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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 8-A/A
AMENDMENT NO. 2
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
QUICKTURN DESIGN SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 77-0159619
___________________________________ ________________________________
(State of incorporation or organization) (IRS Employer Identification No.)
55 W. Trimble Road
San Jose, California 95131
(Address of principal executive offices) (Zip Code)
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Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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None None
Securities to be registered pursuant to Section 12(g) of the Act:
PREFERRED SHARE PURCHASE RIGHTS
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(Title of Class)
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Item 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
Effective as of January 10, 1996, pursuant to a Preferred Shares
Rights Agreement dated January 10, 1996, as amended August 25, 1998, and as
amended December 8, 1998 (collectively, the "Rights Agreement") between
Quickturn Design Systems, Inc. (the "Company") and BankBoston, N.A. (formerly
known as the First National Bank of Boston), as Rights Agent (the "Rights
Agent"), the Company's Board of Directors declared a dividend of one right (a
"Right") to purchase one one-thousandth share of the Company's Series A
Participating Preferred Stock ("Series A Preferred") for each outstanding
share of Common Stock, $.001 par value ("Common Shares"), of the Company. The
dividend was payable on January 22, 1996 (the "Record Date") to stockholders
of record as of the close of business on that date. Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share
of Series A Preferred at an exercise price of $50 (the "Purchase Price"),
subject to adjustment in the event the Company declares a dividend on the
Common Stock payable in Common Stock, subdivides the number of outstanding
shares of Common Stock into a larger number of such shares or combines the
number of outstanding shares of Common Stock into a smaller number of such
shares, among other circumstances. In addition, under certain circumstances
described more fully herein, the Rights may become exercisable for Common
Shares having a value equal to two times the Purchase Price and/or Common
Stock of certain acquiring companies having a value equal to two times the
Purchase Price.
The following summary of the principal terms of the Rights Agreement is a
general description only and is subject to the detailed terms and conditions of
the Rights Agreement. A copy of the Rights Agreement is attached as Exhibit 1
to this Registration Statement and is incorporated herein by reference.
Rights Evidenced by Common Share Certificates
The Rights will not be exercisable until the Distribution Date (defined
below). Certificates for the Rights ("Rights Certificates") will not be sent to
stockholders and the Rights will attach to and trade only together with the
Common Shares. Accordingly, Common Share certificates outstanding on the Record
Date will evidence the Rights related thereto, and Common Share certificates
issued after the Record Date will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender or transfer of any certificates for
Common Shares, outstanding as of the Record Date, even without notation or a
copy of the Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate.
Distribution Date
The Rights will separate from the Common Shares, Rights Certificates will
be issued and the Rights will become exercisable upon the earlier of: (i) ten
days (or such later date as may be determined by the Board of Directors)
following the first date a public announcement by the Company or an Acquiring
Person (as defined below) that an Acquiring Person has become such (the "Shares
Acquisition Date"), (ii) ten days (or such later date as may be determined by
the Board of Directors) following the
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commencement of, or announcement of an intention to make, a tender offer or
exchange offer, the consummation of which would result in a person or group
becoming an Acquiring Person or (iii) with respect to (A) the tender offer (the
"Tender Offer") disclosed in the Tender Offer Statement on Schedule 14D-1, dated
August 12, 1998, filed with the Securities and Exchange Commission by MGZ Corp.,
a Delaware corporation and wholly-owned subsidiary of Mentor Graphics
Corporation, an Oregon corporation ("Mentor"), and any amendment to such Tender
Offer or (B) the commencement of a separate tender offer within the meaning of
Rule 14d-2(a) of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, by Mentor or any Affiliate or Associate (as such terms
are defined in the Rights Agreement) of Mentor, a date to be determined by the
Company's Board of Directors. The earlier of such dates is referred to as the
"Distribution Date." A person or group of affiliated or associated persons that
beneficially owns, or has the right to acquire beneficial ownership of, 15% or
more of the outstanding Common Shares is referred to as an "Acquiring Person;"
provided, however, neither Cadence Design Systems, Inc. ("Cadence"), nor any
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Affiliate of Cadence or the Company, shall be deemed to be an Acquiring Person
as a result of the transactions contemplated by (i) the Agreement and Plan of
Merger (the "Cadence Merger Agreement") by and among Cadence, the Company
and CDSI Acquisition, Inc. in the form attached hereto as Exhibit D to Amendment
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No. 2 to the Preferred Share Rights Agreement, dated December 8, 1998, or (ii)
the "Stock Option Agreement" between Cadence and the Company in the
form attached hereto as Exhibit E to Amendment No. 2 to the Preferred Share
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Rights Agreement, dated December 8, 1998.
Issuance of Rights Certificates; Expiration of Rights
As soon as practicable following the Distribution Date, separate Rights
Certificates will be mailed to holders of record of the Common Shares as of the
close of business on the Distribution Date and such separate Rights Certificates
alone will evidence the Rights from and after the Distribution Date. The Rights
will expire on the earliest of (i) January 10, 2006 (the "Final Expiration
Date", (ii) redemption or exchange of the Rights as described below, or (iii)
the "Effective Time" as defined in the Cadence Merger Agreement.
Initial Exercise of the Rights
Following the Distribution Date, and until one of the further events
described below, holders of the Rights will be entitled to receive, upon
exercise and the payment of the Purchase Price, one one-thousandth of a share of
the Series A Preferred, subject to adjustment in the event the Company declares
a dividend on the Common Stock payable in Common Stock, subdivides the number of
outstanding shares of Common Stock into a larger number of such shares or
combines the number of outstanding shares of Common Stock into a smaller number
of such shares, among other circumstances. In addition, under certain
circumstances described more fully below, the Rights may become exercisable for
Common Stock having a value equal to two times the Purchase Price and/or Common
Stock of certain acquiring companies having a value equal to two times the
Purchase Price.
Right to Buy Company Common Shares
Unless the Rights are earlier redeemed, in the event that a person becomes
an Acquiring Person (a "Triggering Event"), then proper provision will be made
so that each holder of a Right which has not theretofore been exercised (other
than Rights beneficially owned by the Acquiring Person or any affiliate of the
Acquiring Person, which will thereafter be void) will thereafter have the right
to receive, upon exercise, Common Shares having a value equal to two times the
Purchase Price. In the event that the Company does not have sufficient Common
Shares available for all Rights to be exercised, or the Board of Directors of
the Company decides that such action is necessary and not contrary to the
interests of
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Rights holders, the Company may instead substitute cash, assets or
other securities for the Common Shares for which the Rights would have been
exercisable.
Right to Buy Acquiring Company Stock
Similarly, unless the Rights are earlier redeemed, in the event that, after
the Shares Acquisition Date, (i) the Company is acquired in a merger or other
business combination transaction, or (ii) 50% or more of the Company's
consolidated assets or earning power are sold (other than in transactions in the
ordinary course of business), proper provision must be made so that each holder
of a Right which has not theretofore been exercised (other than Rights
beneficially owned by the Acquiring Person or any affiliate of the Acquiring
Person, which will thereafter be void) will thereafter have the right to
receive, upon exercise, shares of common stock of the acquiring company having a
value equal to two times the Purchase Price.
Exchange Provision
At any time after a Triggering Event and prior to the acquisition by any
person or entity of beneficial ownership of 50% or more of the Company's
outstanding Common Shares, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by the Acquiring Person), in whole or in
part, at an exchange ratio of one Common Share per Right.
Notwithstanding the foregoing, in the event that a majority of the Board of
Directors of the Company is elected by stockholder action at an annual or
special meeting of stockholders then until the 180th day following the
effectiveness of such election (including any postponement or adjournment
thereof), the Rights shall not be exchanged if such exchange is reasonably
likely to have the purpose or effect of facilitating a Transaction (defined as
merger, consolidation or sale of assets or any acquisition of Common Shares
which would result in a person becoming an Acquiring Person) with an Interested
Person (defined as a person or group who (i) is or will become an Acquiring
Person if such Transaction were to be consummated, and (ii) is, or directly or
indirectly proposed, nominated or financially supported, a director of the
Company in office at the time of consideration of such Transaction who was
elected at an annual or special meeting of stockholders).
Redemption
At any time on or prior to the close of business on the earlier of (i) the
Shares Acquisition Date and (ii) the Final Expiration Date of the Rights, the
Company may redeem the Rights in whole, but not in part, at a price of $0.01 per
Right.
Notwithstanding the foregoing, in the event that a majority of the Board of
Directors of the Company is elected by stockholder action at an annual or
special meeting of stockholders then until the 180th day following the
effectiveness of such election (including any postponement or adjournment
thereof), the Rights shall not be redeemed if such redemption is reasonably
likely to have the purpose or effect of facilitating a Transaction (defined as
merger, consolidation or sale of assets or any
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acquisition of Common Shares which would result in a person becoming an
Acquiring Person) with an Interested Person (defined as a person or group who
(i) is or will become an Acquiring Person if such Transaction were to be
consummated, and (ii) is, or directly or indirectly proposed, nominated or
financially supported, a director of the Company in office at the time of
consideration of such Transaction who was elected at an annual or special
meeting of stockholders).
Adjustments to Prevent Dilution
The Purchase Price payable, the number of Rights, and the number of Series
A Preferred or Common Shares or other securities or property issuable upon
exercise of the Rights are subject to adjustment from time to time in connection
with the dilutive issuances by the Company as set forth in the Rights Agreement.
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price.
Cash Paid Instead of Issuing Fractional Shares
No fractional portion less than integral multiples of one Common Share or
one one-thousandth of a share of Series A Preferred will be issued upon exercise
of a Right and in lieu thereof, an adjustment in cash will be made based on the
market price of the security to be so issued on the last trading date prior to
the date of exercise.
No Stockholders' Rights Prior to Exercise
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company (other than any rights resulting from
such holder's ownership of Common Shares), including, without limitation, the
right to vote or to receive dividends.
Amendment of Rights Agreement
The provisions of the Rights Agreement may be supplemented or amended by
the Board of Directors of the Company in any manner prior to the Distribution
Date without the approval of Rights holders. After such date, the provisions of
the Rights Agreement may be amended by the Board of Directors in order to cure
any ambiguity, defect or inconsistency, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interests of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable.
Notwithstanding the foregoing, in the event that a majority of the Board of
Directors of the Company is elected by stockholder action at an annual or
special meeting, then until the 180th day following the effectiveness of such
election (including any postponement or adjournment thereof), the Rights
Agreement shall not be supplemented or amended in any manner reasonably likely
to have the purpose or effect of facilitating a Transaction with an Interested
Person.
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Rights and Preferences of the Series A Preferred
Series A Preferred purchasable upon exercise of the Rights will not be
redeemable. Each share of Series A Preferred will be entitled to an aggregate
dividend of 1,000 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Series A Preferred will be entitled to 1,000
times the amount paid per Common Share plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment. Each share of Series A Preferred will have 1,000 votes, voting
together with the Common Shares. In the event of any merger, consolidation or
other transaction in which the Common Shares are changed or exchanged, each
share of Series A Preferred will be entitled to receive 1,000 times the amount
received per Common Share. These rights are protected by customary anti-
dilution provisions.
Because of the nature of the dividend, liquidation and voting rights of the
shares of Series A Preferred, the value of the one one-thousandth interest in a
share of Series A Preferred purchasable upon exercise of each Right should
approximate the value of one Common Share.
Certain Anti-takeover Effects
The Rights approved by the Board of Directors of the Company are designed
to protect and maximize the value of the outstanding equity interests in the
Company in the event of an unsolicited attempt by an acquiror to take over the
Company, in a manner or on terms not approved by the Board of Directors.
Takeover attempts frequently include coercive tactics to deprive the Company's
Board of Directors and its stockholders of any real opportunity to determine the
destiny of the Company. The Rights have been declared by the Board of Directors
in order to deter such tactics, including a gradual accumulation of shares in
the open market of a 15% or greater position to be followed by a merger or a
partial or two-tier tender offer that does not treat all stockholders equally.
These tactics unfairly pressure stockholders, squeeze them out of their
investment without giving them any real choice and deprive them of the full
value of their shares.
The Rights are not intended to prevent a takeover of the Company and will
not do so. The Rights may be redeemed by the Company at $0.01 per Right within
ten days after the accumulation of 15% or more of the Company's shares by a
single acquiror or group. Accordingly, the Rights should not interfere with any
merger or business combination approved by the Board of Directors.
Issuance of the Rights does not in any way weaken the financial strength of
the Company or interfere with its business plans. The issuance of the Rights
themselves has no dilutive effect, will not affect reported earnings per share,
should not be taxable to the Company or to its stockholders, and will not change
the way in which the Company's shares are presently traded. The Company's Board
of Directors believes that the Rights represent a sound and reasonable means of
addressing the complex issues of corporate policy created by the current
takeover environment.
However, the Rights may have the effect of rendering more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors. The Rights may cause
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substantial dilution to a person or group that attempts to acquire the Company
on terms or in a manner not approved by the Company's Board of Directors, except
pursuant to an offer conditioned upon the negation, purchase or redemption of
the Rights.
Certain Court Rulings
By Opinion dated December 3, 1998, and revised December 7, 1998, the Court
of Chancery of the State of Delaware ruled that certain provisions of
Amendment No.1, dated August 25, 1998, to the Preferred Shares Rights
Agreement were invalid. The provisions ruled invalid relate to the 180 day
delay in the ability of a Board of Directors elected by stockholder action to
redeem or exchange the Rights, or to amend the Rights Agreement. This Decision
is currently under appeal to the Supreme Court of the State of Delaware, which
appeal is currently scheduled to be argued on December 29, 1998.
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Item 2. EXHIBITS.
1 Preferred Shares Rights Agreement dated as of January 10, 1996,
between Quickturn Design Systems, Inc. and BankBoston, N.A.
(formerly known as the First National Bank of Boston), including the
Certificate of Designation, the form of Rights Certificate and the
Summary of Rights Attached thereto as Exhibits A, B and C,
respectively.
2 Amendment No. 1, dated August 25, 1998, to the Preferred Shares
Rights Agreement, dated January 10, 1996, between Quickturn
Design Systems, Inc. and BankBoston, N.A. (formerly known as the
First National Bank of Boston), including the Summary of Rights
Attached thereto as Exhibit C.
3 Amendment No.2, dated December 8, 1998, to the Preferred Shares Rights
Agreement, dated January 10, 1996, as amended August 25, 1998, between
Quickturn Design Systems, Inc. and BankBoston N.A., including the amended
Summary of Rights attached thereto as Exhibit C, the Cadence Merger Agreement
attached thereto as Exhibit D, and the Stock Option Agreement attached
thereto as Exhibit E.
4 Amended and Restated Certificate of Incorporation of Registrant, as
amended through April 11, 1997. (1)
5 Bylaws of Quickturn Design Systems, Inc., as amended through August 21,
1998. (2)
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(1) Incorporated by reference to Exhibit 3.2 filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
(2) Incorporated by reference to Exhibit 3.2 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1998.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
QUICKTURN DESIGN SYSTEMS, INC.
Date: December 16, 1998
By: /s/ Keith R. Lobo
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Keith R. Lobo
President and Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT
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<C> <S>
1 Preferred Shares Rights Agreement dated as of January 10, 1996,
between Quickturn Design Systems, Inc. and BankBoston, N.A.
(formerly known as the First National Bank of Boston), including the
Certificate of Designation, the form of Rights Certificate and the
Summary of Rights Attached thereto as Exhibits A, B and C,
respectively.
2 Amendment No. 1, dated August 25, 1998, to the Preferred Shares
Rights Agreement, dated January 10, 1996, between Quickturn
Design Systems, Inc. and BankBoston, N.A. (formerly known as the
First National Bank of Boston), including the Summary of Rights
Attached thereto as Exhibit C.
3 Amendment No.2, dated December 8, 1998, to the Preferred Shares
Rights Agreement, dated January 10, 1996, as amended August 25, 1998,
between Quickturn Design Systems, Inc. and BankBoston N.A., including
the amended Summary of Rights attached thereto as Exhibit C, the
Cadence Merger Agreement attached thereto as Exhibit D, and the Stock
Option Agreement attached thereto as Exhibit E.
4 Amended and Restated Certificate of Incorporation of Registrant, as
amended through April 11, 1997. (1)
5 Bylaws of Quickturn Design Systems, Inc., as amended through August 21,
1998. (2)
</TABLE>
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(1) Incorporated by reference to Exhibit 3.2 filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
(2) Incorporated by reference to Exhibit 3.2 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1998.
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EXHIBIT 1
QUICKTURN DESIGN SYSTEMS, INC.
AND
THE FIRST NATIONAL BANK OF BOSTON
RIGHTS AGENT
PREFERRED SHARES RIGHTS AGREEMENT
DATED AS OF JANUARY 10, 1996
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TABLE OF CONTENTS
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PAGE
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Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . . 5
Section 3. Issuance of Rights Certificates . . . . . . . . . . . . . . . . . . . . 5
Section 4. Form of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . 7
Section 5. Countersignature and Registration . . . . . . . . . . . . . . . . . . . 8
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates . . . . . . . 8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights . . . . . 9
Section 8. Cancellation and Destruction of Rights Certificates . . . . . . . . . . 11
Section 9. Reservation and Availability of Preferred Shares . . . . . . . . . . . 11
Section 10. Preferred Shares Record Date . . . . . . . . . . . . . . . . . . . . . 12
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights . . 13
Section 12. Certificate of Adjusted Purchase Price or Number of Shares . . . . . . 20
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power . 21
Section 14. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . 23
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 16. Agreement of Rights Holders . . . . . . . . . . . . . . . . . . . . . . 24
Section 17. Rights Certificate Holder Not Deemed a Stockholder . . . . . . . . . . 25
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . 25
Section 19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . 26
</TABLE>
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TABLE OF CONTENTS
(continued)
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<S> <C> <C>
Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 22. Issuance of New Rights Certificates . . . . . . . . . . . . . . . . . . 29
Section 23. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 24. Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 25. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . 31
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 27. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . 32
Section 28. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 29. Determinations and Actions by the Board of Directors, etc. . . . . . . 33
Section 30. Benefits of this Agreement . . . . . . . . . . . . . . . . . . . . . . 33
Section 31. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 32. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 33. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 34. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . 34
EXHIBITS
Exhibit A Form of Certificate of Designation
Exhibit B Form of Rights Certificate
Exhibit C Summary of Rights
</TABLE>
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RIGHTS AGREEMENT
Agreement, dated as of January 10, 1996 between Quickturn Design Systems,
Inc., a Delaware corporation (the "COMPANY"), and the First National Bank of
Boston (the "RIGHTS AGENT").
Effective as of January 10, 1996 (the "RIGHTS DIVIDEND DECLARATION DATE"),
the Board of Directors of the Company authorized and declared a dividend of one
Preferred Share purchase right (a "RIGHT") for each Common Share (as hereinafter
defined) of the Company outstanding as of the Close of Business (as hereinafter
defined) on January 22, 1996 (the "RECORD DATE"), each Right representing the
right to purchase one one-thousandth (0.001) of a share of Series A
Participating Preferred Stock (as such number may be adjusted pursuant to the
provisions of this Agreement), having the rights, preferen ces and privileges
set forth in the form of Certificate of Designation of Rights, Preferences and
Privileges of Series A Participating Preferred Stock attached hereto as Exhibit
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A, upon the terms and subject to the conditions herein set forth, and further
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authorized and directed the issuance of one Right (as such number may be
adjusted pursuant to the provisions of this Agreement) with respect to each
Common Share that shall become outstanding between the Record Date and the
earlier of the Distribution Date and the Expiration Date (as such terms are
hereinafter defined), and in certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
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following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 15% or more of the Common Shares then outstanding, but shall not include the
Company, any Subsidiary of the Company or any employee benefit plan of the
Company or of any Subsidiary of the Company, or any entity holding Common Shares
for or pursuant to the terms of any such plan. Notwithstanding the foregoing,
no Person shall be deemed to be an Acquiring Person as the result of an
acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the Beneficial
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Owner of 15% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company, then such Person shall be deemed to be an Acquiring Person.
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person", as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of Common Shares so that such Person would no
longer be an "Acquiring Person",
<PAGE>
as defined pursuant to the foregoing provisions of this paragraph (a), then such
Person shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement.
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as in
effect on the date of this Agreement.
(c) A Person shall be deemed the "BENEFICIAL OWNER" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, for purposes of Section
13(d) of the Exchange Act and Rule 13d-3 thereunder (or any comparable or
successor law or regulation);
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights (other than the Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed pursuant to this Section
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1(c)(ii)(A) to be the Beneficial Owner of, or to beneficially own, (1)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, or (2) securities
which a Person or any of such Person's Affiliates or Associates may be deemed to
have the right to acquire pursuant to any merger or other acquisition agreement
between the Company and such Person (or one or more of its Affiliates or
Associates) if such agreement has been approved by the Board of Directors of the
Company prior to there being an Acquiring Person; or (B) the right to vote
pursuant to any agreement, arrangement or understanding; provided, however, that
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a Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security under this Section 1(c)(ii)(B) if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable proxy or
consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and
regulations of the Exchange Act and (2) is not also then reportable on Schedule
13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding, whether or not in writing (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the proviso
to Section 1(c)(ii)(B)) or disposing of any securities of the Company;
provided, however, that in no case shall an officer or director of the Company
- -------- -------
be deemed (x) the Beneficial Owner of any securities beneficially owned by
another officer or director of the Company
-2-
<PAGE>
solely by reason of actions undertaken by such persons in their capacity as
officers or directors of the Company or (y) the Beneficial Owner of securities
held of record by the trustee of any employee benefit plan of the Company or
any Subsidiary of the Company for the benefit of any employee of the Company
or any Subsidiary of the Company, other than the officer or director, by
reason of any influence that such officer or director may have over the voting
of the securities held in the plan.
(d) "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in California are authorized or
obligated by law or executive order to close.
(e) "CLOSE OF BUSINESS" on any given date shall mean 5:00 P.M.,
California time, on such date; provided, however, that if such date is not a
-------- -------
Business Day it shall mean 5:00 P.M., California time, on the next succeeding
Business Day.
(f) "COMMON SHARES" when used with reference to the Company shall
mean the shares of Common Stock of the Company, $0.001 par value per share.
"Common Shares" when used with reference to any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest voting
power of such other Person or, if such other Person is a Subsidiary of another
Person, the Person or Persons which ultimately control such first-mentioned
Person.
(g) "CONTINUING DIRECTOR" shall mean (i) any member of the Board of
Directors of the Company who, while a member of the Board, is not an Acquiring
Person, or an Affiliate or Associate of an Acquiring Person, or a representative
of an Acquiring Person or of any such Affiliate or Associate, and who was a
member of the Board prior to the date of this Agreement, or (ii) any Person who
subsequently becomes a member of the Board who, while a member of the Board, is
not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or
a representative of an Acquiring Person or of any such Affiliate or Associate,
if such Person's nomination for election or election to the Board is recommended
or approved by a majority of the Continuing Directors.
(h) "DISTRIBUTION DATE" shall mean the earlier of (i) the Close of
Business on the tenth day (or such later date as may be determined by action of
a majority of Continuing Directors then in office) after the Shares Acquisition
Date (or, if the tenth day after the Shares Acquisition Date occurs before the
Record Date, the Close of Business on the Record Date) or (ii) the Close of
Business on the tenth day (or such later date as may be determined by action of
a majority of Continuing Directors then in office) after the date that a tender
or exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if, assuming the successful consummation
thereof, such Person would be the Beneficial Owner of 15% or more of the shares
of Common Stock then outstanding.
-3-
<PAGE>
(i) "EQUIVALENT SHARES" shall mean Preferred Shares and any other
class or series of capital stock of the Company which is entitled to participate
in dividends and other distributions, including distributions upon the
liquidation, dissolution or winding up of the Company, on a proportional basis
with the Common Shares. In calculating the number of any class or series of
Equivalent Shares for purposes of Section 11 of this Rights Agreement, the
number of shares, or fractions of a share, of such class or series of capital
stock that is entitled to the same dividend or distribution as a whole Common
Share shall be deemed to be one share.
(j) "EXPIRATION DATE" shall mean the earliest of (i) the Close of
Business on the Final Expiration Date, (ii) the Redemption Date, (iii) the time
at which the Board of Directors orders the exchange of the Rights as provided in
Section 24 hereof or (iv) the consummation of a transaction contemplated by
Section 13(d) hereof.
(k) "FINAL EXPIRATION DATE" shall mean January 10, 2006.
(l) "PERMITTED OFFER" shall mean a tender offer for all outstanding
Common Shares made in the manner prescribed by Section 14(d) of the Exchange Act
and the rules and regulations promulgated thereunder; provided, however, that
-------- -------
such tender offer occurs at a time when Continuing Directors are in office and a
majority of the Continuing Directors then in office has determined that the
offer is both adequate and otherwise in the best interests of the Company and
its stockholders (taking into account all factors that such Continuing Directors
deem relevant).
(m) "PERSON" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(n) "PREFERRED SHARES" shall mean shares of Series A Participating
Preferred Stock of the Company.
(o) "PURCHASE PRICE" shall have the meaning set forth in Section
4(a) hereof.
(p) "RECORD DATE" shall have the meaning set forth in the
recitals at the beginning of this Agreement.
(q) "REDEMPTION DATE" shall mean the time at which the Board of
Directors of the Company orders redemption of the Rights as provided in Section
23 hereof.
(r) "REDEMPTION PRICE" shall have the meaning set forth in Section
23(a) hereof.
(s) "RIGHTS DIVIDEND DECLARATION DATE" shall have the meaning set
forth in the recitals at the beginning of this Agreement.
-4-
<PAGE>
(t) "SECTION 13 EVENT" shall mean any event described in clause
(i), (ii) or (iii) of Section 13(a) hereof.
(u) "SHARES ACQUISITION DATE" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such;
provided that, if such Person is determined not to have become an Acquiring
- -------------
Person pursuant to Section 1(a) hereof, then no Shares Acquisition Date shall be
deemed to have occurred.
(v) "SUBSIDIARY" of any Person shall mean any corporation or other
entity of which an amount of voting securities sufficient to elect a majority of
the directors or Persons having similar authority of such corporation or other
entity is beneficially owned, directly or indirectly, by such Person, or any
corporation or other entity otherwise controlled by such Person.
(w) "TOTAL EXERCISE PRICE" shall have the meaning set forth in
Section 4(a) hereof.
(x) "TRADING DAY" shall have the meaning set forth in Section 11(d)
hereof.
(y) A "TRIGGERING EVENT" shall be deemed to have occurred upon any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becoming an Acquiring Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
---------------------------
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issuance of Rights Certificates.
-------------------------------
(a) Until the Distribution Date, (i) the Rights will be evidenced
(subject to the provisions of Sections 3(b) and 3(c) hereof) by the certificates
for Common Shares registered in the names of the holders thereof (which
certificates shall also be deemed to be Rights Certificates) and not by separate
Rights Certificates and (ii) the right to receive Rights Certificates will be
transferable only in connection with the transfer of Common Shares. Until the
earlier of the Distribution Date or the Expiration Date, the surrender for
transfer of such certificates for Common Shares shall also constitute the
surrender for transfer of the Rights associated with the Common Shares
represented thereby. As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, postage-prepaid mail, to each record holder of Common
Shares as of the close of
-5-
<PAGE>
business on the Distribution Date, at the address of such holder shown on the
records of the Company, a Rights Certificate, in substantially the form of
Exhibit B hereto (a "RIGHTS CERTIFICATE"), evidencing one Right for each
- ---------
Common Share so held, subject to adjustment as provided herein. In the event
that an adjustment in the number of Rights per Common Share has been made
pursuant to Section 11(a)(i), Section 11(i) or Section 11(p) hereof, then at
the time of distribution of the Rights Certificates, the Company shall make
the necessary and appropriate rounding adjustments (in accordance with Section
14(a) hereof) so that Rights Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional Rights. As
of the Distribution Date, the Rights will be evidenced solely by such Rights
Certificates and may be transferred by the transfer of the Rights Certificates
as permitted hereby, separately and apart from any transfer of one or more
Common Shares, and the holders of such Rights Certificates as listed in the
records of the Company or any transfer agent or registrar for the Rights shall
be the record holders thereof.
(b) On the Record Date or as soon as practicable thereafter, the
Company will send (or cause to be sent) a copy of a Summary of Rights in
substantially the form of Exhibit C hereto (the "SUMMARY OF RIGHTS"), by first-
---------
class, postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Record Date, at the address of such holder shown on the
records of the Company.
(c) Unless the Board of Directors by resolution adopted at or
before the time of the issuance (including pursuant to the exercise of rights
under the Company's benefit plans) of any Common Shares specifies to the
contrary, Rights shall be issued in respect of all Common Shares that are
issued after the Record Date but prior to the earlier of the Distribution Date
or the Expiration Date or, in certain circumstances provided in Section 22
hereof, after the Distribution Date. Certificates representing such Common
Shares shall also be deemed to be certificates for Rights, and shall bear the
following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN
RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN QUICKTURN DESIGN SYSTEMS,
INC. AND THE FIRST NATIONAL BANK OF BOSTON AS THE RIGHTS AGENT, DATED AS OF
JANUARY 10, 1996 (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE HEREBY
INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICES OF QUICKTURN DESIGN SYSTEMS, INC. UNDER
CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS
WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED
BY THIS CERTIFICATE. QUICKTURN DESIGN SYSTEMS, INC. WILL MAIL TO THE
HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE
AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON
WHO IS, WAS
-6-
<PAGE>
OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD
BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME
NULL AND VOID.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby. In the event that the Company purchases or
acquires any Common Shares after the Record Date but prior to the Distribution
Date, any Rights associated with such Common Shares shall be deemed canceled and
retired so that the Company shall not be entitled to exercise any Rights
associated with the Common Shares which are no longer outstanding.
Section 4. Form of Rights Certificates.
---------------------------
(a) The Rights Certificates (and the forms of election to purchase
Common Shares and of assignment to be printed on the reverse thereof) shall be
substantially in the form of Exhibit B hereto and may have such marks of
---------
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date (or in the case of Rights issued with respect to
Common Shares issued by the Company after the Record Date, as of the date of
issuance of such Common Shares) and on their face shall entitle the holders
thereof to purchase such number of one-thousandths of a Preferred Share as shall
be set forth therein at the price set forth therein (such exercise price per one
one-thousandth (0.001) of a Preferred Share being hereinafter referred to as the
"PURCHASE PRICE" and the aggregate exercise price of all Preferred Shares
issuable upon exercise of one Right being hereinafter referred to as the "TOTAL
EXERCISE PRICE"), but the number and type of securities purchasable upon the
exercise of each Right and the Purchase Price shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person
becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of
Directors of the
-7-
<PAGE>
Company has determined is part of a plan, arrangement or understanding which
has as a primary purpose or effect avoidance of Section 7(e) hereof, and any
Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon
transfer, exchange, replacement or adjustment of any other Rights Certificate
referred to in this sentence, shall contain (to the extent feasible) the
following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION
7(E) OF THE RIGHTS AGREEMENT.
Section 5. Countersignature and Registration.
---------------------------------
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its
President or any Vice President, either manually or by facsimile signature,
and by the Secretary or an Assistant Secretary of the Company, either manually
or by facsimile signature, and shall have affixed thereto the Company's seal
(if any) or a facsimile thereof. The Rights Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose
unless countersigned. In case any officer of the Company who shall have signed
any of the Rights Certificates shall cease to be such officer of the Company
before countersignature by the Rights Agent and issuance and delivery by the
Company, such Rights Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the person who signed such Rights Certificates had not ceased
to be such officer of the Company; and any Rights Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution
of such Rights Certificate, shall be a proper officer of the Company to sign
such Rights Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
- ----------------------------------------------------------------------
(a) Subject to the provisions of Sections 7(e), 14 and 24 hereof,
at any time after the Close of Business on the Distribution Date, and at or
prior to the Close of Business on the Expiration Date, any Rights Certificate
or Rights Certificates may be transferred, split up, combined or exchanged
-8-
<PAGE>
for another Rights Certificate or Rights Certificates, entitling the
registered holder to purchase a like number of one-thousandths of a Preferred
Share (or, following a Triggering Event, other securities, cash or other
assets, as the case may be) as the Rights Certificate or Rights Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Rights Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any
such surrendered Rights Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on
the reverse side of such Rights Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall, subject to Sections
7(e), 14 and 24 hereof, countersign and deliver to the person entitled thereto
a Rights Certificate or Rights Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate if mutilated, the Company will make and deliver a new
Rights Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
-------------------------------------------------------------
(a) Subject to Sections 7(e), 23(b) and 24(b) hereof, the
registered holder of any Rights Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date upon surrender of the Rights Certificate, with the
form of election to purchase on the reverse side thereof duly executed, to the
Rights Agent at the office of the Rights Agent designated for such purpose,
together with payment of the Purchase Price for each one-thousandth of a
Preferred Share as to which the Rights are exercised, at or prior to the
Expiration Date.
(b) The Purchase Price for each one-thousandth (0.001) of a
Preferred Share issuable pursuant to the exercise of a Right shall initially
be fifty dollars ($50), shall be subject to adjustment from time to time as
provided in Sections 11 and 13 hereof and shall be payable in lawful money of
the United States of America in accordance with paragraph (c) below.
-9-
<PAGE>
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the number of one-thousandths of a Preferred
Share (or other securities or property, as the case may be) to be purchased and
an amount equal to any applicable transfer tax required to be paid by the holder
of such Rights Certificate in accordance with Section 9 hereof in cash, or by
certified check or cashier's check payable to the order of the Company, the
Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A)
requisition from any transfer agent of the Preferred Shares (or make available,
if the Rights Agent is the transfer agent for the Preferred Shares) a
certificate or certificates for the number of one-thousandths of a Preferred
Share to be purchased and the Company hereby irrevocably authorizes its transfer
agent to comply with all such requests or (B) if the Company shall have elected
to deposit the total number of one-thousandths of a Preferred Share issuable
upon exercise of the Rights hereunder with a depositary agent, requisition from
the depositary agent of depositary receipts representing such number of one-
thousandths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii)
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt thereof, deliver such cash to or
upon the order of the registered holder of such Rights Certificate. The payment
of the Purchase Price (as such amount may be reduced (including to zero)
pursuant to Section 11(a)(iv) hereof) may be made in cash or by certified bank
check or bank draft payable to the order of the Company. In the event that the
Company is obligated to issue other securities of the Company, pay cash and/or
distribute other property pursuant to Section 11(a) hereof, the Company will
make all arrangements necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if and when
appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Rights Certificate or to
his or her duly authorized assigns, subject to the provisions of Section 14
hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Triggering Event or a Section 13 Event, any
Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such (a "POST TRANSFEREE"), (iii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is part
-10-
<PAGE>
of a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 7(e) (a "PRIOR TRANSFEREE") or (iv) any
subsequent transferee receiving transferred Rights from a Post Transferee or a
Prior Transferee, either directly or through one or more intermediate
transferees, shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The
Company shall use all reasonable efforts to ensure that the provisions of this
Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Rights Certificates or to any other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or any of such Acquiring Person's Affiliates, Associates or transferees
hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
---------------------------------------------------
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Rights Certificates to the Company, or shall, at the
written request of the Company, destroy such canceled Rights Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Shares.
------------------------------------------------
(a) The Company covenants and agrees that it will use its best
efforts to cause to be reserved and kept available out of and to the extent of
its authorized and unissued shares of Preferred Stock not reserved for another
purpose (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities), the
number of Preferred Shares (and, following the occurrence of the Triggering
Event, Common Stock and/or other securities) that will be sufficient to permit
the exercise in full of all outstanding Rights.
(b) If the Company shall hereafter list any of its Preferred
Shares on a national securities exchange, then so long as the Preferred Shares
(and, following the occurrence of a Triggering Event, Common Shares and/or
other securities) issuable and deliverable upon exercise of the Rights may be
listed on such exchange, the Company shall use its best efforts to cause, from
and after such time as
-11-
<PAGE>
the Rights become exercisable (but only to the extent that it is reasonably
likely that the Rights will be exercised), all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iv)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), with respect to the securities purchasable upon
exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing and (iii)
cause such registration statement to remain effective (with a prospectus at all
times meeting the requirements of the Securities Act) until the earlier of (A)
the date as of which the Rights are no longer exercisable for such securities
and (B) the date of expiration of the Rights. The Company may temporarily
suspend, for a period not to exceed ninety (90) days after the date set forth in
clause (i) of the first sentence of this Section 9(c), the exercisability of the
Rights in order to prepare and file such registration statement and permit it to
become effective. Upon any such suspension, the Company shall issue a public
announcement stating, and notify the Rights Agent, that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement and
notification to the Rights Agent at such time as the suspension is no longer in
effect. The Company will also take such action as may be appropriate under, or
to ensure compliance with, the securities or "blue sky" laws of the various
states in connection with the exercisability of the Rights. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be exercisable
in any jurisdiction, unless the requisite qualification in such jurisdiction
shall have been obtained, or an exemption therefrom shall be available, and
until a registration statement has been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares delivered upon
exercise of Rights shall, at the time of delivery of the certificates for such
Preferred Shares (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the original issuance or delivery of the
Rights Certificates or of any Preferred Shares upon the exercise of Rights.
The Company shall not, however, be required to pay any transfer tax which may
be payable in respect of any transfer or delivery of Rights Certificates to a
person other than, or the issuance or delivery of certificates or depositary
receipts for the Preferred Shares in a name other than that of, the registered
holder of the Rights Certificate evidencing Rights surrendered for exercise or
to issue or to deliver any certificates or depositary receipts for Preferred
Shares upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
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<PAGE>
Section 10. Preferred Shares Record Date. Each person in whose name any
----------------------------
certificate for a number of one-thousandths of a Preferred Share is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of Preferred Shares represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
multiplied by the number of one-thousandths of a Preferred Share with respect to
which the Rights have been exercised (and any applicable transfer taxes) was
made; provided, however, that if the date of such surrender and payment is a
-------- -------
date upon which the Preferred Shares transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the Preferred Shares transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Rights Certificate
shall not be entitled to any rights of a holder of Preferred Shares for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
-----------------------------------------------------------
Rights. The Purchase Price, the number and kind of shares or other property
- ------
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Common Shares payable in
Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares (by reverse stock split or otherwise) into a smaller
number of Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event, except as otherwise
provided in this Section 11(a) and Section 7(e) hereof: (1) each of the Rights
outstanding at the time of the record date for such dividend or the effective
date of such subdivision, combination or reclassification shall be
proportionately adjusted to that number of Rights (calculated to the nearest one
ten-thousandth (1/10,000) of a Right) equal to a fraction (the "EXCHANGE
RATIO"), the numerator of which shall be the total number of Common Shares or
shares of capital stock outstanding immediately following such subdivision,
combination or reclassification and the denominator of which shall be the total
number of Common Shares outstanding immediately prior to such time, and the
number of Rights that shall thereafter be issued with respect to each Common
Share or share of such other capital stock that shall become outstanding
thereafter prior to the Distribution Date shall be equal to the total number of
outstanding Rights immediately after such event (as adjusted pursuant to this
clause (1)) divided by the total number of outstanding Common Shares or shares
of such other capital stock immediately after such event (subject to further
adjustment pursuant to the provisions of this Agreement); (2) the Purchase Price
in effect at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification shall be adjusted so
that the Purchase Price thereafter shall equal the result obtained by dividing
the Purchase Price in effect immediately prior to such time by the Exchange
Ratio; provided, however, that in no event shall the
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<PAGE>
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (3) the number of Common Shares or shares of
such other capital stock issuable upon the exercise of each Right shall remain
unchanged immediately after such event, but, in the event of a
reclassification, the kind of shares issuable upon the exercise of each Right
immediately after such reclassification shall be adjusted to be the kind of
shares of such other capital stock issued in such reclassification, rather
than Common Shares. If an event occurs which would require an adjustment under
both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment
provided for in this Section 11(a)(i) shall be in addition to, and shall be
made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) Subject to Section 24 of this Agreement, in the event a
Triggering Event shall have occurred, then promptly following such Triggering
Event, proper provision shall be made so that each holder of a Right, except as
provided in Section 7(e) hereof, shall thereafter have the right to receive for
each Right, upon exercise thereof in accordance with the terms of this Agreement
and payment of the then-current Total Exercise Price, in lieu of a number of
one-thousandths of a Preferred Share, such number of Common Shares of the
Company as shall equal the result obtained by multiplying the then-current
Purchase Price by the then number of one-thousandths of a Preferred Share for
which a Right was exercisable (or would have been exercisable if the
Distribution Date had occurred) immediately prior to the first occurrence of a
Triggering Event, and dividing that product by 50% of the current per share
market price (determined pursuant to Section 11(d) hereof) for Common Shares on
the date of occurrence of the Triggering Event (such number of shares being
hereinafter referred to as the "ADJUSTMENT SHARES").
(iii) The right to buy Common Shares of the Company pursuant
to Section 11(a)(ii) hereof shall not arise as a result of any Person becoming
an Acquiring Person through an acquisition of Common Shares pursuant to a
Permitted Offer.
(iv) In lieu of issuing Common Shares in accordance with
Section 11(a)(ii) hereof, the Company may, if the Board of Directors
determines that such action is necessary or appropriate and not contrary to
the interest of holders of Rights (and, in the event that the number of Common
Shares which are authorized by the Company's Certificate of Incorporation but
not outstanding or reserved for issuance for purposes other than upon exercise
of the Rights are not sufficient to permit the exercise in full of the Rights,
or if any necessary regulatory approval for such issuance has not been
obtained by the Company, the Company shall): (A) determine the excess of (1)
the value of the Common Shares issuable upon the exercise of a Right (the
"CURRENT VALUE") over (2) the Purchase Price (such excess, the "SPREAD") and
(B) with respect to each Right, make adequate provision to substitute for such
Common Shares, upon exercise of the Rights, (1) cash, (2) a reduction in the
Purchase Price, (3) other equity securities of the Company (including, without
limitation, shares or units of shares of any series of preferred stock which
the Board of Directors of the Company has deemed to have the same value as
Common Shares (such shares or units of shares of preferred stock are herein
called "common stock equivalents")), except to the extent that the Company has
not obtained any necessary stockholder or regulatory approval for such
issuance, (4) debt securities of the Company, except to the
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<PAGE>
extent that the Company has not obtained any necessary stockholder or
regulatory approval for such issuance, (5) other assets, or (6) any
combination of the foregoing, having an aggregate value equal to the Current
Value, where such aggregate value has been determined by the Board of
Directors of the Company based upon the advice of a nationally recognized
investment banking firm selected by the Board of Directors of the Company;
provided, however, if the Company shall not have made adequate provision to
- -------- -------
deliver value pursuant to clause (B) above within thirty (30) days following
the later of (x) the first occurrence of a Triggering Event and (y) the date
on which the Company's right of redemption pursuant to Section 23(a) expires
(the later of (x) and (y) being referred to herein as the "SECTION 11(A)(II)
TRIGGER DATE"), then the Company shall be obligated to deliver, upon the
surrender for exercise of a Right and without requiring payment of the
Purchase Price, Common Shares (to the extent available), except to the extent
that the Company has not obtained any necessary stockholder or regulatory
approval for such issuance, and then, if necessary, cash, which shares and/or
cash have an aggregate value equal to the Spread. If the Board of Directors of
the Company shall determine in good faith that it is likely that sufficient
additional Common Shares could be authorized for issuance upon exercise in
full of the Rights or that any necessary regulatory approval for such issuance
will be obtained, the thirty (30) day period set forth above may be extended
to the extent necessary, but not more than ninety (90) days after the Section
11(a)(ii) Trigger Date, in order that the Company may seek stockholder
approval for the authorization of such additional shares or take action to
obtain such regulatory approval (such period, as it may be extended, the
"SUBSTITUTION PERIOD"). To the extent that the Company determines that some
action need be taken pursuant to the first and/or second sentences of this
Section 11(a)(iv), the Company (x) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding Rights and
(y) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares,
to take any action to obtain any required regulatory approval and/or to decide
the appropriate form of distribution to be made pursuant to such first
sentence and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect. For
purposes of this Section 11(a)(iv), the value of the Common Shares shall be
the current per share market price (as determined pursuant to Section 11(d)
hereof) of the Common Shares on the Section 11(a)(ii) Trigger Date and the
value of any "common stock equivalent" shall be deemed to have the same value
as the Common Shares on such date.
(b) In case the Company shall, at any time after the date of this
Agreement, fix a record date for the issuance of rights, options or warrants to
all holders of Common Shares or of any class or series of Equivalent Shares
entitling such holders (for a period expiring within forty-five (45) calendar
days after such record date) to subscribe for or purchase Common Shares or
Equivalent Shares or securities convertible into Common Shares or Equivalent
Shares at a price per share (or having a conversion price per share, if a
security convertible into Common Shares or Equivalent Shares) less than the then
current per share market price of the Common Shares or Equivalent Shares (as
defined in Section 11(d)) on such record date, then, in each such case, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Common Shares and
Equivalent
-15-
<PAGE>
Shares (if any) outstanding on such record date, plus the number of Common
Shares or Equivalent Shares, as the case may be, which the aggregate offering
price of the total number of Common Shares or Equivalent Shares, as the case
may be, so to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current market
price, and the denominator of which shall be the number of Common Shares and
Equivalent Shares (if any) outstanding on such record date, plus the number of
additional Common Shares or Equivalent Shares, as the case may be, to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price
may be paid in a consideration part or all of which shall be in a form other
than cash, the value of such consideration shall be as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on
the Rights Agent and the holders of the Rights. Common Shares and Equivalent
Shares owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed, and in the event that
such rights, options or warrants are not so issued, the Purchase Price shall
be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall, at any time after the date of this
Agreement, fix a record date for the making of a distribution to all holders of
the Common Shares or of any class or series of Equivalent Shares (including any
such distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend, if any, or a dividend
payable in Common Shares) or subscription rights, options or warrants (excluding
those referred to in Section 11(b)), then, in each such case, the Purchase Price
to be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the current market price (as determined pursuant
to Section 11(d) hereof) of a Common Share or an Equivalent Share on such record
date, less the fair market value per Common Share or Equivalent Share (as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a Common
Share or Equivalent Share, as the case may be, and the denominator of which
shall be such current market price (as determined pursuant to Section 11(d)
hereof) of a Common Share or Equivalent Share on such record date. Such
adjustments shall be made successively whenever such a record date is fixed, and
in the event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price which would have been in effect if such record
date had not been fixed.
(d) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iv) hereof, the "current per share
market price" of any security (a "SECURITY" for the purpose of this Section
11(d)) on any date shall be deemed to be the average of the daily closing prices
per share of such Security for the thirty (30) consecutive Trading Days (as such
term is hereinafter defined) immediately prior to such date, and for purposes of
computations made pursuant to Section 11(a)(iv) hereof, the "current per share
market price" of any Security on any date shall be
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<PAGE>
deemed to be the average of the daily closing prices per share of such
Security for the ten (10) consecutive Trading Days immediately prior to such
date; provided, however, that in the event that the current per share market
-------- -------
price of the Security is determined during a period following the announcement
by the issuer of such Security of (i) a dividend or distribution on such
Security payable in shares of such Security or securities convertible into
such shares or (ii) any subdivision, combination or reclassification of such
Security, and prior to the expiration of the requisite thirty (30) Trading Day
or ten (10) Trading Day period, after the ex-dividend date for such dividend
or distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Security is not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national
securities exchange, the last sale price or, if such last sale price is not
reported, the average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotations System ("NASDAQ") or such other system then in use,
or, if on any such date the Security is not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board of
Directors of the Company. If on any such date no market maker is making a
market in the Common Shares, the fair value of such shares on such date as
determined in good faith by the Board of Directors of the Company shall be
used. The term "TRADING DAY" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day. If
the Common Shares are not publicly held or so listed or traded, "current per
share market price" shall mean the fair value per share as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be conclusive
for all purposes.
(e) Notwithstanding anything in this Agreement to the contrary, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Purchase Price; provided,
--------
however, that any adjustments which by reason of this Section 11(e) are not
- -------
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest ten-thousandth of a Common Share or other
share or one hundred-thousandth of a Preferred Share, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which requires such adjustment or
(ii) the Expiration Date.
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<PAGE>
(f) If as a result of an adjustment made pursuant to Section 11(a)
or 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right and if required, the Purchase Price thereof, shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Shares contained in
Sections 11(a), (b), (c), (e), (h), (i), (j), (k), (l) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Section 11(b), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence
the right to purchase, at the adjusted Purchase Price, that number of
Preferred Shares (calculated to the nearest one hundred-thousandth of a share)
obtained by (i) multiplying (x) the number of Preferred Shares covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in
effect immediately prior to such adjustment of the Purchase Price, and (ii)
dividing the product so obtained by the Purchase Price in effect immediately
after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price as a result of the calculations made in Section 11(b) to
adjust the number of Rights, in substitution for any adjustment in the number of
Preferred Shares purchasable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of the number of Rights shall be exercisable
for the number of one-thousandths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one hundred-thousandth) obtained by dividing
the Purchase Price in effect immediately prior to adjustment of the Purchase
Price by the Purchase Price in effect immediately after adjustment of the
Purchase Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment, and,
if known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Rights Certificates have been issued, shall be at least ten (10)
days later than the date of the public announcement. If Rights Certificates
have been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 14 hereof, the additional
Rights to which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to such holders
of record in substitution and replacement for the Rights Certificates held by
such holders prior to the date of adjustment, and upon
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<PAGE>
surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the
option of the Company, the adjusted Purchase Price) and shall be registered in
the names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of Preferred Shares issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the Purchase Price per one one-thousandth of a Preferred Share and
the number of one-thousandths of a Preferred Share which were expressed in the
initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the par or stated value, if any, of the
number of one-thousandths of a Preferred Share issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally
issue as fully paid and nonassessable shares such number of one-thousandths of
a Preferred Share at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Purchase Price in effect prior to such adjustment; provided, however, that
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the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) upon the occurrence of the event requiring such
adjustment.
(m) Notwithstanding anything in this Section 11 to the contrary,
prior to the Distribution Date, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any (i) consolidation
or subdivision of the Preferred or Common Shares, (ii) issuance wholly for
cash of any Preferred or Common Shares at less than the current market price,
(iii) issuance wholly for cash of Preferred or Common Shares or securities
which by their terms are convertible into or exchangeable for Preferred or
Common Shares, (iv) stock dividends or (v) issuance of rights, options or
warrants referred to in this Section 11, hereafter made by the Company to
holders of its Preferred or Common Shares shall not be taxable to such
stockholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, effect or permit to occur any Triggering Event or
Section 13 Event, if (i) at the time
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<PAGE>
or immediately after such Triggering Event or Section 13 Event there are any
rights, warrants or other instruments or securities outstanding or agreements
in effect which would substantially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights or (ii) prior to,
simultaneously with or immediately after such Section 13 Event, the
stockholders of the Person who constitutes, or would constitute, the
"PRINCIPAL PARTY" for purposes of Section 13(b) hereof shall have received a
distribution of Rights previously owned by such Person or any of its
Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Sections 23, 24 or 27 hereof, take (or
permit to be taken) any action if at the time such action is taken it is
reasonably foreseeable that such action will diminish substantially or otherwise
eliminate the benefits intended to be afforded by the Rights.
(p) Notwithstanding anything in this Agreement to the contrary,
in the event the Company shall at any time after the date of this Agreement
(A) declare a dividend on the Preferred Shares payable in Preferred Shares,
(B) subdivide the outstanding Preferred Shares, (C) combine the outstanding
Preferred Shares (by reverse stock split or otherwise) into a smaller number
of Preferred Shares, or (D) issue any shares of its capital stock in a
reclassification of the Preferred Shares (including any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), then, in each such event, except as
otherwise provided in this Section 11 and Section 7(e) hereof: (1) each of the
Rights outstanding at the time of the record date for such dividend or the
effective date of such subdivision, combination or reclassification shall be
proportionately adjusted to that number of Rights (calculated to the nearest
one ten-thousandth (1/10,000) of a Right) equal to a fraction (the "EXCHANGE
FRACTION"), the numerator of which shall be the total number of Preferred
Shares or shares of capital stock issued in such reclassification of the
Preferred Shares outstanding immediately following such time and the
denominator of which shall be the total number of Preferred Shares outstanding
immediately prior to such time, and the number of Rights that shall thereafter
be issued with respect to each Common Share or share of other capital stock
that shall be issued in a reclassification of the Common Shares prior to the
Distribution Date shall be equal to the total number of outstanding Rights
immediately after such event (as adjusted pursuant to this clause (1)) divided
by the total number of outstanding Common Shares or shares of such other
capital stock immediately after such event (subject to further adjustment
pursuant to the provisions of this Agreement); (2) the Purchase Price in
effect at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification shall be adjusted so
that the Purchase Price thereafter shall equal the result obtained by dividing
the Purchase Price in effect immediately prior to such time by the Exchange
Fraction; provided, however, that in no event shall the consideration to be
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paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of such
Right; and (3) the number of one-thousandths of a Preferred Share or share of
such other capital stock issuable upon the exercise of each Right shall remain
unchanged immediately after such event, but, in the event of a
reclassification, the kind of shares issuable upon the exercise of each Right
immediately after such reclassification shall be adjusted to be the kind of
shares of such other capital stock issued in such reclassification, rather
than Preferred Shares.
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<PAGE>
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
----------------------------------------------------------
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Preferred Shares a copy of
such certificate and (c) mail a brief summary thereof to each holder of a Rights
Certificate in accordance with Section 26 hereof. Notwithstanding the foregoing
sentence, the failure of the Company to make such certification or give such
notice shall not affect the validity of such adjustment or the force or effect
of the requirement for such adjustment. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment contained
therein and shall not be deemed to have knowledge of such adjustment unless and
until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power.
- -------------
(a) In the event that, following the Shares Acquisition Date,
directly or indirectly:
(i) the Company shall consolidate with, or merge with and
into, any other Person (other than a Subsidiary of the Company in a
transaction the principal purpose of which is to change the state of
incorporation of the Company or which complies with Section 11(o) hereof);
(ii) any Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(o) hereof) shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such consolidation or merger; or
(iii) the Company shall sell or otherwise transfer (or one
or more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company or one or more of its wholly
owned Subsidiaries in one or more transactions, each of which complies with
Section 11(o) hereof),
then, and in each such case, proper provision shall be
made so that
(A) each holder of a Right (except as otherwise
provided herein) shall thereafter have the right to receive, upon the exercise
thereof in accordance with the terms of this Agreement, such number of validly
authorized and issued, fully paid and nonassessable Common Shares of the
Principal Party (as hereinafter defined), free of any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the
result obtained by (1) multiplying the then current Purchase Price by the
number of one-thousandths of a Preferred Share for which a Right was
exercisable immediately prior to the first occurrence of a Section 13 Event
(or, if a Triggering Event has occurred prior to the first occurrence of a
Section 13 Event, multiplying the number of such one-thousandths of a
Preferred Share for which a Right was exercisable immediately prior to the
first occurrence of a
-21-
<PAGE>
Triggering Event by the Purchase Price in effect immediately prior to such
first occurrence) and (2) dividing that product (which, following the first
occurrence of a Section 13 Event, shall be referred to as the "TOTAL EXERCISE
PRICE" for each Right and for all purposes of this Agreement) by 50% of the
current per share market price (determined pursuant to Section 11(d) hereof)
of the Common Shares of such Principal Party on the date of consummation of
such Section 13 Event;
(B) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such Section 13 Event, all the
obligations and duties of the Company pursuant to this Agreement;
(C) the term "COMPANY" shall thereafter be deemed
to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event;
(D) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares) in connection with the consummation of any such transaction as
may be necessary to ensure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights.
(b) "PRINCIPAL PARTY" shall mean, in the case of any transaction
described in clause (i), (ii) or (iii) of Section 13(a), the Person or Acquiring
Person referred to therein (or such Person's or Acquiring Person's successor,
including, if applicable, the Company, if it is the surviving corporation),
provided, however, that in any such case, (i) if such Person is a direct or
- -------- -------
indirect Subsidiary of another Person, "PRINCIPAL PARTY" shall refer to such
other Person and (ii) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, "PRINCIPAL PARTY" shall refer to whichever
of such Persons is the issuer of the Common Shares having the greatest aggregate
value, and provided, further, that for purposes of transactions described in
-------- -------
clause (iii) hereof, "PRINCIPAL PARTY" shall refer to that Person receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions.
(c) If, for any reason, the Rights cannot be exercised for Common
Shares of such Principal Party as provided in Section 13(a), then each holder of
Rights shall have the right to exchange its Rights for cash from such Principal
Party in an amount equal to the number of Common Shares that it would otherwise
be entitled to purchase times 50% of the current per share market price, as
determined pursuant to Section 11(d) hereof, of such Common Shares of such
Principal Party. If, for any reason, the foregoing formulation cannot be
applied to determine the cash amount into which the Rights are exchangeable,
then the Board of Directors, based upon the advice of one or more nationally
recognized investment banking firms, and based upon the total value of the
Company, shall determine such amount reasonably and with good faith to the
holders of Rights. Any such determination shall be final and binding on the
Rights Agent.
-22-
<PAGE>
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in clauses (i) and
(ii) of Section 13(a) if: (i) such transaction is consummated with a Person or
Persons who acquired Common Shares pursuant to a Permitted Offer (or a wholly-
owned Subsidiary of any such Person or Persons); (ii) the price per share of
Common Shares offered in such transaction is not less than the price per share
of Common Shares paid to all holders of Common Shares whose shares were
purchased pursuant to such Permitted Offer; and (iii) the form of consideration
being offered to the remaining holders of Common Shares pursuant to such
transaction is the same form as the form of consideration paid pursuant to such
Permitted Offer. Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.
(e) The Company shall not consummate any Section 13 Event unless
the Principal Party shall have a sufficient number of authorized Common Shares
that have not been issued or reserved for issuance to permit the exercise in
full of the Rights in accordance with this Section 13 and unless prior thereto
the Company and such issuer shall have executed and delivered to the Rights
Agent a supplemental agreement confirming that such Principal Party shall,
upon consummation of such Section 13 Event, assume this Agreement in
accordance with Sections 13(a) and (b) hereof, that all rights of first
refusal or preemptive rights in respect of the issuance of Common Shares of
such Principal Party upon exercise of outstanding Rights have been waived,
that there are no rights, warrants, instruments or securities outstanding or
any agreements or arrangements which, as a result of the consummation of such
transaction, would eliminate or substantially diminish the benefits intended
to be afforded by the Rights and that such transaction shall not result in a
default by such Principal Party under this Agreement, and further providing
that, as soon as practicable after the date of such Section 13 Event, such
Principal Party will:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, use its best efforts to cause
such registration statement to become effective as soon as practicable after
such filing and use its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of
the Securities Act) until the Expiration Date, and similarly comply with
applicable state securities laws;
(ii) use its best efforts to list (or continue the listing
of) the Rights and the securities purchasable upon exercise of the Rights on a
national securities exchange or to meet the eligibility requirements for
quotation on Nasdaq; and
(iii) deliver to holders of the Rights historical financial
statements for such Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act.
In the event that at any time after the occurrence of a Triggering
Event some or all of the Rights shall not have been exercised at the time of a
transaction described in this Section 13,
-23-
<PAGE>
the Rights which have not theretofore been exercised shall thereafter be
exercisable in the manner described in Section 13(a) (without taking into
account any prior adjustment required by Section 11(a)(ii)).
(f) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates which evidence fractional Rights.
In lieu of such fractional Rights, there shall be paid to the registered
holders of the Rights Certificates with regard to which such fractional Rights
would otherwise be issuable, an amount in cash equal to the same fraction of
the current market value of a whole Right. For the purposes of this Section
14(a), the current market value of a whole Right shall be the closing price of
the Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable, as determined pursuant
to the second sentence of Section 11(d) hereof.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one one-
thousandth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
that are integral multiples of one one-thousandth of a Preferred Share). In
lieu of fractional Preferred Shares that are not integral multiples of one one-
thousandth of a Preferred Share, the Company shall pay to the registered
holders of Rights Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of a Common Share. For purposes of this Section 14(b), the current
market value of a Common Share shall be the closing price of a Common Share
(as determined pursuant to the second sentence of Section 11(d) hereof) for
the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives his or her right to receive any fractional Rights or any fractional
shares upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect of this
----------------
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically
-24-
<PAGE>
acknowledged that the holders of Rights would not have an adequate remedy at
law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right, by
---------------------------
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed; and
(c) subject to Sections 6(a) and 7(f) hereof, the Company and the
Rights Agent may deem and treat the person in whose name the Rights Certificate
(or, prior to the Distribution Date, the associated Common Shares certificate)
is registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Shares certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
--------------------------------------------------
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the Preferred Shares
or any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
---------------------------
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done
-25-
<PAGE>
or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any
Rights Certificate or certificate for the Preferred Shares or Common Shares or
for other securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
---------------------------------------------------------
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corpora tion succeeding
to the corporate trust business of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided, however, that such corporation would be eligible
-----------------
for appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates shall
not have been countersigned, the Rights Agent may countersign such Rights
Certificates either in its prior name or in its changed name; and in all such
cases such Rights Certificates shall have the full force provided in the
Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
----------------------
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection
-26-
<PAGE>
to the Rights Agent as to any action taken or omitted by it in good faith and
in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact
or matter (including, without limitation, the identity of any Acquiring Person
and the determination of "current per share market price") be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board,
the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights
Certificate; nor shall it be responsible for any change in the exercisability
of the Rights or any adjustment in the terms of the Rights (including the
manner, method or amount thereof) provided for in Sections 3, 11, 13, 23 or
24, or the ascertaining of the existence of facts that would require any such
change or adjustment (except with respect to the exercise of Rights evidenced
by Rights Certificates after receipt by the Rights Agent of a certificate
furnished pursuant to Section 12 describing such change or adjustment); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any Preferred Shares to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any
Preferred Shares will, when issued, be validly authorized and issued, fully
paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
-27-
<PAGE>
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Chief Financial Officer, the Secretary or any Assistant
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Rights
Agreement and the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any
action taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
-28-
<PAGE>
Section 21. Change of Rights Agent. The Rights Agent or any successor
----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to each
transfer agent of the Preferred Shares and the Common Shares by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Preferred Shares and the Common Shares by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his or
her Rights Certificate for inspection by the Company), then the registered
holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of any state of the United States, in good standing, which is authorized under
such laws to exercise corporate trust or stockholder services powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Preferred Shares and the Common Shares, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
-----------------------------------
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the redemption or expiration of the Rights, the Company (a) shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement or upon the exercise,
conversion or exchange of the convertible subordinated debentures of the Company
outstanding at the date hereof or upon the exercise, conversion or exchange of
securities hereinafter issued by the Company and (b) may, in any other case, if
deemed necessary or appropriate by the Board of Directors of the Company, issue
Rights Certificates representing the appropriate number
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<PAGE>
of Rights in connection with such issuance or sale; provided, however, that
-------- -------
(i) no such Rights Certificate shall be issued and this sentence shall be null
and void ab initio if, and to the extent that, such issuance or this sentence
---------
would create a significant risk of or result in material adverse tax
consequences to the Company or the Person to whom such Rights Certificate
would be issued or would create a significant risk of or result in such
options' or employee plans' or arrangements' failing to qualify for otherwise
available special tax treatment and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
Section 23. Redemption.
----------
(a) The Company may, at its option and with the approval of the
Board of Directors, at any time prior to the Close of Business on the earlier
of (i) the tenth day following the Shares Acquisition Date or such later date
as may be determined by action of a majority of Continuing Directors then in
office and publicly announced by the Company and (ii) the Final Expiration
Date, redeem all but not less than all the then outstanding Rights at a
redemption price of $0.01 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being herein referred to as the "REDEMPTION
PRICE") and the Company may, at its option, pay the Redemption Price either in
Common Shares (based on the current per share market price thereof (as
determined pursuant to Section 11(d) hereof) at the time of redemption) or
cash. Such redemption of the Rights by the Company may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion may establish; provided, however, if the Board of Directors
-------- -------
of the Company authorizes redemption of the Rights on or after the time a
Person becomes an Acquiring Person, then there must be Continuing Directors
then in office and such authorization shall require the concurrence of a
majority of such Continuing Directors.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
--------
however, that the failure to give or any defect in, any such notice shall not
- -------
affect the validity of such redemption. Within ten (10) days after the action
of the Board of Directors ordering the redemption of the Rights, the Company
shall give notice of such redemption to the Rights Agent and the holders of the
then outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such
notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
-30-
<PAGE>
Section 24. Exchange.
--------
(a) Subject to applicable laws, rules and regulations, and
subject to subsection (c) below, the Company may, at its option, by majority
vote of the Board of Directors and a majority vote of the Continuing
Directors, at any time after the occurrence of a Triggering Event, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section
7(e) hereof) for Common Shares at an exchange ratio of one Common Share per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "RATIO OF EXCHANGE"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Shares for or pursuant to the terms
of any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection (a) of this Section
24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Ratio of Exchange.
The Company shall give public notice of any such exchange; provided, however,
-------- -------
that the failure to give, or any defect in, such notice shall not affect the
validity of such exchange. The Company shall mail a notice of any such
exchange to all of the holders of such Rights at their last addresses as they
appear upon the registry books of the Rights Agent. Any notice which is mailed
in the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of exchange will state the method by
which the exchange of the Common Shares for Rights will be effected and, in
the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 7(e) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with Section 24(a), the Company shall
either take such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights or alternatively, at the option
of a majority of the Board of Directors, with respect to each Right (i) pay cash
in an amount equal to the Current Value (as hereinafter defined), in lieu of
issuing Common Shares in exchange therefor, or (ii) issue debt or equity
securities or a combination thereof, having a value equal to the Current Value,
in lieu of issuing Common Shares in exchange for each such Right, where the
value of such securities shall be determined by a nationally recognized
investment banking firm selected by majority vote of the Board of Directors, or
(iii) deliver any combination of cash, property, Common Shares and/or other
securities having a value equal to the Current Value in exchange for each Right.
For purposes of this Section 24(c)
-31-
<PAGE>
only, the Current Value shall mean the product of the current per share market
price of Common Shares (determined pursuant to Section 11(d) on the date of
the occurrence of the event described above in subparagraph (a)) multiplied by
the number of Common Shares for which the Right otherwise would be
exchangeable if there were sufficient shares available. To the extent that the
Company determines that some action need be taken pursuant to clauses (i),
(ii) or (iii) of this Section 24(c), the Board of Directors may temporarily
suspend the exercisability of the Rights for a period of up to sixty (60) days
following the date on which the event described in Section 24(a) shall have
occurred, in order to seek any authorization of additional Common Shares
and/or to decide the appropriate form of distribution to be made pursuant to
the above provision and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares.
In lieu of such fractional Common Shares, there shall be paid to the registered
holders of the Rights Certificates with regard to which such fractional Common
Shares would otherwise be issuable, an amount in cash equal to the same fraction
of the current per share market value of a whole Common Share (as determined
pursuant to the second sentence of Section 11(d) hereof).
(e) The Company may, at its option, by majority vote of the Board
of Directors, at any time before any Person has become an Acquiring Person,
exchange all or part of the then outstanding Rights for rights of
substantially equivalent value, as determined reasonably and with good faith
by the Board of Directors, based upon the advice of one or more nationally
recognized investment banking firms.
(f) Immediately upon the action of the Board of Directors ordering
the exchange of any Rights pursuant to subsection (e) of this Section 24 and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of rights in exchange therefor as has been
determined by the Board of Directors in accordance with subsection (e) above.
The Company shall give public notice of any such exchange; provided, however,
-------- -------
that the failure to give, or any defect in, such notice shall not affect the
validity of such exchange. The Company shall mail a notice of any such exchange
to all of the holders of such Rights at their last addresses as they appear upon
the registry books of the transfer agent for the Common Shares of the Company.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of the Rights will be effected.
Section 25. Notice of Certain Events.
------------------------
(a) In case the Company shall propose to effect or permit to
occur any Triggering Event having the effects described in Section 11(a)(ii)
or a Section 13 Event, the Company shall give
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<PAGE>
notice thereof to each holder of Rights in accordance with Section 26 hereof
at least twenty (20) days prior to occurrence of such Triggering Event or such
Section 13 Event.
(b) In case any Triggering Event or Section 13 Event shall occur,
then, in any such case, the Company shall as soon as practicable thereafter give
to each holder of a Rights Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Sections 11(a)(ii) and 13
hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
-------
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Quickturn Design Systems, Inc.
440 Clyde Avenue
Mountain View, CA 94043
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Rights Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
The First National Bank of Boston
Shareholder Services
435 Tasso Street, Suite 250
Palo Alto, CA 94301
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution Date,
--------------------------
the Company may supplement or amend this Agreement in any respect without the
approval of any holders of Rights and the Rights Agent shall, if the Company so
directs, execute such supplement or amendment. From and after the Distribution
Date, the Company and the Rights Agent may from time to time supplement or amend
this Agreement without the approval of any holders of Rights in order to (i)
cure any ambiguity, (ii) correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, (iii)
shorten or lengthen any time period hereunder (which lengthening or shortening,
following the first occurrence of an event set forth in the proviso to Section
23(a) hereof, shall be effective only if there are Continuing Directors and
shall require the concurrence of a majority
-33-
<PAGE>
of such Continuing Directors) or (iv) to change or supplement the provisions
hereunder in any manner that the Company may deem necessary or desirable and
that shall not adversely affect the interests of the holders of Rights (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person);
provided, this Agreement may not be supplemented or amended to lengthen,
- --------
pursuant to clause (iii) of this sentence, (A) a time period relating to when
the Rights may be redeemed at such time as the Rights are not then redeemable
or (B) any other time period unless such lengthening is for the purpose of
protecting, enhancing or clarifying the rights of, and/or the benefits to, the
holders of Rights. Upon the delivery of a certificate from an appropriate
officer of the Company that states that the proposed supple ment or amendment
is in compliance with the terms of this Section 27, the Rights Agent shall
execute such supplement or amendment. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the
interests of the holders of Common Shares.
Section 28. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc.
----------------------------------------------------------
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company (or, where specifically provided for
herein, the Continuing Directors) shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board, or the Company (or, where specifically provided for
herein, the Continuing Directors), or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board (or, where
specifically provided for herein, by the Continuing Directors) in good faith,
shall (x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights Certificates and all other parties and (y) not subject the
Board or the Continuing Directors to any liability to the holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
--------------------------
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the Common
Shares).
-34-
<PAGE>
Section 31. Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
- -------- -------
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement and each Right and each Rights
-------------
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number
------------
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
-35-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
"COMPANY" QUICKTURN DESIGN SYSTEMS, INC.
By: /s/ Keith R. Lobo
_________________________________________
Name: Keith R. Lobo
_______________________________________
Title: President and Chief Executive Officer
______________________________________
"RIGHTS AGENT" THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Karen Vann
_________________________________________
Name: Karen Vann
_______________________________________
Title: Account Manager
______________________________________
-36-
<PAGE>
EXHIBIT A
---------
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF QUICKTURN DESIGN SYSTEMS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Keith R. Lobo and Raymond K. Ostby, the President and Chief Executive
Officer and the Secretary, respectively, of Quickturn Design Systems, Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware, in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the said Corporation, the said Board of
Directors on January 4, 1996 adopted the following resolution creating a series
of 20,000 shares of Preferred Stock designated as Series A Participating
Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the corporation by the Certificate of Incorporation, the Board of Directors
does hereby provide for the issue of a series of Preferred Stock of the
Corporation, to be designated "Series A Participating Preferred Stock," par
value $0.001 per share, initially consisting of 20,000 shares, and to the extent
that the designations, powers, preferences and relative and other special rights
and the qualifications, limitations and restrictions of the Series A
Participating Preferred Stock are not stated and expressed in the Certificate of
Incorporation, does hereby fix and herein state and express such designations,
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Certificate of Incorporation shall be deemed to
have the meanings provided therein):
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Participating Preferred Stock," par value $0.001 per
share, and the number of shares constituting such series shall be 20,000.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Participating Preferred Stock with respect to dividends, the holders
of shares of Series A Participating Preferred Stock shall be entitled to
<PAGE>
receive when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on the
last day of January, April, July and October in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to, subject to the
provision for adjustment hereinafter set forth, 1,000 times the aggregate per
share amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions
other than a dividend payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share
or fraction of a share of Series A Participating Preferred Stock. In the event
the Corporation shall at any time after January 22, 1996 (the "Rights Dividend
Declaration Date") (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each
such case the amount to which holders of shares of Series A Participating
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Series A Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Participating Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of
Series A Participating Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for
the payment thereof.
-2-
<PAGE>
Section 3. Voting Rights. The holders of shares of Series A Participating
-------------
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Preferred Stock shall entitle the holder
thereof to 1,000 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the
Rights Dividend Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of shares
of Series A Participating Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C) Except as required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
--------------------
(A) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock unless concurrently therewith it
shall declare a dividend on the Series A Participating Preferred Stock as
required by Section 2 hereof.
(B) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series A Participating Preferred Stock outstanding shall have been paid in
full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Participating
Preferred Stock;
(ii) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with Series A
Participating Preferred Stock, except dividends paid ratably on the Series A
Participating
-3-
<PAGE>
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series A Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(C) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Participating
-----------------
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock unless,
prior thereto, the holders of shares of Series A Participating Preferred Stock
shall have received $1,000.00 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment (the "Series A Liquidation Preference"). Following the payment
of the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Participating
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by
-4-
<PAGE>
(ii) 1,000 (as appropriately adjusted as set forth in subparagraph (C) below to
reflect such events as stock splits, stock dividends and recapitalization with
respect to the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Participating Preferred Stock and Common Stock, respectively, holders
of Series A Participating Preferred Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full to the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Participating Preferred Stock shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
-5-
<PAGE>
Section 8. No Redemption. The shares of Series A Participating Preferred
-------------
Stock shall not be redeemable.
Section 9. Ranking. The Series A Participating Preferred Stock shall rank
-------
junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 10. Amendment. The Restated Certificate of Incorporation of the
---------
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preference or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Participating Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Participating Preferred Stock may
-----------------
be issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Participating Preferred Stock.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file (or cause to be prepared and
filed) a Certificate of Designation of Rights, Preferences and Privileges in
accordance with the foregoing resolution and the provisions of Delaware law and
to take such actions as they may deem necessary or appropriate to carry out the
intent of the foregoing resolution."
-6-
<PAGE>
IN WITNESS WHEREOF, we have executed and subscribed to this Certificate and
do hereby affirm the foregoing as true under the penalties of perjury this
10th day of January, 1996.
/s/ Keith R. Lobo
-----------------------------------
Keith R. Lobo, Chief Executive Officer
/s/ Raymond K. Ostby
-----------------------------------
Raymond K. Ostby, Secretary
-7-
<PAGE>
EXHIBIT B
---------
FORM OF RIGHTS CERTIFICATE
Certificate No. R- _____ Rights
NOT EXERCISABLE AFTER JANUARY 10, 2006 OR EARLIER IF TERMINATED BY THE
COMPANY OR IF THE COMPANY EXCHANGES THE RIGHTS PURSU ANT TO THE RIGHTS
AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS
ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH
RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN
THE CIRCUMSTANCES SPECIFIED IN SECTION 7(E) OF SUCH RIGHTS AGREEMENT.]*
RIGHTS CERTIFICATE
QUICKTURN DESIGN SYSTEMS, INC.
This certifies that______________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement dated as of January 10, 1996 (the "Rights Agreement"), between
Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), and The
First National Bank of Boston ("Rights Agent"), to purchase from the Company at
any time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., California time, on January 10, 2006 at the
office of the Rights Agent designated for such purpose, or at the office of its
successor as Rights Agent, one one-thousandth (0.001) of a fully paid non-
assessable share of Series A Participating Preferred Stock, par value $0.001
(the "Preferred Shares"), of the
- ----------------------------
* The portion of the legend in bracket shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
Company, at a purchase price of fifty dollars ($50) per one-thousandth of a
Preferred Share (the "Purchase Price"), upon presentation and surrender of
this Rights Certificate with the Form of Election to Purchase and related
Certificate duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of one-thousandths of a Preferred Share which may
be purchased upon exercise hereof) and the Purchase Price set forth above are
the number and Purchase Price as of January 22, 1996 based on the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number and kind of Preferred Shares or other securities
which may be purchased upon the exercise of the Rights evidenced by this
Rights Certificate are subject to modification and adjustment upon the
happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned office of the Rights Agent.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Rights Certificate (i) may be redeemed by the Company, at its option, at a
redemption price of $0.01 per Right or (ii) may be exchanged by the Company in
whole or in part for Common Shares, substantially equivalent rights or other
consideration as determined by the Company.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
and date evidencing Rights entitling the holder to purchase a like aggregate
amount of securities as the Rights evidenced by the Rights Certificate or Rights
Certificates surrendered shall have entitled such holder to purchase. If this
Rights Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Rights Certificate or Rights Certificates
for the number of whole Rights not exercised.
No fractional portion of less than one one-thousandth of a Preferred Share
will be issued upon the exercise of any Right or Rights evidenced hereby but in
lieu thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action,
-2-
<PAGE>
or to receive notice of meetings or other actions affecting stockholders
(except as provided in the Rights Agreement), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by this
Rights Certificate shall have been exercised as provided in the Rights
Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of ___________, 19__.
ATTEST: QUICKTURN DESIGN SYSTEMS, INC.
________________________________ By: _______________________________
Secretary, President
Quickturn Design Systems, Inc.
Countersigned:
THE FIRST NATIONAL BANK OF BOSTON
as Rights Agent
By: ___________________________________
Authorized Signature
-3-
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate)
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto_____________________________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________
Attorney, to transfer the within Rights Certificate on the books of the within-
named Company, with full power of substitution.
Dated: _______________, 19__
-------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust Company having an office or correspondent in
the United States.
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person, or an
Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of any such Person.
Dated: _______________, 19__
----------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust Company having an office or correspondent in
the United States.
-2-
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise the Rights Certificate)
To: _____________________
The undersigned hereby irrevocably elects to exercise _____________________
purchase the number of one-thousandths of a Preferred Share issuable upon the
exercise of such Rights and requests that certificates for such number of one-
thousandths of a Preferred Share issued in the name of:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated: ___________________ , 19__
-----------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust Company having an office or
correspondent in the United States.
-3-
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of any such Person.
Dated: _______________, 19__
-----------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust Company having an office or correspondent in
the United States.
-4-
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
NOTICE
------
The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
-5-
<PAGE>
EXHIBIT C
---------
QUICKTURN DESIGN SYSTEMS, INC.
STOCKHOLDER RIGHTS PLAN
Summary of Rights
-----------------
Distribution and The Board of Directors has declared a dividend of one
- ---------------- Right for each outstanding share of Common Stock of
Transfer of Rights; Quickturn Design Systems, Inc. (the "COMPANY"). Prior to
- ------------------- the Distribution Date referred to below, the Rights will
Rights Certificate: be evidenced by and trade with the certificates for the
- ------------------ Common Stock. After the Distribution Date, the Company
will mail Rights certificates to the Company's
stockholders and the Rights will become transferable apart
from the Common Stock.
Distribution Date: Rights will separate from the Common Stock and become
- ----------------- exercisable following the tenth day (or such later date
as may be determined by a majority of the Directors not
affiliated with the acquiring person or group (the
"CONTINUING DIRECTORS")) after a person or group (a)
acquires beneficial ownership of 15% or more of the
Company's Common Stock or (b) announces a tender or
exchange offer, the consummation of which would result
in ownership by a person or group of 15% or more of the
Company's Common Stock.
Preferred Stock After the Distribution Date, each Right will entitle the
- --------------- holder to purchase, for fifty dollars ($50) a fraction of
Purchasable Upon a share of the Company's Preferred Stock with economic
- ---------------- terms similar to that of one share of the Company's Common
Exercise of Rights: Stock.
- ------------------
Flip-In: If an acquiror obtains 15% or more of the Company's
- ------- Common Stock (other than pursuant to a tender offer
deemed adequate and in the best interests of the Company
and it stockholders by the Board of Directors (a
"PERMITTED OFFER")), thereby becoming an "ACQUIRING
PERSON", then each Right (other than Rights owned by an
----
Acquiring Person or its affiliates) will entitle the
holder thereof to purchase, for the exercise price, a
number of shares of the Company's Common Stock having a
then current market value of twice the exercise price.
Flip-Over: If, after the Shares Acquisition Date (defined below),
- --------- (a) the Company merges into another entity, (b) an
acquiring entity merges
<PAGE>
into the Company or (c) the Company sells more than 50%
of the Company's assets or earning power, then each
----
Right (other than Rights owned by an Acquiring Person or
its affiliates) will entitle the holder thereof to
purchase, for the exercise price, a number of shares of
Common Stock of the person engaging in the transaction
having a then current market value of twice the exercise
price (unless the transaction satisfies certain
conditions and is consummated with a person who acquired
shares pursuant to a Permitted Offer, in which case the
Rights will expire).
Exchange Provision: At any time after an event triggering the flip-in or flip-
- ------------------ over rights and prior to the acquisition by the
Acquiring Person of 50% or more of the outstanding
Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by the
Acquiring Person or its affiliates), in whole or in
part, at an exchange ratio of one Common Share per Right
(subject to adjustment).
Redemption of Rights will be redeemable at the Company's option for
- ------------- $0.01 per Right at any time on or prior to the
the Rights: Distribution Date, (i.e., the tenth day (or such later
- ---------- date as may be determined by a majority of the
Continuing Directors) after public announcement that a
person has acquired beneficial ownership of 15% or more
of the Company's Common Stock (the "SHARES ACQUISITION
DATE")).
Expiration of The Rights expire on the earliest of (a) January 10,
- ------------- 2006, (b) exchange or redemption of the Rights as
the Rights: described above, or (c) consummation of a merger or
- ---------- consolidation resulting in expiration of the Rights as
described above.
Amendment of The terms of the Rights and the Rights Agreement may be
- ------------ amended in any respect without the consent of the Rights
Terms of Rights: holders on or prior to the Distribution Date;
- --------------- thereafter, the terms of the Rights and the Rights
Agreement may be amended without the consent of the
Rights holders in order to cure any ambiguities or to
make changes which do not adversely affect the interests
of Rights holders (other than the Acquiring Person).
Voting Rights: Rights will not have any voting rights.
- -------------
-2-
<PAGE>
Anti-Dilution Rights will have the benefit of certain customary
- ------------- anti-dilution provisions.
Provisions:
- ----------
Taxes: The Rights distribution should not be taxable for federal
- ----- income tax purposes. However, following an event which
renders the Rights exercisable or upon redemption of the
Rights, stockholders may recognize taxable income.
The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms of
the Rights Agreement dated as of January 10, 1996 between the Company and the
Rights Agent.
-3-
<PAGE>
EXHIBIT 2
QUICKTURN DESIGN SYSTEMS, INC.
AND
BANKBOSTON, N.A.
(FORMERLY KNOWN AS THE FIRST NATIONAL BANK OF BOSTON)
RIGHTS AGENT
AMENDMENT NO. 1
TO
PREFERRED SHARES RIGHTS AGREEMENT
DATED AS OF AUGUST 25, 1998
<PAGE>
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
Amendment No. 1 to Rights Agreement, dated as of August 25, 1998
("AMENDMENT NO. 1"), between Quickturn Design Systems, Inc., a Delaware
corporation (the "COMPANY"), and BankBoston, N.A. (formerly known as the First
National Bank of Boston) (the "RIGHTS AGENT").
WHEREAS, on January 10, 1996 the Company and the Rights Agent entered into
a Rights Agreement (the "ORIGINAL AGREEMENT," as amended hereby is hereinafter
referred to as the "AGREEMENT");
WHEREAS, the Company, with the approval of the Board of the Directors of
the Company, and the Rights Agent have mutually agreed to modify the terms of
the Agreement in certain respects pursuant to this Amendment No. 1.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereto hereby agree that the Original Agreement is
amended as follows:
1. Amendment of "Certain Definitions" Section.
------------------------------------------
(a) Section 1(g) of the Original Agreement is hereby deleted in its
entirety.
(b) Section 1(h) of the Original Agreement is hereby deleted in its
entirety and the following is substituted therefore:
(g) "DISTRIBUTION DATE" shall mean the earlier of (i) the Close of
Business on the tenth day (or such later date as may be determined by
action of the Company's Board of Directors) after the Shares
Acquisition Date (or, if the tenth day after the Shares Acquisition
Date occurs before the Record Date, the Close of Business on the
Record Date), (ii) except as otherwise provided in clause (iii) below,
the Close of Business on the tenth day (or such later date as may be
determined by action of the Company's Board of Directors) after the
date that a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any Person or
entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan) is commenced within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under
the Exchange Act, if, assuming the successful consummation thereof,
such Person would be the Beneficial Owner of 15% or more of the shares
of Common Stock then outstanding, or (iii) with respect to (A) the
tender offer (the "MENTOR TENDER OFFER") disclosed in a Tender Offer
Statement on Schedule 14D-1, dated August 12, 1998, filed with the
Securities and Exchange Commission by MGZ Corp., a Delaware
corporation and wholly-owned subsidiary of Mentor Graphics
Corporation, an Oregon corporation ("MENTOR"), and any amendment to
such Mentor Tender Offer or (B) the commencement of a separate tender
offer within the meaning of Rule 14d-2(a) of the General Rules and
<PAGE>
Regulations under the Exchange Act by Mentor or any Affiliate or
Associate of Mentor, a date to be determined by the Company's Board of
Directors.
(c) Paragraphs (i) through (k) of Section 1 of the Original Agreement are
hereby amended such that such paragraphs shall be labeled (h) through (j),
respectively.
(d) The following shall be inserted into Section 1 of the Agreement
immediately following Section 1(j):
(k) "INTERESTED PERSON" with respect to a Transaction shall mean any
Person who (i) is or will become an Acquiring Person if such
Transaction were to be consummated or an Affiliate or Associate of
such a Person, and (ii) is, or directly or indirectly proposed,
nominated or financially supported, a director of the Company in
office at the time of consideration of such Transaction who was
elected at an annual or special meeting of stockholders.
(e) Section 1(l) of the Original Agreement is hereby deleted in its
entirety.
(f) Paragraphs (m) through (x) of Section 1 of the Original Agreement are
hereby amended such that such paragraphs shall be labeled (l) through (w),
respectively.
(g) The following shall be inserted into Section 1 of the Original
Agreement immediately following Section 1(w):
(x) "TRANSACTION" shall mean any merger, consolidation or sale of
assets described in Section 13(a) hereof or any acquisition of Common
Shares which would result in a Person becoming an Acquiring Person.
2. Amendment of "Adjustment of Purchase Price, Number of Shares or Number of
-------------------------------------------------------------------------
Rights" Section. Section 11(a) of the Original Agreement is hereby deleted in
- ---------------
its entirety and the following is substituted therefore:
(a) (i) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend on the Common Shares payable in Common
Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares (by reverse stock split or otherwise) into a
smaller number of Common Shares, or (D) issue any shares of its capital
stock in a reclassification of the Common Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such
event, except as otherwise provided in this Section 11(a) and Section 7(e)
hereof: (1) each of the Rights outstanding at the time of the record date
for such dividend or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted to that number of Rights
(calculated to the nearest one ten-thousandth (1/10,000) of a Right) equal
to a fraction (the "EXCHANGE RATIO"), the numerator of which shall
-2-
<PAGE>
be the total number of Common Shares or shares of capital stock outstanding
immediately following such subdivision, combination or reclassification and
the denominator of which shall be the total number of Common Shares
outstanding immediately prior to such time, and the number of Rights that
shall thereafter be issued with respect to each Common Share or share of
such other capital stock that shall become outstanding thereafter prior to
the Distribution Date shall be equal to the total number of outstanding
Rights immediately after such event (as adjusted pursuant to this clause
(1)) divided by the total number of outstanding Common Shares or shares of
such other capital stock immediately after such event (subject to further
adjustment pursuant to the provisions of this Agreement); (2) the Purchase
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification shall
be adjusted so that the Purchase Price thereafter shall equal the result
obtained by dividing the Purchase Price in effect immediately prior to such
time by the Exchange Ratio; provided, however, that in no event shall the
-------- -------
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (3) the number of Common Shares or shares
of such other capital stock issuable upon the exercise of each Right shall
remain unchanged immediately after such event, but, in the event of a
reclassification, the kind of shares issuable upon the exercise of each
Right immediately after such reclassification shall be adjusted to be the
kind of shares of such other capital stock issued in such reclassification,
rather than Common Shares. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof,
the adjustment provided for in this Section 11(a)(i) shall be in addition
to, and shall be made prior to, any adjustment required pursuant to Section
11(a)(ii) hereof.
(ii) Subject to Section 24 of this Agreement, in the event a
Triggering Event shall have occurred, then promptly following such
Triggering Event, proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e) hereof, shall thereafter have the
right to receive for each Right, upon exercise thereof in accordance with
the terms of this Agreement and payment of the then-current Total Exercise
Price, in lieu of a number of one-thousandths of a Preferred Share, such
number of Common Shares of the Company as shall equal the result obtained
by multiplying the then-current Purchase Price by the then number of one-
thousandths of a Preferred Share for which a Right was exercisable (or
would have been exercisable if the Distribution Date had occurred)
immediately prior to the first occurrence of a Triggering Event, and
dividing that product by 50% of the current per share market price
(determined pursuant to Section 11(d) hereof) for Common Shares on the date
of occurrence of the Triggering Event (such number of shares being
hereinafter referred to as the "ADJUSTMENT SHARES").
(iii) In lieu of issuing Common Shares in accordance with Section
11(a)(ii) hereof, the Company may, if the Board of Directors determines
that such action is necessary or appropriate and not contrary to the
interest of holders of Rights (and, in the event that the number of Common
Shares which are authorized by the Company's Certificate of Incorporation
but not outstanding or reserved for issuance for purposes other than upon
exercise of the Rights are not sufficient to permit the exercise in full of
the Rights, or if any necessary regulatory approval for
-3-
<PAGE>
such issuance has not been obtained by the Company, the Company shall): (A)
determine the excess of (1) the value of the Common Shares issuable upon
the exercise of a Right (the "CURRENT VALUE") over (2) the Purchase Price
(such excess, the "SPREAD") and (B) with respect to each Right, make
adequate provision to substitute for such Common Shares, upon exercise of
the Rights, (1) cash, (2) a reduction in the Purchase Price, (3) other
equity securities of the Company (including, without limitation, shares or
units of shares of any series of preferred stock which the Board of
Directors of the Company has deemed to have the same value as Common Shares
(such shares or units of shares of preferred stock are herein called
"common stock equivalents")), except to the extent that the Company has not
obtained any necessary stockholder or regulatory approval for such
issuance, (4) debt securities of the Company, except to the extent that the
Company has not obtained any necessary stockholder or regulatory approval
for such issuance, (5) other assets, or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the
Company based upon the advice of a nationally recognized investment banking
firm selected by the Board of Directors of the Company; provided, however,
-------- -------
if the Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following the later of
(x) the first occurrence of a Triggering Event and (y) the date on which
the Company's right of redemption pursuant to Section 23(a) expires (the
later of (x) and (y) being referred to herein as the "SECTION 11(A)(II)
TRIGGER DATE"), then the Company shall be obligated to deliver, upon the
surrender for exercise of a Right and without requiring payment of the
Purchase Price, Common Shares (to the extent available), except to the
extent that the Company has not obtained any necessary stockholder or
regulatory approval for such issuance, and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread. If the
Board of Directors of the Company shall determine in good faith that it is
likely that sufficient additional Common Shares could be authorized for
issuance upon exercise in full of the Rights or that any necessary
regulatory approval for such issuance will be obtained, the thirty (30) day
period set forth above may be extended to the extent necessary, but not
more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in
order that the Company may seek stockholder approval for the authorization
of such additional shares or take action to obtain such regulatory approval
(such period, as it may be extended, the "SUBSTITUTION PERIOD"). To the
extent that the Company determines that some action need be taken pursuant
to the first and/or second sentences of this Section 11(a)(iii), the
Company (x) shall provide, subject to Section 7(e) hereof, that such action
shall apply uniformly to all outstanding Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek any authorization of additional shares, to take any
action to obtain any required regulatory approval and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence
and to determine the value thereof. In the event of any such suspension,
the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect.
For purposes of this Section 11(a)(iii), the value of the Common Shares
shall be the current per share market price (as determined pursuant to
Section 11(d) hereof) of the Common Shares on the Section 11(a)(ii) Trigger
Date and the value of any "common stock equivalent" shall be deemed to have
the same value as the Common Shares on such date.
-4-
<PAGE>
3. Amendment of "Consolidation, Merger or Sale or Transfer of Assets or
--------------------------------------------------------------------
Earning Power" Section. Section 13(d) of the Original Agreement is hereby
- ----------------------
deleted in its entirety and paragraphs (e) and (f) of Section 13 shall be
relabeled paragraphs (d) and (e), respectively.
4. Amendment of "Redemption" Section. Section 23 of the Original Agreement is
---------------------------------
hereby deleted in its entirety and the following is substituted therefore:
Section 23. Redemption.
----------
(a) The Company may, at its option and with the approval of the Board
of Directors, at any time prior to the Close of Business on the earlier of
(i) the tenth day following the Shares Acquisition Date or such later date
as may be determined by action of a majority of the Company's Board of
Directors and publicly announced by the Company and (ii) the Final
Expiration Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $0.01 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring
after the date hereof (such redemption price being herein referred to as
the "REDEMPTION PRICE") and the Company may, at its option, pay the
Redemption Price either in Common Shares (based on the current per share
market price thereof (as determined pursuant to Section 11(d) hereof) at
the time of redemption) or cash. Such redemption of the Rights by the
Company may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
(b) Notwithstanding the provision of Section 23(a), in the event that
a majority of the Board of Directors of the Company is elected by
stockholder action at an annual or special meeting of stockholders, then
until the 180th day following the effectiveness of such election (including
any postponement or adjournment thereof), the Rights shall not be redeemed
if such redemption is reasonably likely to have the purpose or effect of
facilitating a Transaction with an Interested Person.
(c) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent, and without any further action and
without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price. The Company shall promptly give public notice of any such
redemption; provided, however, that the failure to give or any defect in,
-------- -------
any such notice shall not affect the validity of such redemption. Within
ten (10) days after the action of the Board of Directors ordering the
redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by
mailing such notice to all such holders at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each
such notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner
-5-
<PAGE>
other than that specifically set forth in this Section 23 or in Section 24
hereof, and other than in connection with the purchase of Common Shares
prior to the Distribution Date.
5. Amendment of "Exchange" Section. Section 24 of the Original Agreement is
-------------------------------
hereby deleted in its entirety and the following is substituted therefore:
Section 24. Exchange.
--------
(a) Subject to applicable laws, rules and regulations, and subject to
subsections (b) and (d) below, the Company may, at its option, by action of
the Board of Directors, at any time after the occurrence of a Triggering
Event, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the
provisions of Section 7(e) hereof) for Common Shares at an exchange ratio
of one Common Share per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as the "RATIO OF
EXCHANGE"). Notwithstanding the foregoing, the Board of Directors shall
not be empowered to effect such exchange at any time after any Person
(other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding
Common Shares for or pursuant to the terms of any such plan), together with
all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.
(b) Notwithstanding the provision of Section 24(a), in the event that
a majority of the Board of Directors of the Company is elected by
stockholder action at an annual or special meeting of stockholders, then
until the 180th day following the effectiveness of such election (including
any postponement or adjournment thereof), the Rights shall not be exchanged
pursuant to Section 24(a) if such exchange is reasonably likely to have the
purpose or effect of facilitating a Transaction with an Interested Person.
(c) Immediately upon the action of the Board of Directors ordering the
exchange of any Rights pursuant to subsection (a) of this Section 24 and
without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of
such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Ratio of
Exchange. The Company shall give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice
-------- -------
shall not affect the validity of such exchange. The Company shall mail a
notice of any such exchange to all of the holders of such Rights at their
last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the Common Shares
for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than Rights which
have become void pursuant to the provisions of Section 7(f) hereof) held by
each holder of Rights.
-6-
<PAGE>
(d) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with Section 24(a), the
Company shall either take such action as may be necessary to authorize
additional Common Shares for issuance upon exchange of the Rights or
alternatively, at the option of a majority of the Board of Directors, with
respect to each Right (i) pay cash in an amount equal to the Current Value
(as hereinafter defined), in lieu of issuing Common Shares in exchange
therefor, or (ii) issue debt or equity securities or a combination thereof,
having a value equal to the Current Value, in lieu of issuing Common Shares
in exchange for each such Right, where the value of such securities shall
be determined by a nationally recognized investment banking firm selected
by majority vote of the Board of Directors, or (iii) deliver any
combination of cash, property, Common Shares and/or other securities having
a value equal to the Current Value in exchange for each Right. For
purposes of this Section 24(d) only, the Current Value shall mean the
product of the current per share market price of Common Shares (determined
pursuant to Section 11(e) on the date of the occurrence of the event
described above in subparagraph (a)) multiplied by the number of Common
Shares for which the Right otherwise would be exchangeable if there were
sufficient shares available. To the extent that the Company determines
that some action need be taken pursuant to clauses (i), (ii) or (iii) of
this Section 24(d), the Board of Directors may temporarily suspend the
exercisability of the Rights for a period of up to sixty (60) days
following the date on which the event described in Section 24(a) shall have
occurred, in order to seek any authorization of additional Common Shares
and/or to decide the appropriate form of distribution to be made pursuant
to the above provision and to determine the value thereof. In the event of
any such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended.
(e) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to
the registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash
equal to the same fraction of the current per share market value of a whole
Common Share (as determined pursuant to the second sentence of Section
11(e) hereof).
(f) The Company may, at its option, by majority vote of the Board of
Directors, at any time before any Person has become an Acquiring Person,
exchange all or part of the then outstanding Rights for rights of
substantially equivalent value, as determined reasonably and with good
faith by the Board of Directors, based upon the advice of one or more
nationally recognized investment banking firms.
(g) Immediately upon the action of the Board of Directors ordering
the exchange of any Rights pursuant to subsection (f) of this Section 24
and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of rights in exchange
therefor as has been determined by the Board of Directors in accordance
with subsection (f) above. The Company shall give public notice of any
such exchange; provided, however, that the failure to
-------- -------
-7-
<PAGE>
give, or any defect in, such notice shall not affect the validity of such
exchange. The Company shall mail a notice of any such exchange to all of
the holders of such Rights at their last addresses as they appear upon the
registry books of the transfer agent for the Common Shares of the Company.
Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the Rights will be
effected.
6. Amendment to "Supplements and Amendments" Section. Section 27 of the
-------------------------------------------------
Original Agreement is hereby deleted in its entirety and the following is
substituted therefore:
Section 27. Supplements and Amendments.
--------------------------
(a) Prior to the Distribution Date, the Company may supplement or amend
this Agreement in any respect without the approval of any holders of Rights
and the Rights Agent shall, if the Company so directs, execute such
supplement or amendment. From and after the Distribution Date, the Company
and the Rights Agent may from time to time supplement or amend this
Agreement without the approval of any holders of Rights in order to (i)
cure any ambiguity, (ii) correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions
herein, (iii) shorten or lengthen any time period hereunder, or (iv) change
or supplement the provisions hereunder in any manner that the Company may
deem necessary or desirable and that shall not adversely affect the
interests of the holders of Rights (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person); provided, this Agreement
--------
may not be supplemented or amended to lengthen, pursuant to clause (iii) of
this sentence, (A) a time period relating to when the Rights may be
redeemed at such time as the Rights are not then redeemable or (B) any
other time period unless such lengthening is for the purpose of protecting,
enhancing or clarifying the rights of, and/or the benefits to, the holders
of Rights (other than an Acquiring Person or an Affiliate or Associate of
an Acquiring Person). Upon the delivery of a certificate from an
appropriate officer of the Company that states that the proposed supplement
or amendment is in compliance with the terms of this Section 27, the Rights
Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
(b) Notwithstanding the provisions of Section 27(a), in the event that
a majority of the Board of Directors of the Company is elected by
stockholder action at an annual or special meeting of stockholders, then
until the 180th day following the effectiveness of such election (including
any postponement or adjournment thereof), this Agreement shall not be
supplemented or amended in any manner reasonably likely to have the purpose
or effect of facilitating a Transaction with an Interested Person.
7. Amendment of "Determinations and Actions by the Board of Directors, etc."
-------------------------------------------------------------------------
Section. Section 29 of the Original Agreement is hereby deleted in its entirety
- -------
and the following is substituted therefore:
-8-
<PAGE>
Section 29. Determinations and Actions by the Board of Directors, etc.
----------------------------------------------------------
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Shares of
which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and
Regulations under the Exchange Act. The Board of Directors of the Company
shall have the exclusive power and authority to administer this Agreement
and to exercise all rights and powers specifically granted to the Board, or
the Company, or as may be necessary or advisable in the administration of
this Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Agreement and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement
(including a determination to redeem or not redeem the Rights or to amend
the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions
with respect to the foregoing) which are done or made by the Board in good
faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights Certificates and all other parties
and (y) not subject the Board to any liability to the holders of the
Rights.
8. Amendment of "Exhibit C". Exhibit C of the Original Agreement is hereby
------------------------
deleted in its entirety and Exhibit C as attached hereto is substituted
therefore.
9. Ratification of Original Agreement. Except as amended hereby, the Original
----------------------------------
Agreement remains unchanged and is ratified and confirmed in all respects.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
Rights Agreement to be duly executed as of the day and year first above written.
"COMPANY" QUICKTURN DESIGN SYSTEMS, INC.
By: /s/ Keith R. Lobo
-------------------------------------
Keith R. Lobo
President and Chief Executive Officer
"RIGHTS AGENT" BANKBOSTON, N.A.
By: /s/ Geoffrey D. Anderson
---------------------------------------
Name: Geoffrey D. Anderson
--------------------------------------
Title: Director
--------------------------------------
[AMENDMENT NO. 1 TO RIGHTS AGREEMENT]
<PAGE>
EXHIBIT C
---------
QUICKTURN DESIGN SYSTEMS, INC.
STOCKHOLDER RIGHTS PLAN
Summary of Rights
-----------------
Distribution and The Board of Directors has declared a dividend of one
- ---------------- Right for each outstanding share of Common Stock of
Transfer of Rights; Quickturn Design Systems, Inc. (the "COMPANY"). Prior
- ------------------- to the Distribution Date referred to below, the Rights
Rights Certificate: will be evidenced by and trade with the certificates
- ------------------ for the Common Stock. After the Distribution Date, the
Company will mail Rights certificates to the Company's
stock holders and the Rights will become transferable
apart from the Common Stock.
Distribution Date: Rights will separate from the Common Stock and become
- ----------------- exercisable on the earlier of (i) the tenth day (or such
later date as may be determined by a majority of the
Company's Board of Directors) after a person or group
acquires beneficial ownership of 15% or more of the
Company's Common Stock, (ii) the tenth day (or such
later date as may be determined by the Company's Board
of Directors) after a person or group announces a tender
or exchange offer, the consummation of which would
result in ownership by a person or group of 15% or more
of the Company's Common Stock, or (iii) with respect to
(A) the tender offer (the "TENDER OFFER") disclosed in a
Tender Offer Statement on Schedule 14D-1, dated August
12, 1998, filed with the Securities and Exchange
Commission by MGZ Corp., a Delaware corporation and
wholly-owned subsidiary of Mentor Graphics Corporation,
an Oregon corporation ("MENTOR"), and any amendment to
such Tender Offer or (B) the commencement of a separate
tender offer within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act by
Mentor or any Affiliate or Associate of Mentor, a date
to be determined by the Company's Board of Directors.
Preferred Stock After the Distribution Date, each Right will entitle the
- --------------- holder to purchase, for fifty dollars ($50) a fraction
Purchasable Upon of a share of the Company's Preferred Stock with
- ---------------- economic terms similar to that of one share of the
Exercise of Rights: Company's Common Stock.
- ------------------
<PAGE>
Flip-In: If an acquiror obtains 15% or more of the Company's
- ------- Common Stock, thereby becoming an "ACQUIRING PERSON",
then each Right (other than Rights owned by an Acquiring
----
Person or its affiliates) will entitle the holder
thereof to purchase, for the exercise price, a number of
shares of the Company's Common Stock having a then
current market value of twice the exercise price.
Flip-Over: If, after the Shares Acquisition Date (defined below),
- --------- (a) the Company merges into another entity, (b) an
acquiring entity merges into the Company or (c) the
Company sells more than 50% of the Company's assets or
earning power, then each Right (other than Rights owned
----
by an Acquiring Person or its affiliates) will entitle
the holder thereof to purchase, for the exercise price,
a number of shares of Common Stock of the person
engaging in the transaction having a then current market
value of twice the exercise price.
Exchange Provision: At any time after an event triggering the flip-in or
- ------------------ flip-over rights and prior to the acquisition by the
Acquiring Person of 50% or more of the outstanding
Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by the
Acquiring Person or its affiliates), in whole or in
part, at an exchange ratio of one Common Share per Right
(subject to adjustment).
Redemption of Rights will be redeemable at the Company's option for
- ------------- $0.01 per Right at any time on or prior to the
the Rights: Distribution Date, (i.e., the tenth day (or such later
- ---------- date as may be determined by the Company's Board of
Directors) after public announcement that a person has
acquired beneficial ownership of 15% or more of the
Company's Common Stock (the "SHARES ACQUISITION DATE")).
Expiration of The Rights expire on the earliest of (a) January 10,
- ------------- 2006, (b) exchange or redemption of the Rights as
the Rights: described above, or (c) consummation of a merger or
- ---------- consolidation resulting in expiration of the Rights as
described above.
Amendment of The terms of the Rights and the Rights Agreement may be
- ------------ amended in any respect without the consent of the Rights
Terms of Rights: holders on or prior to the Distribution Date;
- --------------- thereafter, the terms of the Rights and the Rights
Agreement may be amended without the consent of the
Rights holders in order to cure any ambiguities or to
make changes which do not adversely affect the interests
of Rights holders (other than the Acquiring Person).
-2-
<PAGE>
Delay of Exchange, The Company's ability to exchange or redeem the Rights
- ------------------ and the Company's ability to amend the Rights Agreement
Redemption will be prohibited for a period of 180 days following
- ---------- the election of a majority of the Company's directors if
or Amendment it would have the purpose or effect of facilitating a
- ------------ Transaction with an Interested Person.
Voting Rights: Rights will not have any voting rights.
- -------------
Anti-Dilution Rights will have the benefit of certain customary anti-
- ------------- dilution provisions.
Provisions:
- ----------
Taxes: The Rights distribution should not be taxable for
- ----- federal income tax purposes. However, following an
event which renders the Rights exercisable or upon
redemption of the Rights, stockholders may recognize
taxable income.
The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms of
the Rights Agreement dated as of January 10, 1996, as amended, between the
Company and the Rights Agent.
-3-
<PAGE>
Exhibit 3
QUICKTURN DESIGN SYSTEMS, INC.
AND
BANKBOSTON, N.A.
(FORMERLY KNOWN AS THE FIRST NATIONAL BANK OF BOSTON)
RIGHTS AGENT
AMENDMENT NO.2
TO
PREFERRED SHARES RIGHTS AGREEMENT
DATED AS OF DECEMBER 8, 1998
<PAGE>
AMENDMENT NO.2 TO RIGHTS AGREEMENT
Amendment No. 2 to Rights Agreement, dated as of December 8, 1998
("AMENDMENT NO. 2"), between Quickturn Design Systems, Inc., a Delaware
corporation (the "COMPANY"), and BankBoston, N.A. (formerly known as the First
National Bank of Boston) (the "RIGHTS AGENT").
WHEREAS, on January 10, 1996 the Company and the Rights Agent entered into
a Rights Agreement, as amended by Amendment No. 1 to Rights Agreement dated
August 25, 1998 (collectively, the "ORIGINAL AGREEMENT," and as amended hereby
is hereinafter referred to as the "AGREEMENT");
WHEREAS, the Company, with the approval of the Board of the Directors of
the Company, and the Rights Agent have mutually agreed to modify the terms of
the Original Agreement in certain respects pursuant to this Amendment No. 2.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereto hereby agree that the Original Agreement is
amended as follows:
1. Amendment of "Certain Definitions" Section.
------------------------------------------
(a) Section 1(a) of the Original Agreement is hereby deleted in its
entirety and the following is substituted therefore:
(a) "ACQUIRING PERSON" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of the Common Shares then
outstanding, but shall not include the Company, any Subsidiary of
the Company or any employee benefit plan of the Company or of any
Subsidiary of the Company, or any entity holding Common Shares for
or pursuant to the terms of any such plan; provided, however, that
-------- -------
neither Cadence Design Systems, Inc. ("CADENCE"), nor any Affiliate
of Cadence or the Company, shall be deemed to be an Acquiring Person
as a result of the transactions contemplated by (i) the Agreement
and Plan of Merger (the "CADENCE MERGER AGREEMENT") to be executed
by Cadence, the Company and CDSI Acquisition, Inc. in the form
attached hereto as Exhibit D, or (ii) the "STOCK OPTION AGREEMENT" to
---------
be executed by Cadence and the Company in the form attached hereto as
Exhibit E. Notwithstanding the foregoing, no Person shall be deemed to
---------
be an Acquiring Person as the result of an acquisition of Common
Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Shares of the
Company then outstanding; provided, however, that if a Person shall
-------- -------
become the Beneficial Owner of 15% or more of the Common Shares of the
Company then outstanding by reason of share purchases by the Company
and shall, after such share purchases by the Company, become the
Beneficial Owner of any additional Common Shares of the Company, then
such Person shall be deemed to be an Acquiring Person. Notwithstanding
the foregoing, if the Board of Directors of the Company determines in
good faith that a Person who would otherwise be an "Acquiring
<PAGE>
Person", as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common
Shares so that such Person would no longer be an "Acquiring Person",
as defined pursuant to the foregoing provisions of this paragraph
(a), then such Person shall not be deemed to be an "Acquiring
Person" for any purposes of this Agreement.
(b) Section 1(i) of the Original Agreement is hereby deleted in its
entirety and the following is substituted therefore:
(i) "EXPIRATION DATE" shall mean the earliest of (i) the Close of
Business on the Final Expiration Date, (ii) the Redemption Date,
(iii) the time at which the Board of Directors orders the exchange
of the Rights as provided in Section 24 hereof, (iv) the
consummation of a transaction contemplated by Section 13(d) hereof
or (v) the "EFFECTIVE TIME" (as defined in the Cadence Merger
Agreement).
2. Amendment of "Exhibit B". The first paragraph of Exhibit B to the Original
------------------------ ---------
Agreement is hereby deleted in its entirety and the following is substituted
therefore:
NOT EXERCISABLE AFTER JANUARY 10, 2006 OR EARLIER (i) IF TERMINATED
BY THE COMPANY, (ii) IF THE COMPANY EXCHANGES THE RIGHTS PURSUANT TO
THE RIGHTS AGREEMENT OR (iii) THE "EFFECTIVE TIME" (AS DEFINED IN
THE CADENCE MERGER AGREEMENT). THE RIGHTS ARE SUBJECT TO REDEMPTION,
AT THE OPTION OF THE COMPANY, AT $0.01 PER RIGHT ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR
BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(E) OF SUCH RIGHTS AGREEMENT.]*
3. Amendment of "Exhibit C". Exhibit C of the Original Agreement is hereby
------------------------ ---------
deleted in its entirety and Exhibit C as attached hereto is substituted
---------
therefore.
4. Ratification of Original Agreement. Except as amended hereby, the Original
----------------------------------
Agreement remains unchanged and is ratified and confirmed in all respects.
-2-
<PAGE>
5. Counterparts. This Amendment No. 2 may be executed in one or more
------------
couterparts, each of which shall be deemed to be an origional but all of which
shall constitute one and the same amendment.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
Rights Agreement to be duly executed as of the day and year first above written.
"COMPANY" QUICKTURN DESIGN SYSTEMS, INC.
By: /s/ Keith R. Lobo
-------------------------------------
Keith R. Lobo
President and Chief Executive Officer
"RIGHTS AGENT" BANKBOSTON, N.A.
By: /s/ Geoffrey D. Anderson
-------------------------------------
Name: Geoffrey D. Anderson
-----------------------------------
Title: Director
----------------------------------
[AMENDMENT NO. 2 TO RIGHTS AGREEMENT]
<PAGE>
EXHIBIT C
---------
QUICKTURN DESIGN SYSTEMS, INC.
STOCKHOLDER RIGHTS PLAN
Summary of Rights
-----------------
Distribution and The Board of Directors has declared a dividend of one Right
- ---------------- for each outstanding share of Common Stock of Quickturn
Transfer of Rights; Design Systems, Inc. (the "COMPANY"). Prior to the
- ------------------- Distribution Date referred to below, the Rights will be
Rights Certificate: evidenced by and trade with the certificates for the
- ------------------ Common Stock. After the Distribution Date, the Company
will mail Rights certificates to the Company's stock
holders and the Rights will become transferable apart
from the Common Stock.
Distribution Date: Rights will separate from the Common Stock and become
- ----------------- exercisable on the earlier of (i) the tenth day (or such
later date as may be determined by a majority of the
Company's Board of Directors) after a person or group
acquires beneficial ownership of 15% or more of the
Company's Common Stock, (ii) the tenth day (or such later
date as may be determined by the Company's Board of
Directors) after a person or group announces a tender or
exchange offer, the consummation of which would result in
ownership by a person or group of 15% or more of the
Company's Common Stock, or (iii) with respect to (A) the
tender offer (the "TENDER OFFER") disclosed in a Tender
Offer Statement on Schedule 14D-1, dated August 12, 1998,
filed with the Securities and Exchange Commission by MGZ
Corp., a Delaware corporation and wholly-owned subsidiary
of Mentor Graphics Corporation, an Oregon corporation
("MENTOR"), and any amendment to such Tender Offer or (B)
the commencement of a separate tender offer within the
meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act by Mentor or any
Affiliate or Associate of Mentor, a date to be determined
by the Company's Board of Directors. Notwithstanding the
foregoing, the rights will not separate from the Common
Stock and become exercisable as a result of the
transactions contemplated by (i) the Agreement and Plan of
Merger (the "CADENCE MERGER AGREEMENT") to be executed by
Design Systems, Inc. ("CADENCE"), the Company and CDSI
Acquisition, Inc. in substantially the form attached as
Exhibit D to the Rights Agreement, or (ii) the "STOCK OPTION
---------
<PAGE>
AGREEMENT"to be executed by Cadence and the Company in
substantially the form attached hereto as Exhibit E.
---------
Preferred Stock After the Distribution Date, each Right will entitle the
- --------------- holder to purchase, for fifty dollars ($50) a fraction of
Purchasable Upon a share of the Company's Preferred Stock with economic
- ---------------- terms similar to that of one share of the Company's
Exercise of Rights: Common Stock.
- ------------------
Flip-In: If an acquiror obtains 15% or more of the Company's Common
- ------- Stock other than any action taken by Cadence or an
Affiliate of Cadence or the Company pursuant to the
Cadence Merger Agreement or the Stock Option Agreement),
thereby becoming an "ACQUIRING PERSON", then each Right
----
(other than Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to purchase,
for the exercise price, a number of shares of the Company's
Common Stock having a then current market value of twice
the exercise price.
Flip-Over: If, after the Shares Acquisition Date (defined below), (a)
- --------- the Company merges into another entity, (b) an acquiring
entity merges into the Company or (c) the Company sells
more than 50% of the Company's assets or earning power,
then each Right (other than Rights owned by an Acquiring
----
Person or its affiliates) will entitle the holder thereof
to purchase, for the exercise price, a number of shares of
Common Stock of the person engaging in the transaction
having a then current market value of twice the exercise
price.
Exchange Provision: At any time after an event triggering the flip-in or flip-
- ------------------ over rights and prior to the acquisition by the Acquiring
Person of 50% or more of the outstanding Common Stock, the
Board of Directors of the Company may exchange the Rights
(other than Rights owned by the Acquiring Person or its
affiliates), in whole or in part, at an exchange ratio of
one Common Share per Right (subject to adjustment).
Redemption of Rights will be redeemable at the Company's option for $0.01
- ------------- per Right at any time on or prior to the Distribution
the Rights: Date, (i.e., the tenth day (or such later date as may be
- ---------- determined by the Company's Board of Directors) after
public announcement that a person has acquired beneficial
ownership of 15% or more of the Company's Common Stock
(other than any action taken by Cadence or an Affiliate of
Cadence or the Company pursuant to the Cadence Merger
Agreement or the Stock Option Agreement) (the "SHARES
ACQUISITION DATE")).
-2-
<PAGE>
Expiration of The Rights expire on the earliest of (a) January 10, 2006,
- ------------- (b) exchange or redemption of the Rights as described
the Rights: above, (c) consummation of a merger or consolidation
- ---------- resulting in expiration of the Rights as described above,
or (d) the "EFFECTIVE TIME" (as defined in the Merger
Agreement).
Amendment of The terms of the Rights and the Rights Agreement may be
- ------------ amended in any respect without the consent of the Rights
Terms of Rights: holders on or prior to the Distribution Date; thereafter,
- --------------- the terms of the Rights and the Rights Agreement may be
amended without the consent of the Rights holders in order
to cure any ambiguities or to make changes which do not
adversely affect the interests of Rights holders (other
than the Acquiring Person).
Delay of Exchange, The Company's ability to exchange or redeem the Rights and
- ------------------ the Company's ability to amend the Rights Agreement will
Redemption be prohibited for a period of 180 days following the
- ---------- election of a majority of the Company's directors if it
or Amendment would have the purpose or effect of facilitating a
- ------------ Transaction with an Interested Person.
Voting Rights: Rights will not have any voting rights.
- -------------
Anti-Dilution Rights will have the benefit of certain customary
- ------------- anti-dilution provisions.
Provisions:
- ----------
Taxes: The Rights distribution should not be taxable for federal
- ----- income tax purposes. However, following an event which
renders the Rights exercisable or upon redemption of the
Rights, stockholders may recognize taxable income.
The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms of
the Rights Agreement dated as of January 10, 1996, as amended, between the
Company and the Rights Agent.
-3-
<PAGE>
EXHIBIT D
---------
QUICKTURN DESIGN SYSTEMS, INC.
STOCKHOLDER RIGHTS PLAN
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 8, 1998
AMONG
CADENCE DESIGN SYSTEMS, INC.,
QUICKTURN SYSTEMS DESIGN, INC.
AND
CDSI ACQUISITION, INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 THE MERGER..................................................................... 1
Section 1.1. The Merger.............................................................. 1
Section 1.2. Effective Time.......................................................... 2
Section 1.3. Closing of the Merger................................................... 2
Section 1.4. Effects of the Merger................................................... 2
Section 1.5. Certificate of Incorporation and Bylaws................................. 2
Section 1.6. Directors............................................................... 2
Section 1.7. Officers................................................................ 2
Section 1.8. Conversion of Shares.................................................... 2
Section 1.9. Dissent and Appraisal Rights............................................ 3
Section 1.10. Exchange of Certificates............................................... 3
Section 1.11. Stock Options.......................................................... 5
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................. 7
Section 2.1. Organization and Qualification; Subsidiaries; Investments............... 7
Section 2.2. Capitalization of the Company and its Subsidiaries...................... 8
Section 2.3. Authority Relative to this Agreement; Recommendation.................... 9
Section 2.4. SEC Reports; Financial Statements....................................... 10
Section 2.5. Information Supplied.................................................... 10
Section 2.6. Consents and Approvals; No Violations................................... 11
Section 2.7. No Default.............................................................. 11
Section 2.8. No Undisclosed Liabilities; Absence of Changes.......................... 12
Section 2.9. Litigation.............................................................. 13
Section 2.10. Compliance with Applicable Law......................................... 13
Section 2.11. Employee Benefit Plans; Labor Matters.................................. 14
Section 2.12. Environmental Laws and Regulations..................................... 15
Section 2.13. Taxes.................................................................. 16
Section 2.14. Intellectual Property.................................................. 17
Section 2.15. Insurance.............................................................. 22
Section 2.16. Certain Business Practices............................................. 22
Section 2.17. Product Warranties..................................................... 22
Section 2.18. Suppliers and Customers................................................ 22
Section 2.19. Vote Required.......................................................... 22
Section 2.20. Tax Treatment; Pooling................................................. 22
Section 2.21. Affiliates............................................................. 23
Section 2.22. Opinion of Financial Adviser........................................... 23
Section 2.23. Brokers................................................................ 23
Section 2.24. Company Rights Agreement............................................... 23
</TABLE>
1
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<TABLE>
<S> <C>
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION....................... 23
Section 3.1. Organization............................................................ 23
Section 3.2. Capitalization of Parent and its Subsidiaries........................... 24
Section 3.3. Authority Relative to this Agreement.................................... 25
Section 3.4. SEC Reports; Financial Statements....................................... 25
Section 3.5. Information Supplied.................................................... 26
Section 3.6. Consents and Approvals; No Violations................................... 26
Section 3.7. No Default.............................................................. 27
Section 3.8. No Undisclosed Liabilities; Absence of Changes.......................... 27
Section 3.9. Litigation.............................................................. 27
Section 3.10. Compliance with Applicable Law......................................... 28
Section 3.11. Tax Treatment; Pooling................................................. 28
Section 3.12. Opinion of Financial Adviser........................................... 28
Section 3.13. Brokers................................................................ 28
Section 3.14. No Prior Activities.................................................... 28
Section 3.15. Environmental Laws and Regulations..................................... 29
----------------------
ARTICLE 4 COVENANTS...................................................................... 29
Section 4.1. Conduct of Business of the Company...................................... 29
Section 4.2. Conduct of Business of Parent........................................... 32
Section 4.3. Preparation of S-4 and the Proxy Statement.............................. 32
Section 4.4. Other Potential Acquirers............................................... 33
Section 4.5. Comfort Letters......................................................... 34
Section 4.6. Meeting of Stockholders................................................. 34
Section 4.7. Stock Exchange Listing.................................................. 35
Section 4.8. Access to Information................................................... 35
Section 4.9. Certain Filings; Reasonable Efforts..................................... 36
Section 4.10. Public Announcements................................................... 37
Section 4.11. Indemnification and Directors' and Officers' Insurance................. 37
Section 4.12. Notification of Certain Matters........................................ 38
Section 4.13. Affiliates; Pooling; Tax-Free Reorganization........................... 38
Section 4.14. Additions to and Modification of Company Disclosure Schedule........... 39
Section 4.15. Company Rights Agreement............................................... 39
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER....................................... 40
Section 5.1. Conditions to Each Party's Obligations to Effect the Merger............. 40
Section 5.2. Conditions to the Obligations of the Company............................ 40
Section 5.3. Conditions to the Obligations of Parent and Acquisition................. 41
</TABLE>
2
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<TABLE>
<S> <C>
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER................................................. 43
Section 6.1. Termination............................................................. 43
Section 6.2. Effect of Termination................................................... 44
Section 6.3. Fees and Expenses....................................................... 44
Section 6.4. Amendment............................................................... 45
Section 6.5. Extension; Waiver....................................................... 45
ARTICLE 7 MISCELLANEOUS.................................................................. 45
Section 7.1. Nonsurvival of Representations and Warranties........................... 45
Section 7.2. Entire Agreement; Assignment............................................ 46
Section 7.3. Validity................................................................ 46
Section 7.4. Notices................................................................. 46
Section 7.5. Governing Law........................................................... 47
Section 7.6. Descriptive Headings.................................................... 47
Section 7.7. Parties in Interest..................................................... 47
Section 7.8. Certain Definitions..................................................... 47
Section 7.9. Personal Liability...................................................... 48
Section 7.10. Specific Performance................................................... 48
Section 7.11. Counterparts........................................................... 48
</TABLE>
3
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TABLE OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A-1.............Form of Letter Agreement with Company Affiliates
Exhibit A-2.............Form of Letter Agreement with Parent Affiliates
Exhibit B-1.............Form of Representations related to Tax Matters of the Company
Exhibit B-2.............Form of Representations Related to Tax Matters of Parent and Acquisition
Exhibit C...............Matters to be Covered by Opinion of Legal Counsel to the Company
Exhibit D...............Matters to be Covered by Opinion of Legal Counsel to Parent and Acquisition
Exhibit E...............Form of Certificate of Merger
</TABLE>
TABLE OF CONTENTS
TO
COMPANY DISCLOSURE SCHEDULE
<TABLE>
<S> <C>
Section 2.1(a)......................Subsidiaries
Section 2.1(c)......................Equity Investments
Section 2.6.........................Consents and Approval
Section 2.7.........................Defaults
Section 2.8.........................Undisclosed Liabilities; Absence of Changes
Section 2.9.........................Litigation
Section 2.11(a).....................Employee Plans
Section 2.11(b).....................Employment and Related Agreements
Section 2.11(c).....................Employee Benefits Affected by this ransaction
Section 2.11(d).....................Employee Benefits to Former Employees
Section 2.11(e).....................Employee Matters
Section 2.13(b).....................Delinquent or Inaccurate Tax Returns
Section 2.13(c).....................All Taxes Paid
Section 2.13(d).....................Tax Claims
Section 2.13(e).....................Excess Parachute Payments
Section 2.14(a).....................Intellectual Property
Section 2.14(e)(1)..................Inbound License Agreements
Section 2.14(e)(2)..................Outbound License Agreements
Section 2.14(i).....................Pending or Threatened Infringement Claims
Section 2.14(j).....................Infringement Matters
Section 2.14(k).....................Existing Software Products
Section 2.14(l).....................Non Company Intellectual Property Rights
Section 2.14(m).....................Existing and Currently Manufactured Software
Section 2.14(o).....................Year 2000 Compliance
Section 2.17........................Product Warranties
Section 2.18........................Suppliers and Customers
Section 2.21........................Affiliates
Section 4.1.........................Conduct of Business
Section 5.3(i)......................Third Party Consents
</TABLE>
4
<PAGE>
TABLE OF DEFINED TERMS
----------------------
<TABLE>
<CAPTION>
Cross Reference
Term in Agreement Page
- ---- ---------------- ----
<S> <C> <C>
Acquisition.................................Preamble................. 1
affiliate...................................Section 7.8(a)...........46
Agreement...................................Preamble................. 1
business day................................Section 7.8(b)...........46
Business System.............................Section 2.14(o)(i).......21
capital stock...............................Section 7.8(c)...........47
Certificate of Merger.......................Section 1.2.............. 2
Certificates................................Section 1.10(b).......... 4
Closing Date................................Section 1.3.............. 2
Closing.....................................Section 1.3.............. 2
Code........................................Preamble................. 1
Company.....................................Preamble................. 1
Company Acquisition.........................Section 7.8(d)...........47
Company Affiliates..........................Section 2.21.............22
Company Board...............................Section 2.3(a)........... 9
Company Financial Adviser...................Section 2.22.............22
Company Permits.............................Section 2.10.............13
Company Plans...............................Section 1.11(a).......... 6
Company Rights Agreement....................Section 2.2(a)........... 8
Company Rights..............................Section 2.2(a)........... 8
Company SEC Reports.........................Section 2.4(a)...........10
Company Securities..........................Section 2.2(a)........... 8
Company Stock Option or Options.............Section 1.11(a).......... 5
DGCL........................................Section 1.1.............. 1
Effective Time..............................Section 1.2.............. 2
Employee Plans..............................Section 2.11(a)..........14
Environmental Claim.........................Section 2.12(a)..........15
Environmental Laws..........................Section 2.12(a)..........15
ERISA Affiliate.............................Section 2.11(a)..........14
ERISA.......................................Section 2.11(a)..........14
Exchange Act................................Section 2.2(c)........... 9
Exchange Agent..............................Section 1.10(a).......... 3
Exchange Fund...............................Section 1.10(a).......... 3
Exchange Ratio..............................Section 1.8(b)........... 3
Governmental Entity.........................Section 2.6..............11
HSR Act.....................................Section 2.6..............11
include.....................................Section 7.8(e)...........47
Indemnified Liabilities.....................Section 4.11.............37
Indemnified Persons.........................Section 4.11.............36
Insurance Policies..........................Section 2.15.............21
</TABLE>
5
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<TABLE>
<S> <C> <C>
IRS.........................................Section 2.11(a)..........14
ISOs........................................Section 1.11(a).......... 6
knowledge or known..........................Section 7.8(d)...........47
Lien........................................Section 2.2(b)........... 9
Material Adverse Effect on Parent...........Section 3.1(b)...........23
Material Adverse Effect on the Company......Section 2.1(b)........... 7
Merger Consideration........................Section 1.8(a)........... 3
Merger......................................Section 1.1.............. 1
Notice of Superior Proposal.................Section 4.4(b)...........33
Other Interests.............................Section 2.1(b)........... 8
Parent......................................Preamble................. 1
Parent Common Stock.........................Section 1.8(a)........... 3
Parent Financial Adviser....................Section 3.12.............28
Parent Permits..............................Section 3.10.............27
Parent Rights...............................Section 3.2(a)...........24
Parent SEC Reports..........................Section 3.4(a)...........25
Parent Securities...........................Section 3.2(a)...........24
person......................................Section 7.8(f)...........47
Pooling Transaction.........................Section 2.20.............22
Proxy Statement.............................Section 2.5..............10
S-4.........................................Section 2.5..............10
SEC.........................................Section 2.4(a)...........10
Securities Act..............................Section 2.4(a)...........10
Share.......................................Section 1.8(a)........... 2
Shares......................................Section 1.8(a)........... 2
Stock Option Agreement......................Section 5.2(a)...........40
subsidiary or subsidiaries..................Section 7.8(g)...........47
Superior Proposal...........................Section 4.4(c)...........33
Surviving Corporation.......................Section 1.1.............. 1
Tax or Taxes................................Section 2.13(a)(i).......16
Tax Return..................................Section 2.13(a)(ii)......16
Third Party Acquisition.....................Section 4.4(c)...........33
Third Party.................................Section 4.4(c)...........33
Year 2000 Compliant.........................Section 2.14(o)(i).......21
</TABLE>
6
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
December 8, 1998, is by and among Quickturn Design Systems, Inc., a Delaware
corporation (the "Company"), Cadence Design Systems, Inc., a Delaware
corporation ("Parent"), and CDSI ACQUISITION, INC., a Delaware corporation and
a wholly owned subsidiary of Parent ("Acquisition").
WHEREAS, the Boards of Directors of the Company, Parent and
Acquisition have each (i) determined that the Merger (as defined below) is
advisable and fair and in the best interests of their respective stockholders
and (ii) approved the Merger upon the terms and subject to the conditions set
forth in this Agreement;
WHEREAS, for Federal income tax purposes it is intended that the
Merger qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, certain officers and employees of the Company have entered
into employment and non-competition agreements, effective upon consummation of
the Merger, as an inducement to Parent to enter into this Agreement; and
WHEREAS, the Merger is intended to be treated as a "pooling of
interests" for financial accounting purposes.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1. The Merger. At the Effective Time (as defined below)
----------
and upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"),
Acquisition shall be merged with and into the Company (the "Merger").
Following the Merger, the Company shall continue as the surviving corporation
(the "Surviving Corporation") and the separate corporate existence of
Acquisition shall cease. At the election of the parties, the Merger may be
structured so that the Company shall be merged with and into Acquisition with
the result that Acquisition shall become the "Surviving Corporation." The
Merger is intended to qualify as a tax-free reorganization under Section 368(a)
of the Code. Parent, as the sole stockholder of Acquisition, hereby approves
the Merger and this Agreement.
<PAGE>
SECTION 1.2. Effective Time. Subject to the terms and conditions set
--------------
forth in this Agreement, on the Closing Date (as defined in Section 1.3), a
Certificate of Merger substantially in the form of Exhibit E (the "Certificate
---------
of Merger") shall be duly executed and acknowledged by Acquisition and the
Company and thereafter delivered to the Secretary of State of the State of
Delaware for filing pursuant to Section 251 of the DGCL. The Merger shall
become effective at such time as a properly executed copy of the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware in
accordance with Section 251 of the DGCL or such later time as Parent and the
Company may agree upon and as set forth in the Certificate of Merger (the time
the Merger becomes effective being referred to herein as the "Effective Time").
SECTION 1.3. Closing of the Merger. The closing of the Merger (the
---------------------
"Closing") will take place at a time and on a date (the "Closing Date")
to be specified by the parties, which shall be no later than the second business
day after satisfaction of the latest to occur of the conditions set forth in
Article 5, at the offices of Gibson, Dunn & Crutcher LLP, One Montgomery Street,
San Francisco, California 94104, unless another time, date or place is agreed to
in writing by the parties hereto.
SECTION 1.4. Effects of the Merger. The Merger shall have the
---------------------
effects set forth in the DGCL. Without limiting the generality of the foregoing
and subject thereto, at the Effective Time, all the properties, rights,
privileges, powers and franchises of the Company and Acquisition shall vest in
the Surviving Corporation and all debts, liabilities and duties of the Company
and Acquisition shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.5. Certificate of Incorporation and Bylaws. The Certificate
---------------------------------------
of Incorporation of Acquisition in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until amended in
accordance with applicable law. The bylaws of Acquisition in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 1.6. Directors. The directors of Acquisition at 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 until such director's successor is duly elected or
appointed and qualified.
Section 1.7. Officers. The officers of Acquisition at 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 until such officer's successor is duly elected or
appointed and qualified.
Section 1.8. Conversion of Shares.
--------------------
(a) At the Effective Time, each share of common stock, $0.001 par
value per share, of the Company (individually a "Share" and collectively the
"Shares") issued and outstanding immediately prior to the Effective Time (other
than (i) Shares held in the
2
<PAGE>
Company's treasury or by any of the Company's subsidiaries and (ii) Shares held
by Parent, Acquisition or any other subsidiary of Parent) shall, by virtue of
the Merger and without any action on the part of Acquisition, the Company or the
holder thereof, be converted into and shall become a number of fully paid and
nonassessable shares of common stock, par value $.01 per share, of Parent
("Parent Common Stock") equal to the Exchange Ratio (as defined below) (the
"Merger Consideration"). Unless the context otherwise requires, each reference
in this Agreement to shares of Parent Common Stock and to the Shares shall
include the associated Parent Rights (as such term is defined in Section 3.2(a)
hereof) and associated Company Rights (as defined in Section 2.2(a)),
respectively. Notwithstanding the foregoing, if, between the date of this
Agreement and the Effective Time, the outstanding shares of Parent Common Stock
or the Shares shall have been changed into a different number of shares or a
different class by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares then the Exchange
Ratio shall be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares.
(b) The "Exchange Ratio" shall be (i) $14.00 divided by (ii) the
average closing price of one share of Parent Common Stock (as reported on the
NYSE Composite Transactions reporting system) during the five trading days
immediately preceding the second business day prior to the Closing Date.
(c) At the Effective Time, each outstanding share of the common stock,
$0.01 par value per share, of Acquisition shall be converted into one share of
common stock, $0.01 par value per share, of the Surviving Corporation.
(d) At the Effective Time, each Share held in the treasury of the
Company and each Share held by Parent, Acquisition or any subsidiary of Parent,
Acquisition or the Company immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Acquisition, the
Company or the holder thereof, be canceled, retired and cease to exist and no
shares of Parent Common Stock shall be delivered with respect thereto.
Section 1.9. Dissenters and Appraisal Rights. The holders of the
-------------------------------
Shares will not be entitled to dissenters and appraisal rights in accordance
with Section 262 of the DGCL.
Section 1.10. Exchange of Certificates.
------------------------
(a) From time to time following the Effective Time, as required by
subsections (b) and (c) below, Parent shall deliver to its transfer agent, or a
depository or trust institution of recognized standing selected by Parent and
Acquisition (the "Exchange Agent") for the benefit of the holders of Shares
for exchange in accordance with this Article I: (i) certificates representing
the appropriate number of shares of Parent Common Stock issuable pursuant to
Section 1.8, and (ii) cash to be paid in lieu of fractional shares of Parent
Common Stock (such shares of Parent Common Stock and such cash are hereinafter
referred to as the "Exchange Fund"), in exchange for outstanding Shares.
3
<PAGE>
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding Shares (the "Certificates") and whose shares were converted into
the right to receive shares of Parent Common Stock pursuant to Section 1.8: (i)
a letter of transmittal (which shall specify that delivery shall be effected and
risk of loss and title to the Certificates shall pass only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such letter
of transmittal duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock and, if applicable, a check representing the cash
consideration to which such holder may be entitled on account of a fractional
share of Parent Common Stock that such holder has the right to receive pursuant
to the provisions of this Article I and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Shares that
is not registered in the transfer records of the Company, a certificate
representing the proper number of shares of Parent Common Stock may be issued to
a transferee if the Certificate representing such Shares is presented to the
Exchange Agent accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 1.10, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of Parent
Common Stock and cash in lieu of any fractional shares of Parent Common Stock as
contemplated by this Section 1.10.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 1.10(f), until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate there shall be paid to the record holder of
the certificates representing whole shares of Parent Common Stock issued in
exchange therefor without interest (i) the amount of any cash payable in lieu of
a fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 1.10(f) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such number of whole shares of Parent Common Stock and (ii) at the appropriate
payment date the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Parent Common Stock.
(d) In the event that any Certificate for Shares shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange therefor upon
the making of an affidavit of that fact by the holder thereof such shares of
Parent Common Stock and cash in
4
<PAGE>
lieu of fractional shares, if any, as may be required pursuant to this
Agreement; provided, however, that Parent or the Exchange Agent may, in its
discretion, require the delivery of a suitable bond or indemnity.
(e) All shares of Parent Common Stock issued upon the surrender for
exchange of Shares in accordance with the terms hereof (including any cash paid
pursuant to Section 1.10(c) or 1.10(f)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such Shares; subject, however, to
the Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the date hereof that remain unpaid at
the Effective Time, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
(f) No fractions of a share of Parent Common Stock shall be issued in
the Merger but in lieu thereof each holder of Shares otherwise entitled to a
fraction of a share of Parent Common Stock shall upon surrender of his or her
Certificate or Certificates be entitled to receive an amount of cash (without
interest) determined by multiplying the average closing price for Parent Common
Stock as reported on the NYSE Composite Transactions reporting system for the
five (5) business days prior to the Effective Time by the fractional share
interest to which such holder would otherwise be entitled. The parties
acknowledge that payment of the cash consideration in lieu of issuing fractional
shares was not separately bargained for consideration, but merely represents a
mechanical rounding off for purposes of simplifying the corporate and accounting
complexities that would otherwise be caused by the issuance of fractional
shares.
(g) Any portion of the Exchange Fund that remains undistributed to the
stockholders of the Company upon the expiration of twelve (12) months after the
Effective Time shall be delivered to Parent upon demand and any stockholders of
the Company who have not theretofore complied with this Article 1 shall
thereafter look only to Parent for payment of their claim for Parent Common
Stock and cash in lieu of fractional shares as the case may be and any
applicable dividends or distributions with respect to Parent Common Stock.
(h) Neither Parent nor the Company shall be liable to any holder of
Shares or Parent Common Stock as the case may be for such shares (or dividends
or distributions with respect thereto) or cash from the Exchange Fund delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 1.11. Stock Options.
-------------
(a) At the Effective Time, each outstanding option or warrant to
purchase Shares (a "Company Stock Option" or collectively "Company Stock
Options") issued pursuant to the Company's 1988 Stock Option Plan, 1990 Stock
Option Plan, 1992 Key Executive Stock Option Plan, 1993 Employee Qualified Stock
Purchase Plan, 1996
5
<PAGE>
Supplemental Stock Plan, as amended, 1997 Stock Option Plan, as amended, 1994
Outside Director Stock Option Plan, Key Executive Stock Option Plan, SpeedSim,
Inc. 1995 Incentive and Nonqualified Stock Option Plan, or other agreement or
arrangement, whether vested or unvested, shall be converted as of the Effective
Time into options or warrants, as applicable, to purchase shares of Parent
Common Stock in accordance with the terms of this Section 1.11. All plans or
agreements described above pursuant to which any Company Stock Option has been
issued or may be issued other than outstanding warrants are referred to
collectively as the "Company Plans." Each Company Stock Option shall be deemed
to constitute an option to acquire, on the same terms and conditions as were
applicable under such Company Stock Option, a number of shares of Parent Common
Stock equal to the number of shares of Parent Common Stock that the holder of
such Company Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option or warrant in full immediately
prior to the Effective Time at a price per share equal to (x) the aggregate
exercise price for the Shares otherwise purchasable pursuant to such Company
Stock Option divided by (y) the product of (i) the number of Shares otherwise
purchasable pursuant to such Company Stock Option, multiplied by (ii) the
Exchange Ratio; provided, however, that in the case of any option to which
Section 421 of the Code applies by reason of its qualification under Section 422
of the Code ("incentive stock options" or "ISOs" ) the option price, the number
of shares purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with Section
424(a) of the Code.
(b) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Company Stock Options appropriate notices setting
forth such holders' rights pursuant to the Company Plan and that the agreements
evidencing the grants of such Options shall continue in effect on the same terms
and conditions (subject to the adjustments required by this Section 1.11 after
giving effect to the Merger). Parent shall comply with the terms of the Company
Plans and ensure, to the extent required by and subject to the provisions of
such Plans, that Company Stock Options that qualified as incentive stock options
prior to the Effective Time continue to qualify as incentive stock options of
Parent after the Effective Time.
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Company Stock Options assumed in accordance with this Section 1.11.
As soon as practicable after the Effective Time, Parent shall file a
registration statement on Form S-8 (or any successor or other appropriate forms)
with respect to the shares of Parent Common Stock subject to any Company Stock
Options held by persons who are directors, officers or employees of the Company
or its subsidiaries and shall use all reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding.
(d) At or before the Effective Time, the Company shall cause to be
effected any necessary amendments to the Company Plans to give effect to the
foregoing provisions of this Section 1.11.
6
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition, subject to the exceptions set forth in the Disclosure Schedule (the
"Company Disclosure Schedule") delivered by the Company to Parent in accordance
with Section 4.15 (which exceptions shall specifically identify a Section,
Subsection or clause of a single Section or Subsection hereof, as applicable, to
which such exception relates) that:
Section 2.1. Organization and Qualification; Subsidiaries;
---------------------------------------------
Investments.
-----------
(a) Section 2.1(a) of the Company Disclosure Schedule sets forth, as
of the date of this Agreement, a true and complete list of all the Company's
directly or indirectly owned subsidiaries, together with the jurisdiction of
incorporation of each subsidiary and the percentage of each subsidiary's
outstanding capital stock or other equity interests owned by the Company or
another subsidiary of the Company. Each of the Company and its subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite power
and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted. The Company has heretofore delivered to
Acquisition or Parent accurate and complete copies of the Certificate of
Incorporation and bylaws (or similar governing documents), as currently in full
force and effect, of the Company and its subsidiaries. Section 2.1(a) of the
Company Disclosure Schedule identifies all the material subsidiaries of the
Company. The Company has no operating subsidiaries other than those
incorporated in a state of the United States.
(b) Each of the Company and its subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect (as defined below) on the Company. When used in connection with the
Company or its subsidiaries, the term "Material Adverse Effect on the Company"
means any circumstance, change in, or effect on (or circumstance, change in, or
effect involving a prospective change on) the Company and its subsidiaries,
taken as a whole, (a) that is, or is reasonably likely in the future to be,
materially adverse to the operations, assets or liabilities (including
contingent liabilities), earnings or results of operations, or the business
(financial or otherwise) of the Company and its subsidiaries, taken as a whole,
excluding from the foregoing the effect, if any, of (i) changes in general
economic conditions or changes affecting the industry in which the Company
operates, (ii) stockholder class action litigation arising from allegations of a
breach of fiduciary duty relating to this Agreement, (iii) of the public
announcement or pendency of the transactions contemplated hereby on current or
prospective customers or revenues of the Company (provided that such effect is
direct and that the Company shall have the burden of proving such direct
effect), or (iv) any action or inaction required of the Company by Parent under
Section 4.1, or (b) that would reasonably be
7
<PAGE>
expected to prevent or materially delay or impair the ability of the Company to
consummate the transactions contemplated by this Agreement.
(c) Section 2.1(c) of the Company Disclosure Schedule sets forth a
true and complete list of each equity investment in an amount of One Hundred
Thousand Dollars ($100,000) or more or that represents a five percent (5%) or
greater ownership interest in the subject of such investment made by the Company
or any of its subsidiaries in any other person other than the Company's
subsidiaries ("Other Interests"). The Other Interests are owned by the
Company, by one or more of the Company's subsidiaries or by the Company and one
or more of its subsidiaries, in each case free and clear of all Lien (as defined
below), except for Liens that may be created by any partnership or joint venture
agreements for Other Interests.
Section 2.2. Capitalization of the Company and its Subsidiaries.
--------------------------------------------------
(a) The authorized capital stock of the Company consists of Forty
Million (40,000,000) Shares, of which, as of November 30, 1998, 18,095,580
Shares were issued and outstanding and Two Million (2,000,000) shares of
preferred stock, $0.001 par value per share, no shares of which are outstanding.
All of the outstanding Shares have been validly issued and are fully paid,
nonassessable and free of preemptive rights. As of November 30, 1998,
approximately 4,396,556 Shares were reserved for issuance and, as of December 5,
1998, 3,597,768 were issuable upon or otherwise deliverable in connection with
the exercise of outstanding Company Stock Options issued pursuant to the Company
Plans. Between December 5, 1998 and the date hereof, no shares of the Company's
capital stock have been issued other than pursuant to Company Stock Options
already in existence on such date, and between December 5, 1998 and the date
hereof no stock options have been granted. Except as set forth above and for
the rights (the "Company Rights") issued pursuant to the Company's Preferred
Shares Rights Agreement, dated as of January 10, 1996, as amended between the
Company and BankBoston, N.A. (the "Company Rights Agreement"), as of the date
hereof, there are outstanding (i) no shares of capital stock or other voting
securities of the Company, (ii) no securities of the Company or any of its
subsidiaries convertible into or exchangeable or exercisable for shares of
capital stock or voting securities of the Company, (iii) no options or other
rights to acquire from the Company or any of its subsidiaries, and, except as
described in the Company SEC Reports (as defined below), no obligations of the
Company or any of its subsidiaries to issue any capital stock, voting securities
or securities convertible into or exchangeable or exercisable for capital stock
or voting securities of the Company and (iv) no equity equivalent interests in
the ownership or earnings of the Company or its subsidiaries or other similar
rights (collectively "Company Securities"). As of the date hereof, there are
no outstanding rights or obligations of the Company or any of its subsidiaries
to repurchase, redeem or otherwise acquire any Company Securities. There are no
stockholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or by which it is bound relating to the voting or
registration of any shares of capital stock of the Company.
8
<PAGE>
(b) All of the outstanding capital stock of the Company's
subsidiaries is owned by the Company, directly or indirectly, free and clear of
any Lien or any other limitation or restriction (including any restriction on
the right to vote or sell the same except as may be provided as a matter of
law). There are no (i) securities of the Company or any of its subsidiaries
convertible into or exchangeable or exercisable for, (ii) options or (iii)
except for the Company Rights, other rights to acquire from the Company or any
of its subsidiaries any capital stock or other ownership interests in or any
other securities of any subsidiary of the Company, and there exists no other
contract, understanding, arrangement or obligation (whether or not contingent)
providing for the issuance or sale, directly or indirectly, of any such capital
stock. There are no outstanding contractual obligations of the Company or its
subsidiaries to repurchase, redeem or otherwise acquire any outstanding shares
of capital stock or other ownership interests in any subsidiary of the Company.
For purposes of this Agreement, "Lien" means, with respect to any asset
(including any security), any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset; provided, however, that the
term "Lien" shall not include (i) statutory liens for Taxes, which are not yet
due and payable or are being contested in good faith by appropriate proceedings
and disclosed in Section 2.13(d) of the Company Disclosure Schedule or that are
otherwise not material, (ii) statutory or common law liens to secure landlords,
lessors or renters under leases or rental agreements confined to the premises
rented, (iii) deposits or pledges made in connection with, or to secure payment
of, workers' compensation, unemployment insurance, old age pension or other
social security programs mandated under applicable laws, (iv) statutory or
common law liens in favor of carriers, warehousemen, mechanics and materialmen,
to secure claims for labor, materials or supplies and other like liens, and (v)
restrictions on transfer of securities imposed by applicable state and federal
securities laws.
(c) The Company Rights and the Shares constitute the only class of
equity securities of the Company or its subsidiaries registered or required to
be registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
Section 2.3. Authority Relative to this Agreement; Recommendation.
----------------------------------------------------
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of the Company (the "Company Board"), and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby except the approval and
adoption of this Agreement by the holders of a majority of the outstanding
Shares. This Agreement has been duly and validly executed and delivered by the
Company and constitutes, assuming the due authorization, execution and delivery
hereof by Parent and Acquisition, a valid, legal and binding agreement of the
Company, enforceable against the Company in accordance with its terms, subject
to any applicable bankruptcy, insolvency, reorganization,
9
<PAGE>
moratorium or similar laws now or hereafter in effect relating to creditors'
rights generally or to general principles of equity.
(b) The Company Board has unanimously resolved to recommend that the
stockholders of the Company approve and adopt this Agreement.
Section 2.4. SEC Reports; Financial Statements.
---------------------------------
(a) The Company has filed all required forms, reports and documents
("Company SEC Reports") with the Securities and Exchange Commission (the "SEC")
since January 1, 1997, each of which complied at the time of filing in all
material respects with all applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act, each law as in
effect on the dates such forms, reports and documents were filed. None of such
Company SEC Reports, including, any financial statements or schedules included
or incorporated by reference therein, contained when filed any untrue statement
of a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein in light of the circumstances under which they were made not misleading,
except to the extent superseded by a Company SEC Report filed subsequently and
prior to the date hereof. The audited consolidated financial statements of the
Company included in the Company SEC Reports fairly present, in conformity in all
material respects with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and their consolidated results of operations and changes
in financial position for the periods then ended.
(b) The Company has heretofore made available or promptly will make
available to Acquisition or Parent a complete and correct copy of any amendments
or modifications that are required to be filed with the SEC but have not yet
been filed with the SEC to agreements, documents or other instruments that
previously had been filed by the Company with the SEC pursuant to the Exchange
Act.
Section 2.5. Information Supplied. None of the information supplied
--------------------
or to be supplied by the Company for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger (the
"S-4") will, at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or (ii) the proxy statement relating to the meeting of the
Company's stockholders to be held in connection with the Merger (the "Proxy
Statement") will, at the date mailed to stockholders of the Company and at the
time of the meeting of stockholders of the Company to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein in light of the circumstances under which they are made not
misleading. The Proxy Statement insofar as it relates to the meeting of the
Company's
10
<PAGE>
stockholders to vote on the Merger will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder. Notwithstanding the foregoing, the Company makes no representation,
warranty or covenant with respect to any information supplied or required to be
supplied by Parent or Acquisition which is contained in or omitted from any of
the foregoing documents.
Section 2.6. Consents and Approvals; No Violations. Except for
-------------------------------------
filings, permits, authorizations, consents and approvals as may be required
under applicable requirements of the Securities Act, the Exchange Act, state
securities or blue sky laws, and the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), any filings under similar merger
notification laws or regulations of foreign Governmental Entities and the filing
and recordation of the Certificate of Merger as required by the DGCL, no filing
with or notice to and no permit, authorization, consent or approval of any
United States or foreign court or tribunal, or administrative, governmental or
regulatory body, agency or authority (a "Governmental Entity") is necessary
for the execution and delivery by the Company of this Agreement or the
consummation by the Company of the transactions contemplated hereby, except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings or give such notice would not, individually or in the
aggregate, materially and adversely affect the business operations of the
Company after the Merger or its ability to consummate the Merger. Neither the
execution, delivery and performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or bylaws (or similar governing documents) of the
Company or any of its subsidiaries, (ii) except as set forth in Section 2.6 of
the Company Disclosure Schedule, result in a violation or breach of or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which any of them or any of their respective properties or assets may be bound
or (iii) except as set forth in Section 2.6 of the Company Disclosure Schedule,
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets except, in the case of clause (ii) or (iii), for
violations, breaches or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
Section 2.7. No Default. Except as set forth in Section 2.7 of the
----------
Company Disclosure Schedule, neither the Company nor any of its subsidiaries is
in breach, default or violation (and no event has occurred that with notice or
the lapse of time or both would constitute a breach, default or violation) of
any term, condition or provision of (i) its Certificate of Incorporation or
bylaws (or similar governing documents), (ii) any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is now a party or by which it or
any of its properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to the Company
or any of its subsidiaries or any of its properties or
11
<PAGE>
assets, except, in the case of clause (ii) or (iii), for violations, breaches or
defaults that would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
Section 2.8. No Undisclosed Liabilities; Absence of Changes. Except
----------------------------------------------
as and to the extent publicly disclosed by the Company in the Company SEC
Reports or as set forth in Section 2.8 of the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries has any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
would be required by generally accepted accounting principles to be reflected on
a consolidated balance sheet of the Company (including the notes thereto), other
than liabilities and obligations which, individually or in the aggregate, will
not have a Material Adverse Effect on the Company. Except as publicly disclosed
by the Company in the Company SEC Reports or as set forth in Section 2.8 of the
Company Disclosure Schedule, since September 30, 1998, there have been no
events, changes or effects with respect to the Company or its subsidiaries that
have had or reasonably would be expected to have a Material Adverse Effect on
the Company. Without limiting the generality of the foregoing, except as and to
the extent publicly disclosed by the Company in the Company SEC Reports or as
set forth in Section 2.8 of the Company Disclosure Schedule, since September 30,
1998, the Company and its subsidiaries have conducted their respective
businesses in all material respects only in, and have not engaged in any
material transaction other than according to, the ordinary and usual course of
such businesses consistent with past practices, and there has not been any (i)
change in the financial condition, properties, business or results of operations
of the Company and its subsidiaries, except for those changes that, individually
or in the aggregate, have not had and are not reasonably likely to have a
Material Adverse Effect on the Company; (ii) material damage, destruction or
other casualty loss with respect to any material asset or property owned, leased
or otherwise used by the Company or any of its subsidiaries, not covered by
insurance; (iii) declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company or any of its
subsidiaries (other than wholly-owned subsidiaries) or any repurchase,
redemption or other acquisition by the Company or any of its subsidiaries of any
outstanding shares of capital stock or other securities of, or other ownership
interests in, the Company or any of its subsidiaries; (iv) amendment of any
material term of any outstanding security of the Company or any of its
subsidiaries; (v) incurrence, assumption or guarantee by the Company or any of
its subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices; (vi) creation or assumption by the Company or any of its subsidiaries
of any Lien on any material asset other than in the ordinary course of business
consistent with past practices; (vii) loan, advance or capital contributions
made by the Company or any of its subsidiaries to, or investment in, any person
other than (x) loans or advances to employees in connection with business-
related travel, (y) loans made to employees consistent with past practices that
are not in the aggregate in excess of Fifty Thousand Dollars ($50,000), and (z)
loans, advances or capital contributions to or investments in wholly-owned
subsidiaries, and in each case made in the ordinary course of business
consistent with past practices; (viii) transaction or commitment made, or any
contract or agreement entered into, by the Company or any of its subsidiaries
relating to its assets or business (including the acquisition or disposition of
any assets) or any relinquishment by the Company or any of its subsidiaries of
any contract, agreement or other
12
<PAGE>
right, in either case, material to the Company and its subsidiaries, taken as a
whole, other than transactions and commitments in the ordinary course of
business consistent with past practices and those contemplated by this
Agreement; (ix) labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of the Company or any of its subsidiaries, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect to such
employees; or (x) change by the Company or any of its subsidiaries in its
accounting principles, practices or methods. Since September 30, 1998, except as
disclosed in the Company SEC Reports filed prior to the date hereof or increases
in the ordinary course of business consistent with past practices, there has not
been any increase in the compensation payable or that could become payable by
the Company or any of its subsidiaries to (a) officers of the Company or any of
its subsidiaries or (b) any employee of the Company or any of its Subsidiaries
whose annual cash compensation is One Hundred Thousand Dollars ($100,000) or
more.
Section 2.9. Litigation. Except as publicly disclosed by the Company
----------
in the Company SEC Reports or as set forth in Section 2.9 of the Company
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries or any of their respective properties or
assets before any Governmental Entity that, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on the Company or
would reasonably be expected to prevent or delay the consummation of the
transactions contemplated by this Agreement. Except as publicly disclosed by
the Company in the Company SEC Reports, neither the Company nor any of its
subsidiaries is subject to any outstanding order, writ, injunction or decree
that, insofar as can be reasonably foreseen in the future, would reasonably be
expected to have a Material Adverse Effect on the Company or could reasonably be
expected to prevent or delay the consummation of the transactions contemplated
hereby.
Section 2.10. Compliance with Applicable Law. Except as publicly
------------------------------
disclosed by the Company in the Company SEC Reports, the Company and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except for failures to hold
such permits, licenses, variances, exemptions, orders and approvals that would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. Except as publicly disclosed by the Company in the Company SEC
Reports, the Company and its subsidiaries are in compliance with the terms of
the Company Permits, except where the failure so to comply would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
Except as publicly disclosed by the Company in the Company SEC Reports, the
businesses of the Company and its subsidiaries are not being conducted in
violation of any law, ordinance or regulation of the United States or any
foreign country or any political subdivision thereof or of any Governmental
Entity, except (i) that no representation or warranty is made in this Section
2.10 with respect to Environmental Laws (as defined in Section 2.12) and (ii)
for violations or possible violations of any United States or foreign laws,
ordinances or regulations that do not and, insofar as reasonably can be foreseen
in the future, will not result in any charges, assessments, levies, fines or
other
13
<PAGE>
liabilities being imposed upon or incurred by the Company that will equal or
exceed Five Hundred Thousand Dollars ($500,000) for any single violation or One
Million Dollars ($1,000,000) in the aggregate. Except as publicly disclosed by
the Company in the Company SEC Reports, no investigation or review by any
Governmental Entity with respect to the Company or any of its subsidiaries is
pending or, to the knowledge of the Company, threatened, nor, to the knowledge
of the Company, has any Governmental Entity indicated an intention to conduct
the same, other than such investigations or reviews as would not, individually
or in the aggregate, have a Material Adverse Effect on the Company.
Section 2.11. Employee Benefit Plans; Labor Matters.
-------------------------------------
(a) Section 2.11(a) of the Company Disclosure Schedule lists as of the
date hereof all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and all
bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, health, life, or disability insurance, dependent care,
severance and other similar fringe or employee benefit plans, programs or
arrangements and any current or former employment or executive compensation or
severance agreements written or otherwise maintained or contributed to for the
benefit of or relating to any employee or former employee of the Company, any
trade or business (whether or not incorporated) that is a member of a controlled
group including the Company or that is under common control with the Company
within the meaning of Section 414 of the Code (an "ERISA Affiliate "), as well
as"), excluding ") for each each plan with Employee Plans disclosed respect to
which under which the Employee Plan the Company or Company has no where such
report an ERISA remaining is required and Affiliate could obligations and (ii)
the incur liability any of the documents and under Section foregoing that are
instruments 4069 (if such required to be governing each plan has been or
maintained by the such Employee were terminated) Company under the Plan (other
than or Section laws of any those referred to 4212(c) of ERISA foreign in
Section (together the jurisdiction. The 4(b)(4) of "Employee Plans Company has
made ERISA). No event available to has occurred and, Parent a copy of to the
knowledge (i) the most of the Company, recent annual there currently report on
Form exists no 5500 filed with condition or set the Internal of circumstances
Revenue Service in connection (the "IRS with which the Company or any of its
subsidiaries could be subject to any liability under the terms of any Employee
Plans, ERISA, the Code or any other applicable law, including any liability
under Title IV of ERISA, that would have a Material Adverse Effect on the
Company.
(b) Section 2.11(b) of the Company Disclosure Schedule sets forth a
list as of the date hereof of (i) all employment agreements with officers of the
Company; (ii) all agreements with consultants who are individuals obligating the
Company to make annual cash payments in an amount exceeding Fifty Thousand
Dollars ($50,000); (iii) all severance agreements, programs and policies of the
Company with or relating to its employees except such programs and policies
required to be maintained by law; and (iv) all plans, programs, agreements and
other arrangements of the Company with or relating to its employees that contain
change in control provisions whether or not listed in other parts of the Company
Disclosure Schedule. The Company has made available to Parent copies (or
descriptions in
14
<PAGE>
detail reasonably satisfactory to Parent) of all such agreements, plans,
programs and other arrangements.
(c) Except as disclosed in Section 2.11(c) of the Company Disclosure
Schedule, there will be no payment, accrual of additional benefits, acceleration
of payments or vesting of any benefit under any Employee Plan or any agreement
or arrangement disclosed under this Section 2.11 solely by reason of entering
into or in connection with the transactions contemplated by this Agreement.
(d) No Employee Plan that is a welfare benefit plan within the meaning
of Section 3(1) of ERISA provides benefits to former employees of the Company or
its ERISA Affiliates other than pursuant to Section 4980B of the Code or similar
state laws.
(e) There are no controversies relating to any Employee Plan or other
labor matters pending or, to the knowledge of the Company, threatened between
the Company or any of its subsidiaries and any of their respective employees,
which controversies, individually or in the aggregate, have or would reasonably
be expected to have a Material Adverse Effect of the Company. Neither the
Company nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or any of its subsidiaries except as disclosed in Section 2.11(e) of the
Company Disclosure Schedule, nor does the Company know of any activities or
proceedings of any labor union to organize any such employees. The Company has
no knowledge of any strikes, slowdowns, work stoppages, lockouts or threats
thereof by or with respect to any employees of the Company or any of its
subsidiaries.
Section 2.12. Environmental Laws and Regulations.
----------------------------------
(a) Except as publicly disclosed by the Company in the Company SEC
Reports, (i) each of the Company and its subsidiaries is in material compliance
with all applicable federal, state, local and foreign laws and regulations
relating to pollution or protection of human health or the environment
(including ambient air, surface water, ground water, land surface or subsurface
strata) (collectively "Environmental Laws") except for non-compliances that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company, which compliance includes, but is not limited to, the possession by
the Company and its subsidiaries of all material permits and other governmental
authorizations required under applicable Environmental Laws and compliance with
the terms and conditions thereof; (ii) neither the Company nor any of its
subsidiaries has received written notice of or, to the knowledge of the Company,
is the subject of any action, cause of action, claim, investigation, demand or
notice by any person alleging liability under or non-compliance with any
Environmental Law (an "Environmental Claim "); and (iii) to the knowledge of the
Company, there are no existing facts that are reasonably likely to prevent or
interfere with such material compliance in the future.
(b) Except as disclosed in the Company SEC Reports, there are no
Environmental Claims that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on the Company that are pending or,
to the knowledge of the Company, threatened against the Company or any of its
subsidiaries or, to the knowledge of the
15
<PAGE>
Company, against any person whose liability for any Environmental Claim the
Company or any of its subsidiaries has or may have retained or assumed either
contractually or by operation of law.
Section 2.13. Taxes.
-----
(a) Definitions. For purposes of this Agreement:
-----------
(i) the term "Tax" (including "Taxes") means (A) all federal,
state, local, foreign and other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service, service
use, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs, duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts with respect thereto, (B)
any liability for payment of amounts described in clause (A) whether as a result
of transferee liability, of being a member of an affiliated, consolidated,
combined or unitary group for any period, or otherwise through operation of law,
and (C) any liability for the payment of amounts described in clauses (A) or (B)
as a result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other person; and
(ii) the term "Tax Return " means any return, declaration, report,
statement, information statement and other document required to be filed with
respect to Taxes.
(b) Except as set forth in Section 2.13(b) of the Company Disclosure
Schedule, the Company and its subsidiaries have timely filed all material Tax
Returns they are required to have filed; and such Tax Returns are accurate and
correct in all material respects and do not contain a disclosure statement under
Section 6662 of the Code (or any predecessor provision or comparable provision
of state, local or foreign law).
(c) The Company and its subsidiaries have paid or adequately provided
in the financial statements included in the SEC Reports for all Taxes (whether
or not shown on any Tax Return) they are required to have paid or to pay, which
amounts are not material either individually or in the aggregate.
(d) Except as set forth in Section 2.13(d) of the Company Disclosure
Schedule, no material claim for assessment or collection of Taxes is presently
being asserted against the Company or its subsidiaries and neither the Company
nor any of its subsidiaries is a party to any pending action, proceeding, or
investigation by any governmental taxing authority nor does the Company have
knowledge of any such threatened action, proceeding or investigation.
(e) Except as set forth in Section 2.13(e) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
agreement,
16
<PAGE>
contract, arrangement or plan that has resulted or would result, individually or
in the aggregate, in connection with this Agreement or any change of control of
the Company or any of its subsidiaries, in the payment of any "excess parachute
payments" within the meaning of Section 28OG of the Code.
Section 2.14. Intellectual Property.
---------------------
(a) Section 2.14(a) of the Company Disclosure Schedule sets forth, for
the Intellectual Property owned, in whole or in part, including jointly with
others, by the Company or any of its subsidiaries, a complete and accurate list
of all United States and foreign (a) patents and patent applications; (b)
Trademark registrations and applications and material unregistered Trademarks;
and (c) copyright registrations and applications, indicating for each, the
applicable jurisdiction, registration number (or application number), and date
issued (or date filed). For purposes of this Agreement, "Intellectual Property"
means: trademarks and service marks (whether register or unregistered), trade
names, designs and general intangibles of like nature, together with all
goodwill related to the foregoing (collectively, "Trademarks"); patents
(including any continuations, continuations in part, renewals and applications
for any of the foregoing)(collectively "Patents"); copyrights (including any
registrations and applications therefor and whether registered or
unregistered)(collectively "Copyrights"); computer software; databases; works of
authorship; mask works; technology; trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models, user
interfaces, customer lists, inventions, discoveries, concepts, ideas,
techniques, methods, source codes, object codes, methodologies and, with respect
to all of the foregoing, related confidential data or information (collectively,
"Trade Secrets").
(b) Trademarks.
----------
(i) All Trademark registrations are currently in compliance in
all material respects with all legal requirements (including the timely post-
registration filing of affidavits of use and incontestability and renewal
applications) other than any requirement that, if not satisfied, would not
result in a cancellation of any such registration or otherwise materially affect
the priority and enforceability of the Trademark in question.
(ii) No registered Trademark has been within the last three (3)
years or is now involved in any opposition or cancellation proceeding in the
United States Patent and Trademark Office. To the Company's knowledge, no such
action has been threatened in writing within the one (1)-year period prior to
the date of this Agreement.
(iii) To the knowledge of the Company and its subsidiaries, there
has been no prior use of any material Trademark by any third party which would
confer upon said third party superior rights in any such Trademark.
(iv) All material Trademarks registered in the United States have
been in continuous use by the Company or its subsidiaries.
17
<PAGE>
(v) The Company and its subsidiaries have adequately policed the
Trademarks against third party infringement; and the material Trademarks
registered in the United States have been continuously used in the form
appearing in, and in connection with the goods and services listed in, their
respective registration certificates.
(c) Patents.
-------
(i) All Patents are currently in compliance with legal
requirements (including payment of filing, examination, and maintenance fees and
proofs of working or use) other than any requirement that, if not satisfied,
would not result in a revocation or otherwise materially affect the
enforceability of the Patent in question.
(ii) No Patent has been or is now involved in any interference,
reissue, reexamination or opposing proceeding in the United States Patent and
Trademark Office. To the Company's knowledge, no such action has been
threatened in writing within the one (1)-year period prior to the date of this
Agreement.
(iii) To the Company's knowledge, there is no patent or patent
application of any person that conflicts in any material respect with any
Patent.
(d) Trade Secrets.
-------------
(i) The Company has taken reasonable steps in accordance with
normal industry practice to protect the Company's rights in confidential
information and Trade Secrets of the Company.
(ii) Without limiting the generality of Section 2.14(d)(i) and
except as would not be materially adverse to the Company or its business, the
Company enforces a policy of requiring each relevant employee, consultant and
contractor to execute proprietary information, confidentiality and assignment
agreements substantially in the Company's standard forms that assign to the
Company all rights to any Intellectual Property rights relating to the Company's
business and that otherwise appropriately protect the Intellectual Property of
the Company, and, except under confidentiality obligations, there has been no
disclosure by the Company or any subsidiary of material confidential information
or Trade Secrets.
(e) License Agreements.
------------------
Section 2.14(e)(1) of the Company Disclosure Schedule sets forth a
complete and accurate list of all license agreements granting to the Company or
any of its subsidiaries any material right to use or practice any rights under
any Intellectual Property other than office automation software used generally
in the Company's or any of its subsidiaries' operations and other software that
is not used in connection with the design, development, use, maintenance and
support, testing, assembly and manufacture of the Company's or any such
subsidiary's products and is commercially available on reasonable terms to any
person for a license fee of no more than $100,000 (collectively, the "Inbound
18
<PAGE>
License Agreements"), indicating for each the title and the parties thereto and
the amount of any future royalty or license fee payable thereunder. Section
2.14(e)(2) of the Company Disclosure Schedule sets forth a complete and accurate
list of all license agreements under which the Company or any of its
subsidiaries licenses software or grants other rights in to use or practice any
rights under any Intellectual Property, excluding licenses with customers that
in the twelve-month period prior to the date hereof have purchased or licensed
products for which the total payments to the Company and its subsidiaries did
not exceed $100,000 (collectively, the "Outbound License Agreements"),
indicating for each the title and the parties thereto. There is no material
outstanding or, to the Company's knowledge, threatened dispute or disagreement
with respect to any Inbound License Agreement or any Outbound License Agreement.
(f) Ownership; Sufficiency of IP Assets. The Company or one of its
-----------------------------------
subsidiaries owns or possesses adequate licenses or other rights to use, free
and clear of Liens, orders and arbitration awards, all of its Intellectual
Property used in its business. The Intellectual Property identified in Section
2.14(a) of the Company Disclosure Schedule, together with the Company's and its
subsidiaries' unregistered copyrights and the Company's and such subsidiaries'
rights under the licenses granted to the Company or any of its subsidiaries
under the Inbound License Agreements, constitute all the material Intellectual
Property rights used in the operation of the Company's and its subsidiaries'
businesses as they are currently conducted and are all the Intellectual Property
rights necessary to operate such businesses after the Effective Time in
substantially the same manner as such businesses have been operated by the
Company prior thereto.
(g) Protection of IP. The Company has taken reasonable steps to
----------------
protect the Intellectual Property of the Company and its subsidiaries.
(h) No Infringement by the Company. To the Company's knowledge, the
------------------------------
products used, manufactured, marketed, sold or licensed by the Company, and all
Intellectual Property used in the conduct of the Company's and its subsidiaries'
businesses as currently conducted, do not infringe upon, violate or constitute
the unauthorized use of any rights owned or controlled by any third party,
including without limitation, any Intellectual Property of any third party.
(i) No Pending or Threatened Infringement Claims. Except and to the
--------------------------------------------
extent publicly disclosed in the Company SEC Reports, no litigation is now or,
within the three (3) years prior to the date of this Agreement, was pending and,
to the Company's knowledge, no notice or other claim in writing has been
received by the Company within the one (1) year prior to the date of this
Agreement, (A) alleging that the Company any of its subsidiaries has engaged in
any activity or conduct that infringes upon, violates, or constitutes the
unauthorized use of the Intellectual Property rights of any third party or (B)
challenging the ownership, use, validity or enforceability of any Intellectual
Property owned or exclusively licensed by the Company. Except as specifically
disclosed in one or more Sections of the Company Disclosure Schedules pursuant
to this Section 2.14, no Intellectual Property owned or licensed by the Company
or any of its subsidiaries is subject to any
19
<PAGE>
outstanding order, judgment, decree, stipulation or agreement restricting the
use thereof by the Company or any such subsidiary or, in the case of any
Intellectual Property licensed to others, restricting the sale, transfer,
assignment or licensing thereof by the Company or any of its subsidiaries to any
person.
(j) No Infringement by Third Parties. Except as and to the extent
--------------------------------
publicly disclosed in the Company SEC Reports or as set forth in Section 2.14(j)
of the Company Disclosure Schedule, to the knowledge of the Company, no third
party is misappropriating, infringing, diluting, or violating any Intellectual
Property owned or exclusively licensed by the Company or any of its
subsidiaries, and no such claims have been brought against any third party by
the Company or any of its subsidiaries.
(k) Assignment; Change of Control. The execution, delivery and
-----------------------------
performance by the Company of this Agreement, and the consummation of the
transactions contemplated hereby, will not result in the loss or impairment of,
or give rise to any right of any third party to terminate, any of the Company's
or any of its subsidiaries' rights to own any of its Intellectual Property or
their respective rights under the License Agreements, nor require the consent of
any Governmental Authority or third party in respect of any such Intellectual
Property.
(l) Software. The Software owned or purported to be owned by the
--------
Company or any of its subsidiaries, was either (i) developed by employees of
Company or any of its subsidiaries within the scope of their employment; (ii)
developed by independent contractors who have assigned their rights to the
Company or any of its subsidiaries pursuant to written agreements; or (iii)
otherwise acquired by the Company or a subsidiary from a third party. Except as
set forth in Section 2.14(l) of the Company Disclosure Schedule, the Software
does not contain any programming code, documentation or other materials or
development environments that embody Intellectual Property rights of any person
other than the Company or any of its subsidiaries, except for such materials or
development environments obtained by the Company or any of its subsidiaries from
other persons who make such materials or development environments generally
available to all interested purchasers or end-users on standard commercial
terms. For purposes of this Section 2.14(l), "Software" means any and all (i)
computer programs, including any and all software implementations of algorithms,
models and methodologies, whether in source code or object code, (ii) databases
and compilations, including any and all data and collections of data, whether
machine readable or otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, and
(iv) all documentation, including user manuals and training materials, relating
to any of the foregoing.
(m) Performance of Existing Software Products. The Company's and
-----------------------------------------
its subsidiaries' existing and currently manufactured and marketed Software
products listed and described on Section 2.14(m) of the Company Disclosure
Schedule perform in all material respects, free of significant bugs or
programming errors, the functions described in any agreed specifications or end
user documentation or other information provided to customers of the
20
<PAGE>
Company on which such customers relied when licensing or otherwise acquiring
such products.
(n) Documentation. The Company and its subsidiaries have taken all
-------------
actions customary in the software industry to document the Software and its
operation, such that the materials comprising the Software, including the source
code and documentation, have been written in a clear and professional manner so
that they may be understood, modified and maintained in an efficient manner by
reasonably competent programmers.
(o) Year 2000 Compliance.
--------------------
(i) Except as set forth in Section 2.14(o) of the Company
Disclosure Schedule, all of the Company's and its subsidiaries' material
products (including products currently under development) will record, store,
process and calculate and present calendar dates falling on and after December
31, 1998, and will calculate any information dependent on or relating to such
dates in the same manner and with the same functionality, data integrity and
performance as the products record, store, process, calculate and present
calendar dates on or before December 31, 1998, or calculate any information
dependent on or relating to such dates (collectively "Year 2000 Compliant").
Except as set forth in Section 2.14(o) of the Company Disclosure Schedule, (A)
all of the Company's and its subsidiaries' material products will lose no
significant functionality with respect to the introduction of records containing
dates falling on or after December 31, 1998; (B) all of the Company's and its
subsidiaries' internal computer systems comprised of software, hardware,
databases or embedded control systems (microprocessor controlled, robotic or
other device) related to the Company's and its subsidiaries' businesses
(collectively, a "Business System "), that constitutes any material part of, or
is used in connection with the use, operation or enjoyment of, any material
tangible or intangible asset or real property of the Company and its
subsidiaries, including its accounting systems, are Year 2000 Compliant. Except
as set forth on Section 2.14(o) of the Company Disclosure Schedule, the current
versions of the Company's and its subsidiaries' software and all other
Intellectual Property may be used prior to, during and after December 31, 1998,
such that such Software and Intellectual Property will operate prior to, during
and after such time period without error caused by date data that represents or
references different centuries or more than one century.
(ii) To the knowledge of the Company, all of the Company's
products and the conduct of the Company's business with customers and suppliers
will not be materially adversely affected by the advent of the year 2000, the
advent of the twenty-first century or the transition from the twentieth century
through the year 2000 and into the twenty-first century. To the knowledge of the
Company and except as set forth on Section 2.14(o) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is reasonably likely
to incur material expenses arising from or relating to the failure of any of its
Business Systems or any products (including all products sold on or prior to the
date hereof) as a result of the advent of the year 2000, the advent of the
twenty-first century or the transition from the twentieth century through the
year 2000.
21
<PAGE>
Section 2.15. Insurance. Each of the Company and its subsidiaries
---------
maintains insurance policies (the "Insurance Policies") against all risks of
a character and in such amounts as are usually insured against by similarly
situated companies in the same or similar businesses. Each Insurance Policy is
in full force and effect and is valid, outstanding and enforceable, and all
premiums due thereon have been paid in full. None of the Insurance Policies
will terminate or lapse (or be affected in any other materially adverse manner)
by reason of the transactions contemplated by this Agreement. Each of the
Company and its subsidiaries has complied in all material respects with the
provisions of each Insurance Policy under which it is the insured party. No
insurer under any Insurance Policy has canceled or generally disclaimed
liability under any such policy or, to the Company's knowledge, indicated any
intent to do so or not to renew any such policy. All material claims under the
Insurance Policies have been filed in a timely fashion.
Section 2.16. Certain Business Practices. None of the Company, any
--------------------------
of its subsidiaries or any directors, officers, agents or employees of the
Company or any of its subsidiaries has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
Section 2.17. Product Warranties. Section 2.17 of the Company
------------------
Disclosure Schedule sets forth complete and accurate copies of the written
warranties and guaranties by the Company or any of its subsidiaries currently in
effect with respect to its products. There have not been any material
deviations from such warranties and guaranties, and neither the Company, any of
its subsidiaries nor any of their respective salesmen, employees, distributors
and agents is authorized to undertake obligations to any customer or to other
third parties in excess of such warranties or guaranties. Neither the Company
nor any of its subsidiaries has made any oral warranty or guaranty with respect
to its products.
Section 2.18. Suppliers and Customers. The documents and information
-----------------------
supplied by the Company to Parent or any of its representatives in connection
with this Agreement with respect to relationships and volumes of business done
with its significant suppliers and customers are accurate in all material
respects. During the last twelve (12) months, the Company has received no
notices of termination or written threats of termination from any of the five
(5) largest suppliers or the five (5) largest customers of the Company and its
subsidiaries.
Section 2.19. Vote Required. The affirmative vote of the holders of
-------------
a majority of the outstanding Shares is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve and adopt
this Agreement.
Section 2.20. Tax Treatment; Pooling. Neither the Company nor, to
----------------------
the knowledge of the Company, any of its affiliates has taken or agreed to take
action that would prevent the Merger from (a) constituting a reorganization
qualifying under the provisions of
22
<PAGE>
Section 368(a) of the Code or (b) being treated for financial accounting
purposes as a pooling of interests in accordance with generally accepted
accounting principles and the rules regulations and interpretations of the SEC
(a "Pooling Transaction").
Section 2.21. Affiliates. Except for the directors and executive
----------
officers of the Company, each of whom is listed in Section 2.21 of the Company
Disclosure Schedule, there are no persons who, to the knowledge of the Company,
may be deemed to be affiliates of the Company under Rule 145 of the Securities
Act ("Company Affiliates").
Section 2.22. Opinion of Financial Adviser. Hambrecht & Quist LLC
----------------------------
(the "Company Financial Adviser") has delivered to the Company Board its
written opinion dated the date of this Agreement to the effect that as of such
date the Merger Consideration is fair, from a financial point of view, to the
holders of Shares.
Section 2.23. Brokers. No broker, finder or investment banker (other
-------
than the Company Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to Acquisition or Parent) is entitled to any
brokerage finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
Section 2.24. Company Rights Agreement. The Company has taken all
------------------------
necessary action to ensure that neither its entering into this Agreement or the
Stock Option Agreement, nor the consummation of the Merger, nor exercise of
Parent's rights under such Stock Option Agreement in accordance with its terms,
will cause the Company Rights to become exercisable, cause Parent or Acquisition
to become an "Acquiring Person" (each as defined in the Company Rights
Agreement), or cause there to occur a "Triggering Event" or a "Distribution
Date" (each as defined in the Company Rights Agreement).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
Section 3.1. Organization.
------------
(a) Each of Parent and Acquisition is duly organized, validly existing
and in good standing under the laws of the State of Delaware, respectively, and
has all requisite power and authority to own, lease and operate its properties
and to carry on its businesses as now being conducted. Parent has heretofore
made available to the Company accurate and complete copies of the Certificate of
Incorporation and bylaws as currently in full force and effect, of Parent and
Acquisition.
23
<PAGE>
(b) Each of Parent and Acquisition is duly qualified or licensed and
in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing would
not have a Material Adverse Effect on Parent. When used in connection with
Parent or Acquisition the term "Material Adverse Effect on Parent" means any
circumstance, change in, or effect on (or circumstance, change in, or effect
involving a prospective change on) Parent and its subsidiaries, taken as a
whole, (a) that is, or is reasonably likely in the future to be, materially
adverse to the operations, assets or liabilities (including contingent
liabilities), earnings or results of operations, or the business (financial or
otherwise) of Parent and its subsidiaries, taken as a whole, excluding from the
foregoing the effect, if any, of (i) changes in general economic conditions or
changes affecting the industry in which Parent operates, (ii) stockholder class
action litigation arising from allegations of a breach of fiduciary duty
relating to this Agreement, (iii) the public announcement or pendency of the
transactions contemplated hereby on current or prospective customers or revenues
of the Parent (provided that such effect is direct and that Parent shall have
the burden of proving such direct effect), or (iv) any action or inaction
required of Parent by the Company under this Agreement, or (b) that would
reasonably be expected to prevent or materially delay or impair the ability of
Parent and Acquisition to consummate the transactions contemplated by this
Agreement.
Section 3.2. Capitalization of Parent and its Subsidiaries.
---------------------------------------------
(a) The authorized capital stock of Parent consists of 600,000,000
shares of Parent Common Stock, of which, as of December 7, 1998, 218,140,000
shares of Parent Common Stock were issued and outstanding (each together with a
Parent Common Stock purchase right (the "Parent Rights") issued pursuant to
the Rights Agreement dated as of February 9, 1996 between Parent and Harris
Trust and Savings Bank) and 400,000 shares of preferred stock, $.01 par value
per share, none of which are outstanding. All of the outstanding shares of
Parent Common Stock have been validly issued and are fully paid, nonassessable
and free of preemptive rights. As of December 7, 1998, 58,185,625 shares of
Parent Common Stock were reserved for issuance and 39,311,061 were issuable upon
or otherwise deliverable in connection with the exercise of outstanding options
and warrants. Between December 7, 1998 and the date hereof, no shares of
Parent's capital stock have been issued other than pursuant to stock options and
warrants already in existence on such date and except for grants of stock
options to employees, officers and directors in the ordinary course of business
consistent with past practice. Between December 7, 1998 and the date hereof, no
stock options or warrants have been granted. Except as set forth above and
except for the Parent Rights, as of the date hereof, there are outstanding (i)
no shares of capital stock or other voting securities of Parent (ii) no
securities of Parent or its subsidiaries convertible into or exchangeable for
shares of capital stock, or voting securities of Parent (iii) no options or
other rights to acquire from Parent or its subsidiaries and no obligations of
Parent or its subsidiaries to issue any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of Parent and (iv) except for the Parent Rights, the Automated
Systems, Inc. 1983 Stock Option Plan, Cooper & Chyan Technology, Inc. 1989
24
<PAGE>
Stock Option Plan, Cooper & Chyan Technology, Inc. 1993 Equity Incentive Plan,
Unicad, Inc. Stock Option Plan, Cadence Design Systems, Inc. 1997 Nonstatutory
Stock Option Plan, High Level Design Systems 1993 Stock Option Plan, High Level
Design Systems 1995 Special Nonstatutory Stock Option Plan, Ambit Design
Systems, Inc. 1994 Incentive Stock Option Plan, Ambit Design Systems, Inc. 1996
Incentive Stock Option Plan, Ambit OP (Shares Issued Outside Plans), Cadence
Design Systems, Inc. 1993 Non-Statutory Stock Option Plan, Cadence Design
Systems, Inc. 1993 Directors Stock Option Plan, Cadence Design Systems, Inc.
1995 Directors Stock Option Plan, Cadence Design Systems, Inc. 1997 Nonstatutory
Stock Option Plan, OP Stock Option Plan (shares issued outside CDN Directors
Plan) and warrants issued to Comdisco and Goldman, Sachs & Co., no equity
equivalent interests in the ownership or earnings of Parent or its subsidiaries
or other similar rights (collectively, "Parent Securities"). As of the date
hereof, other than in connection with the Company's seasoned authorized stock
repurchase program, there are no outstanding obligations of Parent or any of its
subsidiaries to repurchase, redeem or otherwise acquire any Parent Securities.
There are no stockholder agreements, voting trusts or other agreements or
understandings to which Parent is a party or by which it is bound relating to
the voting of any shares of capital stock of Parent.
(b) The Parent Rights and Parent Common Stock constitute the only
classes of equity securities of Parent or any of its subsidiaries registered or
required to be registered under the Exchange Act.
Section 3.3. Authority Relative to this Agreement. Each of Parent
------------------------------------
and Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the boards of directors of Parent and
Acquisition and by Parent as the sole stockholder of Acquisition and no other
corporate proceedings on the part of Parent or Acquisition are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by each of
Parent and Acquisition and constitutes, assuming the due authorization,
execution and delivery hereof by the Company, a valid, legal and binding
agreement of each of Parent and Acquisition enforceable against each of Parent
and Acquisition in accordance with its terms, subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally or to general
principles of equity.
Section 3.4. SEC Reports; Financial Statements.
---------------------------------
(a) Parent has filed all required forms, reports and documents
("Parent SEC Reports") with the SEC since December 31, 1997, each of which,
complied at the time of filing in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, each law as in effect
on the dates such forms reports and documents were filed. None of such Parent
SEC Reports, including any financial statements or schedules included or
25
<PAGE>
incorporated by reference therein, contained when filed any untrue statement of
a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein in light of the circumstances under which they were made not misleading,
except to the extent superseded by a Parent SEC Report filed subsequently and
prior to the date hereof. The audited consolidated financial statements of
Parent included in the Parent SEC Reports fairly present in conformity in all
material respects with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto) the
consolidated financial position of Parent and its consolidated subsidiaries as
of the dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended.
(b) Parent has heretofore made available or promptly will make
available to the Company a complete and correct copy of any amendments or
modifications that are required to be filed with the SEC but have not yet been
filed with the SEC to agreements documents or other instruments that previously
had been filed by Parent with the SEC pursuant to the Exchange Act.
Section 3.5. Information Supplied. None of the information supplied
--------------------
or to be supplied by Parent or Acquisition for inclusion or incorporation by
reference to (i) the S-4 will at the time the S-4 is filed with the SEC and at
the time it becomes effective under the Securities Act contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Proxy Statement will at the date mailed to stockholders and at the
times of the meeting or meetings of stockholders of the Company to be held in
connection with the Merger contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein in light of the circumstances under which
they are made not misleading. The S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder. Notwithstanding the foregoing, Parent makes no representation,
warranty or covenant with respect to any information supplied or required to be
supplied by the Company which is contained in or omitted from any of the
foregoing documents.
Section 3.6. Consents and Approvals; No Violations. Except for
-------------------------------------
filings, permits, authorizations, consents, and approvals as may be required
under and other applicable requirements of the Securities Act, the Exchange Act,
state securities or blue sky laws, the HSR Act, and any filings under similar
merger notification laws or regulations of foreign Governmental Entities and the
filing and recordation of the Certificate of Merger as required by the DGCL, no
filing with or notice to, and no permit authorization consent or approval of any
Governmental Entity is necessary for the execution and delivery by Parent or
Acquisition of this Agreement or the consummation by Parent or Acquisition of
the transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice would not, individually or in the aggregate, have a Material Adverse
Effect on Parent. Neither the execution, delivery and performance of this
Agreement by Parent or Acquisition nor the consummation by Parent or Acquisition
of the transactions contemplated hereby will (i)
26
<PAGE>
conflict with or result in any breach of any provision of the respective
Certificate or Certificate of Incorporation or bylaws (or similar governing
documents) of Parent or Acquisition or any of Parent's other subsidiaries, (ii)
result in a violation or breach of or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration or Lien) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Parent or
Acquisition or any of Parent's other subsidiaries is a party or by which any of
them or any of their respective properties or assets may be bound or (iii)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to Parent or Acquisition or any of Parent's other subsidiaries or any
of their respective properties or assets except, in the case of (ii) or (iii),
for violations, breaches or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect on Parent.
Section 3.7. No Default. Neither Parent nor any of its subsidiaries
----------
is in breach, default or violation (and no event has occurred that with notice
or the lapse of time or both would constitute a breach, default or violation) of
any term, condition or provision of (i) its Certificate of Incorporation or
bylaws (or similar governing documents), (ii) any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which Parent or any of its subsidiaries is now a party or by which any of
them or any of their respective properties or assets may be bound or (iii) any
order, writ, injunction, decree, law, statute, rule or regulation applicable to
Parent or any of its subsidiaries or any of their respective properties or
assets, except, in the case of clause (ii) or (iii), for violations, breaches or
defaults that would not, individually or in the aggregate, have a Material
Adverse Effect on Parent.
Section 3.8. No Undisclosed Liabilities; Absence of Changes. Except
----------------------------------------------
as and to the extent publicly disclosed by Parent in the Parent SEC Reports,
neither Parent nor any of its subsidiaries has any liabilities or obligations of
any nature, whether or not accrued, contingent or otherwise that would be
required by generally accepted accounting principles to be reflected on a
consolidated balance sheet of Parent and its consolidated subsidiaries
(including the notes thereto), other than liabilities and obligations incurred
in the ordinary course of business since September 30, 1998, which, individually
or in the aggregate, will not have a Material Adverse Effect on Parent. Except
as publicly disclosed by Parent in the Parent SEC Reports, since September 30,
1998, there have been no events changes or effects with respect to Parent or its
subsidiaries having or that would reasonably be expected to have a Material
Adverse Effect on Parent.
Section 3.9. Litigation. Except as publicly disclosed by Parent in
----------
the Parent SEC Reports, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Parent threatened, against Parent
or any of its subsidiaries or any of their respective properties or assets
before any Governmental Entity that, individually or in the aggregate would
reasonably be expected to have a Material Adverse Effect or could reasonably be
expected to prevent or delay the consummation of the transactions contemplated
by this Agreement. Except as publicly disclosed by Parent in the Parent SEC
27
<PAGE>
Reports, neither Parent nor any of its subsidiaries is subject to any
outstanding order, writ, injunction or decree that, insofar as can be reasonably
foreseen in the future would reasonably be expected to have a Material Adverse
Effect on Parent or could reasonably be expected to prevent or delay the
consummation of the transactions contemplated hereby.
Section 3.10. Compliance with Applicable Law. Except as publicly
------------------------------
disclosed by Parent in the Parent SEC Reports, Parent and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Parent Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals that would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
Except as publicly disclosed by Parent in the Parent SEC Reports, Parent and its
subsidiaries are in compliance with the terms of the Parent Permits, except
where the failure so to comply would not, individually or in the aggregate, have
a Material Adverse Effect on Parent. Except as publicly disclosed by Parent in
the Parent SEC Reports, the businesses of Parent and its subsidiaries are not
being conducted in violation of any law ordinance or regulation of any
Governmental Entity except that no representation or warranty is made in this
Section 3.10 with respect to Environmental Laws and except for violations or
possible violations that do not and, insofar as reasonably can be foreseen in
the future, will not, individually or in the aggregate, have a Material Adverse
Effect on Parent. Except as publicly disclosed by Parent in the Parent SEC
Reports, no investigation or review by any Governmental Entity with respect to
Parent or its subsidiaries is pending or, to the knowledge of Parent,
threatened, nor, to the knowledge of Parent, has any Governmental Entity
indicated an intention to conduct the same, other than in each case those that
Parent reasonably believes will not have a Material Adverse Effect on Parent.
Section 3.11. Tax Treatment; Pooling. Neither Parent, Acquisition
----------------------
nor, to the knowledge of Parent, any of its affiliates has taken, proposes to
take, or has agreed to take any action that would prevent the Merger (a) from
constituting a reorganization qualifying under the provisions of Section 368(a)
of the Code or (b) from being treated as a Pooling Transaction for financial
accounting purposes.
Section 3.12. Opinion of Financial Adviser. Goldman, Sachs & Co.
----------------------------
(the "Parent Financial Adviser") has delivered to the Board of Directors of
Parent its opinion to the effect that, as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to Parent.
Section 3.13. Brokers. No broker finder or investment banker (other
-------
than the Parent Financial Adviser) is entitled to any brokerage finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent or Acquisition.
Section 3.14. No Prior Activities. Except for obligations incurred
-------------------
in connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any
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obligation or liability nor engaged in any business or activity of any type or
kind whatsoever or entered into any agreement or arrangement with any person.
Section 3.15 Environmental Laws and Regulations.
----------------------------------
(a) Except as publicly disclosed by Parent in the Parent SEC Reports
(i) each of Parent and its subsidiaries is in material compliance with all
Environmental Laws, except for non-compliances that, individually or in the
aggregate, would not have a Material Adverse Effect on the Parent, which
compliance includes, but is not limited to, the possession by the Parent and its
subsidiaries of all material permits and other governmental authorizations
required under applicable Environmental Laws and compliance with the terms and
conditions thereof; (ii) neither Parent nor any of its subsidiaries has received
written notice of or, to the knowledge of Parent, is the subject of any
Environmental Claim, and (iii) to the knowledge of Parent, there are no existing
facts that are reasonably likely to prevent or interfere with such material
compliance in the future.
(b) Except as disclosed in the Parent SEC Reports, there are no
Environmental Claims that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on the Company that are pending or,
to the knowledge of Parent, threatened against Parent or any of its subsidiaries
or, to the knowledge of Parent, against any person whose liability for any
Environmental Claim the Parent or any of its subsidiaries has or may have
retained or assumed either contractually or by operation of law.
ARTICLE 4
COVENANTS
Section 4.1. Conduct of Business of the Company. Except as
----------------------------------
contemplated by this Agreement or as described in Section 4.1 of the Company
Disclosure Schedule, during the period from the date hereof to the Effective
Time, the Company will and will cause each of its subsidiaries to conduct its
operations in the ordinary course of business consistent with past practice and,
to the extent consistent therewith, with no less diligence and effort than would
be applied in the absence of this Agreement seek, to preserve intact its current
business organizations, keep available the service of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it with the intention that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Without limiting
the generality of the foregoing, except as otherwise expressly provided in this
Agreement or as described in Section 4.1 of the Company Disclosure Schedule,
prior to the Effective Time, neither the Company nor any of its subsidiaries
will, without the prior written consent of Parent and Acquisition:
(a) amend its Certificate or Articles of Incorporation or bylaws (or
other similar governing instrument);
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(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities (except bank loans) or equity equivalents
(including any stock options or stock appreciation rights) except for the
issuance and sale of Shares pursuant to options granted under the Company Plans
prior to the date hereof;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
make any other actual, constructive or deemed distribution in respect of its
capital stock or otherwise make any payments to stockholders in their capacity
as such, or redeem or otherwise acquire any of its securities or any securities
of any of its subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or any of its subsidiaries (other than the Merger);
(e) alter through merger, liquidation, reorganization, restructuring
or any other fashion the corporate structure of ownership of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person except for obligations of subsidiaries of the
Company incurred in the ordinary course of business; (iii) make any loans,
advances or capital contributions to or investments in any other person (other
than to subsidiaries of the Company or customary loans or advances to employees
in each case in the ordinary course of business consistent with past practice);
(iv) pledge or otherwise encumber shares of capital stock of the Company or any
of its subsidiaries; or (v) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to exist any material Lien
thereupon;
(g) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, health, life, or disability insurance, dependent care,
severance or other employee benefit plan agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or employee in
any manner or increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any plan and
arrangement as in effect as of the date hereof (including the granting of stock
appreciation rights or performance units); provided, however, that this
paragraph (g) shall not prevent the Company or its subsidiaries from increasing
annual compensation and/or providing for or amending bonus arrangements for
employees for fiscal 1998 in the ordinary course of year-end compensation
reviews
30
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consistent with past practice (to the extent that such compensation increases
and new or amended bonus arrangements do not result in a material increase in
benefits or compensation expense to the Company or any such subsidiary);
(h) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions having a fair market value in
excess of One Hundred Thousand Dollars ($100,000) in the aggregate, other than
sales of its products in the ordinary course of business consistent with past
practices;
(i) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles, practices or methods used by it;
(j) revalue in any material respect any of its assets, including
writing down the value of inventory or writing-off notes or accounts receivable,
other than in the ordinary course of business;
(k) (i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any equity interest therein; (ii) enter into any contract or
agreement other than in the ordinary course of business consistent with past
practice that would be material to the Company and its subsidiaries, taken as a
whole; (iii) amend, modify or waive any right under any material contract of the
Company or any of its subsidiaries; (iv) modify its standard warranty terms for
its products or amend or modify any product warranties in effect as of the date
hereof in any material manner that is adverse to the Company or any of its
subsidiaries; or (v) authorize any new capital expenditure or expenditures that
individually is in excess of One Hundred Thousand Dollars ($100,000) or in the
aggregate are in excess of Three Hundred Thousand Dollars ($300,000); provided
that nothing in the foregoing clause (v) shall limit any capital expenditure
required pursuant to existing customer contracts;
(l) make any tax election or settle or compromise any income tax
liability material to the Company and its subsidiaries taken as a whole;
(m) settle or compromise any pending or threatened suit, action or
claim that (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which would have a Material Adverse Effect on the
Company;
(n) commence any material software development project or terminate
any material software development project that is currently ongoing, in either
case except pursuant to the terms of existing contracts with customers or except
as contemplated by the Company's project development budget previously provided
to Parent; or
(o) take or agree in writing or otherwise to take any of the actions
described in Sections 4.1(a) through 4.1(n) (and it shall use all reasonable
efforts not to take any action that would make any of the representations or
warranties of the Company contained in this Agreement untrue or incorrect).
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Section 4.2. Conduct of Business of Parent. Except as contemplated
-----------------------------
by this Agreement, during the period from the date hereof to the Effective Time,
Parent will and will cause each of its subsidiaries to conduct their operations
in the ordinary course of business consistent with past practice and, to the
extent consistent therewith, with no less diligence and effort than would be
applied in the absence of this Agreement, seek to preserve intact its current
business organizations, keep available the service of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, except as otherwise expressly provided in this Agreement prior to
the Effective Time, neither Parent nor any of its subsidiaries will, without the
prior written consent of the Company:
(a) knowingly take any action that would result in a failure to
maintain the trading of the Parent Common Stock on the New York Stock Exchange
("NYSE");
(b) acquire or agree to acquire by merging or consolidating with by
purchasing an equity interest in or the assets of or by any other manner any
business or any corporation, partnership or other business organization or
division thereof or otherwise acquire or agree to acquire any assets of any
other entity (other than the purchase of assets from suppliers, clients or
vendors in the ordinary course of business and consistent with past practice) if
such transaction would prevent or materially delay the consummation of the
transactions contemplated by this Agreement;
(c) adopt or propose to adopt any amendments to its charter documents
that would have an adverse impact on the consummation of the transactions
contemplated by this Agreement; or
(d) take or agree in writing or otherwise to take any of the actions
described in Sections 4.2(a) through 4.2(c) or any action that would make any of
the representations or warranties of Parent contained in this Agreement untrue
or incorrect.
Section 4.3. Preparation of S-4 and the Proxy Statement. The Company
------------------------------------------
shall promptly prepare and file with the SEC the Proxy Statement and Parent
shall promptly prepare and file with the SEC the S-4 in which the Proxy
Statement will be included as a prospectus. Each of Parent and the Company
shall use all reasonable efforts to have the S-4 declared effective under the
Securities Act as promptly as practicable after such filing. Parent shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is now not so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Parent Common Stock in
the Merger and upon the exercise of Company Stock Options and the Company shall
furnish all information concerning the Company and the holders of Shares as may
be reasonably requested in connection with any such action.
32
<PAGE>
Section 4.4. Other Potential Acquirers.
-------------------------
(a) The Company, its affiliates (as reasonably determined by the
Company) and their respective officers and other employees with managerial
responsibilities, directors, representatives and agents shall immediately cease
any discussions or negotiations with any parties with respect to any Third Party
Acquisition (as defined below). Neither the Company nor any of its affiliates
(as reasonably determined by the Company) shall, nor shall the Company authorize
or permit any of its or their respective officers, directors, employees
representatives or agents to, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with or provide any non-
public information to any person or group (other than Parent and Acquisition or
any designees of Parent and Acquisition) concerning any Third Party Acquisition;
provided, however, that nothing herein shall prevent the Company Board from
taking and disclosing to the Company's stockholders a position contemplated by
Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any
tender or exchange offer. The Company shall promptly notify the Parent in the
event it receives any proposal or inquiry concerning a Third Party Acquisition,
including the terms and conditions thereof and the identity of the party
submitting such proposal, and shall advise Parent from time to time of the
status and any material developments concerning the same.
(b) Except as set forth in this Section 4.4(b), the Company Board
shall not withdraw its recommendation of the transactions contemplated hereby or
approve or recommend, or cause the Company to enter into any agreement with
respect to, any Third Party Acquisition. Notwithstanding the foregoing, if the
Company Board by a majority vote determines in its good faith judgment, after
consultation with and based upon the advice of legal counsel, that it is
required to do so in order to comply with its fiduciary duties, the Company
Board may withdraw its recommendation of the transactions contemplated hereby or
approve or recommend a Superior Proposal (as defined in subsection (c) below),
but in each case only (i) after providing written notice to Parent (a "Notice of
Superior Proposal") advising Parent that the Company Board has received a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal and (ii) if
Parent does not, within five (5) business days of Parent's receipt of the Notice
of Superior Proposal, make an offer that the Company Board by a majority vote
determines in its good faith judgment (based on the written advice of a
financial adviser of nationally recognized reputation) to be at least as
favorable to the Company's stockholders as such Superior Proposal; provided,
however, that the Company shall not be entitled to enter into any agreement with
respect to a Superior Proposal unless and until this Agreement is terminated by
its terms pursuant to Section 6.1 and the Company has paid all amounts due to
Parent pursuant to Section 6.3. Any disclosure that the Company Board may be
compelled to make with respect to the receipt of a proposal for a Third Party
Acquisition or otherwise in order to comply with its fiduciary duties or Rule
14d-9 or 14e-2 will not constitute a violation of this Agreement, provided that
such disclosure states that no action will be taken by the Company Board in
violation of this Section 4.4(b).
(c) For the purposes of this Agreement, "Third Party Acquisition"
means the occurrence of any of the following events: (i) the acquisition of the
Company by merger or
33
<PAGE>
otherwise by any person (which includes a "person" as such term is defined in
Section 13(d)(3) of the Exchange Act) other than Parent, Acquisition or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
any material portion of the assets of the Company and its subsidiaries taken as
a whole, other than the sale of its products in the ordinary course of business
consistent with past practices; (iii) the acquisition by a Third Party of
fifteen percent (15%) or more of the outstanding Shares; (iv) the adoption by
the Company of a plan of liquidation or the declaration or payment of an
extraordinary dividend; (v) the repurchase by the Company or any of its
subsidiaries of more than ten percent (10%) of the outstanding Shares; or (vi)
the acquisition by the Company or any of its subsidiaries by merger, purchase of
stock or assets, joint venture or otherwise of a direct or indirect ownership
interest or investment in any business whose annual revenues, net income or
assets is equal or greater than ten percent (10%) of the annual revenues, net
income or assets of the Company. For purposes of this Agreement, a "Superior
Proposal" means any bona fide proposal to acquire directly or indirectly for
consideration consisting of cash and/or securities more than 50% of the Shares
then outstanding or all or substantially all the assets of the Company and
otherwise on terms that the Company Board by a majority vote determines in its
good faith judgment (based on the written advice of Hambrecht & Quist LLC or
another financial advisor of nationally recognized reputation) to be more
favorable to the Company's stockholders than the Merger.
Section 4.5. Comfort Letters.
---------------
(a) The Company shall use all reasonable efforts to cause
PricewaterhouseCoopers LLP to deliver a letter dated not more than five days
prior to the date on which the S-4 shall become effective and addressed to
itself and Parent and their respective Boards of Directors in form and substance
reasonably satisfactory to Parent and customary in scope and substance for
agreed-upon procedures letters delivered by independent public accountants in
connection with registration statements and proxy statements similar to the S-4
and the Proxy Statement.
(b) Parent shall use all reasonable efforts to cause Arthur Andersen
LLP to deliver a letter dated not more than five (5) days prior to the date of
the S-4 shall become effective and addressed to itself and the Company and their
respective Boards of Directors in form and substance reasonably satisfactory to
the Company and customary in scope and substance for agreed-upon procedures
letters delivered by independent accountants in connection with registration
statements and proxy statements similar to the S-4 and the Proxy Statement.
Section 4.6. Meeting of Stockholders. The Company shall take all
-----------------------
actions necessary in accordance with the DGCL and its Certificate of
Incorporation and bylaws to duly call give notice of, convene and hold a meeting
of its stockholders as promptly as practicable to consider and vote upon the
adoption and approval of this Agreement and the transactions contemplated
hereby. The stockholder vote required for the adoption and approval of the
transactions contemplated by this Agreement shall be the vote required by the
DGCL and the Company's Certificate of Incorporation and bylaws. The Company
will,
34
<PAGE>
through the Company Board, recommend to its stockholders approval of such
matters subject to the provisions of Section 4.4(b). The Company shall promptly
prepare and file with the SEC the Proxy Statement for the solicitation of a vote
of the holders of Shares approving the Merger, which, subject to the provisions
of Section 4.4(b), shall include the recommendation of the Company Board that
stockholders of the Company vote in favor of the approval and adoption of this
Agreement and the written opinion of the Financial Advisor that the cash
consideration to be received by the stockholders of the Company pursuant to the
Merger is fair to such stockholders from a financial point of view. The Company
shall use all reasonable efforts to have the Proxy Statement cleared by the SEC
as promptly as practicable after such filing, and promptly thereafter mail the
Proxy Statement to the stockholders of the Company. Parent shall use all
reasonable efforts to obtain all necessary state securities law or "blue sky"
permits and approvals required in connection with the Merger and to consummate
the other transactions contemplated by this Agreement and will pay all expenses
incident thereto, provided that the Company shall cooperate with Parent in
obtaining such permits and approvals as reasonably requested.
Section 4.7. Stock Exchange Listing. Parent shall use all reasonable
----------------------
efforts to cause the shares of Parent Common Stock to be issued in the Merger
and the shares of Parent Common Stock to be reserved for issuance upon exercise
of Company Stock Options to be approved for listing on the NYSE, subject to
official notice of issuance, prior to the Effective Time.
Section 4.8. Access to Information.
---------------------
(a) Between the date hereof and the Effective Time, the Company will
give Parent and its authorized representatives reasonable access to all
employees, plants, offices, warehouses and other facilities and to all books and
records of the Company and its subsidiaries as Parent may reasonably require,
and will cause its officers and those of its subsidiaries to furnish Parent with
such financial and operating data and other information with respect to the
business and properties of the Company and its subsidiaries as Parent may from
time to time reasonably request. Between the date hereof and the Effective
Time, Parent shall make available to the Company, as reasonably requested by the
Company, a designated officer of Parent to answer questions and make available
such information regarding Parent and its subsidiaries as is reasonably
requested by the Company taking into account the nature of the transactions
contemplated by this Agreement.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent (1) within two (2) business days following preparation thereof
(and in any event within twenty (20) business days after the end of each
calendar month, commencing with December 1998), an unaudited balance sheet as of
the end of such month and the related statements of earnings, stockholders'
equity (deficit) and cash flows, (2) within two (2) business days following
preparation thereof (and in any event within twenty (20) business days after the
end of each fiscal quarter) an unaudited balance sheet as of the end of such
quarter and the related statements of earnings, stockholders' equity (deficit)
and cash flows for the quarter then ended, and (3) within two (2) business days
following preparation thereof
35
<PAGE>
(and in any event within ninety (90) calendar days after the end of each fiscal
year, an audited balance sheet as of the end of such year and the related
statements of earnings, stockholders' equity (deficit) and cash flows, all of
such financial statements referred to in clauses (1), (2) and (3) to prepared in
accordance with generally accepted accounting principles in conformity with the
practices consistently applied by the Company with respect to such financial
statements. All the foregoing shall be in accordance with the books and records
of the Company and shall fairly present its financial position (taking into
account the differences between the monthly, quarterly and annual financial
statements prepared by the Company in conformity with its past practices) as of
the last day of the period then ended.
(c) Each of the parties hereto will hold, and will cause its
consultants and advisers to hold, in confidence all documents and information
furnished to it by or on behalf of another party to this Agreement in connection
with the transactions contemplated by this Agreement pursuant to the terms of
that certain Confidentiality Agreement entered into between the Company and
Parent dated December 4, 1998.
Section 4.9. Certain Filings; Reasonable Efforts.
-----------------------------------
(a) Subject to the terms and conditions herein provided, including,
without limitation, Section 4.4(b), each of the parties hereto agrees to use all
reasonable efforts to take or cause to be taken all action and to do or cause to
be done all things reasonably necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using all reasonable efforts to do the
following, (i) cooperate in the preparation and filing of the Proxy Statement
and the S-4 and any amendments thereto, any filings that may be required under
the HSR Act and any filings under similar merger notification laws or
regulations of foreign Governmental Entities; (ii) obtain consents of all third
parties and Governmental Entities necessary, proper or advisable for the
consummation of the transactions contemplated by this Agreement; (iii) contest
any legal proceeding relating to the Merger; and (iv) execute any additional
instruments necessary to consummate the transactions contemplated hereby.
Subject to the terms and conditions of this Agreement, Parent and Acquisition
agree to use all reasonable efforts to cause the Effective Time to occur as soon
as practicable after the Company stockholder vote with respect to the Merger.
The Company agrees to use all reasonable efforts to encourage its employees to
accept any offers of employment extended by Parent. If at any time after the
Effective Time any further action is necessary to carry out the purposes of this
Agreement the proper officers and directors of each party hereto shall take all
such necessary action.
(b) Parent and the Company will consult and cooperate with one
another, and consider in good faith the views of one another, in connection with
any analyses, appearances, presentations, letters, white papers, memoranda,
briefs, arguments, opinions or proposals made or submitted by or on behalf of
any party hereto in connection with proceedings under or relating to the HSR Act
or any other foreign, federal, or state antitrust, competition, or fair trade
law. In this regard but without limitation, each party hereto shall promptly
inform the other of any material communication between such party and the
Federal
36
<PAGE>
Trade Commission, the Antitrust Division of the United States Department of
Justice, or any other federal, foreign or state antitrust or competition
Governmental Entity regarding the transactions contemplated herein.
Section 4.10. Public Announcements. Parent, Acquisition and the
--------------------
Company, as the case may be, will consult with one another before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, including the Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation except (i) as may be required by applicable law, or by the rules
and regulations of, or pursuant to any listing agreement with, the NYSE or the
Nasdaq National Market, as determined by Parent, Acquisition or the Company, as
the case may be, or (ii) following a change, if any, of the Company Board's
recommendation of the Merger (in accordance with Section 4.4(b)), after which
event no such consultation shall be required. Notwithstanding the preceding
sentence, the first public announcement of this Agreement and the Merger shall
be a joint press agreed upon by Parent and the Company.
Section 4.11. Indemnification and Directors' and Officers' Insurance.
------------------------------------------------------
(a) After the Effective Time, Parent shall cause the Surviving
Corporation to indemnify and hold harmless (and shall also advance expenses as
incurred to the fullest extent permitted under applicable law to), to the extent
not covered by insurance, each person who is now or has been prior to the date
hereof or who becomes prior to the Effective Time an officer or director of the
Company or any of the Company's subsidiaries (the "Indemnified Persons")
against (i) all losses, claims, damages, costs, expenses (including counsel fees
and expenses), settlement, payments or liabilities arising out of or in
connection with any claim, demand, action, suit, proceeding or investigation
based in whole or in part on or arising in whole or in part out of the fact that
such person is or was an officer or director of the Company or any of its
subsidiaries, whether or not pertaining to any matter existing or occurring at
or prior to the Effective Time and whether or not asserted or claimed prior to
or at or after the Effective Time ("Indemnified Liabilities"); and (ii) all
Indemnified Liabilities based in whole or in part on or arising in whole or in
part out of or pertaining to this Agreement or the transactions contemplated
hereby, in each case to the fullest extent required or permitted under
applicable law. Nothing contained herein shall make Parent, Acquisition, the
Company or the Surviving Corporation, an insurer, a co-insurer or an excess
insurer in respect of any insurance policies which may provide coverage for
Indemnified Liabilities, nor shall this Section 4.11 relieve the obligations of
any insurer in respect thereto. The parties hereto intend, to the extent not
prohibited by applicable law, that the indemnification provided for in this
Section 4.11 shall apply without limitation to negligent acts or omissions by an
Indemnified Person. Parent hereby guarantees the payment and performance of the
Surviving Corporation's obligations in this Section 4.11. Each Indemnified
Person is intended to be a third party beneficiary of this Section 4.11 and may
specifically enforce its terms. This Section 4.11 shall not limit or otherwise
adversely affect any rights any Indemnified Person may have under any agreement
with the Company or under the Company's Certificate of Incorporation or bylaws
as presently in effect.
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(b) From and after the Effective Time, Parent will fulfill and honor
and will cause the Surviving Corporation to fulfill and honor in all respects
the obligations of the Company pursuant to any indemnification agreements
between the Company and its directors and officers as of or prior to the date
hereof (or indemnification agreements in the Company's customary form for
directors joining the Company's Board of Directors prior to the Effective Time)
and any indemnification provisions under the Company's certificate of
incorporation or bylaws as in effect immediately prior to the Effective Time.
(c) For a period of six years after the Effective Time, Parent will
maintain or cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who, as of
immediately prior to the Effective Time, are covered by the Company's directors'
and officers' liability insurance policy (the "Insured Parties") on terms no
less favorable to the Insured Parties than those of the Company's present
directors' and officers' liability insurance policy; provided, however, that in
no event will Parent or the Surviving Corporation be required to expend in
excess of 150% of the annual premium currently paid by the Company for such
coverage (or such coverage as is available for 150% of such annual premium);
provided further, that, in lieu of maintaining such existing insurance as
provided above, Parent may cause coverage to be provided under any policy
maintained for the benefit of Parent or any of its subsidiaries, so long as the
terms are not materially less advantageous to the intended beneficiaries thereof
than such existing insurance.
(d) The provisions of this Section 4.11 are intended to be for the
benefit of, and will be enforceable by, each person entitled to indemnification
hereunder and the heirs and representatives of such person. Parent will not
permit the Surviving Corporation to merge or consolidate with any other Person
unless the Surviving Corporation will ensure that the surviving or resulting
entity assumes the obligations imposed by this Section 4.11.
Section 4.12. Notification of Certain Matters. The Company shall
-------------------------------
give prompt notice to Parent and Acquisition, and Parent and Acquisition shall
give prompt notice to the Company, of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which has caused or would be likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time and (ii)
any material failure of the Company, Parent or Acquisition, as the case may be,
to comply with or satisfy in any material respect any covenant condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 4.12 shall not cure
such breach or non-compliance or limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
Section 4.13. Affiliates; Pooling; Tax-Free Reorganization.
--------------------------------------------
(a) The Company shall use all reasonable efforts to obtain from all
Company Affiliates and from any person who may be deemed to have become a
Company Affiliate, after the date of this Agreement and on or prior to the
Effective Time, a letter agreement substantially in the form of Exhibit A-1
-----------
hereto as soon as practicable.
38
<PAGE>
(b) Parent shall use all reasonable efforts to obtain from each of its
directors, officers and any other person who may be deemed to be an affiliate of
Parent pursuant to Rule 145 under the Securities Act, as soon as practicable
after the date of this Agreement and on or prior to the Effective Time, a letter
agreement substantially in the form of Exhibit A-2 hereto.
-----------
(c) Parent shall not be required to maintain the effectiveness of the
S-4 for the purpose of resale of shares of Parent Common Stock by stockholders
of the Company who may be affiliates of the Company or Parent pursuant to Rule
145 under the Securities Act.
(d) Each party hereto shall use all reasonable efforts to cause the
Merger to be treated for financial accounting purposes as a Pooling Transaction
and shall not take and shall use all reasonable efforts to prevent any affiliate
of such party from taking any actions that could prevent the Merger from being
treated for financial accounting purposes as a Pooling Transaction, and shall
take all reasonable actions to remedy the effects of any prior actions so as to
permit such treatment.
(e) The Company, on the one hand, and Parent and Acquisition, on the
other hand, shall execute and deliver to legal counsel to the Company and Parent
certificates substantially in the form attached hereto as Exhibits B-1 and B-2,
------------ ---
respectively, at such time or times as reasonably requested by such legal
counsel in connection with its delivery of an opinion with respect to the
transactions contemplated hereby and the Company and Parent shall each provide a
copy thereof to the other parties hereto. Prior to the Effective Time, none of
the Company, Parent or Acquisition shall take or cause to be taken any action
that would cause to be untrue (or fail to take or cause not to be taken any
action that would cause to be untrue) any of the representations in Exhibits B-1
------------
or B-2.
---
4.14. Additions to and Modification of Company Disclosure Schedule.
------------------------------------------------------------
Concurrently with the execution and delivery of this Agreement, the Company has
delivered a Company Disclosure Schedule that includes all of the information
required by the relevant provisions of this Agreement. In addition, the Company
shall deliver to Parent and Acquisition such additions to or modifications of
any Sections of the Company Disclosure Schedule necessary to make the
information set forth therein true, accurate and complete in all material
respects as soon as practicable after such information is available to the
Company after the date of execution and delivery of this Agreement; provided,
however, that such disclosure shall not be deemed to constitute an exception to
its representations and warranties under Article 2, nor limit the rights and
remedies of Parent and Acquisition under this Agreement for any breach by the
Company of such representation and warranties.
4.15. Company Rights Agreement. The Company shall not redeem any of
------------------------
the Company Rights issued pursuant to the Company Rights Agreement nor will the
Company take any action to amend the Company Rights Agreement to facilitate the
acquisition of Shares by any person other than Parent or Acquisition unless this
Agreement is first terminated in accordance with Article 6 of this Agreement.
39
<PAGE>
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1. Conditions to Each Party's Obligations to Effect the
----------------------------------------------------
Merger. The respective obligations of each party hereto to effect the Merger
- ------
are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the stockholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States federal or state court or United States federal or state
Governmental Entity that prohibits, restrains, enjoins or restricts the
consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired;
(d) any governmental or regulatory notices, approvals or other
requirements necessary to consummate the transactions contemplated hereby and to
operate the Business after the Effective Time in all material respects as it was
operated prior thereto (other than under the HSR Act) shall have been given,
obtained or complied with, as applicable;
(e) the S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop order
and Parent shall have received all state securities laws or "blue sky" permits
and authorizations necessary to issue shares of Parent Common Stock in exchange
for Shares in the Merger; and
(f) The Company shall have received from PricewaterhouseCoopers LLP
and Parent shall have received from Arthur Andersen LLP, independent accountants
for the Company and Parent, respectively, a copy of a letter addressed to the
Company and Parent, respectively, each dated the Closing Date, in substance
reasonably satisfactory to Parent and the Company (and which may contain
customary qualifications and assumptions), to the effect that such independent
accountants concur with the Company's and Parent's managements' conclusions that
no conditions exist related to the Company or Parent, respectively, that would
preclude Parent from accounting for the Merger as a "pooling of interests."
Section 5.2. Conditions to the Obligations of the Company. The
--------------------------------------------
obligation of the Company to effect the Merger is subject to the satisfaction at
or prior to the Effective Time of the following conditions:
(a) the representations and warranties of Parent and Acquisition
contained in this Agreement or in the Stock Option Agreement of even date
herewith between Parent
40
<PAGE>
and the Company (the "Stock Option Agreement") shall be true and correct (except
to the extent that the aggregate of all breaches thereof would not have a
Material Adverse Effect on Parent) at and as of the Effective Time with the same
effect as if made at and as of the Effective Time (except to the extent such
representations specifically related to an earlier date, in which case such
representations shall be true and correct as of such earlier date, and in any
event, subject to the foregoing Material Adverse Effect qualification) and, at
the Closing, Parent and Acquisition shall have delivered to the Company a
certificate to that effect, executed by two (2) executive officers of Parent and
Acquisition;
(b) each of the covenants and obligations of Parent and Acquisition to
be performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and, at the Closing, Parent and Acquisition shall have
delivered to the Company a certificate to that effect, executed by two (2)
executive officers of Parent and Acquisition;
(c) the shares of Parent Common Stock issuable to the Company's
stockholders pursuant to this Agreement and such other shares required to be
reserved for issuance in connection with the Merger shall have been authorized
for listing on the NYSE upon official notice of issuance;
(d) the Company shall have received the opinion of tax counsel to the
Company to the effect that (i) the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and (ii) each of Parent, Acquisition and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code, which opinion
may rely on the representations set forth in Exhibits B-1 and B-2 and such other
representations as such counsel reasonably deems appropriate and such opinion
shall not have been withdrawn or modified in any material respect;
(e) the Company shall have received the opinion of legal counsel to
Parent as to the matters set forth in Exhibit C;
---------
(f) Parent shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease, or other agreement or instrument, except those for which
failure to obtain such consents and approvals would not, in the reasonable
opinion of the Company, individually or in the aggregate, have a Material
Adverse Effect on Parent; and
(g) there shall have been no events, changes or effects with respect
to Parent or its subsidiaries having or that would reasonably be expected to
have a Material Adverse Effect on Parent,
Section 5.3. Conditions to the Obligations of Parent and Acquisition.
-------------------------------------------------------
The respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
41
<PAGE>
(a) the representations and warranties of the Company contained in
this Agreement (other than those contained in Section 2.24) and in the Stock
Option Agreement shall be true and correct (except to the extent that the
aggregate of all breaches thereof would not have a Material Adverse Effect on
the Company) at and as of the Effective Time with the same effect as if made at
and as of the Effective Time (except to the extent such representations
specifically related to an earlier date, in which case such representations
shall be true and correct as of such earlier date, and in any event, subject to
the foregoing Material Adverse Effect qualification) and the representations and
warranties of the Company contained in Section 2.24 shall be true and correct in
all respects at and as of the Effective Time, and, at the Closing, the Company
shall have delivered to Parent and Acquisition a certificate to that effect,
executed by two (2) executive officers of the Company;
(b) each of the covenants and obligations of the Company to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and, at the Closing, the Company shall have delivered to
Parent and Acquisition a certificate to that effect, executed by two (2)
executive officers of the Company;
(c) Parent shall have received from each affiliate of the Company
referred to in Sections 2.21 and 4.13(a) an executed copy of the letter attached
hereto as Exhibit A-1;
------------
(d) there shall have been no events, changes or effects with respect
to the Company or its subsidiaries having or that, individually or in the
aggregate, would reasonably be expected to have, a Material Adverse Effect on
the Company;
(e) Parent shall have received the opinion of tax counsel to Parent to
the effect that (i) the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code and (ii)
each of Parent, Acquisition and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code, which opinion
may rely on the representations set forth in Exhibits B-1 and B-2 and such other
------------ ---
representations as such counsel reasonably deems appropriate, and such opinion
shall not have been withdrawn or modified in any material respect;
(f) Parent shall have received the opinion of legal counsel to the
Company as to the matters set forth in Exhibit D;
---------
(g) the Company shall have obtained the consent or approval of each
person whose consent or approval shall be required in order to permit the
succession by the Surviving Corporation pursuant to the Merger to any obligation
right or interest of the Company or any subsidiary of the Company the agreements
and instruments, set forth in Section 5.3(g) of the Company Disclosure Schedule;
and
(h) Keith R. Lobo shall not have questioned the validity or
enforceability of the employment or non-competition agreement dated the date
hereof with Parent or otherwise expressed his intent not to continue his
employment with the Surviving Corporation.
42
<PAGE>
ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
Section 6.1. Termination. This Agreement may be terminated and the
-----------
Merger may be abandoned at any time prior to the Effective Time whether before
or after approval and adoption of this Agreement by the Company's stockholders:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if (i) any court of
competent jurisdiction in the United States or other United States federal or
state Governmental Entity shall have issued a final order, decree or ruling, or
taken any other final action, restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action is or shall have
become nonappealable or (ii) the Merger has not been consummated by June 30,
1999 (the "Final Date"); provided that no party may terminate this Agreement
pursuant to this clause (ii) if such party's failure to fulfill any of its
obligations under this Agreement shall have been the reason that the Effective
Time shall not have occurred on or before said date;
(c) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Acquisition set forth in
this Agreement or if any representation or warranty of Parent or Acquisition
shall have become untrue such that the conditions set forth in Section 5.2(a)
would be incapable of being satisfied by the Final Date, provided that the
Company has not breached any of its obligations hereunder in any material
respect; (ii) there shall have been a breach by Parent or Acquisition of any of
their respective covenants or agreements hereunder having a Material Adverse
Effect on Parent or materially adversely affecting (or materially delaying) the
consummation of the Merger, and Parent or Acquisition, as the case may be, has
not cured such breach within twenty (20) business days after notice by the
Company thereof, provided that the Company has not breached any of its
obligations hereunder in any material respect; (iii) the Company shall have
convened a meeting of its stockholders to vote upon the Merger and shall have
failed to obtain the requisite vote of its stockholders at such meeting
(including any adjournments thereof); or (iv) the Company Board has received a
Superior Proposal, has complied with the provisions of Section 4.4(b), and has
made the payment called for by Section 6.3(a); or
(d) by Parent and Acquisition if (i) there shall have been a breach of
any representation or warranty on the part of the Company set forth in this
Agreement or if any representation or warranty of the Company shall have become
untrue such that the conditions set forth in Section 5.3(a) would be incapable
of being satisfied by the Final Date, provided that neither Parent nor
Acquisition has breached any of their respective obligations hereunder in any
material respect; (ii) there shall have been a breach by the Company of its
covenants or agreements hereunder having a Material Adverse Effect on the
Company or materially adversely affecting (or materially delaying) the
consummation of the Merger, and the Company has not cured such breach within
twenty (20) business days after notice by Parent or Acquisition thereof,
provided that neither Parent nor Acquisition has breached any of their
43
<PAGE>
respective obligations hereunder in any material respect; (iii) the Company
Board shall have recommended to the Company's stockholders a Superior Proposal;
(iv) the Company Board shall have withdrawn or adversely modified its approval
or recommendation of this Agreement or the Merger; (v) the Company shall have
ceased using all reasonable efforts to call, give notice of, or convene or hold
a stockholders' meeting to vote on the Merger as promptly as practicable after
the date hereof or shall have adopted a resolution not to effect any of the
foregoing; or (vi) the Company shall have convened a meeting of its stockholders
to vote upon the Merger and shall have failed to obtain the requisite vote of
its stockholders at such meeting (including any adjournments thereof).
Section 6.2. Effect of Termination. In the event of the termination
---------------------
and abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders other
than the provisions of this Section 6.2 and Sections 4.8(c) and 6.3 hereof.
Nothing contained in this Section 6.2 shall relieve any party from liability for
any breach of this Agreement prior to such termination.
Section 6.3. Fees and Expenses.
-----------------
(a) In the event that this Agreement shall be terminated pursuant to:
(i) Section 6.1(c)(iv) or 6.1(d)(iii), (iv) or (v);
(ii) Section 6.1(d)(i) or (ii) and within twelve (12) months
thereafter the Company enters into an agreement with respect to a Company
Acquisition or a Company Acquisition occurs involving any party (or any
affiliate thereof) (x) with whom the Company (or its agents) had negotiations
with a view to a Company Acquisition, (y) to whom the Company (or its agents)
furnished information with a view to a Company Acquisition or (z) who had
submitted a proposal or expressed an interest in a Company Acquisition, in the
case of each of clauses (x), (y) and (z), prior to such termination; or
(iii) Section 6.1(c)(iii) or 6.1(d)(vi) and at the time of the
Company stockholders' meeting at which the Company failed to obtain the
requisite vote there shall be outstanding at that time an offer by a Third Party
to consummate, or a third party shall have publicly announced (and not
withdrawn) a plan or proposal with respect to, a Company Acquisition;
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate Parent
and Acquisition for such damages the Company shall pay to Parent the amount of
$10,557,000 as liquidated damages immediately upon the occurrence of the event
described in this Section 6.3(a) giving rise to such damages. It is
specifically agreed that the amount to be paid pursuant to this Section 6.3(a)
represents liquidated damages and not a penalty. The Company hereby waives any
right to set-off or counterclaim against such amount.
44
<PAGE>
(b) Upon the termination of this Agreement pursuant to Section
6.1(c)(iii), (iv) or 6.1(d)(i), (ii), (iv), (v) or (vi), in addition to any
other remedies that Parent, Acquisition or their affiliates may have as a result
of such termination, the Company shall pay to Parent the amount of $3,500,000 as
reimbursement for the costs, fees and expenses incurred by any of them or on
their behalf in connection with this Agreement, the Merger and the consummation
of all transactions contemplated by this Agreement (including fees payable to
investment bankers, counsel to any of the foregoing and accountants).
(c) Upon the termination of this Agreement pursuant to Section
6.1(c)(i) or (ii), in addition to any other remedies that the Company or its
affiliates may have as a result of such termination, Parent shall pay to the
Company the amount of $3,500,000 as reimbursement for the costs, fees and
expenses incurred by any of them or on their behalf in connection with this
Agreement, the Merger and the consummation of all transactions contemplated by
this Agreement (including fees payable to investment bankers, counsel to any of
the foregoing and accountants).
(d) Except as specifically provided in this Section 6.3, each party
shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby.
Section 6.4. Amendment. This Agreement may be amended by action
---------
taken by the Company, Parent and Acquisition at any time before or after
approval of the Merger by the stockholders of the Company but after any such
approval no amendment shall be made that requires the approval of such
stockholders under applicable law without such approval. This Agreement
(including, subject to Section 4.15, the Company Disclosure Schedule) may be
amended only by an instrument in writing signed on behalf of the parties hereto.
Section 6.5. Extension; Waiver. At any time prior to the Effective
-----------------
Time, each party hereto may (i) extend the time for the performance of any of
the obligations or other acts of the other party, (ii) waive any inaccuracies in
the representations and warranties of the other party contained herein or in any
document certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument, in writing, signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE 7
MISCELLANEOUS
Section 7.1. Nonsurvival of Representations and Warranties. The
---------------------------------------------
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall not
limit any covenant or agreement of the parties hereto that by its terms requires
performance after the Effective Time.
45
<PAGE>
Section 7.2. Entire Agreement; Assignment. This Agreement (including
----------------------------
the Company Disclosure Schedule) (a) constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings both written and oral between the
parties with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise; provided, however, that Acquisition may assign
any or all of its rights and obligations under this Agreement to any wholly
owned subsidiary of Parent, but no such assignment shall relieve Acquisition of
its obligations hereunder if such assignee does not perform such obligations.
Section 7.3. Validity. If any provision of this Agreement or the
--------
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
Section 7.4. Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return receipt
requested) to each other party as follows:
if to Parent or Acquisition: Cadence Design Systems, Inc.
2655 Seely Road
San Jose, California 95134
Telecopier: (408) 944-6855
Attention: General Counsel
with a copy to: Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, CA 94104
Telecopier: (415) 986-5309
Attention: Kenneth R. Lamb
if to the Company to: Quickturn Design Systems, Inc.
55 West Trimble Road
San Jose, California 95131
Telecopier: (408) 914-6001
Attention: President
46
<PAGE>
with a copy to: Wilson, Sonsini, Rosati & Goodrich LLP
650 Page Mill Road
Palo Alto, CA 94304
Telecopier: (650) 493-6811
Attention: Larry Sonsini
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 7.5. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware without regard to
the principles of conflicts of law thereof.
Section 7.6. Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
Section 7.7. Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided herein, including in
Sections 4.12 and 7.2, nothing in this Agreement is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 7.8. Certain Definitions. For the purposes of this Agreement
-------------------
the term:
(a) "affiliate" means (except as otherwise provided in Sections
2.21 and 4.14) a person that, directly or indirectly, through one or more
intermediaries controls, is controlled by or is under common control with the
first-mentioned person;
(b) "business day" means any day other than a day on which the NYSE is
closed;
(c) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(d) "Company Acquisition" means the occurrence of any of the following
events: (i) the acquisition of the Company by merger or otherwise by any Third
Party; (ii) the acquisition by a Third Party of any material portion of the
assets of the Company and its subsidiaries taken as a whole; or (iii) the
acquisition by a Third Party of thirty percent (30%) or more of the outstanding
Shares or any securities convertible into or exchangeable for such number of
Shares;
47
<PAGE>
(e) "knowledge" or "known" means, with respect to any matter in
question, the actual knowledge of such matter of any executive officer of the
Company or Parent, as the case may be;
(f) "include" or "including" means "include, without limitation" or
"including, without limitation," as the case may be, and the language following
"include" or "including" shall not be deemed to set forth an exhaustive list.
(g) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity including any Governmental Entity; and
(h) "subsidiary" or "subsidiaries" of the Company, Parent, the
Surviving Corporation or any other person means any corporation, partnership,
limited liability company, association, trust, unincorporated association or
other legal entity of which the Company, Parent, the Surviving Corporation or
any such other person, as the case may be (either alone or through or together
with any other subsidiary), owns, directly or indirectly, 50% or more of the
capital stock the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
Section 7.9. Personal Liability. This Agreement shall not create or
------------------
be deemed to create or permit any personal liability or obligation on the part
of any direct or indirect stockholder of the Company or Parent or Acquisition or
any officer, director, employee, agent, representative or investor of any party
hereto.
Section 7.10. Specific Performance. The parties hereby acknowledge
--------------------
and agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties, for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder; provided, however, that if a party
hereto is entitled to receive any payment or reimbursement of expenses pursuant
to Section 6.3(a), (b) or (c) it shall not be entitled to specific performance
to compel the consummation of the Merger.
Section 7.11. Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
(Remainder of page intentionally left blank)
48
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed on its behalf as of the day and year first above written.
CADENCE DESIGN SYSTEMS, INC.
By:
---------------------------------
Name: H. Raymond Bingham
Title: Executive Vice President and
Chief Financial Officer
QUICKTURN DESIGN SYSTEMS, INC.
By:
---------------------------------
Name: Keith R. Lobo
Title: President and Chief Executive Officer
CDSI ACQUISITION, INC.
By:
---------------------------------
Name: H. Raymond Bingham
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT E
---------
QUICKTURN DESIGN SYSTEMS, INC.
STOCKHOLDER RIGHTS PLAN
STOCK OPTION AREEMENT
THIS STOCK OPTION AGREEMENT is dated as of December 8, 1998, between
Cadence Design Systems, Inc., a Delaware corporation ("Grantee"), and Quickturn
Design Systems, Inc., a Delaware corporation ("Issuer").
RECITALS
A. Grantee, CDSI Acquisition, Inc. ("Acquisition") and Issuer are
simultaneously entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides, among other things, that, upon the terms and subject
to the conditions thereof, Acquisition will be merged with and into Issuer (the
"Merger").
B. As a condition to its willingness to enter into the Merger Agreement,
Grantee has required that Issuer agree, and Issuer has agreed, to enter into
this Stock Option Agreement, which provides, among other things, that Issuer
grant to Grantee an option to purchase shares of Issuer's Common Stock, $.001
par value per share ("Issuer Common Stock"), upon the terms and subject to the
conditions provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained in this Stock Option Agreement and the Merger Agreement,
the parties agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions of this Stock
---------------
Option Agreement, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase 3,619,100 shares of Issuer Common Stock (the "Option
Shares"), in the manner set forth below, at an exercise price of $14.00 per
share of Issuer Common Stock, subject to adjustment as provided below (the
"Option Price"). Capitalized terms used herein but not defined herein shall
have the meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION.
------------------
(a) Subject to the satisfaction or waiver of the conditions set forth
in Section 9 of this Stock Option Agreement, prior to the termination of
this Stock Option Agreement in accordance with its terms, Grantee may
exercise the Option, in whole or in part, at any time or from time to time
on or after the occurrence of a Triggering Event. The Option shall
terminate and not be exercisable at any time following the Expiration Date
(as defined in Section 11). The term "Triggering Event" shall mean the
time immediately prior to the occurrence of any of the events (or series of
events) specified in Section 6.3(a) of the Merger Agreement giving rise to
the obligation of the Company to pay the fee specified in Section 6.3(a).
The Option will not be exercisable if Grantee willfully and materially
breached the Merger Agreement.
1
<PAGE>
(b) In the event Grantee wishes to exercise the Option at such time as
the Option is exercisable and has not terminated, Grantee shall deliver
written notice (the "Exercise Notice") to Issuer specifying its intention
to exercise the Option, the total number of Option Shares it wishes to
purchase and a date and time for the closing of such purchase (a "Closing")
not less than one (1) nor more than thirty (30) business days after the
later of (i) the date such Exercise Notice is given and (ii) the expiration
or termination of any applicable waiting period under the HSR Act. If
prior to the Expiration Date (as defined in Section 11 below) any person or
Group (other than Grantee and its affiliates) shall have acquired thirty
percent (30%) or more of the then outstanding shares of Issuer Common Stock
(a "Share Acquisition"), or Issuer shall have entered into a written
definitive agreement with any person or group (other than Grantee and its
affiliates) providing for a Company Acquisition, then Grantee, in lieu of
exercising the Option, shall have the right at any time thereafter (for so
long as the Option is exercisable under Section 2(a) hereof) to request in
writing that Issuer pay, and promptly (but in any event not more than five
(5) business days) after the giving by Grantee of such request, Issuer
shall pay to Grantee, in cancellation of the Option, an amount in cash (the
"Cancellation Amount") equal to (i) the lesser of
(x) the excess over the Option Price of the greater of (A) the
last sale price of a share of Issuer Common Stock as
reported on the Nasdaq National Market System on the last
trading day prior to the date of the Exercise Notice, and
(B) (1) the highest price per share of Issuer Common Stock
offered to be paid or paid by any such person or Group
pursuant to or in connection with such Share Acquisition or
Company Acquisition or (2) if such Company Acquisition
consists of a purchase and sale of assets, the aggregate
consideration offered to be paid or paid in any transaction
or proposed transaction in connection with a Company
Acquisition, divided by the number of shares of Issuer
Common Stock then outstanding, and
(y) $3.8890884474
multiplied by (ii) the number of Option Shares then covered by the Option.
If all or a portion of the price per share of Issuer Common Stock offered,
paid or payable or the aggregate consideration offered, paid or payable for
the stock or assets of Issuer, each as contemplated by the preceding
sentence, consists of noncash consideration, such price or aggregate
consideration shall be the cash consideration, if any, plus the fair market
value of the non-cash consideration as determined by the investment bankers
of Issuer and the investment bankers of Grantee.
(c) Notwithstanding anything to the contrary contained herein, the
economic benefit, if any, which Grantee may derive hereunder shall be
limited as follows: (1) in no event shall Grantee's Total Payment (as
defined below) exceed $14,075,000, and Grantee shall pay any excess over
such amount to Issuer, and (2) the Option may not be exercised
2
<PAGE>
for a number of Option Shares as would, as of the date of exercise, result
in a Notional Total Payment (as defined below), together with the actual
Total Payment immediately preceding such exercise, exceeding $14,075,000.
As used herein, (1) "Total Payment" shall mean the sum (before taxes) of
the following: (i) any Cancellation Amount received by Grantee pursuant to
Section 2(b) hereof, (ii)(x) the net cash amounts received by Grantee
pursuant to the sale of Option Shares (or any other securities into which
such Option Shares shall be converted or exchanged) pursuant to Section 12
or otherwise to any unaffiliated party, less (y) the aggregate Option Price
for such shares, (iii) any amounts received by Grantee upon transfer of the
Option (or any portion thereof) to any unaffiliated party, and (iv) the
amount actually received by Grantee pursuant to Section 6.3(a) of the
Merger Agreement; and (2) "Notional Total Payment" with respect to any
number of Option Shares as to which Grantee may propose to exercise the
Option shall be the Total Payment determined as of the date of such
proposed exercise assuming that the Option were exercised on such date for
such number of shares and assuming further that such shares, together with
all other Option Shares held by Grantee as of such date, were sold for cash
at the closing market price for the Issuer Common Stock as of the close of
business on the preceding trading day (less customary brokerage
commissions). For purposes of this Section 2, references to Grantee shall
be deemed to include references to any affiliate of Grantee.
3. PAYMENT OF OPTION PRICE AND DELIVERY OF CERTIFICATE. Any Closings
---------------------------------------------------
under Section 2 of this Stock Option Agreement shall be held at the principal
executive offices of Issuer, or at such other place as Issuer and Grantee may
agree. At any Closing hereunder, (a) Grantee or its designee will make payment
to Issuer of the aggregate price for the Option Shares being so purchased by
delivery of a certified check, official bank check or wire transfer of funds
pursuant to Issuer's instructions payable to Issuer in an amount equal to the
product obtained by multiplying the Option Price by the number of Option Shares
to be purchased, and (b) upon receipt of such payment Issuer will deliver to
Grantee or its designee a certificate or certificates representing the number of
validly issued, fully paid and non-assessable Option Shares so purchased, in the
denominations and registered in such names designated to Issuer in writing by
Grantee.
4. REGISTRATION AND LISTING OF OPTION SHARES.
-----------------------------------------
(a) Issuer will, if requested by Grantee at any time or from time to
time within two (2) years following a Triggering Event (the "Registration
Period"), in order to permit the sale or other disposition of the Option
Shares that have been acquired by or are issuable to Grantee upon exercise
of the Option ("Registrable Securities"), register under the Securities Act
of 1933, as amended (the "Act"), the offering, sale and delivery, or other
disposition, of the Registrable Securities. In connection with any such
sale or other disposition, Grantee shall use all reasonable efforts to
prevent any person or group from purchasing through such offering shares of
Issuer Common Stock representing more than five percent (5%) of the
outstanding Common Stock of Issuer on a fully diluted basis at the time of
such request. Any such Registration Notice must relate to a number of
Registrable Securities equal to at least twenty percent (20%) of the Option
Shares, unless
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<PAGE>
the remaining number of Registrable Securities is less than such amount, in
which case Grantee shall be entitled to exercise its rights hereunder but
only for all of the remaining Registrable Securities (a "Permitted
Offering"). Grantee's rights hereunder shall terminate at such time as
Grantee shall be entitled to sell all of the remaining Registrable
Securities pursuant to Rule 144(k) under the Act. Issuer will use all
reasonable efforts to qualify any Registrable Securities Grantee desires to
sell or otherwise dispose of under applicable state securities or "blue
sky" laws; provided, however, that Issuer shall not be required to qualify
to do business, or consent to general service of process, in any
jurisdiction by reason of this provision. Without Grantee's prior written
consent, no other securities may be included in any such registration.
Issuer will use all reasonable efforts to cause each such registration
statement to become effective, to obtain all consents or waivers of other
parties that are required therefor and to keep such registration statement
effective for a period of ninety (90) days from the day such registration
statement first becomes effective. The obligations of Issuer hereunder to
file a registration statement and to maintain its effectiveness may be
suspended for one or more periods not exceeding ninety (90) days in the
aggregate if the Board of Directors of Issuer shall have determined in good
faith that the filing of such registration statement or the maintenance of
its effectiveness would require disclosure of nonpublic information that
would materially and adversely affect Issuer, or Issuer is required under
the Act to include audited financial statements for any period in such
registration statement and such financial statements are not yet available
for inclusion in such registration statement. Grantee shall be entitled to
make up to two (2) requests under this Section 4(a). For purposes of
determining whether the two (2) requests have been made under this Section
4(a), only requests relating to a registration statement that has become
effective under the Act will be counted.
(b) If, during the Registration Period, Issuer shall propose to
register under the Act the offering, sale and delivery of Issuer's Common
Stock for cash for its own account or for any other stockholder of Issuer
pursuant to a firm underwriting, it will, in addition to Issuer's other
obligations under this Section 4, allow Grantee the right to participate in
such registration provided that Grantee participates in such underwriting;
provided, however, that, if the managing underwriter of such offering
advises Issuer in writing that in its opinion the number of shares of
Issuer's Common Stock requested to be included in such registration exceeds
the number that it would be in the best interests of Issuer to sell in such
offering, Issuer will, after fully including therein all shares of Issuer
Common Stock to be sold by Issuer, include the shares of Issuer Common
Stock requested to be included therein by Grantee pro rata (based on the
number of shares of Issuer Common Stock requested to be included therein)
with the shares of Issuer Common Stock requested to be included therein by
persons other than Issuer and persons to whom Issuer owes a contractual
obligation (other than any director, officer or employee of Issuer to the
extent any such person is not currently owed such contractual obligation).
(c) The expenses associated with the preparation and filing of any
registration statement pursuant to this Section 4 and any sale covered
thereby (including any fees related to blue sky qualifications and filing
fees in respect of SEC or the National Association of Securities Dealers,
Inc.) ("Registration Expenses") will be paid by Issuer,
4
<PAGE>
except for underwriting discounts or commissions or brokers' fees in
respect of shares of Issuer's Common Stock to be sold by Grantee and the
fees and disbursements of Grantee's counsel; provided, however, that Issuer
will not be required to pay for any Registration Expenses with respect to
such registration if the registration request is subsequently withdrawn at
the request of Grantee unless Grantee agrees to forfeit its right to
request one registration; provided further, however, that, if at the time
of such withdrawal Grantee has learned of a material adverse change in the
results of operations, condition, business or prospects of Issuer not known
to Grantee at the time of the request and has withdrawn the request within
a reasonable period of time following disclosure by Issuer to Grantee of
such material adverse change, then Grantee shall not be required to pay any
of such expenses and will retain all remaining rights to request
registration. Grantee will provide all information reasonably requested by
Issuer for inclusion in any registration statement to filed hereunder.
(d) The registration rights granted under this Section 4 are subject
to and are limited by any registration rights previously granted by Issuer,
and Grantee acknowledges that the registration rights granted under this
Section 4 shall be subject to any such limitations.
(e) In connection with each registration under this Section 4, Issuer
shall indemnify and hold each holder of Option or Option Shares
participating in such offering (a "Holder"), its underwriters and each of
their respective affiliates harmless against any and all losses, claims,
damage, liabilities and expenses (including, without limitation,
investigation expenses and fees and disbursements of counsel and
accountants), joint or several, to which such Holder, its underwriters and
each of their respective affiliates may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
registration statement (including any prospectus therein), or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, other
than such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) which arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in written
information furnished by a Holder to Issuer expressly for use in such
registration statement.
(f) In connection with any registration statement pursuant to this
Section 4, each Holder agrees to furnish Issuer with such information
concerning itself and the proposed sale or distribution as shall reasonably
be required in order to ensure compliance with the requirements of the Act
and shall provide representations and warranties customary for selling
shareholders who are unaffiliated with the issuer. In addition, Grantee
and each Holder shall indemnify and hold Issuer, its underwriters and each
of their respective affiliates harmless against any and all losses, claims,
damages, liabilities and expenses (including, without limitation,
investigation expenses and fees and disbursement of counsel and
accountants), joint or several, to which Issuer, its
5
<PAGE>
underwriters and each of their respective affiliates may become subject
under the Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material
fact contained in written information furnished by any Holder to Issuer
expressly for use in such registration statement; provided, however, that
in no event shall any indemnification amount contributed by a Holder
hereunder exceed the proceeds of the offering received by such Holder.
(g) Upon the issuance of Option Shares hereunder, Issuer will promptly
list such Option Shares with the Nasdaq National Market System or on such
national or other exchange on which the shares of Issuer Common Stock are
at the time listed.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
----------------------------------------
warrants to Grantee as follows:
(a) Issuer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has requisite
power and authority to enter into and perform its obligations under this
Stock Option Agreement.
(b) The execution and delivery of this Stock Option Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorized
this Stock Option Agreement or to consummate the transactions contemplated
hereby. The Board of Directors of Issuer has duly approved the issuance
and sale of the Option Shares, upon the terms and subject to the conditions
contained in this Stock Option Agreement, and the consummation of the
transactions contemplated hereby. This Stock Option Agreement has been
duly and validly executed and delivered by Issuer and, assuming this Stock
Option Agreement has been duly and validly authorized, executed and
delivered by Grantee, constitutes a valid and binding obligation of Issuer
enforceable against Issuer in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to creditors' rights generally; the availability of
injunctive relief and other equitable remedies; and limitations imposed by
law on indemnification for liability under federal securities laws.
(c) Issuer has taken all necessary action to authorize and reserve for
issuance and to permit it to issue, and at all times from the date of this
Stock Option Agreement through the date of expiration of the Option will
have reserved for issuance upon exercise of the Option, a sufficient number
of authorized shares of Issuer Common Stock for issuance upon exercise of
the Option, each of which, upon issuance pursuant to this Stock Option
Agreement and when paid for as provided herein, will be validly issued,
fully paid and nonassessable, and shall be delivered free and clear of all
claims, liens, charges, encumbrances and security interests (other than
those imposed by Grantee, its affiliate or by applicable law).
6
<PAGE>
(d) The execution, delivery and performance of this Stock Option
Agreement by Issuer and the consummation by it of the transactions
contemplated hereby except as required by the HSR Act and any material
foreign competition authorities (if applicable), and, with respect to
Section 4 hereof, compliance with the provisions of the Act and any
applicable state securities laws, do not require the consent, waiver,
approval, license or authorization of or result in the acceleration of any
obligation under, or constitute a default under, any term, condition or
provision of any charter or bylaw, or any indenture, mortgage, lien, lease,
agreement, contract, instrument, order, judgment, ordinance, regulation or
decree or any restriction to which Issuer or any property of Issuer or its
subsidiaries is bound, except where failure to obtain such consents,
waivers, approvals, licenses or authorizations or where such acceleration
or defaults could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Issuer.
6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents
-----------------------------------------
and warrants to Issuer that:
(a) Grantee is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has requisite
power and authority to enter into and perform its obligations under this
Stock Option Agreement.
(b) The execution and delivery of this Stock Option Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Grantee and no other
corporate proceedings on the part of Grantee are necessary to authorize
this Stock Option Agreement or to consummate the transactions contemplated
hereby. This Stock Option Agreement has been duly and validly executed and
delivered by Grantee and, assuming this Stock Option Agreement has been
duly executed and delivered by Issuer, constitutes a valid and binding
obligation of Grantee enforceable against Grantee in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to creditors' rights generally;
the availability of injunctive relief and other equitable remedies; and
limitations imposed by law on indemnification for liability under federal
securities laws.
(c) Grantee is acquiring the Option and it will acquire the Option
Shares issuable upon the exercise thereof for its own account and not with
a view to the distribution or resale thereof in any manner not in
accordance with applicable law.
7. COVENANTS OF GRANTEE. Grantee agrees not to transfer or otherwise
--------------------
dispose of the Option or the Option Shares, or any interest therein, except that
Grantee may transfer or dispose of the Option Shares so long as such transaction
is in compliance with the Act and any applicable state securities law. Grantee
further agrees to the placement of the following legend on the certificates)
representing the Option Shares (in addition to any legend required under
applicable state securities laws) and any legend referring to the provisions of
Section 12 hereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933, AS
7
<PAGE>
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE LAW GOVERNING THE OFFER AND
SALE OF SECURITIES. NO TRANSFER OR OTHER DISPOSITION OF THESE SHARES, OR OF
ANY INTEREST THEREIN, MAY BE MADE EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND SUCH OTHER STATE LAWS OR PURSUANT
TO EXEMPTIONS FROM REGISTRATION UNDER THE ACT, SUCH OTHER STATE LAWS, AND
THE RULES AND REGULATIONS PROMULGATED THEREUNDER."
8. HSR COMPLIANCE EFFORTS. Grantee and Issuer shall take, or cause to be
----------------------
taken, all reasonable action to consummate and make effective the transactions
contemplated by this Stock Option Agreement, including, without limitation,
reasonable efforts to obtain any necessary consents of third parties and
governmental agencies and the filing by Grantee and Issuer promptly after the
date hereof of any required HSR Act notification forms and the documents
required to comply with the HSR Act.
9. CERTAIN CONDITIONS. The obligation of Issuer to issue Option Shares
------------------
under this Stock Option Agreement upon exercise of the Option shall be subject
to the satisfaction or waiver of the following conditions:
(a) any waiting periods applicable to the acquisition of the Option
Shares by Grantee pursuant to this Stock Option Agreement under the HSR Act
and any material foreign competition laws shall have expired or been
terminated;
(b) the representations and warranties of Grantee made in Section 6 of
this Stock Option Agreement shall be true and correct in all material
respects as of the date of the Closing for the issuance of such Option
Shares; and
(c) no statute, rule or regulation shall be in effect, and no order,
decree or injunction entered by any court of competent jurisdiction or
governmental, regulatory or administrative agency or commission in the
United States shall be in effect which prohibits the exercise of the Option
or acquisition or issuance of Option Shares pursuant to this Stock Option
Agreement.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any
------------------------------------------
change in the number of issued and outstanding shares of Issuer Common Stock by
reason of any stock dividend, stock split, recapitalization, merger, rights
offering, share exchange or other change in the corporate or capital structure
of Issuer, Grantee shall receive, upon exercise of the Option, the stock or
other securities, cash or property to which Grantee would have been entitled if
Grantee had exercised the Option and had been a holder of record of shares of
Issuer Common Stock on the record date fixed for determination of holders of
shares of Issuer Common Stock entitled to receive such stock or other
securities, cash or property at the same aggregate price as the aggregate Option
Price of the Option Shares.
11. EXPIRATION. The Option shall expire at the earlier of (y) the
----------
Effective Time (as defined in the Merger Agreement) and (z)
5:00 p.m., California time, on the day that is the
8
<PAGE>
twelve (12) month anniversary of the date on which the Merger
Agreement has been terminated in accordance with the terms thereof
(such expiration date is referred to as the "Expiration Date").
12. ISSUER CALL. If Grantee has acquired Option Shares pursuant to
-----------
exercise of the Option (the date of any closing relating to any such
exercise herein referred to as an "Exercise Date"), then, at any time
after the date thirteen (13) months following such Exercise Date and
prior to the date twenty-five (25) months following such Exercise
Date (the "Purchase Period"), Issuer may require Grantee, upon
delivery to Grantee of written notice, to sell to Issuer any Option
Shares held by Grantee as of the date that is ten (10) business days
after the date of such notice, up to a number of shares equal to the
number of Option Shares acquired by Grantee pursuant to exercise of
the Option in connection with such Exercise Date. The per share
purchase price for such sale (the "Issuer Call Price") shall be equal
to the higher of (i) the Option Price, less any dividends paid on the
Option Shares to be purchased by the Issuer pursuant to this Section
12, plus an amount equal to a return at the rate of fifteen percent
(15%) of the Option Price per year from the Exercise Date and (b) an
amount equal to the average of the high and low trading prices per
share of Issuer Common Stock for the thirty (30) trading day period
ending one day prior to the delivery of Issuer's notice exercising
its call rights pursuant to this Section 12. The closing of any sale
of Option Shares pursuant to this Section 12 shall take place at the
principal offices of Issuer at a time and on a date designated by
Issuer in the aforementioned notice to Grantee, which date shall be
no more than thirty (30) and no less than twelve (12) business days
from the date of such notice. The Issuer Call Price shall be paid in
immediately available funds.
13. GENERAL PROVISIONS.
------------------
(a) Survival. All of the representations, warranties and covenants
--------
contained herein shall survive a Closing and shall be deemed to have been
made as of the date hereof and as of the date of each Closing, except for
the representations and warranties in Section 5(d) hereof which shall be
deemed to have been made only as of the date hereof.
(b) Further Assurances. If Grantee exercises the Option, or any
------------------
portion thereof, in accordance with the terms of this Stock Option
Agreement, Issuer and Grantee will execute and deliver all such further
documents and instruments and use all reasonable efforts to take all such
further action as may be necessary in order to consummate the transactions
contemplated thereby.
(c) Severability. It is the desire and intent of the parties that the
------------
provisions of this Stock Option Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction
in which enforcement is sought. Accordingly, in the event that any
provision of this Stock Option Agreement would be held in any jurisdiction
to be invalid, prohibited or unenforceable for any reason, such provision,
as to such jurisdiction, shall be ineffective, without invalidating the
remaining provisions of this Stock Option Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision
9
<PAGE>
could be more narrowly drawn so as not be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Stock Option Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
(d) Assignment; Transfer of Stock Option. This Stock Option Agreement
------------------------------------
shall be binding on and inure to the benefit of the parties hereto and
their respective successors and permitted assigns; provided, however, that
Issuer and Grantee, without the prior written consent of the other party,
shall not be entitled to assign or otherwise transfer any of its rights or
obligations hereunder and any such attempted assignment or transfer shall
be void; provided, further, that Grantee shall be entitled to assign or
transfer this Stock Option Agreement or any rights hereunder to any wholly-
owned subsidiary of Grantee so long as such wholly-owned subsidiary agrees
in writing to be bound by the terms and provisions hereof.
(e) Specific Performance. The parties agree and acknowledge that in
--------------------
the event of a breach of any provision of this Stock Option Agreement, the
aggrieved party would be without an adequate remedy at law. The parties
therefore agree that in the event of a breach of any provision of this
Stock Option Agreement, the aggrieved party may elect to institute and
prosecute proceedings in any court of competent jurisdiction to enforce
specific performance or to enjoin the continuing breach of such provisions,
as well as to obtain damages for breach of this Stock Option Agreement. By
seeking or obtaining any such relief, the aggrieved party will not be
precluded from seeking or obtaining any other relief to which it may be
entitled.
(f) Amendments. This Stock Option Agreement may not be modified,
----------
amended, altered or supplemented except upon the execution and delivery of
a written agreement executed by Grantee and Issuer.
(g) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be deemed to be
sufficient if contained in a written instrument and shall be deemed given
if delivered personally, telecopied, sent by nationally-recognized,
overnight courier or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the other party at the following addresses
(or such other address for a party as shall be specified by like notice):
If to Grantee:
Cadence Design Systems, Inc.
2655 Seely Road
San Jose, California 95134
Telecopier: (408) 944-6855
Attention: General Counsel
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<PAGE>
with a copy to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, California
94104
Telecopier: (415) 986-5309
Attention: Kenneth R. Lamb
If to Issuer:
Quickturn Design Systems, Inc.
55 West Trimble Road
San Jose, California 95131
Telecopier: (408) 914-6001
Attention: President
with a copy to:
Wilson, Sonsini, Rosati & Goodrich LLP
650 Page Mill Road
Palo Alto, CA 94304
Telecopier: (650) 493-6811
Attention: Larry Sonsini
(h) Headings. The headings contained in this Stock Option Agreement
--------
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Stock Option Agreement.
(i) Counterparts. This Stock Option Agreement may be executed in one
------------
or more counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
(j) Governing Law. This Stock Option Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of Delaware without
regard to the principles of conflicts of law thereof.
(k) Jurisdiction and Venue. Each of Issuer and Grantee hereby agrees
----------------------
that any proceeding relating to this Stock Option Agreement shall be
brought solely in a court in the State of Delaware. Each of Issuer and
Grantee hereby consents to personal jurisdiction in any such action brought
in any such Delaware court, consents to service of
11
<PAGE>
process by registered mail made upon such party and such party's agent and
waives any objection to venue in any such Delaware court or to any claim
that any such Delaware court is an inconvenient forum .
(l) Entire Agreement. This Stock Option Agreement and the Merger
----------------
Agreement, and any documents and instruments referred to herein and
therein, constitute the entire agreement between the parties hereto and
thereto with respect to the subject matter hereof and thereof and supersede
all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and thereof.
Nothing in this Stock Option Agreement shall be construed to give any
person other than the parties to this Stock Option Agreement or their
respective successors or permitted assigns any legal or equitable right,
remedy or claim under or in respect of this Stock Option Agreement or any
provision contained herein.
(m) Expenses. Except as otherwise provided in this Stock Option
--------
Agreement, each party shall pay its own expenses incurred in connection
with this Stock Option Agreement and the transactions contemplated hereby.
12
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Stock Option Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
CADENCE DESIGN SYSTEMS, INC.
By:
-------------------------------------
Name: H. Raymond Bingham
Title: Executive Vice President and
Chief Financial Officer
QUICKTURN DESIGN SYSTEMS, INC.
By:
----------------------------------------------
Name: Keith R. Lobo
Title: President and Chief Executive Officer
13
