AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

 

BY AND AMONG

 

MENTOR GRAPHICS CORPORATION,

an Oregon corporation,

 

NULL SET ACQUISITION CORPORATION,

a Delaware corporation,

 

AND

 

0-IN DESIGN AUTOMATION, INC.,

a Delaware corporation

 

D ATED AS OF J UNE 5, 2004

TABLE OF CONTENTS

 

 

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EXHIBIT INDEX *

 

*	The registrant agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request.

 

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THIS AGREEMENT AND PLAN OF MERGER, dated as of June 5, 2004 (this “ Agreement ”), is made by and among Mentor Graphics Corporation, an Oregon corporation (“ Parent ”), Null Set Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”), and 0-In Design Automation, Inc., a Delaware corporation (the “ Company ”).

 

WHEREAS, each of the boards of directors of Parent, Merger Sub and the Company has approved and declared advisable the merger of Merger Sub with and into the Company (the “ Merger ”) upon the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”);

 

WHEREAS, each of the boards of directors of Parent, Merger Sub and the Company has determined that the Merger is in the best interests of their respective stockholders and shareholders, as the case may be, and the board of directors of the Company has recommended that the Stockholders (as defined herein) approve the Merger;

 

WHEREAS, for federal income tax purposes, Parent, Merger Sub and the Company intend that the Merger and the Second Step Merger (as defined herein) are integrated steps in the transaction contemplated by this Agreement and will together qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the regulations promulgated thereunder (the “ Treasury Regulations ”);

 

WHEREAS, contemporaneously herewith, as a condition and an inducement to Parent and Merger Sub’s willingness to enter into this Agreement, each of the stockholders of the Company set forth on Exhibit A hereto has entered into a Stockholder Support Agreement with Parent and Merger Sub, in the form attached hereto as Exhibit B (collectively, the “ Stockholder Support Agreements ”);

 

WHEREAS, contemporaneously herewith, as a condition and an inducement to Parent and Merger Sub’s willingness to enter into this Agreement, each of the individuals set forth on Exhibit C-1 hereto has entered into an Employment Agreement with Parent and Merger Sub, each to become effective at the Effective Time (as defined herein) and substantially in the form attached hereto as Exhibit C-2 (collectively, the “ Employment Agreements ”); and

 

WHEREAS, contemporaneously herewith, as a condition and an inducement to Parent and Merger Sub’s willingness to enter into this Agreement, each of the individuals set forth on Exhibit D hereto has entered into a Non-Competition Agreement with Parent, each to become effective at the Effective Time and substantially in the form attached hereto as Exhibit E (collectively, the “ Non-Competition Agreements ”);

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE 1.

Definitions

 

Section 1.1 Certain Defined Terms . As used in this Agreement, the following terms shall have the following meanings:

 

“ 401(k) Plan ” shall have the meaning set forth in Section 6.11.3 of this Agreement.

 

“ Accounts Receivable ” shall have the meaning set forth in Section 4.6.2 of this Agreement.

 

“ Acquisition Proposal ” shall have the meaning set forth in Section 6.5 of this Agreement.

 

“ Additional Consideration ” shall mean either Additional Stockholder Consideration or Additional Eligible Employee Consideration or both, whichever the case requires.

 

“ Additional Eligible Employee Consideration ” shall have the meaning set forth in Section 2.8.6 of this Agreement.

 

“ Additional Eligible Employee Consideration Portion ” shall mean the portion of Additional Eligible Employee Consideration that each such Eligible Employee is entitled to receive under Section 2.8.6 of this Agreement, as set forth on Exhibit N attached hereto.

 

“ Additional Stockholder Consideration ” shall have the meaning set forth in Section 2.8.5 of this Agreement.

 

“ Additional Stockholder Consideration Portion ” shall mean the portion of Additional Stockholder Consideration that each share of Company Stock is entitled to receive under Section 2.8.5 of this Agreement, as set forth on Exhibit M attached hereto.

 

“ Affiliate ” shall mean any individual, partnership, corporation, entity or other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person specified.

 

“ Aggregate Outstanding Claims ” shall have the meaning set forth in Section 2.7.2.1 of this Agreement.

 

“ Agreement ” shall have the meaning set forth in the Preamble to this Agreement.

 

“ Ancillary Agreements ” shall mean the Stockholder Support Agreements, the Employment Agreements, the Non-Competition Agreements, the Escrow Agreement and the Securityholder Agreements.

 

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“ Applicable Law ” shall mean any Law applicable to the Company, any of the Stockholders, Parent or Merger Sub or any of their respective Affiliates, properties, assets, officers, directors, employees or agents, as the case may be.

 

“ Archer Bundled Products ” shall mean an Archer Product licensed as part of a bundled unit with Parent Products, typically incorporating a bundling discount.

 

“ Archer Bundled Products Booking Credit ” shall mean the credit contributed to Archer Net Bookings for an Archer Bundled Product booked by Parent during a fiscal quarter within the Earn-Out Period (or contributed to Archer Net Tail Bookings during a fiscal quarter within the Earn-Out Tail Period, if applicable), such amount to be equal to the portion of the Factory Reference Price of such Archer Bundled Product as it relates to the sum of the Factory Reference Prices for all products (including such Archer Bundled Product) included in the bundled unit of products.

 

“ Archer Business Unit ” shall mean the Surviving Corporation, or any successor entity or business unit of Parent containing the Company Business.

 

“ Archer Business Unit Manager ” shall be a designated manager of the Archer Business Unit, which initially shall be Steven D. White.

 

“ Archer Existing Products ” shall mean the Company’s products listed on the Company’s price list as of the Closing Date (such price list shall be provided to Parent prior to the Closing Date and is subject to agreement by Parent), or a product that is an extension of a Archer Existing Product listed on the Company’s price list as of the Closing Date.

 

“ Archer Existing Products Booking Credit ” shall mean the credit contributed to Archer Net Bookings for an Archer Existing Product booked by Parent during a fiscal quarter within the Earn-Out Period (or contributed to Archer Net Tail Bookings during a fiscal quarter within the Earn-Out Tail Period, if applicable), such amount to be equal to one hundred percent (100%) of the Factory Reference Price of such Archer Existing Product.

 

“ Archer Included Products ” shall mean a product that is fundamentally a Parent Product to which additional functionality from an Archer Existing Product, Archer Successor Product or the Archer Technology Portfolio is added.

 

“ Archer Included Products Booking Credit ” shall mean the credit contributed to Archer Net Bookings for an Archer Included Product booked by Parent during a fiscal quarter within the Earn-Out Period (or contributed to Archer Net Tail Bookings during a fiscal quarter within the Earn-Out Tail Period, if applicable), such amount to be agreed upon by the Archer Business Unit Manager and the Parent DVTD Manager on a case-by-case basis at or prior to the time such Archer Included Product is added to Parent’s price list.

 

“ Archer Net Bookings ” means the portion of Parent Bookings during the Earn-Out Period representing (i) Archer Existing Products Booking Credit, (ii) Archer Successor Products Booking Credit, (iii) Archer Included Products Booking Credit, (iv) Archer Bundled Products Booking Credit, (v) Archer New Products Booking Credit (if any), (vi) Archer Product Support Credit and (vii) Archer Royalties Credit (which may be a positive or negative number),

 

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if any, net in each case of applicable discounts applied on a pro rata basis in proportion to Factory Reference Price of all products within the Booking (regardless of how the transaction was presented to the customer), returns and adjustments, and excluding amounts invoiced for any other product, shipping, tax, duties or other similar amounts. In accordance with the Parent Worldwide Order Booking Policy, Archer Net Bookings shall also exclude, without limitation, adjustment for Remixes occurring at any point in time other than the original order recorded by Parent or subsequent regular renewals, and licenses to be used by (w) Parent, its distribution channels, employees, consultants and contractors for internal purposes, supporting customers, and consulting and design services, (x) colleges and universities pursuant to one of Parent’s donation programs, (y) Parent’s third-party marketing or development partners for purposes including without limitation integration, interoperability, development of interfaces and joint marketing efforts or (z) prospective customers on a temporary basis. For purposes of clarity, the calculation of Archer Net Bookings shall not double-count any of (i) through (vii) above.

 

“ Archer Net Tail Bookings ” shall mean (i) Archer Product Support Credit booked during the Earn-Out Tail Period and (ii) Archer Net Bookings, if any arising from contracts signed with customers prior to the expiration of the Earn-Out Period, but in accordance with the Parent Worldwide Order Booking Policy are recognized ratably during the Earn-Out Tail Period.

 

“ Archer New Products ” shall mean new products which take advantage of expertise unique to the Archer Business Unit and which are not Archer Existing Products, Archer Successor Products, Archer Included Products or Archer Bundled Products.

 

“ Archer New Products Booking Credit ” shall mean the credit, if any, contributed to Archer Net Bookings for an Archer New Product booked by Parent during a fiscal quarter within the Earn-Out Period (or contributed to Archer Net Tail Bookings during a fiscal quarter within the Earn-Out Tail Period, if applicable), such amount to be agreed upon by the Archer Business Unit Manager and the Parent DVTD Manager; provided that, in their sole discretion, the Archer Business Unit Manager and Parent DVTD Manager may agree to determine an appropriate alternative incentive program which may or may not assign credit for Archer New Products to Archer Net Bookings.

 

“ Archer Product ” shall mean any Archer Existing Product, Archer Bundled Product, Archer Included Product to the extent agreed, Archer Successor Product or Archer New Product to the extent agreed.

 

“ Archer Product Support ” shall mean the “support revenue” (as recognized by Parent in accordance with GAAP) attributable to Archer Products, if applicable. Archer Product Support shall include revenue from initial support orders on such products, as well as subsequent renewals of such support orders.

 

“ Archer Product Support Credit ” shall mean revenues credited to Archer Net Bookings for Archer Product Support recognized by Parent during the Earn-Out Period and Earn-Out Tail Period, such amount (i) for Archer Product Support revenues related to Archer Existing Products and Archer Successor Products, to be equal to one hundred percent (100%); (ii) for Archer Product Support revenues related to Archer Bundled Products, to be equal to the portion of the Factory Support Reference Price of such Archer Bundled Product as it relates to

 

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the sum of the Factory Support Reference Prices for all support (including such Archer Bundled Product support) included in the bundled support price; and (iii) for Archer Product Support revenues related to Archer Included Products and Archer New Products based on support pricing, apportioned as agreed by the Archer Business Unit Manager and the Parent DVTD Manager at the time when Archer Product Support pricing is determined.

 

“ Archer Royalties ” shall mean (i) royalties received, if any, by Parent from licenses on Archer Products, plus (ii) royalties received, if any, by Parent from a third party pursuant to a Patent license granted to such third-party as a result of Parent’s settlement of a dispute over such third party’s possible infringement of Patents held by the Archer Business Unit, minus (iii) royalties paid under the NEC USA Source Code License Agreement, dated June 3, 2002 (for purposes of clarity, such Archer Royalties may be a negative number).

 

“ Archer Royalties Credit ” shall mean the credit contributed to or subtracted from Archer Net Bookings for Archer Royalties received or paid by Parent during a fiscal quarter within the Earn-Out Period or, if applicable, the Earn-Out Tail Period, such amount to be equal to one hundred percent (100%) of the Archer Royalties received or paid.

 

“ Archer Successor Product ” shall mean a product that is fundamentally an Archer Existing Product or a product derived fundamentally from the Archer Technology Portfolio by the Archer Business Unit to which additional functionality has been added following the Closing Date. Archer Successor Products shall include (i) the “SuperSimulator” product and (ii) any semantic linting or model checking product(s) developed by the Archer Business Unit out of Parent’s “FormalPro” technology if such FormalPro technology is assigned by Parent to the Archer Business Unit prior to December 31, 2004.

 

“ Archer Successor Products Booking Credit ” shall mean the credit contributed to Archer Net Bookings for an Archer Successor Product booked by Parent during a fiscal quarter within the Earn-Out Period (or contributed to Archer Net Tail Bookings during a fiscal quarter within the Earn-Out Tail Period, if applicable), such amount to be equal to one hundred percent (100%) of the Factory Reference Price of such Archer Successor Product.

 

“ Archer Technology Portfolio ” shall mean any of the following: (a) an element of an Archer Existing Product or a product in development by the Company as of the Closing Date; (b) an element of existing technology and extensions related to the CheckerWare assertion and protocol monitor library, netlist analysis, semantic linting, clock-domain crossing technology (including synchronizer recognition, CDC protocol monitor recommendation and promotion, and jitter insertion and analysis in simulation and formal verification) assertion synthesis, generator synthesis (including CDC metastability and multi-cycle path), structural coverage (static, simulation and formal verification), targeting coverage with formal methods, seed selected from a simulator, priority analysis, simulator state restoration, protocol and monitor synthesis, multi-cycle constraint solvers, and static and dynamic formal verification algorithms and circuit optimizations and design and testbench debugging tools based on static and dynamic formal verification algorithms; and (c) issued or filed Patents owned by the Company as of the Closing Date and continuations thereof, Patents filed prior to the first anniversary of the Closing Date that are based on the technology described in subsections (a) or (b) above, and continuations thereof, in each case such Patents having not been found invalid. Parent and the Company agree

 

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that the Archer Technology Portfolio shall exclude technologies of Parent (excluding the Archer Business Unit) independently developed and used by Parent, whether or not such technology is otherwise covered by subsections (a), (b) or (c).

 

“ Audited Company Financial Statements ” shall have the meaning set forth in Section 4.6.1 of this Agreement.

 

“ Benefit Arrangement ” shall mean any employment, consulting, severance or other similar contract, arrangement or policy (written or oral) and each plan, arrangement, program, agreement or commitment (written or oral) providing for insurance coverage (including, without limitation, any self-insured arrangements), workers’ compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits, life, health or accident benefits (including, without limitation, 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 the Company or any ERISA Affiliate or under which the Company or any ERISA Affiliate may incur any liability, and (c) covers any employee or former employee of the Company or any ERISA Affiliate (with respect to their relationship with any such entity).

 

“ Benefit Plan Enrollment Date ” shall have the meaning set forth in Section 6.11.2 of this Agreement.

 

“ Bookings ” shall mean any or all of Parent Bookings, Archer Net Bookings or Archer Net Tail Bookings.

 

“ Business Day ” shall mean any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in the State of California.

 

“ California Permit ” shall have the meaning set forth in Section 4.27.1 of this Agreement.

 

“ CERCLA ” shall mean the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.

 

“ Certificate of Merger ” shall have the meaning set forth in Section 2.2 of this Agreement.

 

“ Certificates ” shall have the meaning set forth in Section 2.8.1 of this Agreement.

 

“ CGCL ” shall have the meaning set forth in Section 2.11 of this Agreement.

 

“ Closing ” shall have the meaning set forth in Section 2.1.2 of this Agreement.

 

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“ Closing Consideration Exhibit ” shall mean the exhibit prepared and delivered by the Company to Parent at Closing that sets forth each Stockholder’s allocation of Transaction Consideration and each Escrow Participant’s allocation and Pro Rata Share of Escrow Shares.

 

“ Closing Date ” shall have the meaning set forth in Section 2.1.2 of this Agreement.

 

“ Closing Date Price ” shall mean the closing price for Parent Common Shares on the NASDAQ National Market on the Closing Date as reported in The Wall Street Journal .

 

“ Closing Measurement Price ” shall mean the average of the closing prices for Parent Common Shares on the NASDAQ National Market as reported in The Wall Street Journal for the five (5) consecutive Trading Days ending on the second (2 ^nd ) Trading Day prior to the Closing Date.

 

“ COBRA ” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

 

“ Code ” shall have the meaning set forth in the Recitals to this Agreement.

 

“ Commissioner ” shall have the meaning set forth in Section 6.6 of this Agreement.

 

“ Common Stock ” shall mean the common stock, par value $0.001 per share, of the Company.

 

“ Company ” shall have the meaning set forth in the Preamble to this Agreement.

 

“ Company Assets ” shall have the meaning set forth in Section 4.19 of this Agreement.

 

“ Company Business ” shall mean the business and operations of the Company and any of its Subsidiaries in the manner in which the same have been conducted prior to the date hereof, are currently being conducted and are currently proposed to be conducted by the Company, whether conducted by the Company or any of its Subsidiaries.

 

“ Company Business Employee ” shall mean any employee of the Company or any of its Subsidiaries, and for purposes of Section 6.11.1, the Company Business Employees listed on Exhibit O attached hereto.

 

“ Company Business Independent Contractor ” shall mean any independent contractor of the Company or any of its Subsidiaries.

 

“ Company Cure Period ” shall have the meaning set forth in Section 9.1.3 of this Agreement.

 

“ Company Disclosure Schedule ” shall have the meaning set forth in the introduction to Article 4 of this Agreement.

 

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“ Company Dissenting Shares ” shall have the meaning set forth in Section 2.11 of this Agreement.

 

“ Company Inbound License Agreement ” shall have the meaning set forth in Section 4.8.6.1 of this Agreement.

 

“ Company Indemnified Parties ” shall have the meaning set forth in Section 6.13 of this Agreement.

 

“ Company Insurance Policies ” shall have the meaning set forth in Section 4.16 of this Agreement.

 

“ Company Material Adverse Effect ” shall mean a material adverse effect on the business, assets, liabilities, financial condition, or results of operations of the Company and its Subsidiaries, taken as a whole, or on the ability of the Company to complete the Closing pursuant to the terms hereof or comply with its obligations hereunder or that adversely affects Parent’s ability to conduct and operate the Company Business after the Closing; provided, however , that a Company Material Adverse Effect shall not be deemed to have occurred (a) if such effect is attributable to changes in general U.S. or world economic or capital market conditions or changes generally affecting the industry in which the Company and its Subsidiaries operate the Company Business ( provided that such changes do not have a disproportionate adverse impact on the Company and its Subsidiaries, taken as a whole); (b) any litigation brought or threatened against the Company or its directors or officers in respect of this Agreement arising from allegations of breach of fiduciary duty relating to this Agreement or (c) the termination of the Contract by that Person set forth on Schedule 1.1A attached hereto.

 

“ Company Options ” shall mean any and all options issued by the Company to purchase shares of Common Stock under any Company stock option plan or agreement.

 

“ Company Outbound License Agreement ” shall have the meaning set forth in Section 4.8.6.2 of this Agreement.

 

“ Company Owned Copyrights ” shall have the meaning set forth in Section 4.8.4.1 of this Agreement.

 

“ Company Stock ” shall mean the Preferred Stock and the Common Stock.

 

“ Company Transaction Expenses ” shall have the meaning set forth in Section 6.12 of this Agreement.

 

“ Company Transaction Expenses List ” shall have the meaning set forth in Section 6.12 of this Agreement.

 

“ Company Warrants ” shall mean any and all warrants issued by the Company to purchase shares of Common Stock.

 

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“ Content ” shall have the meaning set forth in Section 4.8.7 of this Agreement.

 

“ Contracts ” shall mean all written or oral contracts, agreements, evidences of indebtedness, guarantees, leases and executory commitments to which the Company or any of its Subsidiaries is a party or by which any of the Company’s or any of its Subsidiaries’ properties or assets are bound, or otherwise related to the Company Business.

 

“ Copyrights ” shall have the meaning set forth in Section 4.8.1 of this Agreement.

 

“ Court Order ” shall mean any judgment, decision, consent decree, injunction, ruling or order of any federal, state or local court or Governmental Authority that is binding on any Person or its property under Applicable Law.

 

“ DGCL ” shall have the meaning set forth in the Recitals to this Agreement.

 

“ Dispute Notice ” shall have the meaning set forth in Section 2.8.8.1 of this Agreement.

 

“ Domain Names ” shall have the meaning set forth in Section 4.8.1 of this Agreement.

 

“ Earn-Out Period ” shall mean the period starting at the Closing Date and ending at the fifth (5 ^th ) anniversary of the beginning of the first (1 ^st ) full fiscal quarter after the Closing Date. For example, if the Closing Date is August 15, 2004, the Earn-Out Period would run from August 15, 2004 until September 30, 2009.

 

“ Earn-Out Tail Period ” shall mean the one-(1) year period immediately following the expiration of the Earn-Out Period.

 

“ Effective Time ” shall have the meaning set forth in Section 2.2 of this Agreement.

 

“ Eligible Employee ” shall mean (i) the Company Employees listed on Exhibit N attached hereto or (ii) any new or current Parent employee hired into the Archer Business Unit, whereby at the Archer Business Unit Manager’s discretion subject to the approval of the Parent DVTD Manager, those employees in the latter category may become eligible to participate in the Eligible Employee Bonus Pool and receive Additional Eligible Employee Consideration (such amount, if any, to be at the discretion of the Archer Business Unit Manager, subject to the approval of the Parent DVTD Manager) pursuant to Section 2.8.6 of this Agreement.

 

“ Eligible Employee Bonus Pool ” shall mean the initial unallocated portion of the Additional Eligible Employee Consideration (as such amount may be (i) increased or decreased in accordance with the allocation amounts listed on Exhibit N attached hereto, (ii) increased as a result of the return of the allocation for terminated Eligible Employees or (iii) decreased as a result of allocation to new or existing Eligible Employees, each pursuant to Section 2.8.6 of this Agreement; provided, however , that the Eligible Employee Bonus Pool shall never fall below zero dollars (0%) or zero percent (0%)) of the Additional Eligible Employee Consideration that

 

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is to be allocated and distributed at the joint discretion of the Archer Business Unit Manager and Parent DVTD Manager, provided that at the expiration of the Earn-Out Tail Period, any remaining Eligible Employee Bonus Pool shall be distributed to the Eligible Employees in amounts at the discretion of the Archer Business Unit Manager, subject to the approval of the Parent DVTD Manager.

 

“ Employee Plans ” shall mean all Benefit Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.

 

“ Employment Agreements ” shall have the meaning set forth in the Recitals to this Agreement.

 

“ Encumbrance ” shall mean any lien, pledge, mortgage, security interest, claim, charge, easement, limitation, restrictive license, commitment, encroachment, restriction (other than a restriction on transferability imposed by federal or state securities Laws) or other encumbrance of any kind or nature whatsoever (whether absolute or contingent).

 

“ Environmental Laws ” shall mean any and all federal, state, local and foreign statutes, laws, regulations, ordinances or rules in existence on the Closing Date relating to occupational safety and health; the effect of the environment or Substances on human health; or emissions, discharges or releases of Substances into the environment, including, without limitation, ambient air, surface water, groundwater or land; or otherwise relating to the handling of Substances or the investigation, clean-up or other remediation or analysis thereof.

 

“ Environmental Permit ” shall mean any permit, approval, identification number, license and other authorization required under any applicable Environmental Law.

 

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

“ ERISA Affiliate ” shall mean any entity which is (or at any relevant time was) a member of a “controlled group of corporations” with, under “common control” with, or a member of an “affiliated service group” with, or otherwise required to be aggregated with, the Company as set forth in Section 414(b), (c), (m) or (o) of the Code.

 

“ Escrow Account ” shall have the meaning set forth in Section 2.7.1.1 of this Agreement.

 

“ Escrow Agent ” shall have the meaning set forth in Section 2.7.1.1 of this Agreement.

 

“ Escrow Agreement ” shall have the meaning set forth in Section 2.7.1.1 of this Agreement.

 

“ Escrow Participant Representative ” shall have the meaning set forth in Section 2.7.3.1 of this Agreement.

 

“ Escrow Participant ” shall have the meaning set forth in Section 2.7.1.1 of this Agreement.

 

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“ Escrow Shares ” shall have the meaning set forth in Section 2.7.1.1 of this Agreement.

 

“ Excess Company Transaction Expenses ” shall have the meaning set forth in Section 6.12 of this Agreement.

 

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder.

 

“ Expiration Date ” shall mean the date that is the twelve (12) month anniversary of the Closing Date.

 

“ Factory Reference Price ” shall have the meaning set forth in the Parent Worldwide Order Booking Policy.

 

“ Fairness Approval ” shall have the meaning set forth in Section 6.6 of this Agreement.

 

“ GAAP ” shall mean generally accepted accounting principles, as applied in the United States.

 

“ Governmental Authority ” shall mean any United States or foreign government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including the SEC or any other United States or foreign government authority, agency, department, board, commission or instrumentality of the United States, any state of the United States or any political subdivision thereof or any foreign jurisdiction, and any court, tribunal or arbitrator(s) of competent jurisdiction, and any United States or foreign governmental or non-governmental self-regulatory organization, agency or authority (including the New York Stock Exchange and the National Association of Securities Dealers).

 

“ Hazardous Materials ” shall mean (i) any petroleum, petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials or polychlorinated biphenyls or (ii) any chemical, material or other substance defined or regulated as toxic or hazardous or as a pollutant or contaminant or waste under any applicable Environmental Law.

 

“ HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

“ Holder ” shall have the meaning set forth in Section 2.6 of this Agreement.

 

“ Indemnification Notice ” shall have the meaning set forth in Section 10.2.2.1 of this Agreement.

 

“ Indemnified Party ” shall have the meaning set forth in Section 10.3.1 of this Agreement.

 

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“ Intellectual Property ” shall mean, collectively, Trademarks, Patents, Copyrights, Domain Names and Trade Secrets, as those terms are defined in Section 4.8 of this Agreement, as well as all other inventions (whether or not patentable) and improvements thereto, all works of authorship, whether or not copyrightable and whether or not registered) and all maskworks.

 

“ Interim Period Unaudited Company Balance Sheet ” shall have the meaning set forth in Section 4.6.1 of this Agreement.

 

“ Interim Period Unaudited Company Financial Statements ” shall have the meaning set forth in Section 4.6.1 of this Agreement.

 

“ Investment Company Act ” shall have the meaning set forth in Section 4.22 of this Agreement.

 

“ Involuntary Termination Without Cause ” shall mean the termination of an Eligible Employee from Parent’s employment due to any of (i) a general work force reduction for either Mentor Graphics or the Archer Business Unit; (ii) a refusal by such Eligible Employee to relocate at the request of Parent to a work location outside of a fifty-(50) mile radius from such Eligible Employee’s work location at the Effective Time; (iii) death or permanent disability; (iv) any material diminution of the Eligible Employee’s title, position or job responsibilities without such Eligible Employee’s prior written consent; or (v) any material decrease in salary or benefits that is not part of a Parent-wide or Archer Business Unit-wide salary reduction or benefit reduction program.

 

“ Involuntary Termination With Cause ” shall mean the termination of an Eligible Employee from Parent’s employment due to (i) with respect to an Eligible Employee that is a party to an Employment Agreement, an intentional breach of any material term of his or her Employment Agreement, (ii) such Eligible Employee’s willful and continued failure to perform Eligible Employee’s duties with respect to Parent that continues beyond ten (10) days after a written demand for substantial performance is delivered to the Eligible Employee by Parent and such written demand specifically identifies the manner in which Parent believes that the Eligible Employee has failed to perform his or her duties or (iii) conduct by the Eligible Employee involving (A) material dishonesty or a material breach of trust in connection with the Eligible Employee’s employment or (B) commission of a felony or a misdemeanor involving moral turpitude.

 

“ Knowledge ” of (i) the Company shall mean the actual knowledge after reasonable inquiry of any of the individuals set forth on Exhibit L-1 to this Agreement and (ii) Parent shall mean the actual knowledge after reasonable inquiry of any of the individuals set forth on Exhibit L-2 to this Agreement.

 

“ Law ” shall mean any domestic or foreign federal, state or local statute, law (whether statutory or common law), ordinance, rule, administrative interpretation, regulation, order, writ, injunction, directive, judgment, decree, policy, guideline or other requirement or arbitration award or finding (including those of the National Association of Securities Dealers, New York Stock Exchange or any other self-regulatory organization).

 

“ Losses ” shall have the meaning set forth in Section 10.2.1 of this Agreement.

 

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“ Merger ” shall have the meaning set forth in the Recitals to this Agreement.

 

“ Merger Sub ” shall have the meaning set forth in the Preamble to this Agreement.

 

“ Merger Sub 2 ” shall have the meaning set forth in Section 2.1.1.

 

“ Multiemployer Plan ” shall mean any “multiemployer plan,” as defined in Section 4001(a)(3) or 3(37) of ERISA, which (a) the Company 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 the Company or any ERISA Affiliate may incur any liability and (b) covers any employee or former employee of the Company or any ERISA Affiliate (with respect to their relationship with any such entity).

 

“ Non-Competition Agreements ” shall have the meaning set forth in the Recitals to this Agreement.

 

“ Non-Disclosure Agreement ” shall mean that certain Non-Disclosure Agreement, dated as of April 14, 2004, by and between Parent and the Company, as the same may be amended from time to time by the parties.

 

“ Optionholders ” shall mean the Holders of Company Options.

 

“ Outside Date ” shall have the meaning set forth in Section 9.1.2 of this Agreement.

 

“ Parent ” shall have the meaning set forth in the Preamble to this Agreement.

 

“ Parent Benefit Plan ” shall have the meaning set forth in Section 6.11.2 of this Agreement.

 

“ Parent Bookings ” shall have the meaning equivalent to the definition of “bookings,” as set forth in the Parent Worldwide Order Booking Policy.

 

“ Parent Common Shares ” shall mean the shares of common stock of Parent, no par value per share.

 

“ Parent Cure Period ” shall have the meaning set forth in Section 9.1.5 of this Agreement.

 

“ Parent DVTD Manager ” shall mean the manager of the Design Verification and Test Division of Parent, or any successor division of Parent that is responsible for the research and development of Archer Products, which initially shall be Robert Hum.

 

“ Parent Indemnitees ” shall have the meaning set forth in Section 10.2.1 of this Agreement.

 

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“ Parent Material Adverse Effect ” shall mean a material adverse effect on the business, assets, liabilities, financial condition or results of operations of Parent and its Subsidiaries, taken as a whole, or on the ability of Parent or Merger Sub to complete the Closing pursuant to the terms hereof or comply with its obligations hereunder; provided, however , that a Parent Material Adverse Effect shall not be deemed to have occurred if such effect is attributable to changes in general U.S. or world economic or capital market conditions or changes generally affecting the industry in which the Parent and its Subsidiaries operate ( provided that such changes do not have a disproportionate adverse impact on the Parent and its Subsidiaries, taken as a whole).

 

“ Parent Products ” shall mean any product on Parent’s price list on or after the Effective Time, excluding Archer Existing Products, Archer Successor Products, Archer Included Products, Archer Bundled Products and Archer New Products.

 

“ Parent SEC Filings ” shall have the meaning set forth in Section 5.6 of this Agreement.

 

“ Parent Worldwide Order Booking Policy ” shall mean Parent’s Worldwide Order Booking Policy dated March 18, 2003.

 

“ Patents ” shall have the meaning set forth in Section 4.8.1 of this Agreement.

 

“ Pension Plan ” shall mean any “employee pension benefit plan” as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) that (a) the Company or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or, within the five (5) years prior to the Closing Date, maintained, administered, contributed to or was required to contribute to, or under which the Company or any ERISA Affiliate may incur any liability (including, without limitation, any contingent liability) and (b) covers any employee or former employee of the Company or any ERISA Affiliate (with respect to their relationship with any such entity).

 

“ Permit Application ” shall have the meaning set forth in Section 4.27.1 of this Agreement.

 

“ Permits ” shall have the meaning set forth in Section 4.13.1 of this Agreement.

 

“ Permitted Encumbrances ” shall mean (a) Encumbrances for current Taxes not yet due and payable; (b) purchase money security interests; and (c) liens imposed by Law, such as mechanics’ liens.

 

“ Person ” shall mean any individual, corporation, company, partnership (limited or general), limited liability company, joint venture, association, trust, Governmental Authority or other entity.

 

“ Preferred Stock ” shall mean the preferred stock, par value $0.001 per share, of the Company.

 

“ Proceedings ” shall have the meaning set forth in Section 4.12 of this Agreement.

 

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“ Pro Rata Share ” shall mean, with respect to any Escrow Participant, the percentage of the aggregate Escrow Shares attributable to such Escrow Participant.

 

“ Quarterly Earn-Out Pool ” shall mean, with respect to any fiscal quarter during the Earn-Out Period or Earn-Out Tail Period, fifteen percent (15%) of the amount of Archer Net Bookings (or in the case during the Earn-Out Tail Period, fifteen percent (15%) the amount of Archer Net Tail Bookings), as may be adjusted in accordance with Section 2.8.7 and Section 2.8.8.1.

 

“ Quarterly Earn-Out Statement ” shall have the meaning in Section 2.8.8.

 

“ Registration Statement ” shall have the meaning set forth in Section 6.6 of this Agreement.

 

“ Remixes ” shall mean time-based licenses granted by Parent to a customer covering any combination of Archer Products or Parent Products under which the customer has the option to reconfigure the type and quantity of software products licensed thereunder at intervals throughout the term of the licenses.

 

“ Resolved Claim Notice ” shall have the meaning set forth in Section 10.2.2.1 of this Agreement.

 

“ Retained Company Employee ” shall have the meaning set forth in Section 6.11.1 of this Agreement.

 

“ Retained Escrow Consideration ” shall have the meaning set forth in Section 2.7.2.1 of this Agreement.

 

“ Schedule Z ” shall have the meaning set forth in Section 6.15 of this Agreement.

 

“ Scheduled Contracts ” shall have the meaning set forth in Section 4.7 of this Agreement.

 

“ SEC ” shall mean the United States Securities and Exchange Commission, and any successor thereto.

 

“ Second Step Merger ” shall have the meaning set forth in Section 2.1.1 of this Agreement.

 

“ Securities Act ” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder.

 

“ Securityholder Agreements ” shall have the meaning set forth in Section 3.1.1.7 of this Agreement.

 

“ Series A Preferred Stock ” shall mean the Series A Preferred Stock, par value $0.001 per share, of the Company.

 

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“ Series B Preferred Stock ” shall mean the Series B Preferred Stock, par value $0.001 per share, of the Company.

 

“ Series C Preferred Stock ” shall mean the Series C Preferred Stock, par value $0.001 per share, of the Company.

 

“ Series D Preferred Stock ” shall mean the Series D Preferred Stock, par value $0.001 per share, of the Company.

 

“ Series E Preferred Stock ” shall mean the Series E Preferred Stock, par value $0.001 per share, of the Company.

 

“ Software ” shall mean individually each, and collectively all, of the computer programs, including without limitation interfaces and any embedded software programs or applications, owned or licensed by the Company or otherwise included as an asset of the Company under this Agreement, including without limitation as to each program, the processes and routines used to process data, the executable code, the source code (as to third-party source code, when the rights to the source code may be obtained), and any associated developers’ kits, utilities, build scripts, test scripts, compilers, programmers’ notes and any other documentation related to the Software, and all improvements, modifications, enhancements, versions and releases related thereto.

 

“ Stock Allocation Percentage ” shall be the percentage (expressed in decimal form) of the Stock Consideration allocated for each class or series of Company Stock. The Stock Allocation Percentage for the Series A Preferred Stock shall be 0.04951015. The Stock Allocation Percentage for the Series B Preferred Stock shall be 0.06943563. The Stock Allocation Percentage for the Series C Preferred Stock shall be 0.16188534. The Stock Allocation Percentage for the Series D Preferred Stock shall be 0.17002591. The Stock Allocation Percentage for the Series E Preferred Stock shall be 0.30427717. The Stock Allocation Percentage for the Common Stock shall be 0.24486580.

 

“ Stock Consideration ” shall mean the aggregate number of Parent Common Shares equal to the quotient (rounded to the nearest whole share) of (x) $50,000,000 divided by (y) the Closing Measurement Price, issuable at Closing pursuant to Article 2 of this Agreement.

 

“ Stock Consideration Portion ” shall mean, with respect to each class or series of Company Stock, the number of Parent Common Shares equal to the result of the following calculation:

 

 

where “X” is the Stock Consideration Portion; “A” represents the Stock Consideration; “B” represents the Stock Allocation Percentage for the particular class or series of Company Stock; and “C” represents the aggregate number of shares outstanding for such class or series of Company Stock on a fully-diluted basis of such class or series of Company Stock as of the Closing Date (for purposes of clarity, the fully-diluted share number for the Common Stock shall exclude shares issuable upon conversion of the Preferred Stock). The Stock Consideration

 

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Portion for the Series A Preferred Stock shall be the “ Series A Preferred Portion .” The Stock Consideration Portion for the Series B Preferred Stock shall be the “ Series B Preferred Portion .” The Stock Consideration Portion for the Series C Preferred Stock shall be the “ Series C Preferred Portion .” The Stock Consideration Portion for the Series D Preferred Stock shall be the “ Series D Preferred Portion .” The Stock Consideration Portion for the Series E Preferred Stock shall be the “ Series E Preferred Portion .” The Stock Consideration Portion for the Common Stock shall be the “ Common Stock Portion .”

 

“ Stockholder Consent ” shall have the meaning set forth in Section 4.26 of this Agreement.

 

“ Stockholder Support Agreements ” shall have the meaning set forth in the Recitals to this Agreement.

 

“ Stockholders ” shall mean the holders of shares of Company Stock as of immediately prior to the Effective Time (which shall include Optionholders that have exercised their Company Options immediately prior to the Effective Time).

 

“ Subsidiary ” of a Person shall mean any other Person more than 50% of the voting stock (or of any other form of other voting or controlling equity interest in the case of a Person that is not a corporation) of which is beneficially owned by the Person directly or indirectly through one or more other Persons.

 

“ Substances ” shall mean any “hazardous substance,” “hazardous waste,” “pollutant,” “contaminant” or “toxic substance,” as defined by CERCLA, the Resources Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. , the Clean Water Act, 33 U.S.C. Section 1251 et seq. , the Clean Air Act, 42 U.S.C. Section 7401 et seq. , or the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. , and regulations promulgated thereunder, or any analogous state and local Laws and regulations; petroleum and petroleum products; polychlorinated biphenyls; or asbestos.

 

“ Superior Proposal ” shall mean a bona fide proposal made by a third party to acquire the Company pursuant to a merger, a sale of all or substantially all of its assets or otherwise on terms which a majority of the board of directors of the Company determines, at a duly constituted meeting of the board of directors, in its reasonable good faith judgment (after consultation with its financial advisor) to be more favorable from a financial point of view to the Company’s stockholders than the Merger and for which financing, to the extent required, is then committed.

 

“ Surviving Corporation ” shall have the meaning set forth in Section 2.1.1 of this Agreement.

 

“ Takeover Statute ” shall mean any “fair price,” “moratorium,” “control share acquisition” or other similar antitakeover statute or regulation enacted under state or federal Laws in the United States.

 

“ Tax ” shall mean any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits,

 

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environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

 

“ Tax Cost ” shall mean, with respect to any event or adjustment for any Person, the excess, if any, of the Tax liability of such Person taking such event or adjustment into account over the Tax liability of such Person without regard to such event or adjustment, with all other circumstances remaining unchanged.

 

“ Tax Return ” shall mean any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

“ Third-Party Claim ” shall have the meaning set forth in Section 10.3.1 of this Agreement.

 

“ Threshold Amount ” shall have the meaning set forth in Section 10.5.1 of this Agreement.

 

“ Trademarks ” shall have the meaning set forth in Section 4.8.1 of this Agreement.

 

“ Trade Secrets ” shall have the meaning set forth in Section 4.8.5.1 of this Agreement.

 

“ Trading Day ” shall mean any day on which the NASDAQ National Market is open and available for at least five (5) hours for the trading of securities.

 

“ Transaction Consideration ” shall mean Stock Consideration and the Additional Consideration.

 

“ Transfer Taxes ” shall have the meaning set forth in Section 7.4 of this Agreement.

 

“ Transmittal Letter ” shall have the meaning set forth in Section 2.8.1 of this Agreement.

 

“ Treasury Regulations ” shall have the meaning set forth in the Recitals to this Agreement.

 

“ Welfare Plan ” shall mean any “employee welfare benefit plan” as defined in Section 3(1) of ERISA, which (a) the Company or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or under which the Company or any ERISA Affiliate may incur any liability and (b) covers any employee or former employee of the Company or any ERISA Affiliate (with respect to their relationship with any such entity).

 

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ARTICLE 2.

The Merger

 

Section 2.1 The Merger .

 

Section 2.1.1 Merger of the Company into Merger Sub; Second Step Merger . Upon the terms and subject to satisfaction or waiver of the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, Merger Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving company of the Merger (the “ Surviving Corporation ”). Following the Effective Time, on the same day of the Effective Time if practicable, but in any case no more than one (1) Business Day following the Effective Time, Parent shall cause the Surviving Corporation to merge with and into a wholly-owned Delaware corporation (“ Merger Sub 2 ”) of which Parent shall be the sole stockholder (the “ Second Step Merger ”). The Merger and the Second Step Merger shall be treated as integrated steps in the transaction contemplated by this Agreement and for any and all federal and state income tax reporting purposes shall be reported as a single “merger transaction” within the meaning of Section 368(a)(1)(A) of the Code.

 

Section 2.1.2 Closing . Unless this Agreement shall have been terminated pursuant to Section 9.1 of this Agreement, and subject to the satisfaction (or, to the extent permitted by this Agreement, the waiver) of each of the conditions set forth in Article 8 of this Agreement, the consummation of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Latham & Watkins LLP, 135 Commonwealth Drive, Menlo Park, California 94025, at 10:00 a.m., Pacific Time, on a day (to be selected by Parent in its reasonable discretion) following the satisfaction (or, to the extent permitted by this Agreement, the waiver) of each of the conditions (excluding conditions that, by their nature, cannot be satisfied until the Closing Date but subject to the fulfillment of those conditions) set forth in Article 8 of this Agreement (but in any event, within two (2) Business Days after the satisfaction or waiver of each of the conditions set forth in Article 8 of this Agreement), or at such other date, time and place as Parent and the Company shall mutually agree in writing (the exact date on which the Closing takes place, the “ Closing Date ”).

 

Section 2.2 Effective Time . Subject to the terms and conditions set forth in this Agreement, on the Closing Date, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the “ Certificate of Merger ”) with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, the DGCL (the date and time of such filing, or if another date and time is specified in such filing, such specified date and time, being the “ Effective Time ”).

 

Section 2.3 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

 

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Section 2.4 Charter and Bylaws . The certificate of incorporation of the Company in effect at the Effective Time shall be amended in its entirety at the Effective Time to read as the certificate of incorporation of Merger Sub immediately prior to the Effective Time and shall thereafter be amended in accordance with its terms and as provided by Applicable Law. The bylaws of Merger Sub as in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation until such bylaws shall thereafter be amended in accordance with the terms of such bylaws and as provided by Applicable Law.

 

Section 2.5 Directors and Officers of the Surviving Corporation . The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation.

 

Section 2.6 Conversion of Securities . At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities (each, a “ Holder ”):

 

Section 2.6.1 Shares of Common Stock of Merger Sub . Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and be exchanged for a newly and validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation such that immediately following the Effective Time, Parent will be the sole and exclusive owner of the shares of capital stock of the Surviving Corporation.

 

Section 2.6.2 Shares of Series A Preferred Stock . Each share of Series A Preferred Stock outstanding immediately prior to the Effective Time (other than any shares of Series A Preferred Stock held in the treasury of the Company immediately prior to the Effective Time, which shares shall be canceled and extinguished without any payment being made in respect thereof, or any Company Dissenting Shares) shall be converted into the right to receive the Series A Preferred Portion and the Additional Stockholder Consideration Portion. All shares of Series A Preferred Stock converted pursuant to this Section 2.6.2 shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist after the Effective Time.

 

Section 2.6.3 Shares of Series B Preferred Stock . Each share of Series B Preferred Stock outstanding immediately prior to the Effective Time (other than any shares of Series B Preferred Stock held in the treasury of the Company immediately prior to the Effective Time, which shares shall be canceled and extinguished without any payment being made in respect thereof, or any Company Dissenting Shares) shall be converted into the right to receive the Series B Preferred Portion and the Additional Stockholder Consideration Portion. All shares of Series B Preferred Stock converted pursuant to this Section 2.6.3 shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist after the Effective Time.

 

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Section 2.6.4 Shares of Series C Preferred Stock . Each share of Series C Preferred Stock outstanding immediately prior to the Effective Time (other than any shares of Series C Preferred Stock held in the treasury of the Company immediately prior to the Effective Time, which shares shall be canceled and extinguished without any payment being made in respect thereof, or any Company Dissenting Shares) shall be converted into the right to receive the Series C Preferred Portion and the Additional Stockholder Consideration Portion. All shares of Series C Preferred Stock converted pursuant to this Section 2.6.4 shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist after the Effective Time.

 

Section 2.6.5 Shares of Series D Preferred Stock . Each share of Series D Preferred Stock outstanding immediately prior to the Effective Time (other than any shares of Series D Preferred Stock held in the treasury of the Company immediately prior to the Effective Time, which shares shall be canceled and extinguished without any payment being made in respect thereof, or any Company Dissenting Shares) shall be converted into the right to receive the Series D Preferred Portion and the Additional Stockholder Consideration Portion. All shares of Series D Preferred Stock converted pursuant to this Section 2.6.5 shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist after the Effective Time.

 

Section 2.6.6 Shares of Series E Preferred Stock . Each share of Series E Preferred Stock outstanding immediately prior to the Effective Time (other than any shares of Series E Preferred Stock held in the treasury of the Company immediately prior to the Effective Time, which shares shall be canceled and extinguished without any payment being made in respect thereof, or any Company Dissenting Shares) shall be converted into the right to receive the Series E Preferred Portion and the Additional Stockholder Consideration Portion. All shares of Series E Preferred Stock converted pursuant to this Section 2.6.6 shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist after the Effective Time.

 

Section 2.6.7 Shares of Common Stock . Each share of Common Stock outstanding immediately prior to the Effective Time (other than any shares of Common Stock held in the treasury of the Company immediately prior to the Effective Time, which shares shall be canceled and extinguished without any payment being made in respect thereof, or any Company Dissenting Shares) shall be converted into the right to receive a number of Parent Common Shares equal to the Common Stock Portion and the Additional Stockholder Consideration Portion. All shares of Common Stock converted pursuant to this Section 2.6.7 shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist after the Effective Time.

 

Section 2.6.8 Company Warrants . If any Company Warrants have not been exercised or canceled prior to the Effective Time, (i) the shares of Series A Preferred Stock issuable upon exercise of such Company Warrants exercisable into Series A Preferred Stock shall be (A) deemed issued and outstanding and (B) treated as such for purposes of Section 2.6.2 and the determination of the Series A Preferred Portion and (ii) the shares of Common Stock issuable upon exercise of such Company Warrants exercisable into Common Stock shall be (A) deemed issued and outstanding and (B) treated as such for purposes of Section 2.6.7 and the determination of the Common Stock Portion.

 

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Section 2.6.9 Company Options . The Company shall take all actions necessary, including obtaining any requisite consents of the Optionholders, to provide that, at the Effective Time, (i) each unvested Company Option shall vest and (ii) immediately following such vesting, each Company Option that is outstanding, unexercised and unexpired immediately prior to the Effective Time shall be canceled and terminated.

 

Section 2.6.10 No Fractional Parent Common Shares . No certificates or scrip representing fractional Parent Common Shares shall be issued in connection with the Merger, but in lieu thereof each Holder who would otherwise be entitled to receive a fraction of a Parent Common Share shall receive from Parent an amount of cash equal to the product of (i) the fraction of a Parent Common Share to which such holder would otherwise be entitled multiplied by (ii) the Closing Measurement Price.

 

Section 2.6.11 Restrictions on Shares of Company Stock . If any shares of Company Stock outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option, risk of forfeiture or other condition under any applicable restricted stock purchase agreement or other agreement with the Company, then the Parent Common Shares issued in exchange for such shares will also be unvested and subject to the same repurchase option, risk of forfeiture or other condition, and the certificates representing such Parent Common Shares may accordingly be marked with appropriate legends. The Company shall not, by any action or inaction, prevent Parent from enforcing any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement from and after the Effective Time.

 

Section 2.7 Escrow .

 

Section 2.7.1 Escrow Shares .

 

Section 2.7.1.1 At the Closing, to provide funds for the satisfaction of any claims for indemnification made by Parent Indemnitees pursuant to Article 10 of this Agreement, Parent shall deliver Six Million Dollars ($6,000,000) in value of the aggregate Stock Consideration to which each Stockholder (each, an “ Escrow Participant ” and collectively, the “ Escrow Participants ”) is entitled pursuant to this Article 2 (collectively, the “ Escrow Shares ”) to an escrow account (the “ Escrow Account ”) to be established by Parent with U.S. Bank Trust National Association (the “ Escrow Agent ”), to be held by the Escrow Agent pursuant to the terms of an escrow agreement, substantially in the form attached hereto as Exhibit F (the “ Escrow Agreement ”).

 

Section 2.7.1.2 The certificate representing the Escrow Shares shall be retained in the Escrow Account until released pursuant to Section 2.7.2 below. During the period in which the Escrow Shares are retained in the Escrow Account, they will be held for the benefit of the registered holders of the Escrow Shares, and such registered holders shall be entitled to vote the Escrow Shares and to receive the economic benefit of any dividends paid with respect to the Escrow Shares until it has been determined conclusively that a Parent Indemnitee is entitled

 

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to retain the Escrow Shares in respect of indemnification claims pursuant to Section 10.2 hereof (it being understood that any cash dividends paid on such shares, and any taxable non-cash dividends paid on such shares, shall be distributed currently to the applicable Escrow Participant and any tax-free non-cash dividends paid on such shares shall continue to be held in the Escrow Account for the benefit of the Escrow Participants). From and after the Closing Date, unless and until it is determined that a Parent Indemnitee is entitled to retain the Escrow Shares in respect of indemnification claims, the Escrow Shares shall appear as issued and outstanding on the balance sheet of Parent.

 

Section 2.7.2 Release of Escrow Shares .

 

Section 2.7.2.1 Within five (5) Business Days following the Expiration Date, the Escrow Agent shall distribute to the Escrow Participants, at their respective addresses and in proportion to their respective Pro Rata Shares set forth on the Closing Consideration Exhibit, any Escrow Shares deposited into the Escrow Account pursuant to this Section 2.7 less (i) the number of Escrow Shares offset prior to the Expiration Date pursuant to Section 10.2.2 hereof and (ii) a number of Escrow Shares which the Escrow Agent shall retain equal to the aggregate amount of indemnification claims made by Parent pursuant to Section 10.2 hereof which shall be outstanding and unresolved (the “ Aggregate Outstanding Claims “), or, in the event that the Aggregate Outstanding Claims exceed the remaining number of Escrow Shares, all remaining Escrow Shares (such number of retained Escrow Shares, as well as any such number of retained Escrow Shares as such number may be further reduced after the Expiration Date by distributions to the Escrow Participants and offsets by Parent pursuant to Section 10.2.2 hereof, the “ Retained Escrow Consideration ”). For all purposes under this Agreement and the Escrow Agreement, the Escrow Shares shall be valued at the Closing Measurement Price.

 

Section 2.7.2.2 In the event and to the extent that after the Expiration Date any outstanding indemnification claim made by a Parent Indemnitee pursuant to Section 10.2 hereof is resolved against such Parent Indemnitee (or is resolved in favor of a Parent Indemnitee but in a smaller amount than originally retained by Parent), the Escrow Agent shall deliver to the Escrow Participants, at their respective addresses and in proportion to their respective Pro Rata Shares set forth on the Closing Consideration Exhibit, an amount of the Retained Escrow Consideration corresponding to the amount of the outstanding indemnification claim resolved against such Parent Indemnitee (or, in the case where the indemnification claim is resolved in favor of a Parent Indemnitee but in a smaller amount than originally retained by Parent, the difference between the amount resolved in favor of such Parent Indemnitee and the amount originally retained), unless the remaining Aggregate Outstanding Claims would exceed the Retained Escrow Consideration after such distribution, in which case the Escrow Agent shall retain in the Escrow Account a number of Escrow Shares equal in value to the amount of the remaining Aggregate Outstanding Claims.

 

Section 2.7.3 Escrow Participant Representative .

 

Section 2.7.3.1 Bruce Shewmaker is hereby appointed and constituted the “ Escrow Participant Representative ” under this Agreement, and as such shall serve as agent for and have all powers as attorney-in-fact of each Escrow Participant, for and on behalf of each Escrow Participant, to take the following actions in connection with the negotiation, settlement

 

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and compromise of indemnification claims pursuant to Article 10 of this Agreement and the release of Escrow Shares in connection therewith: to give and receive notices of communications; to agree to, negotiate or enter into settlements and compromises of and comply with orders of courts with respect to any disputes involving any claims made by Parent Indemnitees or the Escrow Participants under this Agreement; to sign receipts, consents or other documents to effect any of the transactions contemplated by this Agreement or the Ancillary Agreements; and to take all actions necessary or appropriate in the judgment of the Escrow Participant Representative in connection with the foregoing. The Escrow Participant Representative shall consult with Escrow Participants representing at least a majority of the aggregate Escrow Shares prior to settling or compromising any claim or dispute involving more than $250,000; provided, however , that in no event shall the consent of any Escrow Participant be required for the Escrow Participant Representative to settle or compromise any claim or dispute on behalf of the Escrow Participants.

 

Section 2.7.3.2 If the Escrow Participant Representative elects to resign as Escrow Participant Representative for any reason, the Escrow Participant Representative shall notify Parent of his or her intent to resign, and Escrow Participants representing at least a majority of the aggregate Escrow Shares shall, by written notice to Parent, appoint a successor Escrow Participant Representative within five (5) Business Days after receiving notice of such resignation. Escrow Participants representing at least a majority of the aggregate Escrow Shares may, at any time, by written notice to Parent, appoint a replacement Escrow Participant Representative.

 

Section 2.7.3.3 Notice or communications to or from the Escrow Participant Representative pursuant to this Section 2.7 given in accordance with Section 11.4 hereof shall constitute notice to or from each of the Escrow Participants.

 

Section 2.7.3.4 A decision, act, consent or instruction of the Escrow Participant Representative pursuant to this Section 2.7 shall constitute a decision, act, consent or instruction of each and all of the Escrow Participants, and shall be final, binding and conclusive upon each and all of the Escrow Participants, and Parent shall be entitled to rely upon any decision, act, consent or instruction of the Escrow Participant Representative as being the decision, act, consent or instruction of each and all of the Escrow Participants, and Parent shall be relieved from any liability to any Person for any acts done by it in accordance with such decision, act, consent or instruction.

 

Section 2.7.3.5 The Escrow Participant Representative shall promptly notify each Escrow Participant in the event of any decision, act, consent or instruction of the Escrow Participant Representative pursuant to this Section 2.7.3. Each Escrow Participant, severally in proportion to its respective Pro Rata Share and not jointly, with right of contribution among them, shall indemnify and hold harmless the Escrow Participant Representative with respect to any claim, loss, damage, cost and liability against such Escrow Participant Representative, including without limitation reasonable attorneys’ fees and costs, arising from any decision, act, inaction, consent or instruction of such Escrow Participant Representative pursuant to this Section 2.7.3 from out of the Escrow Account, unless and to the extent that such claim arises from such Escrow Participant Representative’s gross negligence or willful misconduct. The Escrow Participant Representative shall not be liable to any Stockholder for any act done or omitted hereunder as Escrow Participant Representative except to the extent the Escrow Participant Representative has acted with gross negligence or willful misconduct.

 

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Section 2.8 Distribution of the Transaction Consideration .

 

Section 2.8.1 Distribution of Transmittal Letter . Prior to the Closing Date, Parent shall make available to and, as soon as practicable following the Effective Time (and, in any event, within five (5) Business Days thereafter), Parent shall cause to be mailed to each record holder of certificates evidencing Company Stock (the “ Certificates ”) a letter of transmittal in customary form (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to Parent or its designated representative and shall be in such form and have such other customary provisions as Parent shall reasonably specify) (the “ Transmittal Letter ”) and instructions for such holder’s use in effecting the surrender of the Certificates and the exercise of the rights of such holder to obtain its portion of the Transaction Consideration.

 

Section 2.8.2 Delivery of Transaction Consideration . Upon surrender to Parent or its designated representative of any Certificates for cancellation, together with a duly executed and completed Transmittal Letter, the holder of such Certificate shall be entitled to receive, in exchange therefor the Transaction Consideration to which such holder is entitled pursuant to Section 2.6 and 2.8.5 of this Agreement. Parent shall use its commercially reasonable efforts to cause American Stock & Transfer Trust to transmit the Stock Consideration to which such holder is entitled within five (5) Business Days after receipt of all such holder’s Certificates for cancellation, together with a duly executed and completed Transmittal Letter.

 

Section 2.8.3 Cancellation of Company Stock . Upon surrender of each Certificate and delivery by Parent of the Transaction Consideration to be delivered in exchange therefor, such Certificate shall forthwith be canceled. Until so surrendered, each Certificate (other than Certificates representing Company Dissenting Shares) shall be deemed for all corporate purposes to evidence only the right to receive upon such surrender the Transaction Consideration into which the Company Stock represented thereby shall have been converted in accordance with the terms and upon the conditions of this Agreement.

 

Section 2.8.4 Distributions With Respect to Unexchanged Shares of Company Stock . No dividends or other distributions with respect to Parent Common Shares declared or made after the Effective Time and with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the Parent Common Shares to be issued in exchange therefor until the holder of record of such Certificate shall surrender such Certificate. Subject to Applicable Law, promptly following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing Parent Common Shares issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time, if any, theretofore payable with respect to such Parent Common Shares.

 

Section 2.8.5 Additional Stockholder Consideration . During the Earn-Out Period and Earn-Out Tail Period, Parent shall pay or cause to be paid to the Stockholders on or before the forty-fifth (45 ^th ) day after the end of each fiscal quarter of Parent (including the fiscal

 

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quarter ending on the last day of the Earn-Out Tail Period), cash in an amount equal to sixty-eight percent (68%) of the Quarterly Earn-Out Pool for the immediately preceding completed fiscal quarter. Such cash payments made by Parent to the Stockholders in the aggregate shall be referred to herein as the “ Additional Stockholder Consideration .”

 

Section 2.8.5.1 The Additional Stockholder Consideration shall be allocated to each Stockholder in accordance with such Stockholder’s Additional Stockholder Consideration Portion as listed on Exhibit M to this Agreement. Parent shall pay or cause to be paid any Additional Stockholder Consideration Portions that may be due hereunder in cash by check or by wire transfer of immediately available funds to an account or accounts specified by each Stockholder in its Transmittal Letter; provided, however , that when, if ever, the cumulative amount of Additional Stockholder Consideration paid to Stockholders equals $50,000,000, then any subsequent payments of Additional Stockholder Consideration shall be paid to Stockholders (i) fifty percent (50%) in cash and (ii) fifty percent (50%) in Parent Common Shares, with such Parent Common Shares to be valued at the average of the closing price for Parent Common Shares on the Nasdaq National Market as reported in The Wall Street Journal for the five (5) consecutive Trading Days ending on the second (2 ^nd ) Trading Day prior to the date of any such payment.

 

Section 2.8.6 Additional Eligible Employee Consideration . During the Earn-Out Period and Earn-Out Tail Period, Parent shall pay or cause to be paid to the Eligible Employees on or before the forty-fifth (45 ^th ) day after the end of each fiscal quarter of Parent (including the fiscal quarter ending on the last day of the Earn-Out Tail Period), cash in an amount equal to thirty-two percent (32%) of the Quarterly Earn-Out Pool for the immediately preceding completed fiscal quarter. Such cash payments made by Parent to the Eligible Employees in the aggregate shall be referred to herein as the “ Additional Eligible Employee Consideration .”

 

Section 2.8.6.1 The Additional Eligible Employee Consideration (which for purposes of this Section 2.8.6.1 shall exclude the amounts allocated to the Eligible Employee Bonus Pool) shall be allocated to each Eligible Employee in accordance with such Employee’s Additional Eligible Employee Consideration Portion as listed on Exhibit N to this Agreement. Parent shall pay or cause to be paid any Additional Eligible Employee Consideration Portions that may be due hereunder concurrently and as part of such Eligible Employee’s next scheduled payroll check to be issued by Parent (subject to Parent’s regular payroll cutoff) after completion of the calculation of such Additional Eligible Employee Consideration Portions within the forty-five (45) day period of the end of the fiscal quarter.

 

Section 2.8.6.2 A change in the status of an Eligible Employee by Parent in the following ways will affect an Eligible Employee’s right to receive Additional Eligible Employee Consideration as follows:

 

(i)

In the event an Eligible Employee is subject to an Involuntary Termination Without Cause, the Eligible Employee’s right to receive his or her Additional Eligible Employee Consideration Portion shall be unaffected.

 

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(ii)

In the event an Eligible Employee is subject to an Involuntary Termination With Cause, the Eligible Employee’s right to receive his or her Additional Eligible Employee Consideration Portion shall cease as of the date of such termination and the amount of such Additional Eligible Employee Consideration Portion such terminated Eligible Employee shall be entitled to receive in the Quarterly Earn-Out Pool following such date of termination shall be adjusted on a pro rata basis for the number of days worked in the applicable fiscal quarter.

 

(iii)

In the event an Eligible Employee voluntarily terminates his or her employment with Parent, such Eligible Employee’s right to receive Additional Eligible Employee Consideration shall cease on the date of such termination, and the amount of such Additional Eligible Employee Consideration Portion such terminated Eligible Employee shall be entitled to receive in the Quarterly Earn-Out Pool following such date of termination shall be adjusted on a pro rata basis for the number of days worked in the applicable fiscal quarter.

 

(iv)

In the event an Eligible Employee voluntarily accepts an assignment with Parent outside of the Archer Business Unit, the determination of whether such Eligible Employee’s right to receive Additional Eligible Employee Consideration shall be at the discretion of the Archer Business Unit Manager and the Parent DVTD Manager, taking into consideration the relative benefit of such Eligible Employee’s transfer within Parent’s organization. In the case such Eligible Employee’s right to receive Additional Eligible Employee Consideration is terminated, the amount of such Additional Eligible Employee Consideration Portion such transferring Eligible Employee shall be entitled to receive in the Quarterly Earn-Out Pool following such date of transfer shall be adjusted on a pro rata basis for the number of days worked in the applicable fiscal quarter.

 

In the case of (ii) and (iii) and, when applicable, (iv) above, the Additional Eligible Employee Consideration Portions allocated for Eligible Employees no longer eligible for such Additional Eligible Employee Consideration shall be returned to the Eligible Employee Bonus Pool.

 

Section 2.8.7 Adjustments to Quarterly Earn-Out Pool. Adjustments determined by Parent after the payment of the Quarterly Earn-Out Pool for a certain fiscal quarter shall be carried forward to be added to or deducted from the Quarterly Earn-Out Pool for the next fiscal quarter.

 

Section 2.8.8 Quarterly Earn-Out Statements . In connection with the making of each payment by Parent to the Stockholders under Section 2.8.5 and to each Employee under Section 2.8.6, Parent shall deliver to the Stockholders and the Eligible Employees, along with such Additional Consideration, a statement (the “ Quarterly Earn-Out Statement ”) setting forth the computation of the Quarterly Earn-Out Pool and the Stockholder’s or Eligible Employee’s Additional Consideration Portion, as applicable, together with supporting financial information used in making its computations, including adjustments made pursuant to Section 2.8.7 and Section 2.8.8.1.

 

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Section 2.8.8.1 Parent’s computation of any payment under Section 2.8.5 or Section 2.8.6 shall be conclusive and binding upon the Stockholders and Eligible Employees unless, within twenty (20) Business Days following the Stockholders’ and Eligible Employees’ receipt of the Quarterly Earn-Out Statement and the Additional Consideration Portion payment, the Escrow Participant Representative notifies Parent in writing (the “ Dispute Notice ”) that it disagrees with Parent’s computations in the Quarterly Earn-Out Statement; provided , that during the twenty (20) Business Day period set forth above, upon reasonable advance written request by the Escrow Participant Representative, the Escrow Participant Representative shall be given reasonable access to Parent’s books and records to the extent necessary to enable the Escrow Participant Representative to verify the information and computations in the Quarterly Earn-Out Statement within such twenty (20) Business Day period. If the Escrow Participant Representative is still trying to verify the information and calculations at the end of such period, the parties will mutually agree on a reasonable additional period of time for the Escrow Participant Representative to confirm such calculations. The Dispute Notice shall include a schedule setting forth the computations by the Escrow Participant Representative of the amount payable as Additional Consideration for the applicable quarterly period, together with supporting financial information used in making its computations. Unless within fifteen (15) Business Days following Parent’s receipt of the Dispute Notice, Parent notifies the Escrow Participant Representative in writing that Parent agrees with the Escrow Participant Representative’s computations therein, Parent and the Escrow Participant Representative shall request a national firm of independent certified public accountants mutually agreeable to Parent and the Escrow Participant Representative to compute the amount payable as Additional Consideration, if any, as promptly as possible, which computation shall be conclusive and binding upon Parent and the Stockholders and Eligible Employees in the absence of manifest error. In the event that Parent and the Escrow Participant Representative cannot agree on such a national firm of independent certified public accountant, the names of the national accounting firms, exclusive of any such firm which is rendering or has in the past three (3) years rendered services to Parent or the Escrow Participant Representative or their respective Affiliates, shall be selected by lottery until one such firm is willing to compute the disputed payments for purposes of this Agreement. The expenses of any such firm selected by Parent and the Escrow Participant Representative to resolve computational disputes hereunder shall be borne equally by Parent and the Stockholders (for payments by the Stockholders, such amounts shall be deducted from the Additional Stockholder Consideration; for payments by the Eligible Employees, such amounts shall be deducted from the Additional Eligible Employee Consideration). In the event the amount of any Additional Consideration to be paid by Parent to the Stockholders or Eligible Employee in accordance with Sections 2.8.5 or 2.8.6 is recomputed in accordance with this subsection, any increase or decrease to the amount of Additional Consideration shall be carried forward to be added to or deducted from the Quarterly Earn-Out Pool for the next fiscal quarter (or, with respect to the final quarter of the Earn-Out Tail Period, at the expiration of the Earn-Out Tail Period).

 

Section 2.9 No Further Ownership Rights in Shares of Company Stock . The Transaction Consideration delivered upon the surrender for exchange of Company Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Stock, and there shall be no further registration of transfers of Company Stock which were outstanding immediately prior to the Effective Time on the records of the Surviving Corporation. If, after the Effective Time, the Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article 2.

 

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Section 2.10 Lost, Stolen or Destroyed Certificates . In the event any Certificates shall have been lost, stolen or destroyed, Parent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such Transaction Consideration as may be required pursuant to Section 2.6 and 2.8.5 of this Agreement; provided, however , that Parent may, in its sole discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver an indemnity or bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent with respect to the Certificates alleged to have been lost, stolen or destroyed.

 

Section 2.11 Dissenting Shares . Any holder of shares of Company Stock issued and outstanding immediately prior to the Effective Time with respect to which dissenters’ rights, if any, are available by reason of the Merger pursuant to Section 262 of the DGCL or Chapter 13 of the California General Corporation Law (the “ CGCL ”) who has not voted in favor of the Merger or consented thereto in writing and who complies with Section 262 of the DGCL or Chapter 13 of the CGCL (“ Company Dissenting Shares ”) shall not be entitled to receive any portion of the Transaction Consideration pursuant to this Article 2, unless such holder fails to perfect, effectively withdraws or loses its dissenters’ rights under the DGCL or the CGCL. Such holder shall be entitled to receive only such rights as are granted under Section 262 of the DGCL or Chapter 13 of the CGCL. If any such holder fails to perfect, effectively withdraws or loses such dissenters’ rights under the DGCL or the CGCL, such Company Dissenting Shares shall thereupon be deemed to have been converted as of the Effective Time into the right to receive the Transaction Consideration to which such shares of Company Stock are entitled pursuant to this Article 2, without interest. Prior to the Effective Time, the Company shall give Parent prompt notice of any demands for appraisal pursuant to Section 262 of the DGCL or Chapter 13 of the CGCL received by the Company, withdrawals of any such demands and any other documents or instruments received by the Company in connection therewith. Parent shall have the right to participate in and direct all negotiations and proceedings with respect to any such demands. Prior to the Effective Time, the Company shall not, except with the prior written consent of Parent and the Escrow Participant Representative, which consent shall not unreasonably be withheld or delayed, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing. Any payments made with respect to Company Dissenting Shares shall be made solely by the Surviving Corporation, and no funds or other property have been or shall be provided by Parent, Merger Sub or any of Parent’s Affiliates for such payment.

 

Section 2.12 Withholding . Parent shall be entitled to deduct and withhold from any consideration otherwise payable pursuant to this Agreement such amounts as it may be required to deduct and withhold with respect to the making of such payment under the Code, or any provision of applicable Tax Law. To the extent that amounts are so withheld or paid over to or deposited with the relevant Governmental Authority by Parent, such amounts shall be treated for all purposes of this Agreement as having been paid to the applicable Person in respect of which Parent made such deduction and withholding.

 

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ARTICLE 3.

Closing Deliveries

 

Section 3.1 Closing Deliveries .

 

Section 3.1.1 Closing Deliveries by the Company . At the Closing, the Company shall deliver, or shall cause to be delivered, to Parent:

 

Section 3.1.1.1 the written opinion of Pillsbury Winthrop LLP, special counsel for the Company, dated as of the Closing Date, substantially in the form attached hereto as Exhibit G-1 , and the written opinion of Cooley Godward LLP, counsel for the Company, dated as of the Closing Date, substantially in the form attached hereto as Exhibit G-2 ;

 

Section 3.1.1.2 certified organizational documents and certificates of good standing issued by (x) the Secretary of State of the State of Delaware for the Company and (y) the Secretary of State of California, in each case dated not more than five (5) Business Days prior to the Closing Date, together with bring-down good standing certificates (or a verbal confirmation thereof) dated as of the Closing Date;

 

Section 3.1.1.3 a certificate, dated as of the Closing Date and executed by the Chief Executive Officer and Chief Financial Officer of the Company, as to the fulfillment of each of the conditions set forth in Sections 8.3.1, 8.3.2 and 8.3.6 of this Agreement;

 

Section 3.1.1.4 a certificate, dated as of the Closing Date and executed by the Secretary of the Company, certifying the resolutions adopted by the Company’s board of directors and stockholders relating to the transactions contemplated by this Agreement and the Ancillary Agreements;

 

Section 3.1.1.5 copies of all third-party and governmental notices, consents, approvals and filings required to be delivered, obtained or made, as the case may be, by the Company in connection with the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements;

 

Section 3.1.1.6 a copy of the Escrow Agreement, executed by the Escrow Participant Representative;

 

Section 3.1.1.7 a copy of the Securityholder Agreement, substantially in the form attached hereto as Exhibit H (the “ Securityholder Agreements ”), executed by each of the Persons set forth on Exhibit I to this Agreement that hold any shares of Company Stock as of immediately prior to the Effective Time;

 

Section 3.1.1.8 the certificate required by Section 7.6 of this Agreement;

 

Section 3.1.1.9 true, correct and complete copies of the unaudited consolidated balance sheet of the Company and its Subsidiaries as of May 2, 2004 and the related unaudited consolidated statements of operations and changes in stockholders’ equity for the nine (9) months ended May 2, 2004;

 

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Section 3.1.1.10 the Closing Consideration Exhibit; and

 

Section 3.1.1.11 such other documents as Parent may reasonably request.

 

Section 3.1.2 Closing Deliveries by Parent . At the Closing, Parent shall deliver, or shall cause to be delivered, the following:

 

Section 3.1.2.1 to the Escrow Agent, the Escrow Shares, to be delivered as instructed by the Escrow Agent;

 

Section 3.1.2.2 the written opinion of Dean Freed, Esq., general counsel of Parent, dated as of the Closing Date, substantially in the form attached hereto as Exhibit J ;

 

Section 3.1.2.3 the written opinion of Latham & Watkins LLP, counsel for Parent and Merger Sub, dated as of the Closing Date, substantially in the form attached hereto as Exhibit K ;

 

Section 3.1.2.4 a certificate, dated as of the Closing Date and executed by the Chief Executive Officer or Chief Financial Officer of each of Parent and Merger Sub, as to the fulfillment of each of the conditions set forth in Sections 8.2.1, 8.2.2 and 8.2.4 of this Agreement;

 

Section 3.1.2.5 a certificate, dated as of the Closing Date and executed by the Secretary or any Assistant Secretary of each of Parent and Merger Sub, certifying the resolutions adopted by each of Parent’s and Merger Sub’s board of directors relating to the transactions contemplated by this Agreement and the Ancillary Agreements;

 

Section 3.1.2.6 copies of all third-party and governmental notices, consents, approvals and filings required to be delivered, obtained or made, as the case may be, by Parent or Merger Sub in connection with the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements;

 

Section 3.1.2.7 a copy of the Escrow Agreement, executed by Parent; and

 

Section 3.1.2.8 such other documents as the Company may reasonably request.

 

ARTICLE 4.

Representations and Warranties of the Company

 

As a material inducement to Parent and Merger Sub to enter into this Agreement, except as set forth in the Disclosure Schedule delivered by the Company to Parent prior to the execution of this Agreement (the “ Company Disclosure Schedule ”), each section of which shall only qualify the representation or warranty in the correspondingly numbered Section of this Agreement, the Company hereby represents and warrants to Parent and Merger Sub as follows:

 

Section 4.1 Organization . The Company is a corporation, duly organized, validly existing and in good standing under the Laws of the State of Delaware, and each of its

 

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Subsidiaries is a corporation or other business entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization as set forth on Section 4.3 of the Company Disclosure Schedule. The Company has the corporate power and authority, and each of its Subsidiaries has the corporate or other applicable power and authority, and each possesses all material governmental franchises, licenses, permits, authorizations and approvals necessary to carry on their respective businesses substantially in the manner as they are currently being conducted and to own, lease and operate all of their respective properties and assets. Section 4.1 of the Company Disclosure Schedule sets forth a true, correct and complete list of each jurisdiction in which the Company and any of its Subsidiaries is qualified to do business as a foreign corporation. Each of the Company and its Subsidiaries is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased or operated by it makes such qualification or licensing necessary except in jurisdictions where the failure of such license or qualification would not have a Company Material Adverse Effect. The copies of the Company’s certificate of incorporation and bylaws and each of its Subsidiaries’ organizational documents delivered by the Company to Parent prior to the execution of this Agreement are accurate, complete and correct copies of such instruments as in effect on the date hereof.

 

Section 4.2 Capitalization .

 

Section 4.2.1 Authorized, Issued and Outstanding Capital Stock . The authorized capital stock of the Company consists of thirty million three hundred twenty three thousand five hundred five (30,323,505) shares, par value $0.001 per share, of which (i) twenty million (20,000,000) shares are Common Stock and (ii) ten million three hundred twenty three thousand five hundred five (10,323,505) shares are Preferred Stock, of which (r) one million four hundred forty one thousand two hundred fifty four (1,441,254) shares have been designated as Series A Preferred Stock, (s) nine hundred ninety five thousand seven hundred ninety eight (995,798) shares have been designated as Series B Preferred Stock, (t) one million five hundred ninety eight thousand eight hundred twelve (1,598,812) shares have been designated Series C Preferred Stock, (u) one million seven hundred forty nine thousand sixty (1,749,060) shares have been designated Series D Preferred Stock and (v) four million five hundred thirty eight thousand five hundred eighty one (4,538,581) shares have been designated Series E Preferred Stock. As of the date of this Agreement, there are issued and outstanding two million four hundred seventy one thousand nine hundred twenty two (2,471,922) shares of Common Stock, one million four hundred twenty one thousand two hundred fifty four (1,421,254) shares of Series A Preferred Stock, nine hundred ninety five thousand seven hundred ninety eight (995,798) shares of Series B Preferred Stock, one million five hundred ninety eight thousand eight hundred twelve (1,598,812) shares of Series C Preferred Stock, one million seven hundred forty nine thousand sixty (1,749,060) shares of Series D Preferred Stock and four million four hundred seventy eight thousand five hundred eighty one (4,478,581) shares of Series E Preferred Stock. The Company has no other capital stock authorized, issued or outstanding. Section 4.2.1 of the Company Disclosure Schedule sets forth the name of each Holder of shares of Company Stock, as well as the number of shares of Common Stock and Preferred Stock held by each such Holder. Stockholders holding forty percent (40%) of the outstanding Company Stock on the date hereof on a fully-diluted basis have executed Stockholder Support Agreements covering such Shares of Company Stock.

 

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Section 4.2.2 Company Options . As of the date of this Agreement, three million two hundred sixty three thousand eight hundred sixty seven (3,263,867) shares of Common Stock are reserved for issuance upon the exercise of outstanding Company Options. Section 4.2.2 of the Company Disclosure Schedule sets forth the name of each Holder of Company Options, as well as the number of Company Options held by each such Holder, the number of shares of Common Stock for which each such Company Option is exercisable, the vesting schedule for each such Company Option and the price per share of Common Stock for which each such Company Option is exercisable (without taking into account whether or not such Company Option is in fact exercisable on the date hereof). The Company has delivered to Parent true, accurate and complete copies of each plan or agreement pursuant to which any Company Option has been granted, including any and all amendments thereto.

 

Section 4.2.3 Company Warrants . As of the date of this Agreement, one hundred sixty thousand eight five hundred twelve (168,512) shares of Common Stock and twenty thousand (20,000) shares of Series A Preferred Stock are reserved for issuance upon exercise of outstanding Company Warrants. Section 4.2.3 of the Company Disclosure Schedule sets forth the name of each Holder of Company Warrants, as well as the number of Company Warrants held by each such Holder, the number of shares of Common Stock for which such Company Warrant is exercisable, the vesting schedule for each such Company Warrant and the price per share of Common Stock for which each such Company Warrant is exercisable (without taking into account whether or not such Company Option is in fact exercisable on the date hereof). The Company has delivered to Parent true, accurate and complete copies of each agreement pursuant to which any Company Warrant has been issued, including any and all amendments thereto.

 

Section 4.2.4 No Other Capital Stock, Company Options or Company Warrants . Except for the Company Options, Company Warrants and Preferred Stock referred to above, 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 the Company from the Company. Except for the aggregate of three million two hundred sixty three thousand eight hundred sixty seven (3,263,867) shares of Common Stock reserved for issuance upon exercise of outstanding Company Options, one hundred sixty thousand eight five hundred twelve (168,512) shares of Common Stock and twenty thousand (20,000) shares of Series A Preferred Stock reserved for issuance upon exercise of outstanding Company Warrants and eleven million three hundred ninety five thousand eight hundred fifteen (11,395,815) shares of Common Stock reserved for issuance upon conversion of outstanding shares of Preferred Stock, no shares of capital stock of the Company are reserved for issuance.

 

Section 4.2.5 No Other Agreements . Except as contemplated by this Agreement and the Ancillary Agreements, there are no outstanding contractual obligations between the Company and any of its security holders (i) restricting the transfer of; (ii) affecting the voting rights of; (iii) requiring or allowing the repurchase, redemption or disposition of, or containing any right of first refusal with respect to; (iv) requiring the registration or sale of; or (v) granting any preemptive or antidilutive right with respect to, any shares of Common Stock, Preferred Stock or any capital stock of, or other equity interests in, the Company.

 

Section 4.2.6 Valid Issuances . All of the issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and

 

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nonassessable and are free of any preemptive rights in respect thereto. All outstanding securities of the Company have been issued in compliance with all applicable state and federal securities Laws. The stock ledgers and related records that have been delivered by the Company to Parent are complete and accurate.

 

Section 4.3 Subsidiaries . Section 4.3 of the Company Disclosure Schedule lists each Subsidiary of the Company. Each of the Company’s Subsidiaries is wholly-owned by the Company. All of the outstanding shares of capital stock of, or other equity interests in, each such Subsidiary of the Company have been validly issued and are fully paid and nonassessable and such shares or interests are owned directly by the Company, free and clear of all Encumbrances and free of any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests. Except for the capital stock or other ownership interests of each of its Subsidiaries, the Company does not beneficially own directly or indirectly any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person.

 

Section 4.4 Authority; No Violation.

 

Section 4.4.1 The Company has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party and, subject to the requisite approval of the Merger and the transactions contemplated hereby by the Stockholders, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements to which the Company is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly approved by the board of directors of the Company, and, except for approval by the Stockholders, no other corporate proceedings on the part of the Company are necessary to approve this Agreement or the Ancillary Agreements to which the Company is a party or to authorize or consummate the transactions contemplated hereby or thereby. This Agreement and the Ancillary Agreements to which the Company is a party have been duly and validly executed and delivered by the Company and (assuming the due authorization, execution and delivery of this Agreement and the Ancillary Agreements to which the Company is a party by each of the other parties hereto and thereto) constitute or will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as the enforceability thereof may be subject to or limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws relating to or affecting the rights of creditors generally and the availability of equitable relief (whether in proceedings at law or in equity).

 

Section 4.4.2 Neither the execution and delivery by the Company of this Agreement or the Ancillary Agreements to which the Company is a party nor the consummation by the Company of any of the transactions contemplated hereby or thereby, nor compliance by the Company or any of its Affiliates with any of the terms or provisions hereof or thereof, will (i) violate any provision of the certificate of incorporation, charter or bylaws or comparable organizational documents of the Company or any of its Subsidiaries or (ii) (x) violate, conflict with or require any notice, filing, consent, waiver or approval under any material Applicable Law to which the Company or any of its Subsidiaries or any of their respective properties, contracts or assets are subject (except for the filing of the Certificate of Merger, a Restated

 

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Certificate of Incorporation, federal and state securities laws filings and any filings required by the HSR Act), or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with or without notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate or result in a right of acceleration of the performance required by, result in the creation of any Encumbrance upon the Preferred Stock, the Common Stock or any Encumbrance upon the properties, Scheduled Contracts or assets of the Company or any of its Subsidiaries under, or require any notice, approval, waiver or consent under, any Contract in any material respect.

 

Section 4.5 Consents and Approvals . Except for those consents, approvals and notices set forth on Section 4.5 of the Company Disclosure Schedule, no consents or approvals of or notices to or filings, declarations or registrations with any Governmental Authority or any other Person are necessary in connection with (i) the execution and delivery by the Company of this Agreement or any of the Ancillary Agreements or (ii) the consummation by the Company of the transactions contemplated hereby or thereby so as to permit the Surviving Corporation to continue the Company Business after the Closing Date.

 

Section 4.6 Financial Statements .

 

Section 4.6.1 Section 4.6.1 of the Company Disclosure Schedule sets forth true, correct and complete copies of (i) the unaudited consolidated balance sheet of the Company and its Subsidiaries as of May 2, 2004 and the related consolidated statements of operations and changes in stockholders’ deficit for the nine (9) months ended May 2, 2004 (the statements referred to in this clause (i) (including the balance sheet), the “ Interim Period Unaudited Company Financial Statements ” and the balance sheet as of May 2, 2004, the “ Interim Period Unaudited Company Balance Sheet ”); and (ii) the audited consolidated balance sheets of the Company and its Subsidiaries as of August 3, 2003, July 28, 2002 and July 29, 2001, and the related consolidated statements of operations and changes in stockholders’ deficit for the fiscal years ended August 3, 2003, July 28, 2002 and July 29, 2001 (the statements referred to in this clause (ii) (including the balance sheets), the “ Audited Company Financial Statements ”). The Interim Period Unaudited Company Financial Statements and the Audited Company Financial Statements present fairly, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the results of the Company’s consolidated operations for the fiscal periods therein set forth. Each of the Audited Company Financial Statements and the Interim Period Unaudited Company Financial Statements have been prepared in accordance with the Company’s books and records, the Company’s past practice and GAAP consistently applied throughout such fiscal periods, subject to normal year-end audit adjustments and except (i) that the Interim Period Unaudited Company Financial Statements do not contain notes that may be required by GAAP and may be subject to normal year-end audit adjustments that will not be material individually or in the aggregate and (ii) for the items listed in Section 4.6.1 of the Company Disclosure Schedule. The Company’s tangible net worth (set forth on the Interim Period Unaudited Company Balance Sheet) as adjusted by the adjustments listed in Section 4.6.1 of the Company Disclosure Schedule, will not be more than five hundred thousand dollars ($500,000) greater than or less than the tangible net worth as of May 2, 2004, as calculated by PriceWaterhouseCoopers after the Effective Time.

 

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Section 4.6.2 Section 4.6.2 of the Company Disclosure Schedule sets forth a true, correct and complete itemization of the accounts receivable (including aging) of the Company as of May 2, 2004 (the “ Accounts Receivable ”). The Accounts Receivable represent bona fide claims against debtors for sales, services performed or other charges arising on or before the respective dates of recording thereof. All Accounts Receivable have been billed in accordance with the past practice of the Company consistently applied and, to the Knowledge of the Company, are collectible in the ordinary course of business within three (3) months, except to the extent of an amount not in excess of the reserve for doubtful accounts reflected on the Interim Period Unaudited Company Balance Sheet.

 

Section 4.6.3 There are no actual outstanding claims against the Company that, in the aggregate, are material to the Company, to return any products by reason of alleged overshipments, defective products or otherwise. No outstanding purchase commitment of the Company presently is in excess of the normal, ordinary and usual requirements of the Company Business or was made at any price in excess of the now current market price or contains terms or conditions more onerous than those usual and customary in the Company Business.

 

Section 4.7 Contracts . Section 4.7 of the Company Disclosure Schedule sets forth a complete and accurate list or description of all Contracts, except for “click through” or “shrink-wrap” end user license agreements for commercial, off-the-shelf standard software products entered into in the ordinary course of business: (v) pursuant to which the Company or any of its Subsidiaries is either obligated to pay or entitled to receive in excess of $50,000 and that is not otherwise required to be disclosed pursuant to subsections (w), (x), (y) or (z) of this Section 4.7; provided, however , that Section 4.7 of the Company Disclosure Schedule does not omit any Contracts pursuant to which, when viewed collectively, the Company or any of its Subsidiaries are either obligated to pay or entitled to receive in excess of $250,000 in the aggregate; (w) that are not terminable by the Company within ninety (90) days from the date of this Agreement without penalty or further obligation on the part of the Company or any of its Subsidiaries; (x) that involve payments based on profits or revenues of the Company or any of its Subsidiaries; (y) that are outsourcing, employment, management, consulting, service or severance agreements or other agreements or arrangements with any of the Company Business Employees or Company Business Independent Contractors (other than offer letters and employee invention and proprietary rights assignment agreements and option agreements, in each case, in the Company’s standard forms previously provided to Parent); or (z) that include any noncompetition or nonsolicitation covenant or any exclusive dealing or similar arrangement that limits the ability of the Company or any of its Subsidiaries or any of their respective Affiliates to compete (geographically or otherwise) in any line of business (collectively, the “ Scheduled Contracts ”). Section 4.7 of the Company Disclosure Schedule also sets forth a complete and accurate list of all oral commitments that the Company or its Subsidiaries have made to their respective customers with respect to the products and services of the Company and its Subsidiaries. As of the date hereof, each of the Contracts is a legal, valid and binding obligation of the Company or its Subsidiaries (assuming the due authorization, execution and delivery by the other parties thereto), is in full force and effect and enforceable against the Company and its Subsidiaries in acco