Disposed - Dismissed
Contract - Security
Integrated Device Technology, Inc.
Gregory L. Waters
Gordon W. Parnell
Robert A. Rango
Selena Loh Lacroix
Superior Court of California
Smith, Evan Jason
Evan Jason Smith
Superior Court of CA, County of Santa Clara
Order Granting Plaintiff's Request for Dismissal of Putative Class Action: Comment: Order Granting Plaintiff's Request for Dismissal of Putative Class Action - signed/TEK
Evan J. Smith Declaration: Comment: Declaration of Evan J. Smith in Support of Plaintiff's Request for Dismissal of Putative Class Action
Request for Voluntary Dismissal of Putative Class Action: Comment: Request for Voluntary Dismissal of Putative Class Action
Civil Lawsuit Notice: Comment: 1st CMC set for 3/8/19 at 10am in D5; assigned to Hon. Thomas E. Kuhnle
Summons - Final Signed.pdf:
CA - Civil cover sheet - Final Signed.pdf:
Complaint (Unlimited) (Fee Applies):
Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline: Comment: Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline signed/TEK
Notices and Acknowledgment of Receipt: Comment: Notice and Acknowledgement of Receipt of Service
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DocketDescription: Declaration; Filed By: Jay Phalen,; Comment: Declaration of Evan J. Smith in Support of Plaintiff's Request for Dismissal of Putative Class ActionRead MoreRead Less
DocketDescription: Request; Filed By: Jay Phalen,; Comment: Request for Voluntary Dismissal of Putative Class ActionRead MoreRead Less
DocketDescription: Order: Deeming Case Complex; Comment: Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline signed/TEKRead MoreRead Less
DocketDescription: Civil Lawsuit Notice; Comment: 1st CMC set for 3/8/19 at 10am in D5; assigned to Hon. Thomas E. KuhnleRead MoreRead Less
DocketDescription: Notice; Filed By: Jay Phalen,; Comment: Notice and Acknowledgement of Receipt of ServiceRead MoreRead Less
DocketDescription: Summons: Issued/Filed; Filed By: Jay Phalen,Read MoreRead Less
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DocketDescription: Complaint (Unlimited) (Fee Applies); Filed By: Jay Phalen,Read MoreRead Less
11/20/2018 2:55 PM
BRODSKY & SMITH, LLC Clerk of Court
- : Superior Court of CA, Evan J. Smith, Esquire RyanJP. Cardona,ququire County of Santa Clara 9595 Wilshire Boulevard, Suite 900 18CV338946 Beverly Hills, CA 90212 Reviewed By: Y Pulido Phone: (877) 534-2590 Facsimile: (610) 667-9029 esmith@ brodsky-smith.com rcardona@ brodskysmith.com
Attorneys for Plaintiff
JAY PHALEN, on behalf of himself and CASE NO.: 18CV338946 all others similarly situated,
Plaintiffs, DEPT.: VS. INTEGRATED DEVICE CLASS ACTION COMPLAINT FOR:
TECHNOLOGY, INC.,, GREGORY L.
WATERS, ROBERT A. RANGO, KEN
KANNAPPAN, UMESH PADVAL, (1) BREACH OF FIDUCIARY DUTY GORDON W. PARNELL, NORM TAFFE,
SELENA LOH LACROIX,
Plaintiff, Jay Phalen (“Plaintiff”), by his attorneys, on behalf of himself and those similarly situated, files this action against the defendants, and alleges upon information and belief, except for those allegations that pertain to him, which are alleged upon personal knowledge, as follows:
1. Plaintiff brings this stockholder class action on behalf of himself and all other public stockholders of Integrated Device Technology, Inc. (“IDTI” or the “Company”), against IDTI and the Company’s Board of Directors (the “Board” or the “Individual Defendants) to sell the Company to Renesas Electronics Corporation (“Renesas” or the “Parent”) as a result of an unfair process for an unfair price, and to enjoin the stockholder vote on a proposed cash transaction valued at approximately $6.7 Billion (the “Proposed Transaction™).
2. The terms of the Proposed Transaction were memorialized in a September 11, 2018, filing with the Securities and Exchange Commission (“SEC”) on Form 8-K attaching the definitive Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the Merger Agreement, IDTI will become an indirect wholly-owned subsidiary of Renesas, and IDTI stockholders will receive $49.00 in cash for each share of IDTI common stock they own.
3. Thereafter, on November 13, 2018, IDTI filed a Preliminary Proxy Statement on Schedule PREMI14A (the “Preliminary Proxy”) with the SEC in support of the Proposed Transaction.
4, The Proposed Transaction is unfair and undervalued for a number of reasons. Significantly, the Preliminary Proxy describes an insufficient process in which the Board rushed through an inadequate “sales process” without conducting a proper market check in favor of rushing through the transaction with Renesas.
. Moreover, as the Preliminary Proxy makes clear, no committee of disinterested directors was created to run this rushed sales process.
0. In approving the Proposed Transaction, however, the Individual Defendants have breached their fiduciary duties of loyalty, good faith, due care and disclosure by, inter alia, (i) agreeing to sell IDTI without first taking steps to ensure that Plaintiff and Class members (defined below) would obtain adequate, fair and maximum consideration under the circumstances; and (ii) engineering the Proposed Transaction to benefit themselves and/or Renesas without regard for IDTI public stockholders. A ccordingly, this action seeks to enjoin the Proposed Transaction and compel the Individual D efendants to properly exercise their fiduciary duties to IDTI stockholders.
7. Next, it appears as though the Board has entered into the Proposed Transaction to procure for themselves and senior management of the Company significant and immediate benefits
with no thought to the Company’s public stockholders. For instance, pursuant to the terms of the Merger Agreement, upon the consummation of the Proposed Transaction, Company Board Members and executive officers will be able to exchange all Company equity awards for the merger consideration. Moreover, certain Directors and other insiders will also be the recipients of lucrative change-in-control agreements, triggered upon the termination of their employment as a consequence of the consummation of the Proposed Transaction.
8. In further violation of their fiduciary duties, Defendants caused to be filed the materially deficient Preliminary Proxy on November 13, 2018 with SEC in an effort to solicit stockholders to vote their IDTT shares in favor of the Proposed Transaction. The Preliminary Proxy is materially deficient and deprives IDTT stockholders of the information they need to make an intelligent, informed and rational decision of whether to vote their shares in favor of the Proposed Transaction. As detailed below, the Preliminary Proxy omits and/or misrepresents material information concerning, among other things: (a) the sales process and in particular certain conflicts of interest for management; (b) the financial projections for IDTI, provided by IDTI to the Company’s financial advisor J.P. Morgan Securities, LLC (“J.P. Morgan™) for use in its financial analyses; and (c) the data and inputs underlying the financial valuation analyses that purport to support the fairness opinions provided by the Company’s financial advisor, J.P. Morgan.
9. Absent judicial intervention, the Proposed Transaction will be consummated, resulting in irreparable injury to Plaintiff and the Class. This action seeks to enjoin the Proposed Transaction or, in the event the Proposed Transaction is consummated, to recover damages resulting from violation of the federal securities laws by Defendants.
10. Plaintiff is a citizen of California and, at all times relevant hereto, has been an IDTI stockholder at all times.
11. Defendant IDTI designs, develops, manufactures, and markets a range of semiconductor solutions for the communications, computing, consumer, automotive, industrial,
and industrial end-markets. IDTT is incorporated under the laws of the State of Delaware and has its principal place of business at 6024 Silver Creek Valley Road, San Jose, California. Shares of IDTI common stock are traded on the NasdagGS under the symbol “IDTI.”
12. Defendant Gregory L. Waters ("W aters") has been a Director of the Company at all relevant times. In addition, Waters serves as the Company’s President and Chief Executive Officer (“CEO”).
13. Defendant Robert A. Rango ("Rango") has been a director of the Company at all relevant times. In addition, Rango serves on the Board’s Audit and Nominating and Governance Committees. Rango is also designated by the Company as an “independent director”.
14. Defendant Ken Kannappan ("Kannappan") has been a director of the Company at all relevant times. In addition, Kannappan serves as the Chairman of the Company Board, and as a member of the Compensation and Nominating and Governance Committees. Kannappan is also designated by the Company as an “independent director.”
15. Defendant Umesh Padval ("Padval") has been a director of the Company at all relevant times. In addition, Padval serves as the chair of the Board’s Compensation Committee and as a member on the Board’s Audit Committee. Padval is also designated by the Company as an “independent director”.
16. Defendant Gordon W. Parnell ("Parnell") has been a director of the Company at all relevant times. In addition, Pammell serves as the Chair of the Board’s Audit Committee and as a member on the Board’s Nominating and Corporate Governance Committee. Pamell is also designated by the Company as an “independent director.”
17. Defendant Norm Taffe (“Taffe”) has been a director of the Company at all relevant times. In addition, Taffe serves as a member of the Board’s A udit and Compensation Committees. Taffe is also designated by the Company as an “independent director.”
18. Defendant Selena Loh LaCroix (“LaCroix”) has been a director of the Company at all relevant times. In addition, LaCroix serves as a member on the Board’s Compensation and Nominating and Governance Committees. LaCroix is also designated by the Company as an 19. Defendants identified in 99 12 - 18 are collectively referred to as the “Individual
20. Non-party Parent engages in the research, development, design, manufacture, sale, and servicing of semiconductor products in Japan and internationally. Parent is a corporation organized under the laws of Japan and has its principal place of business at TOY OSU FORESIA, 3-2-24 Toyosu Koto-ku, Tokyo 135-0061, Japan. Parent common stock is traded on the Tokyo Stock Exchange (“TYO”) under the ticker symbol “6723.”
21. This Court has personal jurisdiction over the Defendants inasmuch as Defendants’ principal place of business is in California, directly or by agents transact business in California, caused tortious injury in Californiaomission outside the State while regularly doing and/or soliciting business, engaging in other persistent course of conduct in the State, and/or deriving substantial revenue from goods or manufactured products used or consumed in California.
22. Venue is proper in this Court inasmuch as the Defendants’ principal place of business is in this County and it regularly transacts business in this County and there are multiple defendants with no single venue applicable, and thus can be sued for damages in this County.
23. Plaintiff brings this action as a class action individually and on behalf of all holders of IDTT common stock who are being and will be harmed by the Individual Defendants’ actions, described herein (the “Class”). Excluded from the Class are Defendants and any person, firm, trust, corporation or other entity related to or affiliated with any D efendant.
24. Class actions are certified when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before
the court. Cal. Civ. Proc. Code § 382. The California Supreme Court has stated that a class should
be certified when the party seeking certification has demonstrated the existence of a “well-defined community of interest” among the members of the proposed class. Richmond v. Dart Indus., Inc., 29 Cal.3d 462, 470 (1981); see also Daar v. Yellow Cab Co., 67 Cal.2d 695, 704 (1967).
25. Class actions are especially valuable in a context such as this one, in which individual damages may be modest. It is well settled that a plaintiff need not prove the merits of the action at the class certification stage.
26. Rather, the decision of whether to certify a class is “essentially a procedural one” and the appropriate analysis is whether, assuming the merits of the claims, they are suitable for resolution on a class-wide basis.
As the focus in a certification dispute is on what types of questions common orindividual are likely to arise in the action, rather than on the merits of the case, in determining whether there is substantial evidence to support a trial court’s certification order, we consider whether the theory of recovery advanced by the proponents of certification is, as an analytical matter, likely to prove amenable to class treatment.
Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal.4th 319, 327 (2004) (citations omitted). 27. This action is properly maintainable as a class action because, inter alia:
a. The Class is so numerous that joinder of all members is impracticable. IDTI stock is publicly traded on the NASDAQ and Plaintiff believes that there are hundreds if not thousands of holders of such shares. Moreover, the holders of these shares are geographically dispersed throughout the United States;
b. There are questions of law and fact which are common to the Class and which predominate over questions affecting any individual Class member. These common questions include, inter alia: (i) whether the Individual Defendants whether the Proposed Transaction is unfair to the Class, in that the price is inadequate and is not the fair value that could be obtained under the circumstances; (iii) whether IDTI aided and abetted the Individual Defendants’ breaches of fiduciary duty; and (iv) whether the Class is entitled to injunctive relief and/or damages as a result of the wrongful conduct committed by Defendants;
Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. The claims of Plaintiff are typical of the claims of the other members of the Class and plaintiff has the same interests as the other members of the Class. Accordingly, Plaintiff is an adequate representative of the Class and will fairly and adequately protect the interests of the Class;
. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for Defendants, or adjudications with respect to individual members of the Class which would, as a practical matter, be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; and
Defendants have acted, or refused to act, on grounds generally applicable to, and causing injury to, the Class and, therefore, preliminary and final injunctive
28. By reason of the Individual Defendants’ positions with the Company as officers and/or directors, said individuals are in a fiduciary relationship with IDTI and owe the Company the duties of due care, loyalty, and good faith.
29. By virtue of their positions as directors and/or officers of IDTI, the Individual Defendants, at all relevant times, had the power to control and influence, and did control and influence and cause IDTI to engage in the practices complained of herein.
30. Each of the Individual Defendants are required to act with due care, loyalty, good faith and in the best interests of the Company. To diligently comply with these duties, directors of a corporation must:
a. act with the requisite diligence and due care that is reasonable under the circumstances;
b. actin the best interest of the company;
C. use reasonable means to obtain material information relating to a given action or decision;
d. refrain from acts involving conflicts of interest between the fulfillment of their roles in the company and the fulfillment of any other roles or their personal affairs;
e. avoid competing against the company or exploiting any business opportunities of the company for their own benefit, or the benefit of others; and
f. disclose to the Company all information and documents relating to the company’s affairs that they received by virtue of their positions in the company.
31. In accordance with their duties of loyalty and good faith, the Individual
Defendants, as directors and/or officers of IDTI, are obligated to refrain from: a. participating in any transaction where the directors’ or officers’ loyalties are divided;
o} participating in any transaction where the directors or officers are entitled to receive personal financial benefit not equally shared by the Company or its public stockholders; and/or
C. unjustly enriching themselves at the expense or to the detriment of the Company orits stockholders.
32. Plaintiff alleges herein that the Individual Defendants, separately and together, in connection with the Proposed Transaction, violated, and are violating, the fiduciary duties they owe to IDTI, Plaintiff and the other public stockholders of IDTI, including their duties of loyalty, good faith, and due care.
33. As a result of the Individual Defendants’ divided loyalties, Plaintiff and Class members will not receive adequate, fair or maximum value for their IDTT common stock in the Proposed Transaction.
34. IDTI designs, develops, manufactures, and markets a range of semiconductor solutions for the communications, computing, consumer, automotive, industrial, and industrial end-markets.
35. The Company operates in two segments, Communications; and Computing, Consumer and Industrial. The Communications segment offers clocks and timing solutions; radio frequency products; flow-control management products, including multi-port products; telecommunication interface products; static random access memory products; first in and first out memories; digital logic products; optical interconnect and frequency control solutions; and Serial RapidIO switching solutions.
36. The Computing, Consumer and Industrial segment provides clock generation and
distribution products; programmable timing devices; computing timing solutions; high- performance server memory interfaces; wireless power products; PCI Express products; signal integrity products; power management integrated circuits; video distribution and contribution solutions; sensor signal conditioners; and optical interconnect solutions, as well as sensing products for mobile, automotive, and industrial solutions.
37. The Company markets its products primarily to original equipment manufacturers through various channels, including direct sales, distributors, electronic manufacturing suppliers, and independent sales representatives.
38. The Company’s most recent financial performance press release before the announcement of the Proposed Transaction indicated sustained and solid financial performance. For example, in a July 30, 2018 press release announcing its Fiscal 2019 Q1 financial results, the Company highlighted such milestones as an increase in revenue year-on-year from $196.7 million to $228.5 million, as well as an increase in GA AP gross profit year-on-year from 55.9% to 59.8%.
39. Speaking on these positive results, Company CEO W aters noted on the Company’s positive financial results as follows, “First quarter fiscal 2019 revenues totaled $228.5 million, 16 percent higher than the year ago period. Strength in the quarter was driven by diversified growth in our target end markets.”
40. Defendant Waters went on to comment on a strong future outlook for IDTI noting “Going forward, our growth outlook remains robust and we expect improving margins driven by new products and higher operating efficiencies.”
41. The market also reacted well to IDTI’s strong showing at this time, with Zack’s Equity Research reporting in a July 30, 2018 article that IDTI’s Fiscal 2019 Q1 results beat expectations. The article goes on to specifically note that the Company saw a rise in quarterly earnings from $0.33 to $0.44 per share year-on-year.
42. These positive results are not an anomaly, but rather, are indicative of a trend of continued financial success by IDTI. For example, in a November 1, 2017 press release announcing the Company’s Financial 2018 Q4 and FY financial results, IDTI reported such 43. Speaking on these results, Defendant Waters stated, “We exceeded our original $830 million FY 2018 revenue target, delivering revenues of $842.8 million (up 15.7% over FY 2017). We also delivered on our Non-GAAP operating margin model target of 30% for the quarter, up from 27.2% in the year ago period. For FY 2019, we expect continued diversified revenue growth, coupled with further year over year margin expansion.”
44, Clearly, based upon these positive financial results, the Company is likely to have tremendous future success and should command a much higher consideration than the amount contained within the Proposed Transaction.
45. Despite this upward trajectory and continually increasing financial results, the Individual Defendants have caused IDTT to enter into the Proposed Transaction for insufficient consideration.
The Flawed Sales Process
46. As detailed in the Preliminary Proxy, the process deployed by the Individual Defendants was flawed and inadequate, was conducted out of the self-interest of the Individual Defendants, and was designed with only one concern in mind — to effectuate a sale of the Company to Renesas
47. First and foremost, it appears that no proper market check was conducted during the sales process. In fact, the Preliminary Proxy indicates that the Board of Directors and J.P. Morgan conducted a “market check” that consisted of outreach to only three potential counterparties.
48. Notably, the Preliminary Proxy is silent as to the nature of these three potential counterparties, whether they were strategic or financial in nature, and why such a limited number of potentially interested third parties was contacted.
49. The Preliminary Proxy also indicates that no committee of disinterested directors was created to run the sales process, further undermining the sales process.
50. Finally, the Preliminary Proxy is unclear as to the nature of specific confidentiality throughout the sales process, if any such agreements were different from one another, and the terms of any included “don’t-ask, don’t-waive” provisions or standstill provisions in any such agreements, and if so, the specific conditions, if any, under which such provisions would fall away or prevent parties from submitting a bid.
51. It is not surprising, given this background to the overall sales process, that it was conducted in a completely inappropriate and misleading manner. The Proposed Transaction
52. On September 11, 2018, IDTTI and Renesas issued a press release announcing the Proposed Transaction. The press release stated, in relevant part:
TOKYO, Japan, September 11, 2018 JST | San Jose, California, U.S.A., September 10, 2018—Renesas Electronics Corporation (“Renesas”, TSE: 6723), a premier supplier of advanced semiconductor solutions, and Integrated Device Technology, Inc. (“IDT”, NASDAQ: IDTI), a leading supplier of analog mixed- signal products including sensors, connectivity and wireless power, today announced they have signed a definitive agreement under which Renesas will acquire IDT for US$49.00 per share in an all-cash transaction representing an equity value of approximately US$6.7 billion (approximately 733.0 billion yen at an exchange rate of 110 yen to the dollar). The acquisition combines two recognized leaders in embedded processors and analog mixed-signal semiconductors, each with unique strengths in delivering products to improve performance and efficiency in high-computing electronic systems. The boards of directors of both companies have unanimously approved the transaction. Closing of the transaction is expected to occurin the first half of 2019, following approvals by IDT shareholders and the relevant regulatory authorities. today further accelerates Renesas’ growth strategy, bringing substantial strategic and financial benefits.
° Complementary products expand Renesas’ solution offerings
The acquisition will provide Renesas with access to a vast array of robust anal og mixed-signal capabilities in embedded systems, including RF, advanced timing, memory interface & power management, optical interconnect, wireless power, and smart sensors. The combination of these product lines with Renesas’ advanced MCUs and SoCs and power management ICs enables Renesas to offer comprehensive solutions that support the increasing demand of high data processing performance. The enriched solution offerings will bring optimal systems from external sensors through analog front-end to processors and interfaces.
® Expands business growth opportunities
IDT’s analog mixed-signal products for data sensing, storage and interconnect are key devices that support the growth of data economy. Acquisition of these products enables Renesas to extend its reach to fast-growing data economy- related applications including data center and communication infrastructure, and to strengthen its presence in the industrial and automotive segments.
o A cceleration of global management and operations
The Intersil acquisition brought diverse talent and management capabilities to accelerate Renesas’ global operations. The transaction announced today extends this effort and will provide Renesas with further proficiency to execute global strategy.
° Substantial financial benefits
Renesas anticipates near- and long-term revenue growth from expanded opportunities and access to fast-growing industries, and cost savings from a greater scale business platform to bring innovation and improvements with an expected financial impact of approximately over US$250 million (non-GAAP operating income per year on a run rate basis). The transaction is expected to be accretive to Renesas’ non-GA AP gross margin and non-GA A P earnings per share by approximately 1.6%pts and 18% (Note), respectively, immediately after closing. well as to expand its reach into areas such as the growing data economy-related space.”
“The combination of IDTI Device Technology’s analog mixed-signal leadership with Renesas’ world-leading microcontroller and automotive/industrial franchise creates a new global powerhouse,” said Gregory L. Waters, President and CEO of IDT. “The Combined company will possess the key capabilities that customers in the modern data economy demand.”
IDT shares are to be acquired at a price of US$49.00 per share, for a total equity value of approximately US$6.7 billion (approximately ¥733.0 billion at an exchange rate of 110 yen to the dollar). Renesas plans to finance the transaction with cash reserves and approximately 679.0 billion yen of bank loans. Renesas does not intend to raise equity financing for this transaction.
Morgan Stanley, BofA Merrill Lynch and Mizuho Securities acted as financial advisors to Renesas; Morrison & Foerster LLP, and Covington & Burling LLP and Nagashima Ohno & Tsunematsu acted as Renesas’ legal counsel. ].P. Morgan acted as exclusive financial advisorto IDT; Latham & Watkins LLP acted as IDT’s legal counsel.
The Inadequate Merger Consideration
53. Significantly, the Company’s financial prospects and opportunities for future growth, and synergies with Renesas establish the inadequacy of the merger consideration.
54. First, the compensation afforded under the Proposed Transaction to Company stockholders significantly undervalues the Company. The proposed valuation does not adequately reflect the intrinsic value of the Company. Moreover, the valuation does not adequately take into consideration how the Company is performing, considering key financial improvements and increases in the cash position of the Company in recent years.
55. For example, financial analysts at Piper Jaffray valued the Company as high as $51.00 per share immediately preceding the announcement of the Proposed Transaction, a value more than 4.00% greater than the Proposed Transaction.
56. Additionally, IDTI’s future success is extremely likely, given the consistent positive financial results it has posted over the past several quarters. Obviously, the opportunity to invest in such a company on the rise is a great coup for Renesas, however it undercuts the 57. Finally, the Proposed Transaction represents a significant synergistic benefit to Renesas, which operates in the same industry as IDTI, and will use the new assets, operational capabilities, and brand capital to bolster its own position in the market. Specifically, Bunsei Kure, CEO of Renesas noted in the press release announcing the Proposed Transaction that, “This acquisition will bring us complementary, market-leading analog mixed-signal assets and an incredibly talented group of professionals to help us boost our embedded solution capabilities.”
58. Additionally, Defendant Waters noted that “the combination of IDTI Device Technology’s analog mixed-signal leadership with Renesas’ world-leading microcontroller and automotive/industrial franchise creates a new global powerhouse.”
59. Clearly, while the deal will be beneficial to Renesas it comes at great expense to Plaintiff and other public stockholders of the Company.
60. Moreover, post-closure, IDTI stockholders will be foreclosed from reaping the likely future benefits of IDTT’s continued rise in stock price.
61. It is clear from these statements and the facts set forth herein that this deal is designed to maximize benefits for Renesas at the expense of IDTI stockholders, which clearly indicates that IDTT stockholders were not an overriding concern in the formation of the Proposed Transaction.
Preclusive Deal Mechanisms
62. The Merger A greement contains certain provisions that unduly benefit Renesas by making an alternative transaction either prohibitively expensive or otherwise impossible. Significantly, the Merger A greement contains a termination fee provision thatis especially onerous and impermissible. Notably, in the event of termination, the Merger A greement requires IDTI to pay up to $166.4 million to Renesas, if the merger is terminated under certain circumstances. Moreover, under one circumstance, IDTI must pay this termination fee even if it consummates any Competing Proposal (as defined in the Merger Agreement) within 12 months following the more expensive to acquire for potential purchasers. The termination fee in combination with other preclusive deal protection devices will all but ensure that no competing offer will be forthcoming.
63. The Merger A greement also contains a “No Solicitation” provision that restricts IDTI from considering alternative acquisition proposals by, inter alia, constraining IDTI’s ability to solicit or communicate with potential acquirers or consider their proposals. Specifically, the provision prohibits the Company from directly or indirectly soliciting, initiating, proposing or inducing any alternative proposal, but permits the Board to consider an unsolicited bona fide “Competing Proposal ” if it constitutes or is reasonably calculated to lead to a “Superior Proposal” as defined in the Merger A greement.
04. Moreover, the A greement further reduces the possibility of a topping offer from an unsolicited purchaser. Here, the Individual Defendants agreed to provide Renesas information in order to match any other offer, thus providing Renesas access to the unsolicited bidder’s financial information and giving Renesas the ability to top the superior offer. Thus, a rival bidder is not likely to emerge with the cards stacked so much in favor of Renesas.
65. These provisions, individually and collectively, materially and improperly impede the Board’s ability to fulfill its fiduciary duties with respect to fully and fairly investigating and pursuing other reasonable and more valuable proposals and alternatives in the best interests of the Company and its public stockholders.
66. Accordingly, the Company’s true value is compromised by the consideration offered in the Proposed Transaction.
Potential Conflicts of Interest
67. The breakdown of the benefits of the deal indicate that IDTI insiders are the
primary beneficiaries of the Proposed Transaction, not the Company’s public stockholders. The benefits for themselves from the Proposed Transaction not available to Plaintiff and the public stockholders of IDTI.
68. Certain insiders stand to receive massive financial benefits as a result of the Proposed Transaction. Notably, Company insiders, including the Individual Defendants, currently own large, illiquid portions of Company stock that will be exchanged for large cash pay days upon the consummation of the Proposed Transaction.
69. Furthermore, upon the consummation of the Proposed Transaction, each outstanding Company option or equity award, will be canceled and converted into the right to the merger consideration.
70. Morcover, employment agreements with certain IDTD’s executives entitle such executives to severance packages should their employment be terminated under certain circumstances. These ‘golden parachute’ packages are significant, and will grant each director or officer entitled to them large cash pay days, compensation not shared by IDTI’s common stockholders.
71. As detailed below, certain of the Individual Defendants and Company insiders own millions of dollars in large illiquid blocks of IDTI stock, options, RSUs, and/or other equity awards, and/or will receive significant cash awards under “golden parachute” provisions, which
will be paid out as follows under the terms of the Proposed Transaction:
Perquisites/ Benefits Other Name Cash (5)(2) Equity ($)(3) $)@) $)(5) Total (§) Gregory Waters 3,660,417 35,527,643 125,652 36,071 39,349,783 Brian White 907,813 10,972,398 58,717 62,148 12,001,076 Sailesh Chittipeddi Ph.D. 995,313 16,889,924 69,227 49,648 18,004,112 Sean Fan 811,708 9,436,317 58,111 59,423 10,365,559 Dave Shepard 811,708 9,107,625 71,127 19,129 10,009,589 72. As is evident from the above, these insiders will be making tens of millions of
dollars apiece. Defendant Waters is due over $39 million as a result of this deal. 1t is no wonder that, in light of the extremely lucrative profits for themselves, the Board allowed the Company to 73. Additionally, as indicated by the Preliminary Proxy, in only the last two years, ].P. Morgan has previously received approximately $46 million from Renesas for services rendered, calling into question its unbiased nature in rendering its fairness opinion.
74. Thus, while the Proposed Transaction is not in the best interests of IDTI stockholders, it will produce lucrative benefits for the Company’s officers and directors.
The Materially Misleading and/or Incomplete Preliminary Proxy
75. On November 13, 2018, the Board caused to be filed with the SEC a materially misleading and incomplete Preliminary Proxy that, in violation their fiduciary duties, failed to provide the Company’s stockholders with material information and/or provides them with materially misleading information critical to the total mix of information available to the Company’s stockholders concerning the financial and procedural fairness of the Proposed
Transaction, thus furthering their breaches of fiduciary duty.
Omissions and/or Material Misrepresentations Concerning the Sales Process leading up to the Proposed Transaction 76. Specifically, the Preliminary Proxy fails to provide material information concerning the process conducted by the Company and the events leading up to the Proposed Transaction. In particular, the Preliminary Proxy fails to disclose: a. The nature of the three potential counterparties contacted during the sales process, whether they were strategic or financial in nature; b. The reasoning as to why such a limited number of potentially interested third parties was contacted during the sales process; c. The reasoning as to why no committee of disinterested directors was created to run the sales process, further undermining the sales process. d. The Preliminary Proxy fails to disclose sufficient information regarding the number and nature of all confidentiality agreements entered into between IDTI and any interested third party, including Renesas, during the sales process, if waive” or standstill provisions, and if so, the specific conditions, if any, under which such provisions would fall away or prevent parties from submitting a bid.
Omissions and/or Material Misrepresentations Concerning IDTI’s Financial Projections
77. The Preliminary Proxy fails to provide material information concerning financial projections provided by IDTI’s management and relied upon by J.P. Morgan in its analyses. The Preliminary Proxy discloses management-prepared financial projections for the Company which are materially misleading. The Preliminary Proxy indicates that in connection with the rendering of J.P. Morgan’s fairness opinion, J.P. Morgan “reviewed certain internal financial analyses and forecasts prepared by or at the direction of the management of the Company relating to its business”. Accordingly, the Preliminary Proxy should have, but fails to provide, certain information in the projections that IDTI management provided to the Board and J.P. Morgan. Courts have uniformly stated that “projections ... are probably among the most highly-prized disclosures by investors. Investors can come up with their own estimates of discount rates or  market multiples. What they cannot hope to do is replicate management’s inside view of the company’s prospects.” In re Netsmart Techs., Inc. S holders Litig., 924 A .2d 171, 201-203 (Del. Ch. 2007).
78. The Preliminary Proxy fails to provide material information concerning the financial projections prepared by IDTI management. Specifically, the Preliminary Proxy provides several non-GA AP financial metrics, including “revenue, gross margin, operating expense, other income and expense, tax rate and earnings per share for the upcoming fiscal quarter,” but fails to disclose a reconciliation of all non-GAAP to GAAP metrics.
79. In addition, the Preliminary Proxy does not disclose the rationale as to why the Company created two differing sets of Supplemental Projections within approximately one month of each other to provide to Party B and Renesas respectively during the sales process. With respect to this, the Preliminary Proxy should disclose the following:
a. What differences, if any, exist between (1) the “Party B Supplemental Party B on June 6, 2018, and (ii) the “Renesas Supplemental Management Projections” created for the meeting between the Company and Renesas on July 10, 2018; and
80. This information is necessary to provide Company stockholders a complete and accurate picture of the sales process and its fairness. Without this information, stockholders were not fully informed as to Defendants’ actions, including those that may have been taken in bad faith, and cannot fairly assess the process.
81. Without accurate projection data presented in the Preliminary Proxy, Plaintiff and other stockholders of IDTT are unable to properly evaluate the Company’s true worth, the accuracy of J.P. Morgan’s financial analyses, or make an informed decision whether to vote their Company stock in favor of the Proposed Transaction. As such, the Board has breached their fiduciary duties
by failing to include such information in the Preliminary Proxy.
Omissions and/or Material Misrepresentations Concerning the Financial Analyses by ].P. Morgan
82. Inthe Preliminary Proxy, J.P. Morgan describes its respective fairness opinion and the various valuation analyses performed to render such opinion. However, the descriptions fail to include necessary underlying data, support for conclusions, or the existence of, or basis for, underlying assumptions. Without this information, one cannot replicate the analyses, confirm the valuations or evaluate the fairness opinions.
83. With respect to the Public Trading Multiples Analysis, the Preliminary Proxy fails to disclose the following:
a. The specific inputs and assumptions used to determine the reference ranges for CY 2019E P/E of 16.0x to 19.0x with respect to the Base Case Long-Term Management Projections; and
b. The specific inputs and assumptions used to determine the reference ranges for CY 2019E P/E of 17.0x to 21.0x with respect to the Strategic Case Long-Term 84. With respect to the Discounted Cash Flow Analysis, the Preliminary Proxy fails to
disclose the following: a. The specific inputs and assumptions used to calculate the terminal growth rates range from 2.5% to 3.5%; b. the specific inputs and assumptions used to calculate the discount rate range of 9.0%% to 11.0%; including: 1. The specific inputs and assumptions used to calculate IDTI’s Unlevered Free Cash Flow, including: 1. Weighted Average Cost of Capital of the Company
85. With respect to the Transaction Multiples Analysis, the Preliminary Proxy fails to disclose the following:
a. The line items used to calculate the FV/NTM EBITDA for each selected transaction;
b. The line items used to calculate the NTM/PE for each selected transaction;
c. The total value of each selected transaction;
d. The closing date of each selected transaction.
86. These disclosures are critical for stockholders to be able to make an informed decision on whether to vote their shares in favor of the Proposed Transaction.
Claim for Breach of Fiduciary Duties (A gainst the Individual Defendants)
88. Plaintiff repeats all previous allegations as if set forth in full herein.
89. The Individual Defendants have violated their fiduciary duties of care, loyalty and good faith owed to Plaintiff and the Company’s public stockholders.
90. By the acts, transactions and courses of conduct alleged herein, Defendants, individually and acting as a part of a common plan, are attempting to unfairly deprive Plaintiff and other members of the Class of the true value of their investment in IDTT.
91. As demonstrated by the allegations above, the Individual Defendants failed to exercise the care required, and breached their duties of loyalty and good faith owed to the stockholders of IDTI by entering into the Proposed Transaction through a flawed and unfair process and failing to take steps to maximize the value of IDTI to its public stockholders.
92. Indeed, Defendants have accepted an offer to sell IDTI at a price that fails to reflect the true value of the Company, thus depriving stockholders of the reasonable, fair and adequate value of their shares.
93. Moreover, the Individual Defendants breached their duty of due care and candor by failing to disclose to Plaintiff and the Class all material information necessary for them to make an informed vote on whether to approve the Merger.
94. The Individual Defendants dominate and control the business and corporate affairs of IDTI, and are in possession of private corporate information concerning IDTI’s assets, business and future prospects. Thus, there exists an imbalance and disparity of knowledge and economic power between them and the public stockholders of IDTI which makes it inherently unfair for them to benefit their own interests to the exclusion of maximizing stockholder value.
95. By reason of the foregoing acts, practices and course of conduct, the Individual Defendants have failed to exercise due care and diligence in the exercise of their fiduciary
obligations toward Plaintiff and the other members of the Class. 96. Asaresult of the actions of the Individual Defendants, Plaintiff and the Class will suffer irreparable injury in that they have not and will not receive their fair portion of the value of IDTI’s assets and have been and will be prevented from obtaining a fair price for their common stock.
97. Unless the Individual Defendants are enjoined by the Court, they will continue to breach their fiduciary duties owed to Plaintiff and the members of the Class, all to the irreparable harm of the Class.
98. Plaintiff and the members of the Class have no adequate remedy at law. Only through the exercise of this Court’s equitable powers can Plaintiff and the Class be fully protected from the immediate and irreparable injury which Defendants’ actions threaten to inflict.
WHEREFORE, Plaintiff demands injunctive relief, in its favor and in favor of the Class, and against the Defendants, as follows:
A. Ordering that this action may be maintained as a class action and certifying Plaintiff as the Class representatives and Plaintiff’s counsel as Class counsel;
B. Enjoining the Proposed Transaction;
C. In the event Defendants consummate the Proposed Transaction, rescinding it and setting 1t aside or awarding rescissory damages to Plaintiff and the Class;
D. Declaring and decreeing that the Merger Agreement was agreed to in breach of the fiduciary duties of the Individual Defendants and 1s therefore unlawful and unenforceable; E. Directing the Individual Defendants to exercise their fiduciary duties to commence a sale process that is reasonably designed to secure the best possible consideration for IDTI and obtain a transaction which is in the best interests of IDTT and its stockholders;
F. Directing defendants to account to Plaintiff and the Class for damages sustained because of the wrongs complained of herein;
G. Awarding Plaintiff the costs of this action, including reasonable allowance for Plaintiff’s attorneys’ and experts’ fees; and H. Granting such other and further relief as this Court may deem just and proper.
Plaintiff hereby demands a jury on all issues which can be heard by a jury.
Dated: November 20, 2018 BRODSKY & SMITH, LLC- /‘ By: ( 2
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