EXHIBIT 10.20
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INTEGRATED DEVICE TECHNOLOGY, INC.,
PENGUIN ACQUISITION, INC.
AND
QUALITY SEMICONDUCTOR, INC.
NOVEMBER 1, 1998
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 THE MERGER..................................................... 1
1.1 The Merger..................................................... 1
1.2 Effective Time of the Merger................................... 1
1.3 Tax and Accounting Consequences................................ 2
ARTICLE 2 THE SURVIVING CORPORATION...................................... 2
2.1 Articles of Incorporation...................................... 2
2.2 Bylaws......................................................... 2
2.3 Directors and Officers of Surviving Corporation................ 2
ARTICLE 3 CONVERSION OF SHARES........................................... 3
3.1 Conversion of Shares........................................... 3
3.2 Options and Warrants........................................... 3
3.3 Exchange of Shares............................................. 3
3.4 Dividends; Transfer Taxes...................................... 4
3.5 No Fractional Shares........................................... 5
3.6 Closing of Company Transfer Books.............................. 5
3.7 Closing........................................................ 5
3.8 Supplementary Action........................................... 5
3.9 Dissenting Shares.............................................. 6
3.10 Adjustments to Exchange Ratio.................................. 6
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 6
4.1 Due Organization; Good Standing; Authority; Binding Nature of
Agreements..................................................... 7
4.2 Articles of Incorporation and Bylaws; Records.................. 8
4.3 Capitalization; Ownership of Stock; Solvency, Etc.............. 8
4.4 SEC Filings; Financial Statements.............................. 10
4.5 Absence of Changes............................................. 11
4.6 Title to Assets; Equipment; Real Property, Leases; Inventory... 14
4.7 Receivables; Major Customers................................... 15
4.8 Accounts Payable; Major Suppliers.............................. 16
4.9 Proprietary Assets............................................. 16
4.10 Contracts...................................................... 17
4.11 Compliance with Legal Requirements............................. 20
4.12 Certain Business Practices..................................... 20
4.13 Governmental Authorizations.................................... 20
4.14 Tax Matters.................................................... 21
4.15 Employees, ERISA and Other Compliance.......................... 22
4.16 Environmental Matters.......................................... 25
ii
TABLE OF CONTENTS
PAGE
----
4.17 Sale of Products; Performance of Services......................... 26
4.18 Insurance......................................................... 27
4.19 Proceedings; Orders............................................... 27
4.20 No Existing Discussions........................................... 28
4.21 Vote Required..................................................... 28
4.22 Non-Contravention; Consents....................................... 28
4.23 Brokers........................................................... 30
4.24 Full Disclosure................................................... 30
4.25 Powers of Attorney................................................ 30
4.26 Securities Law Compliance......................................... 31
4.27 Transactions with Affiliates...................................... 31
4.28 Voting Arrangements............................................... 31
4.29 Ownership of Shares of IDT Common Stock........................... 31
4.30 Opinion of Financial Advisors..................................... 31
4.31 Shareholder Rights Plan........................................... 31
4.32 Board Approval.................................................... 32
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF IDT AND
MERGER SUB........................................................ 32
5.1 Due Organization; Good Standing; Authority; Binding of Nature of
Agreements........................................................ 32
5.2 Proceedings; Orders............................................... 32
5.3 Non-Contravention; Consents....................................... 33
5.4 Brokers........................................................... 33
5.5 Full Disclosure; SEC Reports...................................... 33
5.6 Valid Issuance of IDT Common Stock................................ 34
5.7 Compliance with Laws.............................................. 35
5.8 Interim Operations of Sub......................................... 35
5.9 Stockholders' Consent............................................. 35
5.10 Absence of Certain Changes or Events.............................. 35
ARTICLE 6 PRE-CLOSING PERIOD COVENANTS OF THE COMPANY....................... 35
6.1 Access and Investigation.......................................... 35
6.2 Operation of Business............................................. 36
6.3 Filings and Consents; Cooperation................................. 39
6.4 Notification; Updates to Disclosure Schedule...................... 39
6.5 No Negotiation or Solicitation.................................... 40
6.6 Best Efforts...................................................... 42
6.7 Proprietary Information and Inventions Agreements................. 42
iii
TABLE OF CONTENTS
PAGE
----
6.8 Letters of the Company's Auditors................................ 42
6.9 Affiliates....................................................... 43
6.10 Takeover Statutes................................................ 43
6.11 Bank Accounts.................................................... 43
6.12 Supplier Information............................................. 44
6.13 Employee Information............................................. 44
6.14 Insurance Information............................................ 44
6.15 Company Accruals and Reserves.................................... 45
6.16 Interim Review and Interim Financial Statements.................. 45
6.17 Pooling of Interests............................................. 45
ARTICLE 7 PRE-CLOSING PERIOD COVENANTS OF IDT.............................. 46
7.1 Notification..................................................... 46
7.2 Best Efforts..................................................... 46
7.3 Filings and Consents; Cooperation................................ 46
7.4 Indemnification.................................................. 47
7.5 Conduct of Business of IDT....................................... 48
7.6 Blue Sky Laws.................................................... 48
7.7 Pooling of Interests............................................. 48
ARTICLE 8 ADDITIONAL AGREEMENTS............................................ 49
8.1 Proxy Statement and Prospectus................................... 49
8.2 Company Shareholder Approval..................................... 49
8.3 Nasdaq National Market........................................... 50
8.4 Antitrust Laws................................................... 50
8.5 Certain Employee Benefit Plan Matters............................ 50
8.6 Integration Matters.............................................. 50
8.7 Stock Options and Warrants; Purchase Plan; Rights Plan........... 51
8.8 Expenses......................................................... 52
8.9 Additional Agreements............................................ 52
8.10 Public Announcements............................................. 53
8.11 Tax-Free Reorganization.......................................... 53
ARTICLE 9 CONDITIONS TO CONSUMMATION OF THE MERGER......................... 53
9.1 Conditions to Each Party's Obligation to Effect the Merger....... 53
9.2 Additional Conditions to IDT's and Merger Sub's Obligation to
Consummate the Merger............................................ 54
9.3 Additional Conditions to the Company's Obligation to Consummate
the Merger....................................................... 58
iv
TABLE OF CONTENTS
PAGE
----
ARTICLE 10 TERMINATION.................................................... 59
10.1 Termination.................................................... 59
10.2 Termination Procedures......................................... 61
10.3 Effect of Termination.......................................... 61
10.4 Exclusivity of Termination Rights.............................. 62
ARTICLE 11 MISCELLANEOUS PROVISIONS....................................... 62
11.1 Further Assurances............................................. 62
11.2 Fees and Expenses.............................................. 63
11.3 Attorneys' Fees................................................ 63
11.4 Notices........................................................ 63
11.5 Time of the Essence............................................ 64
11.6 Headings....................................................... 64
11.7 Counterparts................................................... 64
11.8 Governing Law; Venue........................................... 64
11.9 Successors and Assigns......................................... 65
11.10 Remedies Cumulative; Specific Performance...................... 65
11.11 Waiver......................................................... 66
11.12 Amendments..................................................... 66
11.13 Severability................................................... 66
11.14 Parties in Interest............................................ 66
11.15 Entire Agreement............................................... 67
11.16 No Survival.................................................... 67
11.17 Investigation.................................................. 67
11.18 Construction................................................... 67
v
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of November 1, 1998, by and
among INTEGRATED DEVICE TECHNOLOGY, INC. ("IDT"), a Delaware corporation,
---
PENGUIN ACQUISITION, INC. ("Merger Sub"), a California corporation, and QUALITY
----------
SEMICONDUCTOR, INC. (the "Company"), a California corporation. Certain
-------
capitalized terms used in this Agreement are defined in Exhibit A.
---------
WHEREAS, the Boards of Directors of IDT, Merger Sub and the Company each
have determined that the acquisition of the Company by IDT is in the best
interests of their respective companies and stockholders and presents an
opportunity for their respective companies to achieve long-term strategic and
financial benefits, and accordingly have agreed to effect the merger provided
for herein upon the terms and subject to the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the merger
contemplated herein shall qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"); and
----
WHEREAS, it is also intended by the parties hereto that the merger shall
qualify for accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE 1
---------
THE MERGER
----------
1.1 The Merger.
----------
Subject to the terms and conditions of this Agreement, at the
Effective Time, Merger Sub shall be merged with and into the Company, the
Company shall be the surviving corporation (the "Surviving Corporation"), and
---------------------
the separate existence of Merger Sub shall thereupon cease (the "Merger"). The
------
Merger shall have the effects set forth in the applicable provisions of the
California General Corporation Law (the "CGCL"). Without limiting the
----
generality of the foregoing, at and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the restrictions,
disabilities and duties, of each of the constituent corporations in the Merger.
1.2 Effective Time of the Merger.
----------------------------
The Merger shall become effective when a properly executed agreement
of merger (the "Agreement of Merger"), in such form as may be agreed by the
-------------------
parties hereto and as required by the relevant provisions of the CGCL, is duly
filed with the Secretary of State of the State of California, which filing shall
be made in connection with the closing of the Transactions
in accordance with Section 3.7 upon satisfaction or waiver of the conditions
-----------
set forth in Article 9. When used in this Agreement, the term "Effective Time"
--------- --------------
shall mean the date and time at which such Agreement of Merger has been so filed
or at such later time as is provided in the Agreement of Merger.
1.3 Tax and Accounting Consequences.
-------------------------------
It is intended by the parties that (i) the Merger shall constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Code, (ii) this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code and (iii) the Merger shall qualify for "pooling of
interests" accounting treatment under Accounting Principles Board Opinion No. 16
and SEC Accounting Series Release Numbers 130 and 135, as amended.
ARTICLE 2
---------
THE SURVIVING CORPORATION
-------------------------
2.1 Articles of Incorporation.
-------------------------
The Articles of Incorporation of Merger Sub shall be the Articles of
Incorporation of the Surviving Corporation, until duly amended in accordance
with the terms thereof and the CGCL.
2.2 Bylaws.
------
The Bylaws of Merger Sub as in effect at the Effective Time shall be
the Bylaws of the Surviving Corporation, until duly amended in accordance with
the terms thereof and the CGCL.
2.3 Directors and Officers of Surviving Corporation.
-----------------------------------------------
(a) The directors of Merger Sub shall be the initial directors of the
Surviving Corporation and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified, or until
their earlier death, resignation or removal in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
(b) The officers of Merger Sub at the Effective Time shall be the
initial officers of the Surviving Corporation and shall hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified, or until their earlier death, resignation or removal in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation, or as otherwise provided by law.
-2-
ARTICLE 3
---------
CONVERSION OF SHARES
--------------------
3.1 Conversion of Shares.
--------------------
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each share of the Common
Stock, $0.001 par value per share, of the Company ("Company Common Stock") that
--------------------
is issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive, upon surrender of the certificate (the
"Certificate") formerly representing such share of Company Common Stock, 0.6875
-----------
shares (the "Exchange Ratio") of the Common Stock, $0.001 par value per share,
--------------
of IDT ("IDT Common Stock"); provided, however, that each share of Company
---------------- -------- -------
Common Stock that is held in the treasury of the Company, by any subsidiary of
the Company, by IDT or by any subsidiary of IDT immediately prior to the
Effective Time shall not be so converted but shall be canceled and retired, and
no consideration shall be delivered in exchange therefor. Unless otherwise
stated: (i) all references in this Agreement to Company Common Stock shall be
deemed to include the associated preferred share purchase rights ("Rights")
------
issued pursuant to the Preferred Share Rights Agreement dated as of August 29,
1997 (the "Rights Agreement") between the Company and BankBoston, N.A.; and
----------------
(ii) all references in this Agreement to IDT Common Stock shall be deemed to
include the associated preferred stock purchase rights issued pursuant to the
Amended and Restated Rights Agreement dated as of February 27, 1992 between IDT
and The First National Bank of Boston.
(b) At the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, each share of the Common Stock, no par
value per share, of Merger Sub that is issued and outstanding immediately prior
to the Effective Time shall be converted into and continue as one share of the
Common Stock of the Surviving Corporation.
3.2 Options and Warrants.
--------------------
At the Effective Time, all stock options and warrants to purchase
Company Common Stock then outstanding will be assumed by IDT in accordance with
Section 8.7.
-----------
3.3 Exchange of Shares.
------------------
(a) Prior to the Effective Time, IDT shall select, and enter into an
agreement (in form and substance reasonably satisfactory to the Company) with, a
bank or trust company to act as exchange agent hereunder (the "Exchange Agent").
--------------
On the Closing Date, IDT shall deposit with the Exchange Agent the shares of IDT
Common Stock required to be delivered hereunder in connection with the
conversion of Company Common Stock at the Effective Time. After the Effective
Time, each holder of shares of Company Common Stock (other than Dissenting
Shares) will be entitled to receive, upon surrender to the Exchange Agent of one
or more Certificates and a duly executed letter of transmittal as described
below, certificates representing the number of whole shares of IDT Common Stock
and cash in lieu of fractional shares into which such shares of Company Common
Stock are converted in the Merger. The
-3-
shares of IDT Common Stock into which the shares of Company Common Stock shall
be converted in the Merger shall be deemed to have been issued at the Effective
Time.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of Company Common Stock (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as IDT may reasonably specify that are not inconsistent with the
terms of this Agreement) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of IDT Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor (i)
a certificate representing that number of whole shares of IDT Common Stock and
(ii) a check representing the amount of cash in lieu of fractional shares which
such holder has the right to receive in respect of the Certificate so
surrendered pursuant to the provisions of this Article 3.
---------
(c) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, the Exchange Agent will issue
or cause to be issued in exchange for such lost, stolen or destroyed Certificate
the number of whole shares of IDT Common Stock and cash in lieu of fractional
shares into which the shares of Company Common Stock represented by the
Certificate are converted in the Merger in accordance with this Article 3. When
---------
authorizing such issuance in exchange therefor, IDT and/or the Exchange Agent
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificate to give IDT
and/or the Exchange Agent a bond in such sum as it may direct as indemnity, or
such other form of indemnity, as it shall direct, against any claim that may be
made against IDT or the Exchange Agent with respect to the Certificate alleged
to have been lost, stolen or destroyed.
3.4 Dividends; Transfer Taxes.
-------------------------
(a) No dividends that are declared on shares of IDT Common Stock after
the Effective Time (if any) will be paid to persons entitled to receive
certificates representing shares of IDT Common Stock until such persons
surrender their Certificates. Upon such surrender, there shall be paid to the
person in whose name the certificates representing such shares of IDT Common
Stock shall be issued any dividends which shall have become payable with respect
to such shares of IDT Common Stock between the Effective Time and the time of
such surrender. In no event shall the person entitled to receive such dividends
be entitled to receive interest on such dividends.
(b) If any certificates for any shares of IDT Common Stock are to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the Person requesting such exchange shall (i) pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such shares of IDT Common Stock in a name other than that of the registered
holder of the
-4-
Certificate surrendered or (ii) establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
(c) Notwithstanding anything in this Agreement to the contrary,
neither the Exchange Agent nor any party hereto shall be liable to a holder of
shares of Company Common Stock for any shares of IDT Common Stock or dividends
thereon or the cash payments otherwise due hereunder delivered to a public
official pursuant to applicable escheat laws following the passage of time
specified therein.
3.5 No Fractional Shares.
--------------------
Notwithstanding anything herein to the contrary, no fractional shares
of IDT Common Stock shall be issued pursuant to the Merger. In lieu of the
issuance of any such fractional share of IDT Common Stock, cash will be paid in
respect of any fractional share of IDT Common Stock that would otherwise be
issuable. The amount of such cash shall be the product of (i) such fraction of a
share of IDT Common Stock (after aggregating all the shares of IDT Common Stock
to be issued to a holder) multiplied by (ii) $6.4625.
3.6 Closing of Company Transfer Books.
---------------------------------
At the Effective Time, the stock transfer books of the Company shall
be closed and no transfer of shares of Company Common Stock shall thereafter be
made. If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for certificates representing
shares of IDT Common Stock and cash in lieu of fractional shares in accordance
with the terms hereof. At and after the Effective Time, the holders of shares of
Company Common Stock to be exchanged for shares of IDT Common Stock pursuant to
this Agreement shall cease to have any rights as shareholders of the Company,
except for the right to surrender such Certificates in exchange for shares of
IDT Common Stock as provided hereunder or such dissenters' rights as are
provided under applicable law.
3.7 Closing.
-------
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Fenwick & West LLP, Two Palo Alto
--------
Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000 at 9:00 a.m., local time, on the first
business day (the "Closing Date") following the date on which the Company's
------------
shareholders have given any requisite approvals of this Agreement and the
Transactions in accordance with Legal Requirements; provided, however, that if
-------- -------
all of the other conditions set forth in Article 9 hereof are not satisfied or
---------
waived at such date, the Closing Date shall be the business day following the
day on which all such conditions have been satisfied or waived, or at such other
date, time and place as IDT, Merger Sub and the Company shall agree.
3.8 Supplementary Action.
--------------------
If, at any time after the Effective Time, any further assignments or
assurances in law or any other things are necessary or desirable to vest or to
perfect or confirm of record in the
-5-
Surviving Corporation the title to any property or rights of the Company, or
otherwise to carry out the provisions of this Agreement, the officers and
directors of the Surviving Corporation are hereby authorized and empowered on
behalf of the Company in the name of and on behalf of the Company to execute and
deliver any and all things necessary or proper to vest or to perfect or confirm
title to such property or rights in the Surviving Corporation, and otherwise to
carry out the purposes and provisions of this Agreement.
3.9 Dissenting Shares.
-----------------
(a) Notwithstanding any provisions of this Agreement to the contrary,
any shares of Company Common Stock held by a holder who has exercised such
holder's dissenters' rights in accordance with the CGCL and who, as of the
Effective Time, has not effectively withdrawn or lost such dissenters' rights
("Dissenting Shares"), shall not be converted into or represent a right to
-----------------
receive the consideration described in Section 3.1, but the holder of the
-----------
Dissenting Shares shall only be entitled to such rights as are granted by the
CGCL.
(b) Notwithstanding the provisions of subsection (a) above, if any
holder of shares of Company Common Stock who demands dissenters' rights with
respect to such shares shall effectively withdraw or lose (through the failure
to perfect or otherwise) such holder's dissenters' rights under the CGCL, then,
as of the Effective Time or the occurrence of such event, such holder's shares
shall automatically be converted into and represent only the right to receive
the consideration described in Section 3.1 upon surrender of the applicable
------------
Certificate(s) as provided herein.
(c) The Company shall give IDT (i) prompt written notice of any
written demands for payment with respect to any shares of Company Common Stock
pursuant to dissenters' rights, and any withdrawals of such demands or losses of
such rights, and any other instruments served pursuant to the CGCL, and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for dissenters' rights. The Company shall not, except with the prior
written consent of IDT, voluntarily make any payment with respect to demands for
dissenters' rights or offer to settle or settle any such demands.
3.10 Adjustments to Exchange Ratio.
-----------------------------
The Exchange Ratio shall be adjusted to reflect appropriately the
effect of any stock split, reverse stock split, stock dividend (including any
dividend or distribution of securities convertible into IDT Common Stock or
Company Common Stock), reorganization, reclassification or other like change
with respect to IDT Common Stock or Company Common Stock occurring or having a
record date on or after the date hereof and prior to the Effective Time.
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Except as specifically set forth in the disclosure schedule provided
by the Company simultaneously herewith (the "Disclosure Schedule"), the parts of
-------------------
which are numbered to
-6-
correspond to the Section numbers of this Agreement, the Company hereby
represents and warrants to IDT and Merger Sub as follows:
4.1 Due Organization; Good Standing; Authority; Binding Nature of
-------------------------------------------------------------
Agreements.
----------
(a) Each of the Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all necessary corporate power and
authority: (i) to conduct its business in the manner in which its business is
currently being conducted and in the manner in which its business is proposed to
be conducted prior to the Closing; (ii) to own and use its assets in the manner
in which its assets are currently owned and used and in the manner in which its
assets are proposed to be owned and used prior to the Closing; (iii) to perform
its obligations under all Company Contracts; and (iv) subject to shareholder
approval of this Agreement and the Merger, to enter into and perform all of its
obligations under the Transactional Agreements and to consummate the
transactions contemplated by this Agreement and the other Transactional
Agreements.
(b) Neither the Company nor any of its subsidiaries has ever conducted
directly or through any subsidiary any business under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name, assumed name, trade name or
other name.
(c) Each of the Company and its subsidiaries is duly qualified and in
good standing as a foreign corporation in each of the jurisdictions in which the
nature of its business or the ownership or leasing of its properties requires
such qualification, except where the failure to qualify or be in good standing
would not have a Material Adverse Effect on the Company. Section 4.1(c) of the
--------------
Disclosure Schedule sets forth a true and complete list of each jurisdiction in
which the Company or any of its subsidiaries have an officer or a paid
representative (employee or consultant) or owns or leases property and of each
jurisdiction in which the Company or any of its subsidiaries are qualified to do
business.
(d) Section 4.1(d) of the Disclosure Schedule accurately sets forth
--------------
(i) the names of the members of the Company's Board of Directors, (ii) the names
and titles of the Company's officers and (iii) the names and members of the
committees of the Company's Board of Directors.
(e) Neither the Company nor any of its shareholders has ever approved,
or commenced any proceeding or made any election contemplating, the dissolution
or liquidation of the Company or the winding up or cessation of the Company's
business or affairs.
(f) Except as indicated in Section 4.1(f) of the Disclosure Schedule,
--------------
the Company has no subsidiaries, and the Company has never owned, beneficially
or otherwise, any shares or other securities of, or any direct or indirect
interest of any nature in, any Entity. All of the Company's subsidiaries are
wholly-owned by the Company. Each Entity in which the Company owns equity
interests, indicated in Section 4.1(f) of the Disclosure Schedule, is a
--------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. The shares of capital stock owned by the
Company in its subsidiaries or in any other Entity as indicated in Section
-------
4.1(f) of the Disclosure Schedule have
------
-7-
been duly authorized and validly issued, are fully paid and non-assessable, and
are owned beneficially and of record by the Company free and clear of any
Encumbrances.
(g) The execution, delivery and performance of the Transactional
Agreements have been duly authorized by all necessary action on the part of
Company, its officers, and its Board of Directors, subject to the approval of
the shareholders of the Company.
(h) The Transactional Agreements each constitute, or when executed
will constitute, the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms and conditions,
subject to the approval of the shareholders of the Company.
4.2 Articles of Incorporation and Bylaws; Records.
---------------------------------------------
(a) The Company has delivered to IDT accurate and complete copies of:
(i) the Articles of Incorporation and Bylaws of the Company and its
subsidiaries, including all amendments thereto; (ii) the stock records of the
Company and its subsidiaries; and (iii) the minutes and other records of the
meetings and other proceedings (including any actions taken by written consent
or otherwise without a meeting) of the shareholders of the Company and its
subsidiaries and the Boards of Directors of the Company and its subsidiaries.
There have been no meetings or other proceedings of the shareholders of the
Company and its subsidiaries or the Board of Directors of the Company and its
subsidiaries that are not reflected in such minutes or other records.
(b) There has not been any violation of any of the provisions of the
Articles of Incorporation or Bylaws of the Company or any of its subsidiaries or
of any resolution adopted by the shareholders of the Company or any of its
subsidiaries or the Boards of Directors of the Company or any of its
subsidiaries, and to the Knowledge of the Company, no event has occurred, and no
condition or circumstance exists, that likely would (with or without notice or
lapse of time) constitute or result directly or indirectly in such a violation.
(c) The books of account, stock records, minute books and other
records of the Company and its subsidiaries are accurate, up to date and
complete, and have been maintained in accordance with sound and prudent business
practices. All of the records of the Company and its subsidiaries are in the
actual possession and direct control of the Company or its subsidiaries.
4.3 Capitalization; Ownership of Stock; Solvency, Etc.
-------------------------------------------------
As of the date of this Agreement:
(a) The authorized capital stock of the Company consists of (i) one
million (1,000,000) shares of Preferred Stock, $0.001 par value per share, and
(ii) thirty million (30,000,000) shares of Company Common Stock, $0.001 par
value per share. As of November 1, 1998, (i) 7,502,690 shares of Company Common
Stock (together with a like number of the associated Rights), (ii) no shares of
Preferred Stock, (iii) options to purchase 1,600,919 shares of
-8-
Company Common Stock and (iv) warrants to purchase 50,000 shares of Company
Common Stock have been issued and are outstanding. All of such Company Common
Stock, warrants and options are owned of record by the shareholders, warrant
holders and option holders specified in Section 4.3(a) of the Disclosure
--------------
Schedule. On the Closing Date, the Company shall deliver to IDT a true and
correct update of the information in this Section 4.3(a) as of the Closing Date
--------------
(except that the list of shareholders will be dated within five business days of
the Closing Date).
(b) All of the shares of Company Common Stock currently outstanding
(i) have been duly authorized and validly issued, (ii) are fully paid and non-
assessable, and (iii) have been issued in full compliance with all applicable
securities laws and other applicable Legal Requirements.
(c) Other than as set forth in Section 4.3(a) above or in Section
-------------- -------
4.3(a) of the Disclosure Schedule, there is no: (i) outstanding preemptive
------
right, subscription, option, call, warrant or right (whether or not currently
exercisable) to acquire from the Company or any of its subsidiaries or, to the
Knowledge of the Company, affiliates any shares of the capital stock or other
securities of the Company or any of its subsidiaries; (ii) outstanding security,
instrument or obligation issued by the Company or any of its subsidiaries or
controlled affiliates that is or may become convertible into or exchangeable for
any shares of the capital stock or other securities of the Company or any of its
subsidiaries; (iii) shareholders' rights plan (or similar plan commonly referred
to as a "poison pill") or Contract under which the Company or any of its
subsidiaries is or may become obligated to sell or otherwise issue any shares of
its capital stock or any other securities; (iv) Contract to which the Company is
a party relating to the voting or registration of or restricting any person from
purchasing, selling, pledging or otherwise disposing of (or granting any option
or similar right with respect to ), any shares of Company Common Stock; or (v)
to the Knowledge of the Company, condition or circumstance that likely would
directly or indirectly give rise to or provide a basis for the assertion of a
claim by any Person to the effect that such Person is entitled to acquire or
receive any shares of capital stock or other securities of the Company or any of
its subsidiaries.
(d) The Company and its subsidiaries have not repurchased, redeemed or
otherwise reacquired (and, except as contemplated by this Agreement, has not
agreed, committed or offered (in writing or otherwise) to reacquire) any shares
of capital stock or other securities of the Company or any of its subsidiaries.
There are no shares of Company Common Stock held in the Company treasury or held
by any of the subsidiaries of the Company. Any securities reacquired by the
Company were (or will have been) reacquired in full compliance with the
applicable provisions of all applicable Legal Requirements.
(e) As of November 1, 1998: (i) 1,600,919 shares of Company Common
Stock are reserved for future issuance pursuant to stock options granted and
currently outstanding under the Company's 1989 Stock Option Plan and 1995 Stock
Option Plan (collectively, the "Option Plans"); (ii) 62,500 shares of Company
------------
Common Stock are reserved for future issuance pursuant to stock options granted
and currently outstanding under the Company's 1993 Directors' Stock Option Plan
(the "Directors Plan"); and (iii) 16,738 shares of Company Common Stock are
--------------
reserved for future issuance under the Company's 1993 Employee
-9-
Stock Purchase Plan (the "1993 Purchase Plan"). Stock options granted by the
------------------
Company pursuant to the Option Plans and the Directors Plan are referred to in
this Agreement as "Company Options."
---------------
(f) Section 4.3(f) of the Disclosure Schedule sets forth the following
--------------
information with respect to each Company Option outstanding as of October 30,
1998: (i) the particular plan pursuant to which such Company Option was granted;
(ii) the name of the optionee; (iii) the number of shares of Company Common
Stock subject to such Company Option; (iv) the exercise price of such Company
Option; (v) the date on which such Company Option was granted; (vi) the extent
to which such Company Option is vested as of October 30, 1998; and (vii) the
date on which such Company Option expires. The Company has delivered to IDT
accurate and complete copies of all stock option plans pursuant to which the
Company or any of its subsidiaries has ever granted stock options.
(g) Neither the execution and delivery of this Agreement or the other
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time) result in the creation of any third party ownership interest in any of the
Company's subsidiaries.
4.4 SEC Filings; Financial Statements.
---------------------------------
(a) The Company has delivered or made available to IDT accurate and
complete copies of each report, registration statement and definitive proxy
statement (excluding copies of exhibits) filed by the Company with the SEC since
November 17, 1994 (the "Company SEC Filings"). As of the time it was filed
-------------------
with the SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the Company SEC Filings
complied in all material respects with the applicable requirements of the
Securities Act or the Exchange Act (as the case may be); and (ii) none of the
Company SEC Filings contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(b) The financial statements of the Company (including any related
notes) contained in the Company SEC Filings: (i) complied as to form in all
material respects with the published rules and regulations of the SEC applicable
thereto; (ii) were prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered (except
as may be indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC, and except that the
unaudited financial statements may not contain footnotes and are subject to
normal and recurring year-end adjustments which will not, individually or in the
aggregate, be material in amount); and (iii) fairly present the consolidated
financial position of the Company and its subsidiaries as of the respective
dates thereof and the consolidated results of operations and cash flows of the
Company and its subsidiaries for the periods covered thereby.
-10-
(c) The Company has delivered to IDT an unaudited consolidated balance
sheet of the Company and its subsidiaries as of September 27, 1998
(the "Unaudited Balance Sheet"), and the related unaudited consolidated income
-----------------------
statement, statement of shareholders' equity and statement of cash flows of the
Company for the 12 months then ended (collectively, the "Financial Statements").
--------------------
The Financial Statements referred to in this Section 4.4(c): (i) were prepared
---------------
in accordance with generally accepted accounting principles applied on a basis
consistent with the basis on which the financial statements referred to in
Section 4.4(b) were prepared (except that the Financial Statements referred
--------------
to in this Section 4.4(c) may not contain footnotes); and (ii) fairly present
--------------
the consolidated financial position of the Company and its subsidiaries as of
September 27, 1998 and the consolidated results of operations and cash flows of
the Company and its subsidiaries for the period covered thereby.
(d) As of the date of this Agreement, the Company has no Liabilities
in excess of $100,000 individually, or $250,000 in the aggregate, except for:
(i) Liabilities identified as such in the "liabilities" column of the Unaudited
Balance Sheet; and (ii) Liabilities scheduled in Section 4.4(d) or 4.5(r) of the
------------------------
Disclosure Schedule.
4.5 Absence of Changes.
------------------
Since the date of the Unaudited Balance Sheet:
(a) there has not been any material adverse change in business,
condition, assets, liabilities, operations, financial performance or results of
operations of the Company or any of its subsidiaries, and no event has occurred
that likely would have a material adverse effect on the business, condition,
assets, liabilities, operations, financial performance or results of operations
of the Company and its subsidiaries;
(b) there has not been any material loss, damage or destruction to, or
any interruption in the use of, any of the assets (whether or not covered by
insurance) of the Company or any of its subsidiaries; (c) neither the Company
nor any of its subsidiaries has (i) declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, or (ii) repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities, other than pursuant to existing agreements
with Company employees at the original purchase price upon termination of such
employee's employment with the Company;
(d) neither the Company nor any of its subsidiaries has sold, issued,
granted or authorized the issuance or grant of: (i) any capital stock or other
security (except for Company Common Stock issued upon the exercise of
outstanding Company Options); (ii) any option, call, warrant or right to acquire
any capital stock or any other security (except for Company Options and purchase
rights under the Company's 1993 Purchase Plan); or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
(e) neither the Company nor any of its subsidiaries has (i) amended
its Articles of Incorporation or Bylaws or (ii) effected or been a party to any
transaction relating to
-11-
an Acquisition Proposal, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(f) neither the Company nor any of its subsidiaries has (i) received
any Acquisition Proposal, or (ii) solicited, initiated, encouraged or induced,
or provided any nonpublic information to or entered into any discussions with
any Person for the purpose of soliciting, initiating, encouraging or inducing,
the making or submission of any Acquisition Proposal;
(g) neither the Company nor any of its subsidiaries has formed any
subsidiary or acquired any equity interest or other interest in any other
Entity;
(h) neither the Company nor any of its subsidiaries has purchased or
otherwise acquired any asset from any other Person, except for assets acquired
by the Company or any of its subsidiaries in the Ordinary Course of Business;
(i) neither the Company nor any of its subsidiaries has leased or
licensed any asset from any other Person, except for assets leased or licensed
in the Ordinary Course of Business;
(j) neither the Company nor any of its subsidiaries has made any
capital expenditures outside the Ordinary Course of Business, except for such
capital expenditures as in the aggregate, measured by invoice amount, do not
exceed $10,000 or were consented to by IDT in writing;
(k) neither the Company nor any of its subsidiaries has sold or
otherwise transferred, or has leased or licensed, any asset to any other Person,
except for products sold by the Company or any of its subsidiaries from its
inventory in the Ordinary Course of Business;
(l) neither the Company nor any of its subsidiaries has written off as
uncollectible, or established any extraordinary reserve with respect to, any
account receivable or other indebtedness, except in the Ordinary Course of
Business;
(m) neither the Company nor any of its subsidiaries has pledged or
hypothecated any of its assets or otherwise permitted any of its assets to
become subject to any Encumbrance, except in the Ordinary Course of Business or
except for the liens identified as permitted in Section 4.6(d);
(n) neither the Company nor any of its subsidiaries has made any loan
or advance to any other Person, including without limitation, any shareholder of
the Company (other than normal employee travel advances in the Ordinary Course
of Business);
(o) neither the Company nor any of its subsidiaries has (i)
established, amended or adopted any Company Benefit Arrangement or (ii) paid any
bonus or made any profit sharing or similar payment to, or increased the amount
of the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or
-12-
employees, other than as required under agreements existing on the date hereof
as disclosed in Section 4.5(o) of the Disclosure Schedule;
--------------
(p) neither the Company nor any of its subsidiaries has entered into
any Contract, except in the Ordinary Course of Business; and no assets owned or
used by the Company or any of its subsidiaries has become bound by any Contract,
except in the Ordinary Course of Business;
(q) no Contract by which the Company or any of its subsidiaries or any
of the assets owned or used by the Company or any of its subsidiaries are or
were bound, or under which the Company or any of its subsidiaries has or had any
rights or interest, have been amended or terminated, other than in the Ordinary
Course of Business and other than expirations in accordance with the terms of
the Contracts;
(r) there has been no borrowing or agreement to borrow by the Company
or its subsidiaries or change in any guaranty, endorsement, indemnity, warranty
or other obligation of the Company or any of its subsidiaries in respect of the
obligations of others, or grant of a mortgage or security interest in any
property of the Company or any of its subsidiaries (other than liens identified
as permitted by Section 4.6(d)), and neither the Company nor any of its
subsidiaries has incurred, assumed or otherwise become subject to any
Liabilities in excess of $100,000 individually, or $250,000 in the aggregate,
other than those set forth in Section 4.4(d) or 4.5(r) of the Disclosure
------------------------
Schedule;
(s) neither the Company nor any of its subsidiaries has discharged any
Encumbrance or discharged or paid any indebtedness or other Liability, except
any that (i) are reflected as current liabilities in the Unaudited Balance Sheet
or have been incurred by the Company and its subsidiaries since the date thereof
in the Ordinary Course of Business, and (ii) have been discharged or paid in the
Ordinary Course of Business;
(t) neither the Company nor any of its subsidiaries has forgiven any
material debt or otherwise released or waived any material right or claim;
(u) neither the Company nor any of its subsidiaries has changed any of
its methods of accounting or accounting practices in any respect (other than as
may be required by GAAP);
(v) neither the Company nor any of its subsidiaries has entered into
any transaction or taken any other action outside the Ordinary Course of
Business; and
(w) neither the Company nor any of its subsidiaries has agreed or
committed (in writing or otherwise), to take any of the actions referred to in
clauses (c) through (v) above.
-13-
4.6 Title to Assets; Equipment; Real Property, Leases; Inventory.
------------------------------------------------------------
(a) Each of the Company and its subsidiaries owns, and has good, valid
and marketable title to, all assets it purports to own, including: (i) all
assets reflected on the Unaudited Balance Sheet (except for inventory sold by
the Company and its subsidiaries since the date thereof in the Ordinary Course
of Business, and except for assets held under capitalized leases, which are
identified in Section 4.6(a) of the Disclosure Schedule); (ii) all assets
--------------
acquired by the Company and its subsidiaries since the date of the Unaudited
Balance Sheet (except for inventory sold by the Company and its subsidiaries
since the date of the Unaudited Balance Sheet in the Ordinary Course of
Business); (iii) all assets referred to in Sections 4.6(b), 4.7 and 4.9 of the
-----------------------------
Disclosure Schedule, except leased assets identified in Section 4.6(b) of the
--------------
Disclosure Schedule or licensed assets identified in Section 4.9 of the
-----------
Disclosure Schedule, and all of the Company's and its subsidiaries' rights under
Company Contracts; and (iv) all other assets reflected in the books and records
of the Company or any of its subsidiaries as being owned by the Company or any
of its subsidiaries. Except as indicated in Section 4.6(a) of the Disclosure
--------------
Schedule, all of said assets are owned by the Company or its subsidiaries free
and clear of any Encumbrances, except liens for current taxes and assessments
not delinquent and except for mechanics', carriers', workers' and other similar
liens arising in the Ordinary Course of Business.
(b) Section 4.6(b) of the Disclosure Schedule identifies all items of
--------------
equipment, personal property and other tangible and intangible assets with an
individual net book value that exceeds $10,000 owned by or leased to the Company
and its subsidiaries and used by the Company or its subsidiaries in its
businesses, other than ordinary office furniture and office supplies. The
carrying value of the items identified on Section 4.6(b) of the Disclosure
--------------
Schedule are not impaired, as defined by GAAP.
(c) To the Knowledge of the Company, each asset identified in Section
-------
4.6(b) of the Disclosure Schedule: (i) is in good condition and repair,
------
consistent with its age and intended use (ordinary wear and tear excepted); (ii)
complies in all material respects and is being operated and otherwise used in
material compliance with all applicable Legal Requirements; and (iii) is
adequate in all material respects for the uses to which it is being put.
(d) Neither the Company nor any of its subsidiaries owns any real
property or any interest in real property, except for the real property and
leaseholds created under the real property leases identified in Section 4.6(d)
--------------
of the Disclosure Schedule (collectively, the "Premises"). Section 4.6(d) of the
-------- --------------
Disclosure Schedule provides an accurate and complete description of the
Premises and the facilities located on such Premises. The Company and its
subsidiaries enjoy peaceful and undisturbed possession of such Premises. The
Company has delivered to IDT complete copies of all agreements, including
leases, related to the Company's ownership interests in the Premises. The
Surviving Corporation will obtain a valid ownership or leasehold interests in
the Premises, in each case free and clear of all title defects, Encumbrances and
restrictions of any kind, except: (i) mechanics', carriers', workers' and other
similar liens arising in the Ordinary Course of Business; and (ii) liens for
current taxes not yet due and payable.
-14-
(e) [intentionally omitted.]
(f) All leases pursuant to which the Company or any of its
subsidiaries leases real or personal property are valid and effective in
accordance with their respective terms and, to the Company's Knowledge, there
exists no default thereunder or occurrence or condition which could result in a
default thereunder or termination thereof.
(g) The Company's and its subsidiaries' Premises are in a condition
adequate for the conduct of the Company's business in the Ordinary Course of
Business. The Company and its subsidiaries own, or have a valid leasehold
interest in or license to, all assets necessary for the conduct of its business
as presently conducted.
(h) Section 4.6(h) of the Disclosure Schedule identifies all items of
--------------
equipment and other tangible assets owned by or leased to the Company and its
subsidiaries and used at the location of SPIC Electronic and System Limited, a
public Limited Company incorporated under the provisions of the Indian Companies
Act ("SPEL"). SPEL has no ownership interest in such equipment and assets, and
----
the Company may, upon giving any prior notice that may be required under the
terms of the SPEL Agreement, repatriate such equipment and assets to the United
States without incurring any liability or obligation to SPEL or, to the
Knowledge of the Company, any Entity or Government Body.
(i) With respect to inventories listed on the Unaudited Balance Sheet,
as of the date of the Unaudited Balance Sheet: (a) inventories are stated at
lower of cost or market, cost being determined on the basis of FIFO and
consistent with the prior year, and due provision was made to reduce all slow-
moving, obsolete or unusable inventories to their estimated useful or scrap
values; (b) inventory quantities were determined from the Company's perpetual
inventory records, which have been adjusted on the basis of physical counts
taken by competent employees; (c) liabilities, if unpaid, for all items included
in inventories are recorded, and all quantities billed to customers, are
excluded from the inventory balances; (d) commitments for future purchases are
for quantities not in excess of anticipated requirements and at prices which
will not result in loss; and (e) provision has been made for any material loss
to be sustained in the fulfillment of, or from the inability to fulfill, any
commitment.
4.7 Receivables; Major Customers.
----------------------------
(a) Section 4.7 of the Disclosure Schedule provides an accurate and
-----------
complete breakdown and aging of the accounts receivable and notes receivable of
each customer of the Company and its subsidiaries and a list of all other
receivables of the Company and its subsidiaries as of September 27, 1998,
categorized by period of aging (30, 60, 90 or 120 or more days).
(b) All existing accounts receivable of the Company and its
subsidiaries (including those accounts receivable reflected on the Unaudited
Balance Sheet that have not yet been collected and those accounts receivable
that have arisen since such date and have not yet been collected) represent
valid obligations of ongoing customers of the Company and its
-15-
subsidiaries arising from bona fide transactions entered into in the Ordinary
Course of Business. The allowance for doubtful accounts set forth on the
Unaudited Balance Sheet was estimated by the Company in accordance with GAAP
applied on a basis consistent with its past practice and, to the Knowledge of
the Company, provides a sufficient reserve for doubtful accounts.
(c) Neither the Company nor any of its subsidiaries has received any
notice or other communication (in writing or otherwise), or received any other
information, indicating that customers representing a material portion of the
Company's and its subsidiaries' revenues may cease dealing with the Company or
its subsidiaries or may otherwise reduce the volume of business transacted by
such Person with the Company and its subsidiaries below historical levels.
(d) The Company has provided to IDT a copy of each of the Company's
standard forms of customer contract. Customers covered by contracts in forms
other than such standard forms or with material deviations from such standard
forms do not constitute a material portion of the Company's revenues. Neither
the Company nor any of its subsidiaries has any oral contracts or agreements to
provide services.
4.8 Accounts Payable; Major Suppliers.
---------------------------------
Section 4.8 of the Disclosure Schedule: (i) provides an accurate and
-----------
complete breakdown and aging of the Company's accounts payable as of September
27, 1998; and (ii) provides an accurate and complete breakdown of the Company's
long-term debt as of the date of this Agreement.
4.9 Proprietary Assets.
------------------
(a) Section 4.9 of the Disclosure Schedule sets forth each registered
-----------
or material Proprietary Asset that is owned by or licensed to the Company or any
of its subsidiaries or that is otherwise used in connection with the business of
the Company or any of its subsidiaries.
(b) The Company and its subsidiaries have taken all reasonable
measures and precautions necessary or appropriate to protect the confidentiality
and value of each Proprietary Asset identified or required to be identified in
Section 4.9 of the Disclosure Schedule.
-----------
(c) All current and former consultants of the Company or any of its
subsidiaries involved in the development of Proprietary Assets have executed an
employee or consultant proprietary information and inventions agreement
substantially in the form attached as Exhibit C hereto. To the Knowledge
---------
of the Company, no current or former employee or consultant is in violation
thereof. The Company does not believe it is or will be necessary to utilize in
the conduct of its business as presently conducted any inventions, trade secrets
or proprietary information of owned by any employee of Company or any of its
subsidiaries.
(d) Each of the Company and its subsidiaries has conducted its
business without infringement or claim of infringement of any license, patent,
copyright, service xxxx, trademark, trade name, trade secret or other
intellectual property right of others. The Company
-16-
and its subsidiaries are not infringing and have not at any time infringed or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement of any Proprietary Asset
owned or used by any other Person. To the Company's Knowledge, no Person is
infringing, and no Proprietary Asset owned or used by any other Person infringes
or conflicts with, any Proprietary Asset owned or used by Company or any of its
subsidiaries.
(e) There are no royalties, honoraria, fees or other payments payable
by the Company or any of its subsidiaries to any person by reason of the
ownership, use, license, sale or disposition of any Proprietary Asset of the
Company.
(f) The Proprietary Assets identified in Section 4.9 of the Disclosure
-----------
Schedule constitute all of the material Proprietary Assets necessary to enable
each of the Company and its subsidiaries to conduct its business in the manner
in which its business is currently being conducted, and each of the Company and
any of its subsidiaries owns, or has the right to use, and to license others to
use, all such Proprietary Assets. Such ownership or right to use, and ability to
license others to use, are, or with respect to patents to the Company's
Knowledge are, free and clear of, and without liability under, all claims and
right of third parties.
(g) The Company has not licensed the right to make, use or sell any of
its products to any third party.
4.10 Contracts.
---------
(a) All Company Contracts material to the Company's business
("Material Contracts") are in writing. The Company has delivered to IDT
--------------------
accurate and complete copies of all Material Contracts, including all amendments
thereto. Section 4.10 of the Disclosure Schedule identifies each Company
------------
Contract that constitutes a Material Contract. For purposes of this Agreement,
each of the following shall be deemed to constitute a Material Contract:
(i) any Contract providing for the employment of, or the
performance of services by, any employee or consultant (to the extent such
consultant may not be terminated without penalty on no more than 30 days'
notice), and any Contract pursuant to which the Company or any of its
subsidiaries is required to make any severance, termination or similar payment,
relocation payment or any other payment (including any bonus payment, but
excluding payments in respect of salary or commissions earned by employees of
the Company or any of its subsidiaries in the Ordinary Course of Business and
consistent with past practices) in excess of $25,000, to any current or former
employee or director of the Company or any of its subsidiaries;
(ii) any Contract relating to the acquisition, transfer,
development, sharing, license (to or by the Company or any of its subsidiaries),
use or other exploitation of any Proprietary Asset (except for any Contract
pursuant to which (1) any Proprietary Asset is licensed to the Company or any of
its subsidiaries under any third party software license generally available to
the public and (2) any Proprietary Asset is licensed by any of the Company to
any Person on a non-exclusive basis);
-17-
(iii) any Contract which provides for indemnification of any
officer, director, employee or agent of the Company or any of its subsidiaries;
(iv) any Contract imposing any restriction on the right or
ability of the Company or any of its subsidiaries (A) to compete with any other
Person, (B) to acquire any product or other asset or any services from any other
Person, to sell any product or other asset to or perform any services for any
other Person or to transact business or deal in any other manner with any other
Person, or (C) develop or distribute any technology;
(v) any Contract (A) relating to the acquisition, issuance,
voting, registration, sale or transfer of any securities, (B) providing any
Person with any preemptive right, right of participation, right of maintenance
or any similar right with respect to any securities, or (C) providing the
Company or any of its subsidiaries with any right of first refusal with respect
to, or right to repurchase or redeem, any securities;
(vi) any Contract requiring that the Company or any of its
subsidiaries give any notice or provide any information to any Person prior to
accepting any Acquisition Proposal;
(vii) any Contract (A) that contemplates or involves the
payment or delivery of cash or other consideration in an amount or having a
value in excess of $25,000 in the aggregate, or contemplates or involves the
performance of services having a value in excess of $25,000 in the aggregate,
and (B) that has a term of more than 90 days and that may not be terminated by
the Company or any of its subsidiaries (other than for breach of any such
Contract and, in any event, without penalty) within 90 days after the delivery
of a termination notice by the Company or any of its subsidiaries; and
(viii) any Contract (not otherwise identified in clauses "(i)"
through "(vii)" of this sentence) that is or would be material to any of the
Company or any of its subsidiaries, to the business, condition, capitalization
or operations of any of the Company or any of its subsidiaries or to any of the
transactions contemplated by this Agreement.)
(b) Each Material Contract is valid and in full force and effect, and
is enforceable by the Company and its subsidiaries in accordance with its
material terms. There is no Company Contract to which any Governmental Body is a
party or under which any Governmental Body has any rights or obligations.
(c) Neither the Company nor any of its subsidiaries is in default
under any Material Contract, and to the Company's Knowledge: (i) no Person
acting for the Company or any of its subsidiaries has violated or breached, or
declared or committed any material default under, any Material Contract; (ii) no
event has occurred, and no circumstance or condition exists, that likely would
(with or without notice or lapse of time) (A) result in a material violation or
breach of any of the provisions of any Material Contract, (B) give any Person
the right to declare a default or exercise any material remedy under any
Material Contract, (C) give any Person the right to accelerate the maturity or
performance of any Material Contract, or (D) give any Person
-18-
the right to cancel, terminate or modify any Material Contract; and (iii)
neither the Company nor any of its subsidiaries has waived any of its material
rights under any Material Contract.
(d) Neither the Company nor any of its subsidiaries has received any
notice that any Person against which the Company or any of its subsidiaries have
or may acquire any rights under any Material Contract is not solvent and is not
able to satisfy all of such Person's current and future monetary obligations and
other obligations and Liabilities to the Company or any of its subsidiaries that
would result separately or in the aggregate in a Material Adverse Effect with
respect to the Company.
(e) (i) Neither the Company nor any of its subsidiaries has ever
guaranteed or otherwise agreed to cause, insure or become liable for, and has
never pledged any of its assets to secure, the performance or payment of any
obligation or other Liability of any other Person except in the Ordinary Course
of Business; and (ii) neither the Company nor any of its subsidiaries has ever
been a party to or bound by (A) any joint venture agreement, partnership
agreement, profit sharing agreement, cost sharing agreement, loss sharing
agreement or similar Contract, or (B) any Contract that creates or grants to any
Person, or provides for the creation or grant of, any stock appreciation right,
phantom stock right or similar right or interest.
(f) To the Knowledge of the Company, the performance of the Company
Contracts will not result in any misdemeanor or felony, or any material
violation of or failure to comply in any material respect with any Legal
Requirement.
(g) No Person is currently materially renegotiating, nor has the
contractual right to materially renegotiate, any amount paid or payable to the
Company and its subsidiaries under any Material Contract or any other material
term or provision of any Material Contract.
(h) Schedule 4.10(h) of the Disclosure Schedule identifies and
----------------
provides an accurate and brief description, as of the date of this Agreement, of
each proposed material Contract as to which any bid, offer, written proposal,
term sheet or similar document has been submitted or received by the Company or
any of its subsidiaries that would commit the Company or any of its subsidiaries
to provide services and is outstanding and if entered would constitute a
Material Contract.
(i) No party to any Material Contract has notified the Company or any
of its subsidiaries or made a claim to the effect that the Company or any of its
subsidiaries has failed to perform any material obligation thereunder. In
addition, to the Knowledge of the Company, there is no plan, intention or
indication of any contracting party to any Material Contract to cause the
termination, cancellation or modification of such Contract or to reduce or
otherwise change its activity thereunder in any material respect so as to
adversely affect the benefits derived or expected to be derived therefrom by the
Company or any of its subsidiaries.
(j) Each of the Company and its subsidiaries has all material Company
Contracts necessary to conduct its business in the manner in which it is being
conducted or is proposed to be conducted prior to the Closing.
-19-
(k) The Agreement for Processing of Diffused Silicon Wafers dated
February 1, 1994 between the Company and SPEL (the "SPEL Agreement") is the only
--------------
agreement or understanding, oral or written, between the Company and SPEL, and
such contract governs the entire relationship between such parties. Such
contract's term expires on February 1, 1999, and the Company would not incur any
liability to SPEL or, to the Knowledge of the Company, any other party in
connection with the termination of such contract. To the Knowledge of the
Company, there are no circumstances under which the Company has incurred or,
provided the terms of the SPEL Agreement are complied with in all material
respects, would incur any liabilities in connection with the SPEL Agreement
(other than in connection with the payment for products by the Company pursuant
to the terms of such agreement).
4.11 Compliance With Legal Requirements.
----------------------------------
(a) To the Knowledge of the Company, each of the Company and its
subsidiaries is in compliance in all material respects with each Legal
Requirement that is applicable to it or to the conduct of its business or the
ownership or use of any of its assets.
(b) To the Knowledge of the Company, no event has occurred, and no
condition or circumstance exists, that likely would (with or without notice or
lapse of time) constitute or result directly or indirectly in a material
violation by the Company or any of its subsidiaries of, or a failure on the part
of the Company or any of its subsidiaries to comply in any material respect
with, any Legal Requirement.
(c) Neither the Company nor any of its subsidiaries has received, at
any time, any notice or other communication (in writing or otherwise) from any
Governmental Body, or any other Person, regarding (i) any actual, alleged,
possible or potential violation of, or failure to comply with, any Legal
Requirement, or (ii) any actual, alleged, possible or potential obligation on
the part of the Company or any of its subsidiaries to undertake, or to bear all
or any portion of the cost of, any cleanup or any remedial, corrective or
response action of any nature.
4.12 Certain Business Practices.
--------------------------
Neither the Company and any of its subsidiaries nor any director,
officer, agent or employee of the Company or any of its subsidiaries has: (i)
used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iii) made any other unlawful
payment.
4.13 Governmental Authorizations.
---------------------------
(a) Each Governmental Authorization held by the Company that is
necessary to the conduct of its business as presently conducted is valid and in
full force and effect.
(b) The Company and its subsidiaries have all Governmental
Authorizations necessary: (i) to enable each of the Company and its subsidiaries
to conduct its business in the
-20-
manner in which its business is currently being conducted or is proposed to be
conducted prior to the Closing; and (ii) to permit each of the Company and its
subsidiaries to own and use its assets in the manner in which they are currently
owned and used.
4.14 Tax Matters.
-----------
(a) Each material Tax required to have been paid, or claimed by any
Governmental Body to be payable, by the Company and its subsidiaries (whether
pursuant to any Tax Return or otherwise) has been duly paid in full on a timely
basis, or the Company has established adequate reserves therefor (identified as
such) in the Financial Statements. Any material Tax required to have been
withheld or collected by the Company and its subsidiaries has been duly withheld
and collected, and (to the extent required) each such Tax has been paid to the
appropriate Governmental Body.
(b) All material Tax Returns of the Company and its subsidiaries (i)
have been or will be filed when due, and (ii) have been, or will be when filed,
prepared in material compliance with all applicable Legal Requirements. All
material amounts (individually or in the aggregate) shown on Tax Returns of the
Company and its subsidiaries to be due on or before the Closing Date, and all
material amounts (individually or in the aggregate) otherwise payable in
connection with the Tax Returns of the Company and its subsidiaries on or before
the Closing Date, have been or will be paid on or before the Closing Date. The
Company has delivered to IDT accurate and complete copies of Tax Returns of the
Company and its subsidiaries filed by the Company or its subsidiaries, as the
case may be.
(c) The liability of the Company and its subsidiaries for unpaid Taxes
for all periods ending on or before the date of the Financial Statements does
not, in the aggregate, exceed the amount of the current liability accruals for
Taxes (excluding reserves for deferred taxes) reported in the Financial
Statements, and the liability of the Company and its subsidiaries for unpaid
Taxes for all periods or partial periods through the Closing Date will not
exceed such accruals, adjusted for operations in the Ordinary Course of Business
after the date of the Unaudited Balance Sheet.
(d) Section 4.14(d) of the Disclosure Schedule accurately identifies
---------------
each examination or audit of any Tax Return of the Company and its subsidiaries
that has been or is currently being conducted by any Governmental Body. The
Company has delivered to IDT accurate and complete copies of all audit reports
and similar documents relating to Tax Returns of the Company and its
subsidiaries. No extension or waiver of the limitation period applicable to any
of the Tax Returns of the Company and its subsidiaries has been granted (by the
Company and its subsidiaries or any other Person) that is still in effect, and
no such extension or waiver is currently being requested from the Company or its
subsidiaries.
(e) No claim or other Proceeding is pending or to the Company's
Knowledge has been threatened against or with respect to the Company or any of
its subsidiaries in respect of any Tax. There are no unsatisfied Liabilities for
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of proposed adjustment,
notice of deficiency or similar document received by the Company or any
-21-
of its subsidiaries. Neither the Company nor any of its subsidiaries has entered
into or become bound by any agreement or consent pursuant to Section 341(f) of
the Code. Neither the Company nor any of its subsidiaries has been, or will be,
required to include any adjustment in taxable income for any tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions or events
occurring, or accounting methods employed, prior to the Closing.
(f) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company or any of its subsidiaries that,
individually or collectively, could give rise directly or indirectly to the
payment of any amount that would not be deductible pursuant to Section 280G or
Section 162(m) of the Code.
(g) Neither the Company nor any of its subsidiaries is a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code and has not been a United States real property holding corporation within
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(h) Neither the Company nor any of its subsidiaries is liable for
Taxes incurred by any individual, trust, corporation, partnership or other
entity other than Company or its subsidiaries, either as a transferee or
successor or pursuant to Treasury Regulations Section 1.1502-6, or pursuant to
any other provision of federal, state or local law or regulation. Neither the
Company nor any of its subsidiaries is, or has ever been, a party to or bound by
any tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract (other than any agreement to which the Company and one or more
of such subsidiaries are the only parties).
(i) Neither the Company nor any of its subsidiaries is a party to any
joint venture, partnership or other Entity, arrangement or contract which could
be treated as a partnership for United States federal income tax purposes.
Neither the Company nor any of its subsidiaries has any ownership interest in
any foreign entity which has elected under Treasury Regulation Section 301.7701-
3 to be disregarded as an entity separate from its owner.
4.15 Employees, ERISA and Other Compliance.
-------------------------------------
(a) To the Knowledge of the Company, each of the Company and its
subsidiaries is in compliance in all material respects with all applicable laws,
agreements and contracts relating to employment, employment practices, wages,
hours, and terms and conditions of employment, including, but not limited to,
employee compensation matters. The Company and its subsidiaries do not have any
employment contracts or consulting agreements currently in effect that are not
terminable at will (other than agreements with the sole purpose of providing for
the confidentiality of proprietary information or assignment of inventions). All
independent contractors have been properly classified as independent contractors
for the purposes of federal and applicable state tax laws, laws applicable to
employee benefits and other applicable law, except where the failure to be so
classified, in the aggregate, results in actual or potential liability to the
Company of no more than $100,000.
-22-
(b) Neither the Company nor any of its subsidiaries: (i) now is, nor
has ever been, subject to a union organizing effort; (ii) is subject to any
collective bargaining agreement with respect to any of its employees; (iii) is
subject to any other contract, written or oral, with any trade or labor union,
employees' association or similar organization; or (iv) has any current labor
disputes that would materially impair the operations of the Company's business.
The Company and its subsidiaries generally have good labor relations, and the
Company has no Knowledge of any facts indicating that the consummation of the
Merger or any of the other transactions contemplated hereby will adversely
impact such labor relations in a material manner. As of the date of this
Agreement, the Company has no Knowledge that any of its or any of its
subsidiaries' key employees intends to leave his or her employ. There are no
controversies pending or, to the Knowledge of the Company or any of its
subsidiaries, threatened, between the Company or any of its subsidiaries (on the
one hand) and any of its employees (on the other hand) that would be reasonably
likely to result in the Company incurring any material liability. All of the
employees of the Company and its subsidiaries employed in the United States of
America are legally permitted to be employed by the Company or any of its
subsidiaries in the United States of America.
(c) Neither the Company nor any of its subsidiaries has any pension
plan which constitutes, or has since the enactment of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), constituted, a
-----
"multiemployer plan" as defined in Section 3(37) of ERISA. No pension plan of
the Company or any of its subsidiaries is subject to Title IV of ERISA.
(d) Section 4.15(d) to the Disclosure Schedule lists each employment,
---------------
severance or other similar contract, arrangement or policy, each "employee
benefit plan" as defined in Section 3(3) of ERISA and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits for
employees, consultants or directors which is entered into, maintained or
contributed to by the Company or any of its subsidiaries and covers any employee
or former employee of the Company or any of its subsidiaries. Such contracts,
plans and arrangements as are described in this Section 4.15(d) are hereinafter
---------------
collectively referred to as "Company Benefit Arrangements." To the Knowledge
-----------------------------
of the Company, each Company Benefit Arrangement has been maintained in
compliance in all material respects with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations that are
applicable to such Company Benefit Arrangement, and each such Company Benefit
Arrangement that is an
-23-
"employee pension benefit plan" as defined in Section 3(2) of ERISA that is
intended to qualify under Section 401(a) of the Code has received a favorable
determination letter that such plan satisfied the requirements of the Tax Reform
Act of 1986 (a copy of which letter(s), if any, have been delivered to IDT and
its counsel). The Company has delivered to IDT or its counsel a complete and
correct copy and description of each Company Benefit Arrangement. The Company
has timely filed and delivered to IDT and its counsel the most recent annual
report (Form 5500) for each Company Benefit Arrangement that is an "employee
benefit plan" as defined under ERISA. To the Knowledge of the Company, the
Company has never been a participant in any "prohibited transaction," within the
meaning of Section 406 of ERISA with respect to any employee pension benefit
plan (as defined in Section 3(2) of ERISA) which the Company sponsors as
employer or in which Company participates as an employer, which was not
otherwise exempt pursuant to Section 408 of ERISA (including any individual
exemption granted under Section 408(a) of ERISA), or which could result in an
excise tax under the Code. All contributions due from the Company or any of its
subsidiaries as of the date of the Unaudited Balance Sheet with respect to any
of the Company Benefit Arrangements have been made or have been accrued on the
Unaudited Balance Sheet and no further contributions will be due or will have
accrued thereunder as of the Closing Date other than amounts consistent with the
amounts paid or accrued in the periods reflected on the Unaudited Balance Sheet.
All individuals who, pursuant to the terms of any Company Benefit Arrangement,
are entitled to participate in any such Company Benefit Arrangement, are
currently participating in such Company Benefit Arrangement or have been offered
an opportunity to do so and have declined.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company relating to, or change in
employee participation or coverage under, any Company Benefit Arrangement that
would increase materially the expense of maintaining such Company Benefit
Arrangement above the level of the expense incurred in respect thereof for the
Company's fiscal year ended September 27, 1998.
(f) To the Knowledge of the Company, the group health plans (as
defined in Section 4980B(g) of the Code) that benefit employees of the Company
are in compliance, in all material respects, with the continuation coverage
requirements of Section 4980B of the Code as such requirements affect the
Company and its employees. As of the Closing Date, there will be no material
outstanding, uncorrected violations under the Consolidation Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any of the
-----
Company Benefit Arrangements, covered employees, or qualified beneficiaries.
(g) No benefit payable or which may become payable by the Company
pursuant to any Company Benefit Arrangement or as a result of or arising under
this Agreement or the other Transactional Agreements will constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) which is
subject to the imposition of an excise Tax under Section 4999 of the Code or
which would not be deductible by reason of Section 280G of the Code. Except as
set forth on Section 4.15(g) of the Disclosure Schedule, the Company is not a
---------------
party to any: (i) agreement with any executive officer or other key employee
thereof (A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
in the nature of the Merger or any of the other transactions contemplated by
this Agreement or any Transactional Agreements, (B) providing any term of
employment or compensation guarantee, or (C) providing severance benefits or
other benefits after the termination of employment of such employee regardless
of the reason for such termination of employment; or (ii) agreement or plan,
including, without limitation, any stock option plan, stock appreciation rights
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of benefits of which will be accelerated, by the
-24-
occurrence of the Merger or any of the other transactions contemplated by this
Agreement or any Transactional Agreements, or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement or any Transactional Agreements.
(h) To the Company's Knowledge, no employee, consultant or independent
contractor of the Company or its subsidiaries: (i) is in material violation of
any term or covenant of any employment contract, patent disclosure agreement,
noncompetition agreement or any other contract or agreement with, or obligation
to, any other party by virtue of such employee's, consultant's, or independent
contractor's being employed by, or performing services for, the Company or such
subsidiary or using trade secrets or proprietary information of others; or (ii)
has developed any technology, software or other copyrightable, patentable, or
otherwise proprietary work for the Company or any of its subsidiaries that is
subject to any agreement under which such employee, consultant or independent
contractor has assigned or otherwise granted to any third party any rights
(including without limitation Proprietary Assets) in such technology, software
or other copyrightable, patentable or otherwise proprietary work. To the
Company's Knowledge, the employment of any employee of the Company or any
subsidiary of the Company does not subject the Company or any such subsidiary to
any liability to any third party.
(i) There are no material pending claims against the Company or any of
its subsidiaries under any workers' compensation plan or policy or for long-term
disability benefits.
4.16 Environmental Matters.
---------------------
Each of the Company and its subsidiaries is and, to the Knowledge of
the Company, has been at all times in compliance in all material respects with
all Environmental Laws. Each of the Company and its subsidiaries has now and at
all times has had all the necessary permits required under Environmental Laws
for the operation of its business and material to the operation of such
business, and is not and has not been in material violation of any of the terms
and conditions of any of its permits. Neither the Company nor any of its
subsidiaries has received any notice or other communication (in writing or
otherwise), whether from a Governmental Body, citizens group, employee or
otherwise, that alleges that the Company or any of its subsidiaries is not in
compliance with any Environmental Law. Neither the Company nor any of its
subsidiaries has generated, manufactured, produced, transported, imported, used,
treated, refined, processed, handled, stored, discharged, released or disposed
of any Hazardous Materials (whether lawfully or unlawfully) at any of the
Premises occupied or controlled by the Company or any of its subsidiaries on or
at any time prior to the Closing Date, other than common household and office
products in de minimis quantities. To the Knowledge of the Company:
(a) there are not and have not been any releases or threatened
releases of any Hazardous Materials in any quantity (other than common household
and office products in de minimis quantities) at, on, or from the Premises;
-25-
(b) there are no circumstances that may prevent or interfere with
either the Company's or any of its subsidiaries' compliance with any
Environmental Law;
(c) no current or former owner or user of the Premises engaged in any
type of manufacturing or commercial activity which might be reasonably expected
to generate, manufacture, produce, transport, import, use, treat, refine,
process, handle, store, discharge, release, or dispose of any Hazardous
Materials (whether lawfully or unlawfully) on the Premises;
(d) no current or former owner of any property owned, leased or
controlled by the Company or any of its subsidiaries has received any notice or
other communication (in writing or otherwise), whether from a Government Body,
citizens group, employee or otherwise, that alleges that such current or prior
owner or the Company or any of its subsidiaries is not in compliance with any
Environmental Law;
(e) all property that is owned by, leased to, controlled by or used
by the Company or any of its subsidiaries, and all surface water, groundwater
and soil associated with or adjacent to such property is in clean and healthful
condition and is free of any material environmental contamination of any nature;
(f) the indemnification provisions contained in Article VII of that
certain Asset Purchase Agreement between AWA Microelectronics Pty. Limited and
Quality Semiconductor Australia Pty. Ltd. dated as of January 12, 1996 are valid
and enforceable in accordance with their terms; and
(g) there are no circumstances under which the Company has incurred
or would incur any liabilities associated with the compliance (or lack thereof)
with any Environmental Law by SPEL.
4.17 Sale of Products; Performance of Services.
-----------------------------------------
(a) Neither the Company nor any of its subsidiaries will incur or
otherwise become subject to any material Liability arising directly or
indirectly from any product manufactured or sold, or any repair services or
other services performed by, the Company or any of its subsidiaries on or at any
time prior to the Closing Date, other than normal warranty claims in the
Ordinary Course of Business.
(b) No customer or other Person has ever asserted or threatened to
assert any material claim against the Company or any of its subsidiaries (i)
under or based upon any warranty provided by or on behalf of the Company or any
of its subsidiaries, or (ii) under or based upon any other warranty relating to
any services performed by the Company and its subsidiaries, other than normal
warranty claims in the Ordinary Course of Business, the costs of which in the
aggregate are not material. To the Knowledge of the Company, no event has
occurred, and no condition or circumstance exists, that likely would (with or
without notice or lapse of time) directly or indirectly give rise to or serve as
a basis for the assertion of any such claim.
-26-
(c) Each of the Company and its subsidiaries believes that its quality
control programs are adequate.
4.18 Insurance.
---------
(a) Each of the Company and its subsidiaries maintains insurance that
it reasonably believes to be adequate and customary for the industry in which it
operates.
(b) Each of the insurance policies carried by the Company and its
subsidiaries is listed on Section 4.18 of the Disclosure Schedule, is
------------
valid, enforceable and in full force and effect, and has been issued by an
insurance carrier that, to the Knowledge of the Company, is solvent, financially
sound and reputable. All of the information contained in the applications
submitted in connection with said policies was (at the times said applications
were submitted) accurate and complete, and all premiums and other amounts owing
with respect to said policies have been paid in full on a timely basis. To the
Company's Knowledge, the nature, scope and dollar amounts of the insurance
coverage provided by said policies are sufficient to adequately insure the
business, assets, operations, key employees, services and potential liabilities
of the Company and its subsidiaries and comply with all insurance coverage
requirements of Company Contracts.
(c) There is no pending claim under or based upon any of the insurance
policies of the Company and its subsidiaries, and to the Company's Knowledge, no
event has occurred, and no condition or circumstance exists, that likely would
(with or without notice or lapse of time) directly or indirectly give rise to or
serve as a basis for any such claim.
(d) Neither the Company nor any of its subsidiaries has received: (i)
any notice or other communication (in writing or otherwise) regarding the actual
or possible cancellation or invalidation of any of the insurance policies of the
Company and its subsidiaries or regarding any actual or possible adjustment in
the amount of the premiums payable with respect to any of said policies; (ii)
any notice or other communication (in writing or otherwise) regarding any actual
or possible refusal of coverage under, or any actual or possible rejection of
any claim under, any of insurance policies of the Company and its subsidiaries;
or (iii) any indication that the issuer of any of the insurance policies of the
Company and its subsidiaries may be unwilling or unable to perform any of its
obligations thereunder.
4.19 Proceedings; Orders.
-------------------
(a) There is no pending Proceeding, and to the Knowledge of the
Company, no Person has threatened to commence any Proceeding: (i) that involves
the Company or any of its subsidiaries or that otherwise relates to or likely
would affect the Company's or its subsidiaries' businesses or any of the assets
owned or used by the Company or any of its subsidiaries (whether or not the
Company or any of its subsidiaries are named as a party thereto), except in each
case for threatened Proceedings that would not, individually or in the
aggregate, have a Material Adverse Effect on the Company; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the Transactions.
-27-
(b) The Company has delivered to IDT accurate and complete copies of
all pleadings, correspondence and other written materials to which the Company
has access that relate to the Proceedings identified in Section 4.19 of the
------------
Disclosure Schedule.
(c) There is no Order expressly applicable to the Company or any of
its subsidiaries or any of the assets owned or used by the Company or any of its
subsidiaries.
(d) To the Knowledge of the Company, no officer or employee of the
Company or any of its subsidiaries is subject to any Order that prohibits such
officer or employee from engaging in or continuing any conduct, activity or
practice relating to the Company's or its subsidiaries' business.
(e) To the Knowledge of the Company, no event has occurred, and no
claim, dispute or other condition or circumstance exists, that would reasonably
be expected to cause or provide a basis for a director, officer or other
Representative of the Company or any of its subsidiaries to seek indemnification
from, or commence a Proceeding against or involving the Company or any of its
subsidiaries.
(f) There is no Order or, to the Knowledge of the Company, proposed
Order that, if issued or otherwise put into effect: (i) likely would materially
adversely affect the business, condition, assets, liabilities, operations,
financial performance, net income or prospects (or on any aspect or portion
thereof) of the Company and its subsidiaries, taken as a whole, or adversely
affect the ability of the Company to comply with or perform any covenant or
obligation under this Agreement or any of the other Transactional Agreements; or
(ii) may have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the Transactions.
4.20 No Existing Discussions.
-----------------------
Neither the Company or any of its subsidiaries, nor Representative of
the Company or any of its subsidiaries, is engaged, directly or indirectly, in
any discussions or negotiations with any other Person relating to any
Acquisition Proposal.
4.21 Vote Required.
-------------
The affirmative vote of the holders of a majority of the shares of
Company Common Stock outstanding on the record date for the meeting of such
shareholders to approve the Merger is the only vote of the holders of any class
or series of the Company's capital stock necessary to adopt and approve this
Agreement, the Merger and the Transactions.
4.22 Non-Contravention; Consents.
---------------------------
Neither the execution and delivery of this Agreement or the other
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
-28-
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Articles of Incorporation or Bylaws of the Company or any
of its subsidiaries, or (ii) any resolution adopted by the shareholders of the
Company or any of its subsidiaries, the Board of Directors of the Company or any
of its subsidiaries or any committee of the Board of Directors of the Company or
any of its subsidiaries;
(b) to the Knowledge of the Company, contravene, conflict with or
result in a violation of, or give any Governmental Body or other Person the
right to challenge any of the Transactions or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which the Company and
its subsidiaries, or any of the assets owned or used by the Company or any of
its subsidiaries, is subject (assuming approval under the HSR Act and by the
shareholders of the Company);
(c) to the Knowledge of the Company, cause the Company or any of its
subsidiaries to become subject to, or to become liable for the payment of, any
Tax;
(d) to the Knowledge of the Company, cause any of the assets owned or
used by the Company or any of its subsidiaries to be reassessed or revalued by
any taxing authority or other Governmental Body;
(e) to the Knowledge of the Company, contravene, conflict with or
result in a violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or
modify, any Governmental Authorization that is held by the Company or any of its
subsidiaries or any of its employees or that otherwise relates to the Company's
or any of its subsidiaries' business or to any of the assets owned or used by
the Company or any of its subsidiaries;
(f) contravene, conflict with or result in a violation or breach of,
or result in a default under, any material provision of any of the Material
Contracts;
(g) give any Person the right to (i) declare a default or exercise any
remedy under any Material Contract, (ii) accelerate the maturity or performance
of any Material Contract, or (iii) cancel, terminate or modify any Material
Contract;
(h) give any Person the right to any payment (including salary, bonus
or other severance pay) by the Company or any of its subsidiaries or give rise
to any acceleration or change in the award, grant, vesting or determination of
options, warrants, rights, severance payments or other contingent obligations of
any nature whatsoever of the Company or any of its subsidiaries in favor of any
Person, in any such case as a result of the change in control of the Company or
any of its subsidiaries or otherwise resulting from the Transactions, including
any rights or benefits to be received by a Person upon his or her termination of
employment, except as otherwise described in Section 4.22(h) of the Disclosure
---------------
Schedule, which sets forth for each such Person an accurate summary of the
rights or benefits that will be received by such Person as a result of the
change in control of the Company or any of its subsidiaries or otherwise
resulting from the Transactions, including any rights or benefits to be received
by a Person upon his or her termination of employment;
-29-
(i) to the Knowledge of the Company, result in the imposition or
creation of any Encumbrance upon or with respect to any asset owned or
used by the Company or any of its subsidiaries; or
(j) result in the creation of any benefit or entitlement, related to
employment or otherwise, to be received by any employee of any of the Company's
subsidiaries.
The Company and its subsidiaries will not be required to make any filing with or
give any notice to, or obtain any Consent from, any Person in connection with
the execution and delivery of this Agreement and the other Transactional
Agreements or the consummation or performance of any of the Transactions other
than those noted in Section 4.22 of the Disclosure Schedule.
------------
4.23 Brokers.
-------
Neither the Company nor any of its subsidiaries has agreed or become
obligated to pay, or taken any action that likely would result in any Person
claiming to be entitled to receive, any brokerage commission, finder's fee or
similar commission or fee in connection with any of the Transactions.
4.24 Full Disclosure.
---------------
(a) Neither this Agreement (including all Schedules and Exhibits
hereto), nor any of the other Transactional Agreements, contains or will contain
any untrue statement of material fact or omits or will omit to state any fact
necessary to make any of the representations, warranties or statements contained
therein on behalf of the Company or any of the Company Affiliates, in light of
the circumstances under which they were made, not misleading. To the extent any
representation or warranty permits omission of items otherwise required to be
disclosed because they are not material or do not or would not have a Material
Adverse Effect on the Company, such omissions in the aggregate will not and do
not have a Material Adverse Effect on the Company.
(b) The information relating to the Company and its subsidiaries and
the Company Affiliates to be contained in the Proxy Statement and Prospectus (to
the extent information is provided by or with respect to the Company), and any
amendment thereto, will not, at the time the Proxy Statement and Prospectus is
mailed to the shareholders of the Company, at the time of the meeting of the
Company's shareholders to approve the Merger or as of the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
4.25 Powers of Attorney.
------------------
Neither the Company nor any of its subsidiaries has given a power of
attorney to any Person.
-30-
4.26 Securities Law Compliance.
-------------------------
Each of the Company and its subsidiaries has complied with all federal
and state securities laws in connection with all offers and sales of securities
issued by the Company or its subsidiaries prior to the date of this Agreement.
Neither the Company nor any of its subsidiaries has heretofore granted any other
purchaser of its securities the right to require the Company or any of its
subsidiaries to register any securities under the Securities Act or to qualify
for any exemption thereunder.
4.27 Transactions with Affiliates.
----------------------------
Except as set forth in the Company SEC Documents, since the date of
the Company's last proxy statement filed with the SEC, no event has occurred
that would be required to be reported by the Company pursuant to Item 404 of
Regulation S-K promulgated by the SEC.
4.28 Voting Arrangements.
-------------------
There are no outstanding shareholder agreements, voting trusts,
proxies or other arrangements or understandings to which any of the Company and
its subsidiaries is a party or, to the Knowledge of the Company, to which any
other Person is a party, relating to the voting of any shares of the capital
stock of the Company.
4.29 Ownership of Shares of IDT Common Stock.
---------------------------------------
As of the date hereof, neither Company nor, to its Knowledge, any of
its affiliates or associates (as such terms are defined under the Exchange Act),
(a) beneficially owns, directly or indirectly, or (b) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of IDT Common Stock, except for shares of IDT
Common Stock in the aggregate representing less than 1% of the outstanding
shares of IDT Common Stock.
4.30 Opinion of Financial Advisors.
-----------------------------
The Company's Board of Directors has received the written opinion of
Xxxxxxx & Company, Inc., financial advisor to the Company, to the effect that,
as of the date hereof, the Exchange Ratio is fair to the holders of Company
Common Stock from a financial point of view.
4.31 Shareholder Rights Plan.
-----------------------
The Rights are not currently exercisable and will not become
exercisable as a result of the Company entering into this Agreement, the
announcement of the execution and delivery of this Agreement and the terms of
the Merger, or the consummation of the Transactions.
-31-
4.32 Board Approval.
--------------
The Board of Directors of the Company has, as of the date of this
Agreement, unanimously (i) approved this Agreement and the Merger, (ii)
determined that the Merger is fair to, and in the best interests of, the Company
and its shareholders and (iii) determined to recommend that the shareholders of
the Company approve and adopt this Agreement and approve the Merger.
ARTICLE 5
---------
REPRESENTATIONS AND WARRANTIES OF IDT AND MERGER SUB
----------------------------------------------------
Except as set forth in the disclosure letter delivered to the Company at or
prior to the execution of this Agreement ("IDT Disclosure Schedule"), IDT and
-----------------------
Merger Sub represent and warrant to the Company as follows:
5.1 Due Organization; Good Standing; Authority; Binding Nature of
-------------------------------------------------------------
Agreements.
----------
(a) Each of IDT and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and has all necessary corporate power and authority: (i) to
conduct its business in the manner in which its business is currently being
conducted and in the manner in which its business is proposed to be conducted
prior to Closing; (ii) to own and use its assets in the manner in which its
assets are currently owned and used and in the manner in which its assets are
proposed to be owned and used prior to Closing; and (iii) to enter into and
perform its obligations under the Transactional Agreements to which it is or is
to be a party and to consummate the transactions contemplated by this Agreement
and the other Transactional Agreements.
(b) The execution, delivery and performance of each of the
Transactional Agreements to which it is or is to be a party have been duly
authorized by all necessary action on the part of each of IDT and Merger Sub and
their respective Boards of Directors.
(c) Each of the Transactional Agreements to which it is or is to be a
party constitutes the legal, valid and binding obligation of IDT and Merger Sub,
as the case may be, enforceable against IDT and Merger Sub, as the case may be,
in accordance with its terms.
5.2 Proceedings; Orders.
-------------------
There is no pending Proceeding, and to IDT's Knowledge, no Person has
threatened to commence any Proceeding that challenges, or that may have the
effect of preventing, delaying, making illegal or otherwise interfering with,
any of the Transactions, or that would result in a Material Adverse Effect on
IDT. There is no Order that likely would, or, to the Knowledge of IDT, proposed
Order that if issued or otherwise put into effect likely would, have a Material
Adverse Effect on IDT, that would adversely impact the ability of IDT or Merger
Sub to comply with or perform any covenant or obligation under this Agreement,
or that may
-32-
have the effect of preventing, delaying, making illegal or otherwise interfering
with any of the Transactions.
5.3 Non-Contravention; Consents.
---------------------------
Neither the execution and delivery of this Agreement or the other
Transactional Agreements to which IDT or Merger Sub, as the case may be, is or
is to be a party, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of IDT's or Merger Sub's Certificate or Articles of Incorporation
or Bylaws, or (ii) any resolution adopted by IDT's or Merger Sub's stockholders,
IDT's or Merger Sub's Board of Directors or any committee of IDT's or Merger
Sub's Board of Directors;
(b) to IDT's Knowledge, contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which IDT or Merger Sub, or any of
the assets owned or used by IDT or Merger Sub, is subject (assuming approval
under the HSR Act); or
(c) contravene, conflict with or result in a violation or breach of,
or result in a material default under, any of IDT's material agreements.
With the exception of the filing of the Agreement of Merger in the State of
California and any necessary filings pursuant to federal and state securities
and antitrust laws, IDT and Merger Sub will not be required to make any filing
with or give any notice to, or to obtain any Consent from, any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Transactions.
5.4 Brokers.
-------
IDT has not agreed or become obligated to pay, and has not taken any
action that likely would result in any Person claiming to be entitled to
receive, any brokerage commission, finder's fee or similar commission or fee in
connection with any of the Transactions.
5.5 Full Disclosure; SEC Reports.
----------------------------
(a) Neither this Agreement (including all Schedules and Exhibits
hereto), nor any of the other Transactional Agreements, contains or will contain
any untrue statement of material fact or omits or will omit to state any fact
necessary to make any of the representations, warranties or statements contained
therein on behalf of IDT and Merger Sub, in light of the circumstances under
which they were made, not misleading with respect to IDT or Merger Sub. To the
extent that any representation or warranty permits omission of items otherwise
required to be disclosed because they are not material or do not or would not
have a Material
-33-
Adverse Effect on IDT or Merger Sub, such omissions in the aggregate will not
and do not have a Material Adverse Effect on IDT or Merger Sub. The Registration
Statement and the Proxy Statement and Prospectus (to the extent information is
provided by or with respect to IDT or Merger Sub) and any amendment thereto do
not contain, and will not, at the time the Proxy Statement and Prospectus is
mailed to the shareholders of the Company, at the time of the meeting of the
Company's shareholders to approve the Merger and the Effective Time, contain,
any untrue statement of a material fact and do not omit, and will not omit, to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they are made,
not misleading.
(b) As of the date of this Agreement, IDT has provided the Company and
the Company's Representatives with full and complete access to all of IDT's
records and other documents and data requested by them.
(c) IDT has delivered or made available to the Company accurate and
complete copies of each report, registration statement and definitive proxy
statement (excluding copies of exhibits) filed by IDT with the SEC since
September 30, 1993 (the "IDT SEC Filings"). As of the time it was filed with the
---------------
SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the IDT SEC Filings
complied in all material respects with the applicable requirements of the
Securities Act or the Exchange Act (as the case may be); and (ii) none of the
IDT SEC Filings contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements (including any related
notes) contained in the IDT SEC Filings: (i) complied as to form in all material
respects with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC, and except that the unaudited
financial statements may not contain footnotes and are subject to normal and
recurring year-end adjustments which will not, individually or in the aggregate,
be material in amount); and (iii) fairly present the consolidated financial
position of IDT and its subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows of IDT and its subsidiaries
for the periods covered thereby.
5.6 Valid Issuance of IDT Common Stock.
----------------------------------
The shares of IDT Common Stock to be issued pursuant to the Merger
have been duly authorized and reserved for issuance and, when issued in
accordance with the terms of this Agreement and the other Transactional
Agreements, will be validly issued, fully paid and non-assessable, will not be
subject to any preemptive rights and will be issued in compliance with all
applicable federal or state securities laws. The authorized, issued and
outstanding capitalization of IDT is as set forth in the IDT SEC Filings as of
the dates of the financial statements or other information included in the IDT
SEC Filings.
-34-
5.7 Compliance with Laws.
--------------------
IDT has complied with, is not in violation of, and has not received
any notices of violations with respect to, any federal, state or local statute,
law or regulation with respect to the conduct of its business, or the ownership
or operation of its business, except for failures to comply or violations which
would not have a Material Adverse Effect on IDT.
5.8 Interim Operations of Sub.
-------------------------
Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, has engaged in no other business
activities and has conducted its operations only as contemplated by this
Agreement.
5.9 Stockholders' Consent.
---------------------
No consent or approval of the stockholders of IDT is required for IDT
to enter into this Agreement or the other Transactional Agreements or to
consummate the transactions contemplated hereby and thereby.
5.10 Absence of Certain Changes or Events.
------------------------------------
Since June 28, 1998, IDT has not suffered a Material Adverse Effect
with respect to its business.
ARTICLE 6
---------
PRE-CLOSING PERIOD COVENANTS OF THE COMPANY
-------------------------------------------
6.1 Access and Investigation.
------------------------
The Company shall ensure that, at all times during the Pre-
Closing Period:
(a) The Company and its Representatives provide IDT and its
Representatives with free and complete access (except with respect to technical
trade secrets), at reasonable times and with reasonable notice from IDT to the
Company, to all of the Company's premises and assets, to all existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company, and to responsible officers and employees of the Company, and
the Company and its Representatives provide IDT and its Representatives with
copies of such existing books, records, Tax Returns, work papers and other
documents and information relating to the Company as IDT may request in good
faith (it being the understanding of the parties that all such access and
investigation shall be and remain subject to the Non-Disclosure Agreement);
(b) The Company and its Representatives compile and provide IDT and
its Representatives with such additional financial, operating and other data and
information regarding the Company as IDT may reasonably request in good faith;
and
-35-
(c) Notwithstanding anything to the contrary in Sections 6.1(a) and
-------------------
(b), the Company and its Representatives confer as often as IDT deems
---
necessary with a representative (the "IDT Liaison") of IDT (who is currently
-----------
Xxxxx Xxxxxxxxx but may be any person IDT designates provided such person has an
educational and experiential background that is not primarily related to the
Company's technology), concerning operational matters, the status of the
Company's business, condition, assets, liabilities, operations, financial
performance and prospects and the Company's compliance with the conditions of
this Agreement, including, without limitation, the Company's covenants contained
in Section 6.2, and promptly notify the IDT Liaison of: (i) any material
-----------
change in the Company's business, condition, assets, liabilities, operations,
financial performance or prospects; (ii) or any event reasonably likely to lead
to any such change; (iii) any failure to comply with the conditions to this
Agreement, including, without limitation, the Company's covenants contained in
Section 6.2; or (iv) any event reasonably likely to lead to any such failure.
-----------
In connection with its obligations under this Section 6.1(c), as of the
--------------
date of this Agreement, the Company will establish an office for the IDT Liaison
at the Company's principal place of business, located at 000 Xxxxxx Xxxxxx,
Xxxxx Xxxxx, XX 00000, and will allow the IDT Liaison full and complete access
to the Company's principal place of business, including such office. In
addition, the Company will provide the IDT Liaison with such other documents as
the IDT Liaison may request in good faith for the purpose of (i) evidencing the
accuracy of any representation or warranty made by the Company, (ii) evidencing
the compliance by the Company, or the performance by the Company of, any
covenant or obligation set forth in this Agreement or any of the other
Transactional Agreements, (iii) evidencing the satisfaction of any condition set
forth in Section 9.1 or Section 9.2, or (iv) otherwise facilitating the
----------- -----------
consummation or performance of any of the Transactions.
6.2 Operation of Business.
---------------------
The Company shall ensure that, during the Pre-Closing Period,
unless the IDT Liaison otherwise consents:
(a) The Company conducts its operations exclusively in the Ordinary
Course of Business and in the same manner as such operations have been conducted
prior to the date of this Agreement, except as otherwise required by this
Section 6.2;
(b) The Company uses its Best Efforts to preserve intact its current
business organization, keep available the services of its current officers and
employees and maintain its relations and goodwill with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other Persons having
business relationships with the Company;
(c) The Company keeps in full force all insurance policies identified
in Section 4.18 of the Disclosure Schedule and obtains any additional
------------
insurance required consistent with past practices for its business and
property;
(d) The Company immediately notifies IDT in writing of any inquiry,
proposal or offer from any Person relating to any Acquisition
Proposal;
-36-
(e) The Company does not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and does not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities, except with respect to the repurchase of
shares of Company Common Stock upon termination of employees at the original
purchase price pursuant to agreements existing at the date hereof;
(f) The Company does not sell, reprice or otherwise issue (or grant
any warrants, options or other rights to purchase) any shares of capital stock
or any other securities, except the issuance of shares of Company Common Stock
pursuant to option grants to employees made in the Ordinary Course of Business
prior to the date of this Agreement;
(g) The Company does not amend its Articles of Incorporation or
Bylaws, and does not effect or become a party to any transaction related to an
Acquisition Proposal or any recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(h) The Company does not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(i) The Company does not establish or adopt any Company Benefit
Arrangement, and does not pay any bonus or make any profit sharing or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, except pursuant to existing agreements disclosed in
Section 6.2(i) of the Disclosure Schedule;
--------------
(j) The Company does not change any of its methods of accounting or
accounting practices in any respect unless required by GAAP;
(k) The Company does not make any Tax election;
(l) The Company does not commence any Proceeding, and the Company does
not spend, or incur Liabilities with respect to costs and fees of, more than
$100,000 in the aggregate in connection with pursuing existing Proceedings in
which the Company is the plaintiff or petitioner;
(m) The Company does not: (i) acquire, dispose of, transfer, lease,
license, mortgage, pledge or encumber any fixed or other assets or make any
capital expenditures (including, without limitation, expenditures on capital
equipment, manufacturing systems or software systems), other than assets
acquired or capital expenditures that total no more than $10,000 individually or
$100,000 in the aggregate, and other than inventory sold in the Ordinary Course
of Business; (ii) incur, assume or prepay any indebtedness, Liability or
obligation or any other liabilities, other than in the Ordinary Course of
Business; (iii) issue any debt securities; (iv) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person; or (v) make any loans,
advances or capital contributions to, or investments in, any other Person, other
than normal travel advances in the Ordinary Course of Business;
-37-
(n) The Company pays all debts and Taxes, and pays or performs all
other obligations, when due (other than matters being contested in good faith to
which contests the IDT Liaison has consented, such consent not to be
unreasonably withheld);
(o) The Company does not transfer to any Person any Proprietary Asset;
(p) The Company does not enter into or amend any agreements pursuant
to which any other Person is granted distribution, marketing or other rights of
any type or scope with respect to any of its services, products or technology;
(q) The Company does not pay, discharge or satisfy, in any amount in
excess of $100,000 in any one case or $250,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the Ordinary Course of Business, other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Financial Statements or which IDT has consented to in writing;
(r) The Company does not hire any new employee;
(s) The Company gives all notices and other information (including any
notices and information required based on any instructions reasonably given by
IDT related to post-Closing operations) required prior to the Closing to be
given to the employees of the Company and any applicable Governmental Body under
the National Labor Relations Act, the Code, COBRA and other applicable law in
connection with the Transactions;
(t) The Company does not take, or allow to be taken, or fail to take
any action, which act or omission would jeopardize qualification of the Merger
as a reorganization within the meaning of Section 368 of the Code;
(u) The Company does not revalue any of its assets, including, without
limitation, writing down the value of inventory or writing off notes or accounts
receivable, except as required under GAAP and in the Ordinary Course of
Business;
(v) Except as otherwise contemplated hereunder, the Company does not
enter into any transaction with a value greater than $10,000, or enter into any
other transaction, regardless of value, or take any other action, outside the
Ordinary Course of Business;
(w) The Company does not enter into any transaction or take any other
action that likely would cause or constitute a Breach of any representation or
warranty made by the Company or any of the Company Affiliates in this Agreement
or in any of the other Transactional Agreements;
(x) The Company does not enter into any inbound or outbound licensing
agreements other than outbound licenses in connection with the sale of the
Company's products in the Ordinary Course of Business; and
-38-
(y) The Company provides operation of business incentives, totaling no
more than $750,000, to key non-officer Company employees to be specified by IDT
on terms to be specified by IDT.
6.3 Filings and Consents; Cooperation.
---------------------------------
The Company shall use its reasonable commercial Best Efforts to
ensure that:
(a) Each filing or notice required to be made or given (pursuant to
any applicable Legal Requirement, Order or Contract, or otherwise) by the
Company in connection with the execution and delivery of this Agreement or the
other Transactional Agreements, or in connection with the consummation or
performance of any of the Transactions, is made or given as soon as possible
after the date of this Agreement;
(b) Each Consent required to be obtained (pursuant to any applicable
Legal Requirement, Order or Contract, or otherwise) by the Company in connection
with the execution and delivery of this Agreement or the other Transactional
Agreements, or in connection with the consummation or performance of any of the
Transactions (including each of the Consents identified in Section 4.22 of the
------------
Disclosure Schedule), is obtained as soon as possible after the date of this
Agreement and remains in full force and effect through the Closing Date;
(c) The Company promptly delivers to IDT a copy of each filing made,
each notice given and each Consent obtained by the Company during the Pre-
Closing Period; and
(d) During the Pre-Closing Period, the Company and its Representatives
cooperate with IDT and IDT's Representatives, and prepare and make available
such documents and take such other actions as IDT may request in good faith, in
connection with any filing, notice or Consent that IDT is required or elects to
make, give or obtain.
6.4 Notification; Updates to Disclosure Schedule.
--------------------------------------------
(a) During the Pre-Closing Period, the Company shall promptly notify
IDT in writing of:
(i) the discovery by the Company of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a Breach of any representation or
warranty made by the Company or any of the Company Affiliates in this Agreement
or any of the other Transactional Agreements;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement (except as a result of actions
taken pursuant to the written consent of IDT) and that would cause or constitute
a Breach of any representation or warranty made by the Company or any of the
Company Affiliates in this Agreement or any of the other Transactional
Agreements if (A) such representation or warranty had been made as of the time
of the occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such
-39-
event, condition, fact or circumstance had occurred, arisen or existed
on or prior to the date of this Agreement or any of the other Transactional
Agreements;
(iii) any Breach of any covenant or obligation of the Company;
and
(iv) any event, condition, fact or circumstance that may make the
timely satisfaction of any of the conditions set forth in Section 9.1 or Section
----------- -------
9.2 impossible or unlikely.
---
(b) If any event, condition, fact or circumstances that is required to
be disclosed pursuant to Section 6.4(a) requires any material change in the
--------------
Disclosure Schedule, or if any such event, condition, fact or circumstance
would require such a change assuming the Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstances, then the Company shall promptly deliver to IDT an
update to the Disclosure Schedule specifying such change (a "Disclosure
----------
Schedule Update"); provided, however, that no such update shall be deemed to
--------------- -----------------
supplement or amend the Disclosure Schedule for the purpose of (i) determining
the accuracy of any of the representations and warranties made by the Company
or any of the Company Affiliates in this Agreement or any of the other
Transactional Agreements, or (ii) determining whether any of the conditions
set forth in Article 9 has been satisfied, unless the specific updated
---------
information has been consented to by IDT in writing as a waiver of such
inaccuracy or determination. (c) The Company will promptly update any relevant
and material information provided to IDT after the date hereof pursuant to the
terms of this Agreement.
6.5 No Negotiation or Solicitation.
------------------------------
(a) Subject to Section 6.5(b), from and after the date of this
--------------
Agreement until the earlier of the Effective Time or termination of this
Agreement pursuant to its terms, the Company and its subsidiaries shall not,
and will instruct their respective Representatives not to, directly or
indirectly, (i) solicit, initiate or knowingly or recklessly encourage the
making, submission or announcement of, any Acquisition Proposal (as defined
below) by any person, entity or group (other than IDT and its
Representatives), or (ii) participate in any discussions or negotiations with,
or disclose any non-public information concerning the Company or any of its
subsidiaries to, or afford any access to the properties, books or records of
the Company or any of its subsidiaries to, or otherwise assist or facilitate,
or enter into any agreement or understanding with, any person, entity or group
(other than IDT and its Representatives), in connection with any Acquisition
Proposal with respect to the Company. Without limiting the generality of the
foregoing, the Company acknowledges and agrees that any violation of any of
the restrictions set forth in the preceding sentence by any Representative of
the Company shall be deemed to constitute a breach of this Section 6.5 by the
-----------
Company. For the purposes of this Agreement, an "Acquisition Proposal" with
--------------------
respect to an entity means any proposal or offer relating to (i) any merger,
consolidation, sale of substantial assets or similar transactions involving
the entity or any subsidiaries of the entity (other than sales or licenses of
assets or inventory in the Ordinary Course of Business or as permitted under
the terms of this Agreement), (ii) sale of 15% or more of the outstanding
shares of capital stock of the entity (including without limitation by way of
a
-40-
tender offer or an exchange offer), (iii) the acquisition by any person of
beneficial ownership or a right to acquire beneficial ownership of, or the
formation of any "group" (as defined under Section 13(d) of the Exchange Act
and the rules and regulations thereunder) which beneficially owns, or has the
right to acquire beneficial ownership of, 15% or more of the then outstanding
shares of capital stock of the entity (except for acquisitions for passive
investment purposes only in circumstances where the person or group qualifies
for and files a Schedule 13G with respect thereto); or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or
any agreement to engage in any of the foregoing. The Company will immediately
cease any and all existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposal. The
Company will (i) notify IDT as promptly as practicable if it receives any
proposal or written inquiry or written request for the Company in connection
with an Acquisition Proposal or potential Acquisition Proposal and (ii) as
promptly as practicable notify IDT of the significant terms and conditions of
any such Acquisition Proposal, as well as the identity of the third party
submitting such Acquisition Proposal. In addition, subject to the other
provisions of this Section 6.5, from and after the date of this Agreement
-----------
until the earlier of the Effective Time and termination of this Agreement
pursuant to its terms, the Company and its subsidiaries will not, and will
instruct their respective Representatives not to, directly or indirectly, make
or authorize any public statement, recommendation or solicitation in support
of any Acquisition Proposal made by any person, entity or group (other than
IDT); provided, however, that nothing herein shall prohibit the Company's
Board of Directors from taking and disclosing to the Company's shareholders a
position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act.
(b) Notwithstanding anything contrary contained in Section 6.5(a) or
--------------
elsewhere in this Agreement, prior to the Effective Time, the Company may, to
the extent the Board of Directors of the Company determines, in good faith,
after consultation with outside legal counsel, that the Board's fiduciary duties
require it to do so, participate in discussions or negotiations with, and,
subject to the requirements of Section 6.5(c) below, furnish non-public
--------------
information, and afford access to the properties, books or records of the
Company to any person, entity or group after such person, entity or group has
delivered to the Company in writing an unsolicited bona fide Acquisition
Proposal (which has not been withdrawn) that would result in a transaction more
favorable than the Merger to the shareholders of the Company (a "Superior
--------
Proposal"). In addition, notwithstanding the provisions of Section 6.5(a) above
-------- --------------
or any other provision of this Agreement, in connection with a submitted,
written bona fide Acquisition Proposal, the Company may refer the proposing
third party to this Section 6.5 or make a copy of this Section 6.5 available to
----------- -----------
such third party. In the event the Company receives a Superior Proposal,
nothing contained in this Agreement (but subject to the terms of this Section
-------
6.5(b)) will prevent the Board of Directors of the Company from recommending
------
such Superior Proposal to the Company's shareholders, if the Board determines,
in good faith, after consultation with outside legal counsel, that such action
is required by its fiduciary duties; in such case, the Board of Directors of the
Company may withdraw, modify or refrain from making its recommendations set
forth in Section 8.2(a)(ii); provided that the Company shall remain obligated
------------------
under Section 8.2 to convene the meeting of the Company shareholders and shall
-----------
have the vote on the Merger considered by the shareholders of the Company prior
to the vote (if any) on the Superior
-41-
Proposal; and provided, further, that the Company shall not recommend to its
shareholders a Superior Proposal for a period of not less than 72 hours after
IDT's receipt of a copy of such Superior Proposal (or a description of the
significant terms and conditions thereof, if not in writing) and the identity
of the third party.
(c) Notwithstanding anything to the contrary herein, the Company will
not provide any non-public information to a third party unless: (i) the
Company provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection of oral or written confidential
information at least as restrictive as such terms in the letter agreement with
respect to confidentiality by and between IDT and the Company, dated as of
August 24, 1998 (the "Nondisclosure Agreement"); and (ii) such non-public
-----------------------
information has been previouly delivered to IDT.
6.6 Best Efforts.
------------
During the Pre-Closing Period, the Company shall use its
commercially reasonable Best Efforts to cause the conditions set forth in
Section 9.1 and Section 9.2 to be satisfied on a timely basis, and shall not
----------- -----------
take any action or omit to take any action, the taking or omission of which
would or could reasonably be expected to result in any of the representations
and warranties of the Company or the Company Affiliates set forth in this
Agreement or any of the other Transactional Agreements becoming untrue, or in
any of the conditions of Closing set forth in Section 9.1 or Section 9.2 not
----------- -----------
being satisfied.
6.7 Proprietary Information and Inventions Agreements.
-------------------------------------------------
On or prior to Closing, the Company shall use its reasonable
commercial Best Efforts to enter into Proprietary Information and Inventions
Agreements, substantially in the form attached as Exhibit C hereto or in such
---------
other form as IDT may approve, with all of the Company's employees and
consultants, except for such employees and consultants as shall have
previously entered into a form of such agreement reasonably acceptable to IDT.
6.8 Letters of the Company's Auditors.
---------------------------------
The Company shall use its Best Efforts to cause to be delivered to
IDT at or prior to the date two business days prior to the Closing a letter of
Ernst & Young LLP (the "Company Auditors"), the Company's independent
----------------
auditors, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to IDT, in
customary form and substance reasonably satisfactory to IDT, and in scope and
substance consistent with applicable professional standards for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement (the "Accounting Comfort
------------------
Letter"). The Company shall use its Best Efforts to cause to be delivered to
------
IDT an update, dated the Closing Date, of the letter of the Company Auditors
described in the preceding sentence.
-42-
6.9 Affiliates.
----------
(a) The Company shall deliver to IDT promptly following the date
hereof a list identifying all Persons ("Company Affiliates"), if any, who at
------------------
the time the Merger is submitted for approval to the shareholders of the
Company, may be deemed "affiliates" of the Company for purposes of Rule 145
under the Securities Act. The Company shall use its Best Efforts to cause each
Company Affiliate to deliver to IDT, as promptly as practicable on or
following the date hereof (and in any event by no later than November 30,
1998, which shall not be later than the date 30 days prior to the Effective
Time) a written agreement ("Company Affiliate Agreement"), in the form of
---------------------------
Exhibit D-1 hereto, each of which will be in full force and effect as of the
-----------
Effective Time. IDT will be entitled to place appropriate legends on the
certificates evidencing any IDT Common Stock to be received by a Company
Affiliate pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for IDT Common Stock,
consistent with the terms of the Company Affiliate Agreements.
(b) The Company shall promptly advise IDT if any Person becomes or
ceases to be a Company Affiliate.
6.10 Takeover Statutes.
-----------------
If any Takeover Statute shall become applicable to any of the
Transactions, the Company and the members of the Board of Directors of the
Company shall grant such approvals and take such actions as are necessary so
that the Merger and the other Transactions may be commenced as promptly as
practicable in the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of such statute or regulation in the Transaction.
6.11 Bank Accounts.
-------------
Promptly after the date hereof, the Company will deliver to IDT a
written statement which accurately sets forth, with respect to each account
maintained by or for the benefit of the Company at any bank or other financial
institution:
(a) the name and location of the institution at which such account is
maintained;
(b) the name in which such account is maintained and the account
number of such account;
(c) a description of such account and the purpose for which such
account is used;
(d) the then-current balance in such account;
(e) the rate of interest then being earned on the funds in such
account; and
(f) the names of all individuals authorized to draw on or make
withdrawals from such account.
-43-
6.12 Supplier Information.
--------------------
(a) Promptly following the date hereof, the Company shall provide
IDT with a written statement that accurately identifies, and provides an
accurate and complete breakdown of the amounts paid to, each supplier or other
Person that received more than $500,000 from the Company in the fiscal year
ended September 27, 1998 other than amounts paid to employees or consultants
and described in Section 4.15 of the Disclosure Schedule.
------------
6.13 Employee Information.
--------------------
(a) Promptly following the date hereof, the Company will deliver to
IDT a written statement showing, with respect to each employee of the Company
(including any employee of the Company who is on a leave of absence or on
layoff status):
(i) the name of such employee and the date as of which such
employee was originally hired by the Company;
(ii) such employee's title;
(iii) such employee's annualized compensation as of the date of
this Agreement;
(iv) each Company Benefit Arrangement in which such employee
participates or is eligible to participate; and
(v) any Governmental Authorization that is held by such
employee and that is used in connection with the Company's business.
6.14 Insurance Information.
---------------------
Promptly following the Closing, the Company will deliver to IDT a
written statement stating, with respect to each insurance policy maintained by
or at the expense of, or for the direct or indirect benefit of, the Company:
(a) the name of the insurance carrier that issued such policy and
the policy number of such policy;
(b) whether such policy is a "claims made" or an "occurrences"
policy;
(c) a description of the coverage provided by such policy and the
material terms and provisions of such policy (including all applicable
coverage limits, deductible amounts and co-insurance arrangements);
(d) the annual premium payable with respect to such policy, and the
cash value (if any) of such policy; and
-44-
(e) a description of any claims pending, and any claims that have
been asserted in the past, with respect to such policy.
Such statement shall also identify (1) each pending application for insurance
that has been submitted by or on behalf of the Company, and (2) each self-
insurance or risk-sharing arrangement affecting the Company or any of its
assets. The Company also shall deliver to IDT accurate and complete copies of
all of its insurance policies (including all renewals thereof and endorsements
thereto) and binders relating thereto indicating that such policies are in full
force and effect as of the date hereof.
6.15 Company Accruals and Reserves.
-----------------------------
Prior to the Closing Date, the Company shall maintain accruals and
reserves determined with methodologies and principles consistent with the
September 27, 1998 Financial Statements and in accordance with GAAP.
6.16 Interim Review and Interim Financial Statements.
-----------------------------------------------
The Company will cause its auditors to perform a limited quarterly
review of the unaudited consolidated balance sheet of the Company and its
subsidiaries as of the end of the Company's first fiscal 1999 quarter and as
of the end of the second fiscal 1999 quarter, if such quarter has been
completed prior to the Effective Time, and the related unaudited consolidated
income statement and statement of cash flows of the Company for the three
months then ended for each quarter (the "Interim Financial Statements") in
----------------------------
accordance with Statement of Accounting Standards 71 (for each quarter, an
"Interim Review") within 21 days of the end of each such quarter. Promptly
--------------
after each Interim Review is complete, the Company will deliver such Interim
Financial Statements to IDT. The Company will also cause its auditors to
perform a limited quarterly review of the unaudited consolidated balance sheet
of the Company and its subsidiaries as of the end of each of the Company's
fiscal quarters in the two-year period ending September 27, 1998 and the
related unaudited consolidated income statement and statement of cash flows of
the Company for each three-month period then ended (for each quarter) in
accordance with Statement of Accounting Standards 71, and the Company will
deliver such financial statements to IDT promptly after such review is
complete.
6.17 Pooling of Interests.
--------------------
Prior to the earlier of termination of this Agreement and the
Effective Time, the Company will not take any action, and the Company will use
its Best Efforts to prohibit any Company Affiliates from taking any action,
that would be reasonably likely to interfere with IDT's ability to account for
the Merger as a pooling of interests, whether or not otherwise permitted by
the provisions of this Agreement.
-45-
ARTICLE 7
---------
PRE-CLOSING PERIOD COVENANTS OF IDT
-----------------------------------
7.1 Notification.
------------
During the Pre-Closing Period, IDT shall promptly notify the Company
in writing of:
(a) the discovery by IDT of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a Breach of any representation or
warranty made by IDT in this Agreement or any of the other Transactional
Agreements;
(b) any event, condition, fact or circumstance that occurs, arises
or exists after the date of this Agreement (except as a result of actions
taken pursuant to the written consent of the Company) and that would cause or
constitute a Breach of any representation or warranty made by IDT or Merger
Sub in this Agreement or any of the other Transactional Agreements if (i) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (ii)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement or any of the other Transactional
Agreements;
(c) any Breach of any covenant or obligation of IDT or Merger Sub;
and
(d) any event, condition, fact or circumstance that may make the
timely satisfaction of any of the conditions set forth in Section 9.1
-----------
or Section 9.3 impossible or unlikely.
-----------
7.2 Best Efforts.
------------
During the Pre-Closing Period, IDT shall use its commercially
reasonable Best Efforts to cause the conditions set forth in Section 9.1 and
-----------
9.3 to be satisfied on a timely basis, and shall not take any action or omit
---
to take any action, the taking or omission of which would or could reasonably
be expected to result in any of the representations and warranties or IDT set
forth in this Agreement or in any other Transactional Agreement becoming
untrue or in any of the conditions of closing set forth in Section 9.1 or
-----------
Section 9.3 not being satisfied.
-----------
7.3 Filings and Consents; Cooperation.
---------------------------------
IDT shall use its reasonable commercial Best Efforts to ensure that:
(a) Each filing or notice required to be made or given (pursuant to
any applicable Legal Requirement, Order or Contract, or otherwise) by IDT in
connection with the execution and delivery of this Agreement or the other
Transactional Agreements, or in connection with the consummation or
performance of any of the Transactions, is made or given as soon as possible
after the date of this Agreement;
-46-
(b) Each Consent required to be obtained (pursuant to any applicable
Legal Requirement, Order or Contract, or otherwise) by IDT in connection with
the execution and delivery of this Agreement or the other Transactional
Agreements, or in connection with the consummation or performance of any of
the Transactions, is obtained as soon as possible after the date of this
Agreement and remains in full force and effect through the Closing Date;
(c) IDT promptly delivers to the Company a copy of each filing made,
each notice given and each Consent obtained by IDT during the Pre-Closing
Period;
(d) During the Pre-Closing Period, IDT and its Representatives
cooperate with the Company and the Company's Representatives, and prepare and
make available such documents and take such other actions as the Company may
request in good faith, in connection with any filing, notice or Consent that
the Company is required or elects to make, give or obtain; and
(e) IDT provides the Company with such other documents as the
Company may request in good faith for the purpose of (A) evidencing the
accuracy of any representation or warranty made by IDT and Merger Sub, (B)
evidencing the compliance by IDT and Merger Sub with, or the performance by
IDT and Merger Sub of, any covenant or obligation set forth in this Agreement
or any of the other Transactional Agreements, (C) evidencing the satisfaction
of any condition set forth in Article 9, or (D) otherwise facilitating the
---------
consummation or performance of any of the Transactions.
7.4 Indemnification.
---------------
(a) IDT and the Surviving Corporation agree that the indemnification
obligations set forth in the Company's Articles of Incorporation and Bylaws, in
each case as of the date of this Agreement, shall survive the Merger and shall
not be amended, repealed or otherwise modified after the Effective Time in any
manner that would adversely affect the rights thereunder of the individuals who,
on or at any time prior to the Effective Time, were entitled to indemnification
thereunder. From and after the Effective Time, such obligations shall be the
joint and several obligations of IDT and the Surviving Corporation.
(b) IDT and the Surviving Corporation shall honor and fulfill in all
respects the obligations of the Company pursuant to indemnification agreements
with the Company's directors and officers existing at or before the Effective
Time, which indemnification agreements the Company has provided to IDT.
(c) IDT shall cause the Surviving Corporation to maintain in effect,
for two (2) years from and after the Effective Time, directors' and officers'
liability insurance policies covering the persons who are directors and
officers of the Company on the date of this Agreement, with respect to costs,
expenses and liabilities incurred in their capacities as such, on terms not
materially less favorable than the insurance coverage provided as of the date
hereof under the Company's directors' and officers' liability insurance
policies that are in existence on the date hereof, with respect to matters
occurring prior to the Effective Time; provided, however,
-47-
that in no event shall the Surviving Corporation be required to expend
pursuant to this Section 7.4 more than an amount per year equal to 150% of the
current annual premiums paid by the Company for such insurance policies;
provided, further, that if such annual premiums exceed such amount, then IDT
shall only be obligated to cause the Surviving Corporation to obtain a policy
with the greatest coverage reasonably available for a cost not exceeding such
amount.
(d) This Section 7.4 shall survive the consummation of the Merger,
is intended to benefit the Company, the Surviving Corporation and each
indemnified party, shall be binding, jointly and severally, on all successors
and assigns of the Surviving Corporation and IDT, and shall be enforceable by
the indemnified parties.
7.5 Conduct of Business of IDT.
--------------------------
During the Pre-Closing Period, IDT shall not directly or indirectly
take any action or fail to take any action that is reasonably likely to (i)
result in a delay in the declaration of effectiveness of the Registration
Statement by the SEC, (ii) require a post-effective amendment to the
Registration Statement or (iii) require a supplement or amendment to the Proxy
Statement and Prospectus following its mailing to the shareholders of the
Company. Consistent with the foregoing, IDT shall be permitted to make
acquisitions of businesses or assets of other businesses, or agree to make
such acquisitions, during the Pre-Closing Period so long as such actions in no
way interfere with IDT's ability to comply with the restrictions contemplated
by this Section 7.5.
7.6 Blue Sky Laws.
-------------
IDT shall take such steps as may be necessary to comply with the
securities and blue sky laws of all U.S. jurisdictions which are applicable to
the issuance of IDT Common Stock in connection with the Merger, provided,
however, that IDT shall not be required to qualify to do business or execute a
general consent to service of process in any jurisdiction. The Company shall
use its reasonable commercial Best Efforts to assist IDT as may be necessary
to comply with the securities and blue sky laws of all U.S. jurisdictions
which are applicable to the issuance of IDT Common Stock in connection with
the Merger.
7.7 Pooling of Interests.
--------------------
Prior to the earlier of termination of this Agreement and the
Effective Time, IDT will not take any action, and IDT will use its Best Efforts
to prohibit any IDT Affiliates from taking any action, that would be reasonably
likely to interfere with IDT's ability to account for the Merger as a pooling of
interests. In addition, IDT will use its Best Efforts to deliver or cause to be
delivered to the Company, on or as promptly as practicable following the date
hereof (and in any event by no later than November 30, 1998, which shall not be
later than the date 30 days prior to the Effective Time), from each person who
may be deemed to be an "affiliate" of IDT within the meaning of Rule 145
promulgated under the Securities Act, a written agreement ("IDT Affiliate
-------------
Agreement"), in the form of Exhibit D-2 hereto, each of which will be in full
--------- -----------
force and effect as of the Effective Time.
-48-
ARTICLE 8
---------
ADDITIONAL AGREEMENTS
---------------------
8.1 Proxy Statement and Prospectus.
------------------------------
(a) As promptly as reasonably practicable after the date hereof, IDT
and the Company shall prepare a document (the "Proxy Statement and
-------------------
Prospectus") to be used as a Proxy Statement with respect to the solicitation
----------
by the Company Board of Directors of the vote of the outstanding shares of
Company Common Stock and by IDT as part of a Registration Statement on Form S-
4 under the Securities Act and as a prospectus with respect to the shares of
IDT Common Stock to be issued in connection with the Closing pursuant to
Section 3.1. As promptly as reasonably practical after the preparation
-----------
thereof, IDT and the Company shall file the Proxy Statement and Prospectus
with the SEC and respond to any comments of the SEC with respect thereto. Such
document, as filed by IDT under the Securities Act in connection with the
registration of the shares of IDT Common Stock to be issued in the Merger, is
referred to herein as the "Registration Statement."
----------------------
(b) The Company shall cooperate fully with IDT in the preparation of
the Proxy Statement and Prospectus. In furtherance of the foregoing, the
Company shall provide IDT with all information concerning the Company and the
holders of its capital stock and shall take such other action as IDT may
reasonably request in connection with such document and the issuance of shares
of IDT Common Stock.
(c) Whenever any event occurs which should be set forth in an
amendment or a supplement to the Proxy Statement and Prospectus or any filing
required to be made with the SEC, each party will promptly inform the other
and will cooperate in filing with the SEC such amendment or supplement.
8.2 Company Shareholder Approval.
----------------------------
(a) The Company, acting through its Board of Directors, shall, in
accordance with the requirements of applicable law and the Company's Articles
of Incorporation and Bylaws:
(i) cause the Proxy Statement and Prospectus to be mailed to the
Company shareholders promptly upon the effectiveness of the Registration
Statement and duly call, give notice of, convene and hold as soon as
practicable a meeting of its shareholders (the "Company Shareholders'
---------------------
Meeting") for the purpose of voting to approve and adopt this Agreement and
-------
the other Transactional Agreements, to the extent required in accordance with
Legal Requirements, and use its Best Efforts to obtain such shareholders'
approval (subject to the terms of Section 6.5(b)); and
(ii) subject to the terms of Section 6.5(b), recommend approval
and adoption of this Agreement and the other Transactional Agreements by the
shareholders of the
-49-
Company, to the extent required in accordance with Legal Requirements, which
recommendation shall be included in the Proxy Statement and Prospectus.
(b) Whenever any event occurs which should be set forth in an
amendment or a supplement to the Proxy Statement and Prospectus, the affected
party will promptly inform the other party, and the Company will mail to the
Company's shareholders such amendment or supplement.
(c) Notwithstanding the terms of this Section 8.2, the Company may
adjourn or postpone the Company Shareholders' Meeting for a period of no more
than 30 days to the extent necessary to ensure that any necessary supplement
or amendment to the Proxy Statement and Prospectus shall be provided to the
Company's shareholders in advance of a vote on the Merger and this Agreement.
8.3 Nasdaq National Market.
----------------------
IDT shall cause the shares of IDT Common Stock to be issued pursuant
to the Merger to be authorized for listing on the Nasdaq National Market.
8.4 Antitrust Laws.
--------------
As promptly as practicable, the Company and IDT shall make all
filings and submissions under the HSR Act as may be reasonably required to be
made in connection with this Agreement and the Transactions. The Company will
furnish to IDT, and IDT will furnish to the Company, such information and
assistance as the other may reasonably request in connection with the
preparation of any such filings or submissions. The Company will provide IDT,
and IDT will provide the Company, with copies of all correspondence, filings
or communications (or memoranda setting forth the substance thereof) between
such party or any of its Representatives, on the one hand, and any
Governmental Body or members of their respective staffs, on the other hand,
with respect to this Agreement and the Transactions, except to the extent that
IDT or the Company is advised by independent counsel that the provision of
such information would be inadvisable under applicable antitrust laws.
8.5 Certain Employee Benefit Plan Matters.
-------------------------------------
The Company shall take no action from and after the date hereof to
deposit into any trust (including any "rabbi trust") amounts in respect of any
employee benefit obligations.
8.6 Integration Matters.
-------------------
The Company and IDT will work cooperate in good faith to identify
and, to the extent practicable, resolve matters regarding the orderly
integration of their respective operations, including matters relating to
acceptable positions with IDT for key management personnel of the Company, and
the retention of other Company employees who will remain after the Merger. The
Company and IDT will work together to facilitate the development of a plan for
the transition to common network and back office systems, to the extent
consistent with antitrust laws.
-50-
8.7 Stock Options and Warrants; Purchase Plan; Rights Plan.
------------------------------------------------------
(a) At the Effective Time, all rights with respect to Company Common
Stock under each Company Option then outstanding shall be converted into and
become rights with respect to IDT Common Stock, and IDT shall assume each such
Company Option in accordance with the terms (as in effect as of the date of
this Agreement) of the stock option plan under which it was issued and the
stock option agreement by which it is evidenced. From and after the Effective
Time: (i) each Company Option assumed by IDT may be exercised solely for
shares of IDT Common Stock; (ii) the number of shares of IDT Common Stock
subject to each Company Option shall be equal to the number of shares of
Company Common Stock subject to each such Company Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, rounded down to the
nearest whole share; (iii) the per share exercise price under each such
Company Option shall be adjusted by dividing the per share exercise price
under each such Company Option by the Exchange Ratio and rounding up to the
nearest cent; and (iv) any restriction on the exercise of any such Company
Option shall continue in full force and effect, and the term, exercisability,
vesting schedule and other provisions of such Company Option shall otherwise
remain unchanged. IDT agrees that, as soon as reasonably practicable after the
Effective Time, it will cause to be filed with the SEC one or more
registration statements on Form S-8 under the Securities Act, or amendments to
existing registration statements on Form S-8 or amendments to the Registration
Statement, in order to register the shares of IDT Common Stock issuable upon
exercise of the aforesaid converted Company Options.
(b) As of the Effective Time, all warrants to purchase Company
Common Stock, which are outstanding and not expired as of the Effective Time,
shall be assumed by IDT and converted into warrants to purchase such shares of
IDT Common Stock as the holder thereof would have received in the Merger had
such warrant been exercised prior to the Effective Time, at an aggregate
purchase price equal to the aggregate purchase price applicable prior to such
conversion. Except as provided above, the converted stock warrants shall be
subject to the same terms and conditions (including, without limitation,
expiration date, vesting and exercise provisions) as were applicable to the
warrants, as the case may be, immediately prior to the Effective Time.
(c) No such warrant shall be converted into a warrant to purchase a
partial share of IDT Common Stock.
(d) The consummation of the Merger shall not be treated as a
termination of employment for purposes of such stock options or warrants.
(e) IDT shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of IDT Common Stock for delivery upon
exercise of Company Options and warrants assumed in accordance with this
Section 8.7.
(f) The Company shall terminate any Company Benefit Arrangement
immediately prior to the Effective Time upon the request of IDT. The 1993
Purchase Plan shall be terminated as of the Effective Time. In lieu of the
assumption of options under the 1993 Purchase Plan or substitution of an
equivalent option by IDT, the Company's Board of Directors
-51-
shall shorten the offering period then in progress under the 1993 Purchase
Plan by setting a New Exercise Date (as defined in Section 18 of the 1993
Purchase Plan) and by notifying each participant under the 1993 Purchase Plan
in writing at least ten (10) days prior to the New Exercise Date. The New
Exercise Date shall be the business day prior to the Effective Time.
(g) Provided that the Company terminates any Company Benefit
Arrangement at IDT's request as provided in Section 8.7(f), IDT shall provide,
--------------
as of the Effective Time, the same or a comparable benefit or plan to each
employee of Company as is provided to IDT's employees who are similarly
situated (it being understood that this Section shall not obligate IDT to
grant options to purchase, or sell, any particular number of shares of IDT
Common Stock or other equity securities to any employee of the Company). The
IDT benefit plans shall give full credit for each participant's period of
service with the Company prior to the Effective Time for all purposes for
which such service was recognized under IDT's benefit plans prior to the
Effective Time.
8.8 Expenses.
--------
All costs and expenses incurred in connection with this Agreement
and the Transactional Agreements and the transactions contemplated hereby and
thereby (whether or not the Merger is consummated) shall be paid by the party
incurring such expenses, except as otherwise provided herein or in the
Transactional Agreements.
8.9 Additional Agreements.
---------------------
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its Best Efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the Transactions, including using all reasonable efforts to obtain
all necessary waivers, consents and approvals, and to effect all necessary
registrations and filings. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and/or directors of IDT and the Company (or of
the Surviving Corporation on behalf of the Company) shall take all such
necessary action.
(b) IDT and the Company each will cooperate with one another and use
all reasonable efforts to prepare all necessary documentation to effect
promptly all necessary filings and to obtain all necessary permits, consents,
approvals, orders and authorizations of or any exemptions by, all third
parties and governmental bodies necessary to consummate the transactions
contemplated by this Agreement. Each party will keep the other party apprised
of the status of any inquiries made of such party by the Department of
Justice, the SEC, or any other governmental agency or authority or members of
their respective staffs with respect to this Agreement or the transactions
contemplated herein.
-52-
8.10 Public Announcements.
--------------------
The parties have agreed upon the form and substance of a joint press
release announcing the execution and delivery of this Agreement and the terms
of the Merger. Other than such joint press release and the other publicly
documents contemplated to be filed pursuant to this Agreement, the parties
shall make no public announcement concerning this Agreement, their discussions
or any other memoranda, letters or agreements between the parties relating to
the Merger; provided, however, that the Company shall be permitted to make
such disclosure regarding this Agreement and the Merger as shall be reasonably
necessary in connection with the solicitation of its shareholders and the
consent of necessary third parties to the proposed transaction; and, provided,
further, that the parties, after reasonable prior consultation with the other,
may make disclosure if required under applicable law or by the rules of the
Nasdaq National Market.
8.11 Tax-Free Reorganization.
-----------------------
Neither IDT nor the Company shall take any action, or refrain from
taking any action, that could reasonably be expected to prevent the Merger
from constituting a reorganization within the meaning of Section 368 of the
Code.
ARTICLE 9
---------
CONDITIONS TO CONSUMMATION OF THE MERGER
----------------------------------------
9.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligations of each party to consummate the Merger
and to take the other actions required to be taken by it at the Closing shall
be subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived to the extent permitted by
applicable law by both the Company and IDT, in whole or in part):
(a) Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(b) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and shall be effective
at the Effective Time, no stop order suspending effectiveness of the
Registration Statement shall have been issued, and no action, suit, proceeding
or investigation by the SEC to suspend the effectiveness thereof shall have
been initiated and be continuing.
(c) All necessary approvals under federal and state securities laws
and other authorizations relating to the issuance or trading of the IDT Common
Stock to be issued to Company shareholders in connection with the Merger shall
have been received.
(d) The shares of IDT Common Stock to be issued in the Merger shall
have been approved for listing on the Nasdaq National Market.
-53-
(e) This Agreement and the Merger shall have been approved and
adopted by the favorable vote of a majority of the shares of the outstanding
capital stock of the Company entitled to vote thereon at a shareholders
meeting at which a quorum is present in accordance with Legal Requirements.
(f) No preliminary or permanent injunction or other order by any
federal, state or foreign court of competent jurisdiction which prohibits the
consummation of the Merger shall have been issued and remain in effect. No
statute, rule, regulation, executive order, stay, decree, or judgment shall
have been enacted, entered, issued, promulgated or enforced by any court or
governmental authority which prohibits or restricts the consummation of the
Merger. Other than the filing of the Agreement of Merger with the Secretary of
State of California, all authorizations, consents, orders or approvals of, or
declarations or filings with, and all expirations of waiting periods imposed
by, any Governmental Body which are necessary for the consummation of the
Merger, other than those the failure to obtain which would not materially
adversely affect the consummation of the Merger or in the aggregate have a
material adverse effect on the Surviving Corporation and its subsidiaries,
taken as a whole, shall have been filed, occurred or been obtained (all such
permits, approvals, filings and consents and the lapse of all such waiting
periods being referred to as the "Requisite Regulatory Approvals") and
------------------------------
all such Requisite Regulatory Approvals shall be in full force and effect.
(g) There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, by any federal or state Governmental Body which, in connection with
the grant of a Requisite Regulatory Approval, imposes any condition or
restriction upon the Surviving Corporation or its subsidiaries (or, in the
case of any disposition of assets required in connection with such Requisite
Regulatory Approval, upon IDT or its subsidiaries or the Company or its
subsidiaries), including, without limitation, requirements relating to the
disposition of assets, which in any such case would so materially adversely
impact the economic or business benefits of the Transactions as to render
inadvisable the consummation of the Merger.
9.2 Additional Conditions to IDT's and Merger Sub's Obligation to
-------------------------------------------------------------
Consummate the Merger.
---------------------
IDT's and Merger Sub's obligations to consummate the Merger and to
take the other actions required to be taken by IDT and Merger Sub at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by IDT, in whole or in
part):
(a) All of the representations and warranties made by the Company
and each of the Company Affiliates in this Agreement and the other
Transactional Agreements (considered collectively) shall have been accurate in
all material respects as of the date of this Agreement, and shall be accurate
in all material respects as of the Closing Time (without giving effect to any
Disclosure Schedule Update) (except for those representations and warranties
that address matters only as of a particular date, which shall remain true as
of such particular date, and other than any such inaccuracies resulting from
actions taken at the written request of or with the
-54-
written consent of IDT and such inaccuracies that result from or arise out of
changes that occur during the Pre-Closing Period that do not have a Material
Adverse Effect on the Company).
(b) The Company or the Company Affiliates, as the case may be, shall
have executed and delivered each of the agreements, instruments and documents
required to be executed and delivered, and performed all actions required by
the Company or any of the Company Affiliates, as the case may be, except as
IDT has otherwise consented in writing.
(c) Each of the other covenants and obligations that the Company is
required to comply with or to perform pursuant to this Agreement or any other
Transactional Agreement at or prior to the Closing shall have been duly
complied with and performed in all material respects.
(d) Each of the Consents identified or required to have been
identified in Section 4.22 of the Disclosure Schedule shall have been obtained
and shall be in full force and effect, other than those Consents the absence
of which shall not have a material adverse effect on the Company.
(e) There shall not have been any change in the Company's business,
condition, assets, liabilities, operations or financial performance since the
date of this Agreement that would have a Material Adverse Effect on the
Company.
(f) In addition to the documents required to be received under this
Section 9.2, IDT shall also have received the following documents:
(i) the opinion letter from Venture Law Group, counsel to the
Company, dated the Closing Date, in the form attached as Exhibit E-1;
-----------
(ii) a certificate (the "Company Closing Certificate"), dated the
---------------------------
Closing Date, duly executed by the Company, certifying that (A) the conditions
set forth in Section 9.2(a) have been satisfied, (B) each of the covenants and
--------------
obligations that the Company is required to have complied with or performed
pursuant to this Agreement or any of the other Transactional Agreements at or
prior to the Closing has been duly complied with and performed in all material
respects, and (C) each of the conditions set forth in Section 9.2 has been
-----------
satisfied in all respects;
(iii) duly executed Company Affiliate Agreements from each
Company Affiliate;
(iv) copies of resolutions of the Company, certified by a
Secretary, Assistant Secretary or other appropriate officer of the Company,
authorizing the execution, delivery and performance of the Transactional
Agreements and the Transactions, and copies of resolutions of the meeting of
shareholders of the Company, certified by a Secretary, Assistant Secretary or
other appropriate officer of the Company, authorizing the execution, delivery
and performance of the Transactional Agreements and the Transactions;
-55-
(v) good standing certificates for the State of California and
for the United Kingdom and Australia;
(vi) the updated capitalization information for the Company
required by Section 4.3(a), certified as true and correct by an executive
--------------
officer of the Company;
(vii) a letter from Ernst & Young LLP, independent auditors for
the Company, dated within two (2) business days prior to the Effective Time
(which may contain customary qualifications and assumptions), to the effect
that Ernst & Young LLP concurs with the Company's management conclusion that
no conditions exist related to the Company that would preclude IDT from
accounting for the Merger as a pooling of interests; and the letter is to be
in a form reasonably satisfactory to IDT and customary in scope and substance
for letters delivered by independent public accountants in connection with
pooling transactions such as the Merger;
(viii) a letter from PricewaterhouseCoopers LLP, independent
auditors for IDT, dated the Closing Date (which may contain customary
qualifications and assumptions and which may be based in part on the letter
referred to above from Ernst & Young LLP to the Company) to the effect that
PricewaterhouseCoopers LLP concurs with IDT's management conclusions that as
of that date, no conditions exist that would preclude IDT from accounting for
the Merger as a pooling of interests;
(ix) the audit opinion of Ernst & Young LLP, independent
auditors for the Company, on the Financial Statements, which shall have been
delivered to IDT by no later than November 30, 1998, and which audit opinion
shall be issued with respect to the Financial Statements delivered by the
Company to IDT on the date of this Agreement, as such Financial Statements may
be modified after the date of this Agreement with the consent of IDT; and
(x) a letter from Ernst & Young LLP, independent auditors for
the Company, stating that Ernst & Young LLP, in conducting its audit on the
Financial Statements, is not aware of any material weaknesses with respect to
the Company in connection with the Financial Statements.
(g) Since the date of this Agreement, there shall not have been
commenced or threatened in writing against IDT, or against any Person
affiliated with IDT, any Proceeding (i) involving any challenge to, or seeking
Damages or other relief in connection with, any of the Transactions, (ii) that
may have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the Transactions or any of the Transactional
Agreements, or (iii) that could reasonably be expected to have a Material
Adverse Effect on IDT or the Company.
(h) No Person shall have made or threatened in writing any material
claim asserting that such Person (i) may be the holder or the beneficial owner
of, or may have the right to acquire or to obtain beneficial ownership of, any
capital stock or other securities of the Company, or (ii) may be entitled to
all or any portion of the consideration to be issued in connection with the
Merger pursuant to Section 3.1.
-----------
-56-
(i) Neither the consummation nor the performance of any of the
Transactions or any of the Transactional Agreements will, directly or
indirectly (with or without notice or lapse of time), contravene or conflict
with or result in a violation of, or cause IDT or any Person affiliated with
IDT to suffer any material adverse consequence under (i) any applicable Legal
Requirement or Order or (ii) any Legal Requirement or Order that has been
proposed by or before any Governmental Body.
(j) Each Person (other than IDT and Merger Sub) shall have executed
and delivered prior to or on the Closing Date all Transactional Agreements to
which it is to be a party.
(k) IDT shall have received an opinion of Fenwick & West LLP in the
form of Exhibit F hereto, on the basis of certain facts, representations and
---------
assumptions set forth in such opinion, dated as of the Closing Date, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368 of the Code and
that each of IDT, Merger Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code. In rendering
such opinion, Fenwick & West LLP shall be entitled to rely upon
representations of officers of IDT and the Company substantially in the form
of Exhibits G and H hereto and in the Transactional Agreements.
---------- -
(l) The holders of no more than ten percent (10%) of the outstanding
shares of Company Common Stock shall have demanded and not lost or withdrawn,
or shall be eligible to demand, dissenters' rights.
(m) Each of the Company's employees and consultants shall have
entered into a Proprietary Information and Inventions Agreement substantially
in the form of Exhibit C hereto or such other form as shall have been provided
to and approved by IDT.
(n) The Company shall have received consents from the following
parties to the Merger including any assignment by operation of law or
otherwise of the following contracts: (i) Kanematsu USA Inc., Equipment
Finance Agreement (Limited) dated March 28, 1996; and (ii) Siemens Credit
Corporation, Master Equipment Lease Agreement dated March 5, 1998.
(o) The Acknowledgment and Agreement by and between Soft Mixed
Signal Corporation and the Company dated October 26, 1998 shall continue to
have full force and effect, shall not have been withdrawn or modified in any
way and no other agreement or understanding shall have been entered into
between the parties without IDT's consent.
(p) Each of the Persons identified in Section 4.22(h) of the
---------------
Disclosure Schedule shall have certified and agreed in writing that his or her
rights and benefits set forth therein are accurate in all respects and are the
sole remedies available to him or her as a result of the change in control of
the Company or any of its subsidiaries or otherwise resulting from the
Transactions, including any rights or benefits to be received by a Person upon
his or her termination of employment.
-57-
(q) The Company shall have terminated the 1993 Purchase Plan and
all "options" outstanding thereunder as of the Effective Time.
(r) SPEL shall have certified and agreed in writing that the
Company's representations and warranties set forth in Sections 4.6(h) and
---------------
4.10(k) are accurate in all respects.
-------
(s) The registration requirements with respect to the shares of
Company Common Stock issued pursuant to the Company's May 28, 1997 private
placement shall have been terminated as of the Effective Time.
9.3 Additional Conditions to the Company's Obligation to Consummate the
-------------------------------------------------------------------
Merger.
------
The Company's obligation to consummate the Merger and to take the
other actions required to be taken by the Company at the Closing shall be
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Company, in whole or
in part):
(a) All of the representations and warranties made by IDT and Merger
Sub in this Agreement (considered collectively) shall have been accurate in
all material respects as of the date of this Agreement and shall be accurate
in all material respects as of the Closing Time (except for those
representations and warranties that address matters only as of a particular
date, which shall remain true as of such particular date, and other than any
inaccuracies that result from or arise out of changes that occur during the
Pre-Closing Period that do not have a Material Adverse Effect on IDT).
(b) The Company shall have received a certificate (the "IDT Closing
-----------
Certificate"), dated the Closing Date, duly executed by IDT, certifying that
-----------
(A) each of the representations and warranties made by IDT and the Merger Sub
in this Agreement and in the other Transactional Agreements was accurate in
all material respects as of the date of the applicable Agreement and is
accurate in all material respects as of the Closing Date as if made on the
Closing Date, (B) each of the covenants and obligations that IDT or the Merger
Sub is required to have complied with or performed pursuant to this Agreement
or any of the other Transactional Agreements at or prior to the Closing has
been duly complied with and performed in all material respects, and (C) each
of the conditions set forth in Section 9.3 has been satisfied in all
-----------
respects.
(c) Each of the covenants and obligations that either IDT or Merger
Sub is required to comply with or to perform pursuant to this Agreement at or
prior to the Closing shall have been duly complied with and performed in all
material respects.
(d) Subject to the terms and conditions of this Agreement, IDT and
Merger Sub shall have executed and delivered prior to or on the Closing Date
all Transactional Agreements to which it is to be a party.
(e) Neither the consummation nor the performance of any of the
Transactions or any of the Transactional Agreements will, directly or
indirectly (with or without notice or
-58-
lapse of time), contravene or conflict with or result in a violation of (a)
any applicable Legal Requirement or Order or (b) any Legal Requirement or
Order that has been proposed by or before any Governmental Body.
(f) There shall not have been any change in IDT's business,
condition, assets, liabilities, operations or financial performance since the
date of this Agreement that would have a Material Adverse Effect on IDT;
provided, however, that a decrease in the trading price of IDT Common Stock
-------- -------
shall not of itself be considered to have a Material Adverse Effect on IDT.
(g) The Company shall have received an opinion of Venture Law Group,
in substantially the form of Exhibit I hereto, on the basis of certain facts,
representations and assumptions set forth in such opinion, dated as of the
Closing Date, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization qualifying under the provisions of Section
368 of the Code and that each of IDT, Merger Sub and the Company will be a
party to the reorganization within the meaning of Section 368(b) of the Code.
In rendering such opinion, Venture Law Group shall be entitled to rely upon
representations of officers of IDT and the Company substantially in the form
of Exhibits G and H hereto and in the Transactional Agreements.
---------- -
(h) The Company shall have received the opinion letter from Fenwick
& West LLP, counsel to IDT, dated the Closing Date, in the form attached as
Exhibit E-2;
-----------
ARTICLE 10
----------
TERMINATION
-----------
10.1 Termination.
-----------
This Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time, whether before or after approval by the
shareholders of the Company:
(a) by mutual written consent of IDT and the Company;
(b) by IDT if (i) there is a material Breach of any covenant or
obligation of the Company set forth in this Agreement or any of the other
Transactional Agreements, or (ii) IDT reasonably determines that the timely
satisfaction of any condition set forth in Section 9.1 or 9.2 has become
----------- ---
impossible or impractical (other than as a result of any failure on the part
of IDT to comply with or perform its covenants and obligations under this
Agreement or any of the other Transactional Agreements); provided, however,
that, if such Breach or failure of condition shall be curable by the Company
through the exercise of commercially reasonable efforts, then IDT may not
terminate this Agreement under this subsection (b) for a period of at least 10
business days after notice from the Company or IDT of such Breach or failure
of condition, provided that during such 10-business day period, the Company
continues to exercise such commercially reasonable efforts to cure such
Breach;
(c) by the Company if (i) there is a material Breach of any covenant
or obligation of IDT or Merger Sub set forth in this Agreement or any of the
other Transactional
-59-
Agreements, or (ii) the Company reasonably determines that the timely
satisfaction of any condition set forth in Section 9.1 or 9.3 has become
----------- ---
impossible or impractical (other than as a result of any failure on the part
of the Company to comply with or perform any covenant or obligation set forth
in this Agreement or any of the other Transactional Agreements); provided,
however, that, if such Breach or failure of condition shall be curable by IDT
or Merger Sub through the exercise of commercially reasonable efforts, then
the Company may not terminate this Agreement under this subsection (c) for a
period of at least 10 business days after notice from the Company or IDT of
such Breach or failure of condition, provided that during such 10-business day
period, IDT or Merger Sub, as the case may be, continues to exercise such
commercially reasonable efforts to cure such Breach;
(d) by IDT if the Closing has not taken place on or before May 31,
1999 (other than as a result of any failure on the part of IDT or Merger Sub
to comply with or perform its covenants and obligations under this Agreement
or in any other Transactional Agreement);
(e) by the Company if the Closing has not taken place on or before
May 31, 1999 (other than as a result of the failure on the part of the Company
to comply with or perform its covenants or obligations set forth in this
Agreement or in any other Transactional Agreement);
(f) by either IDT or the Company if any Governmental Body shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling
or any other action shall have become final and non-appealable; provided,
--------
however, that the party seeking to terminate this Agreement pursuant to this
-------
clause (f) shall have used all reasonable efforts to remove such order, decree
or ruling;
(g) by the Company or IDT, upon written notice to the other party,
if any approval of the shareholders of the Company required for the
consummation of the Merger submitted for approval shall not have been obtained
by reason of the failure to obtain the required vote at a duly held meeting of
shareholders or at any adjournment thereof;
(h) by IDT, if at any time prior to the approval of the Merger by
the shareholders of the Company, the Board of Directors of the Company
accepts, publicly endorses, recommends or executes a letter of intent or
similar document with respect to a Superior Proposal or resolves to do any of
the foregoing;
(i) by IDT, if any of the following shall occur:
(i) The Company shall have failed to include in the Proxy
Statement and Prospectus the unanimous recommendation of the Board of
Directors of the Company in favor of approval and adoption of this Agreement
and the Merger, or the Board of Directors of the Company shall have amended or
modified in a manner adverse to IDT such Board of Directors' unanimous
recommendation in favor of the Merger or approval or adoption of this
Agreement;
-60-
(ii) the Board of Directors of the Company shall have approved,
publicly endorsed, recommended or executed a letter of intent or similar
document with respect to any Acquisition Proposal other than the Merger;
(iii) a tender or exchange offer relating to securities of the
Company shall have been commenced and the Company shall not have sent to its
security holders, within ten (10) business days after the commencement of such
tender or exchange offer, a statement that the Company recommends rejection of
such tender or exchange offer; or
(iv) an Acquisition Proposal (other than a tender or exchange
offer relating to the securities of the Company) is publicly announced, and,
upon IDT's request, the Company fails to issue a press release announcing its
opposition to such Acquisition Proposal within five (5) business days after
such request; or
(j) by either IDT or the Company, in the event of a tender or an
exchange offer relating to the securities of the Company which is accepted by
more than fifty percent (50%) of the outstanding shares of the Company Common
Stock.
10.2 Termination Procedures.
----------------------
If IDT wishes to terminate this Agreement pursuant to Section 10.1,
------------
IDT shall deliver to the Company a written notice stating that IDT is
terminating this Agreement and setting forth a brief description of the basis
on which IDT is terminating this Agreement. If the Company wishes to terminate
this Agreement pursuant to Section 10.1, the Company shall deliver to IDT a
------------
written notice stating that the Company is terminating this Agreement and
setting forth a brief description of the basis on which the Company is
terminating this Agreement.
10.3 Effect of Termination.
---------------------
If this Agreement is terminated pursuant to Section 10.1, all
further obligations of the parties under this Agreement shall terminate;
provided, however, that:
-------- -------
(a) the parties shall, in all events, remain bound by and continue
to be subject to the applicable provisions set forth in Sections 8.8 and 8.10
---------------------
and Article 11;
--------------
(b) if this Agreement is terminated by IDT or the Company pursuant
to Section 10.1(j), or by IDT pursuant to Section 10.1(b)(i), (h) or (i), then
--------------- ------------------------------
the Company shall pay to IDT, in cash, a non-refundable fee in the amount of
$1,500,000 (the "Termination Fee"). If this Agreement is terminated by IDT or
---------------
the Company pursuant to Section 10.1(g), and on the date of the Company
Shareholders' Meeting the Meeting Date Stock Price shall have been greater
than or equal to $4.00 per share (as appropriately adjusted for any
reclassification, stock split (including a reverse stock split), stock
dividend or distribution, recapitalization, subdivision or other similar
transaction), then the Company shall pay to IDT, in cash, a non-refundable fee
in the amount of $500,000 (the "Expense Reimbursement"). In the case of
---------------------
termination of this
-61-
Agreement by the Company pursuant to Section 10.1(g) or (j), the Termination
----------------------
Fee or Expense Reimbursement, as applicable, shall be paid by the Company
prior to or contemporaneous with notice of such termination being provided to
IDT and as a condition to the Company's right to terminate under such
provisions, and in the case of termination of this Agreement by IDT pursuant
to Section 10.1(b)(i), (g), (h), (i) or (j), the Termination Fee or Expense
----------------------------------------
Reimbursement, as applicable, shall be paid by the Company within three (3)
business days after such notice of such termination;
(c) the parties shall, in all events, remain bound by the terms and
provisions of the Nondisclosure Agreement;
(d) there shall be no liability under this Agreement on the part of
IDT, Merger Sub or the Company or any of their respective officers and
directors, and all rights and obligations of any party hereto shall cease
(other than pursuant to Section 10.3(b)); provided, however, that, except as
---------------
contemplated by Section 10.4 below, nothing herein shall relieve any party
------------
from liability for the willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement;
(e) notwithstanding the above, both IDT and the Company shall be
entitled to announce the termination of this Agreement; and
(f) in the event the Company is not obligated to pay the
Termination Fee, IDT shall reimburse the Company for one-half of the expenses
the Company has incurred through the date of termination pursuant to Section
-------
6.2(y).
------
10.4 Exclusivity of Termination Rights.
---------------------------------
The termination rights and obligations provided in this Article 10
----------
shall be deemed to be exclusive. Consistent with the foregoing, the payment of
any Termination Fee or the Expense Reimbursement under Section 10.3(b) above
---------------
by the Company shall constitute the sole and exclusive remedy of IDT for
termination of this Agreement in the circumstances contemplated by such
Section 10.3(b), and, upon receipt of such Termination Fee or Expense
---------------
Reimbursement, IDT shall have no further recourse in law or equity against the
Company as a result of this Agreement or any breach hereof.
ARTICLE 11
----------
MISCELLANEOUS PROVISIONS
------------------------
11.1 Further Assurances.
------------------
Each party hereto shall execute and cause to be delivered to each
other party hereto such instruments and other documents, and shall take such
other actions, as such other party may reasonably request (prior to, at or
after the Closing) for the purpose of carrying out or evidencing any of the
Transactions.
-62-
11.2 Fees and Expenses.
-----------------
(a) Subject to the provisions of Article 3, the Company shall bear
---------
and pay all fees, costs and expenses that have been incurred or that are in
the future incurred by or on behalf of the Company. (b) Subject to the
provisions of Article 3, IDT shall bear and pay all fees, costs and expenses
---------
that have been incurred or that are in the future incurred by or on behalf of
IDT.
11.3 Attorneys' Fees.
---------------
If any legal action or other legal proceeding relating to this
Agreement, or the other Transactional Agreements in connection herewith, or
the enforcement of any provision of such items is brought against any party
hereto, each party shall bear its own attorneys' fees, costs and
disbursements.
11.4 Notices.
-------
Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by telecopier
during business hours) to the address or telecopier number set forth beneath
the name of such party below (or to such other address or telecopier number as
such party shall have specified in a written notice given to the other parties
hereto):
if to the Company:
Quality Semiconductor, Inc.
000 Xxxxxx Xxxxxx
Xxxxx Xxxxx, XX 00000
Attention: Xxxx Xxxxx
Facsimile: (000) 000-0000
with a copy to:
Venture Law Group
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
Facsimile: (000) 000-0000
-63-
if to IDT or Merger Sub:
INTEGRATED DEVICE TECHNOLOGY, Inc.
0000 Xxxxxxx Xxx
Xxxxx Xxxxx, XX 00000
Attention: Xxxx Xxxxxxx, Esq.
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
with a copy to:
Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxx X. XxXxxxxx, Esq.
Facsimile: (000) 000-0000
11.5 Time of the Essence.
-------------------
Time is of the essence in the performance of each of the terms
hereof with respect to the obligations and rights of each party hereto.
11.6 Headings.
--------
The headings contained in this Agreement are for convenience of
reference only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or interpretation of
this Agreement.
11.7 Counterparts.
------------
This Agreement may be executed in several counterparts, each of
which shall constitute an original and all of which, when taken together,
shall constitute one agreement.
11.8 Governing Law; Venue.
--------------------
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in any state or federal court located in Santa Xxxxx
County, California. Each party to this Agreement:
-64-
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in Santa Xxxxx County,
California (including each appellate court located in the State of California)
in connection with any such legal proceeding;
(ii) agrees that each state and federal court located in Santa
Xxxxx County, California shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in Santa Xxxxx County, California, any claim that such party is
not subject personally to the jurisdiction of such court, that such legal
proceeding has been brought in an inconvenient forum, that the venue of such
proceeding is improper or that this Agreement or the subject matter of this
Agreement may not be enforced in or by such court.
(c) The parties agree that if any Proceeding is commenced against
the Company, IDT or Merger Sub or any of their respective Representatives by
any Person in or before any court or other tribunal anywhere in the world,
then such party may proceed against the applicable party in such court or
tribunal with respect to any indemnification claim or other claim arising
directly or indirectly from or relating directly or indirectly to such
Proceeding or any matters alleged therein or any of the circumstances giving
rise thereto.
(d) Nothing contained in Section 11.8(b) or (c) shall be deemed to
--------------- ---
limit or otherwise affect the right of any party hereto to commence any legal
proceeding or otherwise proceed against any other party hereto in any other
forum or jurisdiction.
(e) Each of the parties irrevocably waives the right to a jury trial
in connection with any legal proceeding relating to this Agreement or the
enforcement of any provision of this Agreement.
11.9 Successors and Assigns.
----------------------
This Agreement shall be binding upon the parties and their
respective successors and assigns. This Agreement shall inure to the benefit
of the Company, Merger Sub, IDT, and the respective successors and assigns (if
any) of the foregoing.
11.10 Remedies Cumulative; Specific Performance.
-----------------------------------------
Except as otherwise provided herein, and not in limitation of any
remedies available under applicable law, the rights and remedies of the
parties hereto shall be cumulative (and not alternative). Each of the parties
agrees that:
(a) in the event of any Breach or threatened Breach by a party of
any covenant, obligation or other provision set forth in this Agreement, the
other party or parties shall be entitled (in addition to any other remedy that
may be available to it under the Agreement) to (i) a decree or order of
specific performance or mandamus to enforce the observance and
-65-
performance of such covenant, obligation or other provision, and (ii) an
injunction restraining such Breach or threatened Breach; and
(b) neither IDT, on the one hand, nor the Company, on the other,
shall be required to provide any bond or other security in connection with any
such decree, order or injunction or in connection with any related action or
Proceeding.
11.11 Waiver.
------
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise or waiver of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or of
any other power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy
is expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
11.12 Amendments.
----------
This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of IDT and the Company.
11.13 Severability.
------------
In the event that any provision of this Agreement, or the
application of any such provision to any Person or set of circumstances, shall
be determined to be invalid, unlawful, void or unenforceable to any extent,
the remainder of this Agreement, and the application of such provision to
Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law. The parties agree to replace such invalid, unlawful, void or
unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business or
other purpose of the unenforceable provision.
11.14 Parties in Interest.
-------------------
Except as otherwise expressly stated, none of the provisions of
this Agreement is intended to provide any rights or remedies to any Person
other than the parties hereto and their respective successors and assigns (if
any).
-66-
11.15 Entire Agreement.
----------------
The Transactional Agreements (including Schedules and Exhibits
thereto), together with the Non-Disclosure Agreement, set forth the entire
understanding of the parties relating to the subject matter thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter thereof.
11.16 No Survival.
------------
The representations and warranties contained herein shall
terminate and be of no further force and effect from and after the Closing.
Notwithstanding anything herein to the contrary, the agreements contained in
Article 2, Article 3, Sections 8.8, and 8.9(a) and Article 11 shall survive
--------- --------- ------------ ------ ----------
the Effective Time.
11.17 Investigation.
-------------
The respective representations and warranties of the parties
hereto contained herein or in the certificates or other reports delivered
prior to the Closing shall not be deemed waived or otherwise affected by any
investigation made by any party hereto.
11.18 Construction.
------------
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender
shall include the masculine and neuter genders; and the neuter gender shall
include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections," "Exhibits" and "Schedules" are intended to refer to Sections of
this Agreement and Exhibits and Schedules to this Agreement.
-67-
IN WITNESS WHEREOF, each of IDT, Merger Sub and the Company has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
INTEGRATED DEVICE TECHNOLOGY, INC.
By:
----------------------------------
Name:
Title:
PENGUIN ACQUISITION, INC.
By:
----------------------------------
Name:
Title:
QUALITY SEMICONDUCTOR, INC.
By:
----------------------------------
Name:
Title:
-68-
INDEX OF EXHIBITS
Exhibits:
--------
A. Certain Definitions
B. Financial Statements
C. Form of Proprietary Information & Inventions Agreement
D-1. Form of Company Affiliate Agreement
D-2. Form of IDT Affiliate Agreement
E-1. Opinion of Counsel to the Company
E-2. Opinion of Counsel to IDT
F. Form of Fenwick & West LLP Tax Opinion
G. Form of IDT Tax Representation Letter
H. Form of Company Tax Representation Letter
I. Form of Venture Law Group Tax Opinion
-69-
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
---------
ACCOUNTING COMFORT LETTER. "Accounting Comfort Letter" shall have the
meaning specified in Section 6.8 of the Agreement.
-----------
ACQUISITION PROPOSAL. "Acquisition Proposal" shall have the meaning
specified in Section 6.5(a) of the Agreement.
--------------
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger to
which this Exhibit A is attached (including the Disclosure Schedule and all
---------
Exhibits), as it may be amended from time to time.
AGREEMENT OF MERGER. "Agreement of Merger" shall have the meaning
specified in Section 1.2 of the Agreement.
-----------
BEST EFFORTS. "Best Efforts" shall mean the efforts that a prudent Person
desiring to achieve a particular result would use in order to ensure that such
result is achieved as expeditiously as possible. An obligation to use "Best
Efforts" under this Agreement does not require the Person subject to that
obligation to take actions that would result in a materially adverse change in
the benefits to such Person under the agreement or arrangement in question or
under this Agreement, the other Transactional Agreements and the Transactions.
BREACH. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been any
inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision, and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.
CERTIFICATE. "Certificate" shall have the meaning specified in Section
-------
3.1(a) of the Agreement.
------
CGCL. "CGCL" shall have the meaning specified in Section 1.1 of the
-----------
Agreement.
CLOSING. "Closing" shall have the meaning specified in Section 3.7 of the
-----------
Agreement.
CLOSING DATE. "Closing Date" shall have the meaning specified in Section
-------
3.7 of the Agreement.
---
COBRA. "COBRA" shall have the meaning specified in Section 4.15(f) of the
---------------
Agreement.
CODE. "Code" shall have the meaning specified in the Recitals of the
Agreement.
COMPANY. The "Company" shall have the meaning specified in the first
paragraph of the Agreement and shall include, unless the context clearly
indicates otherwise, all subsidiaries of the Company.
COMPANY AFFILIATE. "Company Affiliate" shall have the meaning specified in
Section 6.9(a) of the Agreement.
--------------
COMPANY AFFILIATE AGREEMENT. "Company Affiliate Agreement" shall have the
meaning specified in Section 6.9(a) of the Agreement.
--------------
COMPANY AUDITORS. "Company Auditors" shall have the meaning specified in
Section 6.10 of the Agreement.
------------
COMPANY BENEFIT ARRANGEMENTS. "Company Benefit Arrangements" shall have
the meaning specified in Section 4.15(d) of the Agreement.
---------------
COMPANY CLOSING CERTIFICATE. "Company Closing Certificate" shall have the
meaning specified in Section 9.2 of the Agreement.
-----------
COMPANY COMMON STOCK. "Company Common Stock" shall have the meaning
specified in Section 3.1(a) of the Agreement.
--------------
COMPANY CONTRACT. "Company Contract" shall mean any Contract:
(a) to which the Company is a party;
(b) by which the Company or any of its assets is or may become bound
or under which the Company has, or may become subject to, any obligation; or
(c) under which the Company has or may acquire any right or interest.
COMPANY OPTIONS. "Company Options" shall have the meaning specified in
Section 4.3 of the Agreement.
-----------
COMPANY SEC FILINGS. "Company SEC Filings" shall have the meaning
specified in Section 4.4(a) of the Agreement.
--------------
COMPANY SHAREHOLDERS' MEETING. "Company Shareholders' Meeting" shall have
the meaning specified in Section 8.2 of the Agreement.
-----------
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean, with respect to any Person, any written,
oral, implied or other agreement, contract, understanding, arrangement,
instrument, note, guaranty, indemnity,
2
representation, warranty, deed, assignment, power of attorney, certificate,
purchase order, work order, insurance policy, benefit plan, commitment,
covenant, assurance, obligation, promise or undertaking of any nature to which
such Person is a party or by which its properties or assets maybe bound or
affected or under which it or its business, properties or assets receive
benefits.
DAMAGES. "Damages" shall mean the amount of any loss, damage, injury,
Liability, claim, fee (including any legal fee, expert fee, accounting fee or
advisory fee), demand, settlement, judgment, award, fine, penalty, Tax, charge
or cost (including any cost of investigation).
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall have the meaning
specified in Section 4 of the Agreement.
---------
DISCLOSURE SCHEDULE UPDATE. "Disclosure Schedule Update" shall have the
meaning specified in Section 6.4(b) of the Agreement.
--------------
DISSENTING SHARES. "Dissenting Shares" shall have the meaning specified in
Section 3.9 of the Agreement.
-----------
EFFECTIVE TIME. "Effective Time" shall have the meaning specified in
Section 1.2 of the Agreement.
-----------
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
ENVIRONMENTAL LAW. "Environmental Law" shall mean any federal, state,
local or foreign Legal Requirement relating to pollution or protection of human
health or the environment.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974.
ERISA AFFILIATE. "ERISA Affiliate" shall mean any Person that is, was or
would be treated as a single employer with the Company under Section 414 of the
Code.
3
EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
EXCHANGE AGENT. "Exchange Agent" shall have the meaning specified in
Section 3.3(a) of the Agreement.
--------------
EXCHANGE RATIO. "Exchange Ratio" shall have the meaning specified in
Section 3.1 of the Agreement.
-----------
EXPENSE REIMBURSEMENT. "Expense Reimbursement" shall have the meaning
specified in Section 10.3 of the Agreement.
------------
FINANCIAL STATEMENTS. "Financial Statements" shall have the meaning
specified in Section 4.4 of the Agreement.
-----------
GAAP. "GAAP" shall mean Generally Accepted Accounting Principles, applied
on a basis consistent with the basis on which the Financial Statements were
prepared.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, concession, approval,
consent, ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating, registration, qualification or authorization
that is issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal Requirement; or
(b) right under any Contract with any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal);
(d) multinational organization or body; or
(e) individual, Entity or body exercising, or entitled to exercise,
any executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature.
4
HAZARDOUS MATERIAL. "Hazardous Material" shall mean any substance,
chemical, waste or other material which is listed, defined or otherwise
identified as hazardous, toxic or dangerous under any applicable law; as well as
any petroleum, petroleum product or by-product, crude oil, natural gas, natural
gas liquids, liquefied natural gas, or synthetic gas useable for fuel, and
"source," "special nuclear," and "by-product" material as defined in the Atomic
Energy Act of 1954, 42 U.S.C. (S)(S) 2011 et seq.
-- ---
HSR ACT. "HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Anti-Trust
Improvements Act of 1976, as amended.
IDT. "IDT" shall have the meaning specified in the first paragraph of the
Agreement.
IDT AFFILIATE AGREEMENT. "IDT Affiliate Agreement" shall have the meaning
specified in Section 7.7 of the Agreement.
-----------
IDT CLOSING CERTIFICATE. "IDT Closing Certificate" shall have the meaning
specified in Section 9.3 of the Agreement.
-----------
IDT COMMON STOCK. "IDT Common Stock" shall have the meaning specified in
Section 3.1 of the Agreement.
-----------
IDT LIAISON. "IDT Liaison" shall have the meaning specified in Section
-------
6.1(c) of the Agreement.
------
IDT SEC FILINGS. "IDT SEC Filings" shall have the meaning specified in
Section 5.5 of the Agreement.
-----------
INTERIM FINANCIAL STATEMENTS. "Interim Financial Statements" shall have
the meaning specified in Section 6.16 of the Agreement.
------------
INTERIM REVIEW. "Interim Review" shall have the meaning specified in
Section 6.16 of the Agreement.
------------
KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact or
other matter.
A corporation shall be deemed to have "Knowledge" of a particular fact or
matter only if a director or officer of such corporation has or had Knowledge of
such fact or matter.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law,
5
resolution, ordinance, code, edict, decree, proclamation, treaty, convention,
rule, regulation, ruling, directive, pronouncement, requirement,
specification, determination, decision, opinion or interpretation that is or
has been issued, enacted, adopted, passed, approved, promulgated, made,
implemented or otherwise put into effect by or under the authority of any
Governmental Body, and, where applicable, shall include any rule or
requirement of the Nasdaq National Market.
LIABILITY. "Liability" shall mean any debt, obligation, duty or liability
of any nature including any unknown, undisclosed, unmatured, unaccrued,
unasserted, contingent, indirect, conditional, implied, vicarious, derivative,
joint, several or secondary liability, regardless of whether such debt,
obligation, duty or liability would be required to be disclosed on a balance
sheet prepared in accordance with generally accepted accounting principles and
regardless of whether such debt, obligation, duty or liability is immediately
due and payable.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean, for
purposes of this Agreement, any change, event or effect that is materially
adverse to the business, condition, assets, liabilities, operations, financial
performance or results of a party to this Agreement and its subsidiaries, taken
as a whole; provided, however, that: (i) any occurrences directly attributable
to conditions affecting the economy in general or such party's industry in
general and not specifically relating to such party or its subsidiaries shall
not be taken into account in determining whether there has been or would be a
"Material Adverse Effect" with respect to such party (unless such conditions
adversely affect the party in a materially disproportionate manner); (ii) the
delay or cancellation of orders for the party's products from customers or
distributors (or other resellers) directly attributable to the announcement of
this Agreement or the pendency of the Merger shall not be taken into account in
determining whether there has been or would be a "Material Adverse Effect" with
respect to the party; (iii) a decrease in a party's sales revenue as compared to
prior periods or as compared to management's financial forecasts for the period
following the execution of this Agreement directly attributable to the
announcement of this Agreement or the pendency of the Merger shall not be taken
into account in determining whether there has been or would be a "Material
Adverse Effect" with respect to the party; (iv) the loss of one or more of a
party's or its subsidiaries' employees (including sales representatives)
directly attributable to the announcement of this Agreement or the pendency of
the Merger shall not be taken into account in determining whether there has been
or would be a "Material Adverse Effect" with respect to the party; and (v) the
lack of or delay in availability of components or raw materials from the party's
or its subsidiaries' suppliers directly attributable to the announcement of this
Agreement or the pendency of the Merger shall not be taken into account in
determining whether there has been or would be a "Material Adverse Effect" with
respect to the party.
MEETING DATE STOCK PRICE. "Meeting Date Stock Price" shall mean the
average per share closing sales price of IDT Common Stock on the Nasdaq National
Market for the five (5) consecutive trading days ending on, and including, the
trading day immediately prior to the date of the Company Shareholders' Meeting.
MERGER. "Merger" shall have the meaning specified in Section 1.1 of the
-----------
Agreement.
6
MERGER SUB. "Merger Sub" shall have the meaning specified in the first
paragraph of the Agreement.
NONDISCLOSURE AGREEMENT. "Nondisclosure Agreement" shall have the meaning
specified in Section 6.5(c) of the Agreement.
--------------
ORDER. "Order" shall mean any:
(a) order, judgment, injunction, edict, decree, ruling, pronouncement,
determination, decision, opinion, verdict, sentence, subpoena, writ or award
that is issued, made, entered, rendered or otherwise put into effect by or under
the authority of any court, administrative agency or other Governmental Body or
any arbitrator or arbitration panel; or
(b) Contract with any Governmental Body that is entered into in
connection with any Proceeding.
ORDINARY COURSE OF BUSINESS. An action taken by or on behalf of the
Company shall not be deemed to have been taken in the "Ordinary Course of
Business" unless:
(a) such action is recurring in nature, consistent with the Company's
past practices and taken in the ordinary course of the Company's normal day to
day operations;
(b) such action is taken in accordance with such party's customary
business practices;
(c) such action is not required to be authorized by the Company's
shareholders, the Company's board of directors or any committee of the Company's
board of directors and does not require any other separate or special
authorization of any nature; and
(d) such action is similar in nature and magnitude to actions
customarily taken, without any special or separate authorization, in the
ordinary course of the normal day to day operations of other Entities that are
employed in businesses similar to Company's business.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall mean the period commencing
as of the date of the Agreement and ending on the Closing Date.
PREMISES. "Premises" shall have the meaning specified in Section 4.6(d) of
--------------
the Agreement.
PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation,
commenced, brought, conducted or heard by or before, or otherwise has involved,
any Governmental Body or any arbitrator or arbitration panel.
7
PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service xxxx (whether registered or unregistered), service xxxx
application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know how, franchise,
system, computer software, invention, design, blueprint, proprietary product,
technology, proprietary right or other intellectual property right.
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. "Proprietary Information
and Inventions Agreement" shall mean an agreement substantially in the form of
Exhibit C to the Agreement.
---------
PROXY STATEMENT AND PROSPECTUS. "Proxy Statement and Prospectus" shall
have the meaning specified in Section 8.1(a) of the Agreement.
--------------
REGISTRATION STATEMENT. "Registration Statement" shall have the meaning
specified in Section 8.1 of the Agreement.
-----------
RELATED PARTY. Each of the following shall be deemed to be a "Related
Party":
(a) each individual who is, or who has at any time been, an officer of
the Company;
(b) each member of the family of each of the individuals referred to
in clause "(a)" above;
(c) any Entity (other than the Company) in which any one of the
Persons referred to in clauses "(a)" or "(b)" above holds (or in which more than
one of such individuals collectively hold), beneficially or otherwise, a
material voting, proprietary or equity interest.
REPRESENTATIVES. "Representatives" of a specified party shall mean
officers, directors, employees, attorneys, accountants, advisors, investment
bankers and representatives of such party, including, without limitation, in the
case of Company, all subsidiaries of Company and all such Persons with respect
to such subsidiaries. The Related Parties shall be deemed to be
"Representatives" of Company.
REQUISITE REGULATORY APPROVALS. "Requisite Regulatory Approvals" shall
have the meaning specified in Section 9.1 of the Agreement.
-----------
RIGHTS. "Rights" shall have the meaning specified in Section 3.1 of the
-----------
Agreement.
RIGHTS AGREEMENT. "Rights Agreement" shall have the meaning specified in
Section 3.1 of the Agreement.
-----------
SEC. "SEC" shall have mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
8
SHAREHOLDER. "Shareholder" shall mean a holder of shares of the Company's
capital stock.
SPEL. "SPEL" shall have the meaning specified in Section 4.6 of the
-----------
Agreement.
SPEL AGREEMENT. "SPEL Agreement" shall have the meaning specified in
Section 4.10 of the Agreement.
------------
SUPERIOR PROPOSAL. "Superior Proposal" shall have the meaning specified in
Section 6.5(b) of the Agreement.
------- ------
SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning
specified in Section 1.1 of the Agreement.
-----------
TAKEOVER STATUTE. "Takeover Statute" shall mean any fair price,
moratorium, control share acquisition or other similar anti-takeover statute.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, estimated tax, gross receipts tax, value added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), (a) imposed,
assessed or collected by or under the authority of any Governmental Body, or (b)
payable pursuant to any tax sharing agreement or similar Contract.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean:
(a) the Agreement;
(b) the Company Affiliate Agreements and the IDT Affiliate
Agreements; and
(c) the Agreement of Merger.
TRANSACTIONS. "Transactions" shall mean (a) the execution and delivery of
the respective Transactional Agreements, and (b) all of the transactions
contemplated by the respective Transactional Agreements, including, without
limitation, the Merger, and the performance by Company, IDT, and the other
parties to the Transactional Agreements of their respective obligations under
the Transactional Agreements.
9
UNAUDITED BALANCE SHEET. "Unaudited Balance Sheet" shall have the meaning
specified in Section 4.4 of the Agreement.
-----------
Pages regarding the following exhibits omitted.
Exhibit B. Financial Statements
Exhibit C. Form of Proprietary Information & Inventions Agreement
Exhibit D-1. Form of Company Affiliate Agreement
Exhibit D-2. Form of IDT Affiliate Agreement
Exhibit E-1. Opinion of Counsel to the Company
Exhibit E-2. Opinion of Counsel to IDT
Exhibit F. Form of Fenwick & West LLP Tax Opinion
Exhibit G. Form of IDT Tax Representation Letter
Exhibit H. Form of Company Tax Representation Letter
Exhibit I. Form of Venture Group Tax Opinion
10
