Execution Copy
OPTION AND AGREEMENT AND PLAN OF MERGER
by and among
NATIONAL SEMICONDUCTOR CORPORATION,
NINTAI ACQUISITION SUB, INC.,
DIGITALQUAKE, INC., AND
PAUL A. LESSARD AND MICHAEL G. FUNG
Dated as of February 8, 2002
NSD_DOCS\8088.9[W2000]
OPTION AND AGREEMENT AND PLAN OF MERGER
This Option and Agreement and Plan of Merger (this "Agreement") is entered
into as of February 8, 2002 by and among (i) National Semiconductor Corporation,
a Delaware corporation ("National"), (ii) Nintai Acquisition Sub, Inc., a
California corporation and a wholly-owned subsidiary of National ("Merger Sub"),
(iii) DigitalQuake, Inc., a California corporation ("DigitalQuake"), and (iv)
Paul A. Lessard and Michael G. Fung (the "Founders").
RECITALS
A. National owns 100% of the issued and outstanding shares of capital stock of
Merger Sub.
B. Concurrently with the execution and delivery of this Agreement, National
and DigitalQuake have entered into a Series B Preferred Stock Purchase
Agreement (the "Series B Purchase Agreement") and a Technology Development
and Licensing Agreement. In consideration of National's entering into the
Series B Purchase Agreement and the Technology Development and License
Agreement, DigitalQuake has agreed to enter into this Agreement and to
grant the Merger Option (as defined) contemplated hereby.
C. Concurrently with the execution of this Agreement and as an inducement to
National to enter into this Agreement, the holders of all outstanding
shares of DigitalQuake capital stock (other than National) have approved
this Agreement and the Merger by written consent and have entered into a
Shareholder Support Agreement with National (the "Shareholder Support
Agreement"), pursuant to which such shareholders have agreed, among other
things, to vote their shares to confirm their approval of this Agreement
and the Merger (as defined) if National determines that such confirming
vote is advisable at any time in the future.
D. In the Merger, DigitalQuake will be the Surviving Corporation (as defined),
the shares of DigitalQuake will be converted into the right to receive
consideration in accordance with the terms hereof, and the shares of Merger
Sub will be converted into shares of Surviving Corporation.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the following
meanings:
"Affiliate" of a Person means any other Person which directly or indirectly
controls, is controlled by, or is under common control with, such Person. The
term "control" (including, with correlative meaning, the terms "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement of Merger" means the Agreement of Merger by and between Merger
Sub and DigitalQuake to be filed with the California Secretary of State in the
form attached hereto as Exhibit A.
"Ancillary Agreements" means the Employment Agreements, Non-Compete
Agreements and other agreements, certificates and documents required hereunder
to consummate the Closing or to be delivered at the Closing.
"Assets" means all of DigitalQuake's right, title and interest in and to
the properties, assets and rights of any kind, whether tangible or intangible,
real or personal.
"Balance Sheet" means the balance sheet of DigitalQuake as of the Balance
Sheet Date.
"Balance Sheet Date" means December 31, 2001.
"Books and Records" means (a) all product, business and marketing plans,
sales and promotional literature and artwork relating to the Assets or the
Business, (b) all books, records, lists, ledgers, financial data, files,
reports, product and design manuals, plans, drawings, technical manuals and
operating records of every kind relating to the Assets or the Business
(including records and lists of customers, distributors, suppliers and
personnel) and (c) all telephone and fax numbers used in the Business, in each
case whether maintained as hard copy or stored in electronic media and whether
owned by DigitalQuake or its Affiliates.
"Business" means the business of DigitalQuake.
"California GCL" means the General Corporation Law of the State of
California, as in effect from time to time.
"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
"Closing Date" means the fifth business day following delivery of the
Merger Option Notice contemplated by Section 2.2 below or, if later, the date
specified by National in the Merger Option Notice, subject to the terms and
conditions of this Agreement.
"Closing Place" means such location agreed upon by the parties or, in the
absence of such an agreement, the offices of Latham & Watkins at 135
Commonwealth Drive, Menlo Park, California 94025.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" means that certain Confidential Disclosure
Agreement dated November 9, 2001 between DigitalQuake and National.
"Consents" means any and all licenses, permits, franchises, approvals,
authorizations, consents or waivers from third parties (including governmental
authorities and parties to the Contracts) that are (i) required for the
consummation of the transactions contemplated by this Agreement or (ii)
necessary or desirable in order that DigitalQuake can conduct the Business after
the Effective Time in all material respects in the same manner as before the
Effective Time.
"Contracts" means all agreements, contracts, leases, purchase orders,
undertakings, covenants not to compete, employment agreements, confidentiality
agreements, licenses, instruments, obligations and commitments to which
DigitalQuake is a party or by which DigitalQuake or any Assets are bound or
affected, whether written or oral.
"Court Order" means any judgment, decision, consent decree, injunction,
ruling or order of any foreign or domestic federal, state or local court or
governmental agency, department or authority that is binding on any Person or
its property under applicable law.
"Default" means (a) a breach of or default under any Contract, (b) the
occurrence of an event that with the passage of time or the giving of notice or
both would constitute a breach of or default under any Contract, or (c) the
occurrence of an event that with or without the passage of time or the giving of
notice or both would give rise to a right of termination, renegotiation or
acceleration under any Contract.
"DigitalQuake Common Stock" means the common stock, no par value per share,
of DigitalQuake.
"DigitalQuake Options" means options to purchase DigitalQuake Common Stock
granted by DigitalQuake prior to the Closing Date pursuant to the Stock Option
Plan.
"DigitalQuake Preferred Stock" means the preferred stock, no par value per
share, of DigitalQuake, designated as Series A Preferred Stock and Series B
Preferred Stock.
"DigitalQuake Subsidiaries" means the Subsidiaries of DigitalQuake, which
shall include the DigitalQuake Subsidiaries described on Schedule 4.6 and any
corporation or other organization acquired as a Subsidiary of DigitalQuake in
the future and held as a Subsidiary by DigitalQuake at the Effective Time.
"Effective Time" means the time on the Closing Date when the Merger shall
become effective, which shall be 5:00 p.m., California time, on the date the
Agreement of Merger is filed with the California Secretary of State, or such
other date and time as the parties may agree in writing, or, if later, such time
as the California Secretary of State certifies the filing of the Agreement of
Merger.
"Employment Agreements" means the employment agreements to be entered into
on or prior to the Closing Date by National and employees of DigitalQuake, as
specified on Schedule 1.1(b) hereto.
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, conditional sales agreement, encumbrance or other similar
right of any third parties, whether voluntarily incurred or arising by operation
of law, and includes any agreement to give any of the foregoing in the future,
and any contingent sale or other title retention agreement or lease in the
nature thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Transaction Costs" means (i) any fees and expenses of legal
counsel, accountants and any other advisors, representatives, consultants or
finders incurred by DigitalQuake in excess of $100,000 in connection with the
negotiation, preparation, execution and performance of this Agreement, the
Series B Purchase Agreement, the Technology Development and Licensing Agreement
and the transactions contemplated hereby and thereby, excluding any fees or
expenses payable to Toan Tran, and (ii) all amounts greater than $300,000
payable to Toan Tran in connection with the negotiation, preparation, execution
and performance of this Agreement, the Series B Purchase Agreement, the
Technology Development and Licensing Agreement and the transactions contemplated
hereby and thereby.
"Financial Statements" means the unaudited balance sheets and related
statements of income, cash flow and shareholders' equity for DigitalQuake for
the years ended December 31, 2001 and 2000, together with any notes thereon, all
of which are attached as Schedule 1.1(c).
"Fixtures and Equipment" means all of the furniture, fixtures, furnishings,
office equipment, development tools and equipment, lab equipment, spare parts,
tooling, molds, mask sets, database tapes, test tapes, test fixtures and
equipment, patterns, dies, computers and software (including any source or
object codes therefor or documentation relating thereto and computer aided
design equipment and software), and other tangible personal property owned by
DigitalQuake, wherever located and including any such Fixtures and Equipment in
the possession of any of its respective suppliers or other vendors, except to
the extent such items would constitute Proprietary Rights, which are addressed
separately herein.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting profession), or in such
other statements by such entity as may be in general use by significant segments
of the U.S. accounting profession, which are applicable to the facts and
circumstances on the date of determination.
"Liabilities" mean any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, whether accrued, absolute, contingent, matured,
unmatured, liquidated, unliquidated, known or unknown.
"Material Adverse Effect" means in respect of any entity, any change,
circumstance or effect that, individually or in the aggregate with all other
changes, circumstances and effects, is or would be reasonably likely to be
materially adverse to the assets, properties (whether tangible or intangible),
condition (financial or otherwise), results of operations, business or prospects
of such entity and its subsidiaries taken as a whole.
"Merger" means the merger of Merger Sub into DigitalQuake in accordance
with this Agreement and the Agreement of Merger.
"National Options" means options to acquire National Common Stock.
"Non-Compete Agreement" means the Non-Compete Agreement to be entered into
between National and each of the individuals listed on Schedule 1.1(d) hereto on
or prior to the Closing Date substantially in the form of Exhibit B hereof.
"NYSE" means the New York Stock Exchange.
"Optionee" means the holder of a DigitalQuake Option on the Closing Date.
"Permits" mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, necessary for the conduct
or operation of the Business or ownership of the Assets.
"Person" means any person or entity, whether an individual, trustee,
corporation, limited liability company, general partnership, limited
partnership, trust, unincorporated organization, business association, firm,
joint venture, governmental agency or authority.
"Principal Employees" means Paul A. Lessard, Michael G. Fung, Anil Kumar,
Duane Oto and Jackson Tung.
"Proprietary Rights" means all (a) U.S. and foreign patents, patent
applications, patent disclosures and improvements thereto, including petty
patents and utility models and applications therefor, (b) U.S. and foreign
trademarks, service marks, trade dress, logos, trade names and corporate names
and the goodwill associated therewith and registrations and applications for
registration thereof, (c) U.S. and foreign copyrights and registrations and
applications for registration thereof, (d) U.S. and foreign mask work rights and
registrations and applications for registration thereof, (e) trade secrets and
confidential business information (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, research and development information, software, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial, marketing and business data, pricing and cost information, business
and marketing plans and customer and supplier lists and information), (f) other
proprietary rights, (g) copies and tangible embodiments thereof (in whatever
form or medium) and (h) licenses granting any rights with respect to any of the
foregoing.
"Regulations" means any laws, statutes, ordinances, regulations, rules,
notice requirements, court decisions, agency guidelines, principles of law and
orders of any foreign, federal, state or local government and any other
governmental department or agency, including Environmental Laws, import/export,
energy, motor vehicle safety, public utility, zoning, building and health codes,
occupational safety and health and laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours.
"Related Party" means any Principal Employee, any of the officers and
directors of DigitalQuake, any Affiliate of DigitalQuake, any holder of ten
percent (10%) or more of the outstanding shares of any class or series of
capital stock of DigitalQuake (other than National), any Affiliate or immediate
family member of a Principal Employee or the respective officers and directors
of any such Affiliate, or any Person in which any of DigitalQuake, any Principal
Employee or any Affiliate of any such Person or any immediate family member of a
Principal Employee has any direct or material indirect interest.
"Representative" means any officer, director, principal, attorney, agent,
employee or other representative of any Person.
"Restated Articles" means the Second Amended and Restated Articles of
Incorporation of DigitalQuake as filed with the Secretary of State of the State
of California on February 6, 2002.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder Representative" shall mean Paul A. Lessard, or any person
appointed as a successor Shareholder Representative pursuant to Section 13.1
hereof.
"Shareholders" means the holders of shares of capital stock of DigitalQuake
on the Closing Date and, for purposes of Article XII and Section 13.1, also
means the holders of DigitalQuake Options on the Closing Date.
"Stock Option Plan" means DigitalQuake's 2000 Stock Option Plan, as amended
to date.
"Subsidiaries" shall mean all those corporations, associations, or other
business entities of which the entity in question either (i) owns or controls
50% or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the outstanding
equity securities is owned directly or indirectly by its parent (provided, there
shall not be included any such entity the equity securities of which are owned
or controlled in a fiduciary capacity), (ii) in the case of partnerships, serves
as a general partner, (iii) in the case of a limited liability company, serves
as a managing member, or (iv) otherwise has the ability to elect a majority of
the directors, trustees or managing members thereof.
"Tax Return" means any report, return, document, declaration, claim for
refund or other information or filing made with or required to be supplied to
any taxing authority or jurisdiction (foreign or domestic) with respect to
Taxes, including information returns, and any documents with respect to or
accompanying requests for the extension of time in which to file any such
report, return, document, declaration or other information.
"Taxes" mean any and all taxes, charges, fees, levies or other assessments,
including income, gross receipts, excise, real or personal property, sales,
withholding, social security, retirement, unemployment, occupation, use,
service, license, net worth, payroll, franchise and transfer and recording,
imposed by the Internal Revenue Service or any taxing authority (whether
domestic or foreign, including any federal, state, county, local or foreign
government or any subdivision or taxing agency thereof (including a U.S.
possession)), whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall include any interest whether paid or
received, fines, penalties or additional amounts attributable to, or imposed
upon, or with respect to, any such taxes, charges, fees, levies or other
assessments, whether disputed or not.
"To the knowledge" of a party (or similar phrases) means matters (i) which
are actually known by such party or (ii) which, after reasonable investigation,
would be known to a reasonable Person in similar circumstances.
1.2 Other Defined Terms. The following terms shall have the meanings
defined for such terms in the Sections set forth below:
Term Section
---- -------
401(k) Plan 9.10
Accelerated Optionees 3.4(a)
Actions 4.16
Adjusted Consideration 3.2(c)
Adjusted Per Share Price 3.2(c)
Agreement Preamble
Analog Bits Agreement 4.21(g)
Benefit Arrangement 4.18(a)(i)
Covenant End Date 7.1
Damage Threshold 12.2(e)
Damages 12.2(a)
DigitalQuake Preamble
DigitalQuake's Closing Certificate 9.1
DigitalQuake's Secretary's Certificate 9.7
Disclosure Schedule Article IV
Disqualified Individual 3.9
Dissenting Shares 3.8
Employee Plans 4.18(a)(ii)
Environmental Conditions 4.27(a)(i)
Environmental Laws 4.27(a)(ii)
ERISA Affiliate 4.18(a)(iii)
Founders Preamble
Hazardous Substance 4.27(a)(iii)
Indemnity Escrow Account 3.3
Instrument 13.2
Majority 13.1
Merger Option 2.1
Merger Option Notice 2.2
Merger Option Period 2.2
Merger Sub Preamble
Multiemployer Plan 4.18(a)(iv)
National Preamble
National's Closing Certificate 8.1
National Warrant 4.2(c)
PBGC 4.18(a)(v)
Pension Plan 4.18(a)(vi)
Proposed Acquisition Transaction 7.4(a)
Release 4.27(a)(v)
Semi-Annual Increment 3.4(b)
Series B Purchase Agreement Recitals
Shareholder Support Agreement Recitals
Surviving Corporation 2.6(a)
Welfare Plan 4.18(a)(vii)
1.3 Interpretation Provisions.
(a) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement, and article,
section, schedule and exhibit references are to this Agreement unless
otherwise specified. The meaning of defined terms shall be equally
applicable to the singular and plural forms of the defined terms. The
term "or" is disjunctive but, depending on the context, not
necessarily exclusive. The terms "include" and "including" are not
limiting and mean "including without limitation."
(b) References to agreements and other documents shall be deemed to
include all subsequent amendments and other modifications thereto.
(c) References to statutes shall include all regulations promulgated
thereunder and references to statutes or regulations shall be
construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation.
(d) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the construction of this
Agreement.
(e) The language used in this Agreement shall be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of
strict construction shall be applied against any party.
(f) The schedules and exhibits to this Agreement are a material part
hereof and shall be treated as if fully incorporated into the body of
this Agreement.
ARTICLE II.
THE OPTION AND THE MERGER
2.1 Grant of Option. In consideration of National's entering into the
Series B Purchase Agreement and the Technology Development and License
Agreement, DigitalQuake hereby grants to National the exclusive and irrevocable
right (the "Merger Option") to require DigitalQuake to merge with Merger Sub
pursuant to the terms set forth in this Agreement, with DigitalQuake continuing
as the surviving corporation. But for DigitalQuake's agreement to enter into
this Agreement, National would not have entered into the Series B Purchase
Agreement and the Technology Development and License Agreement.
2.2 Exercise of the Merger Option. National may exercise the Merger Option
at any time during the period commencing on the date of this Agreement and
ending at 5:00 p.m. (PST) on June 30, 2002 (the "Merger Option Period") by
delivering a written notice to DigitalQuake in accordance with Section 14.3
hereof (the "Merger Option Notice"); provided, however, that if National
exercises the Series B Option (as defined in the Series B Purchase Agreement) on
or prior to June 30, 2002, the Merger Option Period shall be extended
automatically by three months such that it will end at 5:00 p.m. (PST) on
September 30, 2002. The Merger Option Notice shall specify the anticipated
Closing Date. Upon receipt of the Merger Option Notice, DigitalQuake shall
prepare and deliver to National a schedule showing DigitalQuake's outstanding
shares of DigitalQuake Common Stock and DigitalQuake Preferred Stock and
outstanding DigitalQuake Options, warrants and other rights as of a date that is
three days prior to the Closing Date.
2.3 No Obligation to Exercise Option. National may elect to exercise or not
exercise the Merger Option in its sole discretion. Nothing contained in this
Agreement, the Series B Purchase Agreement or the Technology Development and
Licensing Agreement and no action taken by National nor any failure by National
to take any action pursuant hereto or thereto shall create any obligation on the
part of National to exercise the Merger Option or create any liability on the
part of National to DigitalQuake or the Shareholders for failure to exercise the
Merger Option.
2.4 Actions Following Exercise of the Option. Immediately following
National's exercise of the Merger Option, each of the parties to this Agreement
shall take all actions necessary or desirable to consummate the Merger within
five (5) business days following delivery of the Merger Option Notice or, if
later, by the date specified by National in the Merger Option Notice.
2.5 Effective Time. If following National's exercise of the Merger Option
all of the conditions to the Merger set forth in Articles VIII and IX shall have
been satisfied or waived in accordance herewith and this Agreement shall not
have been terminated pursuant to Section 14.1, the parties hereto shall cause
the Merger to be consummated by filing the Agreement of Merger with the
Secretary of State of the State of California in accordance with the California
GCL. The parties hereto will execute the Agreement of Merger and deliver the
executed copy to Latham & Watkins to hold in escrow pending receipt of notice
from National that the Agreement of Merger should be dated and submitted to the
Secretary of State of the State of California for filing.
2.6 Merger. At the Effective Time, subject to the terms and conditions set
forth in this Agreement and in accordance with the California GCL:
(a) the Merger shall become effective, Merger Sub shall merge into
DigitalQuake, the separate existence of Merger Sub shall cease, and
DigitalQuake shall continue as the surviving corporation ("Surviving
Corporation");
(b) the Articles of Incorporation, as amended, of Merger Sub as in effect
immediately prior to the Effective Time shall be the Articles of
Incorporation of Surviving Corporation, until duly amended in
accordance with applicable law;
(c) the Bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of Surviving Corporation, until
altered, amended, or repealed; and
(d) each share of DigitalQuake Common Stock and DigitalQuake Preferred
Stock outstanding immediately prior to the Effective Time shall be
canceled and converted as provided in Article III hereof.
2.7 Directors and Officers. At the Effective Time, the directors and
officers of Merger Sub immediately prior to the Effective Time shall become the
directors and officers, respectively, of Surviving Corporation, each such
director and officer to hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Articles of Incorporation and Bylaws of Surviving Corporation
and applicable law. DigitalQuake shall use reasonable efforts to cause each
director of DigitalQuake to tender his resignation prior to the Effective Time,
each such resignation to be effective as of the Effective Time.
2.8 Further Assurances. DigitalQuake agrees that if, at any time after the
Effective Time, Surviving Corporation shall consider or be advised that any
further deeds, assignments, or assurances are necessary or desirable to vest,
perfect, or confirm in Surviving Corporation title to any property or rights of
DigitalQuake, Surviving Corporation and its proper officers and directors may
execute and deliver all such proper deeds, assignments, and assurances and do
all other things necessary or desirable to vest, perfect or confirm title to
such property or rights in Surviving Corporation and otherwise to carry out the
purpose of this Agreement, in the name of DigitalQuake or otherwise.
ARTICLE III.
CONVERSION OF SHARES
3.1 Conversion of Merger Sub Shares. At the Effective Time, each issued and
outstanding share of capital stock of Merger Sub shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into and
become one fully paid and non-assessable share of the common stock of the
Surviving Corporation.
3.2 Conversion of DigitalQuake Common Stock and DigitalQuake Preferred
Stock.
(a) At the Effective Time, each share of DigitalQuake Series A Preferred
Stock issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of
the holder thereof, be canceled and extinguished and converted into
the right to receive in cash, without interest, $1.00.
(b) At the Effective Time, each share of DigitalQuake Series B Preferred
Stock issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of
the holder thereof, be canceled and extinguished and converted into
the right to receive in cash, without interest, $1.78.
(c) At the Effective Time, each share of DigitalQuake Common Stock issued
and outstanding immediately prior to the Effective Time (other than
shares of DigitalQuake Common Stock and DigitalQuake Preferred Stock
held by National or its Subsidiaries (which shall be canceled pursuant
to Section 3.7) and other than Dissenting Shares (as defined herein))
shall, by virtue of the Merger and without any action on the part of
the holder thereof, be canceled and extinguished and converted into
the right to receive in cash, without interest, an amount equal to the
quotient of (A) the Adjusted Consideration (as defined below) divided
by (B) the sum of (x) the total number of shares of DigitalQuake
Common Stock outstanding three days before the Closing Date (including
shares held by National and its Subsidiaries) plus (y) the total
number of shares of DigitalQuake Common Stock issuable upon conversion
of shares of DigitalQuake Preferred Stock (including shares held by
National and its Subsidiaries) outstanding three days before the
Closing Date plus (z) the total number of shares of DigitalQuake
Common Stock subject to DigitalQuake Options, warrants or other
convertible securities (including those held by National and its
Subsidiaries) outstanding three days before the Closing Date (such
amount, the "Adjusted Per Share Price"); provided, however, that ten
percent of the Adjusted Per Share Price shall be withheld and
deposited into escrow pursuant to Section 3.4 hereof. The amount of
the Adjusted Per Share Price withheld and deposited into escrow from
all holders of DigitalQuake Common Stock and DigitalQuake Preferred
Stock (other than National) and deposited into escrow, together with
the amounts withheld from the Optionees pursuant to clause (y)(I) of
Section 3.4(a) and clause (y)(I) of Section 3.4(b), is referred to
herein as the "Indemnity Escrow Amount." For purposes of this
Agreement, the "Adjusted Consideration" means an amount equal to
Twenty-Seven Million Dollars ($27,000,000) reduced by (i) the Excess
Transaction Costs, if any, and (ii) any amounts paid by DigitalQuake
to Syntek Semiconductor Co., Ltd. pursuant to those certain
Convertible Deposits dated as of September 4, 2001 in the aggregate
amount of $400,000 made by DigitalQuake in favor of Syntek
Semiconductor Co., Ltd.
(d) The amounts described in clauses (a) - (c) shall be paid in accordance
with Section 3.6; provided, however, that the aggregate amount payable
to each Principal Employee shall be further subject to Section 3.5;
and provided further that payments with respect to any shares of
DigitalQuake Common Stock that are subject to forfeiture or vesting
restrictions as of the date hereof shall be subject to Section 3.9.
3.3 Indemnity Escrow Arrangements. On the Closing Date, the Indemnity
Escrow Amount shall be deposited into an escrow account (the "Indemnity Escrow
Account") pending determination of certain indemnification obligations of the
Shareholders (other than National) and Optionees, if any, as set forth in
Article XII. The Indemnity Escrow Account shall be subject to the terms of the
Indemnity Escrow Agreement by and among National, the Shareholder
Representative, as representative of the Shareholders and the Optionees, and
U.S. Bank Trust N.A. (or such other bank that shall be mutually acceptable to
DigitalQuake and National), as escrow agent, substantially in the form of
Exhibit C hereto.
3.4 Treatment of DigitalQuake Options.
(a) Accelerated Options. Prior to the Effective Time, the Board of
Directors of DigitalQuake, as administrator of the Stock Option Plan,
shall pursuant to its authority under the Stock Option Plan provide
that each DigitalQuake Option issued under the Stock Option Plan to
the individuals (the "Accelerated Optionees") set forth on Schedule
3.4(a) shall upon shareholder approval pursuant to Code Section
280G(b)(5)(A)(ii) become fully vested and exercisable immediately
prior to the Effective Time, and if such DigitalQuake Options are not
exercised prior to the Effective Time, such DigitalQuake Options shall
terminate and cease to be outstanding effective as of the Effective
Time. Prior to the Effective Time, National shall offer to pay,
subject to consummation of the Merger, each Accelerated Optionee that
does not exercise its DigitalQuake Option(s) prior to the Effective
Time an amount equal to (x) the aggregate Adjusted Per Share Price
into which the shares of DigitalQuake Common Stock issuable upon
exercise of the DigitalQuake Option(s) held by such Accelerated
Optionee and not exercised prior to the Effective Time would have been
converted under Section 3.2 if such DigitalQuake Option(s) had been
exercised immediately prior to the Effective Time, reduced by (y) (I)
ten percent of the Adjusted Per Share Price, which shall be withheld
and deposited into escrow pursuant to Section 3.3 hereof, (II) the
aggregate exercise price for the shares of DigitalQuake Common Stock
then issuable upon exercise of such DigitalQuake Option(s) and (III)
the amount of any withholding taxes which may be required on such
payment (which National shall cause DigitalQuake to duly withhold for
the account of such Accelerated Optionee), in return for the
cancellation of such DigitalQuake Option(s); provided that in the case
of Principal Employees, payment of such amount shall be made in
accordance with Section 3.5. DigitalQuake's Board of Directors shall
not accelerate the vesting of any DigitalQuake Option except as
provided in this Section 3.4(a). National shall cause DigitalQuake to
make or otherwise arrange for the payment required by this Section
3.4(a) to each Accelerated Optionee as soon as reasonably practicable
after the Effective Time, upon delivery to DigitalQuake of the written
agreement representing the Accelerated Optionee's DigitalQuake
Option(s) and such other information or documents as DigitalQuake or
National may reasonably require.
(b) Other Employee Options. Each DigitalQuake Option outstanding
immediately prior to the Effective Time that is held by an employee of
DigitalQuake and that is not accelerated pursuant to Section 3.4(a)
shall be canceled as of the Effective Time. Prior to the Effective
Time, National shall offer to pay, subject to consummation of the
Merger, each Optionee holding a DigitalQuake Option that is not
exercised, an amount equal to (x) the aggregate Adjusted Per Share
Price into which the shares of DigitalQuake Common Stock issuable upon
exercise of the vested portion of the DigitalQuake Option as of the
Effective Time (taking into account any acceleration of vesting
triggered by the Merger under the terms of the applicable DigitalQuake
Option) would have been converted under Section 3.2 if such
DigitalQuake Option had been exercised immediately prior to the
Effective Time, reduced by (y)(I) ten percent of the Adjusted Per
Share Price, which shall be withheld and deposited into escrow
pursuant to Section 3.3 hereof, (II) the aggregate exercise price for
the shares of DigitalQuake Common Stock then issuable upon exercise of
the vested portion of such DigitalQuake Option(s) and (III) the amount
of any withholding taxes that may be required on such payment (which
National shall cause DigitalQuake to duly withhold for the amount of
such Optionee), in return for the cancellation of such DigitalQuake
Option. With respect to the unvested portion of each such DigitalQuake
Option, National shall make semi-annual cash payments to the former
holder of such DigitalQuake Option beginning six months after the
Effective Time. Each such payment shall be in an amount equal to (x)
the aggregate Adjusted Per Share Price into which the shares of
DigitalQuake Common Stock issuable upon exercise of the applicable
Semi-Annual Increment (as defined below), if any, of the DigitalQuake
Option held by such Optionee would have been converted under Section
3.2 if such DigitalQuake Option had been exercised immediately prior
to the Effective Time with respect to the number of shares covered by
such Semi-Annual Increment, reduced by (y) (I) the aggregate exercise
price for the shares of DigitalQuake Common Stock issuable upon
exercise of the Semi-Annual Increment and (II) the amount of any
withholding taxes which may be required on such payment (which
National shall cause DigitalQuake to duly withhold for the amount of
such Optionee) provided that the holder remains employed by
DigitalQuake or National and otherwise satisfies the requirements for
continued vesting of the DigitalQuake Option in question through the
date of such payment. "Semi-Annual Increment" shall mean the number of
shares, if any, subject to a DigitalQuake Option that would have
vested during the six-month period ending on the date of such payment
if such DigitalQuake Option had remained outstanding and continued to
vest in accordance with its terms. After semi-annual payments have
been made with respect to the entire unvested portion of a
DigitalQuake Option, no further semi-annual payments shall be
required. In addition, any semi-annual payments with respect to a
DigitalQuake Option shall cease immediately upon the termination of
the holder's employment.
(c) Non-Employee Options. Each DigitalQuake Option outstanding immediately
prior to the Effective Time that held by a Person who is not an
employee of DigitalQuake shall be canceled as of the Effective Time.
Prior to the Effective Time, National shall offer to pay, subject to
consummation of the Merger, each such Optionee holding a DigitalQuake
Option that is not exercised, an amount equal to (x) the aggregate
Adjusted Per Share Price into which the shares of DigitalQuake Common
Stock issuable upon exercise of the vested portion of the DigitalQuake
Option as of the Effective Time (taking into account any acceleration
of vesting triggered by the Merger under the terms of the applicable
DigitalQuake Option) would have been converted under Section 3.2 if
such DigitalQuake Option had been exercised immediately prior to the
Effective Time, reduced by (y)(I) ten percent of the Adjusted Per
Share Price, which shall be withheld and deposited into escrow
pursuant to Section 3.3 hereof, (II) the aggregate exercise price for
the shares of DigitalQuake Common Stock then issuable upon exercise of
the vested portion of such DigitalQuake Option(s) and (III) the amount
of any withholding taxes that may be required on such payment (which
National shall cause DigitalQuake to duly withhold for the amount of
such Optionee), in return for the cancellation of such DigitalQuake
Option.
3.5 Payments to Principal Employees. Notwithstanding Section 3.4 above and
Section 3.6 below, the aggregate amount payable to each Principal Employee with
respect to the DigitalQuake Common Stock and the DigitalQuake Option(s) held by
him pursuant to Section 3.2 or Section 3.4 shall be payable in three equal
installments, as follows:
(a) The first installment payable to each Principal Employee with respect
to his DigitalQuake Common Stock and DigitalQuake Option(s) shall be
due and payable immediately following the Effective Time.
(b) The second installment payable to each Principal Employee with respect
to his DigitalQuake Common Stock and DigitalQuake Option(s) shall be
due and payable upon the one-year anniversary of the Effective Time;
and
(c) The third installment payable to each Principal Employee with respect
to his DigitalQuake Common Stock and DigitalQuake Option(s) shall be
due and payable upon the two-year anniversary of the Effective Time.
3.6 Surrender of Certificates.
(a) As soon as practicable after the Effective Time, each Person holding a
certificate or certificates representing shares of DigitalQuake Common
Stock or DigitalQuake Preferred Stock issued and outstanding
immediately prior to the Effective Time shall deliver such
certificate(s), a letter of transmittal in the form attached hereto as
Exhibit E and a Form W-9 or Form W-8 (or a suitable substitute form),
as applicable, to the Surviving Corporation or its transfer agent. In
the event that any such holder no longer has in his or her possession
any such certificate(s), such holder shall, in lieu of surrendering
such certificate(s), deliver to Surviving Corporation an affidavit of
that fact whereupon National may, in its sole discretion, require the
holder of such lost certificate(s) to deliver a bond in such sum as
National may reasonably direct as indemnity against any claim that may
be made against National or any of its Affiliates with respect to the
certificate. Thereupon, each such holder shall be entitled to receive
in exchange therefor cash consideration in the amount and in the
manner described in Section 3.2 and Section 3.5, without interest, and
Surviving Corporation shall pay and National shall cause Surviving
Corporation to pay such amount promptly to the holder.
(b) Each certificate which immediately prior to the Effective Time
evidenced shares of DigitalQuake Common Stock or DigitalQuake
Preferred Stock (other than held by National and its Affiliates)
shall, from and after the Effective Time until such certificate is
surrendered to Surviving Corporation or its transfer agent, be deemed,
for all corporate purposes, to evidence the right to receive the
consideration per share described in Section 3.2. No interest shall be
payable upon any consideration.
(c) After the Effective Time, there shall be no transfers of any shares of
DigitalQuake Common Stock or DigitalQuake Preferred Stock on the stock
transfer books of Surviving Corporation. If, after the Effective Time,
certificates formerly representing shares of DigitalQuake Common Stock
or DigitalQuake Preferred Stock are presented to Surviving
Corporation, they shall be canceled and exchanged for the
consideration per share provided for by Section 3.2.
3.7 Shares Held by National or its Subsidiaries. Each of the shares of
DigitalQuake Preferred Stock or DigitalQuake Common Stock held by DigitalQuake
or its Subsidiaries or National or its Subsidiaries shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
3.8 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of DigitalQuake capital stock issued and outstanding
immediately prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has demanded
appraisal for such shares in accordance with Section 1300 of the California GCL,
if such Section 1300 provides for appraisal rights for such shares in the Merger
("Dissenting Shares"), shall not be converted into the right to receive the
consideration as provided in Section 3.2, unless and until such holder fails to
perfect or withdraws or otherwise loses his right to appraisal and payment under
the California GCL. If, after the appraisal, any such holder fails to perfect or
withdraws or loses his right to appraisal, then such Dissenting Shares shall
thereupon be treated as if they had been converted as of the Effective Time into
the right to receive the consideration, if any, to which such holder is
entitled. DigitalQuake shall give National prompt notice of any demands received
by DigitalQuake for appraisal of shares and, prior to the Effective Time,
National shall have the right to participate in all negotiations and proceedings
with respect to such demands. Prior to the Effective Time, DigitalQuake shall
not, except with the prior written consent of National, make any payments with
respect to or settle or offer to settle, any such demands.
3.9 Disqualified Individual Payments. Notwithstanding anything in Sections
3.2 or 3.4 to the contrary, no payment thereunder with respect to (i) any shares
of DigitalQuake Common Stock that are subject to forfeiture or vesting
restrictions as of the date hereof or (ii) a DigitalQuake Option shall be made
to any individual who is a "disqualified individual" (as defined in Section
280G(c) of the Code and the proposed Treasury Regulations promulgated
thereunder) with respect to DigitalQuake unless the right of such individual to
receive such payment has been approved by the shareholders of DigitalQuake in an
approval satisfying the requirements of Section 280G(b)(5)(B) of the Code and
the proposed Treasury Regulations promulgated thereunder.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
DIGITALQUAKE AND THE FOUNDERS
DigitalQuake and each of the Founders jointly and severally make the
following representations and warranties to National and Merger Sub, which
representations and warranties are true and correct as of the date hereof and
will be true and correct as of the Closing Date, except as set forth in the
disclosure schedule delivered by DigitalQuake to National and Merger Sub on the
date hereof (the "Disclosure Schedule"). Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, however, unless the Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail. An exception in the Disclosure Schedule relating to one
representation and warranty shall not be deemed to qualify or to serve as an
exception to another representation and warranty unless the same disclosure or
an appropriate cross-reference appears in the section of the Disclosure Schedule
relating to such other representation and warranty. The Disclosure Schedule will
be arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Article IV.
4.1 Organization of DigitalQuake. DigitalQuake is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. DigitalQuake has full corporate power and authority to conduct the
Business as it is presently being conducted and to own or lease, as applicable,
the Assets. DigitalQuake is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law as a result of the conduct of
the Business or the ownership of its properties, except where the failure to be
so qualified would not have a Material Adverse Effect on DigitalQuake. Each
jurisdiction in which DigitalQuake is qualified to do business as a foreign
corporation is set forth in Schedule 4.1.
4.2 Capitalization of DigitalQuake.
(a) There are (i) 17,000,000 shares of DigitalQuake Common Stock
authorized under the Restated Articles and (ii) 9,946,292 shares of
DigitalQuake Preferred Stock authorized under the Restated Articles,
6,000,000 of which are designated as Series A Preferred Stock and
3,946,292 of which are designated as Series B Preferred Stock. As of
the date hereof, 1,715,000 shares of DigitalQuake Common Stock are
issued and outstanding, 6,000,000 shares of Series A Preferred Stock
are issued and outstanding, and up to 1,750,000 shares of Series B
Preferred Stock will be issued and outstanding upon the First Closing
under the Series B Preferred Stock Purchase Agreement. The
Shareholders of DigitalQuake and the number, class and series of
shares of DigitalQuake capital stock held of record, and to the
knowledge of DigitalQuake, beneficially by each of them is set forth
on Schedule 4.2.
(b) As of the date hereof, (i) 2,510,000 shares of DigitalQuake Common
Stock are reserved for issuance upon the exercise of DigitalQuake
Options granted or available for grant under the Stock Option Plan,
(ii) DigitalQuake Options representing the right to purchase an
aggregate of 1,235,000 shares of DigitalQuake Common Stock are
outstanding under the Stock Option Plan, and (iii) 1,275,000 shares of
DigitalQuake Common Stock are available for future grants of
DigitalQuake Options under the Stock Option Plan. DigitalQuake has
provided National a complete and accurate list of all such outstanding
DigitalQuake Options and the vesting schedules and exercise prices for
such options, a copy of which is attached hereto as Schedule 4.2.
(c) Except for the DigitalQuake Preferred Stock and DigitalQuake Options
listed above and except as contemplated by the Series B Purchase
Agreement and this Agreement, there are no outstanding options,
warrants, convertible securities or rights of any kind to purchase or
otherwise acquire any shares of capital stock or other securities of
DigitalQuake. Except for the aggregate of 9,946,292 shares of
DigitalQuake Common Stock reserved for issuance upon the conversion of
the DigitalQuake Preferred Stock, the aggregate of 2,510,000 shares of
DigitalQuake Common Stock reserved for issuance upon the exercise of
DigitalQuake Options granted or available for grant, and the 100,000
shares of DigitalQuake Series B Preferred Stock issuable upon exercise
of the Warrant dated December 21, 2001 issued to National (the
"National Warrant"), no other shares of capital stock of DigitalQuake
are reserved for issuance.
(d) All outstanding shares of DigitalQuake Common Stock and DigitalQuake
Preferred Stock are, and any shares of DigitalQuake Common Stock
issuable upon exercise of any DigitalQuake Option or on conversion of
DigitalQuake Preferred Stock (including shares of DigitalQuake
Preferred Stock issuable upon exercise of the National Warrant) will
be, when issued in accordance with the terms thereof, validly issued,
fully paid and non-assessable and not subject to any preemptive rights
created by statute, DigitalQuake's Restated Articles or Bylaws or any
Contract. The shares of DigitalQuake Preferred Stock issuable upon
exercise of the National Warrant will be, when issued in accordance
with the terms thereof, validly issued, fully paid and non-assessable
and not subject to any preemptive rights created by statute,
DigitalQuake's Restated Articles or Bylaws or any Contract. The shares
of DigitalQuake Common Stock and DigitalQuake Preferred Stock and
DigitalQuake Options have been or will be issued in compliance with
all federal and state corporate and securities laws.
(e) Except as contemplated by the Restated Articles, there is outstanding
no vote, plan or pending proposal for any redemption of DigitalQuake
capital stock.
(f) DigitalQuake has completed the repurchase of the 4,000,000 shares of
DigitalQuake Common Stock that were issued to Paul A. Lessard pursuant
to the Stock Purchase Agreement, dated as of June 26, 2000, by and
between DigitalQuake and Paul A. Lessard.
4.3 Authorization. DigitalQuake has all necessary power and authority to
enter into this Agreement, the Agreement of Merger and the Ancillary Agreements
to which it is a party and has taken all corporate action necessary to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder. The execution and delivery of this
Agreement, the Agreement of Merger and the Ancillary Agreements by DigitalQuake,
and the performance by DigitalQuake of its obligations hereunder and thereunder
and the consummation of the transactions contemplated hereby and thereby,
including the Merger, have been unanimously approved by the Board of Directors
and unanimously approved by the Shareholders of DigitalQuake. Copies of the
resolutions of the Board of Directors and written consents of the Shareholders
have been provided to National, there have been no changes to such resolutions
or written consents, and such resolutions and written consents remain in full
force and effect. This Agreement has been duly executed and delivered by
DigitalQuake and is a legal, valid and binding obligation of DigitalQuake,
enforceable against DigitalQuake in accordance with its terms, except that
enforceability may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors. The Agreement of Merger will have been, as of the Effective
Time, duly and validly executed by DigitalQuake, and will be a legal, valid and
binding obligation of DigitalQuake, enforceable against DigitalQuake in
accordance with its terms, except that enforceability may be limited by the
effect of bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights of creditors.
4.4 Officers and Directors. Schedule 4.4 contains a list of all of the
officers and directors of DigitalQuake.
4.5 Bank Accounts; Powers of Attorney. Schedule 4.5 contains a list of all
DigitalQuake's bank accounts, safe deposit boxes, and related powers of
attorney, and persons authorized to draw thereon or have access thereto.
DigitalQuake has no outstanding powers of attorney except as contemplated above.
4.6 Subsidiaries.
(a) Schedule 4.6 contains a list of each of the DigitalQuake Subsidiaries
that is a corporation (identifying its jurisdiction of incorporation)
and each of the DigitalQuake Subsidiaries that is a general or limited
partnership, limited liability company, or other non-corporate entity
(identifying the jurisdiction under which such entity is organized,
each jurisdiction in which it is qualified and/or licensed to transact
business, and the amount and nature of the ownership interest
therein). Each DigitalQuake Subsidiary is duly organized, validly
existing, and (as to corporations) in good standing under the laws of
the jurisdiction in which it is incorporated or organized, and has the
corporate power and authority necessary for it to own, lease, and
operate its assets and to carry on its business as now conducted. Each
DigitalQuake Subsidiary is duly qualified or licensed to transact
business as a foreign corporation in good standing in the States of
the United States and foreign jurisdictions where the character of its
assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the
failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect.
(b) DigitalQuake or one of its wholly owned Subsidiaries owns all of the
issued and outstanding shares of capital stock (or other equity
interests) of each DigitalQuake Subsidiary. No capital stock (or other
equity interest) of any DigitalQuake Subsidiary is or may become
required to be issued by reason of any options, warrants or other
rights, and there are no contracts, agreements or understandings by
which any DigitalQuake Subsidiary is bound to issue additional shares
of its capital stock (or other equity interests) or by which any
DigitalQuake Subsidiary is or may be bound to transfer any shares of
the capital stock (or other equity interests) of any DigitalQuake
Subsidiary. There are no contracts, agreements or understandings
relating to the rights of any DigitalQuake Subsidiary to vote or to
dispose of any shares of its capital stock (or other equity
interests). All of the shares of capital stock (or other equity
interests) of each DigitalQuake Subsidiary held by DigitalQuake or
another DigitalQuake Subsidiary are fully paid and nonassessable under
the applicable corporation law of the jurisdiction in which such
Subsidiary is incorporated or organized and are owned by the
DigitalQuake Subsidiary free and clear of any Encumbrance.
4.7 Absence of Certain Changes or Events. Except as set forth on Schedule
4.7, since the Balance Sheet Date there has not been any:
(a) failure by DigitalQuake to operate the Business in the ordinary course
or failure to use commercially reasonable efforts to preserve the
Business intact and to preserve for National the continued services of
the employees and independent contractors and the goodwill of
suppliers, customers and others having business relations with
DigitalQuake;
(b) resignation or termination of any officer or employee;
(c) increase in the rate of compensation payable or to become payable to
any officer, employee or Representative of DigitalQuake, including the
making of any loan to, or the payment, grant or accrual of any bonus,
incentive compensation, service award or other similar benefit to, any
such Person, or the addition to, modification of, or contribution to
any Employee Plan other than the extension of coverage under such plan
to others who became eligible after the Balance Sheet Date other than
in the ordinary course of business consistent with past practice;
(d) any payment, loan or advance of any amount to or in respect of, or the
sale, transfer or lease of any properties or Assets to, or entering
into of any Contract with, any Related Party, except (i) directors'
fees, (ii) compensation to employees at the rates disclosed pursuant
to Section 4.17(d) and (iii) customary travel and expense advances
made in the ordinary course of business and consistent with past
practice;
(e) sale, assignment, license, transfer or encumbrance of any Assets
tangible or intangible, singly or in the aggregate, other than sales
of products and services and licenses in the ordinary course of
business and consistent with past practice;
(f) new Contracts, or extensions, modifications, terminations or renewals
thereof, except for Contracts entered into, modified or terminated in
the ordinary course of business and consistent with past practice;
(g) actual or threatened termination of any material customer account or
group of accounts or actual or threatened material reduction in fees,
purchases or royalties payable by any such customer or, to the
knowledge of DigitalQuake, the occurrence of any event that is likely
to result in any such termination or reduction;
(h) disposition or lapsing of any of DigitalQuake's Proprietary Rights, in
whole or in part or, to the knowledge of DigitalQuake, any disclosure
of any trade secret, process or know-how to any Person not an
employee;
(i) change in accounting methods or practices by DigitalQuake;
(j) revaluation by DigitalQuake of any of the Assets, including writing
off notes or accounts receivable other than for which reserves had
been established;
(k) material damage, destruction or loss (whether or not covered by
insurance) affecting DigitalQuake or any of the Assets or any other
material adverse change in the financial condition, results of
operations, properties, business or prospects of DigitalQuake;
(l) declaration, setting aside or payment of dividends or distributions in
respect of any capital stock of DigitalQuake or any redemption,
purchase or other acquisition of any of DigitalQuake's equity
securities by DigitalQuake other than the repurchase of unvested
shares at their original purchase price and the repurchase of
4,000,000 shares of DigitalQuake Common Stock from Paul A. Lessard
pursuant to the Stock Purchase Agreement, dated as of June 26, 2000,
by and between DigitalQuake and Paul A. Lessard;
(m) issuance or reservation for issuance by DigitalQuake of any shares of
capital stock or other equity securities or obligations or securities
convertible into or exchangeable for shares of capital stock or other
equity securities (other than shares of DigitalQuake Common Stock
issued upon the exercise of DigitalQuake Options or conversion of
DigitalQuake Preferred Stock);
(n) commitment by DigitalQuake or by its executive officers on its behalf
to issue or reserve for issuance any shares of capital stock or other
equity securities or obligations or securities convertible into or
exchangeable for shares of capital stock or other equity securities;
(o) increase, decrease or reclassification of DigitalQuake's authorized
capital stock;
(p) amendment of DigitalQuake's Restated Articles;
(q) capital expenditure or execution of any lease or any incurring of
liability therefor by DigitalQuake, involving payments in excess of
$25,000 in the aggregate;
(r) failure to pay any material obligation of DigitalQuake;
(s) cancellation of any indebtedness or waiver of any rights of
substantial value to DigitalQuake, except in the ordinary course of
business and consistent with past practice;
(t) indebtedness incurred by DigitalQuake for borrowed money or any
commitment to borrow money entered into by DigitalQuake, or any loans
made or agreed to be made by DigitalQuake;
(u) liability incurred by DigitalQuake except in the ordinary course of
business and consistent with past practice, or any increase or change
in any assumptions underlying or methods of calculating any bad debt,
contingency or other reserves;
(v) payment, discharge or satisfaction of any Liabilities of DigitalQuake
other than the payment, discharge or satisfaction (i) in the ordinary
course of business and consistent with past practice of Liabilities
reflected or reserved against in the Financial Statements or incurred
in the ordinary course of business and consistent with past practice
since the Balance Sheet Date and (ii) of Liabilities (other than those
contemplated by clause (i)) of DigitalQuake involving $25,000 or less
in the aggregate;
(w) acquisition by DigitalQuake of any equity interest in any other
Person; or
(x) agreement by DigitalQuake to do any of the foregoing.
4.8 Title to Assets. DigitalQuake has sole, good and marketable fee simple
title to its Assets except as set forth on Schedule 4.8. Except as set forth on
Schedule 4.8, none of DigitalQuake's Assets is subject to any Encumbrances.
4.9 Sufficiency of Assets. The Assets constitute all of the assets, rights
and properties, tangible or intangible, real or personal, which are required for
the operation of the Business as it is presently conducted and as it is proposed
to be conducted.
4.10 Fixtures and Equipment. Schedule 4.10 contains accurate lists and
summary descriptions of all Fixtures and Equipment where the value of an
individual item exceeds $25,000 or where an aggregate of similar items exceeds
$100,000. All of DigitalQuake's tangible assets and properties are in good
operating condition and repair, normal wear and tear excepted, and are usable in
the ordinary course of DigitalQuake's business.
4.11 Contracts.
(a) Disclosure. As of the date of this Agreement, Schedule 4.11 sets forth
a complete and accurate list of all of DigitalQuake's Contracts of the
following categories, as applicable:
(i) Contracts not made in the ordinary course of business;
(ii) Manufacturing or joint development agreements;
(iii)License agreements or royalty agreements, whether DigitalQuake
is the licensor or licensee thereunder (other than shrink-wrap
licenses);
(iv) Confidentiality and non-disclosure agreements (whether
DigitalQuake is the beneficiary or the obligated party
thereunder);
(v) Customer orders or sales contracts under which the customer is to
make a payment after the date hereof of $10,000 or more;
(vi) Original equipment manufacturer agreements or distributor
agreements;
(vii) Research agreements;
(viii) Output or requirement agreements;
(ix) Contracts involving future expenditures or Liabilities, actual or
potential, in excess of $10,000 after the date hereof or
otherwise material to the Business or the Assets;
(x) Contracts or commitments relating to commission arrangements with
others;
(xi) Employment contracts, consulting contracts and severance
agreements, including those (A) to employ or terminate executive
officers or other personnel and other contracts with present or
former officers or directors of DigitalQuake or (B) that will
result in the payment by, or the creation of any Liability to pay
on behalf of National or DigitalQuake any severance, termination,
"golden parachute," or other similar payments to any present or
former personnel following termination of employment or otherwise
as a result of the consummation of the transactions contemplated
by this Agreement;
(xii)Agreements providing for indemnification by DigitalQuake of
present or former directors or officers of DigitalQuake;
(xiii) Promissory notes, loans, agreements, indentures, evidences of
indebtedness, letters of credit, guarantees, or other instruments
relating to an obligation to pay money, whether DigitalQuake
shall be the borrower, lender or guarantor thereunder (excluding
credit provided by DigitalQuake in the ordinary course of
business to purchasers of its products and obligations to pay
vendors in the ordinary course of business and consistent with
past practice);
(xiv)Contracts containing covenants limiting the freedom of
DigitalQuake or any officer, director or employee of
DigitalQuake, to engage in any line of business or compete with
any Person that relates directly or indirectly to the Business;
(xv) Any Contract with a foreign, federal, state or local government
or any agency or department thereof;
(xvi) Any Contract with a Related Party;
(xvii) Leases of real or personal property;
(xviii) Any Contract that relates to corporate governance, the voting
or transfer of equity securities, the registration of any
securities under the Securities Act or that grants any redemption
or preemptive rights; and
(xix) Any other material Contract.
True, correct and complete copies of all of the Contracts listed on Schedule
4.11, including all amendments and supplements thereto, have been delivered to
National.
(b) Absence of Defaults. All of the Contracts listed on Schedule 4.11 are
valid, binding and enforceable in accordance with their terms with no
existing (or to the knowledge of DigitalQuake, threatened) dispute or
material Default by DigitalQuake. DigitalQuake has fulfilled, or taken
all action necessary to enable it to fulfill when due, all of its
material obligations under each of the Contracts listed on Schedule
4.11. To the knowledge of DigitalQuake, all parties to such Contracts
have complied in all material respects with the provisions thereof, no
party is in Default thereunder and no notice of any claim of Default
has been given to DigitalQuake.
(c) Warranties. DigitalQuake has not committed any act, and there has been
no omission, which may result in, and there has been no occurrence
which may give rise to, product liability or Liability for breach of
warranty (whether covered by insurance or not) on the part of
DigitalQuake with respect to products designed, manufactured,
assembled, sold, repaired, maintained, delivered or installed or
services rendered.
4.12 No Conflict or Violation; Consents. Except as set forth on Schedule
4.12, none of the execution, delivery or performance of this Agreement or any
Ancillary Agreement, the consummation of the transactions contemplated hereby or
thereby, nor compliance by DigitalQuake with any of the provisions hereof or
thereof, will (a) violate or conflict with any provision of DigitalQuake's
Restated Articles or Bylaws, (b) conflict with, or result in a breach of or
constitute a default (with or without notice or passage of time) under, or
result in the termination of, or accelerate the performance required by, or
result in a right to terminate, accelerate, modify or cancel under, or require a
notice, consent or approval under, or result in the creation of any Encumbrance
upon any of DigitalQuake's Assets under, any Contract to which DigitalQuake is a
party or by which DigitalQuake is bound or to which any of its Assets are
subject or (c) violate any applicable Regulation or Court Order binding on
DigitalQuake. Except for (i) the approval of the Shareholders as required by the
California GCL and DigitalQuake's Restated Articles (which has been obtained),
(ii) the filing of the Agreement of Merger with the Secretary of State of the
State of California, and (iii) as set forth on Schedule 4.12, no notices to,
declaration, filing or registration with, approvals or consents of, or
assignments by, any Persons (including any foreign, federal, state or local
governmental or administrative authorities) are necessary to be made or obtained
by DigitalQuake in connection with the execution, delivery or performance of
this Agreement and the consummation of the Merger. As of the Balance Sheet Date,
the value of DigitalQuake's Assets did not exceed $10 million, and DigitalQuake
does not have an "ultimate parent entity" within the meaning of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
4.13 Permits. Schedule 4.13 sets forth a complete list of all Permits held
by DigitalQuake. DigitalQuake has, and at all times has had, all material
Permits required under any applicable Regulation in its operation of the
Business or in its ownership of the Assets, and owns or possesses such Permits
free and clear of all Encumbrances. DigitalQuake is not in default, nor has
DigitalQuake or any of its Representatives received any notice of any claim of
default, with respect to any such Permit. Except as otherwise governed by law,
all such Permits are renewable by their terms or in the ordinary course of
business without the need to comply with any special qualification procedures or
to pay any amounts other than routine filing fees and except as set forth on
Schedule 4.13, will not be adversely affected by the completion of the
transactions contemplated by this Agreement or the Ancillary Agreements.
4.14 Financial Statements; Books and Records.
(a) The Financial Statements are complete, are in accordance with the
Books and Records, and fairly present the Assets, Liabilities and
financial condition and results of operations indicated thereby in
accordance with GAAP consistently applied throughout the periods
covered thereby.
(b) DigitalQuake maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed with management's authorizations, (ii) transactions are
recorded as necessary to permit preparation of the Financial
Statements in accordance with GAAP and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with
management's authorization and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(c) The Books and Records, in reasonable detail, accurately and fairly
reflect the activities of DigitalQuake and the Business in all
material respects and have been provided to National for its
inspection.
(d) DigitalQuake has not engaged in any transaction, maintained any bank
account or used any corporate funds except for transactions, bank
accounts or funds which have been and are reflected in the normally
maintained Books and Records.
(e) The stock records and minute books of DigitalQuake heretofore made
available to National, in all material respects, fully reflect all
minutes of meetings, resolutions and other material actions and
proceedings of its shareholders and board of directors and all
committees thereof, all issuances, transfers and redemptions of
DigitalQuake's capital stock of which DigitalQuake is aware and
contain true, correct and complete copies of DigitalQuake's Restated
Articles and Bylaws and all amendments thereto.
4.15 Liabilities. DigitalQuake has no Liabilities or obligations (absolute,
accrued, contingent or otherwise), except (i) liabilities which are reflected
and properly reserved against in the Financial Statements, (ii) liabilities
incurred in the ordinary course of business and consistent with past practice
since the Balance Sheet Date, but in any event not greater than $50,000 and
(iii) liabilities arising under the Contracts (other than obligations which are
required to be reflected on a balance sheet prepared in accordance with GAAP)
set forth on Schedule 4.11 and which have arisen or been incurred in the
ordinary course of business.
4.16 Litigation. Except as set forth on Schedule 4.16, there is no action,
order, writ, injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, investigation or dispute (collectively, "Actions")
pending or, to the knowledge of DigitalQuake, threatened or anticipated (i)
against, relating to or affecting DigitalQuake, any of the Assets or any of its
officers and directors as such, (ii) which seeks to enjoin or obtain damages in
respect of the transactions contemplated hereby or by the Ancillary Agreements
or (iii) with respect to which there is a reasonable likelihood of a
determination which would prevent DigitalQuake from consummating the
transactions contemplated hereby and by the Ancillary Agreements. None of the
Actions, if adversely determined against DigitalQuake, its directors or
officers, or any other Person could reasonably be expected to result in a loss
to DigitalQuake, individually or in the aggregate, in excess of $25,000. To the
knowledge of DigitalQuake, there is no basis for any Action, which if adversely
determined against DigitalQuake, its directors or officers, or any other Person
could reasonably be expected to result in a loss to DigitalQuake, individually
or in the aggregate, in excess of $25,000. Except as specified in Schedule 4.16,
there are presently no outstanding judgments, decrees or orders of any court or
any governmental or administrative agency against DigitalQuake, its Business or
any of the Assets. Schedule 4.16 contains a complete and accurate description of
all Actions to which DigitalQuake has been a party or which related to any of
the Assets or DigitalQuake's officers or directors as such, or any such Actions
which were settled prior to the institution of formal proceedings, other than
Actions brought by DigitalQuake for collection of monies owed in the ordinary
course of business.
4.17 Labor Matters.
(a) DigitalQuake is not a party to any labor agreement with respect to its
employees (which term shall include any part-time workers for purposes
of this Section 4.17) with any labor organization, group or
association and has not experienced any attempt by organized labor or
its representatives to make DigitalQuake conform to demands of
organized labor relating to its employees or to enter into a binding
agreement with organized labor that would cover the employees of
DigitalQuake. There is no unfair labor practice charge or complaint
against DigitalQuake pending before the National Labor Relations Board
or any other governmental agency arising out of DigitalQuake's
activities, and DigitalQuake has no knowledge of any facts or
information which would give rise thereto; there is no labor strike or
labor disturbance pending or threatened against DigitalQuake nor is
any grievance currently being asserted against it; and DigitalQuake
has not experienced a work stoppage or other labor difficulty. There
are no material controversies pending or, to the knowledge of
DigitalQuake, threatened between DigitalQuake and any of its
employees, and DigitalQuake is not aware of any facts which could
reasonably result in any such controversy.
(b) Except as set forth on Schedule 4.17, DigitalQuake is in material
compliance with all applicable Regulations respecting employment
practices, terms and conditions of employment, wages and hours, equal
employment opportunity, and the payment of social security and similar
taxes, and is not engaged in any unfair labor practice. DigitalQuake
is not liable for any claims for past due wages or any penalties for
failure to comply with any of the foregoing.
(c) DigitalQuake has not entered into any severance or similar arrangement
in respect of any present or former employee that will result in any
obligation (absolute or contingent) of National or DigitalQuake to
make any payment to any present or former employee following
termination of employment. Except as provided in Section 3.4 or as set
forth on Schedule 4.17, neither the execution and delivery of this
Agreement or the Ancillary Agreements nor the consummation of the
transactions contemplated hereby or thereby will result in the
acceleration of the vesting of exercisability of any DigitalQuake
Options or in the acceleration or vesting of any other rights of any
Person to benefits under any Employee Plans.
(d) DigitalQuake has provided National with a list of the names of all
present employees and their current salary or hourly wages and other
compensation payable by DigitalQuake and copies of all outstanding
offer letters.
4.18 Employee Benefit Plans.
(a) Definitions. The following terms, when used in this Section 4.18,
shall have the following meanings. Any of these terms may, unless the
context otherwise requires, be used in the singular or the plural
depending on the reference.
(i) "Benefit Arrangement" means any employment, consulting, severance
or other similar contract, arrangement or policy and each
material plan, arrangement (written or oral), program, agreement
or commitment providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, life, health, disability or accident
benefits (including any "voluntary employees' beneficiary
association" as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred
compensation, profit-sharing bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or
benefits which (A) is not a Welfare Plan, Pension Plan or
Multiemployer Plan, (B) is entered into, maintained, contributed
to or required to be contributed to, as the case may be, by
DigitalQuake or an ERISA Affiliate or under which DigitalQuake or
any ERISA Affiliate may incur any liability, and (C) covers any
employee or former employee of DigitalQuake or any ERISA
Affiliate (with respect to their relationship with such
entities).
(ii) "Employee Plans" means all Benefit Arrangements, Multiemployer
Plans, Pension Plans and Welfare Plans.
(iii)"ERISA Affiliate" means any entity which is (or at any relevant
time was) a member of a "controlled group of corporations" with
or under "common control" with DigitalQuake, as defined in
Section 414(b), (c), (m) or (o) of the Code.
(iv) "Multiemployer Plan" means any "multiemployer plan," as defined
in Section 4001(a)(3) of ERISA, (A) which DigitalQuake, or any
ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, after September 25, 1980,
maintained, administered, contributed to or was required to
contribute to, or under which DigitalQuake or any ERISA Affiliate
may incur any liability and (B) which covers any employee or
former employee DigitalQuake or any ERISA Affiliate (with respect
to their relationship with such entities).
(v) "PBGC" means the Pension Benefit Guaranty Corporation.
(vi) "Pension Plan" means any "employee pension benefit plan" as
defined in Section 3(2) of ERISA (other than a Multiemployer
Plan) (A) which DigitalQuake or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or,
within the five years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or
under which DigitalQuake or any ERISA Affiliate may incur any
liability and (B) which covers any employee or former employee of
DigitalQuake or any ERISA Affiliate (with respect to their
relationship with such entities).
(vii)"Welfare Plan" means any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA, (A) which DigitalQuake or any
ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or under which DigitalQuake or any
ERISA Affiliate may incur any liability and (B) which covers any
employee or former employee of DigitalQuake or any ERISA
Affiliate (with respect to their relationship with such
entities).
(b) Disclosure; Delivery of Copies of Relevant Documents and Other
Information. Schedule 4.18 contains a complete list of Employee Plans
which cover or have covered employees of DigitalQuake or any of its
Subsidiaries (with respect to their relationship with such entities).
True and complete copies of each of the following documents have been
delivered to National by DigitalQuake: (i) each Welfare Plan and
Pension Plan (and, if applicable, related trust agreements) and all
amendments thereto, all written summary plan descriptions or other
interpretations thereof and written descriptions thereof which have
been generally distributed to the employees of DigitalQuake or its
Subsidiaries and all annuity contracts or other funding instruments,
(ii) each Benefit Arrangement including written interpretations
thereof and written descriptions thereof which have been generally
distributed to DigitalQuake's employees and a complete description of
any such Benefit Arrangement which is not in writing, (iii) the most
recent determination, opinion, advisory or notification letter issued
by the Internal Revenue Service with respect to each Pension Plan,
(iv) for the three most recent plan years, Annual Reports on Form 5500
Series required to be filed with any governmental agency for each
Pension Plan, and (v) a description setting forth the amount of any
Liability of DigitalQuake as of the Closing Date for payments more
than 30 days past due with respect to each Welfare Plan.
(c) Representations.
(i) Pension Plans. No Pension Plan is subject to the minimum funding
requirements of ERISA or the Code. Each Pension Plan, each
related trust agreement, annuity contract or other funding
instrument is intended to be qualified and tax-exempt under the
provisions of Code Section 401(a) (or 403(a), as appropriate) and
501(a) and has either obtained from the Internal Revenue Service
a favorable determination, opinion, advisory or notification
letter, as applicable, as to its qualified status under the Code,
or has time remaining to apply under applicable Treasury
Regulations or Internal Revenue Service pronouncements for such a
determination letter and to make any amendments necessary to
obtain a favorable determination, and nothing has occurred since
the issuance of any such determination, opinion, advisory or
notification letter which could reasonably be expected to cause
the loss of the qualified status of any Pension Plan.
(ii) Multiemployer Plans. Neither DigitalQuake nor any ERISA Affiliate
contributes to, or within the past six years has been obligated
to, contribute to any Multiemployer Plan.
(iii)Welfare Plans. None of DigitalQuake, any ERISA Affiliate or any
Welfare Plan has any present or future obligation to make any
payment to or with respect to any present or former employee of
DigitalQuake or any ERISA Affiliate pursuant to any retiree
medical benefit plan, or other retiree Welfare Plan, and no
condition exists which would prevent DigitalQuake from amending
or terminating any such benefit plan or Welfare Plan.
(iv) Compliance with Law. Each Welfare Plan, Pension Plan and each
related trust agreement, annuity contract or other funding
instrument is intended to be qualified and tax-exempt under the
provisions of Code Sections 401(a) (or 403(a), as appropriate)
and 501(a) and has been intended to be so qualified during the
period from its adoption to date. Each Welfare Plan which is a
"group health plan," as defined in Section 607(1) of ERISA, has
been operated in compliance with provisions of Part 6 of Title I
of ERISA and Sections 162(k) and 4980B of the Code at all times
in all material respects. Each Pension Plan, each related trust
agreement, annuity contract or other funding instrument presently
complies and has been maintained in compliance with its terms
and, both as to form and operation, with the requirements
prescribed by any and all statutes, orders, rules and regulations
which are applicable to such plans, including but not limited to
ERISA and the Code. Neither DigitalQuake nor any ERISA Affiliate
has any liability for unpaid contributions with respect to any
Pension Plan.
(v) Benefit Arrangements. Each Benefit Arrangement which covers or
has covered employees or former employees of DigitalQuake or any
of its Subsidiaries (with respect to their relationship with such
entities) has been maintained in material compliance with its
terms and with the requirements prescribed by any and all
Regulations which are applicable to such Benefit Arrangement,
including the Code. Except as set forth in Schedule 4.18, and
except as provided by law, the employment of all persons
presently employed or retained by DigitalQuake or any of its
Subsidiaries is terminable at will, at any time and without
advance notice.
(vi) Unrelated Business Taxable Income. No Employee Plan (or trust or
other funding vehicle pursuant thereto) is subject to any Tax
under Code Section 511.
(vii)Deductibility of Payments. There is no Employee Plan, Contract
or other plan or arrangement, covering any employee or former
employee of DigitalQuake or any of its Subsidiaries (with respect
to their relationship with such entities) that, individually or
collectively, provides for the payment by DigitalQuake or
provision of benefits, giving effect to the transactions
contemplated hereby, of any amount (i) that is not deductible
under Section 162(a)(1) or 404 of the Code or (ii) that is an
"excess parachute payment" pursuant to Section 280G of the Code.
(viii) Fiduciary Duties and Prohibited Transactions. Neither
DigitalQuake nor any plan fiduciary of any Welfare Plan or
Pension Plan which covers or has covered employees or former
employees of DigitalQuake or any ERISA Affiliate, has engaged in
any transaction in violation of Sections 404 or 406 of ERISA or
any "prohibited transaction," as defined in Section 4975(c)(1) of
the Code, for which no exemption exists under Section 408 of
ERISA or Section 4975(c)(2) or (d) of the Code.
(ix) No Amendments. Neither DigitalQuake nor any ERISA Affiliate has
any announced plan or legally binding commitment to create any
additional Employee Plans or to amend or modify any existing
Employee Plan except to the extent that any amendment to an
Employee Plan may be required by law.
(x) Certain Contracts. None of the Employee Plans holds any interest
in any annuity contract, guaranteed investment contract or any
other investment contract which is issued by an insurance company
which is the subject of bankruptcy, receivership or
conservatorship proceedings.
(xi) No Acceleration of Rights or Benefits. Except as set forth on
Schedule 4.18, neither the execution and delivery of this
Agreement or the Ancillary Agreements nor the consummation of the
transactions contemplated hereby or thereby will result in the
acceleration or creation of any rights of any person to benefits
under any of the Employee Plans, including but not limited to the
acceleration of the exercisability of any stock options, the
acceleration of the vesting of any restricted stock, the
acceleration of the accrual or vesting of any benefits under any
Pension Plan or the creation of rights under any severance,
parachute or change of control agreement.
(xii)No Other Material Liability. No event has occurred in connection
with which DigitalQuake or any ERISA Affiliate or any Employee
Plan, directly or indirectly, could be subject to any material
liability (i) under any Regulation or governmental order relating
to any Employee Plans or (ii) pursuant to any obligation of
DigitalQuake or any Subsidiary to indemnify any Person against
liability incurred under, any such Regulation or order as they
relate to the Employee Plans.
4.19 Transactions with Related Parties. Except for compensation
arrangements (a) in the ordinary course of business, (b) disclosed on Schedule
4.19 or (c) for amounts less than $10,000, to the knowledge of DigitalQuake, no
Related Party has (a) borrowed or loaned money or other property to DigitalQuake
which has not been repaid or returned, (b) any contractual or other claims,
express or implied, of any kind whatsoever against DigitalQuake or (c) had any
interest in any property used by DigitalQuake.
4.20 Compliance with Law. DigitalQuake has conducted the Business in
material compliance with all applicable Court Orders and Regulations. Neither
DigitalQuake nor any of its Representatives has received any notice to the
effect that, or has otherwise been advised that, DigitalQuake is not in
compliance with any Court Orders or Regulations, and DigitalQuake is not aware
of any existing circumstances that are likely to result in any material
violation of any Court Order or Regulations.
4.21 Intellectual Property.
(a) General. Schedule 4.21 sets forth with respect to DigitalQuake's
Proprietary Rights: (i) for each patent and patent application,
including petty patents and utility models and applications therefor,
as applicable, the number, normal expiration date, title and priority
information for each country in which such patent has been issued, or,
the application number, date of filing, title and priority information
for each country, (ii) for each trademark, tradename or service mark,
whether or not registered, the date first used, the application serial
number or registration number, the class of goods covered, the nature
of the goods or services, the countries in which the names or mark is
used and the expiration date for each country in which a trademark has
been registered, (iii) for each copyright for which registration has
been sought, whether or not registered, the date of creation and first
publication of the work, the number and date of registration for each
country in which a copyright application has been registered, (iv) for
each mask work, whether or not registered, the date of first
commercial exploitation and if registered, the registration number and
date of registration and (v) all such Proprietary Rights in the form
of licenses. True and correct copies of all Proprietary Rights
(including all pending applications and application related documents
and materials) which have been documented and are owned, controlled or
used by or on behalf of DigitalQuake or in which DigitalQuake has any
interest whatsoever have been provided or made available to National.
(b) Adequacy. DigitalQuake's Proprietary Rights are all those necessary
for the normal conduct of the Business as presently conducted and as
presently contemplated, including the design, manufacture and sale of
all products currently under development, planned for development or
in production.
(c) Royalties and Licenses. DigitalQuake has no obligation to pay
royalties or other compensation for the use of any of its Proprietary
Rights nor has DigitalQuake granted to any Person any license, option
or other rights to use in any manner any of DigitalQuake's Proprietary
Rights, whether requiring the payment of royalties or not, except as
set forth in Schedule 4.21.
(d) Ownership. DigitalQuake owns or has a valid right to use its
Proprietary Rights, and its Proprietary Rights will not cease to be
valid rights of DigitalQuake by reason of the execution, delivery and
performance of this Agreement or the Ancillary Agreements or the
consummation of the transactions contemplated hereby or thereby,
except as set forth on Schedule 4.21. DigitalQuake has not transferred
any of its Proprietary Rights to DigitalQuake International Holding
Ltd.
(e) Absence of Claims. Neither DigitalQuake nor any of its Representatives
has received any notice of (A) alleged invalidity with respect to any
of DigitalQuake's Proprietary Rights or (B) alleged infringement of
any rights of others due to any activity by DigitalQuake. To the
knowledge of DigitalQuake (but without having conducted any patent
search), DigitalQuake's use of DigitalQuake's Proprietary Rights in
its past, current and planned products do not and would not infringe
upon or otherwise violate the valid rights of any third party anywhere
in the world. Except as set forth on Schedule 4.21, no other Person
(i) has notified DigitalQuake that it is claiming any ownership of or
right to use any of DigitalQuake's Proprietary Rights or (ii) to the
knowledge of DigitalQuake, is infringing upon any of DigitalQuake's
Proprietary Rights in any way.
(f) Protection of Proprietary Rights. Digital Quake has taken all
reasonable and prudent steps to protect its Proprietary Rights from
infringement by any other Person. DigitalQuake has taken appropriate
actions and made appropriate applications and filings pursuant to
applicable laws, to the extent reasonable and prudent, to perfect or
protect its interest in its Proprietary Rights. The pending
applications for the Proprietary Rights owned by DigitalQuake have
been duly filed, and all actions necessary or appropriate to protect
DigitalQuake's Proprietary Rights have been taken. DigitalQuake has
taken all reasonable steps necessary or appropriate (including,
entering into appropriate confidentiality, nondisclosure and
proprietary rights agreements with officers, directors,
subcontractors, independent contractors, full-time and part-time
employees, licensees and customers in connection with the Assets or
the Business) to safeguard and maintain the secrecy and
confidentiality of, and the proprietary rights in, DigitalQuake's
Owned Proprietary Rights material to the Business. All documentation
with respect to DigitalQuake's Owned Proprietary Rights that
constitute trade secrets are located at DigitalQuake's offices in
Campbell, California.
(g) Disclosure of Analog Bits Proprietary Information. DigitalQuake has
not disclosed to any third party any confidential or proprietary
information of Analog Bits Inc. provided to DigitalQuake pursuant to
that certain License and Hardware Design Agreement dated as of
July 28, 2000 between DigitalQuake and Analog Bits Inc. (the "Analog
Bits Agreement") or otherwise.
4.22 Tax Matters.
(a) Filing of Tax Returns. DigitalQuake has timely filed with the
appropriate taxing authorities all Tax Returns in respect of Taxes
required to be filed. The Tax Returns filed are complete and accurate
in all respects. Except as specified in Schedule 4.22, DigitalQuake
has not requested any extension of time within which to file Tax
Returns in respect of any Taxes.
(b) Payment of Taxes. All Taxes owed by DigitalQuake in respect of Tax
periods (or portions thereof) ending on or prior to before the Closing
Date have been paid, or an adequate reserve shall have been
established therefor prior to the Closing Date. DigitalQuake has, or
will have, no liability for Taxes in respect of Tax periods (or
portions thereof) ending on or before the Closing Date in excess of
the sum of (i) the amounts paid in respect of Taxes prior to Closing,
(ii) the amount of reserves established for Taxes (rather than any
reserve for deferred Taxes established to reflect timing differences
between book and tax income) as set forth on the face of the Balance
Sheet (rather than in any notes thereto) and (iii) such additional
reserve amounts as may be added by DigitalQuake on its books (other
than reserves described in the parenthetical in clause (ii) hereof)
prior to Closing with respect to ordinary business operations of
DigitalQuake in accordance with DigitalQuake's past custom and
practice between the Balance Sheet Date and the Closing Date. All
Taxes that DigitalQuake is required by law to withhold or collect for
periods ending on or before the Closing Date have been duly withheld
or collected and have been timely paid over to the appropriate
governmental authorities to the extent due and payable.
(c) Audits, Investigations or Claims. No deficiencies for Taxes of
DigitalQuake have been claimed, proposed or assessed by any taxing or
other governmental authority. Except as set forth in Schedule 4.22,
there are no pending or, to the knowledge of DigitalQuake, threatened
audits, assessments or other Actions for or relating to any Liability
in respect of Taxes of DigitalQuake, and there are no matters under
discussion with any governmental authorities with respect to Taxes
that are likely to result in an additional Liability for Taxes. Except
as set forth in Schedule 4.22, neither DigitalQuake nor any of its
Representatives has been notified that any taxing authority intends to
audit a Tax Return for any other period. DigitalQuake has delivered to
National complete and accurate copies of federal, state and local Tax
Returns of DigitalQuake for the year ended December 31, 2000. No
extension of a statute of limitations relating to Taxes is in effect
with respect to DigitalQuake.
(d) Lien. There are no Encumbrances for Taxes (other than for current
Taxes not yet due and payable) on any of the Assets.
(e) Tax Elections. All elections with respect to Taxes affecting
DigitalQuake as of the date hereof are reflected or set forth on
DigitalQuake's Tax Returns for the 2000 Tax year. DigitalQuake (i) has
not made nor will make a consent dividend election under Section 565
of the Code; (ii) has not consented at any time under Section
341(f)(1) of the Code to have the provisions of Section 341(f)(2) of
the Code apply to any disposition of the Assets; (iii) has not agreed,
nor is required, to make any adjustment under Section 481(a) of the
Code by reason of a change in accounting method or otherwise; (iv) has
not made an election, nor is required, to treat any Asset as owned by
another Person pursuant to the provisions of Section 168(f) of the
Code or as tax-exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code; (v) has not
elected at any time to be treated as an S corporation within the
meaning of Sections 1361 or 1362 of the Code; and (vi) has not made
any of the foregoing elections or is required to apply any of the
foregoing rules under any comparable state or local Tax provision.
(f) Prior Affiliated Groups. DigitalQuake has never been a member of an
affiliated group of corporations within the meaning of Section 1504 of
the Code or of any group that has filed a combined, consolidated or
unitary state or local Tax Return.
(g) Tax Sharing Agreements. There are no Tax-sharing agreements or similar
arrangements (including indemnity arrangements) with respect to or
involving DigitalQuake, and, after the Closing Date, DigitalQuake
shall not be bound by any such Tax-sharing agreements or similar
arrangements (entered into prior to the Closing) or have any Liability
thereunder for amounts due in respect of periods prior to or after the
Closing Date.
(h) Partnerships. DigitalQuake (i) is not subject to any joint venture,
partnership, or other arrangement or contract which is treated as a
partnership for federal income tax purposes and (ii) is not a
"personal holding company" as defined in Section 542 of the Code (or
any similar provision of state, local or foreign law). DigitalQuake is
not a successor to any other Person by way of merger, reorganization
or similar transaction.
(i) Foreign Person. Except as set forth in Schedule 4.22(i)), none of the
Shareholders is a "foreign person" as defined in Section 1445(f)(3) of
the Code.
(j) Other Entity Liability. DigitalQuake has no Liability for the Taxes of
any Person (other than Taxes of DigitalQuake) (i) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local,
or foreign law), (ii) as a transferee or successor, (iii) by contract
or (iv) otherwise.
(k) No Withholding. The transactions contemplated herein are not subject
to the tax withholding provisions of Section 3406 of the Code, or of
Subchapter A of Chapter 3 of the Code or of any other provision of
law.
4.23 Insurance. Schedule 4.23 contains a complete and accurate list of all
policies or binders of insurance (showing as to each policy or binder the
carrier, policy number, coverage limits, expiration dates, annual premiums, a
general description of the type of coverage provided and any pending claims
thereunder) of which DigitalQuake is the owner, insured or beneficiary. All of
such policies are sufficient for (i) compliance with all material Regulations
and all of the Contracts and (ii) covering such risks as are in accordance with
normal industry practice for companies engaged in businesses similar to that of
DigitalQuake (taking into account the cost and availability of such insurance).
DigitalQuake is not in default under any of such policies or binders, and it has
not prejudiced coverage by failing to give any notice or to present any claim
under any such policy or binder in a due and timely fashion. There are no facts
known to DigitalQuake upon which an insurer might be justified in reducing or
denying coverage or increasing premiums on existing policies or binders. There
are no outstanding unpaid claims under any such policies or binders. Such
policies and binders are in full force and effect on the date hereof and shall
be kept in full force and effect by DigitalQuake through the Effective Time.
4.24 Purchase Commitments and Outstanding Bids. Except as set forth on
Schedule 4.24, as of the date of this Agreement, the aggregate of all accepted
and unfulfilled orders for the performance of services entered into by
DigitalQuake does not exceed $5,000, and the aggregate of all Contracts for the
purchase of supplies by DigitalQuake does not exceed $10,000, all of which
orders and Contracts were made in the ordinary course of business. There are no
claims against DigitalQuake for inadequate, incorrect or faulty services
rendered by DigitalQuake prior to or on the date hereof. No outstanding purchase
or outstanding lease commitment of DigitalQuake presently is in excess of the
normal, ordinary and usual requirements of the Business or was made at any price
in excess of the now current market price or contains terms and conditions more
onerous than those usual and customary in DigitalQuake's business.
4.25 Payments. Neither DigitalQuake nor any of its Representatives acting
on its behalf have, directly or indirectly, paid or delivered any fee,
commission or other sum of money or property, however characterized, to any
finder, agent, government official or other party, in the U.S. or any other
country which DigitalQuake knows or has reason to believe to have been illegal
under any federal, state or local laws of the U.S. or any other country having
jurisdiction. Neither DigitalQuake nor, to its knowledge, any of its
Representatives acting on its behalf, have accepted or received any unlawful
contributions, payments, gifts or expenditures. DigitalQuake has not
participated, directly or indirectly, in any boycotts or other similar practices
affecting any of its actual or potential customers.
4.26 Customers and Suppliers. Schedule 4.26 sets forth a complete and
accurate list of the names and addresses of (i) the five customers who purchased
from DigitalQuake the greatest dollar volume of services and products during its
last fiscal year, showing the approximate total sales in dollars to each such
customer during such fiscal year, and (ii) all suppliers with sales to
DigitalQuake greater than $10,000 during the last fiscal year, showing the
approximate total purchases in dollars by DigitalQuake from each such supplier
during such fiscal year. Since the Balance Sheet Date, there has been no adverse
change in any material respect in the business relationship of DigitalQuake with
any customer or supplier named on Schedule 4.26. DigitalQuake has not received
any written communication from any customer or supplier named on Schedule 4.26
of any intention to return, terminate or materially reduce purchases from or
supplies to DigitalQuake.
4.27 Environmental Matters.
(a) Definitions. The following terms, when used in this Section 4.27,
shall have the following meanings:
(i) "Environmental Conditions" mean the introduction into the
environment of any pollution, including any contaminant, irritant
or pollutant or other Hazardous Substance (whether or not such
pollution constituted at the time thereof a violation of any
Environmental Law as a result of any Release of any kind
whatsoever of any Hazardous Substance) as a result of which
DigitalQuake has or may become liable to any Person in a material
respect or by reason of which any of the Assets or the Business
may suffer or be subjected to any Encumbrance.
(ii) "Environmental Laws" mean all Regulations which regulate or
relate to the protection or clean-up of the environment, the use,
treatment, storage, transportation, generation, manufacture,
processing, distribution, handling or disposal of, or emission,
discharge or other release or threatened release of, Hazardous
Substances or otherwise dangerous substances, wastes, pollution
or materials (whether gas, liquid or solid), the preservation or
protection of waterways, groundwater, drinking water, air,
wildlife, plants or other natural resources, or the health and
safety of persons or property, including protection of the health
and safety of employees. Environmental Laws include the Federal
Water Pollution Control Act, Resource Conservation & Recovery
Act, Clean Water Act, Safe Drinking Water Act, Atomic Energy Act,
Occupational Safety and Health Act, Toxic Substances Control Act,
Clean Air Act, Comprehensive Environmental Response, Compensation
and Liability Act, Hazardous Materials Transportation Act and all
analogous or related federal, state or local law.
(iii)"Hazardous Substance" means any pollutants, contaminants,
chemicals, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical
compound or hazardous substance, material or waste, whether
solid, liquid or gas, including any quantity of asbestos in any
form, urea formaldehyde, PCB's, radon gas, crude oil or any
fraction thereof, all forms of natural gas, petroleum products or
by-products or derivatives, radioactive substance, waste waters,
sludges, slag and any other substance, material or waste that is
subject to regulation, control or remediation under any
Environmental Laws.
(iv) "DigitalQuake" for purposes of this Section 4.27 means (A)
DigitalQuake, (B) all Affiliates of DigitalQuake,
(C) all partnerships, joint ventures and other entities
or organizations in which DigitalQuake was at any time or is a
partner, joint venturer, member or participant and (D) all
predecessor or former corporations, partnerships, joint ventures,
organizations, businesses or other entities, whether in existence
as of the date hereof or at any time prior to the date hereof,
the assets or obligations of which have been acquired or assumed
by DigitalQuake or to which DigitalQuake has succeeded.
(v) "Release" means and includes any spilling, leaking, pumping,
pouring, exhausting, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the environment or
the workplace of any Hazardous Substance, and otherwise as
defined in any Environmental Law.
(b) Notice of Violation. Neither DigitalQuake nor any of its
Representatives has received any notice of alleged, actual or
potential responsibility for, or any inquiry or investigation
regarding, (i) any Release or threatened Release by DigitalQuake of
any Hazardous Substance at any location or (ii) an alleged violation
of or non-compliance by DigitalQuake with the conditions of any Permit
required under any Environmental Law or the provisions of any
Environmental Law. DigitalQuake has not received any notice of any
other claim, demand or Action by any Person alleging any actual or
threatened injury or damage to any Person, property, natural resource
or the environment arising from or relating to any Release or
threatened Release by DigitalQuake of any Hazardous Substances.
(c) Environmental Conditions. There are no present or past Environmental
Conditions.
(d) Notices, Warnings and Records. DigitalQuake has given all notices and
warnings, made all reports, and has kept and maintained all records
required by and in compliance with all Environmental Laws.
4.28 Brokers; Transaction Costs. Except as set forth on Schedule 4.28,
Neither DigitalQuake nor any of its Representatives has entered into and will
not enter into any contract, agreement, arrangement or understanding with any
Person that will result in the obligation of National or DigitalQuake to pay any
finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby.
4.29 No Other Agreements to Sell DigitalQuake or the Assets. Neither
DigitalQuake nor any of the Shareholders has any legal obligation, absolute or
contingent, to any other Person to sell all or substantially all of the Assets
or to sell any capital stock of DigitalQuake (other than pursuant to exercises
of the DigitalQuake Options and the National Warrant) or to effect any merger,
consolidation or other reorganization of DigitalQuake or to enter into any
agreement with respect thereto.
4.30 Material Misstatements or Omissions No representation, warranty or
other statement of DigitalQuake to National, whether written or oral, whether
included in any materials provided to National prior to the date hereof or the
Closing Date and whether included in this Agreement or in any Exhibit or
Schedule hereto or in any other documents delivered to National, is, or will be,
untrue with respect to any material fact or omits, or will omit, to state a
material fact necessary in order to make the statements made not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF NATIONAL
National represents and warrants to DigitalQuake as follows, which
representations and warranties are true and correct as of the date hereof and
will be, as of the Closing Date, true and correct:
5.1 Organization of National. National is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
National has full corporate power and authority to conduct its business as
presently conducted by it and to own and lease its properties and assets.
National is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of its properties owned
or leased or the nature of its activities make such qualification necessary,
except where the failure to be so qualified or in good standing would not have a
material adverse effect on National.
5.2 Authorization. National has all requisite corporate power and
authority, and has taken all corporate action necessary to execute and deliver
this Agreement and the Ancillary Agreements, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. This Agreement has been duly executed and delivered by National and
is, and upon execution and delivery, the Ancillary Agreements will be, legal,
valid and binding obligations of National, enforceable against National in
accordance with their terms, except that enforceability may be limited by the
effect of bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights of creditors.
5.3 No Conflict or Violation; Consents. None of the execution, delivery or
performance of this Agreement or any Ancillary Agreement, the consummation of
the transactions contemplated hereby or thereby, nor compliance by National with
any of the provisions hereof or thereof, will (a) violate or conflict with any
provision of the Second Restated Certificate of Incorporation, as amended, or
Amended and Restated Bylaws of National, (b) violate, conflict with, or result
in a breach of or constitute a default (with or without notice or passage of
time) under, or result in the termination of, or accelerate the performance
required by, or result in a right to terminate, accelerate, modify or cancel
under, or require a notice, consent or approval under, or result in the creation
of any Encumbrance upon any of National's assets under, any material contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, security interest or
other arrangement to which National is a party or by which it is bound or to
which any of its assets are subject or (c) violate any Regulation or Court
Order. Except as set forth on Schedule 5.3, no notices to, declaration, filing
or registration with, approvals or consents of, or assignments by, any Persons
(including any federal, state of local governmental or administrative
authorities) are necessary to be made or obtained by National in connection with
the execution, delivery or performance of this Agreement.
5.4 No Brokers. Neither National nor any of its officers, directors,
employees, stockholders or Affiliates has employed or made any agreement with
any broker, finder or similar agent or any Person which will result in the
obligation of DigitalQuake or any Shareholder to pay any finder's fee, brokerage
fees or commission or similar payment in connection with the transactions
contemplated hereby.
5.5 Litigation. There are no Actions pending, or to National's knowledge,
threatened or anticipated against, related to or affecting National seeking to
delay, limit or enjoin the transactions contemplated by this Agreement.
5.6 National Shares. All of the shares of National Common Stock issuable
pursuant to Section 3.5, if any, will be validly issued, fully paid and
nonassessable and free of and not subject to any preemptive rights or rights of
first refusal created by statute or by National's Second Restated Certificate of
Incorporation, as amended, or Amended and Restated Bylaws upon their issuance
pursuant to Section 3.5.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub represents and warrants to DigitalQuake as follows, which
representations and warranties are true and correct as of the date hereof and
will be, as of the Closing Date, true and correct:
6.1 Organization of Merger Sub. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Merger Sub has not conducted any business. National owns all of the outstanding
capital stock of Merger Sub, free and clear of all Encumbrances.
6.2 Authorization. Merger Sub has all requisite corporate power and
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and the Agreement of Merger to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. This Agreement has been duly executed and delivered by Merger Sub
and is, and upon execution and delivery, the Agreement of Merger will be, as of
the Effective Time, legal, valid and binding obligations of Merger Sub,
enforceable against Merger Sub in accordance with their terms, except that
enforceability may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors.
6.3 Legal Proceedings. There are no Actions pending, or to Merger Sub's
knowledge, threatened or anticipated against, related to or affecting Merger Sub
seeking to delay, limit or enjoin the transactions contemplated by this
Agreement.
ARTICLE VII.
ACTIONS PRIOR TO THE CLOSING
National, Merger Sub and DigitalQuake covenant as follows:
7.1 Conduct of Business. Except as contemplated by this Agreement or as
consented to by National in writing, from the date hereof through the earlier of
(A) the expiration of the Merger Option Period or (B) the Effective Time (the
"Covenant End Date"), DigitalQuake shall (i) operate the Business in the
ordinary course of business and in accordance with past practice and (ii) not
take any action inconsistent with this Agreement, the Ancillary Agreements or
the consummation of the Merger. Without limiting the generality of the
foregoing, from the date hereof through the Covenant End Date, DigitalQuake
shall not, except as specifically contemplated by this Agreement or as consented
to by National in writing:
(a) incur any indebtedness (other than indebtedness arising from the
purchase and sale of goods by DigitalQuake in the ordinary course of
business), or assume, guarantee, endorse (other than endorsements for
deposit or collection in the ordinary course of business), or
otherwise become responsible for obligations of any other Person;
(b) issue, commit to issue or reserve for issuance any shares of its
capital stock or any other securities or any securities convertible
into shares of its capital stock or any other securities, including
options and warrants therefor (other than shares of DigitalQuake
Common Stock issued upon the exercise of DigitalQuake Options or
warrants or conversion of DigitalQuake Preferred Stock), or accelerate
the vesting of any DigitalQuake Options;
(c) declare, set aside or make or incur any obligation to pay any dividend
or distribution on its capital stock or make or incur any obligation
to redeem, purchase or otherwise acquire any of its capital stock;
(d) make any change to its Restated Articles or Bylaws;
(e) mortgage, pledge or otherwise encumber any Assets or sell, transfer,
license or otherwise dispose of any Assets, except for licenses of
product technology in the ordinary course of business and except for
Encumbrances arising in connection with leases of equipment by
DigitalQuake in the ordinary course of business;
(f) cancel, release or assign any indebtedness owed to it or any claims or
rights held by it, except in the ordinary course of business and
consistent with past practice;
(g) make any investment of a capital nature either by purchase of stock or
securities, contributions to capital, property transfer or otherwise,
or by the purchase of any property or assets of any other Person,
except capital expenditures in the ordinary course of business
consistent with past practice;
(h) terminate any material Contract or make any material change in any
material Contract;
(i) (A) enter into or modify any employment Contract, (B) pay or agree to
pay any compensation to or for any employee, officer or director of
DigitalQuake other than in the ordinary course of business and
consistent with past practice, (C) pay or agree to pay any bonus,
incentive compensation, service award or other like benefit other than
in the ordinary course of business, consistent with past practice or
(D) enter into or modify any other Employee Plan, except as
contemplated hereby;
(j) enter into or modify any Contract with a Related Party;
(k) enter into any Contract, which, if entered into on the date hereof
would have been listed on Schedule 4.11, unless the same is terminable
by DigitalQuake on no more than 30 days' written notice without
penalty or payment and is entered into in the ordinary course of
business consistent with past practice;
(l) adopt or make any change in any method of accounting or accounting
practice in respect of Taxes or otherwise;
(m) make or change any election in respect of Taxes, enter into any tax
allocation agreement, tax sharing agreement, tax indemnity agreement
or closing agreement, settle or compromise any claim, notice, audit
report or assessment in respect of Taxes, or consent to any extension
or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(n) fail to use its commercially reasonable efforts to (i) retain its
employees and independent contractors, (ii) maintain existing
relationships with customers and suppliers of DigitalQuake and
(iii) otherwise preserve the goodwill of the Business; provided that
DigitalQuake shall not make any material commitment of any kind on
behalf of National without National's prior written consent; or
(o) do any other act which would cause any representation or warranty of
DigitalQuake in this Agreement to be or become untrue in any material
respect.
7.2 Investigation by National. Subject to the Confidentiality Agreement,
from the date hereof through the Covenant End Date, DigitalQuake shall afford
the Representatives of National and its Affiliates complete access at all
reasonable times upon reasonable notice to the Business and the Assets and
Liabilities for the purpose of inspecting the same, and to DigitalQuake's
officers, employees and Representatives, properties, Books and Records and
Contracts, and shall furnish National and its Representatives all financial,
operating and other data and information (including DigitalQuake's Proprietary
Rights) as National or its Affiliates, through their respective Representatives,
may request.
7.3 Notification of Certain Matters. Each party shall give prompt notice to
the other of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty of
such party contained in this Agreement to be untrue or inaccurate in any
material respect and (ii) any material failure of such party to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that such disclosure shall not be deemed to
cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition. DigitalQuake shall promptly notify National of any
Default, the threat or commencement of any Action, or any development that
occurs before the Closing that could reasonably be expected to result in a
failure of the conditions to Closing enumerated in Article IX, and National
shall promptly notify DigitalQuake of any threat or commencement of any Action,
or any development that occurs before the Closing that could reasonably be
expected to result in failure of the conditions to Closing enumerated in Article
VIII or delay, limit or enjoin the transactions contemplated by this Agreement.
7.4 Restrictions on Certain Transactions
(a) No Solicitation. From the date hereof through the Covenant End Date,
DigitalQuake shall not, directly or indirectly (whether on its own or
through its Representatives), enter into, solicit, initiate or
continue any discussions or negotiations with, or encourage or respond
to any inquiries or proposals by, or participate in any negotiations
with, or provide any information to, or otherwise cooperate in any
other way with any Person or group (as defined under Section 13(d) of
the Securities Exchange Act of 1934, as amended) of Persons, other
than National, Merger Sub and their respective Representatives,
concerning any sale (by license or otherwise) of all or a portion of
the Assets (except in the ordinary course of business) or the
Business, or of any shares of capital stock of DigitalQuake, or any
merger, consolidation, liquidation, dissolution or similar transaction
involving DigitalQuake (each such transaction being referred to herein
as a "Proposed Acquisition Transaction"). DigitalQuake hereby
represents that it is not now engaged in discussions or negotiations
with any party other than National and Merger Sub with respect to any
of the foregoing. DigitalQuake agrees not to release any third party
from, or waive any provision of, any confidentiality or standstill
agreement to which DigitalQuake is a party.
(b) Notification. From the date hereof through the Covenant End Date,
DigitalQuake will immediately notify National (orally and in writing)
if any discussions or negotiations are sought to be initiated, any
inquiry or proposal is made, or any information is requested with
respect to any Proposed Acquisition Transaction and notify National of
the terms of any proposal which it may receive in respect of any such
Proposed Acquisition Transaction, including, without limitation, the
identity of the prospective purchaser or soliciting party.
DigitalQuake shall also provide National with a copy of any offer
received in respect of any Proposed Acquisition Transaction.
7.5 Approval of Shareholders; Conversion of DigitalQuake Preferred Stock.
(a) Shareholder Approval. If National determines for any reason and in its
sole discretion that a vote of Shareholders confirming or ratifying
the approval of this Agreement and the transactions contemplated
hereby, including the Merger, is advisable, DigitalQuake shall, upon
National's request, solicit written consents confirming approval of
this Agreement and the Merger from all of the Shareholders. In
addition, upon such a request by National, DigitalQuake shall use
diligent good faith efforts to obtain the written consent of (i) the
holders of at least sixty percent (60%) of the outstanding
DigitalQuake Series A Preferred Stock and DigitalQuake Series B
Preferred Stock, voting together as a single class, and (ii) the
shareholders of DigitalQuake representing all of the outstanding
shares of DigitalQuake Common Stock. In connection with the
solicitation of consents contemplated hereby, the Board of Directors
of DigitalQuake shall recommend such approval to its shareholders.
(b) Conversion of DigitalQuake Preferred Stock. DigitalQuake shall use
diligent good faith efforts to cause the holders of DigitalQuake
Preferred Stock to elect to convert all outstanding shares of
DigitalQuake Preferred Stock into DigitalQuake Common Stock in
accordance with the Restated Articles, with such conversions to be
effective no later than immediately prior to the Effective Time.
7.6 Employee Benefit Matters.
(a) National Options. Certain employees of DigitalQuake will be eligible
to receive National Options to purchase the aggregate number of shares
of National Common Stock set forth on Schedule 7.6(a) (as adjusted for
stock splits, stock dividends, consolidations and the like) as soon as
reasonably practicable after the Closing, with the allocation of such
National Options among such employees to be made in the manner
contemplated by Schedule 7.6(a). The terms of such National Options
will be generally consistent with National's current policies.
(b) Incentive Bonus Program. Prior to the Closing Date, DigitalQuake shall
establish an incentive bonus program for those DigitalQuake employees
who have accepted offers of employment made by National in connection
with this transaction as of the Closing substantially in the form
attached hereto as Exhibit F. National shall assume the incentive
bonus program in connection with the Merger.
(c) Incentive Pay Programs. National agrees that all employees of
DigitalQuake who accept employment with National shall be eligible to
participate in National's incentive pay programs to the same extent as
other similarly situated National employees.
7.7 Employment Agreements, Non-Compete Agreements and Other Employee
Matters. DigitalQuake shall use its reasonable best efforts to cause each person
listed or described on Schedule 1.1(b) to enter into an Employment Agreement and
each person listed or described on Schedule 1.1(d) to enter into an Non-Compete
Agreement. In addition, DigitalQuake shall use its reasonable best efforts to
cause all employees who accept employment with National to enter into National's
standard assignment of inventions agreement and the other agreements routinely
entered into between National and its employees.
7.8 Further Assurances. Upon the terms and subject to the conditions
contained herein, the parties agree, in each case both before and after the
Effective Time, (i) to use all reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement and the Ancillary Agreements, (ii) to execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder and
thereunder, and (iii) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use reasonable
efforts (A) to obtain any necessary Consents (provided, however, that no
amendment or modification shall be made to any Contract to obtain such Consent
without National's consent), (B) to obtain all necessary Permits, (C) to give
all notices to, and make all registrations and filings with third parties,
including submissions of information requested by governmental authorities, and
(D) to fulfill all conditions to this Agreement.
ARTICLE VIII.
CONDITIONS TO OBLIGATIONS OF DIGITALQUAKE
Following delivery of the Merger Option Notice, the obligations of
DigitalQuake to consummate the Merger and the other transactions contemplated by
this Agreement are subject to the satisfaction on or prior to the Closing Date,
of each of the following conditions unless waived by DigitalQuake in its
discretion:
8.1 Representations, Warranties and Covenants. All representations and
warranties of National and Merger Sub contained in this Agreement shall be true
and correct in all material respects at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date (without
giving effect to any limitations with respect to materiality set forth therein)
except as would not have a Material Adverse Effect on National or Merger Sub.
National and Merger Sub shall have performed in all material respects all
agreements and covenants required hereby to be performed by them prior to or at
the Closing Date. There shall be delivered to DigitalQuake a certificate (signed
by a Senior Vice President or more senior officer of National) to the foregoing
effect ("National's Closing Certificate").
8.2 Consents. All consents, approvals and waivers from governmental
authorities necessary for the valid consummation of the Merger shall have been
obtained. DigitalQuake shall be reasonably satisfied that all approvals required
under any Regulations to carry out the transactions contemplated by this
Agreement and the Ancillary Agreements shall have been obtained and that
National shall have complied in all material respects with all Regulations
applicable to the transactions contemplated hereby and thereby.
8.3 No Court Orders. There shall not be any Regulation or Court Order that
makes the transactions contemplated hereby or by the Ancillary Agreements
illegal or otherwise prohibited, and no proceeding shall have been threatened or
instituted seeking to restrain or enjoin or otherwise prevent consummation of
the transactions contemplated hereby or which question the validity or legality
of the same.
8.4 Closing Documents. DigitalQuake shall have received from National and
Merger Sub the documents and other items to be delivered by National and Merger
Sub pursuant to Section 10.2 of this Agreement.
ARTICLE IX.
CONDITIONS TO OBLIGATIONS OF NATIONAL AND MERGER SUB
Following delivery of the Merger Option Notice, the obligations of National
and Merger Sub to consummate the Merger and the other transactions contemplated
by this Agreement are subject to the satisfaction on or prior to the Closing
Date, of each of the following conditions unless waived by National and Merger
Sub in their discretion:
9.1 Representations, Warranties and Covenants. All representations and
warranties of DigitalQuake contained in this Agreement shall be true and correct
in all material respects at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date (without
giving effect to any limitations with respect to materiality set forth therein).
DigitalQuake shall have performed in all material respects all agreements and
covenants required hereby to be performed prior to or at the Closing Date. There
shall be delivered to National a certificate (signed by the President of
DigitalQuake) to the foregoing effect ("DigitalQuake's Closing Certificate").
9.2 Shareholder Approval. Shareholders of DigitalQuake representing at
least (a) sixty percent (60%) of the outstanding shares of DigitalQuake Series A
Preferred Stock and DigitalQuake Series B Preferred Stock, voting together as a
single class, on an as-converted-to-common-stock basis, and (b) all of the
outstanding shares of DigitalQuake Common Stock shall have consented to,
approved and adopted this Agreement and the Merger and agreed to take all other
actions necessary or required to consummate the transactions contemplated
hereby.
9.3 Approvals. Consents from governmental authorities and from other
parties necessary to the consummation of the transactions contemplated hereby
and by the Ancillary Agreements and for the operation of the Business after the
Closing (including all required material third party consents under the
Contracts, as listed on Schedule 4.12) shall have been obtained. National shall
be satisfied that all approvals required under any Regulations to carry out the
transactions contemplated by this Agreement and the Ancillary Agreements shall
have been obtained and that DigitalQuake shall have complied in all material
respects with all Regulations applicable to the transactions contemplated hereby
and thereby.
9.4 No Actions or Court Orders. No Action by any court, governmental
authority or other Person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated hereby or by
the Ancillary Agreements and which could reasonably be expected to damage in any
material respect National, DigitalQuake, the Assets or National's ability to
operate the Business if the transactions contemplated hereby or thereby are
consummated.
9.5 Opinion of Counsel. DigitalQuake shall have delivered to National an
opinion of Ritchey Fisher Whitman & Klein, counsel to DigitalQuake, dated as of
the Closing Date, in form and substance reasonably acceptable to National
covering the matters set forth on Exhibit G hereto.
9.6 Employee Matters and Non-Compete Agreements. The individuals listed or
described on Schedule 1.1(b) shall have delivered the Employment Agreements and
the individuals listed or described on Schedule 1.1(d) shall have delivered the
Non-Compete Agreements.
9.7 Certificates. DigitalQuake shall furnish National with a certificate
from the Secretary of DigitalQuake certifying that the requisite shareholder
approval specified in Section 9.2 has been obtained and attaching a copy of (a)
DigitalQuake's board resolutions authorizing the transactions contemplated
hereby, (b) the Restated Articles, certified by the California Secretary of
State, and (c) the Bylaws of DigitalQuake ("DigitalQuake's Secretary's
Certificate").
9.8 Closing Documents. National shall have received from DigitalQuake the
documents and other items described in Section 10.1 and such other documents and
items as National may reasonably require.
9.9 No Material Adverse Change. There shall have been no Material Adverse
Effects on DigitalQuake.
9.10 401(k) Plan. Unless National requests otherwise in writing, the Board
of Directors of DigitalQuake shall adopt resolutions terminating, effective at
least two (2) days prior to the Closing Date, any Employee Plan which is
intended to meet the requirements of Section 401(k) of the Code (each such
Employee Plan, a "401(k) Plan"). At the Closing, DigitalQuake shall provide
National with (i) executed resolutions of the Board of Directors of DigitalQuake
authorizing such termination and (ii) an executed amendment to each such 401(k)
Plan sufficient to assure compliance with all applicable requirements of the
Code and regulations thereunder so that the tax-qualified status of each such
401(k) Plan will be maintained at the time of termination.
9.11 280G Shareholder Approval. DigitalQuake, the shareholders of
DigitalQuake and any person who is a "disqualified individual" (as defined in
Section 280G(c) of the Code and the proposed Treasury Regulations promulgated
thereunder) with respect to DigitalQuake shall have taken any and all actions
necessary to provide that no payment or acceleration of any right to benefits or
payment pursuant to this Agreement, any Employee Plan, Contract or any other
plan or arrangement shall constitute an "excess parachute payment" within the
meaning of Section 280G(b)(1). National and DigitalQuake each acknowledge and
agree that such actions may include, but are not necessarily limited to, the
approval by the shareholders of DigitalQuake of the right of to receive or
retain such payments or benefits, which approval satisfies the requirements of
Section 280G(b)(5)(B) of the Code and the proposed Treasury Regulations
promulgated thereunder.
9.12 Payment to Analog Bits. DigitalQuake shall have made a payment to
Analog Bits Inc. in the amount of $50,000 in full satisfaction of DigitalQuake's
obligations under the Analog Bits Agreement.
ARTICLE X.
CLOSING
On the Closing Date at the Closing Place:
10.1 Deliveries of Documents by DigitalQuake to National. DigitalQuake
shall deliver (or cause to be delivered) to National or Merger Sub, as
applicable:
(a) the Ancillary Agreements to which it is a party;
(b) a certificate of corporate good standing issued by the Secretary of
State of the State of California for DigitalQuake, dated not more than
five business days prior to the Closing Date, together with a
facsimile bring-down from an attorney service dated not more than one
business day prior to the Closing Date;
(c) DigitalQuake's Closing Certificate referenced in Section 9.1 and
DigitalQuake's Secretary's Certificate referenced in Section 9.7;
(d) the opinion of counsel to DigitalQuake described in Section 9.5;
(e) the written resignations of all officers and directors of
DigitalQuake;
(f) a properly completed Form W-9 or Form W-8 (or a suitable substitute
form), as applicable, from each Shareholder; and
(g) the certificate described in Section 11.1(b).
10.2 Deliveries of Documents by National to DigitalQuake. National shall
deliver to DigitalQuake, as applicable:
(a) National's Closing Certificate referenced in Section 8.1; and
(b) the Ancillary Agreements to which National is a party.
ARTICLE XI.
ACTIONS BY DIGITALQUAKE
AND NATIONAL AFTER THE CLOSING
11.1 Books and Records; Tax Matters.
(a) DigitalQuake, National, Merger Sub and the Shareholders agree that so
long as any Books and Records, to the extent that they pertain to the
operations of DigitalQuake prior to the Closing Date, remain in
existence and available, each party (at its expense) shall, upon prior
notice, have the right to inspect and to make copies of the same at
any time during business hours for any proper purpose.
(b) DigitalQuake shall have delivered to National, as agent for
DigitalQuake, a form of notice to the Internal Revenue Service in
accordance with the requirements of Treasury Regulation Section
1.897-2(h)(2) and in form and substance reasonably acceptable to
National along with written authorization for National to deliver such
notice form to the Internal Revenue Service on behalf of DigitalQuake
upon the Closing of the Merger.
(c) National covenants and agrees that in the event if or DigitalQuake
receives any notice or inquiry from the Internal Revenue Service with
respect to the characterization of any payments made under this
Agreement or any Ancillary Agreement, National will give prompt
written notice to the Shareholder Representative concerning such
notice or inquiry.
ARTICLE XII.
INDEMNIFICATION
12.1 Survival of Representations. All statements contained in this
Agreement, any schedule or in any certificate or instrument of conveyance
delivered by or on behalf of the parties pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the parties hereunder. The representations and
warranties of DigitalQuake contained herein shall survive the Closing Date for a
period of (and claims based upon or arising out of such representations and
warranties may be asserted at any time before the date which shall be) twelve
(12) months after the Closing Date; provided, however, the representations and
warranties in Section 4.8 (Title to Assets), Section 4.18 (Employee Benefit
Plans) and Section 4.22 (Tax Matters) shall survive for a period equal to the
relevant statute of limitations (including any extensions thereof) plus 30
calendar days. No investigation made by any of the parties hereto shall in any
way limit the representations and warranties of the parties. On the Closing Date
all representations and warranties contained in this Agreement and made by
DigitalQuake shall expire as to DigitalQuake and thereafter will be deemed to
have been made exclusively by the Shareholders other than National. The
termination of the representations and warranties provided herein shall not
affect the rights of a party in respect of any claim made by such party in a
writing received by the other party prior to the expiration of the applicable
survival period provided herein.
12.2 Indemnification.
(a) General. The Shareholders (other than National) shall jointly and
severally indemnify, save and hold harmless National and its
Affiliates and its and their respective Representatives from and
against any and all costs, losses (including diminution in value),
Taxes, Liabilities, obligations, damages, lawsuits, deficiencies,
claims, demands, and expenses (whether or not arising out of
third-party claims), including interest, penalties, costs of
mitigation, losses in connection with any Environmental Law (including
any clean-up or remedial action), damages to the environment,
attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing, in each case after taking into
account any insurance proceeds received by the indemnified Person and
related tax benefits (herein, "Damages"), incurred in connection with,
arising out of, resulting from or incident to: (i) any breach of any
representation or warranty or the inaccuracy of any representation or
warranty, made by DigitalQuake and the Shareholders (other than
National) in this Agreement and (ii) any breach of any covenant or
agreement made by DigitalQuake in this Agreement.
The term "Damages" is not limited to matters asserted by third parties
against an indemnified Person, but includes Damages incurred or sustained by the
indemnified Person in the absence of third party claims. Payments by an
indemnified Person of amounts for which it is indemnified hereunder shall not be
a condition precedent to recovery.
(b) Procedure for Claims between Parties. If a claim for Damages is to be
made by a party entitled to indemnification hereunder, the party
claiming such indemnification shall give written notice to the
Shareholder Representative as soon as practicable after the
indemnified Person becomes aware of any fact, condition or event which
may give rise to Damages for which indemnification may be sought under
this Section 12.2. Any failure to submit any such notice of claim to
the Shareholder Representative shall not relieve any Shareholder of
any liability hereunder, except to the extent such Shareholder is
actually prejudiced by such failure. The Shareholders (other than
National) shall be deemed to have accepted the notice of claim and to
have agreed to pay the Damages at issue if the Shareholder
Representative does not send a notice of disagreement to the
indemnified Person within 30 calendar days after receiving the notice
of claim. In the case of a disputed claim, the parties shall use best
efforts to resolve the matter internally on an expeditious basis and
in any event within 45 calendar days after the notice is received by
the Shareholder Representative.
(c) Defense of Third-Party Claims. If any lawsuit or enforcement action
is filed against any indemnified Person, written notice thereof shall
be given to the Shareholder Representative as promptly as practicable
(and in any event within 15 calendar days after the service of the
citation or summons). The failure of any indemnified Person to give
timely notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the Shareholders (other than
National) demonstrate they were actually prejudiced by such failure.
After such notice, if the Shareholder Representative shall acknowledge
in writing to the indemnified Person that the Shareholders (other than
National) shall be obligated under the terms of its indemnity
hereunder in connection with such lawsuit or action, then the
Shareholders (other than National) shall be entitled, if they so elect
at their own cost, risk and expense, (i) to take control of the
defense and investigation of such lawsuit or action, (ii) to employ
and engage attorneys of their own choice to handle and defend the same
unless the named parties to such action or proceeding include both a
Shareholder and the indemnified Person and the indemnified Person has
been advised in writing by counsel that there may be one or more legal
defenses available to such indemnified Person that are different from
or additional to those available to the Shareholder(s), in which event
the indemnified Person shall be entitled, at the Shareholders' cost,
risk and expense, to separate counsel of its own choosing, and (iii)
to compromise or settle such claim, which compromise or settlement
shall be made only with the written consent of the indemnified Person,
such consent not to be unreasonably withheld. The indemnified Person
shall cooperate in all reasonable respects with the Shareholders
(other than National) and their attorneys in the investigation, trial
and defense of such lawsuit or action and any appeal arising
therefrom; provided, however, that the indemnified Person may, at its
own cost, participate in the investigation, trial and defense of such
lawsuit or action and any appeal arising therefrom. The parties shall
cooperate with each other in any notifications to insurers. If the
Shareholders (other than National) fail to assume the defense of such
claim within 15 calendar days after receipt of the notice of claim by
the Shareholder Representative, the indemnified Person against which
such claim has been asserted will (upon delivering notice to such
effect to the Shareholder Representative) have the right to undertake,
at the cost, risk and expense of the Shareholders (other than
National), the defense, compromise or settlement of such claim on
behalf of and for the account and risk of the Shareholders (other than
National); provided, however, that such claim shall not be compromised
or settled without the written consent of the Shareholder
Representative, which consent shall not be unreasonably withheld. If
the indemnified Person assumes the defense of the claim, the
indemnified Person will keep the Shareholder Representative reasonably
informed of the progress of any such defense, compromise or
settlement. The Shareholders (other than National) shall be liable for
any settlement of any action effected pursuant to and in accordance
with this Section 12.2 and for any final judgment (subject to any
right of appeal), and the Shareholders (other than National) shall
indemnify and hold harmless an indemnified Person from and against any
Damages by reason of such settlement or judgment.
(d) Brokers and Finders. Pursuant to the provisions of this Section 12.2,
National, on the one hand, and Shareholders (other than National), on
the other, shall indemnify, hold harmless and defend the other from
the payment of any and all brokers' and finders' expenses,
commissions, fees or other forms of compensation which may be due or
payable from or by the indemnifying Person, or may have been earned by
any third party acting on behalf of the indemnifying Person in
connection with the negotiation and execution hereof and the
consummation of the transactions contemplated hereby.
(e) Limitations. The obligation of the Shareholders (other than National)
to indemnify National and the other indemnified Persons under this
Section 12.2 in accordance with the procedures and subject to the time
limitations set forth in the Indemnity Escrow Agreement shall be
National's sole remedy under this Agreement against the Shareholders
(other than National) in the absence of fraud or willful
misrepresentation. National shall not be entitled to recover for any
Damages until such time as the Damages in the aggregate reasonably
claimed by National exceed $100,000 (the "Damage Threshold"), at which
time National shall be entitled to be indemnified against and
compensated and reimbursed for all such Damages, including Damages
included in the Damage Threshold. In no event shall the actual
aggregate cumulative liability of the Shareholders (other than
National) for Damages under this Agreement exceed the Indemnity Escrow
Amount and each such Shareholder's liability shall be capped at such
Shareholder's percentage ownership in the consideration deposited in
the Indemnity Escrow Account pursuant to Section 3.3 hereof.
12.3 No Right of Indemnification or Contribution. After the Closing,
DigitalQuake shall have no liability to indemnify National or any Shareholder
(other than National) on account of the breach of any representation or warranty
or the nonfulfillment of any covenant or agreement of any Shareholder; and no
Shareholder (other than National) shall have any right of contribution against
DigitalQuake (unless such claim for contribution relates to a Liability of
DigitalQuake existing at or arising after the Closing Date).
ARTICLE XIII.
SHAREHOLDER REPRESENTATIVE
13.1 Election and Replacement. During the period ending upon the date when
all obligations under this Agreement have been discharged (including all
indemnification obligations under Section 12.2 hereof), Shareholders (other than
National) who immediately prior to the Effective Time held an aggregate number
of shares of DigitalQuake Common Stock, including shares issuable upon exercise
of DigitalQuake Options, which exceeded 50% of the number of shares of
DigitalQuake Common Stock, including shares issuable upon exercise of
DigitalQuake Options, held by Shareholders (other than National) immediately
prior to the Effective Time (a "Majority"), may, from time to time upon written
notice to the Shareholder Representative and National, remove the Shareholder
Representative (including any appointed by National) or appoint a new
Shareholder Representative to fill any vacancy created by the death,
incapacitation, resignation or removal of the Shareholder Representative.
Furthermore, if the Shareholder Representative dies, becomes incapacitated,
resigns or is removed by a Majority, the Majority shall appoint a successor
Shareholder Representative to fill the vacancy so created. If the Majority is
required to but has not appointed a successor Shareholder Representative within
fifteen (15) business days from a request by National to appoint a successor
Shareholder Representative, National shall have the right to appoint a
Shareholder Representative to fill any vacancy so created from the directors of
DigitalQuake prior to the Merger, and shall advise the Shareholders of such
appointment by written notice. A copy of any appointment by the Majority of any
successor Shareholder Representative shall be provided to National promptly
after it shall have been effected.
13.2 Authority. The Shareholder Representative shall be authorized to take
any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Shareholder Representative determines in his discretion to be necessary,
appropriate or desirable, and, in connection therewith, to hire or retain, at
the sole expense of the Shareholders (other than National), such counsel,
investment bankers, accountants, representatives and other professional advisors
as he or she determines in his or her sole and absolute discretion to be
necessary, advisable or appropriate in order to carry out and perform his or her
rights and obligations hereunder. Any party receiving an Instrument from the
Shareholder Representative shall have the right to rely in good faith upon such
Instrument, and to act in accordance with the Instrument without independent
investigation. The Shareholders (other than National) shall share, on a pro rata
basis based upon the number of shares of DigitalQuake Common Stock held by each
such Shareholder or subject to DigitalQuake Options held by such Shareholder
immediately prior to the Effective Time, the expenses of the Shareholder
Representative. Upon the written request of the Shareholder Representative
delivered to National prior to the one-year anniversary of the Effective Time,
National shall withhold from the Indemnity Escrow Amount and pay to the
Shareholder Representative an amount equal to expenses incurred by the
Shareholder Representative through the date of his or her written request to
National. The Shareholder Representative shall certify in any such written
request that the amount to be withheld from the Indemnity Escrow Amount
represents actual, reasonable expenses incurred by the Shareholder
Representative pursuant to this Section 13.2.
13.3 No Liability of National. National (and the Surviving Corporation)
shall have no liability to any of the Shareholders or otherwise arising out of
the acts or omissions of the Shareholder Representative or any disputes among
the Shareholders or with the Shareholder Representative. National may rely
entirely on its dealings with, and notices to and from, the Shareholder
Representative to satisfy any obligations it might have under this Agreement or
otherwise to the Shareholders (other than National). The Shareholders (other
than National) shall indemnify National and Merger Sub for any damages suffered,
including, but not limited to, attorneys' fees and other costs, as a result of
National or Merger Sub's good faith reliance on the acts or omissions of the
Shareholder Representative.
ARTICLE XIV.
MISCELLANEOUS
14.1 Termination.
(a) This Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time (whether or not shareholder approval has
been obtained):
(i) Prior to exercise of the Merger Option, by National by written
notice to DigitalQuake;
(ii) After exercise of the Merger Option, by mutual written consent of
National and DigitalQuake;
(iii)By National if there is a material breach of any representation
or warranty set forth in Article IV or covenant or agreement to
be complied with or performed by DigitalQuake pursuant to the
terms of this Agreement and such breach, if capable of cure,
shall not have been cured within ten days of notice thereof;
(iv) By DigitalQuake if there is a material breach of any
representation or warranty set forth in Article V or Article VI
or any covenant or agreement to be complied with or performed by
National or Merger Sub pursuant to the terms of this Agreement
and such breach, if capable of cure, shall not have been cured
within ten days of notice thereof; or
(v) By either DigitalQuake or National if the Merger shall not have
been consummated by October 31, 2002 for any reason; (b) In the
event of termination of this Agreement:
(i) The provisions of the Confidentiality Agreement shall continue in
full force and effect; and
(ii) No party hereto shall have any liability to any other party to
this Agreement, except for any breach of, or misrepresentation
made in, this Agreement occurring prior to the proper termination
of this Agreement.
14.2 Assignment; No Third-Party Beneficiaries. Neither this Agreement nor
any of the rights or obligations hereunder may be assigned by DigitalQuake
without the prior written consent of National, or by National or Merger Sub
without the prior written consent of DigitalQuake. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Nothing herein
expressed or implied shall give or be construed to give to any Person, other
than the parties hereto and such successors and assigns and the Persons
indemnified pursuant to Section 12.2 hereof, any legal or equitable rights
hereunder.
14.3 Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by confirmed telecopy; the day after it is sent, if
sent for next day delivery to a domestic address by recognized overnight
delivery service (e.g., Federal Express); and upon receipt, if sent by certified
or registered mail, return receipt requested, as follows:
If to National, Merger Sub, or, if after the Closing, to DigitalQuake:
National Semiconductor Corporation
2900 Semiconductor Drive
Mail Stop G3-135
Santa Clara, CA 95051
Telecopy: (408) 733-0293
Attention: General Counsel
With copies to:
National Semiconductor Corporation
2900 Semiconductor Drive
Mail Stop G2-365
Santa Clara, CA 95051
Telecopy: (408) 721-1666
Attention: Russell W. Melton
Latham & Watkins
135 Commonwealth Drive
Menlo Park, CA 94025
Telecopy: (650) 463-2600
Attention: Ora T. Fisher
If to DigitalQuake prior to Closing:
DigitalQuake, Inc.
550 Division Street
Campbell, CA 95008
Telecopy: (408) 374-0606
Attention: Paul A. Lessard, CEO
With a copy to:
Ritchey Fisher Whitman & Klein
1717 Embarcadero Road
Palo Alto, CA 94303
Telecopy: (650) 857-1288
Attention: Lawrence A. Klein
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
14.4 Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
California except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
14.5 Entire Agreement; Amendments and Waivers. This Agreement, together
with all exhibits and schedules hereto, the Agreement of Merger, the Ancillary
Agreements, the Series B Purchase Agreement, the Technology Development and
Licensing Agreement and the Confidentiality Agreement (which the parties agree
shall terminate on the Closing Date), constitute the entire agreement among the
parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, including without limitation the Memorandum of
Understanding dated December 21, 2001. No supplement, modification or waiver of
this Agreement shall be binding unless executed in writing by the party to be
bound thereby. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
14.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.7 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
14.8 Expenses. National, Merger Sub and DigitalQuake will each be liable
for their own expenses incurred in connection with the negotiation, preparation,
execution and performance of this Agreement and the transactions contemplated
hereby. Notwithstanding anything in this Agreement to the contrary, in no event
shall National be responsible for any Taxes owed by any holder of DigitalQuake
Capital Stock (other than National) or DigitalQuake Options as a result of this
Agreement and the transactions contemplated hereby.
14.9 Publicity. Except as required by law or on advice of counsel, no party
hereto shall issue any press release or make any public statement regarding the
transactions contemplated hereby without the prior written approval of the other
parties. The parties hereto shall issue a mutually acceptable press release as
soon as practicable after the date hereof.
14.10 Specific Performance. Each of the parties hereto acknowledges and
agrees that the other parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with, their
specific terms or otherwise are breached. Accordingly, each of the parties
agrees that the other parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter in addition to any other remedy to
which they may be entitled, at law or in equity.
14.11 Attorneys' Fees. If any party to this Agreement brings an action to
enforce its rights under this Agreement, the prevailing party shall be entitled
to recover its costs and expenses, including without limitation reasonable
attorneys' fees, incurred in connection with such action, including any appeal
of such action.
14.12 Service of Process, Consent to Jurisdiction.
(a) Service of Process. Each of the parties hereto irrevocably consents to
the service of any process, pleading, notices or other papers by the
mailing of copies thereof by registered, certified or first class
mail, postage prepaid, to such party at such party's address set forth
herein, or by any other method provided or permitted under California
law.
(b) Consent and Jurisdiction. Each party hereto irrevocably and
unconditionally (1) agrees that any suit, action or other legal
proceeding arising out of this Agreement may be brought in the United
States District Court for the Northern District of California, San
Jose Division or, if such court does not have jurisdiction or will not
accept jurisdiction, in any court of general jurisdiction in the
County of Santa Clara, California; (2) consents to the jurisdiction of
any such court in any such suit, action or proceeding; and (3) waives
any objection which such party may have to the laying of venue of any
such suit, action or proceeding in any such court.
14.13 Cumulative Remedies. All rights and remedies of either party hereto
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be duly executed on its behalf by its officer thereunto
duly authorized, as of the day and year first above written.
NATIONAL SEMICONDUCTOR CORPORATION,
a Delaware corporation
By: //S// DONALD MACLEOD
Name: Donald Macleod
Its: Executive Vice President, Chief Operating
Officer and General Manager, Product Lines
NINTAI ACQUISITION SUB, INC.,
a California corporation
By: //S// DONALD MACLEOD
Name: Donald Macleod
Its: Vice President
DIGITALQUAKE, INC.,
a California corporation
By: //S// PAUL A. LESSARD
Name: Paul A. Lessard
Its: President
PAUL A. LESSARD
//S// PAUL A. LESSARD
MICHAEL G. FUNG
//S// MICHAEL G. FUNG
TABLE OF SCHEDULES
Schedule 1.1(a) Employee Shareholders
Schedule 1.1(b) Employees to Sign Employment Agreements
Schedule 1.1(c) Financial Statements
Schedule 1.1(d) Individuals to Sign Non-Compete Agreements
Schedule 3.4(a) Accelerated Optionees
Schedule 4.1 Foreign Qualifications
Schedule 4.2 Capitalization Spreadsheets
Schedule 4.4 Officers and Directors of DigitalQuake
Schedule 4.5 Bank Accounts, Safe Deposit Boxes and Authorized Persons
Schedule 4.6 Subsidiaries
Schedule 4.7 Certain Changes or Events
Schedule 4.8 Title to Assets and Encumbrances
Schedule 4.10 Fixtures and Equipment
Schedule 4.11 Contracts
Schedule 4.12 DigitalQuake Consents
Schedule 4.13 Permits
Schedule 4.16 Litigation
Schedule 4.17 Employment Practices
Schedule 4.18 Employee Plans
Schedule 4.19 Transactions with Related Parties
Schedule 4.21 Proprietary Rights
Schedule 4.22 Tax Matters
Schedule 4.23 Insurance Policies
Schedule 4.24 Purchase Commitments and Outstanding Bids
Schedule 4.26 Customers and Supplies
Schedule 4.28 Finder's Fee Arrangements
Schedule 5.3 National Consents
Schedule 7.6(a) Employees Eligible to Receive National Options
TABLE OF EXHIBITS
Exhibit A Form of Agreement of Merger
Exhibit B Form of Non-Compete Agreement
Exhibit C Indemnity Escrow Agreement
Exhibit D Investor Representations
Exhibit E Form of Letter of Transmittal
Exhibit F Summary of DigitalQuake, Inc. Incentive Bonus Plan
Exhibit G Form of Opinion of Counsel to DigitalQuake