AGREEMENT AND PLAN OF MERGER

 

EXHIBIT 2.1

 

 

AGREEMENT AND PLAN OF MERGER

 

dated as of June 4, 2004

 

by and among

 

MATRIXONE, INC.,

 

MATRIXONE INTERNATIONAL, INC.,

 

INSYNC MERGER CORPORATION,

 

SYNCHRONICITY SOFTWARE, INC.,

 

THE NOTEHOLDERS AND CERTAIN STOCKHOLDERS OF

 

SYNCHRONICITY SOFTWARE, INC.

 

and

 

JAMES FURNIVALL AS THE REPRESENTATIVE

 

 

TABLE OF CONTENTS

 

 

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TABLE OF DEFINED TERMS

 

 

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AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER, dated as of June 4, 2004 (this “Agreement”), by and among MatrixOne, Inc., a Delaware corporation (“MatrixOne”), MatrixOne International, Inc., a Delaware corporation and a wholly owned subsidiary of MatrixOne (“Subone”), InSync Merger Corporation, a Delaware corporation and a wholly owned subsidiary of Subone (“Subtwo”), Synchronicity Software, Inc., a Delaware corporation (“Synchronicity”), the noteholders (the “Noteholders”) and stockholders (the “Signing Stockholders”) of Synchronicity signatories hereto and James Furnivall as the representative (the “Representative”).

 

WHEREAS, the Boards of Directors of MatrixOne, Subone, Subtwo and Synchronicity deem it advisable and in the best interests of each corporation and its respective stockholders that MatrixOne and Synchronicity combine in order to advance the long-term business interests of MatrixOne and Synchronicity;

 

WHEREAS, the strategic combination of MatrixOne and Synchronicity shall be effected by the terms of this Agreement through a transaction in which Subtwo shall merge with and into Synchronicity, Synchronicity shall become an indirect, wholly owned subsidiary of MatrixOne and the Noteholders and certain stockholders of Synchronicity shall become stockholders of MatrixOne (the “Merger”);

 

WHEREAS, concurrently with the consummation of the Merger, MatrixOne, the Representative, the Noteholders and the stockholders of Synchronicity who shall become stockholders of MatrixOne as a result thereof shall enter into a Registration Rights Agreement substantially in the form of Exhibit A hereto (the “Registration Rights Agreement”); and

 

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties agree as follows:

 

ARTICLE I

 

THE MERGER

 

Section 1.1 The Merger . Subject to the terms and conditions of this Agreement, at the Effective Time, Subtwo shall merge with and into Synchronicity in accordance with the General Corporation Law of the State of Delaware (the “DGCL”), and the separate corporate existence of Subtwo shall thereupon cease and Synchronicity shall continue as the Surviving Corporation. Synchronicity, in its capacity as the corporation surviving the Merger, is referred to herein as the “Surviving Corporation.”

 

Section 1.2 Consummation of the Merger . In order to effectuate the Merger, on the Closing Date, Synchronicity shall cause a certificate of merger (the “Certificate of Merger”) to be filed with the Secretary of State of Delaware, in such form

 

as required by, and executed in accordance with, the DGCL. The Merger shall be effective as of the time of filing of the Certificate of Merger (the “Effective Time”).

 

Section 1.3 Effects of the Merger . The Merger shall have the effects provided for in Section 259 of the DGCL.

 

Section 1.4 Certificate of Incorporation of the Surviving Corporation . At and after the Effective Time, the Certificate of Incorporation of Subtwo, as in effect immediately prior to the Effective Time (the “Subtwo Certificate of Incorporation”), shall be the Certificate of Incorporation of the Surviving Corporation, until amended in accordance with the DGCL, except that the name of the Surviving Corporation shall be Synchronicity Software, Inc.

 

Section 1.5 By-Laws of the Surviving Corporation . At and after the Effective Time, the By-laws of Subtwo (the “Subtwo By-laws”), as in effect immediately prior to the Effective Time, shall be the By-laws of the Surviving Corporation, until amended in accordance with the DGCL.

 

Section 1.6 Directors and Officers of the Surviving Corporation . The directors and officers of the Surviving Corporation shall be determined by MatrixOne, each to hold office in accordance with the Certificate of Incorporation and By-laws of the Surviving Corporation.

 

Section 1.7 Closing . Subject to Section 10.1, the closing of the Merger (the “Closing”) shall take place at 10:00 a.m., E.S.T., on the later of (a) August 4, 2004 or (b) the first business day after satisfaction of the latest to occur of the conditions in Article VII (other than those conditions to be satisfied at or as of the Closing), at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Beacon Street, Boston, Massachusetts 02108 or on such other date, or at such other time or place, as is agreed to in writing by MatrixOne and Synchronicity; provided , however , that MatrixOne may by notice to Synchronicity extend the Closing for up to 5 business days from the later of the dates specified in clause (a) or (b) if MatrixOne determines in the good faith judgment of MatrixOne’s general counsel that the issuance of shares of common stock, $0.01 par value per share, of MatrixOne (“MatrixOne Common Stock”) in the Merger would require disclosure of material information which MatrixOne has a bona fide business purpose for preserving as confidential. The date on which the Closing shall occur is referred to herein as the “Closing Date.”

 

ARTICLE II

 

DETERMINATION OF MERGER CONSIDERATION AND

TREATMENT, PAYMENT AND EXCHANGE OF SECURITIES

 

Section 2.1 Determination of Merger Consideration .

 

(a) At the Closing, Synchronicity shall deliver to MatrixOne a certificate in form of Exhibit B hereto signed by its Chief Executive Officer and Chief

 

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Operating Officer and, as attachments to such certificate, (i) an updated version of Section 3.2(d) of the Synchronicity Disclosure Letter reflecting any changes in the information therein between the date hereof and the Closing and (ii) a spreadsheet in form and substance satisfactory to MatrixOne which sets forth (such certificate and attachments is referred to herein as the “Synchronicity Closing Certificate”):

 

(A) the aggregate amount of all indebtedness or borrowings of Synchronicity, including, without limitation, any indebtedness or borrowing under the Additional Term Loan (within the meaning of the Loan Documents) and Fiduciary Borrowings, outstanding as of the Closing (the “Indebtedness Amount”);

 

(B) with respect to its management incentive plan set forth in the minutes of its Board of Directors meeting on June 3, 2004 delivered by Synchronicity to MatrixOne prior to the date hereof (the “Management Plan”), (x) the aggregate amount of cash to be paid (the “Management Payment”) by Synchronicity immediately prior to the Closing to certain members of management in full satisfaction of its obligations thereunder and (y) the amount to be paid to each such member thereunder;

 

(C) the aggregate amount of cash to be paid (the “Cadence Payment”) by Synchronicity immediately prior to the Closing to Cadence Design Systems, Inc. in full satisfaction of its obligations under Section 2.05(a)(ii) of the Asset Purchase Agreement, dated as of September 7, 2001, between Synchronicity and Cadence Design Systems, Inc.;

 

(D) with respect to the fees and expenses incurred by Synchronicity in connection with this Agreement and the transactions contemplated hereby, (x) the aggregate amount (the “Fees and Expenses Amount”) thereof incurred through the Closing and the portion of such aggregate remaining to be paid as of the Closing and (y) to whom suchaggregate amount has been paid or remains payable as of the Closing;

 

(E) with respect to its common stock, par value $.01 per share (“Synchronicity Common Stock”), (x) the aggregate number of shares thereof issued and outstanding immediately prior to the Merger (the “Common Shares”) and (y) the aggregate amount of cash into which the Common Shares will be converted pursuant to Section 2.2(c)(i) (the “Common Amount”);

 

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(F) with respect to its Series A Preferred Stock, par value $.01 per share (“Synchronicity Series A Preferred Stock”), (x) the aggregate number of shares thereof issued and outstanding immediately prior to the Merger (the “Series A Shares”) and (y) the aggregate amount of cash into which the Series A Shares will be converted pursuant to Section 2.2(c)(ii) (the “Series A Amount”);

 

(G) with respect to its Subordinated Secured Convertible Promissory Notes dated July 31, 2003 and January 30, 2004 in the aggregate principal amount of $2,000,000 (the “Synchronicity Notes”), (x) the aggregate amount due (the “Note Amount”) by Synchronicity upon the Closing to the holders thereof and (y) the percentage of the Note Amount represented by each Synchronicity Note;

 

(H) with respect to its Series B Preferred Stock, par value $.01 per share (“Synchronicity Series B Preferred Stock”), (x) the aggregate number of shares thereof issued and outstanding immediately prior to the Merger (the “Series B Shares”) and (y) the aggregate amount due by Synchronicity upon the Closing to the holders thereof in full satisfaction of its obligations to such holders under its Certificate of Incorporation (the “Synchronicity Certificate of Incorporation”) as in effect immediately prior to Merger (the “Series B Amount”);

 

(I) with respect to its Series C Preferred Stock, par value $.01 per share (“Synchronicity Series C Preferred Stock”), (x) the aggregate number of shares thereof issued and outstanding immediately prior to the Merger (the “Series C Shares”) and (y) the aggregate amount due by Synchronicity upon the Closing to the holders thereof in full satisfaction of its obligations to such holders under the Synchronicity Certificate of Incorporation as in effect immediately prior to Merger (the “Series C Amount”);

 

(J) with respect to its Series D Preferred Stock, par value $.01 per share (“Synchronicity Series D Preferred Stock”), (x) the aggregate number of shares thereof issued and outstanding immediately prior to the Merger (the “Series D Shares”) and (y) the aggregate amount due by Synchronicity upon the Closing to the holders thereof in full satisfaction of its obligations to such holders under the Synchronicity Certificate of Incorporation as in effect immediately prior to Merger (the “Series D Amount”); and

 

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(K) with respect to its Series E Preferred Stock, par value $.01 per share (“Synchronicity Series E Preferred Stock”), (x) the aggregate number of shares thereof issued and outstanding immediately prior to the Merger (the “Series E Shares”) and (y) the aggregate amount due by Synchronicity upon the Closing to the holders thereof in full satisfaction of its obligations to such holders under the Synchronicity Certificate of Incorporation as in effect immediately prior to Merger (the “Series E Amount”).

 

(b) The aggregate number of shares of MatrixOne Common Stock to be issued in the Merger shall be the quotient (such quotient, rounded to the nearest whole number and expressed as a number of shares of MatrixOne Common Stock, is referred to herein as the “Merger Shares”) obtained by dividing (i) the result obtained by subtracting the Indebtedness Payment, the Management Payment, the Cadence Payment, the Excess Fees and Expenses Amount, the Common Amount and the Series A Amount from $18,750,000 by (ii)(A) if the average of the closing prices of MatrixOne Common Stock on the Nasdaq National Market (the “Nasdaq”) as reported in The Wall Street Journal on each of the 15 trading days immediately preceding the last trading day immediately preceding the Closing Date (the “Closing Average”) is greater than or equal to $6.21 and less than or equal to $7.59, then the Closing Average, (B) if the Closing Average is greater than $7.59, then $7.59 or (C) if the Closing Average is less than $6.21, then $6.21 (such applicable amount in this clause (ii) is referred to herein as the “Per Merger Share Value”).

 

Section 2.2 Treatment of Securities . As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of any capital stock of Subtwo or any holder of any notes, capital stock or options of Synchronicity:

 

(a) Subtwo Capital Stock . Each issued and outstanding share of common stock, par value $0.01 per share (“Subtwo Common Stock”), of Subtwo shall be converted into and become one fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation.

 

(b) Synchronicity Treasury Stock . Any capital stock of Synchronicity owned by Synchronicity as treasury stock shall be cancelled and retired and shall cease to exist and no stock of MatrixOne or other consideration shall be delivered in exchange therefor.

 

(c) Synchronicity Common Stock and Series A Preferred Stock . Subject to Sections 2.3 and 2.4, (i) each Common Share shall be converted into the right to receive an amount in cash equal to $.10 and (ii) each Series A Share shall be converted into the right to receive an amount in cash equal to $.10. All such Common Shares and Series A Shares, when so converted, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares (each a “Cashed-Out Certificate” and collectively

 

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the “Cashed-Out Certificates”) shall cease to have any rights with respect thereto, except, upon the surrender of such Cashed-Out Certificate, the rights under Section 2.3.

 

(d) Synchronicity Notes . Subject to Sections 2.3, each outstanding Synchronicity Note shall be converted into the right to receive a number of shares of MatrixOne Common Stock determined by multiplying (i) the quotient obtained by dividing the Note Amount by the Per Merger Share Value and (ii) the percentage of the Note Amount represented by such Synchronicity Note as shown on the Synchronicity Closing Certificate. All such Synchronicity Notes, when so converted, shall be paid in full and shall automatically be cancelled and retired and shall cease to exist, and each holder thereof shall cease to have any rights with respect thereto, except, upon the surrender of such Synchronicity Note, the rights under Section 2.3.

 

(e) Synchronicity Series B, C, D and E Preferred Stock . Subject to Sections 2.3 and 2.4:

 

(i) each Series B Share shall be converted into the right to receive a number of fully paid and nonassessable shares of MatrixOne Common Stock determined by multiplying (A) the quotient obtained by dividing the Series B Amount by the Per Merger Share Value and (B) a fraction the numerator of which is one and the denominator of which is the Series B Shares;

 

(ii) each Series C Share shall be converted into the right to receive a number of fully paid and nonassessable shares of MatrixOne Common Stock determined by multiplying (A) the quotient obtained by dividing the Series C Amount by the Per Merger Share Value and (B) a fraction the numerator of which is one and the denominator of which is the Series C Shares;

 

(iii) each Series D Share shall be converted into the right to receive a number of fully paid and nonassessable shares of MatrixOne Common Stock determined by multiplying (A) the quotient obtained by dividing the Series D Amount by the Per Merger Share Value and (B) a fraction the numerator of which is one and the denominator of which is the Series D Shares; and

 

(iv) each Series E Share shall be converted into the right to receive a number of fully paid and nonassessable shares of MatrixOne Common Stock determined by multiplying (A) the quotient obtained by dividing the Series E Amount by the Per Merger Share Value and (B) a fraction the numerator of which is one and the denominator of which is the Series E Shares.

 

All such Series B Shares, Series C Shares, Series D Shares and Series E Shares, when so converted, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares

 

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(each a “Converted Certificate” and collectively the “Converted Certificates”) shall cease to have any rights with respect thereto, except, upon the surrender of such Converted Certificate, the rights under Section 2.3.

 

(f) Synchronicity Stock Options . All options to purchase Synchronicity Common Stock (individually an “Synchronicity Stock Option” and collectively the “Synchronicity Stock Options”) granted under the Synchronicity’s 1996 Stock Option Plan or 1999 Stock Option and Incentive Plan (collectively, the “Synchronicity Stock Option Plans”), which are outstanding as of the Effective Time, whether or not exercisable, shall be cancelled and retired and shall cease to exist and no stock of MatrixOne or other consideration shall be delivered in exchange therefor.

 

(g) MatrixOne Note . The MatrixOne Note shall remain outstanding and become the obligation of the Surviving Corporation.

 

Section 2.3 Payment and Exchange of Securities .

 

(a) Agent . At the Closing, MatrixOne and the Representative shall enter into a Payment, Escrow and Exchange Agreement substantially in the form of Exhibit C hereto (the “PE&E Agreement”) with a bank or trust company mutually acceptable to MatrixOne and Synchronicity (the “PE&E Agent”). As of the Effective Time, MatrixOne shall deposit with the PE&E Agent pursuant to the PE&E Agreement (i) an amount of cash equal to the sum of the Common Amount and the Series A Amount, (ii) a certificate (each a “MatrixOne Common Stock Certificate” and together the “MatrixOne Common Stock Certificates”) in the name of each holder of Synchronicity Notes, Series B Shares, Series C Shares, Series D Shares or Series E Shares representing 70% of the shares of MatrixOne Common Stock into which such holder’s Synchronicity Notes, Series B Shares, Series C Shares, Series D Shares or Series E Shares were converted pursuant to Section 2.2(d) or (e) and (iii) a certificate (the “Escrowed MatrixOne Common Stock Certificate”) in the name of the PE&E Agent representing a number of shares of MatrixOne Common Stock equal to the Merger Shares minus the aggregate number of shares of MatrixOne Common Stock represented by the MatrixOne Common Stock Certificates (the shares of MatrixOne Common Stock represented by the Escrowed MatrixOne Common Stock Certificate, together with any dividends or distributions with respect thereto, are referred to herein as the “Escrow Fund”). From time to time, MatrixOne shall make available to the PE&E Agent sufficient cash to make all cash payments in lieu of fractional shares pursuant to Section 2.3(d) in accordance with the PE&E Agreement.

 

(b) Payment Procedures . Not later than three business days after the Effective Time, the Agent shall mail to each holder of a Cashed-Out Certificate (i) a letter of transmittal in the form of Exhibit 3 to the PE&E Agreement and (ii) instructions for use in effecting the surrender of the Cashed-Out Certificates to the Agent for payment. Upon surrender to the PE&E Agent of such holder’s Cashed-Out Certificate, together with such letter of transmittal, duly executed, such holder shall be entitled to receive in payment therefor, promptly upon such surrender, an amount of cash equal to the amount

 

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into which the Common Shares or Series A Shares represented by such Cashed-Out Certificate, as the case may be, were converted pursuant to Section 2.2(c).

 

(c) Exchange Procedures . Not later than three business days after the Effective Time, the PE&E Agent shall mail to each Noteholder and each holder of a Converted Certificate (each a “Stockholder” and collectively the “Stockholders”) (i) a letter regarding the merger and related matters in the form of Exhibit 4 to the PE&E Agreement (a “Merger Matters Letter”), (ii) a letter of transmittal in the form of Exhibit 5 to the PE&E Agreement and (iii) instructions for use in effecting the surrender of the Synchronicity Notes and Converted Certificates to the PE&E Agent for exchange. Upon delivery to the PE&E Agent of (i) such holder’s Merger Matters Letter duly executed and (ii) such holder’s Synchronicity Note or Converted Certificate, together with such letter of transmittal, duly executed, such holder shall be entitled to receive in exchange therefor (A) promptly upon such surrender, such holder’s MatrixOne Common Stock Certificate, cash in lieu of any fractional share of MatrixOne Common Stock payable pursuant to Section 2.3(e) and any dividends or other distributions payable pursuant to Section 2.3(d) and (B) at the time and subject to the terms and conditions of the PE&E Agreement, such holder’s share of the Escrow Fund.

 

(d) Distributions with Respect to Unexchanged Shares . No dividends or other distributions declared or made after the Effective Time with respect to MatrixOne Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Synchronicity Note or Converted Certificate with respect to the shares of MatrixOne Common Stock represented thereby until the holder of record of such Synchronicity Note or Converted Certificate surrenders such Synchronicity Note or Converted Certificate, provided that there shall be paid to the record holder of the MatrixOne Common Stock Certificate issued in exchange therefor, without interest, (i) at the time such holder receives such MatrixOne Common Stock Certificate, the amount of any dividends or other distributions with a record date after the Effective Time and a payment date prior to such time previously paid with respect to the shares of MatrixOne Common Stock represented by such MatrixOne Common Stock Certificate and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time and a payment date subsequent to the time such holder receives such MatrixOne Common Stock Certificate payable with respect to the shares of MatrixOne Common Stock represented by such MatrixOne Common Stock Certificate.

 

(e) No Fractional Shares . Notwithstanding any other provision of this Agreement, no certificate or scrip representing fractional shares of MatrixOne Common Stock shall be issued upon the surrender for exchange of any Synchronicity Notes or Converted Certificates, no dividend or other distribution with respect to MatrixOne Common Stock shall relate to any fractional shares of MatrixOne Common Stock and such fractional share interests shall not entitle the owner thereof to vote or to any rights of a stockholder of MatrixOne. In lieu of any such fractional shares, each holder of Synchronicity Notes or Converted Certificates exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of MatrixOne Common Stock (after taking into account all MatrixOne Common Stock

 

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Certificates delivered by such holder) shall be paid an amount in cash, without interest, equal to such fractional part of a share of MatrixOne Common Stock multiplied by the Per Merger Share Value.

 

(f) Lost Synchronicity Notes and Cashed-Out or Converted Certificates . If any Synchronicity Note, Cashed-Out Certificate or Converted Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Synchronicity Note, Cashed-Out Certificate or Converted Certificate to be lost, stolen or destroyed and subject to such other conditions as the Board of Directors of the Surviving Corporation may impose, the Surviving Corporation shall (i) pay cash in payment for such lost, stolen or destroyed Cashed-Out Certificate pursuant to Section 2.2 and (ii) issue in exchange for such lost, stolen or destroyed Synchronicity Note or Converted Certificate shares of MatrixOne Common Stock as determined under Section 2.2 and pay any cash, dividends and distributions as determined in accordance with Sections 2.3(d) and (e) in respect of such Synchronicity Note or Converted Certificate. When authorizing such payment or issuance the Board of Directors of the Surviving Corporation (or any authorized officer thereof) may, in its reasonable discretion and as a condition precedent thereto, require the owner of such lost, stolen or destroyed Synchronicity Note, Cashed-Out Certificate or Converted Certificate to agree to indemnify the Surviving Corporation against any claim that may be made against the Surviving Corporation with respect to the Synchronicity Note, Cashed-Out Certificate or Converted Certificate alleged to have been lost, stolen or destroyed.

 

(g) Closing of Stock Transfer Books . The stock transfer books of Synchronicity shall be closed as of the close of business on the first business day immediately preceding the Closing Date, and thereafter there shall be no further registration of transfers on the stock transfer books of Synchronicity or the Surviving Corporation of any shares of capital stock of Synchronicity Stock which were outstanding immediately prior to such time. If, after such time, certificates representing shares of capital stock of Synchronicity are presented to the Surviving Corporation for any reason, they shall be cancelled pursuant to Section 2.2(b) or exchanged pursuant to this Section 2.3.

 

(h) No Liability . Neither MatrixOne, the Surviving Corporation, the PE&E Agent nor Synchronicity shall be liable to any holder of notes or capital stock of Synchronicity or MatrixOne Common Stock, as the case may be, for such shares of MatrixOne Common Stock (or dividends or distributions with respect thereto) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

Section 2.4 Dissenting Shares .

 

(a) Notwithstanding any other provision of this Agreement to the contrary, shares of capital stock of Synchronicity that are outstanding immediately prior to the Effective Time and which are held by Synchronicity stockholders who shall have not voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of the DGCL and who shall not have withdrawn such demand or otherwise have forfeited

 

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appraisal rights (collectively, the “Dissenting Shares”) shall not be converted pursuant to Section 2.2(c) or (e). Such Synchronicity stockholders shall be entitled to receive payment of the appraised value of such shares held by them in accordance with the provisions of such Section 262, except that all Dissenting Shares held by Synchronicity stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares converted pursuant to Section 2.2(c) or (e).

 

(b) Synchronicity shall give MatrixOne (i) prompt notice of any demands for appraisal received by Synchronicity, withdrawals of such demands, and any other instruments served pursuant to the DGCL and received by Synchronicity and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL. Synchronicity shall not, except with the prior written consent of MatrixOne, make any payment with respect to any demands for appraisal, or offer to settle, or settle, any such demands.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF SYNCHRONICITY

 

Synchronicity represents and warrants to MatrixOne, Subone and Subtwo that the statements in this Article III are true and correct, except as set forth in the disclosure letter delivered by Synchronicity to MatrixOne on or before the date of this Agreement (the “Synchronicity Disclosure Letter”). The Synchronicity Disclosure Letter shall be arranged in sections corresponding to the numbered and lettered sections contained in this Article III and the disclosure in any section shall qualify only the corresponding section in this Article III.

 

Section 3.1 Organization . Synchronicity is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has all requisite corporate power to own, lease and operate its property and to carry on its business as now being conducted and as proposed to be conducted and is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction in which it is required to be so qualified or licensed. Section 3.1(a) of the Synchronicity Disclosure Letter sets forth each jurisdiction in which Synchronicity is so qualified or licensed to do business as a foreign corporation. Synchronicity has heretofore delivered to MatrixOne complete and correct copies of the Synchronicity Certificate of Incorporation and Synchronicity’s By-laws (“Synchronicity By-laws”), each as amended and in full force and effect as of the date of this Agreement. Synchronicity does not own, directly or indirectly, any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any Person.

 

Section 3.2 Capital Structure .

 

(a) The authorized capital stock of Synchronicity consists (i) of 19,410,912 shares of Synchronicity Common Stock, (ii) 200,000 shares of Synchronicity Series A Preferred Stock, all of which are outstanding and which are convertible into

 

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1,000,000 shares of Synchronicity Common Stock, (iii) 281,250 shares of Synchronicity Series B Preferred Stock, all of which are outstanding and which are convertible into 1,406,250 shares of Synchronicity Common Stock, (iv) 350,283 shares of Synchronicity Series C Preferred Stock, all of which are outstanding and which are convertible into 1,751,415 shares of Synchronicity Common Stock, (v) 2,863,337 shares of Synchronicity Series D Preferred Stock, all of which are outstanding and which are convertible into 2,863,337 shares of Synchronicity Common Stock, and (vi) 5,487,500 shares of Synchronicity Series E Preferred Stock, of which 3,820,833 are outstanding and which are convertible into 3,820,833 shares of Synchronicity Common Stock (the Synchronicity Series A Preferred Stock, Synchronicity Series B Preferred Stock, Synchronicity Series C Preferred Stock, Synchronicity Series D Preferred Stock and Synchronicity Series E Preferred Stock are sometimes referred to herein collectively as the “Synchronicity Preferred Stock”).

 

(b) As of the date of this Agreement, (i) 4,422,835 shares of Synchronicity Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable, (ii) 14,988,077 shares of Synchronicity Common Stock are held in the treasury of Synchronicity, (iii) 1,000,000, 1,406,250, 1,751,415, 2,863,337 and 5,487,500 shares of Synchronicity Common Stock are reserved for future issuance upon conversion of Synchronicity Series A Preferred Stock, Synchronicity Series B Preferred Stock, Synchronicity Series C Preferred Stock, Synchronicity Series D Preferred Stock and Synchronicity Series E Preferred Stock, respectively, and (iv) 3,073,380 shares of Synchronicity Common Stock are reserved for future issuance pursuant to stock options granted and outstanding under the Synchronicity Stock Option Plans. All shares of Synchronicity Common Stock subject to issuance as specified above, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, shall be duly authorized, validly issued, fully paid and nonassessable.

 

(c) As of the date of this Agreement, all of the shares of Synchronicity Preferred Stock are issued and outstanding and validly issued, fully paid and nonassessable, and no such shares are held in the treasury of Synchronicity. As of the date of this Agreement, (i) there are no accrued and unpaid dividends on the outstanding shares of Synchronicity Series A Preferred Stock, Synchronicity Series B Preferred Stock, Synchronicity Series C Preferred Stock or Synchronicity Series D Preferred Stock and (ii) except as set forth in the Synchronicity Disclosure Letter, there are no accrued and unpaid dividends on the outstanding shares of Synchronicity Series E Preferred Stock.

 

(d) Section 3.2(d) of the Synchronicity Disclosure Letter sets forth (i) names of the holders of the Synchronicity Notes and the principal amount of the Synchronicity Note held by them, (ii) the names of the holders of the outstanding shares of Synchronicity Common Stock and Synchronicity Preferred Stock, as such names appear on the stock transfer books of Synchronicity, and the number and class of outstanding shares of Synchronicity Common Stock or Synchronicity Preferred Stock held by each such holder and (iii) the percentage interest each such holder has in the Merger Shares (each a “Merger Shares Percentage”).

 

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(e) None of the issued and outstanding notes or securities of Synchronicity have been issued in violation of any applicable federal or state law and no holder thereof has a right of recession or damages with respect thereto.

 

(f) Except as set forth in this Section 3.2, there are no equity securities of any class of Synchronicity or any security exchangeable into or exercisable for such equity securities, issued, reserved for issuance or outstanding. Except as set forth in this Section 3.2, there are no options, warrants, calls, rights, commitments or agreements of any character to which Synchronicity is a party, or by which Synchronicity is bound, obligating Synchronicity to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of Synchronicity or obligating Synchronicity to grant, extend or accelerate the vesting of or enter into any such option, warrant, call, right, commitment or agreement. There are no voting trusts, proxies or other agreements or understandings with respect to the shares of capital stock of Synchronicity. There are no obligations, contingent or otherwise, of Synchronicity to repurchase, redeem or otherwise acquire any shares of capital stock of Synchronicity or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person.

 

(g) The Synchronicity Board of Directors has determined that the Synchronicity Options Plans and each Synchronicity Stock Option permit the treatment of the Synchronicity Stock Options provided for in Section 6.9 and that, as a result of such treatment, as of or prior to the Closing each unexercised Synchronicity Stock Option shall be canceled without consideration.

 

Section 3.3 Authority; No Conflict; Governmental Filings .

 

(a) Synchronicity has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Synchronicity, subject only to the approvals of Synchronicity’s stockholders specified in Section 3.3(b). This Agreement has been duly executed and delivered by Synchronicity and constitutes a valid and binding obligation of Synchronicity, enforceable in accordance with its terms.

 

(b) The affirmative vote of the (i) holders of a majority of the outstanding shares of Synchronicity Common Stock and Synchronicity Series A Preferred Stock, voting as a single class, (ii) holders of a majority of the outstanding shares of Synchronicity Common Stock, Synchronicity Series A Preferred Stock, Synchronicity Series B Preferred Stock, Synchronicity Series C Preferred Stock, Synchronicity Series D Preferred Stock and Synchronicity Series E Preferred Stock, voting as a single class, and (iii) the holders of two-thirds of the outstanding shares of Synchronicity Series B Preferred Stock, Synchronicity Series C Preferred Stock, Synchronicity Series D Preferred Stock and Synchronicity Series E Preferred Stock, voting as a single class, are the only votes (collectively, the “Merger Vote”) of the holders of any class or series of Synchronicity’s capital stock necessary to approve this

 

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Agreement and the Merger, and the vote of the Signing Stockholders contemplated by Section 6.5(b) will satisfy the votes in clauses (ii) and (iii). The Board of Directors of Synchronicity (at a meeting duly called and held) has unanimously (i) approved this Agreement, the Merger and the transactions contemplated hereby (the “Merger Proposal”), (ii) determined that the Merger Proposal is fair to and in the best interests of the holders of capital stock of Synchronicity and (iii) determined to recommend the Merger Proposal to the holders of Synchronicity capital stock entitled to vote for such approval and adoption.

 

(c) The execution and delivery of this Agreement by Synchronicity does not, and the consummation of the transactions contemplated by this Agreement by Synchronicity will not, (i) conflict with, or result in any violation or breach of any provision of the Synchronicity Certificate of Incorporation or the Synchronicity By-laws, (ii) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit) under any of the terms, conditions or provisions of, any note, bond, mortgage, indenture, lease, contract or other agreement, instrument or obligation to which Synchronicity is a party or by which it or any of its properties or assets may be bound or (iii) conflict or violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Synchronicity or any of its properties or assets.

 

(d) No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality (“Governmental Entity”), is required by or with respect to Synchronicity in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger with the Delaware Secretary of State and (ii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable state securities laws.

 

Section 3.4 Financial Statements .

 

(a) Synchronicity has heretofore delivered or made available to MatrixOne (a) its balance sheets as at December 31, 2003 and 2002 (the “Synchronicity Balance Sheet”) and the related statements of operations, stockholders’ deficiency and cash flows for each of the three years in the period ended December 31, 2003, audited by Deloitte & Touche LLP, independent certified public accountants whose audit report thereon is included therein, and (b) and its unaudited balance sheet as of March 31, 2004 and the related unaudited statements of operations, stockholders’ deficiency and cash flows for the period ended March 31, 2004 (collectively, the “Synchronicity Financial Statements”).

 

(b) Each of the Synchronicity Financial Statements (including, in each case, any related notes), complied, as of their respective dates, in all material respects with all applicable accounting requirements with respect thereto, was prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a

 

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consistent basis throughout the periods involved and fairly presented the financial position of Synchronicity as at the respective dates and the results of its operations and its cash flows for the periods indicated, except in the case of the unaudited financial statements, for the absence of required footnotes and normal recurring year-end audit adjustments.

 

Section 3.5 No Undisclosed Liabilities . Synchronicity does not have any liabilities or obligations (whether accrued, contingent, due or to become due or whether or not required to be reflected in financial statements in accordance with GAAP) other than (i) liabilities reflected in the Synchronicity Balance Sheet or (ii) normal or recurring liabilities incurred since the date of the Synchronicity Balance Sheet in the ordinary course of business consistent with past practices.

 

Section 3.6 Accounts Receivable . All accounts receivable of Synchronicity, whether reflected in the Synchronicity Balance Sheet or otherwise, represent sales actually made in the ordinary course of business, and are current and collectible net of any reserves shown on the Synchronicity Balance Sheet (which reserves were calculated consistent with past practices).

 

Section 3.7 Absence of Certain Changes or Events . Since the date of the Synchronicity Balance Sheet, Synchronicity has conducted their businesses only in the ordinary course and in a manner consistent with past practices and, since such date, there has not been (i) any material adverse change in the prospects, business, assets (including intangible assets), properties, liabilities, results of operations or condition (financial or otherwise) of Synchronicity or (ii) any action or event that would have required the consent of MatrixOne pursuant to Section 6.1 had such action or event occurred after the date of this Agreement.

 

Section 3.8 Properties; Encumbrances . Synchronicity has good, valid and marketable title to, or a valid leasehold interest in, all the properties and assets which it purports to own or lease (real, personal and mixed, tangible and intangible), including, without limitation, all the properties and assets reflected in the Synchronicity Balance Sheet (except for personal property sold since the date of the Synchronicity Balance Sheet in the ordinary course of business and consistent with past practices), and all such properties and assets are free and clear of all title defects or objections, liens, claims, charges, security interests or other encumbrances of any nature whatsoever, except for liens reflected on the Synchronicity Balance Sheet and liens for current taxes not yet due. No past or present director, officer, employee, noteholder or stockholder of Synchronicity has any interest in any properties or assets which Synchronicity purports to own or lease.

 

Section 3.9 Employee Benefit Plans .

 

(a) Synchronicity has set forth in Section 3.9(a) of the Synchronicity Disclosure Letter all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) and all bonus, equity compensation, stock option, stock appreciation right, restricted stock, stock purchase, incentive, deferred compensation, supplemental retirement, severance,

 

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retention and other similar employee benefit or compensation plans, programs and arrangements, and all employment, change in control, termination, severance, retention or similar agreements, written or otherwise, that are sponsored, maintained or contributed to by Synchronicity or any trade or business, whether or not incorporated, which is under common control with Synchronicity (an “ERISA Affiliate”) within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”) or to which Synchronicity or any ERISA Affiliate is a party, for the benefit of, with or relating to, any current or former employee, officer or director of Synchronicity or any ERISA Affiliate (together, the “Synchronicity Employee Plans”). Neither Synchronicity nor any ERISA Affiliate has any commitment or formal plan to create any additional employee benefit plan or modify or terminate any existing Synchronicity Employee Plan, except as specifically set forth herein.

 

(b) With respect to each Synchronicity Employee Plan, Synchronicity has made available to MatrixOne a true and correct copy of (i) the most recent annual report (Form 5500) required to be filed with the Internal Revenue Service (the “IRS”); (ii) such Synchronicity Employee Plan and any amendments thereto (or, if the plan is not written, a complete description thereof) and the most recent summary plan description thereof; (iii) each trust agreement and group annuity contract, if any, relating to such Synchronicity Employee Plan; (iv) the most recent determination letter received from the IRS with respect to each Synchronicity Employee Plan intended to qualify under Section 401 of the Code; and (v) the most recent actuarial report or valuation required under ERISA with respect to any Synchronicity Employee Plan.

 

(c) Each Synchronicity Employee Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including but not limited to ERISA and the Code. No Synchronicity Employee Plan is subject to the law of any jurisdiction outside the United States. All contributions required to be made with respect to any Synchronicity Employee Plan have been timely made or are reflected on the Synchronicity Balance Sheet. Synchronicity does not anticipate, and there are no pending or, to Synchronicity’s Knowledge, threatened claims by or on behalf of any Synchronicity Employee Plan, by any employee or beneficiary covered under any such Synchronicity Employee Plan with respect to such plan, or otherwise involving any such Synchronicity Employee Plan (other than routine claims for benefits). With respect to the Synchronicity Employee Plans, individually and in the aggregate, no event has occurred, and to Synchronicity’s Knowledge, there exists no condition or set of circumstances in connection with which Synchronicity could be subject to any liability under ERISA, the Code or any other applicable law (including the law of contracts) that is not properly accounted for on the Synchronicity Balance Sheet.

 

(d) No Synchronicity Employee Plan is subject to Title IV or Section 302 of ERISA and neither Synchronicity nor any ERISA Affiliate has maintained, sponsored or contributed to such a plan during the six year period prior to the date hereof.

 

(e) Each Synchronicity Employee Plan intended to be “qualified” within the meaning of Section 401(a) of the Code is so qualified and the trusts maintained thereunder are exempt from taxation under Section 501(a) of the Code.

 

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(f) Neither Synchronicity, its ERISA Affiliates, any Synchronicity Employee Plan, any trust created thereunder, nor any trustee or administrator thereof has engaged in a transaction in connection with which Synchronicity, its ERISA Affiliates, any Synchronicity Employee Plan, any such trust or any trustee or administrator thereof could be subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code.

 

(g) No Synchronicity Employee Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees or former employees Synchronicity or any ERISA Affiliate for periods extending beyond their retirement or other termination of service, other than (i) coverage mandated by applicable law, (ii) death benefits under any “pension plan,” or (iii) benefits the full cost of which is borne by the current or former employee (or his beneficiary). No condition exists that would prevent Synchronicity or any ERISA Affiliate from amending or terminating any Synchronicity Employee Plan providing health or medical benefits.

 

(h) Neither the negotiation, execution or consummation of the transactions contemplated by this Agreement will, either alone or in combination with another event, (i) entitle any current or former employee, officer or director of Synchronicity or any ERISA Affiliate to severance pay, unemployment compensation or any other payment; (ii) accelerate the time of payment or vesting or increase the amount of compensation due any such employee, officer or director; or (iii) otherwise result in the material alteration of the terms of any Synchronicity Employee Plan.

 

(i) No amounts payable under, or benefits provided pursuant to, any Synchronicity Employee Plan or otherwise could result, separately, or in the aggregate, in the payment of any “excess parachute payment” to a “disqualified individual” with respect to Synchronicity within the meaning of Section 280G of the Code.

 

Section 3.10 Taxes .

 

(a) Synchronicity has (A) duly and timely filed (or there have been filed on its behalf) all Tax Returns (as defined below) required to be filed by it (taking into account all applicable extensions) with the appropriate Tax Authority (as defined below) and all such Tax Returns are true, correct and complete, (B) duly paid in full or made provision in the Synchronicity Financial Statements in accordance with GAAP (or there has been paid or provision has been made on its behalf) for the payment of all Taxes required to be paid by Synchronicity for all periods ending through the date hereof, and (C) complied with all Tax laws relating to the payment and withholding of Taxes.

 

(b) There are no material liens for Taxes upon any property or assets of Target, except for liens for Taxes not yet due and payable and for which adequate reserves have been provided in accordance with GAAP in the most recent Synchronicity Financial Statements.

 

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(c) The most recent Synchronicity Financial Statements reflect an adequate reserve in accordance with GAAP for all Tax liabilities of Synchronicity for all taxable periods and portions thereof accrued through the date of such financial statements.

 

(d) There is no audit, examination, deficiency, refund litigation, proposed adjustment or matter in controversy with respect to any Taxes or Tax Return of Synchronicity which if determined adversely would be expected to result in a Tax deficiency. Synchronicity has not received written notice of any claim made by a Governmental Entity in a jurisdiction where Synchronicity, does not file a Tax Return, that Synchronicity is or may be subject to taxation by that jurisdiction.

 

(e) The material income Tax Returns of Synchronicity, including any predecessors thereof, have been examined by the applicable Tax Authority (or the applicable statutes of limitations for the assessment of income Taxes for such periods have expired) for all periods through and including December 31, 1999, and no material deficiencies were asserted as a result of such examinations which have not been resolved and fully paid or accrued as a liability on the most recent Synchronicity Financial Statements.

 

(f) There are no outstanding requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes or deficiencies against Synchronicity, and no power of attorney granted by Synchronicity with respect to any Taxes is currently in force.

 

 

(g) Synchronicity is not a party to any agreement providing for the allocation, indemnification or sharing of Taxes, and Synchronicity (i) has not been a member of an affiliated group (or similar state, local or foreign filing group) filing a consolidated income Tax Return (other than a group the common parent of which is Synchronicity) or (ii) does not have any liability for the Taxes of any Person (other than Synchronicity) under Treasury Regulation § 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise.

 

(h) Synchronicity has delivered or made available to MatrixOne complete copies of all material income Tax Returns of Synchronicity, including any predecessors thereof, for taxable years ending between January 1, 1998 and December 31, 2003, excepting such Tax Returns as have not been filed for the taxable year ending December 31, 2003 pursuant to appropriate extensions with respect thereto.

 

(i) Synchronicity has not: (i) agreed to make nor is it required to make any material adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise; or (ii) constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (A) in the two years prior to the date of this Agreement or (B) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in connection with the Merger.

 

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Section 3.11 Intellectual Property .

 

(a) To Synchronicity’s Knowledge, Synchronicity owns, has a valid license to use, or otherwise possesses legally enforceable rights in, the Intellectual Property necessary to conduct its business as currently conducted and as currently planned by Synchronicity to be conducted in the future.

 

(b) Section 3.11(b) of the Synchronicity Disclosure Letter sets forth all Intellectual Property Agreements other than Intellectual Property Agreements concerning third party Software that is generally available and has a replacement cost of $5,000 or less, and indicates for each whether the Intellectual Property Agreement is an inbound license, an outbound license, or a cross-license.

 

(c) Section 3.11(c) of the Synchronicity Disclosure Letter sets forth the following Intellectual Property necessary to conduct Synchronicity’s business as currently conducted and as currently planned by Synchronicity to be conducted in the future: (i) all registrations and applications for Copyrights, Patents, and Trademarks; (ii) material unregistered Trademarks; (iii) material unregistered Copyrights and Software, and specifies for such Copyrights, Patents, Trademarks, and Software which is owned by Synchronicity.

 

(d) Synchronicity is listed in the records of the appropriate United States, state, or foreign registry as the sole current owner of record for each registration and application for Copyright, Patent, and Trademark specified as owned by Synchronicity, and such registrations and applications have been duly maintained, are subsisting, in full force and effect, have not been cancelled, expired or abandoned, are valid, and to Synchronicity’s Knowledge, enforceable.

 

(e) There are no oppositions, cancellations, invalidity proceedings, re-examination proceedings, suits, arbitrations, or threatened claims pending or for which notice has been provided or, to Synchronicity’s Knowledge, threatened, challenging Synchronicity’s ownership of, right to use, or the validity or enforceability of any Intellectual Property necessary to conduct Synchronicity’s business as currently conducted and currently planned by Synchronicity to be conducted in the future.

 

(f) To Synchronicity’s Knowledge, the business of Synchronicity as currently conducted does not, and will not when conducted in the same manner following the Closing will not, infringe upon, violate or constitute the unauthorized use of the Intellectual Property of any Person. Synchronicity has not received written notice from any Person regarding any actual or potential infringement, misappropriation, dilution, or other violation by Synchronicity of any Intellectual Property of such third party, and to Synchronicity’s Knowledge there is no reasonable basis for such a claim against Synchronicity.

 

(g) To Synchronicity’s Knowledge, no third party is infringing, misappropriating, diluting or otherwise violating any Intellectual Property necessary to

 

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conduct Synchronicity’s business as currently conducted and as currently planned by Synchronicity to be conducted in t