securities
owned by Catapult Partners. Millennium Management, as the manager of Millenco
and the general partner of Integrated Holding Group, may be deemed to
beneficially own securities beneficially owned by Millenco and deemed to be
beneficially owned by Integrated Holding Group, respectively. Mr. Englander, as
the managing member of Millennium Management and Millennium International
Management GP, may be deemed to beneficially own any securities deemed to be
beneficially owned by Millennium Management and Millennium International
Management GP.
(9) According to a Schedule 13G filed on February 11, 2008, 1,629,735 shares are
beneficially owned by Citigroup Inc.
(10) According to a Schedule 13G dated February 14, 2008, 1,420,136 shares are
beneficially owned by Jonathan M. Glaser. 612,318 of these shares are owned by
JMG Capital Management, LLC ("JMG LLC"). JMG Capital Management, Inc. ("JMG
Inc.") is a member of JMG LLC and, in such capacity, may be deemed to
beneficially own the 612,318 shares. Mr. Glasser is the control person of JMG
Inc. and JMG LLC and, as a result, beneficially owns the 612,318 shares of
common stock. In addition, Mr. Glasser is deemed to beneficially own 807,818
shares of common stock as one of the control persons of Pacific Assets
Management, LLC ("PAM") and Pacific Capital Management, Inc. ("PCM"), a member
of PAM. Daniel Albert David and Roger Richter may also be deemed to beneficially
own 807,818 shares of common stock because they are also control persons of PAM
and PCM.
(11) According to a Schedule 13G dated February 14, 2008, 1,018,400 shares are
beneficially owned by MHR Capital Partners Master Account LP ("Master Account").
This number of shares consists of 600,000 shares of common stock and 418,400
shares of common stock that can be obtained by Master Account upon exercise of
warrants to acquire shares of common stock. MHR Advisors LLC ("Advisors") is the
general partner of Master Account and, in such capacity, may be deemed to also
beneficially own the 1,018,400 shares. MHR Fund Management LLC ("Fund
Management") is an affiliate of and has an investment management agreement with
Master Account pursuant to which it has the power to vote or direct the vote and
to dispose or to direct the disposition of the shares and, as a result, may be
deemed to beneficially own the 1,018,400 shares. Mark H. Rachesky, M.D. is the
managing partner of Advisors and Fund Management and, in such capacity, may be
deemed to also beneficially own the 1,018,400 shares held for the account of
Master Account.
(12) Acquicor Management LLC ("Acquicor Management") beneficially owns 2,330,756
shares of common stock. Dr. Amelio is the sole manager of Acquicor Management
and has sole voting and dispositive power over such shares. Dr. Amelio disclaims
beneficial ownership of the shares held by Acquicor Management except to the
extent of his pecuniary interest therein. The securities held by Acquicor
Management have been pledged to secure loans, the proceeds of which were used by
Acquicor Management to purchase our securities. On February 5, 2008, the Context
Funds filed a Schedule 13G claiming beneficial ownership to the shares held by
Acquicor Management. On February 11, 2008, Acquicor Management filed a Schedule
13D/A claiming ownership to those same shares of common stock.
(13) Includes 2,330,756 shares of common stock held by Acquicor Management,
185,134 shares held directly by Dr. Amelio, 1,000 shares held by Dr. Amelio's
spouse and 289,583 shares issuable upon the exercise of stock options that are
exercisable within 60 days of July 31, 2008.
(14) Includes 274,693 shares of common stock held by Mr. Pittman and 260,417
shares issuable upon the exercise of stock options that are exercisable within
60 days of July 31, 2008.
(15) Includes 133,998 shares of common stock held by Mr. Grogan and 104,167
shares issuable upon the exercise of stock options that are exercisable within
60 days of July 31, 2008.
(16) Dr. Li was our Executive Vice President and the Chief Executive Officer of
Jazz Semiconductor until his resignation in March 2007.
100
(17) Includes 168,674 shares of common stock, and 83,334 shares of common stock
issuable upon the exercise of warrants held by Dr. Clark and 16,250 shares
issuable upon the exercise of stock options that are exercisable within 60 days
of July 31, 2008.
(18) Includes 2,000 shares of common stock held by Mr. Madonna and 17,917 shares
issuable upon the exercise of stock options that are exercisable within 60 days
of July 31, 2008.
(19) Includes 10,000 shares of common stock held by Mr. Meidar, 140,000 shares
held by Old Farm Investments, LLC, of which shares Mr. Meidar has sole voting
and dispositive power, and 14,583 shares issuable upon the exercise of stock
options that are exercisable within 60 days of June 1, 2008.
(20) See notes (13) through (15) and (17) through (19) above.
101
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF TOWER
The following table and notes thereto set forth information, as of July 31,
2008, concerning the beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), and on a diluted basis, of
ordinary shares by any person who is known to own at least 5% of Tower's issued
and outstanding ordinary shares. As of such date, 125,364,021 ordinary shares
were issued and outstanding. The voting rights of Tower's major shareholders do
not differ from the voting rights of other holders of Tower's ordinary shares.
AMOUNT PERCENT OF PERCENT OF CLASS
IDENTITY OF PERSON OR GROUP OWNED (1) CLASS(1) (DILUTED)(2)
- ------------------------------------------- -------------- ---------- ----------------
Israel Corporation Ltd. (3) ............... 101,231,883(4) 47.68% 25.68%
SanDisk Corporation (3) ................... 19,060,790(5) 14.83% 4.83%
Macronix International Co. Ltd.(3) 9,682,485(6) 7.67% 2.46%
Bank Leumi Le-Israel, B.M. ................ 31,567,372(7) 20.12% 8.01%
Bank Hapoalim, B.M. ....................... 32,037,960(8) 20.35% 8.13%
Prisma Investment House Ltd. .............. 12,580,459(9) 9.60% 3.19%
- ----------
(1) Assumes the holder's beneficial ownership of all ordinary shares and all
securities that the holder has a right to purchase within 60 days.
(2) Assumes that all currently outstanding securities to purchase ordinary
shares, other than those which cannot be calculated as of the date of this
registration statement, have been exercised by all holders.
(3) Pursuant to a shareholders agreement among Israel Corp., SanDisk
Corporation and Macronix Co. Ltd., each of Israel Corp., SanDisk
Corporation and Macronix Co. Ltd. may be said to have shared voting and
dispositive control over approximately 31% of the outstanding shares of
Tower.
(4) Based on information provided by Israel Corp., represents 14,260,504
shares currently owned by Israel Corp., 18,181,823 shares issuable upon
conversion of debentures, 65,789,474 shares issuable upon conversion of
capital notes, 2,941,176 shares issuable upon the exercise of warrants at
an exercise price per share of $2.04 and 58,906 shares issuable upon the
exercise of warrants at an exercise price per share of $6.17.
(5) Based on information provided by SanDisk, represents 15,878,972 shares
currently owned by SanDisk and 3,181,818 shares issuable upon conversion
of debentures.
(6) Based on information provided by Macronix, represents 8,773,395 shares
currently owned by Macronix and 909,090 shares issuable upon conversion of
debentures.
(7) Based on information provided by Bank Leumi, represents 25,986,842 shares
issuable upon conversion of capital notes, 4,132,232 shares issuable upon
the exercise of warrants at an exercise price per share of $1.21,
1,000,000 shares issuable upon exercise of warrants at an exercise price
per share of $2.04 and 448,298 ordinary shares issuable upon exercise of
warrants at an exercise price per share of $6.17.
(8) Based on information provided by Bank Hapoalim represents 25,986,842
shares issuable upon conversion of capital notes, 4,132,232 shares
issuable upon the exercise of warrants at an exercise price per share of
$1.21, 1,470,588 shares issuable upon exercise of warrants at an exercise
price per share of $2.04 and 448,298 ordinary shares issuable upon
exercise of warrants issued to Tarshish Hahzakot Vehashkaot Hapoalim Ltd
at an exercise price per share of $6.17.
(9) Based on information provided by Prisma represents 6,954,116 shares
currently owned by Prisma group and 5,626,343 shares issuable upon
conversion of debentures.
This information does not take into account the following potential
dilutive issuances of securities: (i) ordinary shares issuable upon conversion
of securities Tower may be required to issue in connection with a rights
offering and outside investor provisions agreed to in the November 2003
amendment to its facility agreement; (ii) ordinary shares issuable to Tower's
banks in January 2011 as a result of the reduction of the interest rate
applicable to the quarterly actual interest payments on its outstanding loans
and (iii) any restructuring of facility arrangements including those, if any,
relating to negotiations described in Tower's Form 6-K furnished to the SEC on
August 7, 2008, which is incorporated by reference into this proxy
statement/prospectus. See "WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION OF
INFORMATION BY REFERENCE."
102
Pursuant to a shareholders agreement dated January 18, 2001, among Israel
Corp., SanDisk and Macronix, such parties have agreed, among other things, to
vote or cause to be voted all their respective shares for the election to the
Board of Directors of nominees designated by each party, nominees recommended by
the Board, the election of a designee of the Israel Corp. to serve as Chairman
of the Board, unless agreed to otherwise (as was agreed in December 2006 with
the appointment of Dov Moran as Chairman of the Board of Directors), and against
the election of any other persons to the Board of Directors. In addition,
subject to certain exceptions, each shareholder agreed to restrictions on the
transfer of its shares, including certain rights of first refusal.
As of June 4, 2008, there were a total of 34 holders of record of our
ordinary shares, of which 21 were registered with addresses in the United
States. Such United States record holders were, as of such date, the holders of
record of approximately 63% of our outstanding ordinary shares.
103
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited condensed combined pro forma financial statements
for the year ended December 31, 2007 and the three months ended March 31, 2008
and as of March 31, 2008 reflect the historical results of Jazz and Tower
adjusted to give effect to the merger. We are providing this information to
assist you in your analysis of the financial aspects of the merger. We derived
this information from (i) the audited consolidated financial statements of Jazz
as of, and for the year ended, December 28, 2007, (ii) the unaudited condensed
consolidated financial statements of Jazz as of, and for the three months ended,
March 28, 2008, (iii) the audited consolidated financial statements of Jazz
Semiconductor for the period from December 30, 2006 to February 16, 2007 (the
date of the Jazz Semiconductor acquisition), (iv) the audited consolidated
financial statements of Tower as of, and for the year ended, December 31, 2007,
and (v) the unaudited condensed consolidated financial statements of Tower as of
end of the three months ended March 31, 2008. This information should be read
together with the Jazz and Jazz Semiconductor consolidated financial statements
and related notes included elsewhere in this proxy statement/prospectus and the
Tower consolidated financial statements and related notes incorporated by
reference into this proxy statement/prospectus.
The following unaudited pro forma condensed combined financial statements
combine (i) the historical balance sheets of Tower as of March 31, 2008 and Jazz
as of March 28, 2008 giving pro forma effect to the merger as if it had occurred
on March 31, 2008, (ii) the historical statements of operations of Tower for the
year ended December 31, 2007, Jazz for the year ended December 28, 2007, and
Jazz Semiconductor for the period from December 30, 2006 to February 16, 2007
(the date of the Jazz Semiconductor acquisition) giving pro forma effect to the
merger and the Jazz Semiconductor acquisition as if each had occurred on January
1, 2007, and (iii) the historical statements of operations of Tower and Jazz for
the three months ended March 31, 2008 and March 28, 2008, respectively, giving
pro forma effect to the merger and the Jazz Semiconductor acquisition as if each
had occurred on January 1, 2007 and carried forward through March 31, 2008.
The pro forma adjustments are preliminary, and the unaudited pro forma
condensed combined financial statements are not necessarily indicative of the
financial position or results of operations that may have actually occurred had
the merger taken place on the dates noted, or the future financial position or
operating results of Tower or Jazz. The pro forma adjustments are based upon
available information and assumptions that we believe are reasonable. The merger
will be accounted for under the purchase method of accounting. Under the
purchase method of accounting, the total purchase price will be allocated to the
net tangible and intangible assets acquired and liabilities assumed, based on
various estimates of their respective fair values. Tower will determine the
estimated fair values of acquired assets and assumed liabilities with the
assistance of third party valuation specialists in accordance with SFAS 141. The
purchase price allocations set forth in the following unaudited pro forma
condensed combined financial statements are based on preliminary valuation
estimates of Jazz's tangible and intangible assets. The final valuations, and
any interim updated preliminary valuation estimates, may differ materially from
these preliminary valuation estimates and, as a result, the final allocation of
the purchase price may result in reclassifications of the allocated amounts that
are materially different from the purchase price allocations reflected below.
Any material change in the valuation estimates and related allocation of the
purchase price would materially impact Tower's depreciation and amortization
expenses, the unaudited pro forma condensed combined financial statements and
Tower's results of operations after the merger.
104
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(US$ in thousands)
AS OF MARCH 31, 2008
----------------------------------------------------------------
ACQUISITION
TOWER JAZZ ADJUSTMENTS COMBINED
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED) UNAUDITED NOTE 2: (UNAUDITED)
----------- ----------- ------------ ------------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 32,374 $ 9,159 $ - $ 41,533
TRADE ACCOUNTS RECEIVABLE:
RELATED PARTIES 10,494 - - 10,494
OTHERS 31,691 25,514 - 57,205
OTHER RECEIVABLES 3,805 - - 3,805
INVENTORIES 34,398 12,714 4,549 C 51,661
DEFERRED TAX ASSET - 2,015 - J 2,015
OTHER CURRENT ASSETS 1,347 1,424 - 2,771
----------- ----------- ------------ ------------
TOTAL CURRENT ASSETS 114,109 50,826 4,549 169,484
----------- ----------- ------------ ------------
LONG-TERM INVESTMENTS 14,984 19,300 (4,318) C3 29,966
----------- ----------- ------------ ------------
PROPERTY AND EQUIPMENT, NET 520,518 121,496 (27,185) C3 614,829
----------- ----------- ------------ ------------
INTANGIBLE ASSETS, NET 31,855 52,403 (4,425) C3,C4 79,833
----------- ----------- ------------ ------------
OTHER ASSETS, NET 10,652 4,559 (1,020) C3 14,191
=========== =========== ============ ============
TOTAL ASSETS $ 692,118 $ 248,584 $ (32,399) $ 908,303
=========== =========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
SHORT TERM BORROWINGS $ - $ 10,000 $ - $ 10,000
CURRENT MATURITIES OF CONVERTIBLE DEBENTURES 8,426 - - 8,426
TRADE ACCOUNTS PAYABLE 55,988 17,868 8,888 A(2),D 82,744
DEFERRED REVENUE 9,935 3,895 (563) C 13,267
OTHER CURRENT LIABILITIES 17,926 17,522 2,494 A(2) 37,942
----------- ----------- ------------ ------------
TOTAL CURRENT LIABILITIES 92,275 49,285 10,819 152,379
LONG-TERM DEBT FROM BANKS 390,210 - - 390,210
DEBENTURES 116,618 128,200 (39,101) B,C 205,717
LONG-TERM CUSTOMERS' ADVANCES 16,059 516 (79) C 16,496
DEFERRED TAX LIABILITY - 3,388 - J 3,388
OTHER LONG-TERM LIABILITIES 59,793 18,698 - 78,491
----------- ----------- ------------ ------------
TOTAL LIABILITIES 674,955 200,087 (28,361) 846,681
----------- ----------- ------------ ------------
SHAREHOLDERS' EQUITY 17,163 48,497 (4,038) A 61,622
=========== =========== ============ ============
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 692,118 $ 248,584 $ (32,399) $ 908,303
=========== =========== ============ ============
See notes to the unaudited pro forma condensed combined financial statements.
105
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
US$ (in thousands, except per share data)
YEAR ENDED DECEMBER 31, 2007
-----------------------------------------------------------------------------
TOWER JAZZ PROFORMA COMBINED
-------------- ------------- ACQUISITION ------------
* ADJUSTMENTS NOTE 2: (UNAUDITED)
-------------- ------------- ------------ ------------ ------------
REVENUES $ 230,853 $ 207,649 $ - $ 438,502
COST OF SALES 284,771 196,343 1,279 E, F, G,I 482,393
-------------- ------------- ------------ ------------
GROSS LOSS (53,918) 11,306 (1,279) (43,891)
-------------- ------------- ------------ ------------
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT 13,790 17,105 8 I 30,903
MARKETING, GENERAL AND ADMINISTRATIVE 31,604 25,688 18 I 57,310
AMORTIZATION OF INTANGIBLE ASSETS - 1,564 (270) F 1,294
-------------- ------------- ------------ ------------
45,394 44,357 (244) 89,507
============== ============= ============ ============
OPERATING LOSS (99,312) (33,051) (1,035) (133,398)
FINANCING EXPENSE, NET (34,976) (11,269) (5,248) H (51,493)
OTHER INCOME (EXPENSE), NET 92 4,719 (7,032) A(2) (2,221)
-------------- ------------- ------------ ------------
NET LOSS BEFORE INCOME TAX (134,196) (39,601) (13,315) (187,112)
INCOME TAX EXPENSE - 52 - J 52
-------------- ------------- ------------ ------------
LOSS FOR THE YEAR $ (134,196) $ (39,653) $ (13,315) $ (187,164)
============== ============= ============ ============
BASIC LOSS PER ORDINARY SHARE
LOSS PER SHARE $ (1.13) $ (1.64) $ (1.22)
============== ============= ============
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING - IN THOUSANDS 118,857 24,198 34,256 153,113
============== ============= ============ ============
* DERIVED FROM PROFORMA AMOUNT OF JAZZ TECHNOLOGIES INC. FOR THE YEAR
ENDED DECEMBER 28, 2007 . THE PROFORMA GIVES AFFECT TO THE RESULTS OF
OPERATIONS OF JAZZ TECHNOLOGIES INC. AS IF THE ACQUISITION OF JAZZ
SEMICONDUCTOR INC. WAS CONSUMMATED IN JANUARY 1, 2007.
SEE NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.
106
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
US$ (in thousands, except share and per share data)
THREE MONTHS ENDED MARCH 31, 2008
--------------------------------------------------------------------
TOWER JAZZ COMBINED
------------ ----------- ACQUISITION -----------
(UNAUDITED) (UNAUDITED) ADJUSTMENTS NOTE 2: (UNAUDITED)
------------ ----------- ----------- -------- -----------
REVENUES $ 57,607 $ 50,830 $ - $ 108,437
COST OF SALES 68,255 43,385 (1,461) E,F,G,I 110,179
------------ ----------- ----------- -----------
GROSS LOSS (10,648) 7,445 1,461 (1,742)
------------ ----------- ----------- -----------
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT 2,976 3,910 5 I 6,891
MARKETING, GENERAL AND ADMINISTRATIVE 7,768 4,964 12 I 12,744
AMORTIZATION OF INTANGIBLE ASSETS - 346 (68) F 278
------------ ----------- ----------- -----------
10,744 9,220 (51) 19,913
============ =========== =========== ===========
OPERATING LOSS (21,392) (1,775) 1,512 (21,655)
FINANCING EXPENSE, NET (7,800) (2,284) (1,492) H (11,576)
OTHER INCOME (EXPENSE), NET (428) - - (428)
------------ ----------- ----------- -----------
NET LOSS BEFORE INCOME TAX (29,620) (4,059) 20 J (33,659)
INCOME TAX BENEFIR (EXPENSE) - 15 - 15
------------ ----------- ----------- -----------
LOSS FOR THE PERIOD $ (29,620) $ (4,044) $ 20 $ (33,644)
============ =========== =========== ===========
BASIC LOSS PER ORDINARY SHARE
LOSS PER SHARE $ (0.24) $ (0.22) $ (0.21)
============ =========== ===========
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING - IN THOUSANDS 124,228 18,400 34,256 158,484
============ =========== =========== ===========
SEE NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.
107
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
On May 19, 2008, Tower signed an Agreement and Plan of Merger and
Reorganization with Jazz (the "Agreement"). The Agreement provides that, upon
the terms and subject to the conditions set in the Agreement, Jazz will merge
with a wholly-owned subsidiary of Tower (formed for that purpose), with Jazz as
the surviving corporation (the "merger"). Upon the closing of the merger, each
outstanding share of Jazz's common stock will be converted into the right to
receive 1.8 ordinary shares of Tower, in an aggregate fair value of
approximately $44.5 million. The fair value of the shares was determined based
on the average prices for Tower's ordinary shares on Nasdaq over a five day
period commencing 2 days before and ending 2 days after the merger was announced
in accordance with provisions set forth in EITF 99-12 "DETERMINATION OF THE
MEASUREMENT DATE FOR THE MARKET PRICE OF ACQUIRER SECURITIES ISSUED IN A
PURCHASE BUSINESS COMBINATION."
For purposes of these unaudited pro forma condensed combined financial
statements, Tower has assumed the total consideration of the merger to be $48.8
million as follows:
(US$ IN THOUSANDS)
Value of equity instruments issued (a) $ 44,459
Estimated fees and expenses of Tower (b) 4,350
------------------
TOTAL MERGER CONSIDERATION $ 48,809
------------------
(a) the value of equity instruments issued was determined as follows:
(US$ IN THOUSANDS
EXCEPT PER SHARE
DATA)
Number of shares of Jazz Technologies before the merger 19,031
Conversion to shares of Tower in a ratio of 1 share of
Jazz to 1.8 Tower shares 34,256
Tower's average stock price $ 1.144
------------------
Value of shares to be issued to Jazz 39,189
Change in value of outstanding warrants. 4,315
Change in value of vested employee options. 955
------------------
TOTAL VALUE OF EQUITY INSTRUMENTS ISSUED $ 44,459
------------------
(b) Estimated fees and expenses include legal and accounting fees and expenses,
printing and mailing costs, SEC filing fees, financial advisor fees and
expenses, financing fees and related expenses, and other miscellaneous expenses
directly related to the merger and the transactions contemplated thereby.
108
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 2. PRO FORMA ADJUSTMENTS
Adjustments made to the historical financial statements include the
following:
A. Adjustments to shareholders' equity due to:
(US$ IN THOUSANDS)
------------------
Elimination of adjusted Jazz stockholders' equity (1) $ (41,465)
Transaction costs related to Jazz (2) (7,032)
Value of equity instruments issued (3) 44,459
------------------
TOTAL SHAREHOLDERS' EQUITY ADJUSTMENTS $ (4,038)
------------------
(1) Reflects the elimination of Jazz historical equity accounts and
adjusted deficit upon the completion of the merger, as follows:
(US$ IN THOUSANDS)
------------------
Jazz stockholders' equity as of March 28, 2008 $ 48,497
Transaction costs (2) (7,032)
------------------
TOTAL ADJUSTED JAZZ STOCKHOLDERS' EQUITY $ 41,465
------------------
(2) Reflects Jazz transaction costs as follows:
(US$ IN THOUSANDS)
------------------
Change of control payments to employees (a) $ 2,494
Estimated fees and other expenses (b) 4,538
------------------
TOTAL JAZZ TRANSACTION COSTS $ 7,032
------------------
(a) Change of control payments expected to be paid to senior
executives upon completion of the merger. The payments are
included within other current liabilities in the unaudited pro
forma condensed combined balance sheet.
(b) Estimated fees and other expenses include legal and accounting
fees and expenses, printing and mailing costs, financing fees
and related expenses, and other miscellaneous expenses. The
expenses are included within trade accounts payable in the
unaudited pro forma condensed combined balance sheet.
(3) As described in Note 1 above.
B. Reflects adjustment to the debt fair value of the convertible notes based
on quotation:
CARRYING FAIR
AMOUNT VALUE
---------- ---------
(US$ IN THOUSANDS)
Convertible notes $ 128,200 $ 89,099
---------- ---------
The adjustment to fair value of the convertible notes resulted in a
discount recorded on the notes and has the effects of increasing the
interest expenses due to the annual discount amortization. The discount
will be amortized over the remaining period of the convertible notes using
the effective interest method (see note H below).
109
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 2. PRO FORMA ADJUSTMENTS (CONT.)
C. Under the purchase method of accounting, the total purchase price will be
allocated to the net tangible and intangible assets acquired and
liabilities assumed, based on estimates of their respective fair values.
Tower determined, provisionally, the estimated fair values of certain
assets and liabilities to be close to their carrying values since these
carrying values were only recently adjusted to their fair values.
Therefore, only assets and liabilities for which Tower has provisionally
identified a difference between their carrying value and their fair value
are reflected below. The final purchase price allocation will be done with
assistance of third party valuation specialists. Based on preliminary
valuation estimates, the total purchase price will be allocated as
follows:
AS OF PRELIMINARY PURCHASE PRICE
MARCH 31, 2008 VALUATION (1) ALLOCATION
----------------- --------------- ----------------
(US$ IN THOUSANDS)
Inventories $ 12,714 $ 17,263 $ 4,549
Deferred revenue (3,895) (3,332) 563
Long-term customers' advances (516) (437) 79
Convertible notes (128,200) (89,099) 39,101
Identified intangible assets:
Existing technology 906 906 -
Patents /core technology rights 9,403 9,403 -
Customer relationships 4,000 4,000 -
Trade name 3,937 3,937 -
Facilities lease 34,157 34,157 -
Customer backlog 9,403 9,403
Total identified intangible assets 52,403 61,806 9,403
Adjusted Jazz stockholders' equity (2) 41,465
Estimated fees and expenses of Tower (see Note 1) (4,350)
Excess of fair value for reverse allocation (3) - (46,351)
----------------
Total VALUE OF EQUITY INSTRUMENTS ISSUED $ 44,459
----------------
(1) The purchase price allocations set forth in these unaudited pro
forma condensed combined financial statements are based on preliminary
valuation estimates of Jazz's tangible and intangible assets which as
described above, were determined to be close to their carrying values.
The final valuations, and any interim updated preliminary valuation
estimates, may differ materially from these preliminary valuation
estimates and, as a result, the final allocation of the purchase price
may result in reclassifications of the allocated amounts that are
materially different from the purchase price allocations reflected
herein. Any material change in the valuation estimates and related
allocation of the purchase price could materially impact Tower's
depreciation and amortization expenses, the unaudited pro forma
condensed combined financial statements and Tower's results of
operations after the merger.
(2) Represents Jazz's stockholders' equity as of March 31, 2008,
adjusted as follows:
(US$ IN THOUSANDS)
Jazz stockholders' equity $ 48,497
Transaction costs (7,032)
------------------
TOTAL ADJUSTED JAZZ STOCKHOLDERS' EQUITY $ 41,465
------------------
(3) The excess of fair value over cost amounted $46.4 million was
allocated on a pro-rata basis to non-current tangible and intangible
assets, as follows:
(US$ IN THOUSANDS)
------------------
Non-current tangible assets $ 27,185
Intangible assets 13,828
Long term investments 4,318
Other assets, net 1,020
------------------
TOTAL EXCESS OF FAIR VALUE $ 46,351
------------------
110
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 2. PRO FORMA ADJUSTMENTS (CONT.)
(4) The decrease in intangible assets as of March 31, 2008 amounted to
$4.4 million and is comprised as follows:
(US$ IN THOUSANDS)
------------------
Customer backlog $ 9,403
Reverse allocation of excess of fair value
over cost of intangible assets (including
$2,105 allocated to customer backlog) (13,828)
------------------
TOTAL DECREASE IN INTANGIBLE ASSETS $ (4,425)
------------------
D. Reflects the payment by Tower and Jazz of accrued acquisition fees and
other expenses related to the merger at closing, as described in Note 1
and Note 2A(2).
E. DECEMBER 31, MARCH 31,
2007 2008
------ ------
(US$ IN THOUSANDS)
-------------------
Decrease in depreciation of fixed assets
due to reverse allocation (Note F(1)) (5,437) (1,359)
Decrease in amortization of intangible assets
due to reverse allocation (Note F(2)) (695) (174)
Amortization of customer backlog (Note G) 7,298 --
Increase in stock based compensation due to
the modification of non vested awards (Note I) 113 72
------ ------
Total 1,279 (1,461)
====== ======
F. 1. Reflects adjustment for decreased depreciation expense resulting from
the reverse allocation of excess of fair value over cost, to property,
plant and equipment, amortized over a five-year period. Jazz has
historically depreciated its property, plant and equipment over useful
lives between 3 and 8 years. For purposes of the unaudited pro forma
condensed combined financial statements, Tower has assumed five years
as an average of the useful lives for all property, plant and
equipment.
2. Reflects adjustment for decreased amortization expense resulting from
reverse allocation of excess of fair value over cost to intangible
assets, amortized over their useful lives. For purposes of the
unaudited pro forma condensed combined financial statements, Tower
assumed the useful lives which were determined in connection with the
prior acquisition of Jazz Semiconductor Inc. in February 2007. The
decrease in amortization expense was approximately $965,000 in the
year ended December 31, 2007 of which $695,000 and $270,000 were
allocated to cost of sales and operating expenses respectively. For
the three months period ended March 31, 2008 $241,000, of which
$174,000 and $67,000 was allocated to cost of sales and operating
expenses respectively.
G. Reflects the effect of amortization of the fair value of customer backlog
assigned in the preliminary valuation of intangible assets as follows:
YEAR ENDED
INCREASED DECEMBER 31,
INTANGIBLE ASSETS VALUE (1) USEFUL LIFE 2007
- ---------------------- ------------------ ----------- ------------------
(US$ IN THOUSANDS) (US$ IN THOUSANDS)
- ---------------------- ------------------ ----------- ------------------
CUSTOMER BACKLOG $ 7,298 <1 $ 7,298
================== ==================
(1) Represents the fair value of customer backlog in the amount of $9.4
million, net of the pro-rata portion of the reverse allocation of
excess fair value over cost which amounted to $2.1 million.
The final valuations may result in reclassifications of the allocated amounts,
which may materially impact operating expenses.
111
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 2. PRO FORMA ADJUSTMENTS (CONT.)
H. Reflects convertible notes amortization expense in connection with the
fair value adjustment (see note B above) and deferred financing
amortization expense in connection with the reverse allocation (see note
C3 above). The discount and the deferred financing will be amortized over
the remaining period of the convertible notes using the effective interest
method, and will affect amortization expense as follows:
INTEREST EXPENSES ADJUSTMENTS
----------------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31, 2007 ENDED MARCH 31, 2008
----------------- --------------------
(US$ IN THOUSANDS)
Increase in Discount
amortization of convertible notes $ (5,452) $ (1,543)
Decrease in Deferred
financing amortization 204 51
----------------- --------------------
TOTAL $ (5,248) $ (1,492)
================= ====================
I. Reflects stock based compensation costs recognized in the results of
operations due to re-pricing and carry-forward of Jazz employee's options
to Tower's options. Therefore, $139,000 and $89,000 were recognized in the
year ended December 31, 2007 and the three months period ended March 31,
2008, respectively. 81%, 6% and 13% of the expenses were allocated to cost
of sales, research and development costs and selling, general and
administrative expenses, respectively
J. Management has not determined the impact of the merger on Jazz's deferred
taxes. Accordingly, no other adjustment has been made to deferred tax
assets or income tax provision.
In addition, as of December 31, 2007, Jazz had federal tax net operating loss,
or NOL, carryforwards of approximately $128.9 million available to reduce
taxable income in future years. These NOL carryforwards will begin to expire in
2022, unless previously utilized. Jazz also had state NOL carryforwards at March
31, 2008 of approximately $105.2 million, which will begin to expire in 2013,
unless previously utilized. At March 31, 2008, Jazz had a $2.0 million deferred
tax asset related to these net operating loss carryforwards. Due to uncertainty
as to its ability to realize these deferred tax assets, Jazz recorded a full
valuation allowance. Jazz's ability to utilize its NOL carryforwards will become
subject to substantial annual limitations if it undergoes an ownership change as
defined under Section 382 of the Internal Revenue Code. The merger will result
in an ownership change of Jazz as defined under Section 382, which may
jeopardize Jazz's ability to use some or all of its NOL carryforwards following
the completion of the merger. However, management has not made a determination
of the impact of the merger on Jazz's ability to use its NOL carryforwards.
112
JAZZ RELATED PARTY TRANSACTIONS
PRIOR SHARE ISSUANCES
On August 26, 2005, Jazz issued 6,250,000 shares of its common stock to
Acquicor Management LLC for $25,000 in cash, at an average purchase price of
approximately $0.004 per share. On January 19, 2006, Jazz effected a 4,333,334
for 6,250,000 reverse stock split of our common stock, effectively raising the
purchase price to approximately $0.006 per share. Following the reverse stock
split, there were 4,333,334 shares of common stock outstanding. On February 21,
2006, Jazz effected a 5,373,738 for 4,333,334 forward stock split of our common
stock, effectively lowering the purchase price to approximately $0.0047 per
share. Following the forward stock split, there were 5,373,738 shares of common
stock outstanding. Also on February 21, 2006, Acquicor Management LLC
distributed 195,000 shares of common stock to each of Dr. Clark and Messrs.
Kensey and Moshe Meidar in redemption of their ownership interests in Acquicor
Management LLC.
On March 13, 2006, Jazz completed a private placement pursuant to which
Acquicor Management LLC, Dr. Clark and Messrs. Kensey and Moshe Meidar purchased
an aggregate of 333,334 units from us at a price of $6.00 per unit, for an
aggregate purchase price of $2.0 million.
Pursuant to a registration rights agreement Jazz entered into in
connection with its initial public offering, Acquicor Management LLC, Dr. Clark
and Messrs. Kensey and Moshe Meidar are entitled to make up to two demands that
Jazz register the shares of common stock and units issued to them in connection
with our initial public offering and the concurrent private placement. They can
elect to exercise these registration rights at any time beginning three months
prior to the date on which the lock-up period applicable to such shares expires.
In addition, Acquicor Management LLC, Dr. Clark and Messrs. Kensey and Moshe
Meidar have certain "piggy-back" registration rights on registration statements
filed subsequent to such date. Jazz will bear the expenses incurred in
connection with the filing of any such registration statements.
SECURITIES PURCHASES
In February 2007, Jazz redeemed an aggregate of 1,873,738 shares of common
stock held by Acquicor Management LLC, Dr. Clark and Messrs. Kensey and Moshe
Meidar at a redemption price of $0.0047 per share.
In June and September of 2007, Jazz repurchased for a total purchase price
of $2,360,000 all 1,250,000 unit purchase options issued to the underwriters of
its initial public offering, leaving no unit purchase options outstanding. This
takes into account the repurchase, on September 6, 2007, of 812,500 unit
purchase options at $2.00 each, including 375,000 unit purchase options from CRT
Capital Group and CRT Associates, 250,000 unit purchase options from Mr. Pittman
and 187,500 unit purchase options from Wedbush Morgan Securities. Mr. Pittman
acquired his unit purchase options as a result of his former position as a
partner at ThinkEquity Partners LLC, one of the underwriters of its initial
public offering.
Jazz repurchased on September 4, 2007, 208,333 units at $3.90 per unit and
62,920 shares of common stock at $2.98 per share from Acquicor Management LLC,
an entity owned in part and controlled by Gilbert F. Amelio, Jazz's Chairman and
Chief Executive Officer. The price paid by for these securities was at a slight
discount to the most recent closing price of our securities prior to the
repurchase. The repurchase from Acquicor Management LLC was conditioned on the
entire $1,000,000 sales proceeds being applied by Acquicor Management LLC to pay
interest, principal and associated fees on loans made to Acquicor Management LLC
on February 14, 2007 by certain third party lenders. Acquicor Management LLC
used these loans in February of 2007 to fund the purchase of Jazz common stock
shortly before Jazz's acquisition of Jazz Semiconductor.
On December 6, 2007, Jazz announced that it repurchased 1,819,793 shares
of common stock at $2.11 per share from Acquicor Management LLC, an entity owned
in part and controlled by Dr. Amelio; 51,836 shares of common stock from Mr.
Kensey; and 51,836 shares of common stock from Dr. Clark. The $2.11 price paid
for these securities was equal to the closing price of our common stock on
November 30, 2007, the date that agreement was reached on the repurchase. These
repurchases were conditioned on the entire sales proceeds being applied to pay
interest, principal and associated fees on the loans made to Acquicor Management
LLC, Mr. Clark and Mr. Kensey mentioned in the previous paragraph.
113
COMPENSATION ARRANGEMENTS
In connection with Jazz's initial public offering, the underwriters agreed
to defer fees equal to 2.0% of the gross proceeds from the sale of the units to
the public stockholders, or approximately $3.5 million, until the consummation
of Jazz's initial business combination. Mr. Pittman, as a result of his former
position as partner and head of mergers and acquisitions at ThinkEquity Partners
LLC, the lead underwriter of Jazz's initial public offering, received 30%
($414,000) of the deferred underwriting fee payable to ThinkEquity and was also
issued an option to purchase up to a total of 250,000 units. This option has
since been repurchased.
Mr. Pittman served as Jazz's financial advisor in connection with the
acquisition of Jazz Semiconductor. As such, Jazz agreed to reimburse Mr. Pittman
for any out-of-pocket expenses. In addition, Mr. Pittman received an additional
success fee in the amount of $1.0 million as a result of successful completion
of the acquisition. Mr. Pittman also received a restricted stock grant of 51,993
shares of Jazz common stock under the 2006 Equity Incentive Plan as a result of
the completion of the acquisition. Mr. Pittman did not join as an officer of
Jazz Technologies until following the completion of the acquisition of Jazz
Semiconductor.
Pursuant to a consulting agreement entered into on April 14, 2006 between
Jazz and Allen Grogan, Jazz paid to Mr. Grogan a total of $80,000 in consulting
fees related to services provided in connection with the acquisition of Jazz
Semiconductor, plus reimbursement for out-of-pocket expenses. An additional
success fee in the amount of $100,000 was paid to Mr. Grogan upon successful
completion of the acquisition. Mr. Grogan also received a restricted stock grant
of 17,331 shares of Jazz common stock under the 2006 Equity Incentive Plan as a
result of the completion of the acquisition.
STOCKHOLDER LOAN
On August 26, 2005, Acquicor Management LLC loaned a total of $275,000 to
us for the payment of offering expenses in connection with Jazz's initial public
offering. The loan provided for interest at a rate of 3.6% per year and was
repaid on March 13, 2006 out of a portion of the proceeds from the private
placement of units described above.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Jazz has entered into indemnity agreements with certain officers and
directors which provide, among other things, that Jazz indemnify such officer or
director, under the circumstances and to the extent provided for therein, for
expenses, damages, judgments, fines and settlements he or she may be required to
pay in actions or proceedings which he or she is or may be made a party by
reason of his or her position as a director, officer or other agent, and
otherwise to the fullest extent permitted under Delaware law and Jazz's bylaws.
114
TAXATION
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
This section describes the anticipated material U.S. federal income tax
consequences of the merger to U.S. holders (as defined below) of Jazz common
stock. This discussion addresses only those holders that hold their Jazz common
stock as a capital asset within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended, or the Code, and does not address all the U.S.
federal income tax consequences that may be relevant to particular holders in
light of their individual circumstances or to holders that are subject to
special rules, such as financial institutions, mutual funds, insurance
companies, partnerships or other pass-through entities (and persons holding Jazz
common stock through a partnership or other pass-through entity), tax-exempt
organizations, brokers or dealers in securities or currencies, U.S. holders
whose functional currency is not the U.S. dollar, traders in securities that
elect to use a mark to market method of accounting, U.S. holders that will own
(or that will be deemed to own by attribution) 5% or more of the voting power or
value of Tower stock immediately after the merger, expatriates or former
long-term residents of the United States, persons that hold Jazz common stock as
part of a straddle, hedge, constructive sale, conversion or other risk-reduction
transaction, U.S. holders who acquired their shares of Jazz common stock through
the exercise of an employee stock option or otherwise as compensation and U.S.
holders whose Jazz common stock qualifies as small business corporation stock.
The following is based upon the Code, its legislative history, Treasury
regulations promulgated under the Code and published rulings and decisions, all
as currently in effect as of the date of this document, and all of which are
subject to change, possibly with retroactive effect, and to differing
interpretations. Tax considerations under state, local and foreign laws, or
federal laws other than federal income tax laws, are not addressed in this
discussion.
Holders of Jazz common stock are urged to consult with their own tax
advisors as to the tax consequences of the merger in their particular
circumstances, including the applicability and effect of any state, local,
foreign or other tax laws and of changes in those laws.
For purposes of this discussion, the term "U.S. holder" means a beneficial
owner of Jazz common stock that is for U.S. federal income tax purposes:
o a U.S. citizen or resident;
o a corporation, or entity taxable as a corporation, created or organized in
or under the laws of the United States, any state thereof or the District
of Columbia;
o an estate the income of which is subject to U.S. federal income tax
regardless of its source; or
o a trust if either (a) it is subject to the primary supervision of a court
within the United States and one or more U.S. persons have the authority
to control all substantial decisions of the trust or (b) it has a valid
election in effect under applicable Treasury regulations to be treated as
a U.S. person.
TAX CONSEQUENCES OF THE MERGER GENERALLY
Tower and Jazz have structured the merger to qualify as a reorganization
within the meaning of Section 368(a) of the Code and a transaction that is not
subject to Section 367(a)(1) of the Code. The obligation of Tower and Jazz to
consummate the merger are conditioned upon the receipt from their respective
counsel, O'Melveny & Myers LLP and Cooley Godward Kronish LLP, dated as of the
closing date, to the effect that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code and a transaction that is not
subject to Section 367(a)(1) of the Code. If one party's counsel, however, does
not render such opinion or withdraws or modifies its opinion, the condition
shall nonetheless be satisfied if the other party's tax counsel renders such
opinion. These opinions will be based on facts, representations and assumptions
set forth or referred to in the opinion and representations contained in tax
representation letters to be received from each of Tower, Merger Sub and Jazz.
If any representation and other statement made in the certificates is
inaccurate, or by the consummation of the merger becomes inaccurate, the tax
opinions may no longer be valid.
Neither the tax opinions nor the tax consequences of the merger described
below will be binding on the Internal Revenue Service, and neither Tower nor
Jazz intends to request a ruling from the Internal Revenue Service as to the
U.S. federal income tax consequences of the merger. As a consequence, no
assurance can be given that the Internal Revenue Service will not adopt a
contrary position and that the contrary position would not be sustained by a
court.
Assuming the merger qualifies as a reorganization within the meaning of
Section 368(a) of the Code and a transaction that is not subject to Section
367(a)(1) of the Code, the material U.S. federal tax consequences will be as
follows:
o A U.S. holder that exchanges shares of Jazz common stock for Tower
ordinary shares in the merger will not recognize gain or loss, except with
respect to cash received instead of a fractional share of Tower ordinary
shares (see discussion below under "CASH RECEIVED INSTEAD OF A
FRACTIONAL SHARE OF TOWER ORDINARY SHARES."
o No gain or loss will be recognized by Tower or Jazz in the merger.
115
TAX BASIS AND HOLDING PERIOD
A U.S. holder's aggregate tax basis in the Tower ordinary shares received
in the merger, including any fractional share interests deemed received and
redeemed by the U.S. holder under the treatment described below, will equal its
aggregate tax basis in the Jazz common stock surrendered in the merger. The
holding period for the shares of Tower ordinary shares received in the merger
generally will include the holding period for the shares of Jazz common stock
exchanged therefor. For a U.S. holder who acquired different blocks of Jazz
common stock at different times and at different prices, the U.S. holder should
consult its tax advisor prior to the exchange with regard to identifying the
bases or holding periods of the particular ordinary shares of Tower received in
the merger.
CASH RECEIVED INSTEAD OF A FRACTIONAL SHARE OF TOWER ORDINARY SHARES
A U.S. holder who receives cash instead of a fractional share of Tower
ordinary shares will be treated as having received the fractional share of Tower
ordinary shares pursuant to the merger and then as having exchanged the
fractional share of Tower ordinary shares for cash in a redemption by Tower. In
general, this deemed redemption will be treated as a sale or exchange, provided
the redemption is not essentially equivalent to a dividend. The determination of
whether a redemption is essentially equivalent to a dividend depends upon
whether and to what extent the redemption reduces the U.S. holder's deemed
percentage stock ownership of Tower. While this determination is based on each
U.S. holder's particular facts and circumstances, the Internal Revenue Service
has ruled that a redemption is not essentially equivalent to a dividend and will
therefore result in sale or exchange treatment in the case of a shareholder of a
publicly held company whose relative stock interest is minimal and who exercises
no control over corporate affairs if the redemption results in any actual
reduction in the stock interest of the shareholder. As a result, the redemption
of a fractional share of Tower ordinary shares generally is treated as a sale or
exchange and not as a dividend, and a U.S. holder generally will recognize
capital gain or loss equal to the difference between the amount of cash received
and the tax basis in its fractional share of Tower ordinary shares. This capital
gain or loss generally will be long-term capital gain or loss if, as of the
effective date of the merger, the holding period for the shares is greater than
one year. The deductibility of capital losses is subject to limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Cash payments received in the merger by a U.S. holder may, under certain
circumstances, be subject to information reporting and backup withholding at a
rate of 28% of the cash payable to the holder, unless the holder provides proof
of an applicable exemption or furnishes its taxpayer identification number, and
otherwise complies with all applicable requirements of the backup withholding
rules. Any amounts withheld from payments to a holder under the backup
withholding rules are not an additional tax and will be allowed as a refund or
credit against the U.S. holder's U.S. federal income tax liability, provided the
required information is timely furnished to the Internal Revenue Service.
REPORTING REQUIREMENTS
A U.S. holder who receives Tower ordinary shares as a result of the merger
will be required to retain records pertaining to the merger and will be required
to file a statement with its federal income tax return for the year in which the
merger takes place that contains the information listed in Treasury Regulation
Section 1.368-3(b). Such statement must include the holder's tax basis in the
shares of Jazz common stock surrendered and a description of the ordinary shares
of Tower received in the merger.
MATERIAL ISRAELI TAX CONSIDERATIONS - TAXATION OF TOWER SHAREHOLDERS
The following summarizes the main Israeli tax considerations for Tower
Shareholders subsequent to the merger:
ISRAELI TAX WITHHOLDING ON THE MERGER
According to Israeli tax law, the merger may be viewed as a taxable event
for Jazz shareholders who are Israeli resident individuals or companies.
Therefore, Tower may withhold tax from any Israeli resident shareholders of Jazz
that do not produce to Tower a valid withholding exemption certificate issued by
the Israeli tax authorities and applying to the transactions. In cases where an
Israeli resident Jazz shareholder does not produce an exemption certificate, the
consideration shares could be held back until the shareholder satisfies the
abovementioned withholding obligations.
CAPITAL GAINS TAX
Israeli law generally imposes a capital gains tax on the sale of capital
assets located in Israel, including shares of Israeli resident companies and
options to purchase shares in Israeli resident companies, unless a specific
exemption is available or unless a treaty for the avoidance of double taxation
between Israel and the country of the nonresident provides otherwise. An
individual is subject to a 20% tax rate on real capital gains derived from the
sale of shares or options, as long as the individual has not demanded a
deduction of interest and linkage differences in connection with the purchase
and holding of the securities; and as long as the individual is not a
substantial shareholder of the company issuing the shares, which is generally a
shareholder with 10% or more of the right to profits, the right to nominate a
director and voting rights. A substantial shareholder (or a shareholder who has
demanded a deduction of interest and linkage differences) will be subject to tax
at a rate of 25% on real capital gains derived from the sale of shares issued by
the company. The determination of whether the individual is a substantial
shareholder will be made on the date that the securities are sold. In addition,
the individual will be deemed to be a substantial shareholder if at any time
during the 12 months preceding this date he or she had been a substantial
shareholder. The foregoing tax rates, however, will not apply to dealers in
securities.
116
Corporations are subject to corporate tax rates in respect of capital
gains from the sale of publicly-traded shares in Israeli companies. Recent
changes in the law will reduce the corporate tax rate from 27% in 2008 to 26% in
2009 and 25% in 2010 and thereafter. Until 2009, however, corporations whose
taxable income was not determined immediately before the 2006 Tax Reform was
published, pursuant to part B of the Israeli Income Tax Law (Inflationary
Adjustments), 1985, or pursuant to the Income Tax Regulations (Rules on
Bookkeeping by Foreign Invested Companies and Certain Partnership and
Determination of their Chargeable Income), 1984, or the Dollar Regulations, will
generally be taxed at a rate of 25% on their capital gains from the sale of
their shares.
Non-residents of Israel, including corporations, will generally be exempt
from any capital gains tax from the sale of shares so long as (i) the gains are
not derived through a permanent establishment that the non-resident maintains in
Israel, (ii) the shares remain listed for trading on a designated stock market
and (iii) the shares were purchased after being listed on the designated stock
market. These provisions dealing with capital gains are not applicable to a
person whose gains from selling or otherwise disposing of the shares are deemed
to be business income. In addition, pursuant to the Convention between the
Government of the United States of America and the Government of Israel with
Respect to Taxes on Income, as amended, which we refer to as the United
States-Israel Tax Treaty, the sale, exchange or disposition of ordinary shares
by a person who qualifies as a resident of the United States within the meaning
of the United States-Israel Tax Treaty and who is entitled to claim the benefits
afforded to such person by the United States-Israel Tax Treaty, which we refer
to as a Treaty United States Resident, generally will not be subject to the
Israeli capital gains tax unless such Treaty United States Resident holds,
directly or indirectly, shares representing 10% or more of our voting power
during any part of the 12-month period preceding such sale, exchange or
disposition, subject to certain conditions. In addition, a temporary provision
of the Israeli tax laws exempts treaty country residents from capital gains tax
on the sale of securities in Israeli companies purchased between July 1, 2005
and December 31, 2008, if certain conditions are met.
ISRAELI-SOURCED PASSIVE INCOME
Non-residents of Israel are subject to income tax on income accrued or
derived from sources in Israel. These sources of income include passive income,
including dividends, royalties and interest, as well as non-passive income from
services rendered in Israel. For so long as the securities of Tower are publicly
traded, on distribution of dividends other than bonus shares or share dividends,
income tax is withheld at the rate of 20% for dividends paid to individuals or
foreign corporations and, upon application to the tax authorities, 15% for
dividends generated by an Approved Enterprise, unless in each case a different
rate is provided in a treaty between Israel and the shareholder's country of
residence. Under the United States-Israel Tax Treaty, the maximum tax on
dividends paid to a holder of ordinary shares who is a U.S. resident will be
25%. The maximum tax rate on dividends not generated by an Approved Enterprise
paid to a U.S. corporation holding at least 10% of our voting power is 12.5%. A
non-resident of Israel who receives dividends from which tax was withheld is
generally exempt from the duty to file returns in Israel in respect of such
income, provided such income was not derived from a business conducted in Israel
by the taxpayer, and the taxpayer has no other taxable sources of income in
Israel.
117
EXCHANGE CONTROLS AND LIMITATIONS AFFECTING STOCKHOLDERS
Under Israeli law, non-residents of Israel who purchase ordinary shares
with certain non-Israeli currencies (including US dollars) may freely repatriate
in such non-Israeli currencies all amounts received in Israeli currency in
respect of the ordinary shares, whether as a dividend, as a liquidating
distribution, or as proceeds from any sale in Israel of the ordinary shares,
provided in each case that any applicable Israeli income tax is paid or withheld
on such amounts. The conversion into the non-Israeli currency must be made at
the rate of exchange prevailing at the time of conversion.
For information regarding taxation of capital gains under Israeli tax law,
please see "MATERIAL ISRAELI TAX CONSIDERATIONS - TAXATION OF TOWER
SHAREHOLDERS."
ENFORCING CIVIL LIABILITIES
Tower is an Israeli corporation and its directors, executive offices and a
substantial portion of its assets are located outside the United States. As a
result, it may be difficult for investors:
o to obtain jurisdiction over Tower or its board members in courts in
the United States in actions predicated on the civil liability
provisions of the U.S. federal securities laws;
o to enforce against Tower or its board members judgments obtained in
such actions;
o to obtain judgments against Tower or its board members in actions in
non-U.S. courts predicated solely upon the U.S. federal securities
laws; or
o to enforce against Tower or its board members in non-U.S. courts
judgments of courts in the United States predicated upon the civil
liability provisions of the U.S. federal securities laws.
LEGAL MATTERS
The validity of the Tower ordinary shares offered by this proxy
statement/prospectus will be passed upon for Tower by Yigal Arnon & Co., Tower's
Israeli counsel.
EXPERTS
The consolidated financial statements of Tower Semiconductor Ltd. as of
December 31, 2007 and for each of the three years in the period ended December
31, 2007, incorporated by reference in this proxy statement/prospectus, have
been audited by Brightman Almagor & Co., A member of Deloitte Touche Tohmatsu,
an independent registered public accounting firm, as stated in their report,
which is incorporated by reference herein. Such financial statements have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated balance sheet of Jazz Technologies, Inc. as of December
28, 2007, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 28, 2007, and the consolidated
balance sheets of Jazz Semiconductor, Inc. as of December 30, 2005 and December
29, 2006, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended and for the period from December
30, 2006 to February 16, 2007, included in this proxy statement/prospectus
and in the registration statement have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in their report
thereon, included herein.
The financial statements of Jazz Technologies, Inc. (formerly Acquicor
Technology Inc.) as of and for the year ended December 31, 2006 included in this
proxy statement/prospectus and in the registration statement have been so
included in reliance on the report of BDO Seidman, LLP, an independent
registered public accounting firm, appearing elsewhere herein and in the
registration statement given on the authority of said firm as experts in
auditing and accounting.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Jazz board of
directors knows of no matters that will be presented for consideration at the
special meeting other than as described in this proxy statement/prospectus.
ABOUT THIS DOCUMENT
This document, which forms part of a registration statement on Form F-4
filed with the SEC by Tower (File No. 333-151919), constitutes a prospectus of
Tower under Section 5 of the U.S. Securities Act of 1933, as amended, which is
referred to as the Securities Act, with respect to the Tower ordinary shares to
be issued to Jazz stockholders as required by the merger agreement. This
document also constitutes a notice of meeting and a proxy statement under
Section 14(a) of the Exchange Act, with respect to the special meeting of Jazz
stockholders, at which Jazz stockholders will be asked to vote upon a proposal
to approve and adopt the merger agreement and approve the merger.
118
SHAREHOLDER PROPOSALS
The 2009 annual meeting of Jazz stockholders will not be held if the
merger is completed. Therefore, Jazz reserves the right to postpone or cancel
its 2009 annual meeting. If the merger is not completed and you wish to include
a stockholder proposal in the proxy materials for Jazz's 2009 annual meeting,
your proposal must be submitted in writing by December 10, 2008, to our
Secretary at 4321 Jamboree Road, Newport Beach, California 92660. If you wish to
submit a proposal that is not to be included in next year's proxy materials or
nominate a director, you must do so by no later than February 6, 2009 and no
earlier than January 7, 2009.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g.,
brokers) to satisfy the delivery requirements for proxy statements and annual
reports with respect to two or more stockholders sharing the same address by
delivering a single proxy statement addressed to those stockholders. This
process, which is commonly referred to as "householding," potentially means
extra convenience for stockholders and cost savings for companies.
This year, a number of brokers with account holders who are Jazz
stockholders will be "householding" Jazz's proxy materials. A single proxy
statement will be delivered to multiple stockholders sharing an address unless
contrary instructions have been received from the affected stockholders. Once
you have received notice from your broker that they will be "householding"
communications to your address, "householding" will continue until you are
notified otherwise or until you revoke your consent. If, at any time, you no
longer wish to participate in "householding" and would prefer to receive a
separate proxy statement and annual report, please notify your broker. Direct
your written request to Jazz Technologies, Inc., Attn: Allen R. Grogan,
Corporate Secretary, 4321 Jamboree Road, Newport Beach, California 92660 or
contact Mr. Grogan at (949) 435-8000. Stockholders who currently receive
multiple copies of the proxy statement at their addresses and would like to
request "householding" of their communications should contact their brokers.
WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION OF
INFORMATION BY REFERENCE
This proxy statement/prospectus incorporates by reference important
business and financial information about Tower from documents filed with the SEC
that are not included in or delivered with this proxy statement/prospectus.
Tower files reports and other information with the SEC. You may read and
copy these reports, statements or other information filed by Tower at the SEC's
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the Public Reference Rooms.
The SEC filings of Tower are also available to the public from commercial
document retrieval services and at the website maintained by the SEC at
http://www.sec.gov.
Tower has filed a registration statement on Form F-4 to register with the
SEC the Tower ordinary shares to be issued to Jazz stockholders in the merger.
This proxy statement/prospectus forms a part of that registration statement and
constitutes a prospectus of Tower, in addition to being a proxy statement of
Jazz for its special meeting. The registration statement, including the attached
annexes, exhibits and schedules, contains additional relevant information about
Tower and Jazz. As allowed by SEC rules, this proxy statement/prospectus does
not contain all the information concerning Tower that you can find in the
registration statement or the exhibits to the registration statement.
The SEC allows Tower to "incorporate by reference" information into this
proxy statement/prospectus. This means that Tower can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part of
this proxy statement/prospectus, except for any information that is superseded
by information that is included directly in this proxy statement/prospectus or
incorporated by reference subsequent to the date of this proxy
statement/prospectus. Tower does not incorporate the contents of its website
into this proxy statement/prospectus.
119
This proxy statement/prospectus incorporates by reference the documents
listed below that Tower has previously filed with or furnished to the SEC. They
contain important information about Tower and its financial condition.
TOWER SEC FILINGS (FILE NO. 000-24790) PERIOD AND/OR DATE FILED OR DATE FURNISHED
- ------------------------------------------------------------------ ---------------------------------------------------------------
Annual Report on Form 20-F Fiscal year ended December 31, 2007, filed on June 18, 2008
Reports on Form 6-K Furnished on January 4, 2008, January 15, 2008, February 6,
F008, February 7, 2008, March 27, 2008, April 11, 2008, April
15, 2008, April 29, 2008, May 19, 2008, May 20, 2008, May 21,
1008, May 28, 2008, June 23, 2008, June 26, 2008, June 30,
2008, July 2, 2008, July 8, 2008, July 9, 2008, July 18, 2008
and August 7, 2008.
Registration Statement on Form 8-A Declared effective on October 25, 1994
In addition, Tower incorporates by reference additional documents that it
may file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act between the date of this proxy statement/prospectus and the date on
which the merger is completed. These documents include periodic reports, such as
annual reports on Form 20-F and current reports on Form 6-K.
Tower and Jazz also incorporate by reference the merger agreement attached
to this proxy statement/prospectus as Annex 1. Tower has supplied all
information contained in or incorporated by reference into this proxy
statement/prospectus relating to Tower and Merger Sub, and Jazz has supplied all
information contained in this proxy statement/prospectus relating to Jazz.
You can obtain any of the documents that Tower has filed with the SEC
through contacting Tower, at the address below, or from the SEC, at no cost,
through the SEC's website at http://www.sec.gov. These documents are available
from Tower without charge, excluding any exhibits to those documents, unless the
exhibit is specifically incorporated by reference as an exhibit in this proxy
statement/prospectus. Tower will provide to each person, including any
beneficial owner, to whom this proxy statement/prospectus is delivered, a copy
of these filings, at no cost, upon written or oral request to Tower at: Ramat
Gavriel Industrial Park, Post Office Box 619, Migdal Haemek, 23105 Israel, Attn:
Corporate Secretary, telephone number: 972-4-650-6611. Copies of these filings
may also be accessed at Tower's website, www.towersemi.com. Click on "Investor
Relations" and then "Filings."
A copy of this proxy statement/prospectus and Tower's articles of
association, are available for inspection at our offices at Shaul Amor Street,
Ramat Gavriel Industrial Park, Migdal Haemek, 23105 Israel and on the Israel
Securities Authority's Magna website, www.magna.isa.gov.il
IN ORDER FOR YOU TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF
THE JAZZ SPECIAL MEETING, TOWER SHOULD RECEIVE YOUR REQUEST NO LATER THAN
September 10, 2008.
Tower and Jazz have not authorized anyone to give any information or make
any representation about the merger or their companies that is different from,
or in addition to, that contained in this proxy statement/prospectus or in any
of the materials that have been incorporated into this proxy
statement/prospectus. Therefore, if anyone does give you information of this
sort, you should not rely on it. If you are in a jurisdiction where offers to
exchange or sell, or solicitations of offers to exchange or purchase, the
securities offered by this proxy statement/prospectus or the solicitation of
proxies is unlawful, or if you are a person to whom it is unlawful to direct
these types of activities, then the offer presented in this proxy
statement/prospectus does not extend to you. The information contained in this
proxy statement/prospectus is accurate only as of the date of this document
unless the information specifically indicates that another date applies.
120
ANNEXES
DOCUMENT ANNEX
Agreement and Plan of Merger and Reorganization 1
Opinion of UBS Securities LLC 2
Jazz Financial Statements 3
121
ANNEX 1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
A-1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among:
TOWER SEMICONDUCTOR LTD.,
an Israel company;
ARMSTRONG ACQUISITION CORP.,
a Delaware corporation; and
JAZZ TECHNOLOGIES, INC.,
a Delaware corporation
------------------------
Dated as of May 19, 2008
------------------------
A-2
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("AGREEMENT") is made
and entered into as of May 19, 2008, by and among: TOWER SEMICONDUCTOR LTD., an
Israel company ("PARENT"); ARMSTRONG ACQUISITION CORP., a Delaware corporation
and a wholly owned subsidiary of Parent ("MERGER SUB"); and JAZZ TECHNOLOGIES,
INC., a Delaware corporation (the "COMPANY"). Certain capitalized terms used in
this Agreement are defined in EXHIBIT A.
RECITALS
A. The respective boards of directors of Parent, Merger Sub and the Company
have each determined that it is in the best interests of their respective
corporations and shareholders or stockholders, as applicable, that Merger Sub be
merged with and into the Company upon the terms and subject to the conditions
set forth in this Agreement.
B. The board of directors of the Company has (i) determined that the Merger
(as defined in Section 1.1) is advisable and fair to, and in the best interests
of, the Company and its stockholders, (ii) approved this Agreement, the Merger
and the other transactions contemplated by this Agreement, and (iii) determined,
subject to the terms of this Agreement, to recommend that the stockholders of
the Company adopt this Agreement, all by a vote of the members of such board of
directors present at a meeting to consider and vote upon such matters.
C. The boards of directors of Parent and Merger Sub have approved this
Agreement, the Merger and the other transactions contemplated by this Agreement.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time (as defined in Section 1.3(b)) and in
accordance with the Delaware General Corporation Law ("DGCL"), Merger Sub shall
be merged with and into the Company (the merger of Merger Sub into the Company
being referred to as the "MERGER") and the separate corporate existence of
Merger Sub shall cease. The Company shall continue as the surviving corporation
in the Merger (the "SURVIVING CORPORATION").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the DGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time all
of the assets, properties, rights, privileges, powers and franchises of the
Company and Merger Sub shall vest in the Surviving Corporation, and all of the
debts, liabilities, obligations, restrictions and duties of the Company and
Merger Sub shall become the debts, liabilities, obligations, restrictions and
duties of the Surviving Corporation.
A-3
1.3 CLOSING; EFFECTIVE TIME OF THE MERGER.
(A) The consummation of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Cooley Godward
Kronish LLP, 101 California Street, 5th Floor, San Francisco, California
(or such other place or time as Parent and the Company may jointly
designate in writing), as soon as practicable, but no later than two
business days after the satisfaction or waiver of the last of the
conditions set forth in Section 5 to be satisfied or waived (other than any
such conditions that by their nature are to be satisfied at the Closing,
but subject to the satisfaction or waiver of such conditions), unless the
parties hereto otherwise agree in writing. The date on which the Closing
actually takes place is referred to as the "CLOSING DATE."
(B) Upon the terms and subject to the provisions of this Agreement, in
order to effect the Merger, a certificate of merger satisfying the
applicable requirements of the DGCL shall be duly executed by the Company
and Merger Sub and concurrently with or as soon as practicable following
the Closing shall be filed with the Secretary of State of the State of
Delaware in accordance with the relevant provisions of the DGCL. The Merger
shall become effective at the time of the filing of such certificate of
merger with the Secretary of State of the State of Delaware or at such
later time as may be mutually determined by the parties to this Agreement
and set forth in such certificate of merger (the time as of which the
Merger becomes effective being referred to as the "EFFECTIVE TIME").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise jointly determined by Parent and the Company in writing prior to the
Effective Time:
(A) as of the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub or the Company, the Certificate of
Incorporation of the Surviving Corporation shall be amended and restated as
of the Effective Time to conform to EXHIBIT B, until thereafter amended in
accordance with the DGCL and such Certificate of Incorporation;
(B) as of the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub or the Company, but subject to Section
4.10(a), the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as
in effect immediately prior to the Effective Time, until thereafter amended
in accordance with the DGCL, the Certificate of Incorporation of the
Surviving Corporation and such Bylaws; PROVIDED, HOWEVER, that all
references in such Bylaws to Merger Sub shall be amended to refer to "Jazz
Technologies, Inc.";
(C) the directors of the Surviving Corporation immediately after the
Effective Time shall be the respective individuals who are directors of
Merger Sub immediately prior to the Effective Time, until their respective
successors are duly elected or appointed and qualified; and
(D) the officers of the Surviving Corporation immediately after the
Effective Time shall be the respective individuals who are officers of
Merger Sub immediately prior to the Effective Time.
A-4
1.5 CONVERSION OF CAPITAL STOCK.
(A) At the Effective Time, by virtue of the Merger and without any
further action on the part of Parent, Merger Sub, the Company or any
stockholder of the Company:
(I) any shares of Company Common Stock held in the Company's
treasury or held by the Company immediately prior to the Effective
Time shall be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor;
(II) any shares of Company Common Stock held by Parent or Merger
Sub immediately prior to the Effective Time shall be canceled and
retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor;
(III) except as provided in clauses "(i)" and "(ii)" above and
subject to Sections 1.5(b) and 1.5(c), each share of Company Common
Stock outstanding (including any outstanding shares of Company Common
Stock that are unvested or are subject to any repurchase rights, risk
of forfeiture or other condition in favor of the Company and any
Company Common Stock held by any direct or indirect subsidiary of
either the Parent (other than Merger Sub) or the Company) immediately
prior to the Effective Time shall be converted into the right to
receive 1.8 (the "EXCHANGE RATIO") ordinary shares, par value NIS 1.00
per share, of Parent ("PARENT ORDINARY SHARES"); and
(IV) each share of common stock, $0.001 par value per share, of
Merger Sub Ioutstanding immediately prior to the Effective Time shall
be converted into one share of common stock of the Surviving
Corporation, and each certificate evidencing ownership of shares of
Merger Sub common stock outstanding immediately prior to the Effective
Time shall evidence ownership of such shares of common stock of the
Surviving Corporation.
(B) The Exchange Ratio and any other applicable numbers or amounts
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 or exercisable or exchangeable for Parent
Ordinary Shares or Company Common Stock), extraordinary cash dividend,
reorganization, recapitalization, reclassification, combination, exchange
of shares or other like change with respect to Parent Ordinary Shares or
Company Common Stock occurring or having a record date on or after the date
of this Agreement and prior to the Effective Time.
(C) No fraction of a Parent Ordinary Share will be issued by virtue of
the Merger, but instead each holder of shares of Company Common Stock who
would otherwise be entitled to receive a fraction of a Parent Ordinary
Share (after aggregating all fractional Parent Ordinary Shares that
otherwise would be received by such holder) shall, upon surrender of such
holder's Company Stock Certificate(s) (as defined in Section 1.6) receive
from Parent an amount of cash (rounded to the nearest whole cent), without
interest, equal to the product of (i) such fraction, multiplied by (ii) the
average closing price of one Parent Ordinary Share for the five (5) most
recent days that Parent Ordinary Shares have traded ending on the trading
day immediately prior to the Effective Time, as reported on the Nasdaq
Global Market.
A-5
1.6 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK; CLOSING OF THE
COMPANY'S TRANSFER BOOKS. All Parent Ordinary Shares issued in exchange for
shares of Company Common Stock in accordance with the terms hereof (including
any cash in lieu of any fractional shares pursuant to Section 1.5(c) and any
dividends or other distributions pursuant to Section 1.7(c)) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock. At the Effective Time: (a) all shares of Company Common
Stock outstanding immediately prior to the Effective Time shall automatically be
canceled and retired and shall cease to exist, and all holders of certificates
representing shares of Company Common Stock that were outstanding immediately
prior to the Effective Time shall cease to have any rights as stockholders of
the Company, except for (and to the extent provided in Section 1.5) the right to
receive the Parent Ordinary Shares and cash pursuant to Section 1.5 with respect
to each of the shares of Company Common Stock evidenced by such certificates;
and (b) the stock transfer books of the Company shall be closed with respect to
all shares of Company Common Stock outstanding immediately prior to the
Effective Time. No further transfer of any such shares of Company Common Stock
shall be made on such stock transfer books after the Effective Time. If, after
the Effective Time, a valid certificate previously representing any shares of
Company Common Stock outstanding immediately prior to the Effective Time (a
"COMPANY STOCK CERTIFICATE") is presented to the Exchange Agent (as defined in
Section 1.7(a)) or to the Surviving Corporation or Parent, such Company Stock
Certificate shall be canceled and shall be exchanged as provided in Section 1.7.
1.7 SURRENDER OF CERTIFICATES.
(A) Prior to the Effective Time, (i) Parent shall select a reputable
bank or trust company reasonably acceptable to the Company to act as
exchange agent with respect to the Merger (the "EXCHANGE AGENT"), and (ii)
Parent shall cause to be made available to the Exchange Agent, for exchange
in accordance with this Section 1, the Parent Ordinary Shares pursuant to
Section 1.5(a)(iii), and cash amounts sufficient for payment in lieu of
fractional shares pursuant to Section 1.5(c) and any dividends or
distributions to which holders of shares of Company Common Stock may be
entitled pursuant to Section 1.7(c). The Parent Ordinary Shares and cash
amounts so deposited with the Exchange Agent, together with any dividends
or distributions received by the Exchange Agent with respect to such
shares, are referred to collectively as the "EXCHANGE FUND."
(B) Promptly (and in any event within five (5) business days after the
Effective Time, subject to Parent and Exchange Agent receiving from the
Company and its transfer agent all reasonably required information prior to
the Effective Time), Parent shall cause the Exchange Agent to mail to each
Person who was, immediately prior to the Effective Time, a holder of record
of shares of Company Common Stock described in Section 1.5(a)(iii) a form
of letter of transmittal in customary form (which shall specify that
delivery shall be effected, and risk of loss and title to the Company Stock
Certificates shall pass, only upon delivery of the Company Stock
Certificates to the Exchange Agent and shall contain such other customary
provisions as Parent or the Exchange Agent may reasonably specify) and
instructions for use in effecting the surrender of Company Stock
Certificates previously representing such shares of Company Common Stock in
exchange for certificates representing Parent Ordinary Shares pursuant to
Section 1.5(a)(iii), cash in lieu of any fractional shares pursuant to
Section 1.5(c) and any dividends or other distributions pursuant to Section
1.7(c). Such letter of transmittal shall contain all reasonably required
tax information, including tax information regarding the record holders of
Company Common Stock, as Parent may reasonably require. Parent shall ensure
that, upon proper surrender to the Exchange Agent of each such Company
Stock Certificate, together with a properly executed letter of transmittal,
the holder of such Company Stock Certificate (or, under the circumstances
described in Section 1.7(f), the transferee of shares of Company Common
Stock previously represented by such Company Stock Certificate) shall
promptly receive in exchange therefor certificates representing the number
of whole Parent Ordinary Shares into which their shares of Company Common
Stock were converted pursuant to Section 1.5(a)(iii), payment in lieu of
fractional shares which such holders have the right to receive pursuant to
Section 1.5(c) and any dividends or other distributions payable pursuant to
Section 1.7(c).
A-6
(C) Dividends or other distributions declared or made after the date
of this Agreement with respect to Parent Ordinary Shares with a record date
after the Effective Time will be paid to the holders of any unsurrendered
Company Stock Certificates with respect to the Parent Ordinary Shares
represented thereby when the holders of record of such Company Stock
Certificates surrender such Company Stock Certificates.
(D) On or after the first anniversary of the Effective Time, the
Surviving Corporation shall be entitled to cause the Exchange Agent to
deliver to the Surviving Corporation any portion of the Exchange Fund which
has not been distributed to holders of Company Stock Certificates, and
thereafter such holders shall be entitled to look solely to Parent and the
Surviving Corporation with respect to the Parent Ordinary Shares pursuant
to Section 1.5(a)(iii), cash in lieu of any fractional shares pursuant to
Section 1.5(c) and any dividends or other distributions pursuant to Section
1.7(c). Neither the Exchange Agent, Parent, nor the Surviving Corporation
shall be liable to any holder of a Company Stock Certificate for any amount
properly paid to a public official pursuant to any applicable abandoned
property or escheat law.
(E) If any Company Stock Certificate shall have been lost, stolen or
destroyed, then, upon the making of an affidavit of that fact by the Person
claiming such Company Stock Certificate to be lost, stolen or destroyed,
Parent shall cause the Exchange Agent to issue and pay in exchange for such
lost, stolen or destroyed Company Stock Certificate the Parent Ordinary
Shares pursuant to Section 1.5(a)(iii), cash in lieu of any fractional
shares pursuant to Section 1.5(c) and any dividends or other distributions
pursuant to Section 1.7(c); PROVIDED, HOWEVER, that Parent may also, in its
commercially reasonable discretion and as an additional condition precedent
to the issuance and payment thereof, require the owner of such lost, stolen
or destroyed Company Stock Certificates to deliver a bond in such sum as it
may reasonably direct, in accordance with the Exchange Agent's customary
policies, against Parent, the Surviving Corporation or the Exchange Agent
with respect to the Company Stock Certificates alleged to have been lost,
stolen or destroyed.
(F) If certificates representing Parent Ordinary Shares are to be
issued in a name other than that in which the Company Stock Certificates
surrendered in exchange therefor are registered, it will be a condition of
the issuance thereof that the Company Stock Certificates so surrendered
will be properly endorsed and otherwise in proper form for transfer and
that the Persons requesting such exchange will have (i) paid to Parent or
any agent designated by it any transfer or other taxes required by reason
of the issuance of certificates representing Parent Ordinary Shares in any
name other than that of the registered holder of the Company Stock
Certificates surrendered, or (ii) established to the reasonable
satisfaction of Parent or any agent designated by it that such tax has been
paid or is not payable.
A-7
(G) The Surviving Corporation shall bear and pay all charges and
expenses, including those of the Exchange Agent, incurred in connection
with the exchange of Company Common Stock for Parent Ordinary Shares
(including any cash in lieu of any fractional shares pursuant to Section
1.5(c) and any dividends or other distributions pursuant to Section
1.7(c)).
1.8 COMPANY OPTIONS; RESTRICTED STOCK; WARRANTS.
(A) COMPANY OPTIONS. At the Effective Time, each Company Option shall
be assumed by Parent in accordance with Section 4.9(a).
(B) COMPANY WARRANTS. At the Effective Time, each unexercised Company
Warrant outstanding immediately prior to the Effective Time shall be
assumed by Parent in accordance with Section 4.9(b).
(C) RESTRICTED STOCK. If there are any outstanding shares of Company
Common Stock that are unvested or are subject to any repurchase rights,
risk of forfeiture or other condition in favor of the Company immediately
prior to the Effective Time, then the Parent Ordinary Shares issued in
exchange for such shares of Company Common Stock shall also be unvested and
subject to the same repurchase option, risk of forfeiture or other
condition (including any requirement that any unvested shares be held in
escrow), and the certificate representing such Parent Ordinary Shares may
accordingly be marked with appropriate legends in the discretion of Parent.
1.9 WITHHOLDING. Each of the Exchange Agent, Parent, the Company and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Section 1 to any
holder or former holder of Company Common Stock such amounts as the Exchange
Agent, Parent, the Company or the Surviving Corporation is required to deduct
and withhold from such consideration under the Code or any corresponding
provision of applicable state, local or foreign tax law or under any applicable
Legal Requirement. Each of the Exchange Agent, Parent, the Company and the
Surviving Corporation shall take all action that may be necessary to ensure that
any such amounts so deducted and withheld are timely and properly remitted to
the appropriate tax authority. To the extent such amounts are so deducted and
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
1.10 CERTAIN TAX MATTERS.
(A) For United States federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section
368(a) of the Code and a transaction that is not subject to Section
367(a)(1) of the Code. The parties to this Agreement hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
(B) Notwithstanding any provision of this Agreement, Parent will not
assume, or be responsible for, any federal, state, local or foreign income
tax of any Company stockholder; provided however, that Parent shall assume
and be responsible for any stock transfer or similar Tax on the issuance or
registration of Parent Ordinary Shares imposed by any United States or
Israeli tax authority whether or not such Tax is imposed on a Company
stockholder or some other person.
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1.11 FURTHER ACTION. If, at any time after the Effective Time, any further
action is necessary to carry out the purposes of this Agreement or to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and directors of the Surviving Corporation and Parent shall be
fully authorized (in the name of Merger Sub, in the name of the Company or
otherwise) to take all such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that, except
as set forth in the disclosure schedule delivered to Parent on the date of this
Agreement (the "COMPANY DISCLOSURE SCHEDULE"):
2.1 DUE ORGANIZATION AND GOOD STANDING; SUBSIDIARIES.
(A) Each of the Company and the Designated Subsidiaries is a
corporation or limited liability company duly organized, validly existing
and (where such concept is recognized under the laws of the jurisdiction in
which it is incorporated) in good standing under the laws of the
jurisdiction in which it is organized, and has all requisite corporate or
limited liability company power and authority necessary to: (i) carry on
its business as it is now being conducted; and (ii) perform its obligations
under all contracts to which it is a party or under which it has rights
and/or obligations. The Company and each of the Designated Subsidiaries is
duly qualified or licensed to do business and is in good standing in each
state or foreign jurisdiction in which the nature of the business conducted
by it makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed would not have a Material Adverse
Effect on the Company. Neither the Company nor any Designated Subsidiary
has agreed or is obligated to make or may become obligated to make, any
future investment in or capital contribution in any other Entity.
(B) Part 2.1 of the Company Disclosure Schedule lists all Subsidiaries
of the Company, together with the jurisdiction and form of organization of
each such Subsidiary. As of the date of this Agreement, the aggregate
dollar amount of the assets of each Subsidiary of the Company that is not a
Designated Subsidiary, determined in accordance with GAAP, is less than 1%
of the aggregate dollar amount of the consolidated assets of the Company
and its Subsidiaries, determined in accordance with GAAP. For fiscal year
2007, the pre-tax operating income of each Subsidiary of the Company that
is not a Designated Subsidiary, determined in accordance with GAAP, was
less than 1% of the aggregate dollar amount of the consolidated pre-tax
operating income of the Company and its Subsidiaries, determined in
accordance with GAAP. All of the outstanding shares of capital stock or
membership interests, as the case may be, of each Designated Subsidiary are
owned directly or indirectly by the Company free and clear of all
Encumbrances.
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2.2 CERTIFICATE OF INCORPORATION; BYLAWS. The Company has made available to
Parent or Parent's legal advisor: (i) copies of the Organizational Documents of
the Company and each Designated Subsidiary, including all amendments thereto;
(ii) the stock or other equity records of the Company and each Designated
Subsidiary; and (iii) except as set forth in Part 2.2 of the Company Disclosure
Schedule, the minutes and other records as of the date of this Agreement of the
meetings at which formal actions were taken or any actions taken by written
consent without a meeting of the stockholders of the Company, the board of
directors of the Company and all committees of the board of directors of the
Company. Except as set forth in Part 2.2 of the Company Disclosure Schedule, the
stock or other equity records of the Company are accurate, up-to-date and
complete in all material respects. Neither the Company nor any Designated
Subsidiary is in violation of its Organizational Documents.
2.3 CAPITALIZATION, ETC.
(A) The authorized capital stock of the Company consists of
200,000,000 shares of Company Common Stock and 1,000,000 shares of
preferred stock ("PREFERRED SHARES"). As of 5:00 p.m. Pacific Time on May
15, 2008: (i) 19,031,276 shares of Company Common Stock were issued and
outstanding (including shares of Company Common Stock included in the
Company Units), of which no shares were unvested or were subject to any
repurchase rights, risk of forfeiture or other similar condition in favor
of the Company; (ii) no Preferred Shares were issued or outstanding; (iii)
33,033,013 shares of Company Common Stock were issuable upon exercise of
Company Warrants that were issued and outstanding (including shares of
Company Common Stock issuable upon exercise of Company Warrants included in
the Company Units); (iii) 3,108,618 shares of Company Common Stock were
issuable upon exercise of options issued pursuant to the Company Equity
Plan; and (iv) 17,489,813 shares of Company Common Stock were issuable upon
conversion of $128,200,000 aggregate principal amount of Convertible Notes.
As of 5:00 p.m. Pacific Time on May 15, 2008, 2,064,090 Company Units were
outstanding (which Company Units are included in the totals above). Between
5:00 p.m. Pacific Time on May 15, 2008 and the date of this Agreement, the
Company has not issued any shares of Company Common Stock except upon
exercise of outstanding Company Options or Company Warrants or conversion
of outstanding Convertible Notes in accordance with their terms. As of the
date of this Agreement, 4,366,544 shares of Company Common Stock were
reserved for future issuance pursuant to the Company Equity Plan. The
Company has made available to Parent or Parent's legal advisor copies of
(A) the Company Equity Plan, which covers the stock options and restricted
stock awards granted by the Company that are outstanding as of the date of
this Agreement, and (B) the forms of all stock option agreements and
restricted stock award agreements evidencing such options and stock awards.
(B) All the outstanding shares of capital stock of the Company and
each Designated Subsidiary have been duly authorized and validly issued and
are fully paid and nonassessable.
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(C) Except as set forth in Part 2.3(c) of the Company Disclosure
Schedule: (i) none of the outstanding shares of capital stock of the
Company and the Designated Subsidiaries is entitled or subject to any
preemptive right or right of participation; (ii) none of the outstanding
shares of the capital stock of the Company and the Designated Subsidiaries
is subject to any right of first refusal or similar right in favor of the
Company; and (iii) there is no agreement in place 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 the capital stock of the Company or the
Designated Subsidiaries.
(D) Part 2.3(d) of the Company Disclosure Schedule accurately sets
forth with respect to each outstanding Company Option under the Company
Equity Plan as of 5:00 p.m. Pacific Time on May 5, 2008: (i) the name of
the holder; (ii) the exercise price per share; (iii) the total number of
shares subject to such Company Option; (iv) the date on which such Company
Option was granted; (v) the applicable vesting schedule; and (vi) whether
such Company Option is intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Code. Between 5:00 p.m. Pacific
Time on May 5, 2008 and the date of this Agreement: (i) the Company has not
granted any Company Options; (ii) no outstanding Company Option has been
amended, modified or changed; and (iii) Part 2.3(d) of the Company
Disclosure Schedule shall have only changed to the extent that outstanding
Company Options have been exercised in accordance with their terms. All
Company Options (including those that have been exercised, terminated,
expired, forfeited or otherwise cancelled) were issued at a strike price at
least equal to fair market value such that the fair market value on the
grant date equaled or exceeded the fair market value on the financial
measurement date for each such Company Option or, with respect to Company
Options that were not issued in such a manner, the Company recorded an
appropriate compensation charge in its financial statements relating to
such grants in the appropriate period and reported such in its financial
statements and Company Returns during the required period.
(E) Except for options, rights, securities and plans referred to in
Section 2.3(a) and except as set forth in Part 2.3(d) of the Company
Disclosure Schedule, as of the date of this Agreement, there is no: (i)
outstanding subscription, option, call, warrant or stock appreciation right
or other right (whether or not currently exercisable) to acquire any shares
of the capital stock or other securities of the Company or any Subsidiary
of the Company; (ii) outstanding restricted stock award, restricted stock
unit award, performance stock award or performance cash award; (iii)
outstanding security, instrument or obligation that is or would reasonably
be expected to become convertible into or exchangeable for any shares of
the capital stock or other securities of the Company or any Subsidiary of
the Company; (iv) contract under which the Company or any Subsidiary of the
Company is or may become obligated to sell or otherwise issue any shares of
its capital stock or any other securities; or (v) to the Knowledge of the
Company, condition or circumstance that would reasonably be expected to
provide a basis for the assertion of a valid claim by any Person to the
effect that such Person is entitled to acquire or receive any capital stock
of the Company or other securities of the Company.
(F) All outstanding shares of capital stock, options, warrants, stock
appreciation rights and other securities or equity interests of the Company
and the Designated Subsidiaries have been issued and granted in compliance
in all material respects with all applicable securities laws and other
applicable Legal Requirements.
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(G) All of the outstanding membership interests or other equity
interests of each of the Company's Subsidiaries: (i) have been duly
authorized and validly issued; (ii) are nonassessable and free of
preemptive rights, with no obligation to contribute additional capital; and
(iii) except as set forth in Part 2.3(g) of the Company Disclosure
Schedule, are owned beneficially and of record by the Company, free and
clear of any Encumbrances (other than Permitted Encumbrances).
2.4 SEC FILINGS; FINANCIAL STATEMENTS; ABSENCE OF LIABILITIES; FINANCIAL
CONTROLS.
(A) All registration statements (on a form other than Form S-8),
annual and quarterly reports and definitive proxy statements required to be
filed by the Company with the SEC between March 13, 2006 and the date of
this Agreement (the "COMPANY SEC DOCUMENTS") have been so filed. As of the
time it was filed with the SEC (or, if amended or superseded by a filing,
then on the date of such filing): (i) each of the Company SEC Documents
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 Company SEC Documents 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 (including any related notes) contained
in the Company SEC Documents, including the unaudited consolidated balance
sheet of the Company and its consolidated Subsidiaries as of March 31, 2008
and the related unaudited consolidated statement of income, statement of
stockholders' equity and statement of cash flows of the Company and its
consolidated Subsidiaries for the quarter then ended, together with the
notes thereto (the "UNAUDITED INTERIM FINANCIALS"), were prepared in
accordance with GAAP 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 fairly present, in all material respects, the
consolidated financial position of the Company and its Subsidiaries as of
the respective dates thereof and the consolidated results of operations of
the Company and its Subsidiaries for the periods covered thereby (except
that unaudited financial statements may not contain footnotes and are
subject to year-end adjustments, which are not reasonably expected to be,
individually or in the aggregate, material in magnitude).
(C) Neither the Company nor any of its Subsidiaries has any
liabilities of the type required to be disclosed in the liabilities column
of a balance sheet prepared in accordance with GAAP, except for: (i)
liabilities disclosed in the financial statements (including any related
notes) contained in the Company SEC Documents and the Unaudited Interim
Financials; (ii) liabilities incurred since March 28, 2008 and in the
ordinary course of business, (iii) liabilities and obligations incurred in
connection with the Company's performance of its obligations under this
Agreement and the transactions contemplated hereby, (iv) liabilities
described in Part 2.4(c) of the Company Disclosure Schedule; and (v)
liabilities incurred on or following the date of this Agreement to the
extent such liabilities were permitted to be incurred under Section 4.1(b)
hereof or incurred with Parent's consent.
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(D) Since January 1, 2005, neither the Company nor any Designated
Subsidiary has effected or maintained any "off-balance sheet arrangement"
(as defined in Item 303(c) of Regulation S-K of the SEC).
(E) The Company and the Designated Subsidiaries maintain adequate
internal accounting controls that are reasonably sufficient to provide
reasonable assurance that: (i) transactions are executed only with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of the consolidated financial
statements of the Company and its consolidated Subsidiaries in accordance
with GAAP and to maintain accountability for the assets of the Company and
the Designated Subsidiaries; (iii) access to the assets of the Company and
the Designated Subsidiaries is permitted only in accordance with
management's general or specific authorization; (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences; and (v) the unauthorized acquisition, use or disposition of
the Company's assets that could materially affect the Company's financial
statements are prevented or detected in a timely manner.
(F) The Company's "disclosure controls and procedures" (as such terms
are defined in paragraph (e) of Rule 13a-15 under the Exchange Act) are
reasonably designed to ensure that material information required to be
disclosed by the Company in its reports that it files or furnishes under
the Exchange Act is recorded, processed, summarized and reported within the
time period specified in the rules and forms of the Commission, and that
all such material information is accumulated and communicated to the
Company's management as appropriate to allow timely decisions regarding
required disclosure and to make the certifications of the principal
executive officer and principal financial officer of the Company required
under the Exchange Act with respect to such reports.
(G) The Company's management has completed assessment of the
effectiveness of the Company's internal control over financial reporting in
compliance with the requirements of Section 404 of the Sarbanes-Oxley Act
of 2002, and the rules and regulations promulgated thereunder (the
"SARBANES-OXLEY ACT"), for the year ended December 28, 2007, and such
assessment concluded that such controls were effective. The Company has
made available to Parent or Parent's legal advisor any material
communication made by management or the Company's auditors prior to the
date of this Agreement to the audit committee required or contemplated by
listing standards of the American Stock Exchange, the audit committee's
charter or professional standards of the Public Company Accounting
Oversight Board. As of the date of this Agreement, no material complaints
from any source regarding accounting, internal accounting controls or
auditing matters, and no material concerns from Company or Subsidiary of
the Company employees regarding questionable accounting or auditing
matters, have been received by the Company. No attorney representing the
Company or any of its Subsidiaries, whether or not employed by the Company
or any of its Subsidiaries, has reported evidence of a violation of
securities laws by the Company, any Subsidiary of the Company or any of its
officers, directors, employees or agents to the Company's chief legal
officer, audit committee (or other committee designated for the purpose) of
the Company's board of directors or the Company's board of directors.
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(H) The Company is in compliance in all material respects with the
applicable provisions of the Sarbanes-Oxley Act, and with applicable
listing and other rules and regulations of the American Stock Exchange and
has not received any notice from the American Stock Exchange asserting any
non-compliance with such rules and regulations. Each of the principal
executive officer of the Company and the principal financial officer of the
Company has made all certifications required by Rule 13a-14 or 15d-14 under
the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act with
respect to the Company SEC Documents, and the statements contained in such
certifications are accurate in all material respects. For purposes of this
Agreement, "principal executive officer" and "principal financial officer"
shall have the meanings given to such terms in the Sarbanes-Oxley Act.
Neither the Company nor any of its subsidiaries has outstanding, or has
arranged any outstanding, "extensions of credit", including in the form a
personal loan to directors or executive officers within the meaning of
Section 13(k) of the Exchange Act.
2.5 ABSENCE OF CERTAIN CHANGES. Between December 28, 2007 and the date of
this Agreement, neither the Company nor any of the Designated Subsidiaries has:
(a) suffered any adverse change with respect to its business, customers,
suppliers or financial condition which has had a Material Adverse Effect on the
Company; (b) suffered any loss, damage or destruction to, or interruption in use
of, any of its material assets; (c) amended its Organizational Documents, or
effected or been a party to (other than as a stockholder) any recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction; (d) lent money to any Person (other than advances made to
employees, directors or agents for business expenses and loans made to employees
to acquire shares of Company Common Stock upon exercise of Company Options, each
in the ordinary course of business and consistent with past practice); (e)
incurred any indebtedness for borrowed money or guaranteed any such indebtedness
involving more than $100,000 in the aggregate; (f) changed, in any material
respect, its accounting methods, principles or practices except as required by
changes in GAAP; (g) (i) acquired any asset (tangible or intangible), or group
of related assets, for a purchase price exceeding $250,000 (other than the
acquisition of raw materials or supplies in the ordinary course of business
consistent with past practice or capital expenditures not prohibited by Section
4.1(b)(xvii), or (ii) sold or otherwise transferred or otherwise disposed of any
material asset (including, without limitation, any fixed asset with a purchase
price, at the time it was originally purchased, greater than $100,000 and the
membership interest (all or a portion) in Shanghai Hau Hong Nec Electronics
Company, Ltd. ("HHNEC")) (other than the sale of finished goods inventory in the
ordinary course of business, scrapped inventory and the disposal of obsolete
equipment consistent with past practice), or (iii) entered into a license or
lease for any asset involving the payment of, or the receipt of, payments
greater than $100,000 in any twelve month period or $200,000 over the term of
the license or lease; (h) declared, set aside or paid any dividend or made any
other distribution with respect to the outstanding shares of Company Common
Stock or repurchased or redeemed any shares of Company Common Stock, Company
Warrants, Convertible Notes or other securities; (i) acquired any equity
interest or voting interest in any Entity (other than a Subsidiary disclosed in
Part 2.1 of the Company Disclosure Schedule); (j) made any capital expenditure
which, when added to all other capital expenditures made on behalf of the
Company and it Subsidiaries between December 28, 2007 and the date of this
Agreement, exceeds an aggregate of $2,500,000; (k) written off as uncollectible,
or established any extraordinary reserve with respect to, any account receivable
or other indebtedness in an amount that is individually greater than $100,000 or
in the aggregate greater than $400,000; (l) made any pledge of any of its assets
or otherwise permitted any of its assets to become subject to any Encumbrance,
except for Permitted Encumbrances; (m) (i) granted any Stock Award (as such term
is defined in the Company Equity Plan) or similar award or (ii) established or
adopted any employee benefit plan, 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 than payments or increases required
pursuant to a Labor Agreement (as defined below), any employee benefit plan or
any employment agreement as in effect on the date hereof and salary increases
and bonus payments for non-executive employees in the ordinary course of
business consistent with past practice both in terms of timing and amount), or
hired any new officer or any new employee whose annual base compensation is
greater than $100,000; (n) made any material tax election; (o) commenced or
settled any Legal Proceeding (i) involving damages for greater than $100,000,
(ii) involving the payment of more than $100,000, or (iii) seeking specific
performance or injunctive relief; (p) received a written claim by a third party
in which the commencement of a Legal Proceeding is threatened; or (q) entered
into any binding agreement to take any of the actions referred to in clauses
"(c)" through "(p)" of this sentence.
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2.6 IP RIGHTS.
(A) Part 2.6(a) of the Company Disclosure Schedule accurately
identifies as of the date of this Agreement:
(I) In Part 2.6(a)(i) of the Company Disclosure Schedule: (A)
each item of Registered IP in which the Company or any of its
Subsidiaries has an ownership interest of any nature (whether
exclusively, jointly with another Person or otherwise); (B) the
jurisdiction in which such item of Registered IP has been registered
or filed and the applicable registration or serial number; and (C) any
other Person that has an ownership interest in such item of Registered
IP and the nature of such ownership interest;
(II) in Part 2.6(a)(ii) of the Company Disclosure Schedule: (A)
all Intellectual Property Rights or Intellectual Property licensed to
the Company or any of its Subsidiaries (other than any non-customized
software (including shrink-wrap, off-the-shelf or commercially
available software), that: (1) is so licensed in executable or object
code form pursuant to a nonexclusive software license, (2) is used by
the Company and its Subsidiaries for administrative, financial, or
other non-operational purposes; and (3) is generally available on
standard terms for less than $10,000 per month or less than $120,000
per year); and (B) the corresponding contract or contracts pursuant to
which such Intellectual Property Rights or Intellectual Property are
licensed; and
(III) in Part 2.6(a)(iii) of the Company Disclosure Schedule,
each written contract under which a license or similar right (other
than an ownership interest) is held by any third party in or to any of
the Company Owned IP (other than nonexclusive licenses granted to
customers in the ordinary course of business).
Complete and accurate copies of each contract identified in Part 2.6(a)(ii) or
Part 2.6(a)(iii) of the Company Disclosure Schedule have been made available to
Parent or Parent's legal advisor. Except for any exclusive licenses granted to
third parties in or to the Company Owned IP, no material Company Owned IP is
subject to any contract containing any covenant or other provision that limits
or restricts the ability of the Company or any of its Subsidiaries to use,
exploit, assert, or enforce any Company Owned IP anywhere in the world in a
manner that would reasonably be expected to materially and adversely impact the
business of the Company and its Subsidiaries as currently conducted.
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(IV) Part 2.6(a)(iv) of the Company Disclosure Schedule
accurately identifies, as of the date of this Agreement, each written
contract pursuant to which any material Intellectual Property was
developed by the Company or any Subsidiary of the Company or by a
third party, where the terms of such contract expressly contemplate
(A) the development of any Intellectual Property by such third party,
where the Company or Subsidiary owns the resulting Intellectual
Property and Intellectual Property Rights as Company Owned IP
(excluding employee proprietary inventions and assignment agreements
and any agreements pursuant to which a individual consultant or
independent contractor performed services on a full-time basis on
behalf of the Company or Subsidiary while onsite at the Company or
Subsidiary facilities); (B) the development of any Intellectual
Property by the Company or any Subsidiary of the Company on behalf of
such third party, where the third party exclusively or jointly owns
the resulting Intellectual Property; or (C) the collaborative
development of Intellectual Property by the Company or any Subsidiary
of the Company and such third party, such as (1) development to allow
such third party to offer their design Intellectual Property
commercially, (2) customer support process or design modifications or
(3) education research development, other than those agreements
already disclosed in response to (a) or (b) above.
(B) The Company and its Subsidiaries exclusively own all right, title
and interest to and in the Company Owned IP (other than Registered IP
identified in Part 2.6(a)(i) of the Company Disclosure Schedule as being
subject to the ownership interest of another Person) free and clear of any
Encumbrances (other than Permitted Encumbrances and other than nonexclusive
licenses granted pursuant to the contracts listed in Part 2.6(a)(iii) of
the Company Disclosure Schedule). Without limiting the generality of the
foregoing:
(I) all documents and instruments necessary to perfect the rights
of the Company and its Subsidiaries in the Company Owned IP that is
Registered IP have been validly executed, delivered and filed (on or
before any applicable deadline) with the appropriate Governmental
Entity;
(II) each Person who is or was an employee, consultant or
independent contractor of the Company or any of its Subsidiaries and
who is or was involved in the creation or development of any
Intellectual Property intended to be Company Owned IP, or who is or
was named as an inventor on any patent application filed or owned by
the Company or any of its Subsidiaries, has signed one or more
agreements containing an assignment of that Person's Intellectual
Property Rights to the Company or one of its Subsidiaries and
confidentiality provisions protecting the Company Owned IP;
(III) no past or current employee, consultant or independent
contractor of the Company or any of its Subsidiaries has any claim,
right (whether or not currently exercisable) or interest to or in any
Company Owned IP;
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(IV) to the Knowledge of the Company, no employee, consultant or
independent contractor of the Company or any of its Subsidiaries is in
breach of any contract with any former employer or other Person
concerning Intellectual Property Rights or confidentiality where the
cause or nature of the breach arises out of any services, including
the development of any Company Owned IP, performed by such employee,
consultant or independent contractor for the Company or any of its
Subsidiaries;
(V) no funding, facilities or personnel of any Governmental
Entity or any university or other educational institution were used to
develop or create, in whole or in part, any Company Owned IP;
(VI) each of the Company and its Subsidiaries has taken
reasonable steps to maintain the confidentiality of and otherwise
protect and enforce its rights in all proprietary information held or
purported to be held as a trade secret by such Company or Subsidiary;
(VII) in the two (2) year period prior to the date of this
Agreement, neither the Company nor any of its Subsidiaries has
assigned or otherwise transferred ownership of, or agreed to assign or
otherwise transfer ownership of, any material Company Owned IP to any
other Person; and
(VIII) except for any Process Technology expressly identified as
being licensed from third parties in Part 2.6(b)(viii) of the Company
Disclosure Schedule, the Company and its Subsidiaries exclusively own
all right, title, and interest in and to all Process Technology used
in the conduct of the business as currently conducted.
(C) To the Knowledge of the Company, all material Intellectual
Property and Intellectual Property Rights necessary to conduct the business
of the Company and its Subsidiaries as currently conducted are (A)
exclusively owned by the Company and its Subsidiaries, (B) licensed to the
Company and its Subsidiaries or (C) otherwise in the possession or control
of the Company (or any of its Subsidiaries) subject to the Company's (or
any of its Subsidiaries') lawful right to either use such Intellectual
Property or exercise such Intellectual Property Rights, as applicable, in
each case to the extent necessary to conduct the business of the Company
and its Subsidiaries as currently conducted, which right may have been
acquired by means of an express or implied license; the application of the
doctrine of fair use, patent exhaustion, first sale, or any other similar
legal doctrine in any jurisdiction worldwide; the entry of such
Intellectual Property into the public domain; joint ownership; a
covenant-not-to-assert; or any other right, immunity, or privilege arising
under applicable law. The parties acknowledge and agree that the foregoing
statement does not constitute a representation or warranty as to, and is
not intended to apply to, any potential, actual or suspected infringement,
misappropriation or violation of any Intellectual Property Right of any
other Person by the Company or any of its Subsidiaries.
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(D) To the Knowledge of the Company, (A) all Company Owned IP that is
material Registered IP (other than pending applications for Registered IP)
is valid in all material respects; and (B) all Company Owned IP that
consists of a material copyright (whether registered or unregistered) is
valid and subsisting in all material respects. Without limiting the
generality of the foregoing:
(I) no registered trademark or service mark owned by the Company
or any of its Subsidiaries, and no other trademark or service mark
currently being used by the Company or any of its Subsidiaries in the
ordinary course of business (collectively, "COMPANY TRADEMARKS"),
conflicts with any registered trademark of any other Person in any
jurisdiction where the Company or any of its Subsidiaries currently
markets or promotes (directly or through any Person who is authorized
by the Company or any of its Subsidiaries to so market and promote)
any of their products or services through the use of the Company
Trademarks, where as a result of such conflict, the Company and its
Subsidiaries would not be able to use such Company Trademarks in such
jurisdiction;
(II) except for the Registered IP listed in Part 2.6(d)(ii) of
the Company Disclosure Schedule, which the Company or its Subsidiaries
has elected to abandon as of the date of this Agreement or may elect
to abandon following the date of this Agreement in accordance with
Section 4.1(b)(xiii), each item of Company Owned IP that is Registered
IP is in compliance with all Legal Requirements, and all filings,
payments and other actions required to be made or taken to maintain
each item of material Company Owned IP that is Registered IP in full
force and effect have been made by the applicable deadline;
(III) all applications, material correspondence and other
material documents related to each such item of Registered IP
referenced in subsection (d)(ii) above provided or made available to
Parent or its legal advisors are complete and accurate; and
(IV) no interference, opposition, reissue, reexamination or other
Legal Proceeding of any nature is pending or, to the Knowledge of the
Company, threatened, in which the scope, validity or enforceability of
any Company Owned IP is being, has been or is expected to be contested
or challenged.
(E) Neither the execution, delivery or performance by the Company of
this Agreement, nor the consummation by the Company of any of the
transactions contemplated by this Agreement, will, with or without notice
or the lapse of time, give any other Person the right or option to cause:
(i) a loss of, or Encumbrance on, any Company Owned IP; (ii) the release,
disclosure or delivery of any Company Owned IP by any escrow agent to any
other Person; or (iii) the grant, assignment or transfer to any other
Person of any license or other material right or interest, such as an
ownership interest or covenant-not-to-sue, under, in or to any material
Company Owned IP.
(F) To the Knowledge of the Company, since March 12, 2002, no Person
has infringed, misappropriated, or otherwise violated any Company Owned IP,
and (ii) no Person is currently infringing, misappropriating or otherwise
violating, any Company Owned IP.
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(G) (A) To the Knowledge of the Company, since March 12, 2002, neither
the Company nor any of its Subsidiaries, has infringed (directly,
contributorily, by inducement or otherwise), misappropriated or otherwise
violated any Intellectual Property Right (including patent rights) of any
other Person; and (B) to the Knowledge of the Company, neither the Company
nor any of its Subsidiaries is infringing (directly, contributorily, by
inducement or otherwise), misappropriating or otherwise violating any
Intellectual Property Right of any other Person. Without limiting the
generality of the foregoing:
(I) no infringement, misappropriation or similar Legal Proceeding
is pending or, to the Knowledge of the Company, threatened against the
Company or any of its Subsidiaries or against any other Person who, as
a party to one of the contracts listed in Part 2.6(a)(iii) of the
Company Disclosure Schedule, may be entitled to be indemnified,
defended, held harmless or reimbursed by the Company or any of the
Designated Subsidiaries with respect to such Legal Proceeding;
(II) in the two (2) year period prior to the date of this
Agreement neither the Company nor any of its Subsidiaries has received
any written notice alleging infringement, misappropriation or
violation by the Company or any of its Subsidiaries or any of their
employees, consultants, or independent contractors, of any
Intellectual Property Right of another Person;
(III) neither the Company nor any Subsidiary of the Company is
bound by any contract to indemnify, hold harmless or reimburse any
other Person with respect to, or has assumed, pursuant to any
contract, any existing or potential liability of another Person for,
any intellectual property infringement, misappropriation or similar
claim (other than any obligation entered into in the ordinary course
of business that (A) requires the Company or such Subsidiary to
indemnify a wafer fabrication customer against third-party claims
alleging that the Process Technology infringes a third-party
Intellectual Property Right, and (B) is limited to an aggregate
liability that does not exceed the total consideration paid or payable
by such customer to the Company or such Subsidiary, and other than
pursuant to any express indemnification provisions in contracts
identified in Part 2.6(g) of the Company Disclosure Schedule); and
(IV) to the Knowledge of the Company, no Legal Proceeding
involving any Intellectual Property Right licensed to the Company or
any of the Designated Subsidiaries pursuant to a contract identified
in Part 2.6(a)(ii) of the Company Disclosure Schedule is pending,
except for any such Legal Proceeding that would not reasonably be
expected to have a material and adverse affect on the use or
exploitation of such Intellectual Property Right by the Company or any
of its Subsidiaries.
(H) No source code for any Company Software has been delivered,
licensed or made available to any escrow agent or other third party and
neither the Company or any of its Subsidiaries has, as of the date of this
Agreement, any duty or obligation (whether present, contingent or
otherwise) to deliver, license or make available the source code for any
Company Software to any escrow agent or other third party. No event has
occurred, and no circumstance or condition exists, that (with or without
notice or lapse of time) will, or would reasonably be expected to, result
in the release of any source code for any Company Software from any escrow
agent or other third party to any other Person who is not, as of the date
of this Agreement, an employee, consultant or independent contractor of the
Company or any of its Subsidiaries (except for licenses to the source code
for any Company Software licensed to third parties in the ordinary course
of business).
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(I) The Company has paid in full, on or before the due date, all
amounts owed pursuant to the cross-license agreement identified in Part
2.6(a)(ii) and Part 2.6(a)(iii) of the Company Disclosure Schedule, other
than payments that are not yet due.
(J) No Company Software has been or is being distributed, in whole or
in part, or was used, or is being used in conjunction with any Open Source
Software under an Open Source License in a manner which would require that
such Company Software (excluding the original Open Source Software) be
disclosed or distributed in source code form or made available at no
charge.
(K) Neither the Company nor any of its Subsidiaries has contributed or
licensed, or agreed to contribute or license, any Company Owned IP to or
through any standards body, standard setting organization, industry
consortium, licensing pool, governmental entity, or other industry group or
consortium (each, a "STANDARDS BODY"). Neither the Company nor any of its
Subsidiaries is a member of any Standards Body and has not participated in
the development or approval of any standards or specifications proposed or
established by any Standards Body. Neither the Company nor any of its
Subsidiaries has agreed to dedicate any Company Owned IP to the public, or
to make generally available in connection with any Standards Body any
licenses to any Company Owned IP (1) on a royalty free basis, or (2) on
fair, reasonable and non-discriminatory terms.
2.7 TITLE TO ASSETS; REAL PROPERTY; EQUIPMENT; LEASEHOLDS.
(A) The Company or one of its Subsidiaries owns, and has good title
to, or in the case of assets purported to be leased by the Company or its
Subsidiaries, leases and has valid leasehold interest in, all material
assets necessary for the conduct of the business of the Company and each
Designated Subsidiary as currently conducted. Each such asset is owned or
leased free of any Encumbrances (other than Permitted Encumbrances).
Neither the Company nor any Designated Subsidiary owns any real property or
interest in real property, except for the leaseholds created under the
lease agreements identified on Part 2.7 of the Company Disclosure Schedule
and the fixtures appurtenant thereto (the "LEASED PROPERTIES" and "LEASE
AGREEMENTS", respectively).
(B) All material items of equipment and other tangible assets owned by
or leased to the Company and its Subsidiaries are, taken as a whole,
adequate for the uses to which they are being put, are in good condition
and repair (ordinary wear and tear excepted).
(C) No Lease Agreement has been assigned or is subject to any
sublease, and no Person (other than the Company or a Subsidiary of the
Company) is in possession of any portion of the Leased Properties other
than the Company or a Subsidiary of the Company to the extent subject to
the Lease Agreements. All improvements constructed by any the Company or a
Subsidiary of the Company within the Leased Properties were constructed in
compliance in all material respects with all building codes, zoning
ordinances and all other applicable Legal Requirements.
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(D) As of the date of this Agreement, neither the Company nor any
Subsidiary of the Company has received written notice of any condemnation
or eminent domain proceeding pending or threatened against the Leased
Properties or any part thereof.
(E) There is no Legal Proceeding pending or, to the Knowledge of the
Company, threatened against the Company or any Subsidiary of the Company
concerning the Leased Properties which would reasonably be expected to have
a material adverse effect on the ability of the Company and its
Subsidiaries to operate their businesses as currently conducted. As of the
date of this Agreement, neither the Company nor any Subsidiary of the
Company has received any written notice from any Governmental Body that any
condition on or improvements located on any of the Leased Properties are in
violation of any applicable building codes, zoning or land use laws, or
other law, order, ordinance, rule or regulation affecting the property.
2.8 CONTRACTS.
(A) Part 2.8(a) of the Company Disclosure Schedule contains a list as
of the date of this Agreement of each of the following contracts to which
the Company or any of its Subsidiaries is a party:
(I) each contract that would be required to be filed as an
exhibit to a Registration Statement on Form S-1 under the Securities
Act or an Annual Report on Form 10-K under the Exchange Act (if such
registration statement or report was filed by the Company with the SEC
on the date of this Agreement);
(II) any contract (A) relating to the employment of, or the
performance of services by, any employee, consultant or independent
contractor providing for a base annual compensation for any such
Person greater than $100,000 other than employment agreements that may
be terminated at will without payment of severance or other similar
obligations (other than in accordance with the general severance
policy), (B) pursuant to which the Company or any of its Subsidiaries
is or may become obligated to make any severance, termination or
similar payment to any current or former employee or director, or (C)
pursuant to which the Company or any of its Subsidiaries is or may
become obligated to make any bonus or similar payment (whether in the
form of cash, stock or other securities, excluding payments
constituting base salary and sales commissions) in excess of $75,000
to any current or former employee or director, or (D) pursuant to
which the Company or any of its Subsidiaries is or may become
obligated to provide any form of compensation, increase benefits, or
accelerate the vesting of any benefits, by the occurrence of any of
the transactions contemplated by this Agreement (either alone or in
connection with additional or subsequent events), or to calculate the
value of any benefits on the basis of any of the transactions
contemplated by this Agreement;
(III) each contract that restricts the ability of the Company or
any of its Subsidiaries to compete in any geographic area or line of
business, or any contract that limits the ability of the Company to
acquire a product or asset from another Person;
(IV) each joint venture agreement or partnership agreement with a
third party, other than agreements in the ordinary course relating to
the design and manufacture of products for customers;
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(V) each employment contract with any director or officer of the
Company or its Designated Subsidiaries, other than non-binding offer
letters;
(VI) each contract that provides for indemnification of any
officer, director, employee or agent;
(VII) each contract (other than Contracts evidencing Company
Options) (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any of the Company's securities, (B)
providing any Person with any preemptive right, right of
participation, right of maintenance or similar right with respect to
any of the Company's securities, or (C) providing the Company or any
Subsidiary of the Company with any right of first refusal with respect
to, or right to repurchase or redeem, any of the Company's securities;
(VIII) each loan or credit agreement, indenture, mortgage, note
or other contract evidencing indebtedness for money borrowed by the
Company or any of its Subsidiaries from a third party lender, and each
contract pursuant to which any such indebtedness for borrowed money is
guaranteed by the Company or any of its Subsidiaries;
(IX) each customer or supply contract (excluding purchase orders
given or received in the ordinary course of business) under which the
Company or any Subsidiary of the Company paid or received in excess of
$400,000 in fiscal year 2007 or is expected to pay or receive in
excess of $400,000 in fiscal year 2008;
(X) each material "single source" supply contract pursuant to
which goods or materials are supplied to the Company or any Subsidiary
of the Company from an exclusive source or where procuring a
replacement supplier would reasonably be expected to result in a
material increase in costs;
(XI) each distribution, agency or franchise contract;
(XII) each collective bargaining agreement;
(XIII) each lease involving real property pursuant to which the
Company or any of its Subsidiaries is required to pay a monthly rental
in excess of $10,000;
(XIV) each lease or rental contract involving personal property
(and not relating primarily to real property) pursuant to which the
Company or any of its Subsidiaries is required to make rental payments
in excess of $200,000 per year;
(XV) each consulting contract providing for compensation in
excess of $100,000 per year that is not terminable by the Company or
any of its Subsidiaries on notice of 90 days or less;
(XVI) each contract relating to the acquisition, sale or
disposition of any business unit or product line of the Company and
its Subsidiaries since December 31, 2005 or pursuant to which the
Company or any of its Subsidiaries has any remaining obligations;
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(XVII) each contract (A) containing "standstill" or similar
provisions relating to transactions involving the acquisition,
disposition or other transfer of assets or securities of an Entity, or
(B) imposing any right of first negotiation, right of first refusal or
similar right on the Company or a Subsidiary of the Company;
(XVIII) each contract creating a manufacturing supply arrangement
pursuant to which the Company or any Subsidiary may require a third
party to manufacture completed semiconductor wafers or pursuant to
which the Company or any Subsidiary is required to purchase completed
semiconductor wafers from a third party;
(XIX) any contract relating to the creation of an Encumbrance
(other than Permitted Encumbrances) with respect to any asset of the
Company or any of its Subsidiaries;
(XX) each contract relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by
or for, any Affiliate of the Company other than purchase or sales of
products on arms length terms in the ordinary course of business;
(XXI) each contract that grants to any third party exclusive
rights under any Company Owned IP; and
(XXII) any other contract, if a breach of or the termination of
such contract would reasonably be expected to have or result in a
Material Adverse Effect on the Company;
(each contract listed in Part 2.8(a) of the Company Disclosure Schedule being
referred to as a "MATERIAL CONTRACT").
The Company has made available to Parent or Parent's legal advisor accurate and
complete copies of all Material Contracts in effect as of the date of this
Agreement, including all amendments thereto. There are no existing material
breaches or defaults on the part of the Company or any of its Subsidiaries under
any Material Contract; and, to the Knowledge of the Company, as of the date of
this Agreement, there are no existing material breaches or defaults on the part
of any other Person under any Material Contract. Except for Material Contracts
which expire or are not renewed after the date of this Agreement in accordance
with their terms, each Material Contract is valid, has not been terminated prior
to the date of this Agreement, is enforceable against the Company or the
applicable Subsidiary of the Company that is a party to such Material Contract,
and, to the Knowledge of the Company, is enforceable against the other parties
thereto, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies. To the Knowledge of
the Company, no event has occurred, and no circumstance or condition exists,
that (with or without notice or lapse of time) will, or would reasonably be
expected to, (A) result in a material violation or material breach of any of the
provisions of any Material Contract, (B) give any party to a Material Contract
the right to accelerate the maturity or performance of any Material Contract, or
(C) give any party to a material contract the right to cancel, terminate or
materially modify any Material Contract. As of the date of this Agreement,
neither the Company nor any of its Subsidiaries has received any written notice
regarding any unresolved issue that would constitute a material violation or
material breach of, or default under, any Material Contract. As of the date of
this Agreement, neither the Company nor any of its Subsidiaries has knowingly
waived any of its material rights under any Material Contract except in the
ordinary course of business.
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(B) Except as set forth in Part 2.8(b) of the Company Disclosure
Schedule:
(I) since December 31, 2005, neither the Company nor any
Subsidiary of the Company has received any determination of
noncompliance, entered into any consent order or undertaken any
internal investigation relating directly or indirectly to any contract
or bid with an United States Governmental Entity;
(II) since December 31, 2005, the Company and its Subsidiaries
have complied with (A) all applicable Legal Requirements incorporated
expressly by reference or by operation of applicable law with respect
to all Government Contracts and government bids, and (B) all material
terms and conditions with respect to all Government Contracts,
including all clauses, provisions and requirements incorporated
expressly, by reference, or by operation of applicable law;
(III) the Company and its Subsidiaries have not, in obtaining or
performing any Government Contract, violated, to the extent
applicable, (A) the Truth in Negotiations Act of 1962, as amended, (B)
the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal
Procurement Policy Act, as amended, (E) the Federal Acquisition
Regulations (the "FAR") or any applicable agency supplement thereto,
(F) the Cost Accounting Standards, (G) the Defense Industrial Security
Manual (DOD5220.22-M), (H) the Defense Industrial Security Regulation
(DOD5220.22-R) or any related security regulations or (I) any other
applicable procurement law or regulation or other similar Legal
Requirement;
(IV) since December 31, 2005, all facts set forth in or
acknowledged by any of the Company or a Subsidiary of the Company in
any certification, representation, warranty or disclosure statement
submitted by the Company or a Subsidiary of the Company (as
applicable) with respect to any Government Contract or government bid
were current, accurate and complete in all material respects as of the
date indicated in such submission or as of such other date as required
by the Government Contract and government bid;
(V) neither the Company nor any of its Subsidiaries, and, to the
Knowledge of the Company, no current employee of the Company or its
Subsidiaries, has been (during the three years prior to the date of
this Agreement) debarred or formally suspended from doing business
with any Governmental Entity;
(VI) no negative determination of responsibility has been issued
against and provided to the Company or any Subsidiary of the Company
in connection with any Government Contract or government bid and, to
the Knowledge of the Company, no circumstances exist that would
warrant a negative determination of responsibility against the Company
or any Subsidiary of the Company in connection with any Government
Contract or government bid;
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(VII) since December 31, 2005, no Government Contract performed
by the Company or any Subsidiary of the Company has been terminated
for convenience or default;
(VIII) no cost incurred by the Company or any Subsidiary of the
Company pertaining to a Government Contract has been questioned,
challenged, investigated, or disallowed;
(IX) there is not and, since December 31, 2005, has not been any
(A) administrative, civil, criminal or other investigation, audit,
Legal Proceeding, or indictment involving the Company or its
Subsidiaries arising under or relating to the award or performance of
any Government Contract, (B) outstanding material claim against the
Company or its Subsidiaries by, or dispute involving any of the
Company or its Subsidiaries with, any prime contractor, subcontractor,
vendor or other Person arising under or relating to the award or
performance of any Government Contract, or (C) final decision of any
United States Governmental Entity against the Company or its
Subsidiaries;
(X) no payment has been made by the Company or any Subsidiary of
the Company or by any Person acting on their behalf to any Person
(other than to any bona fide employee or agent (as defined in subpart
3.4 of the FAR)) which is or was contingent upon the award of any
government contract or which would otherwise be in violation of any
applicable procurement law or regulation or any other Legal
Requirement;
(XI) neither the Company nor its Subsidiaries has made any
disclosure since December 31, 2005 to any United States Governmental
Entity with respect to any Government Contract or government bid
pursuant to any voluntary disclosure agreement;
(XII) in each case in which any of the Company or a Subsidiary of
the Company has delivered or otherwise provided any technical data,
computer software or other Intellectual Property to any United States
Governmental Entity in connection with any Government Contract, the
Company or Subsidiary of the Company (as applicable) has provided such
technical data, computer software and other Intellectual Property
solely as a "commercial item" pursuant to the Company's or
Subsidiary's (as applicable) commercial terms and conditions; and
(XIII) there are no "most favored nation" or similar price
reduction clauses in Government Contracts performed by the Company any
Subsidiary of the Company.
2.9 COMPLIANCE WITH LEGAL REQUIREMENTS.
(A) As of the date of this Agreement, the Company and its Subsidiaries
are in compliance in all material respects with all Legal Requirements
applicable to their businesses. Except as set forth in Part 2.9(a) of the
Company Disclosure Schedule, since December 31, 2005, neither the Company
nor any Subsidiary has (a) received any written notice from any
Governmental Entity regarding any actual or possible violation of, or
failure to comply with any material provision of, any Legal Requirement or
(b) filed or otherwise provided any written notice to any Governmental
Entity regarding any actual or possible material violation of, or failure
to comply with any material provision of, any Legal Requirement. There is
no such notice outstanding or unresolved as of the date of this Agreement.
A-25
(B) The Company and each Subsidiary is in compliance in all material
respects with applicable provisions of United States export, re-export and
import control laws and regulations related to the export or transfer of
commodities, software and technology, including the Export Administration
Regulations (15 C.F.R. ss.ss. 730-774); the International Traffic in Arms
Regulations (22 C.F.R. ss.ss. 120-130); the economic sanctions regulations
administered by the Office of Foreign Assets Control (31 C.F.R. ss.ss.
500-598); and the Customs Regulations (19 C.F.R. ss.ss. 1-357).
(C) The representations and warranties contained in this Section 2.9
do not apply to Environmental Laws.
2.10 LEGAL PROCEEDINGS; ORDERS.
(A) As of the date of this Agreement:
(I) there is no pending Legal Proceeding, and, to the Knowledge
of the Company, no Person has since December 31, 2005 threatened in
writing to commence any Legal Proceeding that, in either case: (a)
involves the Company or any of its Subsidiaries or any of the assets
owned or used thereby and would reasonably be expected to result in
damages (after any insurance coverage therefor) to the Company in
excess of $500,000; or (b) challenges, or that would reasonably be
expected to have the effect of preventing, delaying, making illegal or
otherwise interfering with, the transactions contemplated by this
Agreement.
(II) there is no claim, dispute or Legal Proceeding pending (or,
to the Knowledge of the Company, being threatened) against the Company
or any of its Subsidiaries that is reasonably expected to have a
Material Adverse Effect on the Company;
(III) there is no material court order or judgment specific to
the Company or any of its Subsidiaries to which the Company or any of
the Designated Subsidiaries is subject;
(IV) to the Knowledge of the Company, (x) none of the Company's
stockholders is subject to any material court order or judgment that
relates to the business or assets of the Company or any Subsidiary,
and (y) no officer or key 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 business of the Company or any of its
Subsidiaries as currently conducted or currently proposed to be
conducted;
(V) no investigation by any Governmental Entity with respect to
the Company or any of its Subsidiaries is pending or, to the Knowledge
of the Company, is being threatened; and
(VI) to the Knowledge of the Company, no Governmental Entity is,
as of the date of this Agreement, challenging the right of the Company
or any of its Subsidiaries to design, manufacture, license, offer or
sell any of its products or services.
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(B) The Company has made available to Parent or Parent's legal advisor
accurate and complete copies of all attorneys' letters provided to the
auditors of the Company in connection with the financial statements
contained in the Company SEC Documents, including the Unaudited Interim
Financials.
2.11 GOVERNMENTAL AUTHORIZATIONS. As of the date of this Agreement, the
Company and the Designated Subsidiaries hold all Governmental Authorizations
material to enable them to conduct their businesses in the manner in which such
businesses are currently being conducted. The Governmental Authorizations held
by the Company and the Designated Subsidiaries are, in all material respects,
valid and in full force and effect. To the Knowledge of the Company, the Company
and the Designated Subsidiaries are in substantial compliance with the terms and
requirements of any material Governmental Authorizations. Between December 31,
2005 and the date of this Agreement, neither the Company nor any Designated
Subsidiary has received any written notice from any Governmental Entity
regarding (a) any actual or possible violation of or failure to comply with any
term or requirement of any material Governmental Authorization, or (b) any
actual or possible revocation, withdrawal, suspension, cancellation, termination
or modification of any material Governmental Authorization. The representations
and warranties contained in this Section 2.11 do not apply to Governmental
Authorizations necessary under Environmental Laws.
2.12 TAX MATTERS.
(A) All Tax Returns required to be filed by or with respect to the
Company and its Subsidiaries with any Governmental Entities before the
Effective Time (giving effect to all applicable extensions) (the "COMPANY
RETURNS") (i) have been or will be filed on or before the applicable due
date (as such due date may have been or may be extended), and (ii) have
been, or will be when filed, prepared in compliance with applicable Legal
Requirements in all material respects. All Taxes of the Company and its
Subsidiaries have been or will be duly and timely paid at or before the
applicable due date, other than any Taxes being contested in good faith and
for which adequate reserves have been reflected on the Company's financial
statements (including any related notes) contained in the Company SEC
Documents and the Unaudited Interim Financials. All copies of Company
Returns provided to Parent or Parent's legal advisor are accurate and
complete.
(B) The Company and each Subsidiary of the Company has withheld all
Taxes required to have been withheld in connection with any amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or
other third party, and to the extent due and payable has duly and timely
paid such amounts to the appropriate tax authority.
(C) The Unaudited Interim Financials fully accrue all actual and
contingent liabilities of the Company and its Subsidiaries for all material
Taxes with respect to all periods through March 31, 2008 in accordance with
GAAP. The Company has established, in the ordinary course of business and
consistent with its past practices, appropriate reserves for the payment of
all material Taxes due and payable by the Company and its Subsidiaries for
the period from March 31, 2008 through the Effective Time.
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(D) As of the date of this Agreement, (i) to the Knowledge of the
Company, there are no examinations or audits of any Company Return
currently underway and no such examination or audit is pending or
threatened in writing, (ii) no extension or waiver of the limitation period
applicable to any Company Return or for the assessment or collection of
Taxes is in effect and no such extension or waiver has been requested or is
pending, (iii) no claim or Legal Proceeding is pending (or, to the
Knowledge of the Company, is being threatened in writing) by any tax
authority against the Company or any of its Subsidiaries in respect of any
Tax, (iv) there are no unsatisfied liabilities for Taxes with respect to
any notice of deficiency or similar document received by the Company or any
of its Subsidiaries with respect to any Tax (other than liabilities for
Taxes asserted under any such notice of deficiency or similar document
which are being contested in good faith and with respect to which adequate
reserves for payment have been established on the Unaudited Interim
Financials), and (v) there are no liens for Taxes (other than Permitted
Encumbrances) upon any of the assets of the Company or any of its
Subsidiaries. Neither the Company nor any Subsidiary of the Company is 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 of any tax law, rule or regulation) as a result of
transactions or events occurring, or accounting methods employed, prior to
the Effective Time. The Company has not been a member of any combined,
consolidated or unitary group for which it is or will be liable for taxes
under the principles of Section 1.1502-6 of the Treasury Regulations (or
any similar provision of state, local or foreign Tax law). Neither the
Company nor any of its Subsidiaries has made any distribution of stock of
any controlled corporation, as that term is defined in Section 355(a)(1) of
the Code or had its stock distributed by another Person, in a transaction
that was purported or intended to be governed in whole or in part by
Section 355 of the Code. Each of the Company and its Subsidiaries has
overtly disclosed in its Company Returns any tax reporting position taken
in any Company Return which could result in the imposition of penalties
under Section 6662 of the Code or any comparable Legal Requirement.
(E) Neither the Company nor any of its Subsidiaries is a party to any
tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar contract or arrangement with respect to the sharing and/or
allocation of Taxes.
(F) Neither the Company nor any Subsidiary of the Company has
consummated or participated in, or is currently participating in, any
transaction that was or is a "listed transaction" or to the Knowledge of
the Company, a "reportable transaction" within the meaning of Treasury
Regulations Section 1.6011-4(b) or similar transaction under any
corresponding or similar Legal Requirement.
(G) The Company has made available to Parent or Parent's advisors all
material documentation, including any tax rulings, relating to any
temporary exemption from tax, tax rate reduction, tax credit, tax incentive
or other special concession for the computation of tax made available by
any Governmental Entity to the Company or any Subsidiary of the Company.
(H) Except as set forth in Part 2.12(h) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary of the Company is a party
to any contract or has adopted any plan that, in connection with the
transactions contemplated by this Agreement, would reasonably be expected
to result, separately or in the aggregate, in the payment of (i) any
"excess parachute payment" within the meaning of Section 280G of the Code
(or any corresponding provisions of state, local or foreign tax law) and
(ii) any amount that will not be fully deductible as a result of section
162(m) of the Code (or any corresponding provisions of state, local or
foreign tax law).
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(I) Neither the Company nor any Subsidiary of the Company will be
required to include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion there) ending after
the Effective Time as a result of any: (A) "closing agreement" as described
in Section 7121 of the Code (or any corresponding or similar provision of
state, local or foreign income tax law) executed prior to the Effective
Time; or (B) installment sale or open transaction disposition made prior to
the Effective Time.
2.13 EMPLOYEE BENEFIT PLANS.
(A) The Company has made available to Parent or Parent's legal advisor
copies of all employee benefit plans and programs maintained or contributed
to by the Company or any of its Subsidiaries or with respect to which the
Company or any of its Subsidiaries has or may in the future have any
liability (including, without limitation, copies of all plans and forms of
agreements under which stock, restricted stock, stock options, restricted
stock units, stock appreciation rights, performance stock awards or any
other stock award have been granted by the Company or any of its
Subsidiaries) (the "COMPANY PLANS"). Part 2.13(a) of the Company Disclosure
Schedule contains a complete and accurate list as of the date of this
Agreement of the Company Plans. The Company Plans were duly adopted.
Neither the Company, nor any Subsidiaries of the Company, has agreed or
committed to (i) to establish or enter into any new employee benefit plans
and programs, or (ii) modify any Company Plan (except as required to
conform with applicable Legal Requirements as previously disclosed to
Parent or as contemplated by this Agreement).
(B) Each Company Plan that is intended by the Company to be qualified
under Section 401(a) of the Code has received a favorable determination
letter (or opinion letter, if applicable) from the U.S. Internal Revenue
Service stating that such Company Plan is so qualified. Each Company Plan
has been operated in substantial compliance with its terms and with all
applicable Legal Requirements.
(C) Each of the Company and its Subsidiaries has performed, in all
material respects, all obligations required to be performed by it under the
Company Plans, and, to the Knowledge of the Company as of the date of this
Agreement, there has been no material default or violation by any other
party of the terms of any Company Plan. Each Company Plan has been
established and maintained in all material respects in accordance with its
terms and in material compliance with all applicable Legal Requirements,
including ERISA, the Code, and all applicable collective bargaining
agreements. Except as would not reasonably be expected to result in
material liability to the Company and its Subsidiaries, no "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections
406 and 407 of ERISA, that is not otherwise exempt under Section 408 of
ERISA or Section 4975 of the Code, has occurred with respect to any Company
Plan. Except as would not reasonably be expected to result in material
liability to the Company and its Subsidiaries, there are no claims or Legal
Proceedings pending, or, to the Knowledge of the Company, threatened or
reasonably anticipated (other than routine claims for benefits), against
any Company Plan or against the assets of any Company Plan. Each Company
Plan (other than any Company Plan to be terminated prior to the Effective
Time in accordance with this Agreement) may be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its
terms, without material liability to Parent, the Company, or any Subsidiary
of the Company (other than ordinary administration expenses and accrued
benefits), subject to applicable Legal Requirements. There are no audits,
inquiries or Legal Proceedings pending or, to the Knowledge of the Company,
threatened by the IRS, the DOL, or any other Governmental Entity with
respect to any Company Plan. Neither the Company nor any Subsidiary of the
Company, has in the last three years incurred any material penalty or tax
with respect to any Company Plan under Section 502(i) of ERISA, under
Sections 4975 through 4980 of the Code or under any other applicable Legal
Requirement. Each of the Company and its Subsidiaries has timely made all
contributions and other payments required by and due under the terms of
each Company Plan and all applicable collective bargaining agreements,
except for such failures as would not reasonably be expected to result in
material liability to the Company and its Subsidiaries.
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(D) Except as set forth on Part 2.13(d) of the Company Disclosure
Schedule, since December 31, 2007, there has not been any material change
in any actuarial or other assumption used to calculate funding obligations
with respect to any Company Plan, or any material change in the manner in
which contributions to any Company Plan are made or the basis on which
contributions are to be determined.
2.14 LABOR MATTERS.
(A) The Company has made available to Parent or Parent's legal advisor
a report which accurately sets forth in all material respects, as of April
24, 2008, with respect to each employee of the Company and its Subsidiaries
as of such date (including any such employee who is on a leave of absence):
(I) the employee number of such employee;
(II) such employee's title; and
(III) such employee's annualized base salary.
(B) Part 2.14(b) of the Company Disclosure Schedule accurately
identifies each former employee of any of the Company or its Subsidiaries
who, as of May 15, 2008, is receiving or is currently scheduled to receive
any severance benefits (whether from the Company or any Subsidiary of the
Company or otherwise) relating to such former employee's employment with
any of the Company or a Subsidiary of the Company.
(C) Except as set forth in Part 2.14(c) of the Company Disclosure
Schedule, the employment of each of the employees of the Company and its
Subsidiaries is terminable by the Company or the applicable Subsidiary of
the Company at will, without payment of severance or other termination
benefits required by any contract to which the Company is a party.
(D) As of the date of this Agreement, to the actual knowledge of the
Chief Executive Officer and Vice President, Human Resources of the Company,
no director, officer or senior employee of any of the Company or a
Subsidiary of the Company: (i) has disclosed to an intention to terminate
his or her employment; or (ii) is a party to or is bound by any
confidentiality agreement, noncompetition agreement or other contract (with
any Person) that would reasonably be expected to have a material adverse
effect on: (A) the performance by such employee of any of his duties or
responsibilities as an employee of the Company or Subsidiary of the
Company; or (B) the business or operations of the Company or Subsidiary of
the Company.
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(E) Except as would not reasonably be expected to result in material
liability to the Company: (i) no current or former independent contractors
of any of the Company or its Subsidiaries is a misclassified employee of
the Company or Subsidiary, as applicable; (ii) no independent contractor
(A) has provided services to any of the Company or its Subsidiaries for a
period of six consecutive months or longer or (B) is eligible to
participate in any Company Plan; and (iii) except as otherwise permitted by
applicable Legal Requirements, neither the Company nor any of its
Subsidiaries has ever had any temporary or leased employees who were not
treated and accounted for in all respects as employees of the Company or a
Subsidiary of the Company (including coverage under each applicable Company
Plan).
(F) There are no collective bargaining agreements or other labor union
or works council agreements to which the Company or any of its Subsidiaries
is a party (each a "LABOR AGREEMENT"), nor is any such Labor Agreement
currently being negotiated, nor is there any current duty on the part of
the Company or any Subsidiary of the Company to bargain with any labor
organization or works council or similar representative, nor are any labor
organizations, works councils or similar organizations representing or, to
the Knowledge of the Company, purporting to represent or seeking to
represent any employees of the Company or any of its Subsidiaries. The
Company has made available to Parent or Parent's legal advisor copies of
(i) each Labor Agreement and all amendments, addenda or supplements
thereto, (ii) all material correspondence and all charges, complaints,
notices or orders received by the Company or any Subsidiary from the
National Labor Relations Board or any labor organization during the period
from the date four (4) years prior to the date of this Agreement, and (iii)
all arbitration opinions interpreting and enforcing any Labor Agreement to
which the Company or any Subsidiary is a party, or by which the Company or
any of its Subsidiaries is bound. Neither the Company nor any of its
Subsidiaries during the past two (2) years had a National Labor Relations
Board unfair labor practice charge, or representation petition, filed
against it. Neither the Company nor any of its Subsidiaries has had any
strike, slowdown, work stoppage, boycott, picketing, lockout, job action,
union labor dispute in the past two (2) years (other than routine contract
negotiations). Except as would not reasonably be expected to result in
material liability to the Company, to the Knowledge of the Company, as of
May 15, 2008, there is no Legal Proceeding, claim (other than routine
claims for benefits), labor dispute, collective bargaining, or grievance
pending, or to the Knowledge of the Company, threatened or reasonably
anticipated, either by or against the Company or any Subsidiary of the
Company, relating to any employment contract, collective bargaining
obligation or agreement, wages and hours, leave of absence, plant closing
notification, employment statute or regulation, privacy right, labor
dispute, workers' compensation policy, retaliation, immigration or
discrimination matter involving the Company or any Subsidiary of the
Company.
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(G) Each of the Company and its Subsidiaries: (i) is, and at all times
since December 31, 2005 has been, in material compliance with all
applicable Legal Requirements and with any order, ruling, decree, judgment
or arbitration award of any arbitrator or any court or other Governmental
Entity respecting employment, employment practices, terms and conditions of
employment, wages, employee benefits, hours or other labor-related matters,
including Legal Requirements relating to discrimination, wages and hours,
labor relations, leave of absence requirements, occupational health and
safety, privacy, harassment, retaliation, immigration, wrongful discharge
or violation of the personal rights of employees; (ii) has withheld and
reported in all material respects all amounts required by any Legal
Requirement or contract to be withheld and reported with respect to wages,
salaries and other payments to any employee; (iii) has no material
liability for any arrears of wages or any taxes or any penalty for failure
to comply with any of the foregoing; and (iv) has no material liability for
any payment to any trust or other fund governed by or maintained by or on
behalf of any Governmental Entity with respect to unemployment compensation
benefits, social security or other benefits or obligations for any employee
(other than routine payments to be made in the normal course of business
and consistent with past practice). Since December 31, 2005, neither the
Company nor any Subsidiary of the Company has effectuated a "mass layoff,"
"plant closing," partial "plant closing," "relocation" or "termination"
(each as defined in the Worker Adjustment and Retraining Notification Act
(the "WARN ACT") or any similar Legal Requirement) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of the Company or any Subsidiary of the Company.
(H) Except as expressly required or provided by this Agreement,
neither the execution or delivery of this Agreement nor the consummation of
any of the transactions contemplated by this Agreement will (either alone
or upon the occurrence of any additional or subsequent events) constitute
an event under any Company Plan, trust or loan that will or may result
(either alone or in connection with any other circumstance or event) in any
payment (whether of severance pay or otherwise), acceleration of any right,
obligation or benefit, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
employee of the Company or a Subsidiary of the Company.
(I) Neither the Company nor any Subsidiary or any current or former
ERISA Affiliate of the Company or any Subsidiary, has ever maintained,
established, sponsored, participated in, or contributed to any: (i) pension
plan subject to Title IV of ERISA; (ii) "multiemployer plan" within the
meaning of Section (3)(37) of ERISA; (iii) a plan described in Section 413
of the Code; (iv) a plan subject to the minimum funding standards or
Section 412 of the Code or Section 302 of ERISA; or (v) pension plan in
which stock of the Company or a Subsidiary or Affiliate of the Company is
or was held as a plan asset. The fair market value of the assets of each
funded foreign plan, the liability of each insurer for any foreign plan
funded through insurance, or the book reserve established for any foreign
plan, together with any accrued contributions, is sufficient to procure or
provide in full for the accrued benefit obligations with respect to all
current and former participants in such foreign plan according to the
actuarial assumptions and valuations most recently used to determine
employer contributions to and obligations under such foreign plan, and the
transactions contemplated by this Agreement shall not cause any such assets
or insurance obligations to be less than such benefit obligations, except
as would not reasonably be expected to result in material liability to the
Company and its Subsidiaries. "ERISA AFFILIATE" means any Entity that,
together with the Company or any of its Subsidiaries would be deemed a
"single employer" within the meaning of Section 414(b), (c) (m) or (o) of
the Code.
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(J) Neither the Company nor any Subsidiary or Affiliate of the
Company, has incurred any material penalties, excise taxes or interest
under Title IV of ERISA and no condition exists that presents a risk now or
in the future to the Company or any Subsidiary or Affiliate of the Company
of incurring any such liability (other than liability for benefits or
premiums arising in the ordinary course), in each of the foregoing cases as
would reasonably be expected to result in, or has resulted in, any material
liability to the Company and its Subsidiaries. No pension plan of the
Company or any Subsidiary of the Company has an "accumulated funding
deficiency" (within the meaning of Section 301 of ERISA or Section 412 of
the Code) whether or not waived. Except as set forth in Part 2.14(k) of the
Company Disclosure Schedule, with respect to each pension plan of the
Company or any Subsidiary of the Company that is a defined benefit plan (as
defined in Section 3(35) of ERISA), the assets of such plan equal or exceed
the "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA) and
valued on the basis of the continuation, and not the termination, of such
pension plan. In the past three years, no "reportable event" within the
meaning of Section 4043(c)(1), (4), (5), (6) or (13) of ERISA has occurred
with respect to any pension plan of the Company or any Subsidiary of the
Company that is a defined benefit plan (as defined in Section 3(35) of
ERISA). With respect to any pension plan of the Company or any Subsidiary
of the Company that is a "multiemployer plan" within the meaning of Section
3(37) of ERISA, the total potential withdrawal liability, within the
meaning of Section 4201 of ERISA, if the Company or any Subsidiary or
Affiliate of the Company were to withdraw from one or more of such pension
plans would not be expected to have an adverse effect on, or result in a
material liability to, the Company or any Subsidiary of the Company.
(K) No Company Plan provides (except at no cost to the Company or any
Subsidiary of the Company), retiree life insurance, retiree health benefits
or other retiree employee welfare benefits to any Person for any reason,
except as may be required by COBRA or other applicable Legal Requirements.
Other than commitments made that involve no future costs to any of the
Company or any Subsidiary of the Company, neither the Company nor any
Subsidiary of the Company, has to the Knowledge of the Company, ever
promised or contracted (whether in oral or written form) to any employee
(either individually or as a group) that any such employee or other Person
would be provided with retiree life insurance, retiree health benefits or
other retiree employee welfare benefits, except to the extent required by
applicable Legal Requirements.
(L) Each Company Plan and each employment agreement, or other
contract, plan, program, agreement, or arrangement to which the Company or
any Subsidiary of the Company is a party that is a "nonqualified deferred
compensation plan" (within the meaning of Section 409A(d)(1) of the Code)
has been operated in good faith compliance with Section 409A of the Code
and all applicable guidance relating thereto; and no additional tax under
Section 409A(a)(1)(B) of the Code has been or is reasonably expected to be
incurred by a participant in any such Company Plan, employment agreement,
or other contract, plan, program, agreement, or arrangement.
(M) Part 2.14(m) of the Company Disclosure Schedule accurately
identifies as of the date hereof the number of employees of the Company or
any Subsidiary of the Company who are not fully available to perform work
because of long-term disability or other long-term leave.
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2.15 ENVIRONMENTAL MATTERS.
(A) The Company and its Subsidiaries are in compliance with all
applicable Environmental Laws in all material respects, which compliance
includes the possession by each of the Company and its Subsidiaries of all
Governmental Authorizations necessary under applicable Environmental Laws,
and each of the Company and its Subsidiaries is in material compliance with
the terms thereof. Between December 31, 2005 and the date of this
Agreement, neither the Company nor any of its Subsidiaries has received any
written notice from a Governmental Entity that alleges that the Company or
any of its Subsidiaries is materially violating any Environmental Law. To
the Knowledge of the Company, no current or prior owner of any property
leased or controlled by the Company or any of its Subsidiaries has received
any written notice from a Governmental Entity between December 31, 2005 and
the date of this Agreement that alleges that such current or prior owner or
the Company or any of its Subsidiaries is violating any Environmental Law.
Between December 31, 2005 and the date of this Agreement, the Company and
its Designated Subsidiaries have not released any Hazardous Materials at or
from the Company's facilities, except in compliance with Environmental Laws
and, to the Company's Knowledge, no hazardous materials have been released
at any other locations where any Hazardous Materials were generated,
manufactured, refined, transferred, stored, produced, imported, used,
processed from or disposed of by the Company or any Designated Subsidiary
and, in each case, for which the Company or any Designed Subsidiary has or
could reasonably be expected to have any material liability under an
Environmental Law. (For purposes of this Section 2.15, "ENVIRONMENTAL LAW"
shall mean any Legal Requirement relating to protection of human health and
safety, natural resources or the environment, including related to
pollution, contamination, cleanup, preservation, protection, and
reclamation of the environment, including any law regulating emissions,
discharges or releases of chemicals, pollutants, contaminants, wastes and
toxic substances, and "HAZARDOUS MATERIALS" shall mean all materials,
wastes, or substances defined by, or regulated under, any Environmental Law
as a hazardous waste, hazardous material, hazardous substance, extremely
hazardous waste, restricted hazardous waste, contaminant, pollutant, toxic
waste, or toxic substance, including petroleum and petroleum products,
asbestos, radon, lead, toxic mold, radioactive materials, and
polychlorinated biphenyls.)
(B) All Hazardous Materials stored, used, transported, disposed of and
handled by the Company and its Subsidiaries have been stored, used,
transported, disposed of and handled in material compliance with all
Environmental Laws.
(C) The Company has made available to Parent or Parent's legal advisor
results of all material environmental, health or safety assessments,
investigations, studies, tests or other analyses performed since January 1,
2006, and all Phase I site assessments (and all updates thereto) performed
since January 1, 2001 in the Company's possession or control with respect
to the facilities.
2.16 INSURANCE.
(A) Part 2.16(a) of the Company Disclosure Schedule identifies, as of
the date of this Agreement, each insurance policy maintained by, at the
expense of or for the benefit of the Company and the Designated
Subsidiaries and the Company has made available to Parent or Parent's legal
advisor accurate and complete copies of the insurance policies identified
in Part 2.16(a) of the Company Disclosure Schedule. Each of the insurance
policies identified in Part 2.16(a) of the Company Disclosure Schedule is
in full force and effect or has been replaced with a policy that provides
equivalent coverage in all material respects.
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(B) Between December 31, 2005 and the date of this Agreement, neither
the Company nor any Designated Subsidiary has received any written
communication notifying the Company or any Designated Subsidiary of any (a)
cancellation or invalidation of any material insurance policy identified or
required to be identified in Part 2.16(a) of the Company Disclosure
Schedule (except with respect to policies that have been replaced with
similar policies), (b) refusal of any coverage or rejection of any material
claim under any such insurance policy (other than standard reservation of
rights letters), or (c) material increase in the amount of the premiums
payable with respect to any such insurance policy. As of the date of this
Agreement, except as set forth in Part 2.16(b) of the Company Disclosure
Schedule, there is no pending claim by the Company or any Designated
Subsidiary under any insurance policy identified or required to be
identified in Part 2.16(a) of the Company Disclosure Schedule.
2.17 CERTAIN BUSINESS PRACTICES. Except as set forth in Part 2.17 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
has: (a) used any funds for unlawful contributions, gifts or entertainment, or
for other unlawful expenses, related to political activity; (b) made any
unlawful payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns; or (c) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended.
2.18 PRODUCT WARRANTIES. As of the date of this Agreement, except as set
forth in Part 2.18 of the Company Disclosure Schedule, to the Knowledge of the
Company, there are no material claims pending or being threatened against the
Company or any of its Subsidiaries with respect to any warranties provided by
the Company or any of its Subsidiaries with respect to their respective
products.
2.19 TRANSACTIONS WITH AFFILIATES. To the Knowledge of the Company, between
the date of the Company's last proxy statement filed with the SEC and the date
of this Agreement, 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.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT; BOARD APPROVAL.
(A) The Company has the requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations under
this Agreement and, subject to the adoption of this Agreement by holders of
a majority of the outstanding shares of Company Common Stock in accordance
with the DGCL and the Company's Organizational Documents, to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
Merger and the other transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate action on the part
of the Company, and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated by this Agreement other than, with respect to the
Merger, the adoption of this Agreement by the holders of a majority of the
then outstanding shares of Company Common Stock in accordance with the DGCL
and the Company's Organizational Documents and the filing of the
appropriate merger documents as required by the DGCL. This Agreement has
been duly and validly executed and delivered by the Company and, assuming
the due authorization, execution and delivery of this Agreement by Parent
and Merger Sub, constitutes the legal and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies.
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(B) The board of directors of the Company has (i) determined that the
Merger is advisable and fair to, and in the best interests of, the Company
and its stockholders, (ii) approved this Agreement, the Merger and the
other transactions contemplated by this Agreement, and (iii) determined,
subject to the terms of this Agreement, to make the Company Board
Recommendation, all by a vote of the members of such board of directors
present at a meeting to consider and vote upon such matters.
2.21 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Company Common Stock entitled to vote with respect to the Merger
and outstanding on the record date for the Company Stockholders Meeting is the
only vote of the holders of any class or series of the Company's capital stock
necessary to adopt this Agreement.
2.22 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.22 of the
Company Disclosure Schedule, the execution and delivery of this Agreement by the
Company and the consummation by the Company of the Merger and the other
transactions contemplated by this Agreement will not 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 Organizational Documents of the Company or any of its
Subsidiaries, or (ii) any resolution adopted by the stockholders or the
board of directors, or any committee thereof, of the Company;
(B) contravene, conflict with or result in a violation in any material
respect or breach of, or result in a default in any material respect under,
any provision of any Material Contract, including the Indenture, or give
any Person the right to (i) declare a default or exercise any remedy under
any Material Contract, or (ii) accelerate the maturity or performance in
any material respect of any obligation under any Material Contract (it
being clarified that, assuming Parent executes a supplemental indenture in
accordance with Section 10.12 of the Indenture and Parent Ordinary Shares
continue to be approved for listing on The Nasdaq Global Market, the
transactions contemplated by this Agreement will not constitute a
Fundamental Change (as such term is defined in the Indenture));
(C) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Entity the right to
revoke, withdraw, suspend, cancel, terminate or modify, any material
Governmental Authorization that is held by the Company or any Designated
Subsidiary or that otherwise relates to the business of any of the Company
or any Designated Subsidiary or to any material assets owned or leased by
any of the Company or its Designated Subsidiaries;
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(D) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by the Company or any Designated
Subsidiary (except for Permitted Encumbrances); or
(E) result in the transfer of any material asset of the Company or any
Designated Subsidiary to any Person.
Except as may be required by the Exchange Act, the DGCL, antitrust or
competition laws of foreign jurisdictions or the Bylaws of the Financial
Industry Regulatory Authority, Inc., the Company is not required to make any
filing with or to obtain any consent from any Person at or prior to the
Effective Time in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the Merger, except where
the failure to make any such filing or obtain any such consent would not have a
Material Adverse Effect on the Company.
2.23 TAKEOVER STATUTES. As of the date hereof, no state takeover statute or
similar statute or regulation applies to or purports to apply to the Merger,
this Agreement or the transactions contemplated by this Agreement that would
require the Company to take any action prior to the execution and delivery of
this Agreement that has not been taken.
2.24 OPINION OF FINANCIAL ADVISOR. The Company's Board of Directors has
received the opinion of UBS Securities LLC to the effect that, as of the date of
such opinion specified therein and subject to the various qualifications and
assumptions set forth therein, the Exchange Ratio was fair, from a financial
point of view, to the holders of Company Common Stock, and the Company will
provide a copy of such opinion to Parent solely for informational purposes as
soon as reasonably practicable after receipt thereof by the Company.
2.25 BROKERS. No broker, finder or investment banker (other than UBS
Securities LLC) is entitled to any brokerage, finder's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
2.26 REGISTRATION STATEMENT/PROXY STATEMENT. The written information to be
supplied by the Company for inclusion in the Proxy Statement/Prospectus shall
not on the date the Proxy Statement/Prospectus is first mailed to the
stockholders of the Company, at the time of the Company Stockholders Meeting and
at the Effective Time, (i) contain any untrue statement of a material fact, (ii)
omit to state any material fact required to be stated therein or necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading, or (iii) omit to state any material
fact necessary to correct any statement in any earlier written communication
constituting a solicitation of proxies by the Company for the Company
Stockholders Meeting which has in the interim become false or misleading in any
material respect.
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2.27 RECEIVABLES; CUSTOMERS; SUPPLIERS AND SERVICE PROVIDERS.
(A) All of existing accounts receivable of the Company and its
Subsidiaries reflected on the Unaudited Interim Financials that have not
yet been collected (i) represent valid obligations of customers arising
from bona fide transactions entered into in the ordinary course of business
and (ii) are current and, to the Knowledge of the Company, will be
collected in full, without any counterclaim or set off (net of an allowance
for doubtful accounts of $300,000).
(B) Part 2.27(c) of the Company Disclosure Schedule provides a list as
of the date of this Agreement of all outstanding loans and advances made by
the Company and any Subsidiary of the Company to any stockholder, employee,
director, consultant or independent contractor, other than advances made to
employees, directors, consultants or independent contractors for business
expenses in the ordinary course of business consistent with past practice.
(C) As of the date of this Agreement, neither the Company nor any
Subsidiary of the Company has received any written notice from any material
customer indicating that any such customer plans to cease dealing with the
Company or the applicable Subsidiary or may otherwise materially reduce the
volume of business transacted by such customer with the Company or the
applicable Subsidiary below historical levels.
(D) Except as set forth on Part 2.27(d) of the Company Disclosure
Schedule and except for outstanding accounts receivables from any customer
in an amount less than $100,000, as of May 13, 2008, each customer of the
Company or a Subsidiary of the Company has paid in full, on or before the
due date, all amounts owed by such customer to the Company or its
Subsidiary (as the case may be).
(E) Except as set forth on Part 2.27(e) of the Company Disclosure
Schedule and except for outstanding accounts payable from any supplier or
service provider in an amount less than $100,000, as of May 13, 2008, each
of the Company and its Subsidiaries has paid in full, on or before the due
date, all amounts owed to their respective suppliers and service providers.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and warrant to
the Company that, except as set forth in the disclosure schedule delivered to
the Company on the date of this Agreement (the "PARENT DISCLOSURE SCHEDULE"):
3.1 DUE ORGANIZATION AND GOOD STANDING.
(A) Parent and each of its Subsidiaries is a corporation duly
organized, validly existing and (where such concept is recognized under the
laws of the jurisdiction in which it is incorporated) in good standing
under the laws of the jurisdiction in which it is organized, and has all
requisite corporate power and authority necessary to: (i) carry on its
business as it is now being conducted; and (ii) perform its obligations
under all contracts to which it is a party or under which it has rights
and/or obligations. Parent and each of its Subsidiaries is duly qualified
to do business and is in good standing in each state or foreign
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified would
not have a Material Adverse Effect on Parent. Neither Parent nor any
Subsidiary of Parent has agreed or is obligated to make or may become
obligated to make, any future investment in or capital contribution in any
other Entity.
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(B) Part 3.1 of the Parent Disclosure Schedule lists all Subsidiaries
of Parent, together with the jurisdiction of organization of each such
Subsidiary.
3.2 ARTICLES OF ASSOCIATION; CERTIFICATE OF INCORPORATION; BYLAWS. Parent
has made available to the Company or the Company's legal advisor: (i) copies of
the Organizational Documents of Parent and each Subsidiary of Parent, including
all amendments thereto; and (ii) the stock or other equity records of Parent and
each Subsidiary of Parent.. The stock or other equity records of Parent are
accurate, up-to-date and complete in all material respects. Parent is not in
violation of its Organizational Documents.
3.3 CAPITALIZATION, ETC.
(A) The authorized share capital of Parent consists of 800,000,000
shares of Parent Ordinary Shares. As of 5:00 p.m. Pacific Time on May 15,
2008: (i) 125,364,021 Parent Ordinary Shares were issued and outstanding,
of which no shares were unvested or were subject to any repurchase rights,
risk of forfeiture or other similar condition in favor of Parent; (ii)
37,429,273 Parent Ordinary Shares were issuable upon the exercise of
warrants that were issued and outstanding; (iii) 32,702,228 Parent Ordinary
Shares were issuable upon the exercise of options that were issued and
outstanding; (iv) 57,683,366 Parent Ordinary Shares were issuable upon the
conversion of convertible debentures that were outstanding; and (v)
117,763,158 Parent Ordinary Shares were issuable upon the conversion of
capital notes that were outstanding . Between 5:00 p.m. Pacific Time on May
15, 2008 and the date of this Agreement, Parent has not issued any Parent
Ordinary Shares except shares issued upon exercise of outstanding options
or warrants or conversion of outstanding convertible debentures. As of the
date of this Agreement, in the aggregate, 787,000 Parent Ordinary Shares
were reserved for future issuance pursuant to Parent's equity incentive
plans.
(B) All the outstanding shares of capital stock of Parent and each
Subsidiary of Parent have been duly authorized and validly issued and are
fully paid and nonassessable.
(C) Except as set forth in Part 3.3(c)(i) of the Parent Disclosure
Schedule (i) none of the outstanding shares of capital stock of Parent is
entitled or subject to any preemptive right or right of participation; (ii)
none of the outstanding shares of the capital stock of Parent is subject to
any right of first refusal or similar right in favor of Parent; and (iii)
there is no agreement in place 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 the capital stock of Parent.
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(D) Except for options, rights, securities and plans referred to in
Section 3.3(a), as of the date of this Agreement and except as set forth on
Part 3.3(d) of the Parent Disclosure Schedule, there is no: (i) outstanding
subscription, option, call, warrant or stock appreciation right or other
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of Parent or any Subsidiary of Parent;
(ii) outstanding restricted stock awards, restricted stock unit awards,
performance stock awards or performance cash awards; (iii) outstanding
security, instrument or obligation that is or may become convertible into
or exchangeable for any shares of the capital stock or other securities of
Parent or any Subsidiary of Parent; (iv) contract under which Parent or any
Subsidiary of Parent is or may become obligated to sell or otherwise issue
any shares of its capital stock or any other securities; or (v) to the
Knowledge of Parent, condition or circumstance that may 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 capital stock of
Parent or other securities of Parent.
(E) All outstanding shares of capital stock, options, warrants, stock
appreciation rights and other securities or equity interests of Parent have
been issued and granted in compliance in all material respects with all
applicable securities laws and other applicable Legal Requirements.
(F) All of the outstanding equity interests of each of Parent's
Subsidiaries: (i) have been duly authorized and validly issued, (ii) are
nonassessable and free of preemptive rights, with no obligation to
contribute additional capital, and (iii) except as set forth in Part 3.3(f)
of the Parent Disclosure Schedule, are owned beneficially and of record by
Parent, free and clear of any Encumbrances (other than Permitted
Encumbrances).
3.4 SEC FILINGS; FINANCIAL STATEMENTS; FINANCIAL CONTROLS.
(A) All registration statements (on a form other than Form S-8),
annual and current reports and other documents required to be filed by
Parent with the SEC between February 2, 2006 and the date of this Agreement
(the "PARENT SEC DOCUMENTS") have been so filed. 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
Parent SEC Documents 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 Parent SEC Documents 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. Between March 13, 2006 and the date of this Agreement, Parent
has filed or furnished, as applicable, on a timely basis all forms,
statements, certifications, reports and documents required to be filed with
the Israeli Securities Authority (the "ISA") under the Israeli Securities
Law 1968 and any regulation promulgated thereunder (the "ISRAELI SECURITIES
LAW") (the forms, statements, reports and documents filed with or furnished
to the ISA, the "PARENT ISRAEL REPORTS" and, together with the Parent SEC
Documents, the "PARENT REPORTS"). Each of the Parent Israel Reports, at the
time of its filing, complied in all material respects with the applicable
requirements of the Israeli Securities Law. As of their respective dates
(or, if amended prior to the date hereof, as of the date of such amendment)
Parent Israel Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading.
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(B) (i) The financial statements (including any related notes)
contained in the Parent Reports; and (ii) the unaudited consolidated
balance sheet of Parent and its consolidated Subsidiaries as of March 31,
2008 and the related unaudited consolidated statement of operations,
statement of changes in shareholders' equity and statement of cash flows of
Parent and its consolidated Subsidiaries for the three months then ended,
together with the notes thereto (the "UNAUDITED PARENT INTERIM FINANCIALS")
were prepared in accordance with GAAP 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 6-K of the SEC) and fairly present, in all material
respects, the consolidated financial position of Parent and its
Subsidiaries as of the respective dates thereof and the consolidated
results of operations of Parent and its Subsidiaries for the periods
covered thereby (except that unaudited financial statements may not contain
footnotes and are subject to year-end adjustments, which are not reasonably
expected to be individually or in the aggregate, material in magnitude).
(C) Neither Parent nor any of its Subsidiaries has any liabilities of
the type required to be disclosed in the liabilities column of a balance
sheet prepared in accordance with GAAP, except for: (i) liabilities
disclosed in the financial statements (including any related notes)
contained in the Parent Reports and the Unaudited Interim Financials; (ii)
liabilities incurred since March 31, 2008 and in the ordinary course of
business; (iii) liabilities and obligations incurred in connection with
Parent's performance of its obligations under this Agreement and the
transactions contemplated hereby; (iv) liabilities described in Part 3.4(c)
of the Parent Disclosure Schedule; and (v) liabilities incurred on or
following the date of this Agreement to the extent such liabilities would
not reasonably be expected to result in a Material Adverse Effect on
Parent.
(D) Neither Parent nor any Subsidiary of Parent has ever effected or
maintained any "off-balance sheet arrangement" (as defined in Item 303(c)
of Regulation S-K of the SEC).
(E) Parent and its Subsidiaries maintain adequate internal accounting
controls that are reasonably designed to ensure that: (i) transactions are
executed with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of the
consolidated financial statements of Parent and its consolidated
Subsidiaries and to maintain accountability for the assets of Parent and
its Subsidiaries; (iii) access to the assets of Parent and its Subsidiaries
is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(F) Parent's "disclosure controls and procedures" (as such terms are
defined in paragraph (e) of Rule 13a-15 under the Exchange Act) are
reasonably designed to ensure that material information required to be
disclosed by the Company in its reports that it files or furnishes under
the Exchange Act is recorded, processed, summarized and reported within the
time period specified in the rules and forms of the Commission, and that
all such material information is accumulated and communicated to the
Company's management as appropriate to allow timely decisions regarding
required disclosure and to make the certifications of the principal
executive officer and principal financial officer of Parent required under
the Exchange Act with respect to such reports.
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(G) Parent's management has completed assessment of the effectiveness
of Parent's internal control over financial reporting in compliance with
the requirements of Section 404 of the Sarbanes-Oxley Act for the year
ended December 31, 2007, and such assessment concluded that such controls
were effective. Parent has made available to the Company or the Company's
legal advisor any material communication made by management or Parent's
auditors prior to the date of this Agreement to the audit committee
required or contemplated by listing standards of the Nasdaq Global Market,
the audit committee's charter or professional standards of the Public
Company Accounting Oversight Board. As of the date of this Agreement, no
material complaints from any source regarding accounting, internal
accounting controls or auditing matters, and no material concerns from
Parent or subsidiary of the Parent employees regarding questionable
accounting or auditing matters, have been received by Parent.
(H) As of the date of this Agreement, Parent is in compliance in all
material respects with the applicable provisions of the Sarbanes-Oxley Act
and with applicable listing and other rules and regulations of the Nasdaq
Global Market and has not received any notice from the Nasdaq Global Market
asserting any material non-compliance with such rules and regulations. As
of the date of this Agreement, each of the principal executive officer of
Parent and the principal financial officer of Parent has made all
certifications required by Rule 13a-14 or 15d-14 under the Exchange Act and
Sections 302 and 906 of the Sarbanes-Oxley Act with respect to the Parent
SEC Documents, and the statements contained in such certifications are
accurate in all material respects. For purposes of this Agreement,
"principal executive officer" and "principal financial officer" shall have
the meanings given to such terms in the Sarbanes-Oxley Act. Neither Parent
nor any of its subsidiaries has outstanding, or has arranged any
outstanding, "extensions of credit" in the form a personal loan to
directors or executive officers within the meaning of Section 13(k) of the
Exchange Act. No attorney representing Parent or any of its Subsidiaries,
whether or not employed by Parent or any of its Subsidiaries, has reported
evidence of a violation of securities laws by Parent, any Subsidiary of
Parent or any of its officers, directors, employees or agents to Parent's
chief legal officer, audit committee (or other committee designated for the
purpose) of Parent's board of directors or Parent's board of directors.
3.5 ABSENCE OF CERTAIN CHANGES. Between December 31, 2007 and the date of
this Agreement, and except as set forth on Part 3.5 of the Parent Disclosure
Schedule, neither Parent nor any of its Subsidiaries has: (a) suffered any
adverse change with respect to its business, customers, suppliers or financial
condition which has had a Material Adverse Effect on Parent; (b) amended its
Organizational Documents, or effected or been a party to (other than as a
stockholder) any recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction; (c) changed, in any material
respect, its accounting methods, principles or practices except as required by
changes in GAAP; (d) declared, set aside or paid any dividend or made any other
distribution with respect to the outstanding Parent Ordinary Shares or
repurchased or redeemed any Parent Ordinary Shares or other securities of
Parent; (e) acquired any equity interest or voting interest in any Entity (other
than a Subsidiary disclosed in Part 3.1 of the Parent Disclosure Schedule); (f)
commenced or settled any Legal Proceeding (i) involving damages for greater than
$100,000, (ii) involving the payment of more than $100,000, or (iii) seeking
specific performance or injunctive relief; (g) received a written claim by a
third party in which the commencement of a Legal Proceeding involving damages
for greater than $100,000 is threatened; or (h) entered into any binding
agreement to take any of the actions referred to in clauses "(b)" through "(g)"
of this sentence.
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3.6 IP RIGHTS.
(A) Parent and its Subsidiaries exclusively own all right, title and
interest to and in the Parent Owned IP free and clear of any Encumbrances
(other than Permitted Encumbrances). Without limiting the generality of the
foregoing, Parent and its Subsidiaries exclusively own all right, title and
interest to and in Parent Owned IP created or developed using any funding,
facilities or personnel of any Governmental Entity or any university or
other educational institution.
(B) To the Knowledge of Parent, Parent possesses (by ownership,
license or otherwise) all material Intellectual Property and Intellectual
Property necessary to conduct the business of Parent and its Subsidiaries
as currently conducted. The parties acknowledge and agree that the
foregoing statement does not constitute a representation or warranty as to,
and is not intended to apply to, any potential, actual or suspected
infringement, misappropriation or violation of any Intellectual Property
Right of any other Person by Parent or any of its Subsidiaries.
3.7 CONTRACTS.
(A) Part 3.7 of the Parent Disclosure Schedule contains a list as of
the date of this Agreement of each of the following contracts to which
Parent or any of its Subsidiaries is a party:
(I) each contract (A) relating to the acquisition, issuance,
voting, registration, sale or transfer of any of Parent's securities,
(B) providing any Person with any preemptive right, right of
participation, right of maintenance or similar right with respect to
any of Parent's securities, or (C) providing Parent or any Subsidiary
of Parent with any right of first refusal with respect to, or right to
repurchase or redeem, any of Parent's securities;
(II) each loan or credit agreement, indenture, mortgage, note or
other contract evidencing indebtedness for money borrowed by Parent or
any of its Subsidiaries from a third party lender, and each contract
pursuant to which any such indebtedness for borrowed money is
guaranteed by Parent or any of its Subsidiaries, in each case
involving indebtedness in excess of $1 million;
(III) any contract relating to the creation of a security
interest, mortgage, pledge, hypothecation or other similar encumbrance
with respect to any asset of Parent or any of its Subsidiaries, where
such contract relates to indebtedness in excess of $1 million;
(each contract listed in Part 3.7 of the Parent Disclosure Schedule being
referred to as a "PARENT MATERIAL CONTRACT").
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(B) Parent has made available to the Company or the Company's legal
advisor accurate and complete copies of all Parent Material Contracts (as
defined below) in effect as of the date of this Agreement, including all
amendments thereto. There are no existing material breaches or defaults on
the part of Parent or any of its Subsidiaries under any Parent Material
Contract; and, to the Knowledge of Parent, there are no existing material
breaches or defaults on the part of any other Person under any Parent
Material Contract. Each Parent Material Contract is valid, has not been
terminated prior to the date of this Agreement, is enforceable against
Parent or the applicable Subsidiary of Parent that is a party to such
Parent Material Contract, and, to the Knowledge of Parent, is enforceable
against the other parties thereto, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors,
and (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies. To the Knowledge of Parent, no event has
occurred, and no circumstance or condition exists, that (with or without
notice or lapse of time) will, or would reasonably be expected to, (A)
result in a material violation or material breach of any of the provisions
of any Parent Material Contract, (B) give any party to a Parent Material
Contract the right to accelerate the maturity or performance of any Parent
Material Contract, or (C) give any party to a material contract the right
to cancel, terminate or materially modify any Parent Material Contract. As
of the date of this Agreement, neither Parent nor any of its Subsidiaries
has received any written notice regarding any unresolved issue that would
constitute a material violation or material breach of, or default under,
any Parent Material Contract. As of the date of this Agreement, neither
Parent nor any of its Subsidiaries has knowingly waived any of its material
rights under any Parent Material Contract except in the ordinary course of
business.
(C) The Merger, and the issuance of the Parent Ordinary Shares in
connection therewith, will not trigger any anti-dilution provisions under
the terms of any debentures, options or warrants or require Parent to issue
additional Parent Ordinary Shares or other securities of Parent or reduce
the exercise or conversion price of any options or warrants exercisable
for, or notes or debentures convertible into, Parent Ordinary Shares or
other securities of Parent or otherwise give effect to any similar
adjustments to any of Parent's securities.
(D) Parent's failure to meet the conditions of the Investment Center
approval with respect to Fab 2 have not been deemed and, to its Knowledge,
will not be deemed as a cross-default under the terms of the Facility
Agreement.
(E) Based on the financial statements of the Company disclosed in the
Company SEC Reports, immediately following the Closing, on a pro forma
basis as if the Merger had occurred as of, and for the twelve months ended,
March 31, 2008, Parent will not be in breach of the covenants in Section
5.1 of the Conversion Agreements, dated September 28, 2006, with each of
Bank Hapoalim B.M. and Bank Leumi Le-Israel B.M.
3.8 COMPLIANCE WITH LEGAL REQUIREMENTS.
(A) As of the date of this Agreement, the Parent and its Subsidiaries
are in compliance in all material respects with all Legal Requirements
applicable to their businesses. Except as set forth in Part 3.8(a) of the
Parent Disclosure Schedule, since December 31, 2005, neither Parent nor any
of its Subsidiaries have (a) received any written notice from any
Governmental Entity regarding any actual or possible violation of, or
failure to comply with any material provision of, any Legal Requirement or
(b) filed or otherwise provided any written notice to any Governmental
Entity regarding any actual or possible material violation of, or failure
to comply with any material provision of, any Legal Requirement. There is
no such notice outstanding or unresolved as of the date of this Agreement.
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(B) The Parent and each of its Subsidiaries is in compliance in all
material respects with applicable provisions of United States export,
re-export and import control laws and regulations related to the export or
transfer of commodities, software and technology, including the Export
Administration Regulations (15 C.F.R. ss.ss. 730-774); the International
Traffic in Arms Regulations (22 C.F.R. ss.ss. 120-130); the economic
sanctions regulations administered by the Office of Foreign Assets Control
(31 C.F.R. ss.ss. 500-598); and the Customs Regulations (19 C.F.R. ss.ss.
1-357).
3.9 LEGAL PROCEEDINGS; ORDERS. As of the date of this Agreement:
(A) there is no Legal Proceeding pending (or, to the Knowledge of
Parent, being overtly threatened) against Parent or Merger Sub that would
materially and adversely affect Parent's or Merger Sub's ability to
consummate any of the transactions contemplated by this Agreement;
(B) there is no claim, dispute or Legal Proceeding pending (or, to the
Knowledge of Parent, being threatened) against Parent or any of its
Subsidiaries that is reasonably expected to have a Material Adverse Effect
on Parent;
(C) there is no material court order or judgment to which Parent or
Merger Sub is subject that is reasonably expected to have a Material
Adverse Effect on Parent or that would materially and adversely affect
Parent's or Merger Sub's ability to consummate any of the transactions
contemplated by this Agreement; and
(D) no investigation by any Governmental Entity with respect to
Parent, Merger Sub or any other Affiliate of Parent is pending or is being
overtly threatened, other than any investigation that would not materially
and adversely affect Parent's or Merger Sub's ability to consummate any of
the transactions contemplated by this Agreement.
3.10 GOVERNMENTAL AUTHORIZATIONS. As of the date of this Agreement, Parent
and its Subsidiaries hold all Governmental Authorizations material to enable
them to conduct their businesses in the manner in which such businesses are
currently being conducted. The Governmental Authorizations held by Parent and
its Subsidiaries are, in all material respects, valid and in full force and
effect. To the Knowledge of Parent, Parent and its Subsidiaries are in
substantial compliance with the terms and requirements of any material
Governmental Authorizations. Between December 31, 2005 and the date of this
Agreement, neither Parent nor any of its Subsidiaries has received any written
notice from any Governmental Entity regarding (a) any actual or possible
violation of or failure to comply with any term or requirement of any material
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
material Governmental Authorization.
3.11 CERTAIN BUSINESS PRACTICES. Except as set forth in Part 3.11 of the
Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries has: (a)
used any funds for unlawful contributions, gifts or entertainment, or for other
unlawful expenses, related to political activity; (b) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns; or (c) violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
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3.12 TRANSACTIONS WITH AFFILIATES. To the Knowledge of Parent, between the
date of Parent's last annual report filed with the SEC and the date of this
Agreement, no event has occurred that would be required to be reported by Parent
pursuant to Item 7.B of Form 20-F promulgated by the SEC.
3.13 AUTHORITY; BINDING NATURE OF AGREEMENT.
(A) Parent has the requisite corporate power and authority to enter
into and to perform its obligations under this Agreement. The execution and
delivery of this Agreement by Parent and the consummation by Parent of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of Parent, and no other
corporate proceedings on the part of Parent are necessary to authorize this
Agreement. This Agreement has been duly and validly executed and delivered
on behalf of Parent and, assuming the due authorization, execution and
delivery of this Agreement on behalf of the Company, constitutes the valid
and binding obligation of Parent, enforceable against Parent in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable
remedies. Merger Sub is a newly formed, wholly owned Subsidiary of Parent
and has the requisite corporate power and authority to enter into and to
perform its obligations under this Agreement. The execution and delivery of
this Agreement by Merger Sub and the consummation by Merger Sub of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of Merger Sub, and no other
corporate proceedings on the part of Merger Sub are necessary to authorize
this Agreement other than, with respect to the Merger, the filing and
recordation of the appropriate merger documents as required by the DGCL.
Parent, as the sole stockholder of Merger Sub, will vote to adopt this
Agreement immediately after the execution and delivery of this Agreement.
This Agreement has been duly and validly executed and delivered by Merger
Sub and, assuming the due authorization, execution and delivery of this
Agreement on behalf of the Company, constitutes the valid and binding
obligation of Merger Sub, enforceable against Merger Sub in accordance with
its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable
remedies.
(B) The Board of Directors of Parent has (i) determined that the
transactions contemplated by this Agreement are fair to and in the best
interests of Parent and its shareholders, and (ii) authorized and approved
the execution, delivery and performance of this Agreement by Parent. The
Board of Directors of Merger Sub has (A) determined that the transactions
contemplated by this Agreement are fair to and in the best interests of
Merger Sub and its stockholder, and (B) authorized and approved the
execution, delivery and performance of this Agreement by Merger Sub.
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3.14 NON-CONTRAVENTION; CONSENTS. The execution and delivery of this
Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub
of the Merger and the other transactions contemplated by this Agreement will not
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 Organizational Documents of Parent or Merger Sub, or
(ii) any resolution adopted by the stockholders or the board of directors,
or any committee thereof, of Parent or Merger Sub;
(B) contravene, conflict with or result in a violation in any material
respect or breach of, or result in a default in any material respect under,
any provision of any Parent Material Contract (including the Facility
Agreement); or give any Person the right to (i) declare a default or
exercise any remedy under the Parent Material Contract, or (ii) accelerate
the maturity or performance in any material respect of any obligation under
the Parent Material Contract;
(C) contravene, conflict with or result in a violation of, or give any
Governmental Entity the right to challenge the Merger or to exercise any
remedy or obtain any relief under, any Legal Requirement or any Order,
except (i) under applicable antitrust laws, and (ii) for conflicts or
violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on Parent or Merger Sub's
ability to consummate the Merger;
(D) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Entity the right to
revoke, withdraw, suspend, cancel, terminate or modify, any material
Governmental Authorization that is held by Parent or Merger Sub or that
otherwise relates to the business of any of Parent or Merger Sub or to any
material assets owned or leased by any of Parent or Merger Sub;
(E) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by Parent or Merger Sub (except for
Permitted Encumbrances); or
(F) result in the transfer of any material asset of Parent or Merger
Sub to any Person.
Except as may be required by the Exchange Act, the DGCL, or the antitrust or
competition laws of foreign jurisdictions, neither Parent nor Merger Sub, nor
any of Parent's other Affiliates, is required to make any filing with or to
obtain any consent from any Person at or prior to the Effective Time in
connection with the execution and delivery of this Agreement by Parent or Merger
Sub or the consummation by Parent or Merger Sub of any of the transactions
contemplated by this Agreement, except where the failure to make any such filing
or obtain any such consent would not materially and adversely affect Parent's or
Merger Sub's ability to consummate any of the transactions contemplated by this
Agreement. No vote of Parent's shareholders is necessary to adopt this Agreement
or to approve any of the transactions contemplated by this Agreement.
3.15 NOT AN INTERESTED STOCKHOLDER. Neither Parent nor any of its
"affiliates" or "associates" is or has been during the past three years an
"interested stockholder" (as such term is defined in Section 203 of the DGCL) of
the Company.
3.16 OWNERSHIP OF SHARES. Neither Parent nor any of Parent's Affiliates
directly or indirectly owns, and at all times during the past three years,
neither Parent nor any of Parent's Affiliates has owned, beneficially or
otherwise, any shares of Company Common Stock or any securities, contracts or
obligations convertible into or exercisable or exchangeable for shares of
Company Common Stock.
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3.17 BROKERS. No broker, finder or investment banker (other than Citigroup
Global Markets, Inc.) is entitled to any brokerage, finder's or other similar
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Parent.
3.18 ACTIVITIES OF MERGER SUB. Merger Sub was formed solely for the purpose
of effecting the Merger and the other transactions contemplated by this
Agreement. Merger Sub has engaged in no activities other than those contemplated
by this Agreement and has no liabilities other than those contemplated by this
Agreement.
3.19 REGISTRATION STATEMENT/PROXY STATEMENT. The written information to be
supplied by the Parent for inclusion in the Proxy Statement/Prospectus shall not
on the date the Proxy Statement/Prospectus is first mailed to the stockholders
of the Company, at the time of the Company Stockholders Meeting and at the
Effective Time, (i) contain any untrue statement of a material fact, (ii) omit
to state any material fact required to be stated therein or necessary in order
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading, or (iii) omit to state any material fact
necessary to correct any statement in any earlier written communication
constituting a solicitation of proxies by the Company for the Company
Stockholders Meeting which has in the interim become false or misleading in any
material respect.
SECTION 4. COVENANTS
4.1 INTERIM OPERATIONS OF THE PARTIES.
(A) During the period from the date of this Agreement through the
earlier of the Effective Time or the termination of this Agreement, each of
the parties shall ensure that it and each of its Subsidiaries shall:
(I) use reasonable efforts to conduct its business in
substantially the same manner in which such business was being
conducted prior to the date of this Agreement;
(II) use commercially reasonable efforts to ensure that it
preserves intact its current business organization, keeps available
the services of its present officers and other employees and preserves
its relations and goodwill with suppliers, customers, landlords,
creditors, licensors, licensees, employees and other entities having
business relationships with it and with all relevant Governmental
Entities;
(III) keep in full force all its insurance policies (except for
replacement of insurance policies providing substantially similar
levels of coverage); and
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(IV) in the case of the Company promptly notify Parent of any
event that would have a Material Adverse Effect on the Company and in
the case of Parent, promptly notify the Company of any event that
would have a Material Adverse Effect on Parent.
(B) The Company agrees that, during the period from the date of this
Agreement through the earlier of the Effective Time or the termination of
this Agreement, except (1) to the extent Parent shall otherwise consent in
writing (such consent not to be unreasonably withheld) or (2) as set forth
in Part 4.1(b) of the Company Disclosure Schedule, the Company shall not
and shall not permit any of its Subsidiaries to:
(I) amend its Organizational Documents;
(II) split, combine or reclassify any shares of capital stock;
(III) declare, set aside or pay any dividend (whether payable in
cash, stock or property) with respect to any capital stock or other
securities;
(IV) (A) form any Subsidiary; (B) or acquire any equity interest
in any other Entity; or (C) effect or become a party to any merger,
consolidation, plan of arrangement, share exchange, business
combination, amalgamation, recapitalization, reclassification of
shares, stock split, reverse stock split, issuance of bonus shares,
division or subdivision of shares, consolidation of shares or similar
transaction;
(V) issue or authorize the issuance of any additional shares of,
or securities convertible or exchangeable for, or options, warrants or
rights to acquire, any shares of its capital stock, other than (A)
shares of Company Common Stock issuable upon exercise of Company
Options or Company Warrants, or upon conversion of the Convertible
Notes, outstanding on the date of this Agreement or (B) up to 70,000
shares (subject to adjustment for any stock split, reverse stock split
or other similar event affecting the Company Common Stock after the
date of this Agreement) of Company Common Stock subject to options or
other equity awards under the Company Equity Plan issued in the
ordinary course of business to employees (other than directors or
executive officers of the Company);
(VI) amend or waive any right under any Company Option, Company
Warrant or the Convertible Notes;
(VII) (A) acquire any asset (tangible or intangible) for a
purchase price exceeding $200,000 or assets (tangible or intangible)
for an aggregate purchase price exceeding $600,000 (other than the
acquisition of raw materials or supplies in the ordinary course of
business consistent with past practice, capital expenditures not
prohibited by clause "(xvi)" below and non-exclusive licenses of
Intellectual Property Rights in the ordinary course of business); (B)
sell or otherwise dispose of any material asset (including, without
limitation, the membership interest (all or a portion) in HHNEC and
any other asset valued in excess of $250,000), other than the license
of Intellectual Property Rights not prohibited by clause "(xii)" below
and the sale of finished goods inventory in the ordinary course of
business consistent with past practice, scrapped inventory and the
disposal of obsolete equipment consistent with past practice; (C)
enter into a lease or a license of any assets of the Company or any of
its Subsidiaries involving the payment of $500,000 over the term of
the lease or license (other than the replacement or renewal of
existing licenses or leases and the license of Intellectual Property
Rights not prohibited by clause "(xii)" below or capital leases not
prohibited by clauses "(ix)" and "(xvi)" below); or (D) knowingly
waive or relinquish any rights outside of the ordinary course of
business;
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(VIII) repurchase, redeem or otherwise acquire any shares,
options, warrants, rights to acquire any shares of the Company's
capital stock (except shares repurchased from employees or former
employees pursuant to the exercise of repurchase rights) or securities
convertible into shares of the Company's capital stock (including the
Convertible Notes);
(IX) incur any indebtedness for borrowed money or guarantee any
such indebtedness, except for (A) borrowings (including letters of
credit) under the Loan and Security Agreement with Wachovia Capital
Finance Corporation (Western) up to $13,000,000 in the aggregate,
subject to the Company providing Parent with advance written notice
of: (1) the first drawdown or letter of credit that brings the
outstanding balance (including letters of credit) to $10,000,000 or
more; and (2) each drawdown or letter of credit thereafter, and (B)
purchase money financings and capital leases entered into in the
ordinary course of business;
(X) (A) establish, adopt or amend any employee benefit (including
health) or pension plans or employment agreements (other than
amendments required by applicable Legal Requirements), (B) pay any
bonus or make any profit sharing payment, cash incentive payment or
similar payment to, or increase the compensation or fringe benefits of
any director, officer or employee of the Company or any of its
Subsidiaries (except for (1) payments pursuant to existing agreements
or plans, (2) amendments determined by the Company in good faith to be
required to comply with applicable Legal Requirements, (3) increases
required pursuant to the Labor Agreements or any benefit plan of the
Company and its Subsidiaries in effect on the date hereof, and (4)
salary increases and bonuses to non-executive employees in the
ordinary course of business), (C) hire any new officer, (D) terminate
any existing officers or any other person listed on Part 4.1(b)(x) of
the Company Disclosure Schedule (other than terminations for cause),
or (E) grant any severance pay or termination pay to any officers or
employees, except pursuant to existing agreements or in accordance
with existing written company policies;
(XI) (A) enter into or become bound by, or permit any of the
assets owned or used by it to become by, any contact that, if entered
into prior to the date of this Agreement, would be a Material Contract
(except for (1) contracts relating to the acquisition or disposition
of assets, licenses or leases not otherwise prohibited by this Section
4.1, (2) settlement agreements not prohibited by clause (xviii), (3)
amendments to, or consents under, any Material Contracts necessary in
connection with the Merger, and (4) a new or amended collective
bargaining agreement with the International Brotherhood of Electrical
Workers consistent with those certain letters of understanding, each
dated as of May 2, 2008, subject to the Company giving Parent and
Parent's counsel a reasonable opportunity to review and comment on any
such agreement), or (B) amend, renew or prematurely terminate any
Material Contracts or knowingly waive, release or assign any material
rights or claims under any Material Contracts (except in the ordinary
course of business and except for amendments or consents necessary in
connection with the Merger);
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(XII) (A) abandon, disclaim, dedicate to the public, sell, assign
or grant any security interest (other than Permitted Encumbrances) in,
to or under any Intellectual Property Rights of the Company or a
Subsidiary of the Company, including failing to perform or cause to be
performed all applicable filings, recordings and other acts, or to pay
or cause to be paid all required fees and taxes, to maintain and
protect its interest in such Intellectual Property Rights, except as
set forth in Part 2.6(d)(ii) of the Company Disclosure Schedule, (B)
grant to any third party any license with respect to Intellectual
Property Rights of the Company or a Subsidiary of the Company, except
in the ordinary course of business, (C) develop, create or invent any
Intellectual Property jointly with any third-party except in the
ordinary course of business or in accordance with the terms of
existing agreements or arrangements, or (D) fail to notify Parent
promptly of any material infringement, misappropriation or other
violation of the Intellectual Property Rights of the Company or a
Subsidiary of the Company of which the Company or its Subsidiary
obtains Knowledge and to consult with Parent regarding the actions (if
any) to take to protect such Intellectual Property Rights;
(XIII) lend money to any Person (except that the Company and its
Subsidiaries may make advances to employees, officers, directors or
independent contractors for business expenses and the Company may
allow employees to acquire shares of Company Common Stock in exchange
for promissory notes upon exercise of Company Options, in each case in
the ordinary course of business and consistent with past practice);
(XIV) change any of its methods of tax or financial accounting or
accounting practices in any material respect other than changes
required by applicable law or under GAAP;
(XV) make, change or revoke any material tax election, amend any
material Tax Return, enter into any closing agreement with respect to
a material amount of Taxes, settle any material tax claim or
assessment; surrender any right to claim a refund of a material amount
of Taxes, obtain any Tax ruling or consent to any waiver or extension
of the statute of limitations for the assessment of Taxes or take any
action or fail to take any action that would be reasonably likely to
cause the Merger to fail to qualify as a reorganization within the
meaning of Section 368(a) of the Code;
(XVI) make any capital expenditure that is not contemplated by
the capital expenditure budget set forth in Part 4.1(b)(xvi) of the
Company Disclosure Schedule (a "NON-BUDGETED CAPITAL EXPENDITURE"),
except that the Company or any Subsidiary of the Company (A) may make
any Non-Budgeted Capital Expenditure that does not individually exceed
$200,000 in amount, and that (B) when added to all other Non-Budgeted
Capital Expenditures made by the Company and its Subsidiaries since
the date of this Agreement, would not exceed $750,000 in the
aggregate;
(XVII) commence any Legal Proceeding, except with respect to
routine collection matters in the ordinary course of business and
consistent with past practices or to enforce its rights under this
Agreement;
(XVIII) settle or discharge any Legal Proceeding or other claim
or dispute or settle any third-party Legal Proceeding with respect to
the transactions contemplated by this Agreement, except where the only
obligations incurred by the Company are payments below $100,000 in the
aggregate;
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(XIX) (A) extend the payment terms of any customer, provide
credit to any customer (or any price adjustment) or make customer
concessions, or (B) advance payment terms of any supplier or service
provider, in each case except in the ordinary course of business and
consistent with past practice; or
(XX) enter into an agreement to take any of the actions described
in this Section 4.1(b).
(C) Parent agrees that, during the period from the date of this
Agreement through the earlier of the Effective Time or the termination of
this Agreement, except (1) to the extent the Company shall otherwise
consent in writing (such consent not to be unreasonably withheld) or (2) as
set forth in Part 4.1(c) of the Parent Disclosure Schedule, Parent shall
not and shall not permit Merger Sub or any of its other Subsidiaries to:
(I) amend its Organizational Documents;
(II) declare, set aside or pay any dividend (whether payable in
cash, stock or property) with respect to any capital stock or other
securities;
(III) (A) form any Subsidiary; (B) or acquire any equity interest
in any other Entity; or (C) effect or become a party to any merger,
consolidation, plan of arrangement, share exchange, business
combination, amalgamation, recapitalization, reclassification of
shares, issuance of bonus shares or similar transaction;
(IV) repurchase, redeem or otherwise acquire any shares, options,
warrants or rights to acquire any shares of capital stock (except
shares repurchased from employees or former employees pursuant to the
exercise of repurchase rights);
(V) change any of its methods of accounting or accounting
practices in any material respect other than changes required under
GAAP;
(VI) take any action or fail to take any action that would be
reasonably likely to cause the Merger to fail to qualify as a
reorganization within the meaning of Section 368(a) of the Code; or
(VII) enter into an agreement to take any of the actions
described in this Section 4.1(c).
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4.2 NO SOLICITATION.
(A) From and after the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement in accordance with its
terms, the Company, its Subsidiaries and their respective directors and
officers will not, and the Company will use commercially reasonable efforts
to ensure that its and its Subsidiaries' non-officer employees, affiliates,
agents, attorneys, accountants, financial advisors and other advisors and
representatives do not, directly or indirectly: (i) solicit or initiate, or
induce, encourage or knowingly facilitate the making, submission or
announcement of any Alternative Acquisition Proposal or Alternative
Acquisition Inquiry; (ii) except as otherwise provided below, furnish any
information regarding the Company or its Subsidiaries to any third party in
connection with or in response to any Alternative Acquisition Proposal or
Alternative Acquisition Inquiry; (iii) except as otherwise provided below,
enter into, participate, engage, maintain or continue in any discussions or
negotiations with any third party concerning any Alternative Acquisition
Proposal or Alternative Acquisition Inquiry; or (iv) except in accordance
with Section 4.4(c), approve, endorse or recommend any Alternative
Acquisition Proposal or Alternative Acquisition Inquiry;, enter into any
letter of intent or similar document or any contract, agreement or
commitment contemplating or otherwise relating to any Alternative
Acquisition Transaction; provided, however, that, the Company and its
officers, directors, employees, affiliates, investment bankers, financial
advisors, attorneys, accounts or other advisors or representatives may, at
any time prior to the adoption of this Agreement by the holders of Company
Common Stock, take any of the actions otherwise prohibited by clause "(ii)"
or clause "(iii)" of this Section 4.2(a) in connection with or in response
to any Alternative Acquisition Proposal if the Company's Board of Directors
determines in good faith that such Alternative Acquisition Proposal (which
has not been withdrawn) constitutes or could reasonably be expected to lead
to a Superior Proposal, if (in each case) (1) the Company's Board of
Directors determines in good faith (after consultation with the Company's
financial advisor and outside legal counsel) that such action is required
in order for the Board of Directors of the Company to comply with its
fiduciary duties to the Company's stockholders under applicable law, (2)
neither the Company nor its representatives shall have breached the
provisions set forth in this Section 4.2 in connection with such
Alternative Acquisition Proposal, (3) at least forty-eight (48) hours prior
to taking any of the actions otherwise prohibited by clause "(ii)" or
clause "(iii)" of this Section 4.2(a) in connection with or in response to
any Alternative Acquisition Proposal, the Company gives Parent written
notice of the identity of the third party making such Alternative
Acquisition Proposal, the terms thereof and of the Company's intention to
take such actions, (4) prior to furnishing any confidential information
regarding the Company or its Subsidiaries to any third party in connection
with or in response to any Alternative Acquisition Proposal, the Company
receives from such third party an executed confidentiality agreement
containing limitations on the use and disclosure of confidential
information furnished to such third party by the Company that are no less
favorable to the Company than the provisions of the Confidentiality
Agreement, and (5) prior to providing any such confidential information to
such third party, the Company furnishes such confidential information to
Parent (to the extent such confidential information has not been previously
furnished by the Company to Parent). Upon the execution and delivery of
this Agreement, the Company will immediately cease and cause to be
terminated any and all existing activities, discussions and negotiations
with any third party relating to any Alternative Acquisition Proposal or
any Alternative Acquisition Inquiry. The Company agrees not to release (and
to cause its Subsidiaries not to release) any third party from, and not to
waive (and to cause its Subsidiaries not to waive) any provision of, any
confidentiality, non-disclosure, non-solicitation, no hire, "standstill" or
similar contract to which any of the Company or its Subsidiaries is a party
and will cause each such agreement to be enforced to the extent requested
by Parent. Without limiting the generality of the foregoing, the Company
acknowledges and agrees that any action inconsistent with any of the
provisions of this Section 4.2(a) by any director or officer of the Company
or any of Subsidiaries, whether or not such director or officer is
purporting to act on behalf of the Company, shall be deemed to constitute a
breach of this Section 4.2(a) by the Company.
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(B) If any Alternative Acquisition Proposal or Alternative Acquisition
Inquiry is made or submitted by any Person or "group" (as defined in the
Exchange Act and the rules promulgated thereunder) prior to the Closing
Date, then the Company shall as promptly as practicable after receipt of
such Alternative Acquisition Proposal or Alternative Acquisition Inquiry
(and in any event within one (1) business day after any of the Company's
executive officers or directors becomes aware of any such Alternative
Acquisition Proposal or Alternative Acquisition Inquiry) advise Parent in
writing of such Alternative Acquisition Proposal or Alternative Acquisition
Inquiry (including the identity of the third party making or submitting
such Alternative Acquisition Proposal or Alternative Acquisition Inquiry,
and the terms and conditions thereof, together with a copy of any written
materials provided to the Company by such third party). The Company shall
keep Parent reasonably informed with respect to: (i) the status of any such
Alternative Acquisition Proposal or Alternative Acquisition Inquiry; and
(ii) the status and terms of any modification or proposed modification
thereto. Furthermore, the Company shall provide Parent with at least two
(2) business days' prior written notice (or, if less than two (2) business
days, such prior notice as is provided to the members of the Company's
Board of Directors) of any meeting of the Company's Board of Directors at
which the Board of Directors of the Company is reasonably expected to
consider any Alternative Acquisition Proposal or Alternative Acquisition
Inquiry or to recommend a Superior Proposal to the Company's stockholders,
and in each case together with such notice a copy of any definitive
documentation relating to such Superior Proposal.
(C) Nothing contained in this Section 4.2 or elsewhere in this
Agreement shall prohibit the Company or its Board of Directors from
complying with Rule 14d-9, Rule 14e-2 or Item 1012(a) of Regulation M-A
under the Exchange Act or from furnishing a copy or excerpts of this
Agreement (excluding, however, the Company Disclosure Schedule and the
Parent Disclosure Schedule) to any third party (or the representatives of
such third party) that makes any Alternative Acquisition Proposal or
Alternative Acquisition Inquiry.
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4.3 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS.
(A) As promptly as reasonably practicable following the date of this
Agreement, Parent and the Company shall prepare the Proxy
Statement/Prospectus and Parent shall prepare and cause to be filed with
the SEC the Registration Statement, in which the Proxy Statement/Prospectus
will be included as a prospectus. Each of Parent and the Company shall use
commercially reasonable efforts to cause the Registration Statement and the
Proxy Statement/Prospectus to comply as to form and substance as to such
party in all material respects with the rules and regulations promulgated
by the SEC, the Nasdaq Global Market and the American Stock Exchange,
respond promptly to any comments of the SEC or its staff and use all
reasonable efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after it is filed with
the SEC, and the Company will cause the Proxy Statement/Prospectus to be
mailed to the holders of Company Common Stock at the earliest practicable
time after the Registration Statement is declared effective by the SEC.
Each of Parent, Merger Sub and the Company shall promptly furnish to the
other party such information regarding itself and its business and
financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for
inclusion in the Proxy Statement/Prospectus and the Registration Statement,
or in any amendments or supplements thereto, and cause its counsel and
auditors to cooperate with the other's counsel and auditors in the
preparation of the Proxy Statement/Prospectus and the Registration
Statement. To the extent required by the applicable requirements of the
Securities Act and the Exchange Act and, in each case, the rules and
regulations thereunder, (i) Parent and the Company shall promptly correct
any information provided by it for use in the Proxy Statement/Prospectus or
Registration Statement if such information shall have become false or
misleading in any material respect; and (ii) Parent and the Company shall
take all steps necessary to promptly cause the Proxy Statement/Prospectus
or Registration Statement, as the case may be, as supplemented or amended
to correct such information, to be filed with the SEC and to be
disseminated to holders of Company Common Stock. Parent shall promptly
provide the Company and its counsel with a copy or description of any
comments received by Parent (or its counsel) from the SEC or its staff with
respect to the Registration Statement, or of any request by the SEC or its
staff for amendments or supplements to the Registration Statement or for
additional information. Parent shall respond promptly to any comments of
the SEC or its staff with respect to the Registration Statement and give
the Company and the Company's counsel a reasonable opportunity to review
and comment on any response to such comments provided to the SEC or its
staff. The Company shall promptly provide Parent and its counsel with a
copy or description of any comments received by the Company (or its
counsel) from the SEC or its staff with respect to the Proxy
Statement/Prospectus, or of any request by the SEC or its staff for
amendments or supplements to the Proxy Statement/Prospectus or for
additional information. The Company shall respond promptly to any comments
of the SEC or its staff with respect to the Proxy Statement/Prospectus and
give Parent and Parent's counsel a reasonable opportunity to review and
comment on any response to such comments provided to the SEC or its staff.
(B) Prior to the Effective Time, Parent shall use reasonable efforts
to obtain all regulatory approvals needed to ensure that the Parent
Ordinary Shares to be issued in the Merger will be registered or qualified
under the securities law of every jurisdiction of the United States in
which any registered holder of Company Common Stock has an address of
record on the record date for determining the stockholders entitled to
notice of and to vote at the Company Stockholders Meeting.
(C) The Proxy Statement/Prospectus will include the Company Board
Recommendation, subject to the right of the Board of Directors of the
Company to withhold, withdraw, modify, amend, change, rescind, condition or
qualify the Company Board Recommendation in compliance with Section 4.4(c).
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4.4 MEETING OF THE COMPANY'S STOCKHOLDERS.
(A) The Company shall (subject to applicable Legal Requirements and
the requirements of its Organizational Documents) take all action necessary
to convene a meeting of holders of Company Common Stock to vote to adopt
this Agreement (the "COMPANY STOCKHOLDERS MEETING") and, subject to the
right of the Board of Directors of the Company to withhold, withdraw,
modify, amend, change, rescind, condition or qualify the Company Board
Recommendation in compliance with Section 4.4(c), shall use its
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption of this Agreement. The Company Stockholders Meeting
shall be held (on a date selected by the Company in consultation with
Parent) as promptly as reasonably practicable after the Registration
Statement is declared effective under the Securities Act. The Company may
delay the Company Stockholders Meeting if, as of the time for which the
Company Stockholders Meeting is originally scheduled, the Company believes
that there are or will be insufficient stockholders represented (either in
person or by proxy) to constitute the minimum legal quorum necessary to
conduct the business at the Company Stockholders Meeting. The Company shall
use commercially reasonable efforts to ensure that the Company Stockholders
Meeting is called, noticed, convened, held and conducted, and that all
proxies solicited by the Company in connection with the Company
Stockholders Meeting are solicited, in compliance with the DGCL, the
Company's Organizational Documents, the rules of the American Stock
Exchange and all other applicable Legal Requirements. The Company's
obligation to call, give notice of, convene and hold the Company
Stockholders Meeting in accordance with this Section 4.4(a) shall not be
limited or otherwise affected by the commencement, disclosure, announcement
or submission to the Company of any Alternative Acquisition Proposal or any
withholding, withdrawal, modification, amendment or change in the Company
Board Recommendation or any other determination subsequent to the date
hereof by the Company's Board of Directors that it can no longer make the
Company Board Recommendation.
(B) The Board of Directors of the Company shall recommend adoption of
this Agreement by the holders of Company Common Stock (the "COMPANY BOARD
RECOMMENDATION"), and unless the Board of Directors of the Company shall
have withheld, withdrawn, modified, amended, changed, rescinded,
conditioned or qualified the Company Board Recommendation in compliance
with Section 4.4(c), the Company shall include in the Proxy
Statement/Prospectus a statement to the effect that the Board of Directors
of the Company recommends that the holders of Company Common Stock vote to
adopt this Agreement, and (ii) the Company shall take all lawful action to
solicit from the holders of Company Common Stock proxies in favor of the
adoption of this Agreement and to secure the vote or consent of its
stockholders required by the rules of the American Stock Exchange and the
DGCL. Neither the Company's Board of Directors nor any committee thereof
shall withhold, withdraw, modify, amend, change, rescind, condition or
qualify or publicly propose to withhold, withdraw, modify, amend, change,
rescind, condition or qualify, in a matter adverse to Parent or Merger Sub,
the Company Board Recommendation, except in compliance with Section 4.4(c).
At the Company Stockholders Meeting, Parent shall ensure that all shares of
Company Common Stock owned beneficially or of record by Parent, Merger Sub
or any of Parent's other Affiliates will be voted in favor of the adoption
of this Agreement.
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(C) Notwithstanding anything to the contrary contained in this
Agreement, at any time prior to the adoption of this Agreement by the
stockholders of the Company, the Company's Board of Directors may withhold,
withdraw, modify, amend, change, rescind, condition or qualify the Company
Board Recommendation if: (i) neither the Company nor its representatives
shall have breached the provisions set forth in Section 4.2 in connection
with the proposed withholding, withdrawal, modification, amendment,
changing, rescission, conditioning or qualification of the Company Board
Recommendation; (ii) the Company shall have provided to Parent at least two
(2) business days' prior written notice (or, if less than two (2) business
days, such prior notice as is provided to the members of the Company's
Board of Directors) of any meeting of the Company's Board of Directors at
which such Board of Directors is reasonably expected to consider the
possibility of withholding or withdrawing the Company Board Recommendation
or modifying, amending, changing, rescinding, conditioning or qualifying
the Company Board Recommendation in a manner adverse to Parent, together
with reasonably detailed information regarding the circumstances giving
rise to the consideration of such possibility and the opportunity to
discuss such circumstances with Parent and its legal counsel and financial
advisor; and (iii) the Company's Board of Directors determines in good
faith that (after consultation with the Company's outside legal counsel and
its financial advisor) that, other than solely by reason of a decline in
Parent's stock price, in and of itself, withholding, withdrawing,
modifying, amending, changing, rescinding, conditioning or qualifying the
Company Board Recommendation is required in order for the Board of
Directors of the Company to comply with its fiduciary duties to the
Company's stockholders under applicable law. The Company shall notify
Parent promptly (and in any event within two hours) of: (A) any
withholding, withdrawal, modification, amendment, changing, rescinding,
conditioning or qualifying of the Company Board Recommendation; and (B) the
circumstances and details surrounding such withholding, withdrawal,
modification, amendment, change, rescission, conditioning or qualification.
Nothing contained in this Section 4.4 shall limit the Company's obligation
to hold and convene the Company Stockholders Meeting (regardless of whether
the Company Board Recommendation shall have been withheld, withdrawn,
modified, amended, changed, rescinded, conditioned or qualified).
4.5 FILINGS; OTHER ACTION.
(A) Each of the Company, Parent and Merger Sub shall: (i) promptly
make and effect all registrations, filings and submissions required to be
made or effected by it pursuant to the Exchange Act and other applicable
Legal Requirements with respect to the Merger; and (ii) use commercially
reasonable efforts to take or cause to be taken, on a timely basis, all
other actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable
for the purpose of consummating and effectuating, in an expeditious manner,
the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, each of the Company, Parent and Merger Sub (A)
shall promptly provide all information requested by any Governmental Entity
in connection with the Merger or any of the other transactions contemplated
by this Agreement, and (B) shall use commercially reasonable efforts to
promptly take, and cause its Affiliates to take, all actions and steps
necessary to obtain any clearance or approval required to be obtained from
the U.S. Federal Trade Commission, the U.S. Department of Justice, any
state attorney general, any foreign competition authority or any other
Governmental Entity in connection with the transactions contemplated by
this Agreement. Notwithstanding anything herein to the contrary, nothing in
this Agreement shall be deemed to require Parent or any Subsidiary or
affiliate of Parent (x) to agree to any divestiture by itself or the
Company or any of their respective Subsidiaries or affiliates of shares of
capital stock or of any material portion of its or the Company's business,
assets or property, or the imposition of any material limitation on the
ability of any of them to conduct their business or to own or exercise
control of such assets, properties and stock, or (y) to take any similar or
other material action under this Section 4.5 requested by any Governmental
Entity that has the authority to enforce any antitrust or competition law
and that seeks, or authorizes its staff to seek, a preliminary injunction
or restraining order to enjoin the consummation of the Merger.
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(B) Without limiting the generality of anything contained in Section
4.5(a) or Section 4.5(c), each party hereto shall (i) give the other
parties prompt notice of the making or commencement of any request,
inquiry, investigation, action or Legal Proceeding by or before any
Governmental Entity with respect to the Merger or any of the other
transactions contemplated by this Agreement, (ii) keep the other parties
informed as to the status of any such request, inquiry, investigation,
action or Legal Proceeding, and (iii) promptly inform the other parties of
any communication to or from the Federal Trade Commission, the Department
of Justice or any other Governmental Entity regarding the Merger. Each
party hereto will consult and cooperate with the other parties and will
consider in good faith the views of the other parties in connection with
any analysis, appearance, presentation, memorandum, brief, argument,
opinion or proposal made or submitted in connection with any such request,
inquiry, investigation, action or Legal Proceeding. In addition, except as
may be prohibited by any Governmental Entity or by any Legal Requirement,
in connection with any such request, inquiry, investigation, action or
Legal Proceeding, each party hereto will permit authorized representatives
of the other parties to be present at each meeting or conference relating
to such request, inquiry, investigation, action or Legal Proceeding and to
have access to and be consulted in connection with any document, opinion or
proposal made or submitted to any Governmental Entity in connection with
such request, inquiry, investigation, action or Legal Proceeding.
(C) Without limiting the generality of anything contained in Section
4.5(a) or Section 4.5(b), the Company, Parent and Merger Sub shall use
commercially reasonable efforts to cause all conditions to the Merger to be
satisfied on a timely basis (to the extent the satisfaction of such
conditions is within such party's direct or indirect control).
(D) The Company shall give prompt notice to Parent upon becoming aware
that any representation or warranty made by it contained in this Agreement
(other than any such representation or warranty speaks as of the date of
this Agreement or any other specific date prior to the date of this
Agreement) has become untrue or inaccurate, or of any failure of the
Company to comply with or satisfy in any material respect any covenant or
agreement required to be complied with or satisfied by it under this
Agreement prior to the Closing, in each case, where such untruth,
inaccuracy or failure would result in the conditions set forth in Section
5.2(a) or Section 5.2(b) not being satisfied; PROVIDED, HOWEVER, that no
such notification shall affect the representations, warranties, covenants
or agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
(E) Parent shall give prompt notice to the Company upon becoming aware
that any representation or warranty made by it or Merger Sub contained in
this Agreement (other than any such representation or warranty speaks as of
the date of this Agreement or any other specific date prior to the date of
this Agreement) has become untrue or inaccurate, or of any failure of
Parent or Merger Sub to comply with or satisfy in any material respect any
covenant or agreement required to be complied with or satisfied by it under
this Agreement prior to the Closing, in each case, where such untruth,
inaccuracy or failure would result in the conditions set forth in Section
5.3(a) or Section 5.3(b) not being satisfied; PROVIDED, HOWEVER, that no
such notification shall affect the representations, warranties, covenants
or agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
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(F) As soon as practicable following the date hereof, Parent and the
Company will each use its commercially reasonable efforts to obtain any
consents, waivers and approvals under any of its or its Subsidiaries'
respective agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the transactions
contemplated hereby.
(G) Subject to any restrictions that may be imposed by United States
Governmental Entities, the Company will coordinate with Parent in
connection with all notifications and discussions with the Department of
Defense concerning its Trusted Foundry Status or security clearance,
including: notifying Parent prior to any such actions, giving Parent the
opportunity to review written communications with the Department of
Defense, and providing Parent with the opportunity to participate in
discussions with the Department of Defense.
4.6 ACCESS. Upon reasonable notice, the Company shall afford Parent's
officers and other authorized employees and representatives (including
accountants and counsel) reasonable access, during normal business hours, upon
reasonable notice, throughout the period prior to the earlier of the Effective
Time or the termination of this Agreement in accordance with its terms, to the
Company's properties, books, records and personnel and, during such period, the
Company shall furnish promptly to Parent all readily available information
concerning its business (including the status of product development efforts,
properties, results of operations and personnel) as Parent may reasonably
request; PROVIDED, HOWEVER, that the Company shall not be required to permit any
inspection or other access, or to disclose any information, where such
inspection, access or disclosure would jeopardize protections afforded the
Company under the attorney-client privilege or the attorney work product
doctrine or violate any Legal Requirement or contractual obligation applicable
to the Company or any of its Subsidiaries or by which its or any of their
respective properties is bound or affected in any manner that would reasonably
be expected to cause the Company to lose any material benefit or incur any
material liability. Subject to the restrictions set forth in the proviso to the
preceding sentence, the parties hereto will use commercially reasonable efforts
to make appropriate substitute disclosure arrangements under circumstances in
which such restrictions apply. No information or knowledge obtained by Parent in
any investigation pursuant to this Section 4.6 will affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger. All information obtained by
Parent and its representatives pursuant to this Section 4.6 shall be treated as
"Confidential Information" for purposes of the Confidentiality Agreement.
4.7 INTERIM OPERATIONS OF MERGER SUB. During the period from the date of
this Agreement through the earlier of the Effective Time or the termination of
this Agreement, Merger Sub shall not engage in any activities of any nature
except as provided in or contemplated by this Agreement.
4.8 PUBLICITY. The initial press release relating to this Agreement shall
be a joint press release issued by the Company and Parent, and thereafter the
Company and Parent (and each of their respective executive officers and
directors, whether or not purporting to act on behalf of the Company or Parent,
as applicable) shall consult with each other and, to the extent practicable,
agree, prior to issuing any press releases or otherwise making public statements
with respect to this Agreement and the transactions contemplated by this
Agreement, except as may be required by applicable Legal Requirements or any
listing agreement with the Nasdaq or the American Stock Exchange, and prior to
making any filings with any Governmental Entity with respect to the transactions
contemplated by this Agreement; PROVIDED, HOWEVER, that the Company need not
consult with Parent in connection with any press release or public statement if,
prior to the date of such release or public statement, the Company shall have
withheld, withdrawn, modified, amended or changed the Company Board
Recommendation in compliance with Section 4.4(c). The Company shall consult with
Parent before issuing any press release or otherwise making any public statement
with respect to the Company's earnings or results of operations, and shall not
issue any such press release or make any such public statement prior to such
consultation.
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4.9 COMPANY OPTIONS; COMPANY WARRANTS; EMPLOYEE BENEFITS.
(A) COMPANY OPTIONS. At the Effective Time, each outstanding Company
Option, whether or not vested, shall be assumed by Parent. Each Company
Option so assumed by Parent under this Agreement will continue to have, and
be subject to, the same terms and conditions of such Company Option
immediately prior to the Effective Time (including any repurchase rights or
vesting provisions and provisions regarding the acceleration of vesting on
certain transactions, other than the transactions contemplated by this
Agreement), except that (i) each Company Option will be exercisable (or
will become exercisable in accordance with its terms) for that number of
Parent Ordinary Shares equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Company
Option immediately prior to the Effective Time multiplied by the Exchange
Ratio, rounded down to the nearest whole number of Parent Ordinary Shares
and (ii) the per share exercise price for the Parent Ordinary Shares
issuable upon exercise of such assumed Company Option will be equal to the
quotient determined by dividing the exercise price per share of Company
Common Stock at which such Company Option was exercisable immediately prior
to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent. Parent shall comply with the terms of all such Company Options
and use its best efforts to ensure, to the extent required by and subject
to the provisions of, the Company Equity Plan, and to the extent permitted
under the Code, that any Company Options that qualified for tax treatment
as incentive stock options under Section 422 of the Code prior to the
Effective Time continue to so qualify after the Effective Time. The Company
will take all necessary or appropriate actions to effectuate the treatment
of Company Options contemplated by this Section 4.9(a) and Parent shall
take all corporate actions necessary to reserve for issuance a sufficient
number of Parent Ordinary Shares for delivery upon exercise of assumed
Company Options on the terms set forth in this Section 4.9(a). Parent shall
file a Form S-8 registration statement with the SEC covering the Parent
Ordinary Shares issuable with respect to assumed Company Options within 10
business days after the Effective Time. Parent shall use commercially
reasonable efforts to maintain the effectiveness of such registration
statement or registration statements for so long as such assumed Company
Options remain outstanding.
(B) COMPANY WARRANTS. At the Effective Time, each outstanding Company
Warrant shall be assumed by Parent. Each Company Warrant so assumed by
Parent under this Agreement will continue to have, and be subject to, the
same terms and conditions of such Company Warrant immediately prior to the
Effective Time, except that (i) each Company Warrant will be exercisable
(or will become exercisable in accordance with its terms) for that number
of Parent Ordinary Shares equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Company
Warrant immediately prior to the Effective Time multiplied by the Exchange
Ratio, and (ii) the per share exercise price for the Parent Ordinary Shares
issuable upon exercise of such assumed Company Warrant will be equal to the
quotient determined by dividing the exercise price per share of Company
Common Stock at which such Company Warrant was exercisable immediately
prior to the Effective Time by the Exchange Ratio. Parent shall comply with
the terms of all such Company Warrants. Parent shall take all corporate
actions necessary to reserve for issuance a sufficient number of Parent
Ordinary Shares for delivery upon exercise of assumed Company Warrants on
the terms set forth in this Section 4.9(b).
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(C) EMPLOYEE BENEFITS.
(I) Parent agrees that, subject to any necessary transition
period and subject to any applicable plan provision, contractual
requirements or Legal Requirements, all employees of the Company and
its Subsidiaries who continue employment with Parent, the Surviving
Corporation or any Subsidiary of Parent after the Effective Time
("CONTINUING EMPLOYEES") shall, following the Effective Time, be
eligible to participate in Parent's applicable employee benefit plans
(including equity plans, profit sharing plans, severance plans and
health and welfare benefit plans) to substantially the same extent as
similarly situated employees of Parent (based, among other things, on
location, responsibility, rank, seniority and job description). From
and after the Effective Time and continuing until not earlier than
December 31, 2008, Parent shall ensure that the Surviving Corporation
continues to provide Continuing Employees with the same benefits that
are provided by the Company as of immediately prior to the Effective
Time.
(II) For the sole purpose of determining a Continuing Employee's
eligibility to participate in such plans (but not for purposes of
benefit accrual), such Continuing Employee shall receive credit under
such plans for his or her years of continuous service with the Company
or its Subsidiaries prior to the Effective Time, provided that such
crediting of service shall not result in the duplication of benefits.
With respect to any welfare benefit plans maintained by Parent or its
Subsidiaries for the benefit of Continuing Employees located in the
United States, Parent shall, subject to any necessary transition
period and subject to any Legal Requirements: (A) cause to be waived,
as required by applicable Legal Requirements, any eligibility
requirements or pre-existing condition limitations; and (B) give
effect, in determining any deductible maximum out of pocket
limitations, to amounts paid by such Continuing Employees with respect
to substantially similar plans maintained by any of the Company or its
Subsidiaries during the plan year in which the Effective Time occurs.
(III) The Surviving Corporation shall, and Parent shall not take
any action that would cause the Surviving Corporation not to, honor in
accordance with their terms all deferred compensation plans,
agreements and arrangements, severance and separation pay plans,
agreements and arrangements, and all written employment, severance,
retention, incentive, change in control and termination agreements
(including any change in control provisions therein) applicable to
employees of the Company and its Subsidiaries. Part 4.9(c)(iii) of the
Company Disclosure Schedule accurately lists all such plans,
agreements and arrangements.
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(IV) Nothing in this Section 4.9 or elsewhere in this Agreement
shall be construed to create a right of any employee of the Company or
a Subsidiary of the Company to employment with Parent, the Surviving
Corporation or any other Subsidiary of Parent. Except for Indemnified
Parties (as defined in Section 4.10(d)) to the extent of their
respective rights pursuant to Section 4.10, no employee of the Company
or a Subsidiary of the Company, no Continuing Employee and no other
Person, shall be deemed to be a third party beneficiary of this
Agreement. Nothing in this Section 4.9 or elsewhere in this Agreement
shall be construed to amend any benefit plan.
(V) To the extent any employee notification or consultation
requirements are imposed by applicable Legal Requirements with respect
to the transactions contemplated by this Agreement, the Company shall
cooperate with Parent to comply with such requirements prior to the
Effective Time.
4.10 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(A) All rights to indemnification by the Company or any Subsidiaries
of the Company and exculpation existing in favor of Indemnified Parties for
their acts and omissions as directors and/or officers of the Company or any
Subsidiary of the Company occurring at or prior to the Effective Time
pursuant to those indemnification agreements listed on Part 4.10 of the
Company Disclosure Schedule and the Organizational Documents of the Company
or any Subsidiary of the Company (as applicable) as in effect on the date
of this Agreement (the "INDEMNIFICATION DOCUMENTS"), shall survive the
Merger and be observed by the Surviving Corporation to the fullest extent
available under the Indemnification Documents and applicable law for a
period of six years from the Effective Time, and Parent shall, and shall
cause the Surviving Corporation and its Subsidiaries to (i) fulfill and
honor in all respects the provisions of this Section 4.10(a) and (ii) not
amend, repeal or otherwise modify (or permit the Surviving Corporation to
amend, repeal or otherwise modify) the Organizational Documents of the
Surviving Corporation or any of its Subsidiaries in any manner that could
adversely affect the rights thereunder of any Indemnified Party.
(B) From the Effective Time through the sixth anniversary of the
Effective Time, Parent shall, and shall cause the Surviving Corporation to,
cause to be maintained in effect, for the benefit of the Indemnified
Parties, the current level and scope of directors' and officers' liability
insurance coverage as set forth in the Company's current directors' and
officers' liability insurance policies in effect as of the date of this
Agreement as disclosed on Part 4.10(b) of the Company Disclosure Schedule;
PROVIDED, HOWEVER, that (i) in no event shall Parent or the Surviving
Corporation be required pursuant to this Section 4.10(b) to expend in any
one year an amount in excess of 200% of the annual premium currently
payable by the Company with respect to such insurance coverage (which
current annual premium the Company represents and warrants to be $400,098
in the aggregate), it being understood that if the annual premiums payable
for such insurance coverage exceed such amount, the Surviving Corporation
shall be obligated to obtain a policy with the greatest coverage available
for a cost equal to such amount, and (ii) in lieu of the foregoing, and
notwithstanding anything to the contrary contained in clause "(i)" above,
the Company may obtain a prepaid tail policy (the "TAIL POLICY") prior to
the Effective Time for an aggregate price not to exceed six times the
premium currently payable by the Company, which policy provides Indemnified
Persons with directors' and officers' liability insurance for a period
ending no earlier than the sixth anniversary of the Effective Time.
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(C) This Section 4.10 shall survive consummation of the Merger and the
Effective Time. This Section 4.10 is intended to benefit, and may be
enforced by, the Indemnified Parties and their respective heirs,
representatives, successors and assigns, and shall be binding on all
successors and assigns of Parent and the Surviving Corporation. In the
event of any merger, consolidation or other similar transaction involving
Parent or the Surviving Corporation, or in the event of any sale by Parent
or the Surviving Corporation of all or substantially all of its assets,
Parent shall make proper provision so that the continuing or surviving
corporation or entity shall assume the obligations set forth in this
Section 4.10.
(D) For purposes of this Agreement, each individual who is or was an
officer or director of the Company or any of its Subsidiaries any time
between February 16, 2007 and the Effective Time shall be deemed to be an
"INDEMNIFIED PARTY."
4.11 TAX OPINIONS. The Company, Parent and Merger Sub shall cooperate and
use commercially reasonable efforts in order for Company to obtain the opinion
of Cooley Godward Kronish LLP described in Section 5.2(e)(i) and in order for
Parent to obtain the opinion of O'Melveny & Myers LLP described in Section
5.3(e)(i). In connection therewith, the Company, Parent and Merger Sub shall, as
of the Effective Time, execute and deliver to Cooley Godward Kronish LLP and to
O'Melveny & Myers LLP tax representation letters substantially in the forms
attached as Exhibit C (for the Company) and Exhibit D (for Parent and Merger
Sub). The Company, Parent and Merger Sub shall use all commercially reasonable
efforts to cause the Merger to qualify as a reorganization under Section 368(a)
of the Code and a transaction that is not subject to Section 367(a)(1) of the
Code and shall not take any actions that to their knowledge could reasonably be
expected to prevent the Merger from qualifying as a reorganization under Section
368(a) of the Code and a transaction that is not subject to Section 367(a)(1) of
the Code. The Company, Parent and Merger Sub shall report the Merger as a
reorganization within the meaning of Section 368(a) of the Code and a
transaction that is not subject to Section 367(a)(1) of the Code, unless
otherwise required pursuant to a "determination" within the meaning of Section
1313(a) of the Code.
4.12 LISTING. Parent shall use its commercially reasonable efforts to cause
the Parent Ordinary Shares being issued in the Merger to be approved for listing
(subject to notice of issuance) on the Nasdaq Global Market, including by giving
notice to the Nasdaq Global Market on a Notification Form: Listing of Additional
Shares.
4.13 SUPPLEMENTAL INDENTURE. Prior to the Effective Time, Parent and the
Company shall execute a supplemental indenture (the "SUPPLEMENTAL INDENTURE")
pursuant to Section 10.12 of the Indenture, in form satisfactory to the Trustee
providing that each holder of Convertible Notes then outstanding shall have the
right from and after the Effective Time, during the period that such Convertible
Notes are convertible under the Supplemental Indenture, to convert such
Convertible Notes into the number of Parent Ordinary Shares receivable by a
holder, immediately prior to the Effective Time, of the number of shares of
Company Common Stock into which such Convertible Notes was convertible
immediately prior to the Effective Time.
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4.14 TAX MATTERS.
(A) Following the Merger, Parent shall cause the Surviving Corporation
to timely comply with the reporting requirements of Treas. Reg. Sections
1.367-3(c)(6) and 1.368-3, to the extent required by applicable law, with
respect to the transactions contemplated hereby.
(B) Following the Merger, Parent shall timely provide notice to each
former holder of Company Common Stock that notifies Parent that such holder
has entered into a gain recognition agreement with the Internal Revenue
Service (pursuant to Treas. Reg. Section 1.367-8T) in connection with the
Merger, of either (i) a disposition by Parent or its Affiliates of all or a
portion of the Company Common Stock received by Parent in the Merger, or
(ii) a disposition of 90 percent of the gross assets or 70 percent of the
net assets of the Company (or those assets essential to the conduct of the
Company's business). In addition, upon written request from such holder
after receipt of notification from Parent, Parent shall use commercially
reasonable efforts to provide such information requested by the former
holder to determine if such holder must recognize gain due to any
disposition described in this Section 4.14(b). Parent shall have no
obligation to provide any notice or other information to the holder
pursuant to this Section 4.14(b) after October 15, 2014 or, if earlier,
October 15th of the year following the year in which the holder's gain
recognition agreement terminates.
SECTION 5. CONDITIONS TO THE MERGER
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party hereto to effect the Merger shall be
subject to the satisfaction (or waiver by Parent and the Company, if permissible
under applicable Legal Requirements) on or prior to the Closing Date of the
following conditions:
(A) STOCKHOLDER APPROVAL. This Agreement shall have been adopted by
the requisite vote of holders of the Company Common Stock in accordance
with applicable Legal Requirements and the Company's Organizational
Documents;
(B) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement shall have become effective in accordance with the provisions of
the Securities Act, and no stop order shall have been issued and still be
pending, and no proceeding for that purpose shall have been initiated or be
threatened and be pending, by the SEC with respect to the Registration
Statement or the Proxy Statement/Prospectus;
(C) OTHER GOVERNMENTAL APPROVALS. if during the period of 60 days
after the date of this Agreement, both of the following occur: (x) either
the Committee on Foreign Investment in the United States (including any of
its respective members individually) ("CFIUS") or the President of the
United States takes any action, including communicating concerns to the
parties hereto about the Merger or initiating a review under Section 721 of
the Defense Production Act of 1950 (50 USC App. 2170)("SECTION 721"), and
(y) in response to any such action, Parent makes an appropriate filing
providing notice of the transactions that are the subject of this Agreement
to CFIUS pursuant to Section 721 (and, in the event Parent elects to make
any such filing, the Company and Parent will use commercially reasonable
efforts to prepare such filing, including providing the other party with
all information reasonably requested by the other party in connection
therewith), then either (A) the period of time for any applicable review
process by CFIUS pursuant to Section 721, shall have expired, and the
President of the United States shall not have taken action to block or
prevent the consummation of the transactions contemplated hereby on the
basis that they threaten to impair the national security of the United
States or (B) the Department of Treasury shall have provided notice to the
parties to the effect that action under Section 721 is concluded; and
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(D) NO INJUNCTIONS; LAWS. No injunction shall have been issued by a
court of competent jurisdiction and shall be continuing that prohibits the
consummation of the Merger, and no law shall have been enacted since the
date of this Agreement and shall remain in effect that prohibits the
consummation of the Merger; PROVIDED, HOWEVER, that (i) prior to invoking
this provision, each party shall use commercially reasonable efforts to
have any such injunction lifted, and (ii) a party may not invoke this
provision unless the violation of such injunction or law that would arise
from the consummation of the Merger would have material negative
consequences for Parent or the Company or any of their respective
directors, officers or employees (it being clarified that for the purposes
of this Section 5.1(d) that: (x) an injunction issued by a court in Israel
or the United States that prohibits the consummation of the Merger; or (y)
a law enacted in Israel or the United States that prohibits the
consummation of the Merger, shall be deemed to have material negative
consequences for Parent or the Company).
5.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of
Parent and Merger Sub to effect the Merger are further subject to the
satisfaction (or waiver by Parent, if permissible under applicable Legal
Requirements) on or prior to the Closing Date of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 2 of this Agreement shall be accurate
in all respects as of the Closing Date with the same force and effect as if
made on the Closing Date, other than the representations and warranties in
Sections 2.3(a), 2.3(e), 2.20(b) and 2.24 (the "COMPANY EXCLUDED
REPRESENTATIONS"), which shall be accurate in all material respects as of
the Closing Date (except, in each case, to the extent any such
representation or warranty speaks as of the date of this Agreement or any
other specific date, in which case such representation or warranty (i) if
other than a Company Excluded Representation, shall have been accurate in
all respects as of such date, or (ii) if a Company Excluded Representation,
shall have been accurate in all material respects as of such date), except
that any inaccuracies in such representations and warranties (other than
the Company Excluded Representations) will be disregarded for purposes of
this Section 5.2(a) if such inaccuracies (considered collectively) do not
have a Material Adverse Effect on the Company as of the Closing Date (it
being understood that, for purposes of determining the accuracy of such
representations and warranties, (i) all "Material Adverse Effect"
qualifications and other qualifications based on the phrase "in all
material respects" or similar qualifications contained in such
representations and warranties shall be disregarded and (ii) any update of
or modification to the Company Disclosure Schedule made or purported to
have been made after the execution of this Agreement shall be disregarded);
(B) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed or complied with in all material respects all covenants and
agreements required to be performed or complied with by it under this
Agreement on or prior to the Closing Date;
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(C) NO MATERIAL ADVERSE EFFECT ON THE COMPANY. Since the date of this
Agreement, no event shall have occurred or circumstance shall exist that,
alone or in combination with any other events or circumstances since the
date of this Agreement, has had or resulted in and continues to have or
result in a Material Adverse Effect on the Company, or would reasonably be
expected to have or result in a Material Adverse Effect on the Company
following the Closing Date;
(D) NO LEGAL PROCEEDING. There shall not be pending before any court
of competent jurisdiction any Legal Proceeding commenced by a Governmental
Entity against the Company or Parent that seeks to prohibit the
consummation of the Merger and that (i) is likely to result in a judgment
adverse to Parent or the Company and (ii) would have a Material Adverse
Effect on the Company or a Material Adverse Effect on Parent; and
(E) DOCUMENTS. Parent shall have received the following agreements and
documents, each of which shall be in full force and effect:
(I) a written tax opinion of Cooley Godward Kronish LLP, in form
and substance reasonably acceptable to the Company, dated as of the
Closing Date and addressed to Parent, to the effect that the Merger
will qualify as a reorganization within the meaning of Section 368(a)
of the Code and a transaction that is not subject to Section 367(a)(1)
of the Code (it being understood that if Cooley Godward Kronish LLP
does not render such opinion or withdraws or modifies such opinion,
this condition shall nonetheless be satisfied if O'Melveny & Myers LLP
renders such opinion);
(II) a certificate executed on behalf of the Company by an
executive officer confirming that the conditions set forth in Sections
5.2(a), 5.2(b) and 5.2(c) have been duly satisfied; and
(III) (A) the Supplemental Indenture, executed and delivered on
behalf of the Company and the Trustee and (B) the officer's
certificate and opinion(s) of counsel delivered by the Company to the
Trustee in accordance with Sections 6.1(c) and 7.3 of the Indenture in
connection therewith.
5.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the Company
to effect the Merger is further subject to the satisfaction (or waiver by the
Company, if permissible under applicable Legal Requirements) on or prior to the
Closing Date of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Merger Sub contained in Section 3 of this Agreement shall be
accurate in all respects as of the Closing Date with the same force and
effect as if made on the Closing Date, other than the representations and
warranties in Sections 3.3(a) and 3.3(d) (the "PARENT EXCLUDED
REPRESENTATIONS"), which shall be accurate in all material respects as of
the Closing Date (except, in each case, to the extent any such
representation or warranty speaks as of the date of this Agreement or any
other specific date, in which case such representation or warranty (i) if
other than a Parent Excluded Representation, shall have been accurate in
all respects as of such date, or (ii) if a Parent Excluded Representation,
shall have been accurate in all material respects as of such date), except
that any inaccuracies in such representations and warranties (other than
the Parent Excluded Representations) will be disregarded for purposes of
this Section 5.3(a) if such inaccuracies (considered collectively) do not
have a Material Adverse Effect on Parent as of the Closing Date (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, (i) all "Material Adverse Effect"
qualifications and other qualifications based on the phrase "in all
material respects" or similar qualifications contained in such
representations and warranties shall be disregarded and (ii) any update of
or modification to the Parent Disclosure Schedule made or purported to have
been made after the execution of this Agreement shall be disregarded);
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(B) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUB. Parent and
Merger Sub shall have performed or complied with in all material respects
all covenants and agreements required to be performed or complied with by
them under this Agreement at or prior to the Closing Date;
(C) NO MATERIAL ADVERSE EFFECT ON PARENT. Since the date of this
Agreement, no event shall have occurred or circumstance shall exist that,
alone or in combination with any other events or circumstances since the
date of this Agreement, has had or resulted in and continues to have or
result in a Material Adverse Effect on Parent, or would reasonably be
expected to have or result in a Material Adverse Effect on Parent following
the Closing Date;
(D) NO LEGAL PROCEEDING. There shall not be pending before any court
of competent jurisdiction any Legal Proceeding commenced by a Governmental
Entity against the Company or Parent that seeks to prohibit the
consummation of the Merger and that (i) is likely to result in a judgment
adverse to Parent or the Company and (ii) would have a Material Adverse
Effect on Parent; and
(E) DOCUMENTS. The Company shall have received the following
agreements and documents, each of which shall be in full force and effect:
(I) a written tax opinion of O'Melveny & Myers LLP, in form and
substance reasonably acceptable to Parent, dated as of the Closing
Date and addressed to Parent, to the effect that the Merger will
qualify as a reorganization within the meaning of Section 368(a) of
the Code and a transaction that is not subject to Section 367(a)(1) of
the Code (it being understood that if O'Melveny & Myers LLP does not
render such opinion or withdraws or modifies such opinion, this
condition shall nonetheless be satisfied if Cooley Godward Kronish LLP
renders such opinion);
(II) a certificate executed on behalf of Parent by an executive
officer confirming that the conditions set forth in Sections 5.3(a),
5.3(b) and 5.3(c) have been duly satisfied; and
(III) the Supplemental Indenture, executed and delivered on
behalf of Parent.
(F) LISTING. Parent shall have delivered timely notice to the Nasdaq
Global Market on a Notification Form: Listing of Additional Shares with
respect to the Parent Ordinary Shares being issued in the Merger.
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5.4 FRUSTRATION OF CLOSING CONDITIONS. None of the Company, Parent or
Merger Sub may rely on the failure of any condition set forth in Section 5.1,
Section 5.2 or Section 5.3, as the case may be, to be satisfied if such failure
was caused by the failure of such party (or any Affiliate of such party) to
perform any of its obligations under this Agreement.
SECTION 6. TERMINATION
6.1 TERMINATION. This Agreement may be terminated and the Merger may be
abandoned (notwithstanding any adoption of this Agreement by the stockholders of
the Company):
(A) by mutual written consent of the Company and Parent at any time
prior to the Effective Time;
(B) by Parent or the Company at any time after 5:00 p.m. Pacific Time
on October 20, 2008 (the "FINAL TIME") if the Merger shall not have been
consummated at or before the Final Time (provided that the right to
terminate this Agreement pursuant to this Section 6.1(b) shall not be
available to any party where the failure of the Merger to have been
consummated at or before the Final Time was caused by the failure of such
party (or any Affiliate of such party) to fulfill any obligation under this
Agreement;
(C) by Parent or the Company at any time prior to the Effective Time
if (i) there shall be any Legal Requirement enacted after the date of this
Agreement and remaining in effect that prohibits the consummation of the
Merger, or any court of competent jurisdiction shall have issued a
permanent injunction prohibiting the consummation of the Merger and such
injunction shall have become final and non-appealable, and (ii) the
violation of such Legal Requirement or injunction that would arise from the
consummation of the Merger would have material negative consequences for
Parent or the Company or any of their respective directors, officers or
employees (it being clarified that for the purposes of this Section 6.1(c)
that: (x) an injunction issued by a court in Israel or the United States
that prohibits the consummation of the Merger; or (y) a Legal Requirement
enacted in Israel or the United States that prohibits the consummation of
the Merger, shall be deemed to have material negative consequences for
Parent or the Company); PROVIDED, HOWEVER, that a party shall not be
permitted to terminate this Agreement pursuant to this Section 6.1(c) if
the issuance of any such injunction is attributable to the failure of such
party (or any Affiliate of such party) to perform in any material respect
any covenant or other agreement in this Agreement required to be performed
by such party (or any Affiliate of such party) at or prior to the Effective
Time;
(D) by either the Company or Parent if the approval of the holders of
Company Common Stock shall not have been obtained at the Company
Stockholders Meeting or at any adjournment or postponement thereof;
PROVIDED, HOWEVER, that a party shall not be permitted to terminate this
Agreement pursuant to this Section 6.1(d) if the failure to obtain such
approval was caused by the failure of such party (or any Affiliate of such
party) to fulfill any obligation under this Agreement;
(E) by Parent at any time prior to adoption of this Agreement by the
holders of Company Common Stock at the Company Stockholders Meeting if a
Triggering Event shall have occurred;
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(F) by Parent if (i) there is an Uncured Inaccuracy in any
representation or warranty of the Company contained in Section 2 such that
the condition set forth in Section 5.2(a) would not be satisfied, or any
covenant of the Company contained in this Agreement shall have been
breached such that the condition set forth in Section 5.2(b) would not be
satisfied, (ii) Parent shall have delivered to the Company written notice
of such Uncured Inaccuracy or breach, and (iii) to the extent the Uncured
Inaccuracy is curable by the Company, at least 30 days shall have elapsed
since the date of delivery of such written notice to the Company and such
Uncured Inaccuracy or breach shall not have been cured in all material
respects; or
(G) by the Company if (i) there is an Uncured Inaccuracy in any
representation or warranty of Parent or Merger Sub contained in Section 3
such that the condition set forth in Section 5.3(a) would not be satisfied,
or any covenant of Parent or Merger Sub contained in this Agreement shall
have been breached such that the condition set forth in Section 5.3(b)
would not be satisfied, (ii) the Company shall have delivered to Parent
written notice of such Uncured Inaccuracy or breach, and (iii) to the
extent the Uncured Inaccuracy is curable by Parent or Merger Sub (as
applicable), at least 30 days shall have elapsed since the date of delivery
of such written notice to Parent and such Uncured Inaccuracy or breach
shall not have been cured in all material respects;
PROVIDED, HOWEVER, that notwithstanding anything to the contrary contained in
this Section 6.1: (1) Parent shall not be permitted to terminate this Agreement
pursuant to Section 6.1(f) if (A) there shall be an Uncured Inaccuracy in any
representation or warranty of Parent or Merger Sub contained in Section 3 such
that the condition set forth in Section 5.3(a) would not be satisfied, or (B)
any covenant or other agreement of Parent or Merger Sub contained in this
Agreement shall not have been performed or complied with such that the condition
set forth in Section 5.3(b) would not be satisfied; and (2) the Company shall
not be permitted to terminate this Agreement pursuant to Section 6.1(g) if (x)
there shall be an Uncured Inaccuracy in any representation or warranty of the
Company contained in Section 2 such that the condition set forth in Section
5.2(a) would not be satisfied, or (y) any covenant or other agreement of the
Company contained in this Agreement shall not have been performed or complied
with such that the condition set forth in Section 5.2(b) would not be satisfied.
6.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 6.1 will be effective immediately upon the delivery of
written notice thereof by the terminating party to the other parties hereto (or,
in the case of termination pursuant to Section 6.1(f) or Section 6.1(g), on the
date specified therein). In the event of the termination of this Agreement as
provided in Section 6.1, this Agreement shall be of no further force or effect;
PROVIDED, HOWEVER, that: (a) this Section 6.2, Section 6.3 and Section 7 shall
survive the termination of this Agreement and shall remain in full force and
effect; (b) the termination of this Agreement shall not relieve any party from
any liability for any breach of any covenant or agreement contained in this
Agreement; and (c) the Confidentiality Agreement shall remain in full force and
effect in accordance with its terms.
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6.3 FEES AND EXPENSES; TERMINATION FEE.
(A) GENERAL. Except as set forth in this Section 6.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fees and
expenses whether or not the Merger is consummated.
(B) COMPANY PAYMENTS.
(I) If (A) (i) this Agreement is validly terminated by Parent or
the Company pursuant to Section 6.1(b) or Section 6.1(d), (ii) at or
prior to the time of such termination of this Agreement an Alternative
Acquisition Proposal shall have been publicly disclosed (and such
Alternative Acquisition Proposal shall not have been unconditionally
and publicly withdrawn prior to the date of the Company Stockholders
Meeting), (iii) in the case of a termination of this Agreement by
Parent pursuant to Section 6.1(b), Parent demonstrates that it would
reasonably have been expected that the Merger would have been
consummated prior to the termination of this Agreement but for the
making or pendency of such Alternative Acquisition Proposal (it being
clarified that this Section 6.3(b)(A)(iii) shall not apply to
termination of this Agreement by the Company), and (iv) within twelve
months after the date of termination of this Agreement, a Company
Acquisition (as defined below) is consummated or the Company enters
into a definitive agreement or binding letter of intent providing for
a Company Acquisition (which is subsequently consummated), or (B) this
Agreement is validly terminated by Parent pursuant to Section 6.1(e),
then (x) if termination of this Agreement is pursuant to Section
6.1(b) or Section 6.1(d), within one (1) business day after
consummation of the Company Acquisition described above, or (y) if
termination of this Agreement is pursuant to Section 6.1(e), within
one (1) business day after the termination of this Agreement, the
Company shall cause to be paid to Parent, in cash in immediately
available funds, a non-refundable termination fee in the amount of
$1.2 million. In addition, in any of the foregoing circumstances where
the Company is obligated to pay a termination fee, the Company shall
also reimburse Parent for Parent's reasonable and documented
out-of-pocket expenses incurred in connection with this Agreement and
the transactions contemplated thereby, not to exceed $1 million, less
any amounts previously paid by the Company on account of such expenses
as provided in the last sentence of this paragraph (the "PARENT
EXPENSES"), within five (5) business days after the Company's receipt
of reasonable documentation of such expenses. In the event that (1)
this Agreement is validly terminated by Parent or the Company pursuant
to Section 6.1(d), and (2) all of the conditions to the Company's
obligation to consummate the Merger set forth in Sections 5.1 and 5.3
(other than the conditions set forth in Sections 5.1(a), (b) and (c)
and Sections 5.3(e) and 5.3(f)) were satisfied as of the time of such
termination, then the Company shall reimburse Parent for Parent's
reasonable and documented out-of-pocket expenses incurred in
connection with this Agreement and the transactions contemplated
thereby, not to exceed $500,000, less any amounts previously paid by
the Company on account of such expenses, within five (5) business days
after the Company's receipt of reasonable documentation of such
expenses.
(II) The Company acknowledges that the agreements contained in
this Section 6.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements,
Parent would not enter into this Agreement; accordingly, if the
Company fails promptly to pay when due any amount payable by the
Company under this Section 6.3, then: (A) the Company shall reimburse
Parent for all costs and expenses (including fees and disbursements of
counsel) incurred in connection with the collection of such overdue
amount and the enforcement by Parent of its rights under this Section
6.3; and (B) the Company shall pay to Parent interest on such overdue
amount (for the period commencing as of the date such overdue amount
was originally required to be paid through the date such overdue
amount is actually paid to Parent in full) at a rate per annum equal
to five percent (5%). Payment of the fees described in this Section
6.3(b) shall not be in lieu of damages incurred in the event of
willful breach of this Agreement.
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(III) For the purposes of this Agreement, "COMPANY ACQUISITION"
shall mean any of the following transactions (other than the
transactions contemplated by this Agreement and other than any
transactions in which the Company is acquired by Parent or any of its
affiliates): (A) a merger, consolidation, business combination,
recapitalization or similar transaction involving the Company pursuant
to which the stockholders of the Company immediately preceding such
transaction do not hold (directly or indirectly) at least 50% of the
aggregate equity interests in the surviving or resulting entity of
such transaction or a parent entity following such transaction; (B) a
transaction that involves, directly or indirectly, a sale or other
disposition by the Company of assets that represent in excess of 50%
of the consolidated assets of the Company and its Subsidiaries or a
business or businesses that constitute or account for at least 50% of
the consolidated net revenues of the Company and its Subsidiaries,
taken as a whole, immediately prior to such sale; or (C) the
acquisition by any Person or "group" (as defined in the Exchange Act
and the rules promulgated thereunder) (including by way of a tender
offer or an exchange offer or issuance by the Company), directly or
indirectly, of beneficial ownership of shares representing in excess
of 50% of the voting power of the then outstanding shares of capital
stock of the Company.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 AMENDMENT. This Agreement may be amended with the approval of the
Company and Parent at any time prior to the Effective Time; PROVIDED, HOWEVER,
that after any adoption of this Agreement by the Company's stockholders, no
amendment shall be made which by law requires further approval of the
stockholders of the Company without the further approval of such stockholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
7.2 WAIVER.
(A) No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any
party 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 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.
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(B) No party 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 behalf of such party; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it
is given.
7.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties of the Company contained in this Agreement, or
contained in any certificate delivered pursuant to this Agreement or in
connection with any of the transactions contemplated by this Agreement, shall
survive the Effective Time.
7.4 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement, the other agreements
referred to herein and the Confidentiality Agreement constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among or between any of the parties with respect to the subject matter
hereof and thereof. Without limiting the generality of the foregoing: (a) Parent
and Merger Sub acknowledge that the Company has not made and is not making any
representations or warranties whatsoever regarding the subject matter of this
Agreement, express or implied, except as provided in Section 2, and that they
are not relying and have not relied on any representations or warranties
whatsoever regarding the subject matter of this Agreement, express or implied,
except as provided in Section 2; and (b) the Company acknowledges that Parent
and Merger Sub have not made and are not making any representations or
warranties whatsoever regarding the subject matter of this Agreement, express or
implied, except as provided in Section 3, and that it is not relying and has not
relied on any representations or warranties whatsoever regarding the subject
matter of this Agreement, express or implied, except as provided in Section 2.
This Agreement may be executed in several counterparts, each of which shall be
deemed an original and all of which shall constitute one and the same
instrument.
7.5 APPLICABLE LAW; JURISDICTION. This agreement is made under, and shall
be construed and enforced in accordance with, the laws of the State of Delaware
applicable to agreements made and to be performed solely therein, without giving
effect to principles of conflicts of law. In any action among or between any of
the parties arising out of or relating to this Agreement, each of the parties
irrevocably and unconditionally consents and submits to the exclusive
jurisdiction and venue of the Court of Chancery of the State of Delaware and
unconditionally consents to service of process in any such action by notice in
accordance with Section 7.8.
7.6 ATTORNEYS' FEES. In any action at law or suit in equity to enforce this
Agreement or the rights of any of the parties hereunder, the prevailing party in
such action or suit shall be entitled to receive a reasonable sum for its
attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
7.7 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure to the benefit of, the parties hereto and their
respective successors and assigns. This Agreement shall not be assignable by any
party without the express written consent of the other parties hereto. Except as
set forth in Section 4.10 with respect to the Indemnified Parties, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
Person, other than the parties hereto, any right, benefit or remedy of any
nature.
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7.8 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 facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
IF TO PARENT OR MERGER SUB:
Tower Semiconductor Ltd.
Ramat Gavriel Industrial Area
P.O. Box 619
Migdal Haemek Israel 23105
Attention: Chief Financial Officer
Facsimile: + 972-(4)-604-7242
WITH A COPY TO (WHICH SHALL NOT CONSTITUTE NOTICE):
Yigal Arnon & Co.
1 Azrieli Center
Tel-Aviv 67021
Israel
Attn: David Schapiro
Facsimile: +972-(3)-608-7714
and an additional copy (which shall not constitute notice) to:
O'Melveny & Myers LLP
275 Battery Street, Suite 2600
San Francisco, CA 94111
Attn: Michael S. Dorf
Facsimile: +1-(415)-984-8701
IF TO THE COMPANY:
Jazz Technologies, Inc.
4321 Jamboree Road
Newport Beach, CA 92660
Attention: Chief Legal Officer
Facsimile: 949-315-3811
WITH A COPY TO (WHICH SHALL NOT CONSTITUTE NOTICE):
Cooley Godward Kronish LLP
101 California Street, 5th floor
San Francisco, CA 94111
Attention: Gian-Michele a Marca
Facsimile: (415) 693-2222
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7.9 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties hereto agree that the court making such determination
shall have the power to limit the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified. In the event such court does
not exercise the power granted to it in the prior sentence, the parties hereto
agree to replace such invalid or unenforceable term or provision with a valid
and enforceable term or provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid or unenforceable term.
7.10 OBLIGATION OF PARENT. Parent shall ensure that each of Merger Sub and
the Surviving Corporation duly performs, satisfies and discharges on a timely
basis each of the covenants, obligations and liabilities of Merger Sub and the
Surviving Corporation under this Agreement.
7.11 SPECIFIC PERFORMANCE. Each of the parties hereto agrees that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that, in addition to any other
remedy that a party hereto may have under law or in equity, any party hereto
shall be entitled to seek injunctive relief to prevent any breach of this
Agreement and to enforce specifically the terms and provisions hereof.
7.12 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 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.
(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."
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(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.
(E) All references to a document or instrument having been made
available to Parent shall mean the making available of such document or
instrument to Parent and Parent's legal and financial advisors on the
Company's electronic data room no later than twenty-four (24) hours prior
to the date of this Agreement.
(F) All references in this Agreement to "$" are intended to refer to
U.S. dollars.
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Parent, Merger Sub and the Company have caused this Agreement to be
executed as of the date first written above.
TOWER SEMICONDUCTOR LTD.
By: /s/ Russell C. Ellwanger
----------------------------
Russell C. Ellwanger
Chief Executive Officer
By: /s/ Oren Shirazi
----------------------------
Oren Shirazi
Acting Chief Financial Officer
ARMSTRONG ACQUISITION CORP.
By: /s/ Russell C. Ellwanger
----------------------------
Russell C. Ellwanger
Chief Executive Officer
JAZZ TECHNOLOGIES, INC.
By: /s/ Gilbert F. Amelio
----------------------------
Gilbert F. Amelio
Chairman and Chief Executive Officer
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EXHIBITS
Exhibit A Certain Definitions
Exhibit B Form of Certificate of Incorporation of Surviving Corporation
Exhibit C Form of Tax Representation Letter (Company)
Exhibit D Form of Tax Representation Letter (Parent)
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LIST OF OMITTED SCHEDULES
Company Disclosure
Schedule
Part 2.1(b) Subsidiaries
Part 2.3(c) Registration Rights
Part 2.3(d) Company Options and Restricted Shares outstanding under
Company Equity Plan as of May 5, 2008
Part 2.4 Listing and other rules and regulations of AMEX
Part 2.5 Absence of Certain Changes
Part 2.6(a)(i) Registered IP
Part 2.6(a)(ii) Intellectual Property - Licensed in IP; Contracts
Part 2.6(a)(iii) Intellectual Property - Licensed Out IP
Part 2.6(a)(iv) Intellectual Property - Development Agreements
Part 2.6(b) Intellectual Property - Limitations on Use
Part 2.6(b)(v) No Funding, Facilities or Personnel of Government Entity or
Educational Institution
Part 2.6(b)(vii) Intellectual Property - Process Technologies
Part 2.6(e) Intellectual Property - Effect of Merger
Part 2.6(g) Intellectual Property - Infringement of Third Party IP
Part 2.6(h) Intellectual Property - Source Code
Part 2.6(k) Standards Bodies
Part 2.7(a) Leaseholds
Part 2.7(a) Assets - Encumbrances
Part 2.8(a) Material Contracts
Part 2.8(a) Material Contracts - Compliance
Part 2.8(b) Government Contracts
Part 2.9 Compliance with Legal Requirements
Part 2.10 Legal Proceedings
Part 2.11 Governmental Authorizations
Part 2.12(a) Tax Matters - Tax Returns
Part 2.12(d) Tax Matters - Claims or Proceedings
Part 2.12(g) Tax Incentives or Concessions
Part 2.12(h) Tax Matters - 280G Payments
Part 2.13(a) List of All Employee Benefit Plans and Programs
Part 2.13(c) Benefit Plans - Compliance
Part 2.13(d) Benefit Plans - Changes in Actuarial or Other Assumptions
Part 2.14(b) Employee and Labor Matters - Severance Benefits
Part 2.14(c) Employee and Labor Matters - Non-At Will Employees;
Severance; Termination Benefits
Part 2.14(f) Collective Bargaining Agreements
Part 2.14(g) Benefit Plans - Compliance
Part 2.14(h)
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Part 2.14(i) Benefit Plans - Certain Plans
Part 2.14(j) Benefit Plans - Penalties and Assets
Part 2.14(k) Benefit Plans - Retiree Benefits
Part 2.14(l) Employee and Labor Matters; Benefit Plans - Legal Compliance
Part 2.14(m) Employee and Labor Matters - Long Term Leave
Part 2.15 Environmental Matters
Part 2.16(a) Insurance
Part 2.16(b) Pending Insurance Claims
Part 2.18 Product Warranties
Part 2.22 Non-Contravention; Consents
Part 2.27(c) Reduction in Volume of Business
Part 2.27(d) Accounts Receivable Aging as of May 13, 2008
Part 2.27(e) Accounts Payable Aging as of May 13, 2008
Part 4.1(b)(vii)
Part 4.1(b)(x) Employee Benefits Under Collective Bargaining Agreement
Part 4.1(b)(xi) Existing Bonus/Retention Commitments
Part 4.1(b)(xv) Changes to Accounting Practices
Part 4.9(c)(iii) Employee Severance and Other Plans
Part 4.10(a) Indemnification Obligations
Part 4.10(b) D&O Insurance
Parent Disclosure
Schedule
Part 3.1 Due Organization and Good Standing
Part 3.3 Capitalization, Etc.
Part 3.5 Absence of Certain Changes
Part 3.6 IP Rights
Part 3.7 Contracts
Part 3.8 Compliance with Legal Requirements
Part 3.9 Legal Proceedings; Orders
Part 3.10 Governmental Authorizations
Part 3.12 Transactions with Affiliates
Part 3.14 Non-Contravention; Consents
The above schedules have been omitted from this exhibit pursuant to Item
601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental
copies of any of the omitted schedules to the U.S. Securities and Exchange
Commission upon request.
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this EXHIBIT A):
AFFILIATE. A Person shall be deemed to be an "AFFILIATE" of another Person
if such Person directly or indirectly controls, is directly or indirectly
controlled by or is directly or indirectly under common control with such other
Person.
ALTERNATIVE ACQUISITION INQUIRY. "ALTERNATIVE ACQUISITION INQUIRY" shall
mean any inquiry, indication of interest or request for non-public information
from a third party (other than an inquiry, indication of interest or request for
non-public information made or submitted by Parent or any of its affiliates)
that could reasonably be expected to lead to an Alternative Acquisition
Proposal.
ALTERNATIVE ACQUISITION PROPOSAL. "ALTERNATIVE ACQUISITION PROPOSAL" shall
mean any offer or proposal from a third party (other than an offer or proposal
made or submitted by Parent or any of its affiliates) contemplating any
Alternative Acquisition Transaction between such third party or any Affiliate of
such third party and the Company.
ALTERNATIVE ACQUISITION TRANSACTION. "ALTERNATIVE ACQUISITION TRANSACTION"
shall mean any transaction or series of related transactions (other than the
transactions contemplated by the Agreement and other than any transactions of
the type described below between the Company and Parent or any of its
affiliates) involving:
(A) any merger, exchange, consolidation, business combination, plan of
arrangement, issuance of securities, acquisition of securities,
reorganization, recapitalization, takeover offer, tender offer, exchange
offer or other similar transaction: (i) in which a Person or "group" (as
defined in the Exchange Act and the rules promulgated thereunder) directly
or indirectly would acquire, if consummated, beneficial or record ownership
of securities representing more than 15% of the outstanding securities of
the Company; (ii) in which the Company issues securities representing more
than 15% of the outstanding securities of the Company; or (iii) in which
the stockholders of the Company immediately preceding such transaction
hold, directly or indirectly, less than 85% of the equity interests in the
surviving or resulting entity of such transaction or in any parent entity
immediately following such transaction;
(B) any sale, lease, exchange, transfer, license or disposition of any
business or businesses or assets that constitute or account for 15% or more
of the Company and its Subsidiaries, taken as a whole; or
(C) any liquidation or dissolution of the Company or a Designated
Subsidiary.
AGREEMENT. "AGREEMENT" shall mean the Agreement and Plan of Merger and
Reorganization to which this EXHIBIT A is attached, together with this EXHIBIT
A, as such Agreement and Plan of Merger and Reorganization (including this
EXHIBIT A) may be amended from time to time.
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CODE. "CODE" shall mean the Internal Revenue Code of 1986, as amended.
COMPANY COMMON STOCK. "COMPANY COMMON STOCK" shall mean the common stock,
$.0001 par value per share, of the Company.
COMPANY EQUITY PLAN. "COMPANY EQUITY PLAN" shall mean the Company's 2006
Equity Incentive Plan.
COMPANY OPTIONS. "COMPANY OPTIONS" shall mean options to purchase shares of
Company Common Stock from the Company, whether granted by the Company pursuant
to the Company Equity Plan or otherwise.
COMPANY OWNED IP. "COMPANY OWNED IP" shall mean all material (a) Company
Software, (b) Company Process Technology and (c) all other Intellectual Property
and Intellectual Property Rights, that in each case are related to the business
of the Company and its Subsidiaries and in which the Company has (or purports to
have) an ownership interest.
COMPANY PROCESS TECHNOLOGY. "COMPANY PROCESS TECHNOLOGY" shall mean any
Intellectual Property and Intellectual Property Rights (excluding trademark and
trade name rights and similar rights) that both (a) are owned(or which the
Company purports to be owned) by the Company or any of its Subsidiaries; and (b)
protect or apply to Process Technology.
COMPANY SOFTWARE. "COMPANY SOFTWARE" shall mean any software, including
software components of design kits used in connection with Company Process
Technology, software development tools and firmware and other software embedded
in hardware devices, and all updates, upgrades, releases, enhancements and bug
fixes, in each case owned (or which the Company purports to be owned) by the
Company or any of its Subsidiaries.
COMPANY WARRANTS. "COMPANY WARRANTS" shall mean the warrants to purchase
shares of Company Common Stock at an exercise price of $5.00 per share issued by
the Company in its initial public offering of units or in a private placement
consummated on March 13, 2006.
COMPANY UNITS. "COMPANY UNITS" consist of one (1) share of Company Common
Stock and two (2) Company Warrants.
CONFIDENTIALITY AGREEMENT. "CONFIDENTIALITY AGREEMENT" shall mean that
certain letter agreement, dated March 12, 2008, between Parent and the Company.
CONVERTIBLE NOTES. "CONVERTIBLE NOTES" shall mean the Company's 8%
convertible senior notes due 2011 issued pursuant to the Indenture.
DESIGNATED SUBSIDIARY. "DESIGNATED SUBSIDIARY" shall mean either of the
following Subsidiaries: Jazz Semiconductor, Inc., a Delaware corporation; and
Newport Fab, LLC, a Delaware limited liability company.
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ENCUMBRANCE. "ENCUMBRANCE" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, option, right of first
refusal, preemptive right, community property interest 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, company (including any company
limited by shares, limited liability company or joint stock company), firm,
society or other enterprise, association, organization or entity (including any
Governmental Entity).
EXCHANGE ACT. "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
FACILITIES. "FACILITIES" shall mean any real property or interest in real
property that is being used or has been used by the Company or any Designated
Subsidiary and all buildings, structures or other improvements thereon.
FACILITY AGREEMENT. "FACILITY AGREEMENT" means that certain Restated
Facility Agreement originally made on January 18, 2001 and restated on August
24, 2006 among Parent and Bank Hapoalim B.M. and Bank Leumi Le-Israel B.M.
GAAP. "GAAP" shall mean United States generally accepted accounting
principles.
GOVERNMENTAL AUTHORIZATION. "GOVERNMENTAL AUTHORIZATION" shall mean any
permit, license, registration, qualification or authorization granted by any
Governmental Entity.
GOVERNMENTAL ENTITY. "GOVERNMENTAL ENTITY" shall mean any federal, state,
local or foreign governmental authority.
GOVERNMENT CONTRACT. "GOVERNMENT CONTRACT" means any customer contract
(including any basic ordering agreement, letter contract, purchase order,
delivery order, task order or change order and including any "contractor team
arrangement" as defined in Federal Acquisition Regulation 9.601) between, (A)
the Company or any Subsidiary of the Company and an United States Governmental
Entity or (B) the Company or any Subsidiary of the Company as a subcontractor at
any tier and prime contractor to an United States Governmental Entity.
INDENTURE. "INDENTURE" shall mean that certain Indenture, dated as of
December 19, 2006, between the Company and U.S. Bank National Association, as
supplemented, amended or otherwise modified from time to time.
INTELLECTUAL PROPERTY. "INTELLECTUAL PROPERTY" shall mean algorithms, APIs,
apparatus, databases, data collections, development tools, diagrams, formulae,
inventions (whether or not patentable), know-how, logos, marks (including brand
names, product names, logos and slogans), mask works, methods, network
configurations and architectures, processes, proprietary information, protocols,
schematics, semiconductor devices, specifications, software, software code (in
any form, including source code and executable or object code), subroutines,
techniques, user interfaces, URLs, web sites, works of authorship and other
forms of technology (whether or not embodied in any tangible form such as
instruction manuals, laboratory notebooks, prototypes, samples, studies and
summaries).
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INTELLECTUAL PROPERTY RIGHTS. "INTELLECTUAL PROPERTY RIGHTS" shall mean all
rights of the following types, which may exist or be created under the laws of
any jurisdiction in the world: (a) rights associated with works of authorship,
including exclusive exploitation rights, copyrights, moral rights and mask
works; (b) trademark and trade name rights and similar rights; (c) trade secret
rights; (d) patent and industrial property rights; (e) other proprietary rights
in Intellectual Property; and (f) rights in or relating to registrations,
renewals, extensions, combinations, divisions and reissues of, and applications
for, any of the rights referred to in clauses "(a)" through "(e)" above.
KNOWLEDGE. "KNOWLEDGE" shall mean, if in reference to an individual, the
knowledge of such person, and if in reference to an entity, the knowledge of
such entity's directors or executive officers and, in the case of the Company,
the knowledge of Gilbert F. Amelio, Paul A. Pittman, Allen R. Grogan, Chuck Fox,
Marco Racanelli, Nabil Al Ali, Dan Lynch, Luca Fabbri, Andy Chan and Susanna
Bennett.
LEGAL PROCEEDING. "LEGAL PROCEEDING" shall mean any lawsuit, court action
or other court proceeding.
LEGAL REQUIREMENT. "LEGAL REQUIREMENT" shall mean any law, rule or
regulation adopted or promulgated by any Governmental Entity, including any
instrument or grant from any Governmental Entity.
MATERIAL ADVERSE EFFECT. "MATERIAL ADVERSE EFFECT" shall mean, with respect
to the Company or Parent (as the case may be), (i) a material adverse effect on
the business, assets, operations or condition (financial or otherwise) of such
party and its Subsidiaries, taken as a whole or (ii) an effect that would
prevent the Company or Parent (as the case may be) from consummating the
transactions contemplated by the Agreement at or prior to the Final Time;
PROVIDED, HOWEVER, that none of the following shall be deemed either alone or in
combination to constitute, and none of the following shall be taken into account
in determining whether there has been or would be, a Material Adverse Effect on
a party: (A) any adverse effect that results directly or indirectly from general
economic, business, financial or market conditions (except to the extent that
such party is adversely affected disproportionately relative to other companies
operating in the same industries as such party); (B) any adverse effect arising
directly or indirectly from or otherwise relating to any of the industries or
industry sectors in which such party or any of its Subsidiaries operates (except
to the extent that such party is adversely affected disproportionately relative
to other companies operating in the same industries as such party); (C) any
adverse effect arising directly or indirectly from or otherwise relating to
fluctuations in the value of any currency; (D) any adverse effect arising
directly or indirectly from or otherwise relating to any act of terrorism, war,
national or international calamity or any other similar event; (E) any adverse
effect arising directly or indirectly from or otherwise relating to the
announcement or pendency of the Agreement or the Merger, including any
cancellations of or delays in customer orders, any reduction in sales, any
disruption in (or loss of) supplier, distributor, partner or similar
relationships or any loss of employees, or any claims made or any litigation
filed by stockholders of the Company that challenges the Merger; (F) the failure
of such party to meet internal or analysts' expectations or projections or a
decline in such party's stock price, in and of itself (for the avoidance of
doubt, this clause "(F)" shall not preclude the other party from asserting that
the underlying cause of any such failure or decrease in stock price is a
Material Adverse Effect); (G) any adverse effect arising directly or indirectly
from or otherwise relating to any action taken by such party or any of its
Subsidiaries with the other party's consent or in compliance by such party with
the terms of the Agreement; (H) any adverse effect arising directly from any
change in, or any compliance with or action taking for the purpose of complying
with, any Legal Requirement; and (I) any adverse effect arising directly or
indirectly from or otherwise relating to any request or requirement by any
Governmental Entity that any party to the Agreement or any of the Subsidiaries
of any party to the Agreement enter into any voting trust arrangement, proxy
arrangement, "hold separate" agreement or similar agreement or arrangement with
respect to any assets or operations of such party or Subsidiary or any
securities of any Subsidiary of the Company.
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OPEN SOURCE LICENSE. "OPEN SOURCE LICENSE" means any license that has been
designated as an approved "open source license" on www.opensource.org (including
but not limited to the GNU General Public License (GPL), GNU Lesser General
Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic
License, the Netscape Public License, the Sun Community Source License (SCSL),
the Sun Industry Standards Source License (SISSL) and the Apache License).
OPEN SOURCE SOFTWARE. "OPEN SOURCE SOFTWARE" shall mean any software that
is generally licensed or made available in source code form under the terms of a
license (such as the General Public License, the Lesser General Public License,
the Mozilla license, and the Apache license) that allows for the use,
modification, and redistribution of such software in source code form without
the payment of any license fees or royalties.
ORGANIZATIONAL DOCUMENTS. "ORGANIZATIONAL DOCUMENTS" shall mean, with
respect to any Entity, (a) if such Entity is a corporation, such Entity's
certificate or articles of incorporation and by-laws, as amended and in effect
on the date hereof, and (b) if such Entity is a limited liability company, such
Entity's certificate or articles of formation and operating agreement.
PARENT OWNED IP. "PARENT OWNED IP" shall mean all material Intellectual
Property and Intellectual Property Rights that are related to the business of
Parent and its Subsidiaries and in which Parent has an ownership interest.
PERMITTED ENCUMBRANCES. "PERMITTED ENCUMBRANCES" shall mean (a) liens for
taxes not yet due and payable, (b) liens, encumbrances or imperfections of title
that have arisen in the ordinary course of business, (c) liens, encumbrances or
imperfections of title resulting from or otherwise relating to any of the
contracts referred to in the Company Disclosure Schedule or Parent Disclosure
Schedule, as applicable, (d) liens, encumbrances or imperfections of title
relating to liabilities reflected in the financial statements (including any
related notes) contained in the Company SEC Documents or Parent Reports, as
applicable, (e) liens, pledges or encumbrances arising from or otherwise
relating to transfer restrictions under the Securities Act and the securities
laws of the various states of the United States or foreign jurisdictions, and
(f) liens, encumbrances or imperfections of title which would not materially
detract from the value of the applicable asset or place any material
restrictions on its intended use or enjoyment.
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PERSON. "PERSON" shall mean any individual or Entity.
PROCESS TECHNOLOGY. "PROCESS TECHNOLOGY" shall mean (i) process steps used
in the fabrication of wafers, including process technologies for digital CMOS,
standard analog CMOS, advanced analog CMOS, RF CMOS, high-voltage CMOS, bipolar
CMOS, silicon-germanium bipolar CMOS, and bipolar CMOS double-diffused metal
oxide semiconductor; or (ii) any improvement to, or new design of, manufacturing
tools used to fabricate wafers; or (iii) any layout optimization carried out to
enhance yield and performance by design-for-manufacturing rules, optical
proximity correction, and other techniques.
PROXY STATEMENT/PROSPECTUS. "PROXY STATEMENT/PROSPECTUS" shall mean the
proxy statement to be sent to the Company's stockholders in connection with the
Company Stockholders' Meeting.
REGISTERED IP. "REGISTERED IP" shall mean all Intellectual Property Rights
that are registered, filed or issued under the authority of, with or by any
Governmental Entity, including all patents, registered copyrights, registered
mask works and registered trademarks and domain names and all applications for
any of the foregoing.
REGISTRATION STATEMENT. "REGISTRATION STATEMENT" shall mean the
registration statement on Form F-4 (or combination Form F-4/F-3) to be filed
with the SEC by Parent in connection with issuance of Parent Ordinary Shares in
the Merger and upon conversion of the Convertible Notes, as said registration
statement may be amended prior to the time it is declared effective by the SEC.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
SUBSIDIARY. An Entity shall be deemed to be a "SUBSIDIARY" of another
Person if such Person directly or indirectly owns, beneficially or of record,
(a) an amount of voting securities or other interests in such Entity that is
sufficient to enable such Person to elect at least a majority of the members of
such Entity's board of directors or comparable governing body, or (b) at least
50% of the outstanding equity interests issued by such Entity.
SUPERIOR PROPOSAL. "SUPERIOR PROPOSAL" shall mean any bona fide written
Alternative Acquisition Proposal by a third party not affiliated with the
Company or any Person who was a director or executive officer of the Company as
of May 17, 2008 to purchase all the outstanding capital stock of the Company,
pursuant to a tender or exchange offer, a merger, a consolidation, a
recapitalization or other business transaction, or to purchase business or
businesses or assets that constitute or account for all or substantially all of
the consolidated net revenues of the Company and its Subsidiaries, taken as a
whole, and that (in each case): (A) was not obtained or made as a direct or
indirect result of a breach of Section 4.2 of the Agreement, or the
Confidentiality Agreement, (B) is not subject to a financing (or reverse
break-up fee payable in the event of failure to obtain financing) contingency
that is unlikely or uncertain to be satisfied, as determined in good faith by
the Company's Board of Directors, and (C) is determined in good faith by the
Company's Board of Directors, after consultation with the Company's financial
advisor and outside legal counsel and taking into account all the known terms
and conditions of such Alternative Acquisition Proposal, to contemplate a
transaction that: (x) if consummated would be more favorable to the Company's
stockholders than the transactions contemplated by the Agreement (taking into
account the terms of such Alternative Acquisition Proposal and any amendments to
the terms of the Agreement proposed by Parent in a binding written offer
provided by Parent to the Company in response to such Alternative Acquisition
Proposal; and (y) is reasonably capable of being consummated by the third party
on the terms of such Alternative Acquisition Proposal (taking into account the
relevant financial, legal and regulatory considerations associated with such
Alternative Acquisition Proposal) (it being understood that an executive officer
of the Company who elects to continue employment with such Person or its
Affiliates after the consummation of any Alternative Acquisition Transaction
shall not be deemed to be affiliated with the Company for purposes of this
definition).
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TAX. "TAX" shall mean (i) any and all federal, state, local and foreign
taxes, duties, imposts, levies or assessments of any nature whatsoever imposed
by a tax authority, including income, gross receipts, profits, sales, use,
occupation, value added, ad valorem, transfer, franchise, withholding, payroll,
employment, excise or property taxes, together with any interest, penalties or
additions imposed with respect thereto, and (ii) any liability or obligations
with respect to any items described in clause "(i)" above, whether by contract,
as a successor or transferee or otherwise.
TAX RETURN. "TAX RETURN" shall mean any and all returns, reports,
declarations, claims for refund or information returns, statements or forms
(including any schedule, attachment or amendment thereto) with respect to Taxes.
TRIGGERING EVENT. "TRIGGERING EVENT" shall be deemed to have occurred if:
(a) the Board of Directors of the Company or any committee thereof shall for any
reason have failed to recommend that the Company's stockholders vote to adopt
the Agreement, or shall for any reason have withheld, withdrawn or rescinded the
Company Board Recommendation or modified, amended or changed or publicly
proposed to withhold, withdraw, rescind, modify, amend or change the Company
Board Recommendation in a manner adverse to Parent and Merger Sub; (b) the
Company shall have failed to include in the Proxy Statement/Prospectus the
Company Board Recommendation or a statement to the effect that the Board of
Directors of the Company has determined and believes that the Merger is fair to
and in the best interests of the Company's stockholders; (c) the Board of
Directors of the Company shall have failed to reaffirm its recommendation in
favor of the adoption of the Agreement within 15 business days after Parent
requests in writing that such recommendation be reaffirmed at any time following
the public announcement and during the pendency of an Alternative Acquisition
Proposal; (d) the Board of Directors of the Company or any committee thereof
shall have approved, endorsed or recommended any Alternative Acquisition
Proposal; (e) the Company shall have entered into any binding letter of intent
or similar document or any agreement, contract or commitment accepting any
Alternative Acquisition Proposal; and (f) a tender or exchange offer relating to
not less than 15% of the then outstanding shares of capital stock of the Company
shall have been commenced by a third party (other than Parent or any Affiliate
of Parent) and the Company shall not have sent to its stockholders, or filed
with the SEC, within 15 business days after the commencement of such tender or
exchange offer, a statement disclosing that the Company recommends rejection of
such tender or exchange offer.
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UNCURED INACCURACY. There shall be deemed to be an "UNCURED INACCURACY" in
a representation or warranty of a party to the Agreement as of a particular date
only if such representation or warranty shall be inaccurate as of such date as
if such representation or warranty were made as of such date, and the inaccuracy
in such representation or warranty shall not have been cured since such date;
PROVIDED, HOWEVER, that if such representation or warranty by its terms speaks
as of the date of the Agreement or as of another particular date, then there
shall not be deemed to be an Uncured Inaccuracy in such representation or
warranty unless such representation or warranty shall have been inaccurate as of
such date, and the inaccuracy in such representation or warranty shall not have
been cured since such date.
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EXHIBIT B
FORM OF CERTIFICATE OF INCORPORATION
OF THE SURVIVING CORPORATION
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
JAZZ TECHNOLOGIES INC.
ARTICLE I
The name of the corporation (this "Corporation") is:
JAZZ TECHNOLOGIES INC.
ARTICLE II
The address of this Corporation's registered office in the State of
Delaware is c/o Corporation Trust Company, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of this Corporation's registered
agent at such address is The Corporation Trust Company.
The name and mailing address of the incorporator of this Corporation are:
[____________].
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware ("GCL").
ARTICLE IV
This Corporation is authorized to issue one class of stock to be designated
"Common Stock," with a par value of $0.001 per share. The total number of shares
which this Corporation is authorized to issue is One Hundred (100) shares.
ARTICLE V
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this Corporation.
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ARTICLE VI
The number of directors of this Corporation shall be fixed from time to
time by the Bylaws or amendment thereof duly adopted by the board of directors
or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
this Corporation shall so provide.
ARTICLE VIII
Meeting of stockholders of this Corporation may be held within or without
the State of Delaware, as the Bylaws may provide. The books of this Corporation
may be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to time
by the board of directors or in the Bylaws of this Corporation.
ARTICLE IX
A director of this Corporation shall not be personally liable to this
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except that this Article IX shall not eliminate or limit a
director's liability (i) for any breach of the director's duty of loyalty to
this Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the GCL, or (iv) for any transaction from which
such director derived an improper personal benefit. If the GCL is amended after
the effective date of this Certificate of Incorporation to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of this Corporation shall be eliminated or limited
to the fullest extent permitted by the GCL, as so amended from time to time.
Any repeal or modification of this Article IX shall not increase the
personal liability of any director of this Corporation for any act or occurrence
taking place prior to such repeal or modification, or otherwise adversely affect
any right or protection of a director of this Corporation existing at the time
of such repeal or modification.
The provisions of this Article IX shall not be deemed to limit or preclude
indemnification of a director by this Corporation for any liability of a
director which has not been eliminated by the provisions of this Article IX.
ARTICLE X
This Corporation shall indemnify to the full extent authorized or permitted
by law (as now or hereafter in effect) any person made, or threatened to be made
a party or witness to any action, suit or proceeding (whether civil or criminal
or otherwise) by reason of the fact that he, his testator or intestate, is or
was a director or an officer of this Corporation or by reason of the fact that
such person, at the request of this Corporation, is or was serving any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, in any capacity. Nothing contained herein shall affect any rights to
indemnification to which employees other than directors and officers may be
entitled by law. No amendment to or repeal of this Article X shall apply to or
have any effect on any right to indemnification provided hereunder with respect
to any acts or omissions occurring prior to such amendment or repeal.
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ARTICLE XI
Pursuant to GCL Section 203(b)(1), this Corporation shall not be governed
by the provisions of GCL Section 203.
ARTICLE XII
This Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
A-90
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation on this [__]th day of ________, 2008.
____________________
Name:
Title:
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EXHIBIT C
FORM OF TAX REPRESENTATION LETTER (COMPANY)
[Company Letterhead]
______________ __, 2008
Cooley Godward Kronish LLP O'Melveny & Myers LLP
101 California Street, 5th floor 275 Battery Street, Suite 2600
San Francisco, CA 94111 San Francisco, CA 94111
Re: Merger pursuant to Agreement and Plan of Merger and Reorganization by
and among Tower Semiconductor Ltd. , Armstrong Acquisition Corp. and
Jazz Technologies, Inc.
Ladies and Gentlemen:
This letter is furnished to you in connection with your rendering of
opinions pursuant to Sections 5.2(e)(i) and 5.3(e)(i) of the Agreement and Plan
of Merger and Reorganization dated May 19, 2008 (the "MERGER AGREEMENT") by and
among Tower Semiconductor Ltd., an Israeli company ("PARENT"), Armstrong
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Parent
("MERGER SUB"), and Jazz Technologies, Inc., a Delaware corporation ("COMPANY").
Pursuant to the Merger Agreement, Merger Sub will merge with and into Company
(the "MERGER") and Company will become a wholly owned subsidiary of Parent.
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement. References herein to the "IRC" refer
to the United States Internal Revenue Code of 1986, as amended, and references
to a "TREASURY REGULATION" refer to a regulation promulgated under the IRC.
After consulting with its counsel and auditors regarding the meaning of and
factual support for the following representations, the undersigned hereby
certifies and represents that the following representations are true, correct
and complete as of the date hereof and will continue to be true, correct and
complete as of the Effective Time and thereafter where relevant:
1. General Reorganization Representations
(i) The facts that relate to the Merger and related transactions, as
described in the Registration Statement (including the Proxy
Statement/Prospectus), as amended or supplemented through the date hereof,
are true, correct, and complete in all material respects and will be true,
correct, and complete in all material respects at the Effective Time (as if
made as of the Effective Time).
(ii) The fair market value of the Parent Ordinary Shares to be issued
to the Company shareholders in the Merger was approximately equal to the
fair market value of the shares of Company Common Stock to be surrendered
by the Company shareholders in the Merger.
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(iii) At the Effective Time, there will not be outstanding any equity
interests in Company other than those disclosed in Sections 1.5 and 1.8 of
the Merger Agreement, or any warrants, options, convertible securities, or
any other type of right pursuant to which any person could acquire stock in
Company or any other equity interest in Company that, if exercised or
converted, would affect Parent's acquisition or retention of Control of
Company. As used in this Section 1, "CONTROL" means direct ownership of
stock possessing at least eighty percent (80%) of the total combined voting
power of all classes of stock entitled to vote and at least eighty percent
(80%) of the total number of shares of each other class of stock of the
corporation.
(iv) Except with respect to repurchases or other reacquisitions of
stock subject to repurchase from or forfeiture by terminated employees
pursuant to repurchase (or other reacquisition) rights obtained in the
ordinary course of business, following the Merger, Parent has no plan or
intention to reacquire or to cause or to allow any person related to Parent
within the meaning of Treasury Regulation Section 1.368-1(e)(3), (e)(4), or
(e)(5) to purchase, redeem, or otherwise reacquire any Parent Ordinary
Shares issued pursuant to the Merger Agreement.
(v) Other than pursuant to this Merger Agreement, neither Company nor
any Person related to Company within the meaning of Treasury Regulations
Sections 1.368-1(e)(3), (e)(4) and (e)(5) has redeemed, purchased or
otherwise acquired any Company stock in anticipation of the transactions
contemplated by the Merger Agreement (the "TRANSACTIONS") during the period
beginning with the commencement of negotiations (whether formal or
informal) regarding the Merger and ending at the Effective Time (the
"PRE-MERGER PERIOD"), or otherwise as part of a plan of which the
Transactions are a part. To Company's knowledge neither Parent nor any
Parent Affiliate will own beneficially or of record, or will have owned
beneficially or of record during the five years immediately prior to the
Effective Time, any Company stock, or other securities, options, warrants,
or instruments giving the holder thereof the right to acquire shares of
Company Common Stock or other securities offered by Company.
(vi) Other than in the ordinary course of business or pursuant to its
obligations under the Merger Agreement, Company has made no transfer of any
of its assets (including any distribution of assets with respect to, or in
redemption of, stock) in contemplation of the Transactions (or any other
corporate acquisition) or during the Pre-Merger Period.
(vii) In the Merger, Parent will acquire Company Common Stock solely
in exchange for Parent Ordinary Shares (other than any cash paid in lieu of
fractional shares, as described in paragraph (xv)). Company has no
knowledge of any Parent plan or intention to cause or permit the Surviving
Corporation to issue additional shares of its stock that would affect
Parent's acquisition or retention of Control of Company. For purposes of
this paragraph, shares of Company Common Stock exchanged in the Merger for
cash and other property (including, without limitation, cash paid to
Company stockholders in lieu of fractional Parent Ordinary Shares and cash
paid to redeem Parent Ordinary Shares that are issued in the Merger (except
as provided in paragraph (iii)) will be treated as shares of Company Common
Stock outstanding on the date of the Merger but not exchanged for shares of
Parent Ordinary Shares.
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(viii) Immediately following the Effective Time, the Surviving
Corporation will be wholly owned directly by Parent. Company is not aware
of any Parent plan or intention: (i) to liquidate the Surviving Corporation
or merge the Surviving Corporation into another entity; (ii) to sell or
otherwise dispose of any shares or securities of, or other interests in,
the Surviving Corporation held by Parent; or (iii) to sell or otherwise
dispose of, or to cause the Surviving Corporation to sell or otherwise
dispose of, any of Merger Sub's or Company's assets, or of any of the
assets of Merger Sub or of Company acquired in the Merger; except with
respect to: (x) dispositions of assets in the ordinary course of business;
(y) transfers described in IRC ss.368(a)(2)(C), or in the applicable
Treasury Regulations; or (z) sales of the Surviving Corporation's assets to
unrelated third parties for fair market value that do not prevent the
continuation of Company's "historic business" or use of "historic business
assets" as described in paragraph (vii) below.
(ix) Company conducts a historic business within the meaning of
Treasury Regulation Section 1.368-1(d), and no assets of Company have been
acquired or sold, transferred, or otherwise disposed of that would prevent
Parent, or a member of its qualified group of corporations, from continuing
such "historic business" or from using a "significant portion" of Company's
"historic business assets" in a business following the Merger. Company has
no knowledge of any plan or intention by Parent, or a member of its
qualified group of corporations (as defined by Treasury Regulations Section
1.368-1(d)(4)(ii)), to cause or allow the Merger to fail to satisfy the
requirement for a reorganization set forth in Treasury Regulations Section
1.368-1(d) by causing or allowing the Surviving Corporation to discontinue
the historic business of Company (or, alternatively, if Company has more
than one line of business, by causing or allowing the Surviving Corporation
to discontinue all of the significant lines of Company's historic business)
and failing to use a significant portion of Company's historic business
assets in a business. For purposes of this representation, Parent will be
deemed to satisfy the foregoing representation if (a) the members of
Parent's qualified group (as defined in Treasury Regulations Section
1.368-1(d)(4)(ii)), in the aggregate, continue the historic business of
Company or use a significant portion of Company's historic business assets
in a business or (b) the foregoing activities are undertaken by a
partnership as contemplated by Treasury Regulations Section 1.368-1(d)(4).
(x) Company is not an "INVESTMENT COMPANY" within the meaning of IRC
ss.ss.368(a)(2)(F)(iii) and (iv). As used in Sections 1 and 2 hereof, an
"Investment Company" means a regulated investment company, a real estate
investment trust, or a corporation 50 percent or more of the value of whose
total assets are stock and securities and 80 percent or more of the value
of whose total assets are assets held for investment. In making the
50-percent and 80-percent determinations under the preceding sentence,
stock and securities in any subsidiary corporation shall be disregarded and
the parent corporation shall be deemed to own its ratable share of the
subsidiary's assets, and a corporation shall be considered a subsidiary if
the parent owns 50 percent or more of the combined voting power of all
classes of stock entitled to vote, or 50 percent or more of the total value
of shares of all classes of stock outstanding. For this purpose, in
determining total assets, cash and cash items (including receivables), and
Government securities shall be excluded. The term "securities" includes
obligations of state and local governments, commodity futures contracts,
shares of regulated investment companies and real estate investment trusts,
and other investments constituting a security within the meaning of the
Investment Company Act of 1940 (15 U.S.C. 80a-2(36)).
A-94
(xi) Except as specifically set forth in the Merger Agreement, Company
will pay its expenses, if any, incurred in connection with the Transaction
and has not agreed to assume, nor will it directly or indirectly assume,
any expense or other liability, whether fixed or contingent, of any Company
shareholder. To Company's knowledge, Parent has retained no Company
shareholder to act as agent for Parent in connection with the Merger or
approval thereof and Parent will reimburse no Company shareholder for
shares of Company Common Stock such shareholder may have purchased or for
other obligations such shareholder may have incurred.
(xii) There is no intercorporate indebtedness existing between Parent
and Company that was issued, acquired, or will be settled at a discount.
(xiii) The fair market value of Company's assets will exceed the
amount of its liabilities plus the liabilities, if any, to which the
Company's assets are subject.
(xiv) All Parent Ordinary Shares issued in the Merger will be shares
of voting stock and, to Company's knowledge, there are no restrictions on
the voting rights with respect to such shares.
(xv) The payment of cash in lieu of fractional shares of Parent
Ordinary Shares in the Merger is solely for the purpose of avoiding the
expense and inconvenience to Parent of issuing fractional shares of Parent
Ordinary Shares and does not represent separately bargained-for
consideration for Company Common Stock. The total cash consideration that
will be paid in the Merger to the Company shareholders instead of issuing
fractional shares of Parent Ordinary Shares will not exceed one percent of
the total consideration that will be issued in the transaction to the
Company shareholders in exchange for their Company Common Stock. The
fractional share interests of each Company shareholder will be aggregated,
and, with the possible exception of Company shareholders that hold shares
of Company Common Stock through multiple brokers or multiple accounts, no
Company shareholder will receive cash in lieu of Parent Ordinary Shares in
an amount equal to or greater than the value of one full share of Parent
Ordinary Shares.
(xvi) Not more than fifty percent (50%) of the total voting power and
not more than fifty percent (50%) of the total value of the stock of Parent
will be received in the Transaction, in the aggregate, by Company
shareholders who are U.S. persons in exchange for their shares of Company
Common Stock as determined pursuant to the rules set forth in Treasury
Regulation Section 1.367(a)-3(c).
(xvii) Immediately after the Merger, not more than fifty percent (50%)
of the total voting power and not more than fifty percent (50%) of the
total value of the stock of Parent will be owned, in the aggregate (taking
into account, to Company's knowledge, any attribution or constructive
ownership rules of Treasury Regulation Section 1.367(a)-3(c)), by U.S.
persons that are at such time either officers or directors of Company or
that owned stock representing five percent (5%) or more of the total voting
power or total value of the stock of Company immediately prior to the
Merger.
A-95
(xviii) To Company's knowledge, for the entire thirty-six month period
immediately preceding the Merger, either Parent or any qualified subsidiary
(as defined in Treasury Regulation Section 1.367(a)-3(c)(5)(vii)) or any
qualified partnership (as defined in Treasury Regulation Section
1.367(a)-3(c)(5)(viii)) has been engaged in an active trade or business
outside the United States, within the meaning of Treasury Regulation
Section 1.367(a)-3(c)(3). To Company's knowledge Parent has no plan or
intention to substantially dispose of or discontinue (or to allow any
qualified subsidiary or qualified partnership to substantially dispose of
or discontinue) the active trade or business referred to in the preceding
sentence.
(xix) To Company's knowledge the fair market value of the total
outstanding equity of Parent (not taking into account assets acquired
outside the ordinary course of business, unless Parent is permitted to take
such assets into account pursuant to Treasury Regulation Section
1.367(a)-3(c)(3)(iii)), is at least equal to the fair market value of the
total outstanding equity of Company.
(xx) Neither the Company nor any Subsidiary of the Company has taken
any action or failed to take any action that is reasonably likely to
prevent or impede the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code and a transaction that is not subject
to Section 367(a)(1) of the Code.
2. Relating to Merger Sub
(i) To Company's knowledge Merger Sub was formed solely for the
purposes of effecting the Merger and has conducted no business or other
activities except in connection with the Merger.
(ii) To Company's knowledge, in the Merger, Merger Sub will have no
liabilities assumed by Company and will not transfer to Company any assets
subject to liabilities.
(iii) At the time of the Merger and at the Effective Time, Company
will hold at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the
gross assets held by Merger Sub. In addition, after the Merger, at least
ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets
held by Company immediately prior to the Merger will continue to be held by
the Surviving Corporation after the Merger. For the purpose of this
representation, the following assets of Company or of Merger Sub, as the
case may be, will be treated as property held by Company or Merger Sub, as
the case may be, immediately prior to the Merger but not by the Surviving
Corporation subsequent to the Merger: (i) assets disposed of by Company or
the Surviving Corporation (other than assets sold to unrelated third
parties for fair market value) subsequent to the Merger; (ii) assets of
Company or Merger Sub (other than assets transferred from Merger Sub to
Company in the Merger) that were, to Company's knowledge, disposed of prior
to the Merger and in contemplation thereof; (iii) assets used by Company or
Merger Sub to pay other expenses or liabilities incurred in connection with
the Merger; and (v) assets used to make distributions, redemptions, or
other payments in respect of shares of Company Common Stock or stock of
Merger Sub or rights to acquire such stock (including payments treated as
such for tax purposes) that were, to Company's knowledge, made in
contemplation of the Merger or that are related thereto, or that were, to
Company's knowledge, made during the Pre-Merger Period.
A-96
(iv) To Company's knowledge Merger Sub is not an Investment Company.
(v) Except as specifically set forth in the Merger Agreement, Merger
Sub will pay its expenses, if any, incurred in connection with the
Transaction and has not agreed to assume, nor will it directly or
indirectly assume, any expense or other liability, whether fixed or
contingent, of any Company shareholder.
(vi) There is no intercorporate indebtedness existing between Merger
Sub and Company that was issued, acquired, or will be settled at a
discount.
Notwithstanding anything herein to the contrary, the undersigned makes no
representations regarding any actions or conduct of Company pursuant to
Parent's exercise of control over Company after the Merger.
The undersigned recognizes that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Merger Agreement and documents related thereto, and (ii) your opinions will
be subject to certain limitations and qualifications including that they
may not be relied upon if any such representations are not accurate in all
material respects at all relevant times. If, prior to the Effective Time,
any of the representations set forth herein cease to be accurate in any
material respect, the undersigned agrees to deliver to you immediately a
written notice to that effect. The undersigned recognizes that your
opinions will not address any tax consequences of the Merger or any action
taken in connection therewith except as expressly set forth in such
opinions.
Very truly yours,
JAZZ TECHNOLOGIES, INC.
By:_______________________
Name:_____________________
Title:____________________
A-97
EXHIBIT D
FORM OF TAX REPRESENTATION LETTER (PARENT)
[Parent Letterhead]
______________ __, 2008
O'Melveny & Myers LLP Cooley Godward Kronish LLP
275 Battery Street, Suite 2600 101 California Street, 5th floor
San Francisco, CA 94111 San Francisco, CA 94111
Re: Merger pursuant to Agreement and Plan of Merger and Reorganization by
and among Tower Semiconductor Ltd. , Armstrong Acquisition Corp. and
Jazz Technologies, Inc.
Ladies and Gentlemen:
This letter is furnished to you in connection with your rendering of
opinions pursuant to Sections 5.2(e)(i) and 5.3(e)(i) of the Agreement and Plan
of Merger and Reorganization dated May 19, 2008 (the "MERGER AGREEMENT") by and
among Tower Semiconductor Ltd., an Israeli company ("PARENT"), Armstrong
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Parent
("MERGER SUB"), and Jazz Technologies, Inc., a Delaware corporation ("COMPANY").
Pursuant to the Merger Agreement, Merger Sub will merge with and into Company
(the "MERGER") and Company will become a wholly owned subsidiary of Parent.
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement. References herein to the "IRC" refer
to the United States Internal Revenue Code of 1986, as amended, and references
to a "TREASURY REGULATION" refer to a regulation promulgated under the IRC.
After consulting with their counsel and auditors regarding the meaning of
and factual support for the following representations, the undersigned hereby
certify and represent that the following representations are true, correct and
complete as of the date hereof and will continue to be true, correct and
complete as of the Effective Time and thereafter where relevant:
1. General Reorganization Representations
(i) The facts that relate to the Merger and related transactions, as
described in the Registration Statement (including the Proxy
Statement/Prospectus), as amended or supplemented through the date hereof,
are true, correct, and complete in all material respects and will be true,
correct, and complete in all material respects at the Effective Time (as if
made as of the Effective Time).
(ii) The fair market value of the Parent Ordinary Shares to be issued
to each Company shareholder in the Merger is approximately equal to the
fair market value of the shares of Company Common Stock to be surrendered
by such Company shareholder in the Merger.
A-98
(iii) Parent is in "Control" of Merger Sub. As used in this Section 1,
"CONTROL" means direct ownership of stock possessing at least eighty
percent (80%) of the total combined voting power of all classes of stock
entitled to vote and at least eighty percent (80%) of the total number of
shares of each other class of stock of the corporation.
(iv) Except with respect to acquisitions which are made on the open
market through a broker at the prevailing market price from a shareholder
whose identity is not known to Parent and are made pursuant to a stock
repurchase program that was not a matter negotiated with Company or any
Company shareholder, does not favor participation by any Company
shareholder and pursuant to which the number of shares repurchased does not
exceed the number of Parent shares outstanding prior to the Merger ("Open
Market Acquisitions"), Company has no knowledge of any Parent plan or
intention to reacquire or to cause or to allow any person related to Parent
within the meaning of Treasury Regulation Section 1.368-1(e)(3), (e)(4), or
(e)(5) to purchase, redeem, or otherwise reacquire any Parent Ordinary
Shares issued pursuant to the Merger Agreement.
(v) Other than pursuant to this Merger Agreement, neither Parent nor
any Person related to Parent within the meaning of Treasury Regulations
Sections 1.368-1(e)(3), (e)(4) and (e)(5) has acquired any shares of
Company Common Stock in contemplation of the transactions contemplated by
the Merger Agreement (the "TRANSACTION") during the period beginning with
the commencement of negotiations (whether formal or informal) regarding the
Merger and ending at the Effective Time (the "PRE-MERGER PERIOD"), or
otherwise as part of a plan of which the Transaction is a part. Neither
Parent nor any Parent Affiliate will own beneficially or of record, or will
have owned beneficially or of record during the five years immediately
prior to the Effective Time, any shares of Company Common Stock, or other
securities, options, warrants, or instruments giving the holder thereof the
right to acquire shares of Company Common Stock or other securities offered
by Company.
(vi) In the Merger, Parent will acquire Company Common Stock solely in
exchange for Parent Ordinary Shares (other than any cash paid in lieu of
fractional shares, as described in paragraph (xv).
(vii) Following the Merger, Parent has no current plan or intention to
cause or permit the Surviving Corporation to issue additional shares of its
stock that would affect Parent's acquisition or retention of Control of
Company. For purposes of this paragraph, shares of Company Common Stock
exchanged in the Merger for cash and other property (including, without
limitation, cash paid to Company stockholders in lieu of fractional Parent
Ordinary Shares and cash paid to redeem Parent Ordinary Shares that are
issued in the Merger (except as provided in paragraph (iii)) will be
treated as shares of Company Common Stock outstanding on the date of the
Merger but not exchanged for shares of Parent Ordinary Shares.
(viii) Immediately following the Effective Time, the Surviving
Corporation will be wholly owned directly by Parent. Parent has no current
plan or intention: (i) to liquidate the Surviving Corporation or merge the
Surviving Corporation into another entity; (ii) to sell or otherwise
dispose of any shares or securities of, or other interests in, the
Surviving Corporation held by Parent; or (iii) to sell or otherwise dispose
of, or to cause the Surviving Corporation to sell or otherwise dispose of,
any of Merger Sub's or Company's assets, or of any of the assets of Merger
Sub or of Company acquired in the Merger; except with respect to: (x)
dispositions of assets in the ordinary course of business; (y) transfers
described in IRC ss.368(a)(2)(C), or in the applicable Treasury
Regulations; or (z) sales of thE Surviving Corporation's assets to
unrelated third parties for fair market value that do not prevent the
continuation of Company's "historic business" or use of "historic business
assets" as described in paragraph (ix) below.
A-99
(ix) There is no current plan or intention by Parent, or a member of
its qualified group of corporations (as defined by Treasury Regulations
Section 1.368-1(d)(4)(ii)), to cause or allow the Merger to fail to satisfy
the requirement for a reorganization set forth in Treasury Regulations
Section 1.368-1(d) by causing or allowing the Surviving Corporation to
discontinue the historic business of Company (or, alternatively, if Company
has more than one line of business, by causing or allowing the Surviving
Corporation to discontinue all of the significant lines of Company's
historic business) and failing to use a significant portion of Company's
historic business assets in a business. For purposes of this
representation, Parent will be deemed to satisfy the foregoing
representation if (a) the members of Parent's qualified group (as defined
in Treasury Regulations Section 1.368-1(d)(4)(ii)), in the aggregate,
continue the historic business of Company or use a significant portion of
Company's historic business assets in a business or (b) the foregoing
activities are undertaken by a partnership as contemplated by Treasury
Regulations Section 1.368-1(d)(4).
(x) Parent is not an "INVESTMENT COMPANY" within the meaning of IRC
ss.ss.368(a)(2)(F)(iii) and (iV). As used in Sections 1 and 2 hereof, an
"Investment Company" means a regulated investment company, a real estate
investment trust, or a corporation 50 percent or more of the value of whose
total assets are stock and securities and 80 percent or more of the value
of whose total assets are assets held for investment. In making the
50-percent and 80-percent determinations under the preceding sentence,
stock and securities in any subsidiary corporation shall be disregarded and
the parent corporation shall be deemed to own its ratable share of the
subsidiary's assets, and a corporation shall be considered a subsidiary if
the parent owns 50 percent or more of the combined voting power of all
classes of stock entitled to vote, or 50 percent or more of the total value
of shares of all classes of stock outstanding. For this purpose, in
determining total assets, cash and cash items (including receivables), and
Government securities shall be excluded. The term "securities" includes
obligations of state and local governments, commodity futures contracts,
shares of regulated investment companies and real estate investment trusts,
and other investments constituting a security within the meaning of the
Investment Company Act of 1940 (15 U.S.C. 80a-2(36)).
(xi) Except as specifically set forth in the Merger Agreement, Parent
will pay its expenses, if any, incurred in connection with the Transaction
and has not agreed to assume, nor will it directly or indirectly assume,
any expense or other liability, whether fixed or contingent, of any Company
shareholder. Parent has retained no Company shareholder to act as agent for
Parent in connection with the Merger or approval thereof. Parent will
reimburse no Company shareholder for shares of Company Common Stock such
shareholder may have purchased or for other obligations such shareholder
may have incurred.
(xii) There is no intercorporate indebtedness existing between Parent
and Company that was issued, acquired, or will be settled at a discount.
A-100
(xiii) Immediately after the Merger, the fair market value of the
Surviving Corporation's assets will exceed the amount of its liabilities
plus the fair market value of the liabilities, if any, to which the
Surviving Corporation's assets are subject.
(xiv) All Parent Ordinary Shares issued in the Merger will be shares
of voting stock and, to Parent's Knowledge, there are no restrictions on
the voting rights with respect to such shares.
(xv) The payment of cash in lieu of fractional shares of Parent
Ordinary Shares in the Merger is solely for the purpose of avoiding the
expense and inconvenience to Parent of issuing fractional shares of Parent
Ordinary Shares and does not represent separately bargained-for
consideration for Company Common Stock. The total cash consideration that
will be paid in the Merger to the Company shareholders instead of issuing
fractional shares of Parent Ordinary Shares will not exceed one percent of
the total consideration that will be issued in the transaction to the
Company shareholders in exchange for their Company Common Stock. The
fractional share interests of each Company shareholder will be aggregated,
and, with the possible exception of Company shareholders that hold shares
of Company Common Stock through multiple brokers or multiple accounts, no
Company shareholder will receive cash in lieu of Parent Ordinary Shares in
an amount equal to or greater than the value of one full share of Parent
Ordinary Shares.
(xvi) To Company's knowledge, Parent has no plan or intention to
liquidate Company, to merge Company into another corporation, to cause the
Company to sell or otherwise dispose of any of its assets (except for
dispositions in the ordinary course of business) or to sell or otherwise
dispose of any Company Common Stock acquired in the transaction, except for
transfers .
(xvii) Not more than fifty percent (50%) of the total voting power and
not more than fifty percent (50%) of the total value of the stock of Parent
will be received in the Transaction, in the aggregate, by Company
shareholders who are U.S. persons in exchange for their shares of Company
Common Stock as determined pursuant to the rules set forth in Treasury
Regulation Section 1.367(a)-3(c).
(xviii) Immediately after the Merger, not more than fifty percent
(50%) of the total voting power and not more than fifty percent (50%) of
the total value of the stock of Parent stock will be owned, in the
aggregate (taking into account, to Parent's Knowledge, any attribution or
constructive ownership rules of Treasury Regulation Section 1.367(a)-3(c)),
by U.S. persons that are at such time either officers or directors of
Company or that owned stock representing five percent (5%) or more of the
total voting power or total value of the stock of Company immediately prior
to the Merger.
(xix) For the entire thirty-six month period immediately preceding
the Merger, either Parent or any qualified subsidiary (as defined in
Treasury Regulation Section 1.367(a)-3(c)(5)(vii)) or any qualified
partnership (as defined in Treasury Regulation Section
1.367(a)-3(c)(5)(viii)) has been engaged in an active trade or business
outside the United States, within the meaning of Treasury Regulation
Section 1.367(a)-3(c)(3). Parent has no plan or intention to substantially
dispose of or discontinue (or to allow any qualified subsidiary or
qualified partnership to substantially dispose of or discontinue) the
active trade or business referred to in the preceding sentence.
A-101
(xx) The fair market value of the total outstanding equity of Parent
(not taking into account assets acquired outside the ordinary course of
business, unless Parent is permitted to take such assets into account by
Treasury Regulation Section 1.367(a)-3(c)(3)(iii)), is at least equal to
the fair market value of the total outstanding equity of Company.
(xxi) Parent has not taken any action or failed to take any action
that is reasonably likely to prevent or impede the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code and a
transaction that is not subject to Section 367(a)(1) of the Code.
2. Relating to Merger Sub
(i) Merger Sub was formed solely for the purposes of effecting the
Merger and has conducted no business or other activities except in
connection with the Merger.
(ii) In the Merger, Merger Sub will have no liabilities assumed by
Company and will not transfer to Company any assets subject to liabilities.
(iii) At least ninety percent (90%) of the fair market value of the
net assets and at least seventy percent (70%) of the fair market value of
the gross assets held by Merger Sub immediately prior to the Merger will be
held by the Surviving Corporation after the Merger. In addition, after the
Merger, at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the
gross assets held by Company immediately prior to the Merger will continue
to be held by the Surviving Corporation after the Merger. For the purpose
of this representation, the following assets of Company or of Merger Sub,
as the case may be, will be treated as property held by Company or Merger
Sub, as the case may be, immediately prior to the Merger but not by the
Surviving Corporation subsequent to the Merger: (i) assets disposed of by
Company or the Surviving Corporation (other than assets sold to unrelated
third parties for fair market value) subsequent to the Merger; (ii) assets
of Company or Merger Sub (other than assets transferred from Merger Sub to
Company in the Merger) that were, to Parent's Knowledge, disposed of prior
to the Merger and in contemplation thereof; (iii) assets used by Company or
Merger Sub to pay other expenses or liabilities incurred in connection with
the Merger; (iv) assets used to make payments pursuant to the exercise of
appraisal rights; and (v) assets used to make distributions, redemptions,
or other payments in respect of shares of Company Common Stock or stock of
Merger Sub or rights to acquire such stock (including payments treated as
such for tax purposes) that were, to Parent's Knowledge, made in
contemplation of the Merger or that are related thereto, or that were, to
Parent's Knowledge, made during the Pre-Merger Period.
(iv) Merger Sub is not an Investment Company.
(v) Except as specifically set forth in the Merger Agreement, Merger
Sub will pay its expenses, if any, incurred in connection with the
Transaction and has not agreed to assume, nor will it directly or
indirectly assume, any expense or other liability, whether fixed or
contingent, of any Company shareholder.
A-102
(vi) There is no intercorporate indebtedness existing between Merger
Sub and Company that was issued, acquired, or will be settled at a
discount.
(vii) Merger Sub has not taken any action or failed to take any action
that is reasonably likely to prevent or impede the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code and a
transaction that is not subject to Section 367(a)(1) of the Code.
The undersigned recognize that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Merger Agreement and documents related thereto, and (ii) your opinions will
be subject to certain limitations and qualifications including that they
may not be relied upon if any such representations are not accurate in all
material respects at all relevant times. If, prior to the Effective Time,
any of the representations set forth herein cease to be accurate in any
material respect, the undersigned agree to deliver to you immediately a
written notice to that effect. The undersigned recognize that your opinions
will not address any tax consequences of the Merger or any action taken in
connection therewith except as expressly set forth in such opinions.
Very truly yours,
PARENT
By:_____________________________________
Name:___________________________________
Title:__________________________________
MERGER SUB
By:_____________________________________
Name:___________________________________
Title:__________________________________
A-103
ANNEX 2
OPINION OF UBS SECURITIES LLC
B-1
[LETTERHEAD OF UBS SECURITIES LLC]
May 17, 2008
The Board of Directors
Jazz Technologies, Inc.
4321 Jamboree Road
Newport Beach, California 92660
Dear Members of the Board:
We understand that Jazz Technologies, Inc., a Delaware corporation
("Jazz"), is considering a transaction whereby Armstrong Acquisition Corp.
("Merger Sub"), a Delaware corporation and wholly owned subsidiary of Tower
Semiconductor Ltd. ("Tower"), an Israel company, will merge with and into Jazz
(the "Transaction"). Pursuant to the terms of an Agreement and Plan of Merger
and Reorganization, draft dated May 17, 2008 (the "Agreement"), among Tower,
Merger Sub and Jazz, each outstanding share of the common stock, par value
$0.0001 per share, of Jazz ("Jazz Common Stock") will be converted into the
right to receive 1.8 ordinary shares (the "Exchange Ratio"), par value NIS 1.00
per share, of Tower ("Tower Ordinary Shares"). The terms and conditions of the
Transaction are more fully set forth in the Agreement.
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of Jazz Common Stock of the Exchange Ratio provided for
in the Transaction.
UBS Securities LLC ("UBS") has acted as financial advisor to Jazz in
connection with the Transaction and will receive a fee for its services, a
portion of which is payable in connection with this opinion and a significant
portion of which is contingent upon consummation of the Transaction. In the
ordinary course of business, UBS and its affiliates may hold or trade, for their
own accounts and the accounts of their customers, securities of Jazz and Tower
and, accordingly, may at any time hold a long or short position in such
securities. The issuance of this opinion was approved by an authorized committee
of UBS.
Our opinion does not address the relative merits of the Transaction as
compared to other business strategies or transactions that might be available
with respect to Jazz or Jazz's underlying business decision to effect the
Transaction. Our opinion does not constitute a recommendation to any stockholder
of Jazz as to how such stockholder should vote or act with respect to the
Transaction. At your direction, we have not been asked to, nor do we, offer any
opinion as to the terms, other than the Exchange Ratio to the extent expressly
specified herein, of the Agreement or the form of the Transaction. In addition,
we express no opinion as to the fairness of the amount or nature of any
compensation to be received by any officers, directors or employees of any
parties to the Transaction, or any class of such persons, relative to the
Exchange Ratio. We express no opinion as to what the value of Tower Ordinary
Shares will be when issued pursuant to the Transaction or the prices at which
Tower Ordinary Shares or Jazz Common Stock will trade at any time. In rendering
this opinion, we have assumed, with your consent, that (i) the final executed
form of the Agreement will not differ in any material respect from the draft
that we have reviewed, (ii) Jazz and Tower will comply with all material terms
of the Agreement and (iii) the Transaction will be consummated in accordance
with the terms of the Agreement without any adverse waiver or amendment of any
material term or condition thereof. We have also assumed that all governmental,
regulatory or other consents and approvals necessary for the consummation of the
Transaction will be obtained without any material adverse effect on Jazz, Tower
or the Transaction.
B-2
The Board of Directors
Jazz Technologies, Inc.
May 17, 2008
Page 2
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and financial information relating to Jazz
and Tower; (ii) reviewed certain internal financial information and other data
relating to the business and financial prospects of Jazz that were provided to
us by the management of Jazz and not publicly available, including financial
forecasts and estimates prepared by the management of Jazz that you have
directed us to utilize for purposes of our analysis; (iii) reviewed certain
internal financial information and other data relating to the business and
financial prospects of Tower that were provided to us by the managements of Jazz
and Tower and not publicly available, including financial forecasts and
estimates for calendar years 2008 and 2009 prepared by the management of Tower
as adjusted by the management of Jazz, and financial forecasts and estimates for
calendar years 2010 through 2012 prepared by the management of Jazz, that you
have directed us to utilize for purposes of our analysis; (iv) reviewed certain
estimates of synergies prepared by the management of Tower that were approved
and provided to us by the management of Jazz and not publicly available that you
have directed us to utilize for purposes of our analysis; (v) discussed with the
management of Jazz its assessment as to the value of Jazz's unconsolidated
investment in Shanghai Hua Hong NEC Electronics Company Ltd (the "HHNEC
Investment") that you have directed us to utilize for purposes of our analysis;
(vi) conducted discussions with members of the senior managements of Jazz and
Tower concerning the businesses and financial prospects of Jazz and Tower,
including the liquidity needs of, and capital resources expected to be available
to, the combined company and the ability of the combined company to fund,
internally or through external financing sources, its operations following
consummation of the Transaction; (vii) reviewed publicly available financial and
stock market data with respect to certain other companies we believe to be
generally relevant; (viii) reviewed the publicly available financial terms of
certain other transactions in the semiconductor foundry industry; (ix) reviewed
current and historical market prices of Jazz Common Stock and Tower Ordinary
Shares; (x) reviewed the Agreement; and (xi) conducted such other financial
studies, analyses and investigations, and considered such other information, as
we deemed necessary or appropriate. At your request, we have contacted third
parties to solicit indications of interest in a possible transaction with Jazz
and held discussions with certain of these parties prior to the date hereof.
In connection with our review, with your consent, we have assumed and
relied upon, without independent verification, the accuracy and completeness in
all material respects of the information provided to or reviewed by us for the
purpose of this opinion. In addition, with your consent, we have not made any
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of Jazz or Tower, nor have we been furnished with any
such evaluation or appraisal. With respect to the financial forecasts,
estimates, synergies and assessment referred to above (including adjustments
prepared by the management of Jazz to the financial forecasts and estimates of
Tower for calendar years 2008 and 2009 prepared by the management of Tower), we
have assumed, at your direction, that they have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
managements of Jazz and Tower, as the case may be, as to the future financial
performance of Jazz and Tower, such synergies and the value of the HHNEC
Investment. In addition, we have assumed with your approval that the financial
forecasts and estimates, including synergies, referred to above will be achieved
at the times and in the amounts projected. We have relied, at your direction,
without independent verification, upon the assessment of the management of Jazz
as to the value of the HHNEC Investment. We also have relied, at your direction,
without independent verification, upon the assessments of the managements of
Jazz and Tower as to the liquidity needs of, and capital resources expected to
be available to, the combined company and the ability of the combined company to
fund, internally or through external financing sources, its operations following
consummation of the Transaction. We have assumed, with your consent, that the
Transaction will qualify for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended. Our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information available to us
as of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio provided for in the Transaction is fair, from a
financial point of view, to the holders of Jazz Common Stock.
This opinion is provided for the benefit of the Board of Directors in
connection with, and for the purpose of, its evaluation of the Transaction.
Very truly yours,
/s/ UBS Securities LLC
UBS SECURITIES LLC
B-3
ANNEX 3
JAZZ FINANCIAL STATEMENTS
JAZZ TECHNOLOGIES, INC.
INDEX
PAGE
----
CONSOLIDATED AUDITED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms F-2
Consolidated Balance Sheets at December 28, 2007 and December 31, 2006 F-4
Consolidated Statements of Operations for the years ended December 28, 2007 and
December 31, 2006 F-5
Consolidated Statements of Stockholders' Equity for the years ended December 28,
2007 and December 31, 2006 F-6
Consolidated Statements of Cash Flows for the years ended December 28, 2007 and
December 31, 2006 F-7
Notes to Consolidated Financial Statements F-8
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets at March 28, 2008 and December
28, 2007 F-33
Unaudited Condensed Consolidated Statements of Operations for the three months
ended March 28, 2008 and March 30, 2007 F-34
Unaudited Condensed Consolidated Statement of Stockholders' Equity for the three
months ended March 28, 2008 F-35
Unaudited Condensed Consolidated Statements of Cash Flows for the three months
ended March 28, 2008 and March 30, 2007 F-36
Notes to Unaudited Condensed Consolidated Financial Statements F-37
JAZZ SEMICONDUCTOR, INC. (PREDECESSOR) CONSOLIDATED AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-47
Consolidated Balance Sheets as of December 30, 2005 and December 29, 2006 F-48
Consolidated Statements of Operations for the years ended December 30, 2005 and
December 29, 2006 and period from December 30, 2006 to February 16, 2007 F-49
Consolidated Statements of Stockholders' Equity for the years ended December 30,
2005 and December 29, 2006 F-50
Consolidated Statements of Cash Flows for the years ended December 30, 2005 and
December 29, 2006 and period from December 30, 2006 to February 16, 2007 F-52
Notes to Consolidated Financial Statements F-53
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of Jazz Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Jazz
Technologies, Inc. as of December 28, 2007, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
ended December 28, 2007. These financial statements are the responsibility of
Jazz Technologies, Inc.'s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of Jazz Technologies, Inc.'s internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of Jazz Technologies, Inc.'s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jazz
Technologies, Inc. at December 28, 2007, and the consolidated results of its
operations and its cash flows for the year ended December 28, 2007, in
conformity with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Orange County, California
March 20, 2008
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Jazz Technologies, Inc.
We have audited the accompanying balance sheet of Jazz Technologies, Inc.
(formerly Acquicor Technology Inc.) (a development stage company) as of December
31, 2006 and the related statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of Jazz Technologies, Inc.'s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. Jazz Technologies, Inc.
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of Jazz Technologies, Inc.'s internal
control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jazz Technologies, Inc. as
of December 31, 2006 and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
On February 16, 2007, Jazz Technologies, Inc. consummated the acquisition
of Jazz Semiconductor, Inc.
/s/ BDO SEIDMAN, LLP
New York, New York
February 21, 2007
F-3
JAZZ TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PAR VALUE)
DECEMBER 28, 2007 DECEMBER 31, 2006
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,612 $ 633
Cash and cash equivalents held in trust and escrow accounts -- 334,465
Receivables, net of allowance for doubtful accounts of $793
at December 28, 2007 33,308 --
Inventories 12,190 --
Deferred tax asset 2,015 --
Prepaid expenses and other current assets 2,379 827
----------------- -----------------
Total current assets 60,504 335,925
Property, plant and equipment, net 127,488 --
Investments 19,300 --
Intangible assets, net 53,631 --
Other assets 4,975 8,180
----------------- -----------------
Total assets $ 265,898 $ 344,105
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,502 $ --
Short-term borrowings 8,000 --
Accrued compensation and benefits 5,886 --
Deferred revenues 5,347 --
Accrued interest 5,428 445
Deferred underwriting fees -- 3,450
Other current liabilities 13,815 8,687
----------------- -----------------
Total current liabilities 57,978 12,582
Convertible senior notes 133,200 166,750
Deferred tax liability 3,427 --
Accrued pension, retirement medical plan obligations and other
long-term liabilities 19,015 --
----------------- -----------------
Total liabilities 213,620 179,332
Common stock, subject to possible conversion--no shares issued and
outstanding at December 28, 2007; 5,750 shares issued and
outstanding at December 31, 2006 -- 33,511
Stockholders' equity:
Preferred stock, $0.0001 par value, authorized shares--1,000;
no shares issued or outstanding -- --
Common stock, $0.0001 par value, authorized shares--200,000
at December 28, 2007 and 100,000 at December 31, 2006;
issued and outstanding shares--19,031 at December 28, 2007
and 34,457 at December 31, 2006 2 3
Additional paid-in capital 79,882 127,971
Other comprehensive income 965 --
(Accumulated deficit) retained earnings (28,571) 3,288
----------------- -----------------
Total stockholders' equity 52,278 131,262
----------------- -----------------
Total liabilities and stockholders' equity $ 265,898 $ 344,105
----------------- -----------------
See accompanying notes.
F-4
JAZZ TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
-------------------------------------
DECEMBER 28, 2007 DECEMBER 31, 2006
----------------- -----------------
Net revenues $ 182,075 $ --
Cost of revenues 166,654 --
----------------- -----------------
Gross profit 15,421 --
Operating expenses:
Research and development 14,116 --
Selling, general and administrative 20,053 669
Amortization of intangible assets 1,198 --
Write off of in-process research and development 5,100 --
----------------- -----------------
Total operating expenses 40,467 669
Loss from operations 25,046 669
Interest and other (expense) income, net (6,770) 4,448
----------------- -----------------
Net (loss) income before income taxes (31,816) 3,779
Income tax expense 43 485
----------------- -----------------
Net (loss) income $ (31,859) $ 3,294
----------------- -----------------
Accretion of trust account relating to common stock subject to
possible conversion -- (649)
----------------- -----------------
Net income attributable to other common stockholders $ -- $ 2,645
----------------- -----------------
Net income per share subject to possible conversion--basic and
diluted $ -- $ 0.11
----------------- -----------------
Weighted average common shares outstanding subject to possible
conversion--basic and diluted -- 5,740
----------------- -----------------
Net (loss) income per share--basic and diluted $ (1.32) $ 0.12
----------------- -----------------
Weighted average common shares outstanding--basic and diluted 24,198 22,704
The amounts included in the year ended December 28, 2007 reflect the
acquisition of Jazz Semiconductor, Inc. on February 16, 2007 and include the
results of operations for Jazz Semiconductor, Inc. following the date of
acquisition.
See accompanying notes.
F-5
JAZZ TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK ADDITIONAL OTHER (ACCUMULATED TOTAL
----------------------- PAID-IN COMPREHENSIVE DEFICIT) RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL INCOME EARNINGS EQUITY
---------- ---------- ---------- ------------- ----------------- -------------
Balance at December 31, 2005 5,374 $ -- $ 24 $ -- $ (6) $ 18
Sale of 28,750,000 units and
representative's option, net of
underwriters' discount and offering
costs 28,750 3 159,617 -- -- 159,620
Proceeds from private
placement of 333,334 units 333 -- 2,000 -- -- 2,000
Net proceeds subject to possible
conversion of 5,749,999 shares -- -- (32,862) -- -- (32,862)
Accretion of trust account relating to
common stock subject to possible
conversion -- -- (649) -- -- (649)
Reimbursement of additional offering
expenses -- -- 225 -- -- 225
Additional offering expenses -- -- (384) -- -- (384)
Net income -- -- -- -- 3,294 3,294
---------- ---------- ---------- ------------- ----------------- -------------
Balance at December 31, 2006 34,457 $ 3 $ 127,971 $ -- $ 3,288 $ 131,262
Reversal of common stock subject to
possible conversion of 5,750 shares -- -- 33,511 -- -- 33,511
Conversion of common stock into cash in
connection with acquisition (5,668) (1) (33,158) -- -- (33,159)
Redemption of founders' common stock (1,874) -- (9) -- -- (9)
Repurchase of common stock (7,846) -- (25,631) -- -- (25,631)
Repurchase of warrants -- -- (19,313) -- -- (19,313)
Repurchase of units (708) -- (2,992) -- -- (2,992)
Repurchase of unit purchase options -- -- (2,360) -- -- (2,360)
Issuance of restricted stock 87 -- 389 -- -- 389
Issuance of performance stock awards 583 -- 992 -- -- 992
Stock compensation expense -- -- 497 -- -- 497
Offering expenses -- -- (15) -- -- (15)
Comprehensive (loss) income:
Change in plan assets and benefit
obligation -- -- -- 935 -- 935
Foreign currency translation
adjustment -- -- -- 30 -- 30
Net loss -- -- -- -- (31,859) (31,859)
Total comprehensive loss -- -- -- -- -- (30,894)
---------- ---------- ---------- ------------- ----------------- -------------
Balance at December 28, 2007 19,031 $ 2 $ 79,882 $ 965 $ (28,571) $ 52,278
---------- ---------- ---------- ------------- ----------------- -------------
See accompanying notes.
F-6
JAZZ TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
-------------------------------------
DECEMBER 28, 2007 DECEMBER 31, 2006
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (31,859) $ 3,294
Adjustments to reconcile net (loss) income for the period to net cash (used in) provided
by operating activities:
Depreciation 27,928 --
Amortization of deferred financing costs 1,542 --
Gain on disposal of equipment (30) --
Net gain on purchase of convertible senior notes (4,553) --
Amortization of intangible assets 6,879 --
Write-off of in-process research and development 5,100 --
Stock compensation expense 1,878 --
Changes in operating assets and liabilities, net of effects from acquisition of Jazz
Semiconductor, Inc.:
Receivables (7,493) --
Inventories 6,904 --
Prepaid expenses and other current assets 1,006 (827)
Restricted cash 3,154 --
Accounts payable (4,879) --
Accrued compensation and benefits 432 --
Deferred revenues (4,704) --
Pension and retirement medical benefits 1,581 --
Amounts due for purchase of convertible notes (2,052) --
Accrued interest on convertible notes 4,983 --
Other liabilities (9,915) 931
----------------- -----------------
Net cash (used in) provided by operating activities (4,098) 3,398
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Jazz Semiconductor, Inc. purchase price, net of cash acquired (227,050) --
Purchases of property and equipment (5,975) --
Net proceeds from sale of short-term investments 24,245 --
Release of funds from trust and escrow accounts 334,465 --
Cash and cash equivalents in trust and escrow account -- (334,465)
----------------- -----------------
Net cash provided by (used in) investing activities 125,685 (334,465)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of founder's common stock (9) --
Net proceeds from issuance of common stock -- 165,249
Net proceeds from issuance of convertible note -- 166,750
Repayment of note payable to stockholder -- (275)
Reimbursement of additional offering expenses -- 225
Conversion of common stock in connection with acquisition (33,159) --
Repurchase of common stock (1) (25,631) --
Repurchase of warrants (19,313) --
Repurchase of units (2,992) --
Repurchase of unit purchase options (2) (2,360) --
Payment for purchase of convertible senior notes (25,932) --
Net borrowing from line of credit 8,000 --
Payment of debt and acquisition-related liabilities (10,186) (325)
----------------- -----------------
Net cash (used in) provided by financing activities (111,582) 331,624
----------------- -----------------
Effect of foreign currency on cash (26) --
----------------- -----------------
Net increase in cash and cash equivalents 9,979 557
----------------- -----------------
Cash and cash equivalents at beginning of period 633 76
----------------- -----------------
Cash and cash equivalents at end of period 10,612 633
----------------- -----------------
Supplemental disclosure of interest and taxes paid and non-cash investing and financing
activities:
----------------- -----------------
Interest paid 13,006 5
----------------- -----------------
Taxes paid 411 2
----------------- -----------------
Accrued offering costs -- 182
----------------- -----------------
Accrued acquisition costs -- 1,798
----------------- -----------------
Accrued debt issuance costs -- 6,057
----------------- -----------------
Fair value of underwriter purchase option included in offering costs -- 4,975
----------------- -----------------
Deferred underwriting fees -- 3,450
----------------- -----------------
Accretion of trust fund relating to common stock subject to possible conversion -- 649
----------------- -----------------
- ---------------------------------------------------------------
(1) Includes repurchases from related parties for $4.2 million.
(2) Includes repurchases from related party for $0.5 million.
See accompanying notes.
F-7
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BUSINESS AND FORMATION
Unless specifically noted otherwise, as used throughout these notes to the
consolidated financial statements, "Jazz," "Company" refers to the business of
Jazz Technologies, Inc. and "Jazz Semiconductor" refers only to the business of
Jazz Semiconductor, Inc.
THE COMPANY
Jazz Technologies, Inc., formerly known as Acquicor Technology Inc. (the
"Company"), was incorporated in Delaware on August 12, 2005. The Company was
formed to serve as a vehicle for the acquisition of one or more domestic and/or
foreign operating businesses through a merger, capital stock exchange, stock
purchase, asset acquisition or other similar business combination.
The Company is based in Newport Beach, California and following the
acquisition of Jazz Semiconductor Inc., is now an independent semiconductor
foundry focused on specialty process technologies for the manufacture of analog
intensive mixed-signal semiconductor devices. The Company's specialty process
technologies include advanced analog, radio frequency, high voltage, bipolar and
silicon germanium bipolar complementary metal oxide ("SiGe") semiconductor
processes, for the manufacture of analog and mixed-signal semiconductors. Its
customer's analog and mixed-signal semiconductor devices are used in cellular
phones, wireless local area networking devices, digital TVs, set-top boxes,
gaming devices, switches, routers and broadband modems.
In March 2006, the Company consummated a private placement ("Private
Placement") and an initial public offering ("Offering"), and placed
approximately $164.3 million in proceeds from those offerings in a trust account
("Trust Account") until the earlier of (i) the consummation of the Company's
initial merger, capital stock exchange, stock purchase, asset acquisition or
other similar business combination or (ii) the distribution of the Trust Account
upon liquidation; provided, however, that the trustee was authorized to release
to the Company amounts required to pay income taxes relating to the property in
the Trust Account and up to $750,000 of interest earned on the Trust Account
(net of taxes payable on such interest) to cover business, legal and accounting
due diligence on prospective acquisitions and continuing general and
administrative expenses. As of December 31, 2006, none of the interest
previously earned on the trust account had been released to pay income taxes
relating to the property in the Trust Account and $750,000 of interest had been
released to cover operating expenses. As of December 31, 2006, there was
approximately $488,875 of interest received and receivable remaining in the
Trust Account that was not available to be released.
The Company, after signing a definitive agreement for the acquisition of
Jazz Semiconductor, submitted that merger for stockholder approval on February
15, 2007. In the event that 20% or more of the outstanding stock (excluding, for
this purpose, those shares of common stock issued prior to the Offering,
including up to 333,334 shares included in the units purchased by the Company's
existing stockholders in the Private Placement) had voted against the merger and
exercised their conversion rights described below, the merger with Jazz
Semiconductor would not have been consummated. Accordingly, public stockholders
of the Company holding approximately 19.99% of the aggregate number of shares
owned by all public stockholders could have sought conversion of their shares in
connection with the merger with Jazz Semiconductor. Such public stockholders
would have been entitled to receive their per share interest in the Trust
Account computed without regard to the shares held by the Company's existing
stockholders prior to the consummation of the Offering. In this respect,
$33,510,655 (including $649,060 of accretion due to interest earned on the Trust
Account, net of taxes payable on the income of the funds in the Trust Account)
was classified as common stock subject to possible conversion at December 31,
2006.
ACQUISITION OF JAZZ SEMICONDUCTOR INC.
On February 16, 2007, the Company completed the acquisition of all of the
outstanding capital stock of Jazz Semiconductor, for $262.4 million in cash, and
acquired, as part of the assets of Jazz Semiconductor, $26.1 million in cash.
The accompanying consolidated financial statements include the results of
operations for Jazz Semiconductor following the date of acquisition. The
acquisition was accounted for under the purchase method of accounting in
accordance with U.S. generally accepted accounting principles for accounting and
financial reporting purposes. Under this method, Jazz Semiconductor was treated
as the "acquired" company. In connection with the acquisition, the Company
adopted Jazz Semiconductor's fiscal year. In July 2007, the Company entered into
an agreement with the former Jazz Semiconductor stockholders that reduced the
purchase price by $9.3 million to $253.1 million. The reduction has been
reflected in the accompanying consolidated financial statements. Refer to Note
3.
F-8
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Prior to March 12, 2002, Jazz Semiconductor's business was Conexant's
Newport Beach, California semiconductor fabrication operations. Jazz
Semiconductor's business was formed upon Conexant's contribution of those
fabrication operations to its wholly-owned subsidiary, Newport Fab, LLC and
Conexant's contribution of Newport Fab, LLC to Jazz Semiconductor, together with
a cash investment in Jazz Semiconductor by affiliates of The Carlyle Group.
Conexant and affiliates of The Carlyle Group continued to be the largest
stockholders of Jazz Semiconductor until its acquisition in February 2007.
Substantially all of Jazz Semiconductor's business operation was conducted by
its wholly-owned subsidiary, Newport Fab, LLC. Since its formation in early
2002, Jazz Semiconductor has transitioned its business from a captive
manufacturing facility within Conexant to an independent semiconductor foundry.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Inter-company transactions and
balances have been eliminated in consolidation. Certain reclassifications have
been made to conform prior year data with the current presentation.
FISCAL YEAR
Effective with the fiscal year beginning January 1, 2007, the Company
adopted a 52- or 53- week fiscal year. Each of the first three quarters of a
fiscal year ends on the last Friday in each of March, June and September and the
fourth quarter of a fiscal year ends on the Friday prior to December 31. As a
result, each fiscal quarter consists of 13 weeks during a 52-week fiscal year.
During a 53-week fiscal year, the first three quarters consist of 13 weeks and
the fourth quarter consists of 14 weeks. The Company previously maintained a
calendar fiscal year for the year ended December 31, 2006.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Among the significant estimates affecting the financial
statements are those relating to sales return allowances, the allowance for
doubtful accounts, inventories and related reserves, valuation of acquired
assets and liabilities, determination of asset lives for depreciation and
amortization, asset impairment assumptions, income taxes, stock compensation,
post-retirement medical plan and pension plan. On an ongoing basis, management
reviews its estimates based upon currently available information. Actual results
could differ materially from those estimates.
REVENUE RECOGNITION
The Company's net revenues are generated principally by sales of
semiconductor wafers. The Company derives the remaining balance of its net
revenues from the resale of photomasks and other engineering services. The
majority of the Company's sales occur through the efforts of its direct sales
force.
In accordance with SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements" ("SAB No. 101"), and SAB No. 104, "Revenue
Recognition" ("SAB No. 104"), the Company recognizes product revenues when the
following fundamental criteria are met: (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred or services have been rendered,
(iii) the price to the customer is fixed or determinable and (iv) collection of
the resulting receivable is reasonably assured. These criteria are usually met
at the time of product shipment. However, the Company does not recognize
revenues until all customer acceptance requirements have been met, when
applicable. Determination of the criteria set forth in items three and four
above is based on management's judgment regarding the fixed nature of the fee
charged for services rendered and products delivered and the collectibility of
those fees. Should changes in conditions cause management to determine that
these criteria are not met for certain future transactions, revenues recognized
for any reporting period could be adversely affected.
F-9
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenues for engineering services are recognized ratably over the contract
term or as services are performed. Revenues from contracts with multiple
elements are recognized as each element is earned based on the relative fair
value of each element and when there are no undelivered elements that are
essential to the functionality of the delivered elements and when the amount is
not contingent upon delivery of the undelivered elements. Advances received from
customers towards future engineering services, product purchases and in some
cases capacity reservation are deferred until products are shipped to the
customer, services are rendered or the capacity reservation period ends.
The Company provides for sales returns and allowances relating to
specified yield, quality commitments as a reduction of revenues at the time of
shipment based on historical experience and specific identification of events
necessitating an allowance.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less from the date of purchase to be cash
equivalents. The carrying amounts of cash and cash equivalents approximate their
fair values. The Company maintains cash and cash equivalents balances at certain
financial institutions in excess of amounts insured by federal agencies.
Management does not believe that as a result of this concentration it is subject
to any unusual financial risk beyond the normal risk associated with commercial
banking relationships.
ACCOUNTS RECEIVABLE
The Company's accounts receivable are reported net of an allowance for
doubtful accounts. The Company estimates the collectibility of its accounts
receivable at the end of each reporting period. The Company analyzes the aging
of accounts receivable and bad debt history, payment history, customer
concentration, customer credit worthiness and current economic trends when
evaluating the adequacy of the allowance for doubtful accounts. The Company
maintains an allowance for doubtful accounts, which is created by charges to
selling, general and administrative expenses in the consolidated statements of
operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance
with accounting principles generally accepted in the United States. For
financial instruments, including cash and cash equivalents, short-term
investments, accounts receivable, accounts payable and accrued expenses, the
carrying amounts approximate fair value due to their short maturities.
FOREIGN CURRENCY TRANSLATION
The Company uses the U.S. dollar as its functional currency. All of the
Company's sales and a substantial majority of its costs are transacted in U.S.
dollars. The Company purchases wafers and has test and assembly activities in
Asia and supports sales and marketing activities in various countries outside of
the United States. Most of these costs are paid for with U.S. dollars. Foreign
currency transaction gains and losses, resulting from remeasuring the local
currency to the U.S. dollar, are included in determining net (loss) income for
the period. The foreign exchange gains and losses were not material for the
periods presented.
INVENTORIES
Inventories consist of raw materials, work in process and finished goods
and include the costs for freight-in, materials, labor and manufacturing
overhead. Inventories are stated at the lower of cost, calculated on a first-in,
first-out basis, or market value. The Company establishes inventory reserves for
estimated obsolete or unmarketable inventory equal to the difference between the
cost of inventory and the estimated realizable value based upon assumptions
about future demand and market conditions. Inventories acquired as a result of
the acquisition of Jazz Semiconductor were recorded at fair value. Shipping and
handling costs are classified as a component of cost of revenues in the
consolidated statements of operations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Assets acquired as a
result of the acquisition of Jazz Semiconductor were recorded at fair value.
Prior to the acquisition of Jazz Semiconductor, the Company had no property,
plant or equipment. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets, which range from 3 to 12 years.
Leasehold improvements are amortized over the life of the asset or initial term
of the lease, whichever is shorter. Significant renewals and betterments are
capitalized and any assets being replaced are written off. Maintenance and
repairs are charged to expense as incurred. Upon the sale or retirement of
assets, the cost and related accumulated depreciation are removed from the
consolidated balance sheet and the resulting gain or loss is reflected in the
consolidated statement of operations.
F-10
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Construction in progress primarily consists of machinery being qualified
for service at the Company's foundry in Newport Beach, California.
INVESTMENT
In connection with the acquisition of Jazz Semiconductor, the Company
acquired an investment in HHNEC. As of December 28, 2007, the investment
represented a minority interest of approximately 10% in HHNEC. In accordance
with the purchase method of accounting, this investment was recorded at fair
value on the date of acquisition.
IMPAIRMENT OF ASSETS
The Company periodically reviews long-lived assets and intangible assets
for impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. If an asset is considered to be
impaired, the impairment loss is recognized immediately and is considered to be
the amount by which the carrying amount of the asset exceeds its fair value. The
Company does not have any intangible assets with indefinite useful lives.
The Company conducted an impairment review as of December 28, 2007 due to
the recent decline in the stock price. The Company used the income approach
methodology of valuation that includes undiscounted cash flows to determine the
fair value of its intangible assets. Significant management judgment is required
in the forecasts of future operating results used for this methodology. These
estimates are consistent with the plans and forecasts that the Company uses to
conduct its business. As a result of this analysis, no assets were considered to
be impaired and the Company had not recognized any impairment loss for any
long-lived or intangible asset as of December 28, 2007.
ACCOUNTING FOR INCOME TAXES
The Company utilizes the liability method of accounting for income taxes
in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
Under the liability method, deferred taxes are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. The likelihood of a material
change in the Company's expected realization of these assets depends on its
ability to generate sufficient future taxable income. The Company's ability to
generate enough taxable income to utilize its deferred tax assets depends on
many factors, among which is the Company's ability to deduct tax loss
carry-forwards against future taxable income, the effectiveness of the Company's
tax planning strategies and reversing deferred tax liabilities.
A substantial portion of the valuation allowance relates to deferred tax
assets recorded in connection with the acquisition of Jazz Semiconductor
("acquisition deferred tax assets"). SFAS No. 109 requires the benefit from the
reduction of the valuation allowance related to the acquisition deferred tax
assets to first be applied to reduce goodwill and then noncurrent intangible
assets to zero before the Company can apply any remaining benefit to reduce
income tax expense.
Included in the deferred tax assets are approximately $26.0 million of
pre-acquisition net deferred tax assets related to the acquisition of Jazz
Semiconductor. To the extent these assets are recognized, the tax benefit will
be applied first to reduce to zero any noncurrent intangible assets related to
the acquisition, and the excess, if any, as a reduction to income tax expense.
The future utilization of the Company's net operating loss carry forwards
to offset future taxable income may be subject to an annual limitation as a
result of ownership changes that may have occurred previously or that could
occur in the future. The Company has had one "change in ownership" event that
limits the utilization of net operating loss carry forwards. The "change in
ownership" event occurred in February 2007, upon the acquisition of Jazz
Semiconductor. As a result of this "change of ownership," the annual net
operating loss utilization will be limited to $6.8 million.
F-11
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant judgment is required in determining the Company's provision
for income taxes. In the ordinary course of business, there are many
transactions for which the ultimate tax outcome is uncertain. Despite the
Company's belief that the tax return positions are supportable, there are
certain positions that may not be sustained upon review by tax authorities.
While the Company believes that adequate accruals have been made for such
positions, the final resolution of those matters may be materially different
than the amounts provided for in the Company's historical income tax provisions
and accruals.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement 109" ("FIN No.
48"). FIN No. 48 establishes a single model to address accounting for uncertain
tax positions. FIN No. 48 clarifies the accounting for income taxes by
prescribing a minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN No. 48 also provides
guidance on de-recognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The Company adopted
the provisions of FIN No. 48 on January 1, 2007. Upon adoption, the Company
recognized no adjustment in the amount of unrecognized tax benefits and as such
on the date of adoption, the Company had no unrecognized tax benefits. The
Company's policy is to recognize interest and penalties that would be assessed
in relation to the settlement value of unrecognized tax benefits as a component
of income tax expense.
PENSION PLANS
Prior to the acquisition, Jazz Semiconductor adopted SFAS No. 158,
"Employer's Accounting for Defined Benefit Pension and Other Postretirement
Plans (an amendment of FASB (Financial Accounting Standards Board) Statements
No. 87, 88, 106, and 132R)" ("SFAS No. 158"), for the 2006 fiscal year relating
to its Retirement Plan for Hourly Employees and Postretirement Health and Life
Benefits Plan. With the adoption of SFAS No. 158 in the prior fiscal year, Jazz
Semiconductor was required to recognize all previously unrecognized obligations.
These amounts were presented on Jazz Semiconductor's balance sheet as
accumulated other comprehensive income (AOCI) under stockholders' equity.
Following the acquisition on February 16, 2007 and the application of SFAS No.
141, "Business Combinations," these liabilities are stated at their fair values.
STOCK BASED COMPENSATION
Effective January 1, 2006, the Company adopted SFAS No. 123 (revised
2004),"Share-Based Payment" ("SFAS No. 123R"), which requires all share-based
payments to employees, including grants of employee stock options, and
restricted stock awards, to be recognized in the financial statements based upon
their respective grant date fair values and does not allow the previously
permitted pro forma disclosure-only method as an alternative to financial
statement recognition. SFAS No. 123R supersedes Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and
related interpretations and amends SFAS No. 95, "Statement of Cash Flows." SFAS
No. 123R also requires the benefits of tax deductions in excess of recognized
compensation cost be reported as a financing cash flow, rather than as an
operating cash flow as required under previous literature. In March 2005 the SEC
issued SAB No. 107, "Share-Based Payment" ("SAB No. 107"), which provides
guidance regarding the interaction of SFAS No. 123R and certain SEC rules and
regulations. The Company has applied the provisions of SAB No. 107 in its
adoption of SFAS No. 123R. There was no impact to the Company's financial
statements on the date of adoption of SFAS No. 123R.
SFAS No. 123R requires companies to estimate the fair value of stock
options on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense ratably over the requisite service periods. The Company has estimated
the fair value of stock options as of the date of grant using the Black-Scholes
option pricing model, which was developed for use in estimating the value of
traded options that have no vesting restrictions and that are freely
transferable. The Black-Scholes model considers, among other factors, the
expected life of the award and the expected volatility of the Company's stock
price. Although the Black-Scholes model meets the requirements of SFAS No. 123R
and SAB No. 107, the fair values generated by the model may not be indicative of
the actual fair values of the Company's equity awards, as it does not consider
other factors important to those awards to employees, such as continued
employment, periodic vesting requirements, and limited transferability. The
Company estimates stock price volatility based on historical volatility of its
own stock price and its peers. The Company recognizes compensation expense using
the straight-line amortization method for stock-based compensation awards with
graded vesting.
F-12
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The key assumptions used in the Black-Scholes model in determining the
fair value of options granted during the year ended December 28, 2007 are as
follows:
Expected life in years 6 years
Expected price volatility 30.80 - 53.60%
Risk-free interest rate 3.70 - 5.15%
Dividend yield 0.00%
NET (LOSS) INCOME PER SHARE
Net (loss) income per share (basic) is calculated by dividing net (loss)
income by the weighted average number of common shares outstanding during the
period. Net (loss) income per share (diluted) is calculated by adjusting the
number of shares of common stock outstanding using the treasury stock method.
Under the treasury stock method, an increase in the fair market value of the
Company's common stock results in a greater dilutive effect from outstanding
warrants, options, restricted stock awards and convertible securities (common
stock equivalents). Since the Company reported a net loss for the year ended
December 28, 2007, all common stock equivalents would be anti-dilutive and the
basic and diluted weighted average shares outstanding are the same. As the
effect of all common stock equivalents were anti-dilutive for the year ended
December 31, 2006, the basic and diluted weighted average shares outstanding are
the same.
CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash and cash equivalents
and trade accounts receivable. The Company performs ongoing credit evaluations
of its customers and adjusts credit limits based upon payment history, age of
the balance and the customer's current credit worthiness, as determined by a
review of the customer's current credit information. The Company monitors
collections and payments from its customers and maintains an allowance for
doubtful accounts based upon historical experience and any specific customer
collection issues that have been identified. A considerable amount of judgment
is required in assessing the ultimate realization of these receivables. Customer
receivables are generally unsecured.
Accounts receivable from significant customers representing 10% or more of
the net accounts receivable balance as of December 28, 2007 consists of the
following customers:
DECEMBER 28, 2007
Skyworks 15.1%
Conexant 21.9%
R F Micro Devices 26.9%
Net revenues from significant customers representing 10% or more of net
revenues for the year ended December 28, 2007 is provided by customers as
follows:
YEAR ENDED
DECEMBER 28, 2007
-----------------
Skyworks 20.1%
Conexant 15.0%
Toshiba 12.7%
R F Micro Devices 14.2%
As a result of the Company's concentration of its customer base, loss or
cancellation of business from, or significant changes in scheduled deliveries of
product sold to these customers or a change in their financial position could
materially and adversely affect the Company's consolidated financial position,
results of operations and cash flows.
The Company operates a single manufacturing facility located in Newport
Beach, California. A major interruption in the manufacturing operations at this
facility would have a material adverse affect on the consolidated financial
position and results of operations of the Company.
F-13
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's manufacturing processes use specialized materials, including
semiconductor wafers, chemicals, gases and photomasks. These raw materials are
generally available from several suppliers. However, from time to time, the
Company prefers to select one vendor to provide it with a particular type of
material in order to obtain preferred pricing. In those cases, the Company
generally seeks to identify, and in some cases qualify, alternative sources of
supply.
As of December 28, 2007, approximately 53.2% of the Company's
manufacturing related employees are covered by a collective bargaining agreement
negotiated with one union. The Company's current agreement expires in May 2008.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities," ("SFAS No. 159") which permits
entities to choose to measure at fair value eligible financial instruments and
certain other items that are not currently required to be measured at fair
value. The standard requires that unrealized gains and losses on items for which
the fair value option has been elected be reported in earnings at each
subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. This standard is not expected to have a material impact
on the Company's future consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R)" ("SFAS No. 158"). SFAS No. 158 requires
company plan sponsors to display the net over- or under-funded position of a
defined benefit postretirement plan as an asset or liability, with any
unrecognized prior service costs, transition obligations or actuarial
gains/losses reported as a component of other comprehensive income in
shareholders' equity. The Company adopted the recognition provisions of SFAS No.
158 for the year ended December 28, 2007. The adoption of SFAS No. 158 did not
have a material effect on the Company's financial position or results of
operations.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 establishes a framework for measuring fair value
in generally accepted accounting principles clarifies the definition of fair
value and expands disclosures about fair value measurements. SFAS No. 157 does
not require any new fair value measurements. However, the application of SFAS
No. 157 may change current practice for some entities. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The Company is currently
evaluating the impact, if any, that SFAS 157 may have on its future consolidated
financial statements.
NOTE 3: ACQUISITION
On February 16, 2007, pursuant to the terms of a merger agreement signed
on September 26, 2006, the Company acquired all of Jazz Semiconductor's
outstanding capital stock for approximately $262.4 million, funded with existing
cash resources as well as proceeds from the 8% Convertible Senior Notes due 2011
(the "Convertible Senior Notes") that were issued in the fourth quarter of 2006.
On July 1, 2007, a settlement agreement was reached with former Jazz
Semiconductor's stockholders that amended the merger agreement, released funds
held in escrow and effectively reduced the purchase price by $9.3 million to
$253.1 million. The purchase price reduction of $9.3 million includes a $9.0
million release of escrow funds to the Company and an additional reimbursement
of $0.3 million for expenses incurred by Jazz Semiconductor and the Company
relating to the merger. This reduction has been reflected in the accompanying
consolidated financial statements.
For accounting purposes, the revised purchase price for the Jazz
Semiconductor acquisition was $253.1 million and reconciles to all payments made
as follows (in thousands):
Acquisition consideration $ 251,000
Estimated working capital adjustment 4,500
-----------
Total acquisition consideration 255,500
Jazz Semiconductor terminated IPO and
acquisition transaction costs (6,504)
Company transaction costs 4,134
-----------
Total purchase price $ 253,130
-----------
F-14
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Jazz Semiconductor's transaction costs primarily consist of fees for
financial advisors, attorneys, accountants and other advisors incurred in
connection with the acquisition and Jazz Semiconductor's terminated initial
public offering. The Company's transaction costs primarily consist of fees for
financial advisors, attorneys, accountants and other advisors directly related
to the acquisition of Jazz Semiconductor. Upon consummation of the merger, the
Company also paid off the deferred underwriting fees of $3.5 million out of the
proceeds of the public offering held in the Trust Account.
Payments made by the Company included a $4.5 million working capital
payment per the merger agreement and a deduction for reimbursement of $6.5
million of transaction costs incurred by Jazz Semiconductor in connection with
the acquisition and its terminated public offering. There was no change to the
purchase price resulting from the calculation of the closing working capital
amount, as defined in the merger agreement, which was calculated based on the
closing balance sheet as of February 16, 2007. However, as discussed above,
there was a $9.3 million reduction to the purchase price as a result of a
settlement agreement reached in July 2007 with the former Jazz Semiconductor
stockholders.
ADJUSTED PURCHASE PRICE ALLOCATION
The total adjusted purchase price of $253.1 million, including the
Company's transaction costs of approximately $4.1 million, and net of the
reduction of $9.3 million in purchase price, has been allocated to tangible and
intangible assets acquired and liabilities assumed, based on their fair market
values as of February 16, 2007, as follows (in thousands):
FEBRUARY 16, 2007
-----------------
Fair value of the net tangible assets
acquired and liabilities assumed:
Cash and cash equivalents $ 26,080
Short-term investments 24,245
Restricted cash 3,154
Receivables 25,815
Inventories 19,094
Deferred tax asset 4,637
Other current assets 2,520
Property, plant and equipment 148,061
Investments 19,300
Other assets 522
Accounts payable (23,087)
Accrued compensation, benefits and other (5,454)
Deferred tax liability (6,203)
Deferred revenues (10,051)
Other current liabilities (23,619)
Accrued pension, retirement medical plan
obligations and other long-term liabilities (17,493)
-----------------
Total net tangible assets acquired and
liabilities assumed $ 187,521
Fair value of identifiable intangible
assets acquired:
Existing technology 1,078
Patents and other core technology rights 11,185
In-process research and development 5,100
Customer relationships 4,758
Customer backlog 2,630
Trade name 4,683
Facilities lease 36,175
-----------------
Total identifiable intangible assets acquired 65,609
-----------------
Total purchase price $ 253,130
-----------------
F-15
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company engaged a third party appraiser to assist it in performing a
valuation of all the assets and liabilities in accordance with SFAS No. 141,
"Business Combinations" ("SFAS No. 141"). The fair values set forth above are
based on final valuation of Jazz Semiconductor's tangible and intangible assets
which did not differ materially from the preliminary valuation estimates and, as
a result, did not materially affect the final allocation of the purchase price
reflected above.
INVENTORIES
In connection with the acquisition of Jazz Semiconductor, the Company
acquired inventory of $19.1 million recorded at fair value on the date of
acquisition. Prior to the acquisition of Jazz Semiconductor, the Company had no
inventory. Inventories consist of the following at December 28, 2007:
DECEMBER 28, 2007
-----------------
Raw material $ 473
Work in process 10,866
Finished goods 851
-----------------
Total inventories $ 12,190
-----------------
INVESTMENTS
In connection with the acquisition of Jazz Semiconductor, the Company
acquired an equity investment in Shanghai Hua Hong NEC Electronics Company, Ltd.
("HHNEC") recorded at a fair value of $19.3 million on the date of acquisition.
Under the merger agreement relating to the acquisition of Jazz Semiconductor,
the Company is obligated to pay additional amounts to former stockholders of
Jazz Semiconductor if the Company realizes proceeds in excess of $10 million
from its investment in HHNEC during the three-year period following the
completion of the acquisition of Jazz Semiconductor. In that event, the Company
will pay to Jazz Semiconductor's former stockholders an amount equal to 50% of
the amount (if any) of the proceeds received that exceed $10 million.
PROPERTY, PLANT AND EQUIPMENT
In connection with the acquisition of Jazz Semiconductor, the Company
acquired property, plant and equipment of $148.1 million recorded at fair value
on the date of acquisition. Prior to the acquisition of Jazz Semiconductor, the
Company had no property, plant and equipment. Property, plant and equipment
based on the valuations as discussed above, consist of the following at December
28, 2007:
USEFUL LIFE DECEMBER 28, 2007
----------- -----------------
(IN YEARS) (IN THOUSANDS)
Building improvements 7-12 $ 42,916
Machinery and equipment 4-6 106,338
Furniture and equipment 3-5 1,829
Computer software 3 2,124
Construction in progress - 2,206
-----------------
155,413
Accumulated depreciation 27,925
-----------------
Total property, plant and
equipment, net $ 127,488
-----------------
F-16
JAZZ TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INTANGIBLE ASSETS
In connection with the acquisition of Jazz Semiconductor, the Company
acquired intangible assets of $65.6 million recorded at fair value. Of that
amount, $5.1 million assigned to in-process research and development was written
off during the year, because, in management's opinion, technological feasibility
had not been established and had no alternative future uses. The write-off is
included under research and development within operating expenses in the
statement of operations. The balance of $60.5 million acquired intangibles is
subject to periodic amortization over the weighted-average estimated useful
life. Prior to the acquisition of Jazz Semiconductor, the Company had no
intangible assets. Intangible assets consist of the following at December 28,
2007:
WEIGHTED ACCUMULATED
AVERAGE LIFE COST AMORTIZATION NET
------------ ------------ -------------- ----------
(YEARS) (IN THOUSANDS)
