-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QXKZEdKdSD00IJMP2HJYtq0tHD+auuKlPa4s4z1aC7r4nYt9Txq/0V3WtFQcvEUY Nv5xDn4CKrvVyaaWZ27ISw== 0000950149-02-000472.txt : 20020415 0000950149-02-000472.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950149-02-000472 CONFORMED SUBMISSION TYPE: SC TO-T/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20020313 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: IKOS SYSTEMS INC CENTRAL INDEX KEY: 0000756365 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 770100318 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC TO-T/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-41223 FILM NUMBER: 02574353 BUSINESS ADDRESS: STREET 1: 19050 PRUNERIDGE AVE CITY: CUPERTINO STATE: CA ZIP: 94086 BUSINESS PHONE: 4082451900 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MENTOR GRAPHICS CORP CENTRAL INDEX KEY: 0000701811 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 930786033 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T/A BUSINESS ADDRESS: STREET 1: 8005 SW BOECKMAN RD CITY: WILSONVILLE STATE: OR ZIP: 97070-7777 BUSINESS PHONE: 5036857000 SC TO-T/A 1 f77751b7scto-ta.txt AMENDMENT #16 TO SCHEDULE TO SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ SCHEDULE TO/A (RULE 14d-100) TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 16) ------------------- IKOS SYSTEMS, INC. (NAME OF SUBJECT COMPANY (ISSUER)) MENTOR GRAPHICS CORPORATION FRESNO CORPORATION (NAMES OF FILING PERSONS (OFFERORS)) COMMON STOCK, PAR VALUE $0.01 PER SHARE, (TITLE OF CLASS OF SECURITIES) 451716203 (CUSIP NUMBER OF CLASS OF SECURITIES) WALDEN C. RHINES PRESIDENT AND CHIEF EXECUTIVE OFFICER MENTOR GRAPHICS CORPORATION 8005 S.W. BOECKMAN ROAD WILSONVILLE, OREGON 97070-7777 (503) 685-7000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE FILING PERSON) COPIES TO: JOHN J. HUBER, ESQ. CHRISTOPHER L. KAUFMAN, ESQ. LATHAM & WATKINS LATHAM & WATKINS 555 11TH STREET, N.W., SUITE 1000 135 COMMONWEALTH DRIVE WASHINGTON, D.C. 20004 MENLO PARK, CALIFORNIA 94025 (202) 637-2200 (650) 328-4600 Check the appropriate boxes below to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1 [ ] issuer tender offer subject to Rule 13e-4 [ ] going private transaction subject to Rule 13e-3 [ ] amendment to Schedule 13D under Rule 13d-2 Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] This Amendment No. 16 to Tender Offer Statement on Schedule TO amends and supplements the Tender Offer Statement on Schedule TO filed with the Securities and Exchange Commission on December 7, 2001 (as previously amended, the "Schedule TO"), relating to a tender offer by Fresno Corporation, a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Mentor"), to purchase all outstanding shares of common stock, par value $0.01 per share, and the related preferred stock purchase rights, of IKOS Systems, Inc., a Delaware corporation (the "Company"), for a purchase price of $11.00 per share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 7, 2001 (the "Offer to Purchase"), as amended and supplemented by the Supplement to Offer to Purchase dated March 13, 2002, and in the related Letter of Transmittal (the "Letter of Transmittal" which, together with the Offer to Purchase, as each may be amended and supplemented from time to time, constitute the "Offer"), as amended and supplemented. Capitalized terms used herein and not defined herein have the respective meanings assigned such terms in the Offer to Purchase. ITEMS 4 AND 11. TERMS OF THE TRANSACTION; ADDITIONAL INFORMATION Items 4 and 11 are hereby amended to add the following: On March 12, 2002, Mentor, Purchaser and the Company entered into a definitive merger agreement (the "Merger Agreement"), in the form attached to this Schedule TO as Exhibit (d)(11), which is incorporated by reference herein. Pursuant to the Merger Agreement, Purchaser has agreed to amend the conditions to the Offer to be as set forth in Annex II to the Merger Agreement. An amended and supplemented Offer to Purchase and a revised Letter of Transmittal are filed herewith and will be mailed to the stockholders of the Company promptly. The full text of a joint press release issued by Mentor and the Company on March 12, 2002 announcing the execution and delivery of the Merger Agreement is filed as Exhibit (a)(5)(O) to this Schedule TO, which is incorporated by reference herein. ITEM 4. TERMS OF THE TRANSACTION Item 4 is hereby amended to add the following: On March 13, 2002, Purchaser extended the Offer until 12:00 Midnight, New York City time, on Tuesday, March 26, 2002, unless further extended. The full text of a press release issued by Mentor on March 13, 2002 announcing the extension of the Offer is filed as Exhibit (a)(5)(P) to this Schedule TO, which is incorporated by reference herein. ITEMS 1 THROUGH 9, AND ITEM 11 The information in the Supplement to Offer to Purchase dated March 13, 2002 and the revised Letter of Transmittal, copies of which are filed with this Schedule TO as Exhibits (a)(1)(K) and (a)(1)(L) hereto, respectively, are incorporated herein by reference in response to Items 1 through 9, and Item 11 in this Tender Offer Statement on Schedule TO. ITEM 12. EXHIBITS Item 12 of the Schedule TO is hereby amended and supplemented as follows: (a)(1)(A) Offer to Purchase dated December 7, 2001.* (a)(1)(B) Letter of Transmittal.* (a)(1)(C) Notice of Guaranteed Delivery.* (a)(1)(D) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.* (a)(1)(E) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.* (a)(1)(F) Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9.* (a)(1)(G) Press release issued by Mentor Graphics Corporation on December 7, 2001.* (a)(1)(H) Summary Advertisement, published December 7, 2001.* (a)(1)(I) Complaint filed in the United States District Court for the District of Delaware on December 7, 2001.* (a)(1)(J) Complaint filed in the Chancery Court, New Castle County, Delaware on December 7, 2001.* (a)(1)(K) Supplement to Offer to Purchase dated March 13, 2002. (a)(1)(L) Revised Letter of Transmittal. (a)(1)(M) Revised Notice of Guaranteed Delivery. (a)(1)(N) Revised Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(1)(O) Revised Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(1)(P) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(5)(A) Press release issued by Mentor Graphics Corporation, dated December 20, 2001.* (a)(5)(B) Press release issued by Mentor Graphics Corporation, dated December 26, 2001.* (a)(5)(C) Press release issued by Mentor Graphics Corporation, dated January 15, 2002.* (a)(5)(D) Press Release issued by Mentor Graphics Corporation, dated January 16, 2002.* (a)(5)(E) Press Release issued by Mentor Graphics Corporation, dated January 23, 2002.* (a)(5)(F) Press release issued by Mentor Graphics Corporation, dated January 28, 2002.* (a)(5)(G) Press release issued by Mentor Graphics Corporation, dated February 4, 2002.* (a)(5)(H) Press release issued by Mentor Graphics Corporation, dated February 5, 2002.* (a)(5)(I) Materials filed under Rule 14a-12 on Schedule 14A, filed with the Securities and Exchange Commission on February 5, 2002 and incorporated herein by reference.* (a)(5)(J) Press release issued by Mentor Graphics Corporation, dated February 11, 2002.* (a)(5)(K) Press release issued by Mentor Graphics Corporation, dated February 19, 2002.* (a)(5)(L) Press Release issued by Mentor Graphics Corporation, dated February 22, 2002.* (a)(5)(M) Press Release issued by Mentor Graphics Corporation, dated February 26, 2002.* (a)(5)(N) Press Release issued by Mentor Graphics Corporation, dated March 11, 2002.* (a)(5)(O) Joint Press Release issued by Mentor Graphics Corporation and IKOS Systems, Inc., dated March 12, 2002. (a)(5)(P) Press Release issued by Mentor Graphics Corporation, dated March 13, 2002. (b) None. (c) None. (d)(1) Confidentiality Agreement dated June 16, 2000, between Mentor Graphics Corporation and IKOS Systems, Inc.* (d)(2) Letter from Gray Cary Ware & Freidenrich LLP to Latham & Watkins dated December 12, 2001, and form of confidentiality and standstill agreement.* (d)(3) Letter from Latham & Watkins to Gray Cary Ware & Freidenrich LLP dated December 18, 2001.* (d)(4) Letter from Gray Cary Ware & Freidenrich LLP to Latham & Watkins dated December 18, 2001.* (d)(5) Letter from Latham & Watkins to Gray Cary Ware & Freidenrich LLP dated January 16, 2002.* (d)(6) Proposed Agreement and Plan of Merger and Reorganization by and among Mentor, Purchaser and the Company.* (d)(7) Letter from Gray Cary Ware & Freidenrich LLP to Latham & Watkins dated January 21, 2002, and form of confidentiality and standstill agreement.* (d)(8) Letter from Purchaser to IKOS Systems, Inc. dated February 4, 2002.* (d)(9) Letter from Purchaser to IKOS Systems, Inc. dated February 22, 2002.* (d)(10) Preliminary proxy statement filed with the Securities and Exchange Commission on February 22, 2002 by Mentor and Purchaser and incorporated herein by reference.* (d)(11) Agreement and Plan of Merger and Reorganization by and among Mentor Graphics Corporation, Fresno Corporation and IKOS Systems, Inc., dated as of March 12, 2002. (e) None. (f) None. (g) None. (h) None. - ------------------ *Previously filed. 2 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: March 13, 2002 MENTOR GRAPHICS CORPORATION By: /s/ Gregory K. Hinckley ------------------------------------ Name: Gregory K. Hinckley Title: President FRESNO CORPORATION By: /s/ Gregory K. Hinckley ------------------------------------ Name: Gregory K. Hinckley Title: Chief Financial Officer 3 EXHIBIT INDEX (a)(1)(A) Offer to Purchase dated December 7, 2001.* (a)(1)(B) Letter of Transmittal.* (a)(1)(C) Notice of Guaranteed Delivery.* (a)(1)(D) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.* (a)(1)(E) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.* (a)(1)(F) Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9.* (a)(1)(G) Press release issued by Mentor Graphics Corporation on December 7, 2001.* (a)(1)(H) Summary Advertisement, published December 7, 2001.* (a)(1)(I) Complaint filed in the United States District Court for the District of Delaware on December 7, 2001.* (a)(1)(J) Complaint filed in the Chancery Court, New Castle County, Delaware on December 7, 2001.* (a)(1)(K) Supplement to Offer to Purchase dated March 13, 2002. (a)(1)(L) Revised Letter of Transmittal. (a)(1)(M) Revised Notice of Guaranteed Delivery. (a)(1)(N) Revised Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(1)(O) Revised Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(1)(P) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(5)(A) Press release issued by Mentor Graphics Corporation, dated December 20, 2001.* (a)(5)(B) Press release issued by Mentor Graphics Corporation, dated December 26, 2001.* (a)(5)(C) Press release issued by Mentor Graphics Corporation, dated January 15, 2002.* (a)(5)(D) Press Release issued by Mentor Graphics Corporation, dated January 16, 2002.* (a)(5)(E) Press Release issued by Mentor Graphics Corporation, dated January 23, 2002.* (a)(5)(F) Press release issued by Mentor Graphics Corporation, dated January 28, 2002.* (a)(5)(G) Press release issued by Mentor Graphics Corporation, dated February 4, 2002.* (a)(5)(H) Press release issued by Mentor Graphics Corporation, dated February 5, 2002.* (a)(5)(I) Materials filed under Rule 14a-12 on Schedule 14A, filed with the Securities and Exchange Commission on February 5, 2002 and incorporated herein by reference.* (a)(5)(J) Press release issued by Mentor Graphics Corporation, dated February 11, 2002.* (a)(5)(K) Press release issued by Mentor Graphics Corporation, dated February 19, 2002.* (a)(5)(L) Press Release issued by Mentor Graphics Corporation, dated February 22, 2002.* (a)(5)(M) Press Release issued by Mentor Graphics Corporation, dated February 26, 2002.* (a)(5)(N) Press Release issued by Mentor Graphics Corporation, dated March 11, 2002.* (a)(5)(O) Joint Press Release issued by Mentor Graphics Corporation and IKOS Systems, Inc., dated March 12, 2002. (a)(5)(P) Press Release issued by Mentor Graphics Corporation, dated March 13, 2002. (b) None. (c) None. (d)(1) Confidentiality Agreement dated June 16, 2000, between Mentor Graphics Corporation and IKOS Systems, Inc.* (d)(2) Letter from Gray Cary Ware & Freidenrich LLP to Latham & Watkins dated December 12, 2001, and form of confidentiality and standstill agreement.* (d)(3) Letter from Latham & Watkins to Gray Cary Ware & Freidenrich LLP dated December 18, 2001.* (d)(4) Letter from Gray Cary Ware & Freidenrich LLP to Latham & Watkins dated December 18, 2001.* (d)(5) Letter from Latham & Watkins to Gray Cary Ware & Freidenrich LLP dated January 16, 2002.* (d)(6) Proposed Agreement and Plan of Merger and Reorganization by and among Mentor, Purchaser and the Company.* (d)(7) Letter from Gray Cary Ware & Freidenrich LLP to Latham & Watkins dated January 21, 2002, and form of confidentiality and standstill agreement.* (d)(8) Letter from Purchaser to IKOS Systems, Inc. dated February 4, 2002.* (d)(9) Letter from Purchaser to IKOS Systems, Inc. dated February 22, 2002.* (d)(10) Preliminary proxy statement filed with the Securities and Exchange Commission on February 22, 2002 by Mentor and Purchaser and incorporated herein by reference.* (d)(11) Agreement and Plan of Merger and Reorganization by and among Mentor Graphics Corporation, Fresno Corporation and IKOS Systems, Inc., dated as of March 12, 2002. (e) None. (f) None. (g) None. (h) None. - ------------------ *Previously filed. EX-99.(A)(1)(K) 3 f77751b7ex99-a1k.txt EXHIBIT 99.(A)(1)(K) EXHIBIT 99.(a)(1)(K) SUPPLEMENT TO OFFER TO PURCHASE FOR CASH (THE "OFFER") ALL OUTSTANDING SHARES OF COMMON STOCK (THE "SHARES") (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS (THE "RIGHTS")) OF IKOS SYSTEMS, INC. (THE "COMPANY") AT $11.00 NET PER SHARE BY FRESNO CORPORATION ("PURCHASER"), A WHOLLY-OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION ("MENTOR") THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, MARCH 26, 2002 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS FURTHER EXTENDED. THE BOARD OF DIRECTORS OF IKOS SYSTEMS, INC. (THE "COMPANY") HAS UNANIMOUSLY DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED HEREIN) IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, HAS APPROVED THE MERGER AGREEMENT (AS DEFINED HEREIN) AND THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING THE OFFER AND THE MERGER, HAS DECLARED THAT THE MERGER AGREEMENT IS ADVISABLE AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. THE OFFER IS CONDITIONED UPON THE CONDITIONS DESCRIBED IN SECTION 9. THE OFFER IS NOT CONDITIONED UPON MENTOR OR PURCHASER OBTAINING FINANCING. IMPORTANT If you wish to tender all or any part of your Shares, prior to the Expiration Date you should either (1) complete and sign the revised (yellow) Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the revised (yellow) Letter of Transmittal included with this Supplement dated March 13, 2002 (the "Supplement"), have your signature thereon guaranteed if required by Instruction 1 to the revised (yellow) Letter of Transmittal, mail or deliver the revised (yellow) Letter of Transmittal (or such facsimile thereof) and any other required documents to the depositary for the Offer and either deliver the certificates for such Shares to the depositary for the Offer along with the revised (yellow) Letter of Transmittal (or a facsimile thereof) or deliver such Shares pursuant to the procedures for book-entry transfers set forth in "The Offer -- Procedure for Tendering Shares and Rights" of the Offer to Purchase dated December 7, 2001, or (2) request your broker, dealer, commercial bank, trust company or other nominee to effect the transaction for you. If you have Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you must contact such broker, dealer, commercial bank, trust company or other nominee if you desire to tender your Shares. If you desire to tender your Shares and associated Rights and your certificates for such Shares (or, if applicable, associated Rights) are not immediately available, or you cannot comply with the procedures for book-entry transfers described in the Offer to Purchase on a timely basis, you may tender such Shares by following the procedures for guaranteed delivery set forth in "The Offer -- Procedure for Tendering Shares and Rights." A summary of the principal terms of the Offer begins on page 1 of this Supplement. If you have questions about the Offer, you may call MacKenzie Partners, Inc., the information agent for the Offer, at its address and telephone number set forth on the back cover of this Supplement. You can also obtain additional copies of this Supplement, the Offer to Purchase, the related revised (yellow) Letter of Transmittal and the Notice of Guaranteed Delivery from MacKenzie Partners, Inc., or your broker, dealer, commercial bank, trust company or other nominee. THIS SUPPLEMENT, THE OFFER TO PURCHASE AND THE RELATED REVISED (YELLOW) LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH YOU SHOULD CAREFULLY READ IN THEIR ENTIRETY BEFORE YOU MAKE A DECISION WITH RESPECT TO THE OFFER. March 13, 2002 TABLE OF CONTENTS
PAGE ---- INTRODUCTION........................................................ 1 1. Amended Terms of the Offer; Expiration Date.................... 3 2. Price Range of Shares; Dividends............................... 3 3. Certain Information Concerning the Company..................... 4 4. Certain Information Concerning Purchaser and Mentor............ 4 5. Source and Amount of Funds..................................... 5 6. Background of the Offer........................................ 5 7. Purpose of the Offer........................................... 5 8. The Merger Agreement........................................... 5 9. Conditions to the Offer........................................ 17 10. Certain Legal Matters; Regulatory Approvals.................... 19 11. Miscellaneous.................................................. 19 ANNEX A Section 262 of the Delaware General Corporation Law (Delaware Rights of Appraisal).................................... A-1
To the Holders of Common Stock of IKOS Systems, Inc.: INTRODUCTION The following information amends and supplements the Offer to Purchase dated December 7, 2001 (the "Offer to Purchase") of Fresno Corporation, a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Mentor" and together with Purchaser, "Mentor Graphics"). Pursuant to this Supplement dated March 13, 2002 (the "Supplement"), Purchaser is now offering to purchase all of the outstanding shares of Common Stock, par value $0.01 per share (the "Common Stock"), of IKOS Systems, Inc., a Delaware corporation ("IKOS" or the "Company"), including the associated rights to purchase Preferred Stock (the "Rights") issued pursuant to the Amended and Restated Rights Agreement, dated January 22, 1999, as amended (the "Rights Agreement"), between the Company and Bank Boston, N.A. (the Common Stock and the Rights together are referred to herein as the "Shares"), at a price of $11.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related revised (yellow) Letter of Transmittal (which together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). Tendering stockholders who have Shares registered in their own name and who tender directly to Wilmington Trust Company (the "Depositary") will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by Purchaser pursuant to the Offer. Stockholders who hold their Shares through their broker or bank should consult with such institution as to whether there are any fees applicable to a tender of Shares. Purchaser will pay all charges and expenses of the Depositary and MacKenzie Partners, Inc. (the "Information Agent"). Unless the context requires otherwise, all references to Shares herein shall include the associated Rights, and all references to the Rights shall include all benefits that may inure to the holders of the Rights pursuant to the Rights Agreement. Except as otherwise set forth in this Supplement and in the revised (yellow) Letter of Transmittal, the terms and conditions previously set forth in the Offer to Purchase and the related original Letter of Transmittal remain applicable in all respects to the Offer, and this Supplement should be read in conjunction with the Offer to Purchase. Unless the context otherwise requires, capitalized terms used but not defined herein have the meanings ascribed to them in the Offer to Purchase. Procedures for tendering Shares are set forth in Section 4 of the Offer to Purchase. Tendering stockholders may continue to use the original Letter of Transmittal and the original Notice of Guaranteed Delivery previously circulated with the Offer to Purchase, or they may use the revised (yellow) Letter of Transmittal and the revised (green) Notice of Guaranteed Delivery circulated with this Supplement. While the Letter of Transmittal previously circulated with the Offer to Purchase refers only to the Offer to Purchase, stockholders using such document to tender their Shares will nevertheless be deemed to be tendering pursuant to the amended Offer (including the amendments and supplements made by this Supplement) and will receive the Offer price per Share described in this Supplement if Shares are accepted for payment and paid for by Purchaser pursuant to the Offer. SHARES PREVIOUSLY VALIDLY TENDERED AND NOT WITHDRAWN CONSTITUTE VALID TENDERS FOR PURPOSES OF THE OFFER. STOCKHOLDERS ARE NOT REQUIRED TO TAKE ANY FURTHER ACTION WITH RESPECT TO SUCH SHARES IN ORDER TO RECEIVE THE OFFER PRICE OF $11.00 PER SHARE IF SHARES ARE ACCEPTED FOR PAYMENT AND PAID FOR BY PURCHASER PURSUANT TO THE OFFER, EXCEPT AS MAY BE REQUIRED BY THE GUARANTEED DELIVERY PROCEDURE IF SUCH PROCEDURE WAS UTILIZED. SEE SECTION 5 OF THE OFFER TO PURCHASE FOR THE PROCEDURES FOR WITHDRAWING SHARES TENDERED PURSUANT TO THE OFFER. The Company and Mentor Graphics have entered into an Agreement and Plan of Merger, dated as of March 12, 2002 (the "Merger Agreement"), which provides for, among other things, (i) the amendment and restatement of the conditions to the Offer as set forth in their entirety in Section 9 of this Supplement, (ii) the amendment to the Offer such that the Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Tuesday, March 26, 2002, unless further extended, and (iii) the merger of Purchaser with and 1 into the Company (the "Merger") as promptly as is practicable following the consummation of the Offer. In the Merger, each Share issued and outstanding immediately prior to the Merger (other than any Shares held in the treasury of the Company, by Mentor Graphics, by any subsidiary of Mentor Graphics, or by any wholly-owned subsidiary of the Company and other than any Dissenting Shares (as such term is defined in the Merger Agreement)) shall be converted into the right to receive $11.00 in cash, payable to the holder thereof, without interest thereon, upon surrender of the certificate formerly representing such Share. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING THE OFFER AND THE MERGER, HAS DECLARED THAT THE MERGER AGREEMENT IS ADVISABLE AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. Pursuant to the Merger Agreement, the Company has represented that it has amended the Rights Agreement to provide that neither Mentor Graphics nor any of its "affiliates" or "associates" (each as defined in the Rights Agreement), including Purchaser, shall be deemed an Acquiring Person (as defined in the Rights Agreement), that the Distribution Date (as defined in the Rights Agreement) shall not be deemed to occur, and that the Rights will not separate from the Shares as a result of the entering into the Merger Agreement, the commencement of the Offer or the consummation of the Merger or the other transactions contemplated thereby. The Company has also agreed that it will take all necessary action to cause the dilution provisions of the Rights Agreement to be inapplicable to the transactions contemplated by the Merger Agreement, without any payment to holders of the Rights issued pursuant to the Rights Agreement. The Company has also taken the necessary action to render Section 203 of the Delaware General Corporation Law (the "DGCL") inapplicable to the Offer and the Merger. The Company has advised Mentor Graphics that each member of the Company's Board of Directors and each of the Company's executive officers intends to tender all Shares owned by such persons pursuant to the Offer, except to the extent of any restrictions created by Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company's financial advisor, Needham & Company, Inc. has delivered to the Company's Board of Directors a written opinion dated March 11, 2002 that, as of that date and based upon and subject to the matters stated in the opinion, the consideration to be received by the holder of Shares in the Offer and the Merger is fair to those holders (other than Mentor and its affiliates) from a financial point of view. This opinion is set forth in full as an annex to the Company's Amendment No. 14 to the Solicitation/ Recommendation Statement on Schedule 14D-9 filed on March 13, 2002 and should be read in its entirety. On March 6, 2002, there were approximately 9,662,314 Shares outstanding and there were approximately 3,196,392 Shares subject to issuance pursuant to outstanding stock options, each according to the Company, and, as of such date, 841,600 Shares were beneficially owned by Mentor Graphics. THIS SUPPLEMENT, THE OFFER TO PURCHASE AND THE RELATED REVISED (YELLOW) LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH YOU SHOULD CAREFULLY READ IN THEIR ENTIRETY BEFORE YOU MAKE A DECISION WITH RESPECT TO THE OFFER. 2 THE OFFER 1. Amended Terms of the Offer; Expiration Date. Pursuant to the Merger Agreement, Purchaser has agreed to amend the Offer to revise certain of the conditions to the Offer. The conditions upon which the Offer is conditioned are described in Section 9 of this Supplement. Purchaser reserves the right (but shall not be obligated), subject to the provisions of the Merger Agreement, to waive in its reasonable discretion any or all of such conditions. The Offer has been amended such that the Offer will expire at 12:00 midnight, New York City time, on Tuesday, March 26, 2002, unless and until Purchaser, subject to the provisions of the Merger Agreement, shall have extended the period during which the Offer is open. The term "Expiration Date" shall mean 12:00 midnight, New York City time, on Tuesday, March 26, 2002 or any later time and date at which the Offer, as so extended by Purchaser, shall expire. As of the close of business on March 12, 2002, approximately 558,002 Shares had been tendered and not withdrawn pursuant to the Offer. See Section 8 of this Supplement for a description of the provisions of the Merger Agreement regarding extensions of the Offer by Purchaser. The Company has amended the Rights Agreement to provide that neither Mentor nor any of Mentor's "affiliates" or "associates," including Purchaser, will be deemed an Acquiring Person, that the Distribution Date will not be deemed to occur, and that the Rights will not separate from the Shares as a result of the entering into the Merger Agreement, the commencement of the Offer or the consummation of the Merger. The Company has also taken the necessary action to render Section 203 of the Delaware General Corporation Law (the "DGCL") inapplicable to the Offer and the Merger. Under Exchange Act Rule 14d-11, Purchaser may, subject to certain conditions, provide a subsequent offering period of from three to 20 business days in length following the expiration of the Offer on the Expiration Date. A subsequent offering period would be an additional period of time, following the expiration of the Offer and the purchase of Shares in the Offer, during which stockholders may tender Shares not tendered in the Offer. A subsequent offering period, if one is included, is not an extension of the Offer, which already will have been completed. Purchaser does not currently intend to include a subsequent offering period in the Offer, although it reserves the right to do so in its sole discretion. Under Exchange Act Rule 14d-7, no withdrawal rights apply to Shares and Rights tendered during a subsequent offering period and no withdrawal rights apply during the subsequent offering period with respect to Shares and Rights tendered in the Offer and accepted for payment. Purchaser will pay the same consideration to stockholders tendering Shares in the Offer or in a subsequent offering period, if it includes one. STOCKHOLDERS WILL BE REQUIRED TO TENDER ONE RIGHT (SUBJECT TO ADJUSTMENT) FOR EACH SHARE TENDERED IN ORDER TO EFFECT A VALID TENDER OF SHARES UNDER THE OFFER. UNLESS A DISTRIBUTION DATE OCCURS, A TENDER OF SHARES WILL ALSO CONSTITUTE A TENDER OF THE ASSOCIATED RIGHTS. The Company has agreed to provide Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. Following receipt of such lists from the Company, Purchaser will mail this Supplement, the revised (yellow) Letter of Transmittal and other relevant materials to record holders of Shares whose names appear on the Company's stockholder list and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list or who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. 2. Price Range of Shares; Dividends. The reported high and low bid quotations for the Shares on the Nasdaq National Market during the 2002 (through March 12, 2002) were $12.02 and $10.60, respectively. On March 11, 2002, the last full day of trading prior to the announcement of the execution of the Merger Agreement, the reported closing bid price per Share reported on the Nasdaq National Market was $11.47. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. 3 In the Merger Agreement, the Company has agreed not to declare or pay any dividend or distribution with respect to its capital stock. 3. Certain Information Concerning the Company. General. The Company is a Delaware corporation, with principal executive offices at 79 Great Oaks Boulevard, San Jose, California 95119. The telephone number of the Company's executive offices is (408) 284-0400. The Company develops, manufactures, markets, and supports acceleration and verification systems for the verification of integrated circuits. The Company differentiates its verification solutions with hardware acceleration systems and emulation systems which compile and integrate both emulation and acceleration hardware into the design flow. The Company also provides services to customers to assist in the integration and deployment of the Company's proprietary verification solutions. Available Information. The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. The Company is required to disclose in such proxy statements certain information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company. Such reports, proxy statements and other information may be inspected at the SEC's public reference facilities at Room 1024 -- Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can also be obtained at prescribed rates by writing to the SEC's Public Reference Section at the address set forth above, by calling (800) SEC-0330 or by accessing the SEC's Web site at http://www.sec.gov. Except as otherwise stated in this Supplement, the information concerning the Company contained herein has been taken from or is based upon reports and other documents on file with the SEC or otherwise publicly available. Although Mentor Graphics has no knowledge that would indicate that any statements contained herein based upon such reports and documents are untrue, Mentor Graphics takes no responsibility for the accuracy or completeness of the information contained in such reports and other documents or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information but that are unknown to Mentor Graphics. 4. Certain Information Concerning Purchaser and Mentor. General. Purchaser is a Delaware corporation incorporated on December 3, 2001, with principal executive offices at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. The telephone number of Purchaser's principal executive offices is (503) 685-7000. To date, Purchaser has engaged in no activities other than those incident to Purchaser's formation and the commencement, continuation and amendment of the Offer. Purchaser is a wholly-owned subsidiary of Mentor. Mentor is an Oregon corporation with principal executive offices at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. The telephone number of Mentor's executive offices is (503) 685-7000. Mentor manufactures, markets and supports software and hardware electronic design automation ("EDA") products and provides related services which enable engineers to design, analyze, simulate, model, implement and verify the components of electronic systems. In 1996, Mentor expanded its product offerings beyond traditional EDA to include (1) intellectual property products and services intended to increase design efficiency by delivering standard, reusable functions for the design of hardware components and (2) embedded software development and system verification tools intended to shorten product time-to-market by allowing for simultaneous development and testing of hardware and embedded software. Mentor markets its products primarily to large companies in the communications, computer, semiconductor, consumer electronics, aerospace and transportation industries. Customers use Mentor's software in the design of such diverse products as supercomputers, automotive electronics, telephone-switching systems, cellular base stations and handsets, computer network hubs and routers, signal processors and personal computers. Available Information. Mentor is subject to the informational requirements of the Exchange Act and in accordance therewith files periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. Mentor is required to disclose in such proxy statements 4 certain information, as of particular dates, concerning its directors and officers, their remuneration, stock options granted to them, the principal holders of its securities and any material interests of such persons in transactions with Mentor. Such reports, proxy statements and other information should be available for inspection and copying at the offices of the SEC in the same manner as set forth with respect to the Company in "Certain Information Concerning the Company -- Available Information." 5. Source and Amount of Funds. We will need approximately $100 million to purchase all of the outstanding Shares pursuant to the Offer and to pay related fees and expenses. Purchaser intends to obtain all funds needed for the Offer and the Proposed Merger through a capital contribution or a loan from Mentor. Mentor plans to provide the funds for such capital contribution or loan from its available cash and working capital. The Offer is not subject to any financing condition. 6. Background of the Offer. On January 16, 2002, counsel to Mentor and Purchaser, delivered a letter to counsel to the Company enclosing the Merger Agreement for execution by the Company. Although the Company's Board of Directors concluded that the Merger Agreement would result in a Superior Proposal as defined in the Synopsys Agreement, on January 21, 2002, counsel to Mentor and Purchaser received a letter from counsel to the Company enclosing a form of nondisclosure agreement. On January 22, 2002, the Company filed an amendment to its Schedule 14D-9 stating that the Company's Board of Directors recommended against terminating the Synopsys Agreement. On February 26, 2002, Mentor Graphics issued a press release indicating that the Offer was extended until March 8, 2002 and that it had waived the condition to the Offer that there shall not have occurred any decline in either the Dow Jones Industrial Average, the Standard & Poor's 500 Index or the Nasdaq National Market by an amount in excess of 10% measured from the close of business on December 7, 2001. On March 12, 2002, the Company terminated the Synopsys Agreement and Mentor, Purchaser and the Company entered into the Merger Agreement. Pursuant to the Merger Agreement, Purchaser agreed to extend the Offer to 12:00 midnight, New York City time, on Tuesday, March 26, 2002, unless further extended. On March 12, 2002, Mentor and the Company issued a joint press release announcing the execution of the Merger Agreement. 7. Purpose of the Offer. The purpose of the Offer is to acquire control of, and ultimately the entire equity interest in, the Company. In the Merger Agreement, Mentor and the Company have agreed to effect the Merger in accordance with the provisions of the Merger Agreement as promptly as practicable following expiration of the Offer. Set forth below is a summary of the material terms of the Merger Agreement. The Offer does not constitute a solicitation of proxies for any meeting of the Company's stockholders. Any such solicitation which Purchaser might make would be made only pursuant to separate proxy materials complying with the requirements of the Exchange Act. 8. The Merger Agreement. The following is a description of the material aspects of the proposed merger and related transactions, including the Merger Agreement and certain related agreements. The Merger Agreement has been filed as an exhibit to Mentor Graphics' Schedule TO and is incorporated by reference herein. While we believe that the following description covers the material terms of the Merger and the related transactions, the description may not contain all of the information that is important to you. You should read this entire document and the other documents we refer to carefully for a more complete understanding of the Merger and the related transactions. AMENDED OFFER The Company and Mentor Graphics have entered into the Merger Agreement which provides for, among other things, (i) the amendment and restatement of the conditions to the Offer as set forth in their entirety in Section 9 of this Supplement, (ii) the amendment to the Offer such that the Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Tuesday, March 26, 2002 unless further extended and 5 (iii) the merger of Purchaser with and into the Company as promptly as is practicable following the consummation of the Offer. In the Merger, each Share issued and outstanding immediately prior to the Merger (other than any Shares held in the treasury of the Company, by Mentor Graphics, by any subsidiary of Mentor Graphics, or by any wholly-owned subsidiary of the Company and other than any Dissenting Shares (as such term is defined in the Merger Agreement)) shall be converted into the right to receive $11.00 in cash, payable to the holder thereof, without interest thereon, upon surrender of the certificate formerly representing such Share. Purchaser has also agreed that it will not, without the prior written consent of the Company, decrease the price per Share or change the form of consideration payable in the Offer, decrease the number of Shares sought or extend the Offer (other than as set forth in the next paragraph), impose additional conditions to the Offer or amend any other term of the Offer in any manner adverse to the holders of Shares. Purchaser further agreed that, upon the terms and subject to the conditions of the Offer, Purchaser will accept for payment and will purchase, as soon as permitted under the terms of the Offer, all Shares validly tendered and not withdrawn prior to the expiration of the Offer. IKOS and Purchaser also agreed that Purchaser shall not terminate or withdraw the Offer or extend the scheduled Expiration Date unless at the Expiration Date any of the conditions to the Offer described in Annex II of the Merger Agreement (as set forth in their entirety in Section 9 of this Supplement) shall not have been satisfied or earlier waived. If at the Expiration Date, any such condition shall not have been satisfied or earlier waived, Purchaser may and, if requested by the Company, will (subject to certain exceptions) extend the Expiration Date on one or more occasions for an additional period or periods of up to ten business days at a time until September 14, 2002. Purchaser may extend the Offer for up to ten business days in the event that (i) the conditions to the Offer shall have been satisfied at the Expiration Date and (ii) the number of Shares tendered and not withdrawn represent more than 50% but less than 90% of the issued and outstanding shares of the Company Common Stock. STRUCTURE OF THE MERGER IKOS and Mentor Graphics have entered into a Merger Agreement that provides for the Offer and subsequent merger of Purchaser, a newly formed wholly-owned subsidiary of Mentor, with and into IKOS. IKOS will be the surviving corporation in the Merger and will become a wholly-owned subsidiary of Mentor. If Mentor Graphics accepts for payment and pays for the number of Shares that represent, together with Shares owned by Mentor Graphics, at least 90% of the outstanding Shares, Mentor Graphics would have sufficient voting power to approve the Merger without the affirmative vote of any other stockholder of the Company. Upon completion of the Merger, IKOS' stockholders will receive $11.00 per Share in cash in exchange for their IKOS shares. COMPLETION AND EFFECTIVENESS OF THE MERGER The merger will be completed when all of the conditions of the Merger are waived or satisfied. The merger will become effective upon the filing of the certificate of merger with the Secretary of State for the State of Delaware. EXCHANGE OF IKOS STOCK CERTIFICATES FOR $11.00 PER SHARE IN CASH Mentor Graphics' transfer agent, Wilmington Trust Company Investor Services, LLC, who will act as exchange agent, has mailed to you the revised (yellow) Letter of Transmittal and instructions for use in surrendering your IKOS stock certificates in exchange for $11.00 per Share in cash. When you deliver your IKOS stock certificates to the exchange agent along with a properly executed Letter of Transmittal and any other required documents, your IKOS stock certificates will be canceled and you will receive $11.00 per Share in cash, without interest, upon consummation of the Offer. 6 YOU SHOULD NOT SUBMIT YOUR STOCK CERTIFICATES FOR EXCHANGE UNTIL YOU HAVE COMPLETED THE REVISED (YELLOW) LETTER OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE. TREATMENT OF IKOS STOCK OPTIONS AND STOCK INCENTIVE PLANS Upon completion of the Merger, each outstanding option to purchase Shares issued under IKOS' 1995 Stock Option Plan, 1995 Outside Directors Stock Option Plan, 2000 Nonstatutory Stock Option Plan and Virtual Machine Works 1994 Incentive Stock Option Plan and all non-plan options listed in the Merger Agreement will be assumed by Mentor Graphics regardless of whether the options are vested or unvested. Each IKOS stock option, which will be assumed by Mentor Graphics, will continue to have the same terms, and be subject to the same conditions, that were applicable to the option immediately prior to completion of the Merger, except that: - each IKOS stock option will be exercisable for shares of Mentor Graphics common stock; - the number of shares of Mentor Graphics common stock issuable upon exercise of any given IKOS option will be determined by multiplying the option exchange ratio (as defined below) by the number of Shares underlying the option, rounded down to the nearest whole number; and - the per share exercise price of any given IKOS option will be determined by dividing the exercise price of the IKOS option immediately prior to completion of the Merger by the option exchange ratio (as defined below), rounded up to the nearest whole cent. For the purposes of the Merger Agreement, "option exchange ratio" shall mean the quotient obtained by dividing (i) $11.00 per share by (ii) the average last sale price per share of Mentor common stock on the Nasdaq National Market as reported in The Wall Street Journal (or, if any party disputes the accuracy of the prices therein reported, another mutually agreeable authoritative source) for the ten full trading-day period ending on the fifth full trading day prior to the closing date of the Merger. As of March 6, 2002, directors and executive officers of IKOS held stock options, both vested and unvested, to purchase an aggregate of 1,301,073 shares of IKOS common stock under the 1995 Stock Option Plan, 1995 Outside Directors Stock Option Plan, 2000 Nonstatutory Stock Option Plan and Virtual Machine Works 1994 Incentive Stock Option Plan. All of the unvested option shares held by IKOS non-employee directors and granted under the 1995 Outside Directors Stock Option Plan will accelerate and become fully vested and exercisable immediately prior to the Merger, pursuant to their existing stock option agreements, without any action by IKOS or Mentor Graphics. Neither the execution and delivery of the Merger Agreement nor the consummation of the transactions contemplated thereby will: - result in any payment (including severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any, current or former, director or employee or service provider of IKOS or any of its subsidiaries, other than potential excess parachute payments under Section 280G of the Internal Revenue Code as described below; - increase any benefits otherwise payable by IKOS or its subsidiaries; or - result in the acceleration of the time of payment or vesting of any such benefits other than the acceleration and vesting of all unvested options granted under the Company's 1995 Outside Directors Stock Option Plan. However, pursuant to existing severance agreements, in the event Gerald Casilli, Christoph Ditzen, Thomas Gardner, Daniel Hafeman, Robert Hum, Ramon Nunez, or Joseph Rockom is terminated without cause or resigns for good reason within one year of the Merger, then all of the terminated individual's unvested option shares will become fully vested and exercisable on such termination date. IKOS has retained an outside consultant to conduct an analysis to ascertain whether any payments or acceleration of options made to Gerald Casilli, Thomas Gardner, Daniel Hafeman, Robert Hum, Ramon 7 Nunez and Joe Rockom, could result in excess parachute payments under Section 280G of the Internal Revenue Code. Depending on a variety of factors, including length of continued employment for those individuals, it is possible that excess parachute payments under Section 280G could result. Mentor Graphics has agreed to file a registration statement on Form S-8 following the closing of the Merger covering shares of Mentor Graphics common stock issuable upon the exercise of outstanding IKOS options granted to employees, officers and directors of IKOS. TREATMENT OF OUTSTANDING PURCHASE RIGHTS UNDER THE IKOS 1996 EMPLOYEE STOCK PURCHASE PLAN Each outstanding purchase right under the IKOS 1996 Employee Stock Purchase Plan will be exercised immediately prior to the effective time of the Merger and each participant will be issued shares at that time which will be converted into the right to receive $11.00 per share. The IKOS 1996 Employee Stock Purchase Plan will terminate with the exercise date described above and no purchase rights will be subsequently granted or exercised under the IKOS 1996 Employee Stock Purchase Plan and no IKOS 1996 Employee Stock Purchase Plan payroll deductions from IKOS employees will be made thereafter. IKOS employees who meet the eligibility requirements for participation in the Mentor Graphics Employee Stock Purchase Plan will be eligible to begin payroll deductions under the Mentor Graphics Employee Stock Purchase Plan as of the start date of the first offering period thereunder beginning after the effective time of the Merger. REPRESENTATIONS AND WARRANTIES IKOS and Mentor Graphics each made a number of representations and warranties in the Merger Agreement regarding authority to enter into the Merger Agreement and to consummate the Merger and the other transactions contemplated by the Merger Agreement and with regard to aspects of their respective business, financial condition, structure and other facts pertinent to the Merger. The representations made by IKOS to Mentor Graphics cover the following topics as they relate to IKOS and its subsidiaries: - IKOS' valid organization, good standing and qualification, power and authority to conduct business; - IKOS' capitalization; - authorization of the Merger and the transaction agreements by IKOS; - the absence of legal or contractual conflicts resulting from the Merger Agreement; - governmental and regulatory consents, approvals, orders, authorizations, registrations, declarations and filings required to enter into the Merger Agreement or consummate the Merger; - IKOS' filings and reports with the SEC; - IKOS' financial statements; - changes in IKOS' business from March 31, 2001 through July 2, 2001; - absence of undisclosed liabilities; - pending or threatened litigation involving IKOS; - the absence of restrictions on IKOS' business activities; - the possession of and compliance with governmental permits, licenses and other authorizations; - title to the properties owned or leased; - intellectual property used, owned and licensed by IKOS and infringement of intellectual property rights; - compliance with environmental laws; - matters relating to taxes; 8 - matters relating to employee benefit plans; - transactions with interested parties; - matters relating to employees and the effect of the Merger on obligations to employees, directors and officers; - insurance coverage; - compliance with applicable laws; - the vote required of the IKOS stockholders to approve the Merger; - the termination of the Agreement and Plan of Merger and Reorganization dated July 2, 2001 by and among IKOS, Synopsys, Inc. and Oak Merger Corporation (the "Synopsys Agreement"); - the IKOS board of directors' approval of the Merger; - the inapplicability of the Rights Agreement or state anti-takeover control share statutes to the Merger; - brokers' and finders' fees incurred in connection with the Merger; - opinion of IKOS' financial advisor; - certain IKOS customers, supplier and order backlog matters; - the absence of legal or contractual violations or defaults by IKOS; and - agreements or transactions that might diminish the expected economic value to Mentor Graphics of the acquisition of IKOS. The representations made by Mentor Graphics to IKOS cover the following topics as they relate to Mentor Graphics: - valid organization, good standing, qualification, power and authority to conduct the business of Mentor Graphics; - authorization of the Merger by Mentor Graphics; - the absence of legal or contractual conflicts resulting from the Merger Agreement; - governmental and regulatory consents, approvals, orders, authorizations, registrations, declarations and filings required to enter into the Merger Agreement or consummate the Merger; - pending or threatened litigation involving Mentor Graphics; - information supplied by Mentor Graphics in the documents required to be filed by Mentor Graphics with the SEC; - approval of the Merger by the Mentor Graphics board of directors; - brokers' and finders' fees incurred in connection with the Merger; - ownership of IKOS common stock by Mentor Graphics and its subsidiaries; and - no financing condition. 9 For the full text and details of the representations and warranties made by IKOS to Mentor Graphics and by Mentor Graphics to IKOS, see Articles III and IV of the Merger Agreement entitled "Representations and Warranties of Company" and "Representations and Warranties of Mentor Graphics and Merger Sub." Mentor Graphics' representations and warranties in the Merger Agreement are solely for the benefit of IKOS and are not for the benefit, and create no legal rights in favor, of IKOS stockholders or any other person. Likewise, IKOS' representations and warranties in the Merger Agreement are solely for the benefit of Mentor Graphics and are not for the benefit, and create no legal rights in favor, of any other person. In addition, IKOS' representations and warranties speak only as of July 2, 2001 or as of the date of the Merger Agreement or the other dates specified in particular representations and warranties. Mentor Graphics' representations and warranties are as of the date of the Merger Agreement or the other dates specified in particular representations and warranties. Except as set forth in the covenants, agreements and closing conditions in the Merger Agreement, neither party is under an obligation to update or repeat its representations and warranties. Accordingly, stockholders and investors should not rely on the parties' representations and warranties in the Merger Agreement. IKOS' CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER IKOS agreed that until the completion of the Merger, the termination of the Merger Agreement, or unless Mentor Graphics consents in writing, IKOS and its subsidiaries will carry on their respective businesses in the ordinary course in the same manner as previously conducted, pay their respective debts and taxes when due, subject to good faith disputes, pay or perform other material obligations when due and will operate their respective businesses in the ordinary course and consistent with their past practices, and otherwise use their commercially reasonable efforts consistent with past practices to preserve their businesses. IKOS also agreed to promptly notify Mentor Graphics of any material event which could reasonably be expected to have a material adverse effect on IKOS or the occurrence of events outside the usual course of business. IKOS also agreed to customary restrictions for a transaction of this type, including restrictions on entering into new material contracts, transferring intellectual property, incurring debt other than under its existing revolving credit agreement, making acquisitions of business, changing its accounting policies and amending its employee benefit plans, among other things. IKOS' obligations, and the restrictions on IKOS' conduct, between the signing of the Merger Agreement and the closing of the Merger are for the sole benefit of Mentor Graphics, and may be waived by Mentor Graphics without public disclosure, and are not for the benefit, and create no legal rights in favor, of any other person. Stockholders and investors should not rely on IKOS' covenants and agreements in the Merger Agreement and should not assume or infer from those covenants and agreements that IKOS has in fact taken any of the actions required by those covenants and agreements or refrained from taking any of the actions prohibited by those covenants and agreements. CONDITIONS TO THE MERGER The conditions to the Offer are set forth in Section 9 of this Supplement. TERMINATION OF THE MERGER AGREEMENT At any time prior to the completion of the Merger, the Merger Agreement may be terminated and the Merger abandoned: - by mutual consent of the boards of directors of Mentor Graphics and IKOS; - by either Mentor Graphics or IKOS, by written notice to the other party, if: - the closing has not occurred on or before September 14, 2002, 10 - any permanent injunction or other order of a court or other competent authority preventing the consummation of the Merger shall have become final and nonappealable, provided that the terminating party used commercially reasonable efforts to have such injunction or other order lifted; or - any required vote of the stockholders of IKOS shall not have been obtained at a duly held meeting of stockholders or at any adjournment thereof (provided that IKOS shall not have the right to terminate the Merger Agreement where the failure to obtain such stockholder approval shall have been caused by the action or failure to act of IKOS and such action or failure constitutes a breach of the Merger Agreement); provided that if the Merger Agreement is terminated by either Mentor Graphics or IKOS as a result of the IKOS stockholders disapproving the Merger, IKOS may be required to pay a termination fee of up to $3.8 million as described in the section titled "-- Payment of Termination Fees and Expenses"; - by Mentor Graphics, by written notice to IKOS, if: - any of IKOS' representations and warranties in the Merger Agreement would be inaccurate if made as of the time of such notice, or IKOS shall have breached any of its covenants, agreements or obligations in the Merger Agreement; and: - the condition relating to the accuracy of IKOS' representations and warranties and the performance or compliance by IKOS with its covenants, agreements or obligations contained in the Merger Agreement would not be satisfied if such inaccuracy or breach were to remain uncured; and - such inaccuracy or breach, if curable, is not cured within 30 business days after receipt by IKOS of written notice of such inaccuracy or breach; - a trigger event shall have occurred or a takeover proposal shall have been made (each as further explained below) and, in either case, shall not have been absolutely and unconditionally abandoned or withdrawn, and the board of directors of IKOS, if so requested by Mentor Graphics, does not within ten business days of such request: - reconfirm its unanimous recommendation of the approval of the Merger Agreement and the transactions contemplated thereby; and - reject such takeover proposal or trigger event (in the case of a takeover proposal or trigger event involving a tender or exchange offer); - the IKOS board of directors shall have failed to unanimously recommend that IKOS stockholders vote to approve the Merger and adopt the Merger Agreement, or shall have withdrawn or modified that recommendation in a manner adverse to Mentor Graphics or shall have resolved to do any of the foregoing; - the IKOS board of directors shall have recommended, endorsed, approved, accepted or agreed to a takeover proposal, or shall have entered into any letter of intent or similar document or agreement relating to another takeover proposal, or shall have resolved to do any of the foregoing; or - IKOS or any IKOS representative shall have breached IKOS' no-shop obligations relating to other potential takeover proposals. - by IKOS, by written notice to Mentor Graphics, if: - any of Mentor Graphics' representations and warranties in the Merger Agreement would be inaccurate if made as of the time of such notice, or Mentor Graphics shall have breached any of its covenants, agreements or obligations in the Merger Agreement; 11 - the condition relating to the accuracy of Mentor Graphics' representations and warranties and the performance or compliance by Mentor Graphics with its covenants contained in the Merger Agreement would not be satisfied if such inaccuracy or breach were to remain uncured; and - such inaccuracy or breach, if curable, is not cured within 30 business days after receipt by Mentor Graphics of written notice of such inaccuracy or breach. - by IKOS, by written notice to Mentor Graphics, if IKOS has received a takeover proposal constituting a "superior proposal" (as defined below), and: - the board of directors of IKOS has determined that it desires to approve entering into a written agreement providing for such superior proposal and has so notified Mentor Graphics; - five business days have elapsed after Mentor Graphics' receipt of such written notification, and during such five business-day period IKOS has reasonably cooperated with Mentor Graphics with the intent of enabling Mentor Graphics to make an offer that is at least as favorable to the stockholders of IKOS as such superior proposal; - prior to 6:00 p.m. California time on the fifth business day of such five business-day period Mentor Graphics has not made an offer that is at least as favorable to IKOS' stockholders as such superior proposal; - at the end of such five business-day period the board of directors of IKOS reasonably believes that such takeover proposal continues to be a superior proposal; and - IKOS, prior to such termination, pays to Mentor Graphics in immediately available funds the termination fee required to be paid pursuant to the Merger Agreement. If the Merger Agreement is terminated, it will be of no further effect and none of the parties to the Merger Agreement will have any liability or obligations in respect of the Merger Agreement, except for liabilities relating to: - breaches of confidentiality obligations; - obligations to pay expenses and termination fees under the Merger Agreement; and - willful or intentional breaches of representations or warranties and breaches of covenants or agreements set forth in the Merger Agreement. For purposes of the Merger Agreement, a "trigger event" occurs if any person acquires beneficial ownership of securities representing 15% or more of the outstanding shares of any class of capital stock or voting power of IKOS, or commences a tender or exchange offer, open market purchase program or other publicly announced initiative following the successful consummation of which such person or group would beneficially own securities representing 15% or more of the outstanding shares of any class of capital stock or voting power of IKOS. For purposes of the Merger Agreement, a "takeover proposal" means any agreement, offer or proposal, whether written or oral, for: - a merger, reorganization, share exchange, consolidation, or other business combination involving IKOS or any of its subsidiaries which would result in the holders of IKOS' common stock immediately prior to the consummation of such transaction holding less than 85% of the outstanding shares of any class of capital stock or voting power of the surviving, resulting or acquiring entity immediately following the consummation of such transaction; - a tender offer for securities of IKOS, which, if successful, would result in the tender offeror, either alone or as part of a group, holding beneficial ownership of 15% or more of the outstanding shares of 12 any class of capital stock or voting power of IKOS immediately following the consummation of such tender offer; - the acquisition of 15% or more of the outstanding shares of any class of capital stock or voting power of IKOS; or - the acquisition of 15% or more of the assets of IKOS and its subsidiaries (either on the basis of book value or fair market value, calculated in each case on a consolidated basis), other than, in each case, the transactions contemplated by the Merger Agreement. For purposes of payment of termination fees (described below), references to 15% above are increased to 40% and all references to 85% are reduced to 60%. For purposes of the Merger Agreement a "superior proposal" means a takeover proposal that the IKOS board determines in good faith would result in a transaction more favorable to IKOS' stockholders from a financial point of view than the Merger after consulting with its outside financial advisor and after considering all terms and conditions, including the likelihood and timing of consummation. PAYMENT OF TERMINATION FEES AND EXPENSES Whether or not the Merger is consummated, the Merger Agreement provides that each party will bear its own costs and expenses incurred in connection with the Merger Agreement and the Merger, except that the following expenses shall be shared equally by Mentor Graphics and IKOS: - expenses incurred in connection with printing proxy materials and tender offer documents; and - registration and filing fees incurred in connection with proxy materials and tender offer documents. In addition to any expenses otherwise payable, IKOS is required by the Merger Agreement to pay Mentor Graphics a termination fee of up to $3.8 million: - If Mentor Graphics terminates the Merger Agreement under any of the following circumstances, in which case the termination fee is due and payable two business days after termination: - a trigger event has occurred or takeover proposal has been made and, in either case, has not been absolutely and unconditionally abandoned or withdrawn, and the board of directors of IKOS, if requested by Mentor Graphics, does not within ten business days of that occurrence: (A) reconfirm its unanimous recommendation of the approval of the Merger Agreement, the Merger and the transactions contemplated thereby, and (B) reject the takeover proposal or trigger event (in the case of a takeover proposal or trigger event involving a tender or exchange offer); - the IKOS board of directors has failed to unanimously recommend that IKOS' stockholders vote to approve the Merger and adopt the Merger Agreement, or shall have withdrawn or modified its recommendation in a manner adverse to Mentor Graphics, or shall have resolved to do any of the foregoing; - the IKOS board of directors has recommended, endorsed, accepted, approved, or otherwise agreed to a takeover proposal, or shall have resolved to do any of the foregoing; or - there has been a breach of IKOS' no-shop obligations or restrictions. - If IKOS terminates the Merger Agreement under the following circumstances, in which case IKOS is required to pay the termination fee prior to termination of the Merger Agreement: - IKOS has received a takeover proposal constituting a superior proposal; - the board of directors of IKOS has determined that it desires to approve entering into a written agreement providing for such superior proposal and has so notified Mentor Graphics in writing; 13 - five business days have elapsed after Mentor Graphics' receipt of such written notification, and during such five business-day period IKOS has reasonably cooperated with Mentor Graphics with the intent of enabling Mentor Graphics to make an offer that is at least as favorable to the stockholders of IKOS as such superior proposal; - before 6:00 p.m. California time on the fifth business day of such five business-day period Mentor Graphics has not made an offer that is at least as favorable to IKOS' stockholders as such superior proposal; and - at the end of such five business-day period the board of directors of IKOS reasonably believes that such takeover proposal continues to be a superior proposal. The termination fee is either $3.5 million or $3.8 million if either Mentor Graphics or IKOS terminates the Merger Agreement under any of the following circumstances: - the required vote of IKOS stockholders is not obtained at the IKOS stockholders meeting or the closing does not occur on or before September 14, 2002, and - before termination there was a trigger event or a takeover proposal with respect to IKOS; - the takeover proposal or trigger event involved an acquisition of at least 40% of a class of IKOS' stock or voting power or 40% or IKOS' assets; - at the time of termination the takeover proposal or trigger event was not absolutely and unconditionally withdrawn or abandoned by the competing bidder; and - within 12 months after termination a takeover proposal or trigger event involving IKOS is consummated or a letter of intent or preliminary or definitive agreement with respect to a takeover proposal or trigger event is signed by IKOS. The termination fee is $3.8 million if the takeover proposal or trigger event is consummated or the letter of intent, preliminary agreement or definitive agreement is signed with the same party that was responsible for the takeover proposal or trigger event that gave rise to termination; otherwise, the termination fee is $3.5 million. Such termination fee is due upon the earlier of consummation of the trigger event or takeover proposal or execution of a definitive agreement or letter of intent with a third party. The payment of any termination fees will not limit any additional remedies available to Mentor Graphics. "NO-SHOP" PROVISION Until the Merger is completed or the Merger Agreement is terminated, IKOS has agreed not to directly or indirectly take any of the following actions: - solicit, initiate, intentionally encourage or facilitate any takeover proposal; - engage in discussions or negotiations with, or disclose any nonpublic information relating to IKOS or any of its subsidiaries to, or afford access to the properties, books or records of, IKOS or any of its subsidiaries to, any person that has advised IKOS that such person may be considering making a takeover proposal, or that the board of directors or officers of IKOS has reason to believe is seeking to make, or that has made, a takeover proposal; and - endorse, approve or recommend any takeover proposal or enter into any agreement (including any letter of intent, preliminary agreement or similar arrangement) providing for any takeover proposal. In addition, IKOS has agreed to notify its employees of such restrictions and, to direct them to refrain from taking any such actions and that any violation of such directions will be considered grounds for termination. However, these restrictions do not prevent the board of directors of IKOS from taking and disclosing to the IKOS stockholders a position with respect to a tender offer or otherwise complying with their obligations pursuant to Rules 14d-9 and 14e-2 promulgated under the Securities Exchange Act of 1934. 14 The no-shop clause also contains a "fiduciary out." The "fiduciary out" allows IKOS to engage in discussions and negotiations, disclose non-public information, afford access to IKOS' properties, books and records, modify or withdraw its recommendation of the Merger, and approve an agreement for a superior proposal if: - a bona fide unsolicited written takeover proposal by a competing bidder is received by the IKOS board; - the IKOS board determines that the takeover proposal constitutes a superior proposal; - the IKOS board determines in good faith, after consultation with outside legal counsel, that it is necessary in order for IKOS directors to comply with their fiduciary duties to IKOS stockholders under applicable law; - IKOS has notified Mentor Graphics of such determination by the IKOS board and has provided Mentor Graphics with true and complete copies of the takeover proposal received from the competing bidder and the financial assumptions and projections reviewed and relied upon by the IKOS board (including assumptions and projections reviewed and relied upon by the IKOS board) in determining that a takeover proposal constitutes a superior proposal, and in determining that the conditions to completion of the Merger relating to IKOS' financial performance will not be satisfied; - IKOS first provides Mentor Graphics with all documents containing or referring to non-public information of IKOS that are supplied to the competing bidder; - IKOS enters into a nondisclosure agreement with the competing bidder containing terms at least as restrictive on the competing bidder as the terms of IKOS' confidentiality agreement with Mentor Graphics (contained in the Merger Agreement) are on Mentor Graphics; and - before modifying or withdrawing its recommendation, recommending a superior proposal or approving an agreement for a superior proposal, IKOS provides Mentor Graphics at least three business days prior notice. The fiduciary out only allows IKOS to approve entering into a superior proposal agreement and does not allow IKOS to enter into a superior proposal agreement before termination of the Merger Agreement. In addition, IKOS is obligated to immediately notify Mentor Graphics after receipt of any takeover proposal, any inquiry looking toward a takeover proposal, or any request for non-public information relating to IKOS or any of its subsidiaries or for access to the properties, books or records of IKOS or any of its subsidiaries by any person that has made (or that IKOS has reason to believe is considering making), a takeover proposal. IKOS is also required to keep Mentor Graphics fully informed of the status and details of any such proposal, inquiry, or request and shall provide Mentor Graphics with a true and complete copy of such proposal, inquiry, or request and any amendment thereto, if it is in writing, or a written summary of the material terms thereof, if it is not in writing. IKOS also agreed that it would end all existing discussions and negotiations regarding any takeover proposals with anyone other than Mentor Graphics existing as of the date of the Merger Agreement. EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT Subject to Section 251(d) of the Delaware General Corporation Law, the board of directors of either party may amend the Merger Agreement at any time by execution of a written amendment signed on behalf of each of the parties to the Merger Agreement. In addition, at any time prior to the completion of the Merger, either party may, to the extent legally allowed: - extend the other's time for the performance of any of the obligations or other acts under the Merger Agreement; - waive any inaccuracies in the other's representations and warranties; or - waive compliance by the other with any of the agreements or conditions contained in the Merger Agreement. 15 FURTHER ASSURANCES Both IKOS and Mentor Graphics are required to use their respective commercially reasonable efforts to fulfill the conditions to closing of the Merger, to effectuate the transactions contemplated by the Merger Agreement and to provide such documents and do such things as may be reasonably required by the other party for such purposes and to consummate the Merger. EMPLOYMENT AND SEVERANCE ARRANGEMENTS Under the terms of the Merger Agreement, the Company is obligated to use its commercially reasonable efforts to obtain prior to consummation of the Merger the signatures of certain members of IKOS' executive management team to amendments to their existing severance agreements, to be effective upon the closing of the Merger. In addition, under the Merger Agreement, the Company is also obligated to use its commercially reasonable efforts to obtain the signatures of the Chief Operating Officer of IKOS and specified other IKOS employees to employment agreements with Mentor Graphics, to be effective upon the closing of the Merger. BENEFIT PLANS AND PROGRAMS IKOS is required to take all action necessary to terminate, or cause to terminate, before the effective time of the Merger, any IKOS benefit plan that is a 401(k) plan or other defined contribution retirement plan or employee stock purchase plan. On or as soon as practicable following the effective time of the Merger, continuing employees of IKOS and its subsidiaries shall be eligible to participate in those benefit plans and programs maintained for similarly situated employees of Mentor Graphics on the same terms applicable to similarly situated employees of Mentor Graphics and to the extent that such plans and programs provide the benefits such IKOS employees had prior to the Merger. Each continuing employee of IKOS will be given credit, for purposes of any service requirements under Mentor Graphics' plans for his or her period of service with IKOS or any of its subsidiaries. Each continuing employee will, with respect to any Mentor Graphics plans or programs which have co-payment, deductible or other co-insurance features, receive credit for any amounts such individual has paid to date in the plan year of the Merger under comparable plans or programs maintained by IKOS or any of its subsidiaries prior to the Merger. Each continuing employee and eligible dependent who, upon completion of the Merger, was participating in an employee group health plan maintained by IKOS or any of its subsidiaries will not be excluded from Mentor Graphics' employee group health plan or limited in coverage thereunder by reason of any waiting period restriction or pre-existing condition limitation. AMENDMENT TO IKOS STOCKHOLDER RIGHTS AGREEMENT In connection with the Merger Agreement, IKOS has executed an amendment to the Rights Agreement, dated March 12, 2002 pursuant to which neither Mentor nor Purchaser shall be deemed "acquiring persons" (as defined in the Rights Agreement) under the terms of the Rights Agreement by virtue of the approval, execution, delivery or performance of the Merger Agreement and the Offer and pursuant to which the execution, delivery and the performance of the Merger Agreement and the Offer shall not result in a "distribution date" (as defined in the Rights Agreement). OPERATIONS FOLLOWING THE MERGER Upon completion of the Merger, IKOS will become a wholly-owned subsidiary of Mentor and the members of Purchaser's board will be the members of the board of IKOS. The membership of the Mentor board will remain unchanged as a result of the Merger. Following the Merger, the officers of Purchaser will be the officers of IKOS. 16 DIRECTORS AND OFFICERS AND LIABILITY INSURANCE The Merger Agreement provides that for not less than six years after the effective time of the Merger, Mentor Graphics will indemnify and hold harmless the present and former officers, directors, employees and agents of IKOS in respect of acts or omissions occurring on or prior to the effective time of the Merger to the extent provided for under IKOS' certificate of incorporation and bylaws and each indemnification agreement with IKOS directors and officers to which IKOS is a party, in each case in effect on March 12, 2002, as limited from time to time by applicable law. In addition, the Merger Agreement provides that for a period of six years after the completion of the Merger, Mentor Graphics will provide officers' and directors' liability insurance in respect of acts or omissions occurring on or prior to the completion of the Merger covering each person currently covered by IKOS' officers' and directors' liability insurance policy on terms at least as favorable as the coverage currently in effect on March 12, 2002. However, Mentor Graphics shall not be obligated to pay, or to cause the surviving corporation to pay, premiums in excess of 150% of the amount per annum IKOS paid in its last full fiscal year. Moreover, if Mentor Graphics or the surviving corporation is unable to obtain the insurance required by the Merger Agreement it shall obtain as much comparable insurance as possible for an annual premium equal to such maximum amount. 9. Conditions to the Offer. Notwithstanding any other provision of the Offer, we are not required to accept for payment or pay for any Shares, and we may terminate the Offer, if: (1) prior to the Expiration Date, any of the following conditions has not been satisfied: (a) the Company's stockholders validly tender and do not withdraw prior to the Expiration Date the number of Shares (including the associated Rights) representing, together with the Shares owned by Mentor Graphics, at least a majority of the total number of outstanding Shares on a fully diluted basis; (b) (i) the Company shall have breached or failed to perform in all material respects any of its covenants or other obligations under the Merger Agreement, (ii) any of the representations and warranties of the Company contained in the Merger Agreement that are qualified by reference to a Company Material Adverse Effect shall not be true when made or at any time prior to the consummation of the Offer as if made at and as of such time (except for representations and warranties which speak as of a particular date, shall not be true as of such particular date), or (iii) any of the representations and warranties of the Company contained in the Merger Agreement that are not so qualified shall not be true in all material respects when made or at any time prior to the consummation of the Offer as if made at and as of such time (except for representations and warranties which speak as of a particular date, shall not be true as of such particular date); (2) at any time on or after the date of the Offer to Purchase and prior to the Expiration Date, any of the following conditions exists: (a) there shall have been any law or order promulgated, entered, enforced, enacted, issued or deemed applicable to the Offer or the Merger Agreement by any court of competent jurisdiction or other competent governmental or regulatory authority which, directly or indirectly, (1) prohibits, or imposes any material limitations on, Mentor Graphics' ownership or operation (or that of any of their respective subsidiaries or affiliates) of any portion of their or the Company's businesses or assets which is material to the business of all such entities taken as a whole, or compels Mentor Graphics (or its subsidiaries or affiliates) to dispose of or hold separate any portion of their or the Company's business or assets which is material to the business of all such entities taken as a whole, (2) prohibits, restrains or makes or seeks to make illegal the acceptance for payment, payment for or purchase of Shares pursuant to the Offer or the consummation of the Merger Agreement, (3) imposes material limitations on the ability of Mentor Graphics (or any of its subsidiaries or affiliates) effectively to acquire or to hold or to exercise full rights of ownership of the Shares purchased pursuant to the Offer including, without limitation, the right to vote such Shares on all matters properly presented to the Company's stockholders, (4) imposes material limitations on the 17 ability of Mentor Graphics (or any of its subsidiaries or affiliates) effectively to control in any material respect any material portion of the business, assets, liabilities, capitalization, stockholder's equity, condition (financial or otherwise), licenses or franchises or results of operations of the Company and its subsidiaries taken as a whole, (5) seeks to require divestiture by Mentor Graphics or any affiliate of Mentor Graphics of any Share, (6) in the reasonable discretion of Mentor Graphics, imposes or seeks to impose any material condition to the Offer which is unacceptable to Mentor Graphics, (7) in the reasonable discretion of Mentor Graphics, might result in a diminution of the value of the Shares or the benefits expected to be derived by Mentor Graphics as a result of the Offer or the Merger Agreement, (8) restrains or prohibits or seeks to restrain or prohibit the performance of any of the contracts or other arrangements entered into by Mentor Graphics or any of its affiliates in connection with the acquisition of the Company or obtains or seeks to obtain any material damages or otherwise directly or indirectly relates to the Offer, or (9) otherwise materially adversely affects the Company and its subsidiaries or Mentor Graphics or any of its subsidiaries, taken as a whole; (b) there shall be threatened, instituted or pending any action, suit, proceeding, application, claim or counterclaim brought by a governmental or regulatory authority or by any other person, domestic or foreign (whether brought by the Company, an affiliate of the Company, or any other person) (1) challenging or seeking to make illegal the acquisition by Mentor Graphics of Shares or otherwise seeking to restrain, delay or prohibit the making or consummation of the Offer, the Merger Agreement or any other subsequent business transaction with the Company, (2) challenging or seeking to, or which is reasonably likely to, make illegal, materially delay or otherwise directly or indirectly restrain or prohibit or seeking to, or which is reasonably likely to, impose voting, procedural, price or other requirements, including any such requirements under California law, in addition to those required by the federal securities laws and the Delaware General Corporation Law (each as in effect on the date of the Offer to Purchase), in connection with making the Offer, the acceptance for payment of, or payment for, any Shares by Mentor Graphics or any other affiliate of Mentor Graphics of the Merger Agreement or other business combination with the Company, or seeking to obtain material damages in connection therewith, or (3) that could reasonably be expected to result, directly or indirectly, in any of the consequences referred to in clauses (1) through (9) of paragraph (a) above; (c) there shall have occurred (1) any general suspension of trading in, or limitation on prices for, securities on any United States national securities exchange or in the over-the-counter market in excess of one day, (2) any limitation (whether or not mandatory) by any United States governmental or regulatory authority on the extension of credit by banks or other financial institutions, or (3) in the case of any of the foregoing, a material acceleration or worsening thereof; (d) there shall have occurred a Company Material Adverse Effect; (e) the Agreement shall have been terminated in accordance with its terms, or Mentor Graphics and the Company shall have agreed that Mentor Graphics shall amend the Offer, to terminate the Offer or postpone the payment for Shares thereunder; (f) any required approval, permit, authorization or consent of any governmental authority or agency (including under applicable antitrust laws and those described or referred to in the Offer to Purchase) shall not have been obtained on terms satisfactory to Mentor Graphics in its reasonable discretion; or (g) the Company shall have entered into any agreement or transaction with any person or entity who is a competitor of Mentor Graphics having the effect of materially diminishing the expected economic value to Mentor Graphics of the acquisition of the Company, including any agreement by which such a competitor is granted original equipment manufacturing, marketing or other rights; 18 which, in the reasonable judgment of Mentor Graphics, in any such case, and regardless of the circumstances (including any action or inaction by Mentor Graphics or any of its affiliates) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment. The foregoing conditions are for the sole benefit of Mentor and Purchaser and may be asserted by Mentor or Purchaser regardless of the circumstances giving rise to any such condition or may be waived by Mentor or Purchaser in whole or in part at any time and from time to time in their reasonable discretion. The failure by Mentor or Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances; and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. In compliance with the requirements of the Exchange Act, Mentor Graphics has the right to extend the Offer for up to ten business days, if, immediately prior to the scheduled or extended Expiration Date, the Company Common Stock tendered and not withdrawn pursuant to the Offer constitute more than 50% but less than 90% of the outstanding Company Common Stock. Any determination by Mentor or Purchaser concerning the events described in this Section 9 will be final and binding on all parties. 10. Certain Legal Matters; Regulatory Approvals. Antitrust Compliance. On January 15, 2002, the waiting period under the HSR Act expired with respect to the acquisition of Shares pursuant to the Offer and the Merger. Mentor is in the process of collecting information from the Company in order to determine whether prior to consummation of the Offer antitrust or other competition law filings must be made in any other countries. If any such filing is required, waiting periods or similar timing requirements may apply that would require that the Offer be extended beyond the Expiration Date. Appraisal Rights. Holders of Shares do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, holders of Shares will have certain rights pursuant to the provisions of Section 262 of the DGCL to dissent and demand appraisal of their Shares in connection with the Merger. Under Section 262, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, and to receive payment of such fair value in cash, together with a fair rate of interest, if any. Any such judicial determination of the fair value of the Shares could be based upon factors other than, or in addition to, the price per Share to be paid in the Merger or the market value of the Shares. The value so determined could be more or less than the price per Share to be paid in the Merger. The foregoing discussion is not a complete statement of law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL which is set forth in Annex A to this Supplement. Litigation. Upon consummation of the Merger, Mentor Graphics and the Company have agreed to cause the dismissal with prejudice of the litigations currently pending before the Delaware Court of Chancery and the United States District Court for the District of Delaware relating to the Synopsys Agreement and the Offer. 11. Miscellaneous. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. However, Mentor Graphics may, in its discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Shares in such jurisdiction. No person has been authorized to give any information or make any representation on behalf of Purchaser or Mentor not contained in this Supplement, the Offer to Purchase or in the revised (yellow) Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. 19 Mentor Graphics has filed with the SEC a Tender Offer Statement on Schedule TO, together with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer. The Schedule TO and any amendments thereto, including exhibits, may be examined and copies may be obtained from the offices of the SEC in the manner set forth in Section 3 of this Supplement. EXCEPT AS OTHERWISE SET FORTH IN THIS SUPPLEMENT AND IN THE REVISED (YELLOW) LETTER OF TRANSMITTAL, THE TERMS AND CONDITIONS PREVIOUSLY SET FORTH IN THE OFFER TO PURCHASE REMAIN APPLICABLE IN ALL RESPECTS TO THE OFFER, AND THIS SUPPLEMENT SHOULD BE READ IN CONJUNCTION WITH THE OFFER TO PURCHASE. Neither the delivery of this Supplement or the Offer to Purchase nor any purchase pursuant to the Offer shall, under any circumstances, create any implication that there has been no change in the affairs of Mentor, Purchaser, the Company or any of their respective subsidiaries since the date as of which information is furnished or the date of this Supplement. MENTOR GRAPHICS CORPORATION FRESNO CORPORATION March 13, 2002 20 ANNEX A SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW RIGHTS OF APPRAISAL SECTION 262. APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to sec.228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depositary receipt" mean a receipt or other instrument issued by a depositary representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depositary. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to sec.251 (other than a merger effected pursuant to sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or sec.264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depositary receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of sec.251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depositary receipts in respect thereof; b. Shares of stock of any other corporation, or depositary receipts in respect thereof, which shares of stock (or depositary receipts in respect thereof) or depositary receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depositary receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depositary receipts and cash in lieu of fractional shares or fractional depositary receipts described in the foregoing subparagraphs a., b., and c. of this paragraph. A-1 (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under sec.253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of such stockholder's shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to sec.228 or sec.253 of this title, each constituent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, A-2 that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who was complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw such stockholder's demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder's written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section. A-3 (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. A-4 SUPPLEMENT TO OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF IKOS SYSTEMS, INC. AT $11.00 NET PER SHARE BY FRESNO CORPORATION A WHOLLY-OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION The revised (yellow) Letter of Transmittal and certificates for Shares and any other required documents should be sent to the Depositary at one of the addresses set forth below: The Depositary for the Offer is: [WILMINGTON TRUST LOGO] By Mail: By Hand/Overnight Courier: CT Reorg. Svcs., Drop Code 1615 Wilmington Trust Company Wilmington Trust Company Rodney Square North P.O. Box 8861 1100 North Market Street Wilmington, Delaware 19899-8861 Wilmington, Delaware 19890-1615 Attn: Corporate Trust Reorg. Svcs.
By Facsimile: (302) 636-4145 Confirm by Telephone: (302) 636-6518 If you have questions or need additional copies of the Supplement, the Offer to Purchase and the revised (yellow) Letter of Transmittal, you can call the Information Agent at its address and telephone number set forth below. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: [MACKENZIE LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) E-mail: proxy@mackenziepartners.com or Call Toll Free (800) 322-2885 EX-99.(A)(1)(L) 4 f77751b7ex99-a1l.txt EXHIBIT 99.(A)(1)(L) EXHIBIT 99.(a)(1)(L) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF IKOS SYSTEMS, INC. AT $11.00 NET PER SHARE BY FRESNO CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION THE EXPIRATION DATE OF THE OFFER HAS BEEN EXTENDED SUCH THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, MARCH 26, 2002, UNLESS THE OFFER IS FURTHER EXTENDED. THE DEPOSITARY FOR THE OFFER IS: [WILMINGTON TRUST LOGO] By Mail: By Hand/Overnight Courier: CT Reorg. Svcs., Drop Code 1615 Wilmington Trust Company Wilmington Trust Company Rodney Square North P.O. Box 8861 1100 North Market Street Wilmington, Delaware 19899-8861 Wilmington, Delaware 19890-1615 Attn: Corporate Trust Reorg. Svcs.
By Facsimile: (302) 636-4145 Confirm by Telephone: (302) 636-6518 DELIVERY OF THIS REVISED LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS REVISED LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS REVISED LETTER OF TRANSMITTAL IS COMPLETED. This revised Letter of Transmittal or the original (blue) Letter of Transmittal previously circulated is to be used if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase dated December 7, 2001 (the "Offer to Purchase")) is utilized, if delivery of Shares and associated Rights (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Offer -- Procedure for Tendering Shares and Rights" of the Offer to Purchase. Holders of outstanding shares of common stock, par value $0.01 per share (the "Common Stock"), of IKOS Systems, Inc. (the "Company"), including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Amended and Restated Rights Agreement, dated January 22, 1999, as amended (the "Rights Agreement") between the Company and Bank Boston, N.A. (the Common Stock and the Rights together are referred to herein as the "Shares"), whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary on or prior to the Expiration Date (as defined in the Supplement dated March 13, 2002 to the Offer to Purchase (the "Supplement")), or who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedure set forth in "The Offer -- Procedure for Tendering Shares and Rights -- Guaranteed Delivery" of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The Company has amended the Rights Agreement to provide that neither Mentor Graphics Corporation nor any of Mentor Graphics' "affiliates" or "associates," including Fresno Corporation, will be deemed an Acquiring Person, that the Distribution Date will not be deemed to occur and that the Rights will not separate from the Shares as a result of the entering into the Merger Agreement (as defined in the Supplement), the commencement of the Offer or the consummation of the Merger (as defined in the Supplement).
- ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARES TENDERED (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) (ATTACH ADDITIONAL LIST IF NECESSARY) AND SHARES TENDERED APPEAR(S) ON SHARE CERTIFICATE(S)) - ------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF SHARES NUMBER CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ Total Shares - ------------------------------------------------------------------------------------------------------------------------ * Need not be completed by stockholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares represented by any certificates delivered to the Depositary are being tendered. See Instruction 4. - ------------------------------------------------------------------------------------------------------------------------
LOST CERTIFICATES [ ] I HAVE LOST MY CERTIFICATE(S) THAT REPRESENTED ________ SHARES AND REQUIRE ASSISTANCE IN OBTAINING A REPLACEMENT CERTIFICATE(S). I UNDERSTAND THAT I MUST CONTACT THE DEPOSITARY AND/OR THE COMPANY TO OBTAIN INSTRUCTIONS FOR REPLACING LOST CERTIFICATES. SEE INSTRUCTION 9. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY. [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution - -------------------------------------------------------------------------------- Account Number - -------------------------------------------------------------------------------- Transaction Code Number - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Tendering Stockholder(s) - -------------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery - ------------------------------------------------------------------------ Name of Institution which Guaranteed Delivery - ----------------------------------------------------------------------------- If delivery is by book-entry transfer: Name of Tendering Institution - -------------------------------------------------------------------------------- Account Number - -------------------------------------------------------------------------------- Transaction Code Number - -------------------------------------------------------------------------------- 2 Ladies and Gentlemen: The undersigned hereby tenders to Fresno Corporation ("Purchaser"), a Delaware corporation and a wholly-owned subsidiary of Mentor Graphics Corporation, an Oregon corporation, the above-described shares of common stock, par value $0.01 per share ("Common Stock") of IKOS Systems, Inc., a Delaware corporation (the "Company"), including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Amended and Restated Rights Agreement, dated January 22, 1999, as amended (the "Rights Agreement") between the Company and Bank Boston, N.A. (the Common Stock and the Rights together referred to herein as the "Shares") pursuant to Purchaser's offer to purchase all of the outstanding Shares at $11.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 7, 2001 (the "Offer to Purchase"), as amended and supplemented by the Supplement dated March 13, 2002 (the "Supplement"), receipt of which is hereby acknowledged, and in this revised Letter of Transmittal (which together, as each may be amended or supplemented from time to time, constitute the "Offer"). We reserve the right to transfer or assign, in whole or from time to time in part, to one or more of our affiliates the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve us of our obligations under the Offer or prejudice your rights to receive payment for Shares validly tendered and accepted for payment. Upon the terms and subject to the conditions of the Offer and effective upon acceptance for payment of and payment for the Shares and associated Rights tendered herewith, the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or Rights or other securities issued or issuable in respect thereof on or after the date hereof (collectively, the "Distributions")) and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any Distributions), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver certificates for such Shares (and any Distributions), or transfer ownership of such Shares (and any Distributions) on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of Purchaser, (ii) present such Shares (and any Distributions) for transfer on the books of the Company and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any Distributions), all in accordance with the terms and conditions of the Offer. The undersigned hereby irrevocably appoints Walden C. Rhines and Gregory K. Hinckley, individually, as the attorneys and proxies of the undersigned, each with full power of substitution, to exercise all voting and other rights of the undersigned in such manner as each such attorney and proxy or his substitute shall in his sole discretion deem proper, with respect to all of the Shares tendered hereby which have been accepted for payment by Purchaser prior to the time of any vote or other action (and any associated Distributions), at any meeting of stockholders of the Company (whether annual or special and whether or not an adjourned meeting), by written consent or otherwise. This proxy is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by Purchaser in accordance with the terms of the Offer. Such acceptance for payment shall revoke any other proxy or written consent granted by the undersigned at any time with respect to such Shares (and any associated Distributions), and no subsequent proxies will be given or written consents will be executed by the undersigned (and if given or executed, will not be deemed to be effective). The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby (and any Distributions) and that when the same are accepted for payment by Purchaser, Purchaser will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and any Distributions). All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. 3 The undersigned understands that tenders of Shares pursuant to any one of the procedures described in "The Offer -- Procedure for Tendering Shares and Rights" of the Offer to Purchase, as amended and supplemented by the Supplement and the instructions hereto will constitute an agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, Purchaser may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the purchase price of any Share Certificates purchased, and return any Shares not tendered or not purchased, in the name(s) of the undersigned (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility). Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of any Share Certificates purchased and any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the purchase price of any Share Certificates purchased and return any Shares and Rights not tendered or not purchased in the name(s) of, and mail said check and any certificates to, the person(s) so indicated. The undersigned recognizes that Purchaser has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if Purchaser does not accept for payment any of the Shares so tendered. 4 ------------------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 6 AND 7) To be completed ONLY if the check for the purchase price of Share Certificates purchased (less the amount of any federal income and backup withholding tax required to be withheld) or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Mail: [ ] check [ ] certificates to: Name: ---------------------------------------------------- (PLEASE PRINT) Address: -------------------------------------------------- ------------------------------------------------------------ ZIP CODE ------------------------------------------------------------ (TAXPAYER IDENTIFICATION NO.) ------------------------------------------------------------ ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 6 AND 7) To be completed ONLY if the check for the purchase price of Share Certificates purchased (less the amount of any federal income and backup withholding tax required to be withheld) or certificates for Shares not tendered or not purchased are to be mailed to someone other than the undersigned or to the undersigned at an address other than that shown below the undersigned's signature(s). Mail: [ ] check [ ] certificates to: Name: ---------------------------------------------------- (PLEASE PRINT) Address: -------------------------------------------------- ------------------------------------------------------------ ZIP CODE ------------------------------------------------------------ (TAXPAYER IDENTIFICATION NO.) ------------------------------------------------------------ 5 SIGN HERE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (SIGNATURE(S) OF OWNERS) Dated - --------------------------- Name(s) ------------------------------------------------------------------------ (PLEASE PRINT) Capacity (full title) ----------------------------------------------------------------- Address------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number ----------------------------------------------------- (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share Certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5.) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature ---------------------------------------------------------------- Name -------------------------------------------------------------------------- Title--------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Name of Firm --------------------------------------------------------------------- Address------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number ----------------------------------------------------- Dated - --------------------------- FOR USE BY FINANCIAL INSTITUTIONS ONLY FINANCIAL INSTITUTIONS: PLACE MEDALLION GUARANTEE IN SPACE ABOVE 6 - -------------------------------------------------------------------------------- PAYER'S NAME: WILMINGTON TRUST COMPANY - --------------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND FORM W-9 CERTIFY BY SIGNING AND DATING BELOW ------------------------------ DEPARTMENT OF THE TREASURY Social Security Number INTERNAL REVENUE SERVICE OR PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION ------------------------------ NUMBER (TIN) AND Employer Identification CERTIFICATION Number(s) --------------------------------------------------------------------------------------------- PART 2 -- FOR PAYEES EXEMPT FROM BACKUP WITH-HOLDING (See Page 2 of enclosed Guidelines) ----------------------------------------------------------- PART 3 -- Certification Under Penalties of Perjury, I certify that: (1) The number shown on this form is my current taxpayer identification number (or I am waiting for a number to be issued to me) and PART 4 -- Awaiting TIN [ ] (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. --------------------------------------------------------------------------------------------- CERTIFICATION INSTRUCTIONS -- You must cross out item (2) in Part 3 above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you are subject to backup withholding you receive another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). SIGNATURE ---------------------------------------- DATE-------------------------------- NAME------------------------------------------------------------------------------------ ADDRESS-------------------------------------------------------------------------------- CITY------------------------------- STATE---------- ZIP CODE--------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECK THE BOX IN PART 4 OF SUBSTITUTE FORM W-9 PAYER'S NAME: WILMINGTON TRUST COMPANY - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, a portion of all reportable payments made to me thereafter will be withheld until I provide such a number. Signature ----------------------------------- Date ------------ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF A PORTION OF ANY PAYMENT MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signatures. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) that is a member of a recognized Medallion Program approved by The Securities Transfer Association, Inc. or any other "eligible guarantor institution" (as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended) (each an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (i) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) have not completed the instruction entitled "Special Payment Instructions" on this Letter of Transmittal or (ii) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. Delivery of Letter of Transmittal and Shares. This revised (yellow) Letter of Transmittal or the original (blue) Letter of Transmittal is to be used if Share Certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if deliveries are to be made by book-entry transfer pursuant to the procedures set forth in "The Offer -- Procedure for Tendering Shares and Rights" of the Offer to Purchase. Share Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) and any other documents required by this Letter of Transmittal, or an Agent's Message in the case of a book-entry transfer, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal by the Expiration Date (as defined in the Supplement). Stockholders whose Share Certificates are not immediately available, who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis, may tender their Shares pursuant to the guaranteed delivery procedure described in Section 4 of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser, must be received by the Depositary prior to the Expiration Date; and (c) Share Certificates for all tendered Shares, in proper form for tender, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq National Market trading days of the date of execution of such Notice of Guaranteed Delivery. The Company has amended the Rights Agreement to provide that neither Mentor Graphics nor any of Mentor Graphics' "affiliates" or "associates," including Purchaser, will be deemed an Acquiring Person, that the Distribution Date will not be deemed to occur and that the Rights will not separate from the Shares as a result of the entering into the Merger Agreement, the commencement of the Offer or the consummation of the Merger. The method of delivery of Shares and all other required documents is at the option and risk of the tendering stockholder. If certificates for Shares are sent by mail, registered mail with return receipt requested, properly insured, is recommended. No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased. By executing this Letter of Transmittal, the tendering stockholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. Inadequate Space. If the space provided herein is inadequate, the Share Certificate numbers, the number of Shares evidenced by such Share Certificates and the number of Shares tendered should be listed on a separate signed schedule and attached hereto. 8 4. Partial Tenders (not applicable to stockholders who tender by book-entry transfer). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the appropriate box on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be made, or Shares not tendered or not purchased are to be returned, in the name of any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Purchaser of the authority of such person so to act must be submitted. 6. Stock Transfer Taxes. Purchaser will pay any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be returned in the name of, any person other than the registered holder(s), or if a transfer tax is imposed for any reason other than the sale or transfer of Shares to Purchaser pursuant to the Offer, then the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted herewith. 7. Special Payment and Delivery Instructions. If the check for the purchase price of any Shares purchased is to be issued, or any Shares not tendered or not purchased are to be returned, in the name of a person other than the person(s) signing this Letter of Transmittal or if the check or any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer may request that Shares not purchased be credited to such account at the Book-Entry Transfer Facility as such stockholder may designate under "Special Payment Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated above. 9 8. Substitute Form W-9. Under the federal income tax laws, the Depositary will be required to withhold a portion of the amount of any payments made to certain stockholders pursuant to the Offer. In order to avoid such backup withholding, each tendering stockholder, and, if applicable, each other payee, must provide the Depositary with such stockholder's or payee's correct taxpayer identification number and certify that such stockholder or payee is not subject to such backup withholding by completing the Substitute Form W-9. In general, if a stockholder or payee is an individual, the taxpayer identification number is the Social Security number of such individual. If the Depositary is not provided with the correct taxpayer identification number, the stockholder or payee may be subject to a $50 penalty imposed by the Internal Revenue Service. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Shares are held in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Certain stockholders or payees (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order to satisfy the Depositary that a foreign individual qualifies as an exempt recipient, such stockholder or payee must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status, on a properly completed Form W-8BEN, or successor form. Such statements can be obtained from the Depositary. Failure to complete the Substitute Form W-9 will not, by itself, cause Shares to be deemed invalidly tendered, but may require the Depositary to withhold a portion of the amount of any payments made pursuant to the Offer. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is furnished to the Internal Revenue Service. NOTE: FAILURE TO COMPLETE AND RETURN THE SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF A PORTION OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 9. Mutilated, Lost, Stolen or Destroyed Certificates. Any holder of a certificate(s) which represented Shares whose certificate(s) has been mutilated, lost, stolen, or destroyed should (i) complete this Letter of Transmittal and check the appropriate box above and (ii) contact the Depositary immediately by calling (302) 636-6518. The Depositary will provide such holder will all necessary forms and instructions to replace any mutilated, lost, stolen or destroyed certificates. The holder may also be required to give the Company a bond as indemnity against any claim that may be made against it with respect to the certificate(s) alleged to have been mutilated, lost, stolen, or destroyed. However, there can be no assurances that such mutilated, lost, stolen or destroyed certificates will be replaced prior to the expiration date of the Offer. 10. Waiver of Conditions. The Conditions of the Offer may be waived, in whole or in part, by Purchaser, in its sole discretion, at any time and from time to time, in the case of any shares tendered. 11. Requests for Assistance or Additional Copies. Requests for assistance or additional copies of the Supplement, the Offer to Purchase and this Letter of Transmittal may be obtained from the Information Agent at its address or telephone number set forth on the back cover of this Letter of Transmittal. IMPORTANT: THIS REVISED (YELLOW) LETTER OF TRANSMITTAL OR AN ORIGINAL (BLUE) LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE THEREOF (TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE. 10 - ---------------------------------------------------------------------------------------------------------------------- (DO NOT WRITE IN THE SPACES BELOW) Date Received --------------- Accepted by --------------- Checked by --------------- ------------------------------------------------------------------------------------------------------------ SHARES SHARES SHARES CHECK AMOUNT SHARES CERTIFICATE BLOCK SURRENDERED TENDERED ACCEPTED NO. OF CHECK RETURNED NO. NO. ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ---- ---- ---- Gr ---- ---- ---- ---- ---- ---- Net ---- ---- ---- Delivery Prepared By --------------- Checked By --------------- Date --------------- - ----------------------------------------------------------------------------------------------------------------------
Any questions and requests for assistance may be directed to the Information Agent at its telephone numbers and location listed below. Additional copies of the Supplement, the Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent at its address and telephone numbers set forth below. Holders of Shares may also contact their broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: [MACKENZIE LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) E-mail: proxy@mackenziepartners.com or Call Toll-Free (800) 322-2885 11 EX-99.(A)(1)(M) 5 f77751b7ex99-a1m.txt EXHIBIT 99.(A)(1)(M) EXHIBIT 99.(a)(1)(M) NOTICE OF GUARANTEED DELIVERY TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF IKOS SYSTEMS, INC. AT $11.00 NET PER SHARE BY FRESNO CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, MARCH 26, 2002, UNLESS THE OFFER IS EXTENDED. This form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if certificates evidencing shares of common stock, par value $0.01 per share (the "Common Stock"), of IKOS Systems, Inc., a Delaware corporation (the "Company"), including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Amended and Restated Rights Agreement dated January 22, 1999, as amended (the "Rights Agreement"), between the Company and Bank Boston, N.A. (the Common Stock and the Rights together are referred to herein as the "Shares"), are not immediately available, or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach Wilmington Trust Company (the "Depositary") on or prior to the Expiration Date (as defined in the Offer to Purchase dated December 7, 2001 (the "Offer to Purchase"), as amended and supplemented by a Supplement thereto dated March 13, 2002). This Notice of Guaranteed Delivery may be delivered by hand or facsimile transmission or mail to the Depositary. See "The Offer -- Procedures for Tendering Shares and Rights" of the Offer to Purchase. THE DEPOSITARY FOR THE OFFER IS: WILMINGTON TRUST COMPANY [WILMINGTON TRUST LOGO] By Mail: By Hand/Overnight Courier: CT Reorg. Svcs., Drop Code 1615 Wilmington Trust Company Wilmington Trust Company Rodney Square North P.O. Box 8861 1100 North Market Street Wilmington, Delaware 19899-8861 Wilmington, Delaware 19890-1615 Attn: Corporate Trust Reorg. Svcs.
By Facsimile: (302) 636-4145 Confirm by Telephone: (302) 636-6518 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS LISTED ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "eligible guarantor institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to Fresno Corporation ("Purchaser"), a Delaware corporation and a wholly-owned subsidiary of Mentor Graphics Corporation, an Oregon corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 7, 2001 (the "Offer to Purchase"), as amended and supplemented by a Supplement thereto dated March 13, 2002, and the related revised (yellow) Letter of Transmittal (which together, as each may be amended, supplemented or otherwise modified from time to time, constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares specified below pursuant to the guaranteed delivery procedure set forth in "The Offer -- Procedures for Tendering Shares and Rights" of the Offer to Purchase.
--------------------------------------------- - --------------------------------------------- SIGN HERE - --------------------------------------------- --------------------------------------------- Certificate Numbers (if available) Signature - --------------------------------------------- --------------------------------------------- [ ] Check here if Shares will be tendered (Name(s)) (Please Print) Name of by book-entry transfer Tendering Institution - --------------------------------------------- --------------------------------------------- Number of Shares tendered Address - --------------------------------------------- --------------------------------------------- Account Number (Zip Code) --------------------------------------------- (Area Code and Telephone Number) - --------------------------------------------- ---------------------------------------------
2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of a recognized Medallion Program approved by the Securities Transfer Association, Inc. or any other "eligible guarantor institution" (as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended), guarantees (a) that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, (b) that such tender of Shares complies with Rule 14e-4 and (c) to deliver to the Depositary of the Shares tendered hereby, in proper form of transfer, or a Book- Entry Confirmation (as defined in the Offer to Purchase), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents within three Nasdaq National Market trading days of the date hereof. - -------------------------------------------------------------------------------- (NAME OF FIRM) - -------------------------------------------------------------------------------- (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- (NAME) - -------------------------------------------------------------------------------- (ADDRESS) - -------------------------------------------------------------------------------- (ZIP CODE) - -------------------------------------------------------------------------------- (AREA CODE AND TELEPHONE NUMBER) DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE OF GUARANTEED DELIVERY. SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. Dated: - ------------------------------------------------- 3 EX-99.(A)(1)(N) 6 f77751b7ex99-a1n.txt EXHIBIT 99.(A)(1)(N) EXHIBIT 99.(a)(1)(N) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF IKOS SYSTEMS, INC. AT $11.00 NET PER SHARE BY FRESNO CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, MARCH 26, 2002, UNLESS THE OFFER IS EXTENDED. March 13, 2002 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: This letter relates to the offer being made by Mentor Graphics Corporation, an Oregon corporation ("Mentor"), through Fresno Corporation, a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of Mentor, to purchase all of the issued and outstanding common stock, par value $0.01 per share (the "Common Stock"), of IKOS Systems, Inc., a Delaware corporation (the "Company"), including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Amended and Restated Rights Agreement, dated January 22, 1999, as amended (the "Rights Agreement"), between the Company and Bank Boston, N.A. (the Common Stock and the Rights together are referred to herein as the "Shares"), at a price of $11.00 per Share net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in Purchaser's Offer to Purchase dated December 7, 2001 (the "Offer to Purchase"), as amended and supplemented by a Supplement thereto dated March 13, 2002, and the related revised (yellow) Letter of Transmittal (which together, as each may be amended, supplemented or otherwise modified from time to time, constitute the "Offer"). The Company has amended the Rights Agreement to provide that neither Mentor Graphics nor any of Mentor Graphics' "affiliates" or "associates," including Purchaser, will be deemed an Acquiring Person, that the Distribution Date will not be deemed to occur and that the Rights will not separate from the Shares as a result of the entering into the Merger Agreement, the commencement of the Offer or the consummation of the Merger. For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Supplement to Offer to Purchase dated March 13, 2002 (the "Supplement"); 2. Revised (yellow) Letter of Transmittal for your use and for the information of your clients (including Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding); 3. Revised (gray) Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents cannot be delivered to Wilmington Trust Company ("the Depositary") by the Expiration Date (as defined in the Supplement); 4. A form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; and 5. Return envelope addressed to the Depositary. THIS OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED PRIOR TO THE EXPIRATION OF THE OFFER AND NOT WITHDRAWN A NUMBER OF SHARES WHICH, TOGETHER WITH THE SHARES BENEFICIALLY OWNED BY PURCHASER AND ITS AFFILIATES, WILL CONSTITUTE AT LEAST A MAJORITY OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS AS OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS DESCRIBED IN SECTION 9 OF THE SUPPLEMENT. THE OFFER IS NOT CONDITIONED UPON MENTOR OR PURCHASER OBTAINING FINANCING. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, MARCH 26, 2002, UNLESS THE OFFER IS EXTENDED. Purchaser will not pay any fees or commissions to any broker or dealer or other person (other than the Information Agent or the Depositary as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. Purchaser will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. Purchaser will pay all stock transfer taxes applicable to its purchase of Shares and Rights pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal. In order to accept the Offer, a duly executed and properly completed revised (yellow) Letter of Transmittal or original (blue) Letter of Transmittal and any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry delivery of Shares, and any other required documents, should be sent to the Depositary by 12:00 Midnight, New York City time, on Tuesday, March 26, 2002. Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed materials may be obtained from, the Information Agent or the Depositary at the addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Very truly yours, MENTOR GRAPHICS CORPORATION FRESNO CORPORATION NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU AS THE AGENT OF PURCHASER, MENTOR, THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.(A)(1)(O) 7 f77751b7ex99-a1o.txt EXHIBIT 99.(A)(1)(O) EXHIBIT (a)(1)(O) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF IKOS SYSTEMS, INC. AT $11.00 NET PER SHARE BY FRESNO CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, MARCH 26, 2002, UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration is a Supplement dated March 13, 2002 (the "Supplement") to the Offer to Purchase dated December 7, 2001 (the "Offer to Purchase") and the related revised (yellow) Letter of Transmittal (which together, as each may be amended, supplemented or otherwise modified from time to time constitute the "Offer") in connection with the offer by Mentor Graphics Corporation, an Oregon corporation ("Mentor"), through Fresno Corporation, a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of Mentor, to purchase for cash all of the shares of common stock, par value $0.01 per share (the "Common Stock"), of IKOS Systems, Inc., a Delaware corporation (the "Company"), including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Amended and Restated Rights Agreement dated January 22, 1999, as amended (the "Rights Agreement"), between the Company and Bank Boston, N.A. (the Common Stock and the Rights together are referred to herein as the "Shares"). The Company has amended the Rights Agreement to provide that neither Mentor nor any of Mentor's "affiliates" or "associates," including Purchaser, will be deemed an Acquiring Person, that the Distribution Date will not be deemed to occur and that the Rights will not separate from the Shares as a result of the entering into the Merger Agreement, the commencement of the Offer or the consummation of the Merger. We are the holder of record of Shares held for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase and the Letter of Transmittal. Your attention is invited to the following: 1. The tender price is $11.00 per Share, net to you in cash. 2. The Offer is being made for all of the outstanding Shares. 3. The Offer is conditioned upon, among other things, there being validly tendered prior to the expiration of the Offer a number of Shares which, together with the Shares beneficially owned by Purchaser and its affiliates, will constitute at least a majority of the outstanding Shares on a fully diluted basis as of the date the Shares are accepted for payment pursuant to the Offer. The Offer is also subject to certain other conditions described in Section 9 of the Supplement. The Offer is not conditioned upon Mentor or Purchaser obtaining financing. 4. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, MARCH 26, 2002, UNLESS THE OFFER IS EXTENDED. 5. Any stock transfer taxes applicable to a sale of Shares to the Purchaser will be borne by Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form on the detachable part hereof. An envelope to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise specified on the detachable part hereof. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf by the expiration of the Offer. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. Payment for Shares purchased pursuant to the Offer will in all cases be made only after timely receipt by Wilmington Trust Company (the "Depositary") of (a) certificates representing the Shares tendered or timely confirmation of the book-entry transfer of such Shares into the account maintained by the Depositary at The Depository Trust Company (the "Book-Entry Transfer Facility"), pursuant to the procedures set forth in Section 4 of the Offer to Purchase, (b) the revised (yellow) or original (blue) Letter of Transmittal, properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase), in connection with a book-entry delivery, and (c) any other documents required by the Letter of Transmittal. Accordingly, payment may not be made to all tendering stockholders at the same time depending upon when certificates for or confirmations of book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility are actually received by the Depositary. 2 INSTRUCTIONS WITH RESPECT TO OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF IKOS SYSTEMS, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated December 7, 2001 (the "Offer to Purchase"), as amended and supplemented by a Supplement thereto dated March 13, 2002 (the "Supplement") and the related revised (yellow) Letter of Transmittal, in connection with the offer by Mentor through Purchaser to purchase all of the shares of common stock, $0.01 par value per share (the "Common Stock"), of IKOS Systems, Inc. (the "Company"), including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Amended and Restated Rights Agreement, dated January 22, 1999, as amended (the "Rights Agreement"), between the Company and Bank Boston, N.A. (the Common Stock and the Rights together are referred to herein as the "Shares"). This will instruct you to tender the number of Shares indicated below held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal.
- --------------------------------------------- --------------------------------------------- Number of Shares to be Tendered: SIGN HERE --------------------------------------------- - --------------------------------------- Shares* --------------------------------------------- Signature(s) Dated --------------------------------------------- ----------------------------------------- Please type or print name(s) --------------------------------------------- Please type or print address --------------------------------------------- Area Code and Telephone Number --------------------------------------------- Taxpayer Identification or Social Security Number - --------------------------------------------- ---------------------------------------------
* Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. EX-99.(A)(1)(P) 8 f77751b7ex99-a1p.txt EXHIBIT 99.(A)(1)(P) EXHIBIT (a)(1)(P) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security Numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer Identification Numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer.
- -------------------------------------------------------- GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - -------------------------------------------------------- 1. An individual's The individual account 2. Two or more The actual owner of the individuals (joint account or, if combined account) funds, any one of the individuals(1) 3. Husband and wife The actual owner of the (joint account) account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the minor account) is the only contributor, the minor(1) 6. Account in the name of The ward, minor, or guardian or committee incompetent person(3) for a designated ward, minor, or incompetent person 7. a. The usual revocable The grantor-trustee(1) savings trust account (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under State law - --------------------------------------------------------
- -------------------------------------------------------- GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - -------------------------------------------------------- 8. Sole proprietorship The Owner(4) account 9. A valid trust, estate The legal entity (Do not or pension trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title)(5) 10. Corporate account The corporation 11. Religious, charitable, The organization or educational organization account 12. Partnership account The partnership held in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - --------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) You must show your individual name, but you may also enter your business or "doing business" name. You may use either your Social Security Number or Employer Identification Number. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you do not have a taxpayer identification number or if you do not know your number, obtain Form SS-5, Application for Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. Payees specifically exempted from backup withholding on ALL payments by brokers include the following: - A corporation. - A financial institution. - An organization exempt from a tax under Section 501(a), or an individual retirement plan or a custodial account under Section 403(b)(7) if the account satisfies the requirements of Section 401(F)(2). - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under Section 584(a). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. - A futures commission merchant registered with the Commodity Futures Trading Commission. - A person registered under the Investment Advisors Act of 1940 who regularly acts as a broker. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under Section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under Section 852). - Payments described in Section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under Section 1451. - Payments made by certain foreign corporations. - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, CHECK "EXEMPT" IN PART 2 OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Certain payments other than interest, dividends, and patronage dividends, which are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under Section 6041, 6041(A)(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1993, payers must generally withhold a portion of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(5)(O) 9 f77751b7ex99-a5o.txt EXHIBIT (A)(5)(0) Exhibit (a)(5)(O) FOR IMMEDIATE RELEASE MENTOR GRAPHICS AND IKOS SYSTEMS SIGN MERGER AGREEMENT IKOS ACQUISITION STRENGTHENS MENTOR'S EMULATION PRODUCT LINE AND ENHANCES SALES AND SERVICE CAPABILITIES WILSONVILLE, OR - March 12, 2002 - Mentor Graphics Corporation (Nasdaq: MENT) and IKOS Systems, Inc. (Nasdaq: IKOS) today announced that they have signed a definitive agreement calling for Mentor Graphics to acquire all outstanding shares of IKOS Systems for $11.00 in cash per share of IKOS common stock. The transaction follows IKOS and Synopsys, Inc. entering into an agreement effective March 12, 2002 terminating the prior merger agreement between IKOS and Synopsys. The IKOS Board has unanimously approved the Mentor tender offer and merger and unanimously recommends that IKOS stockholders tender their shares in the offer. Following completion of the tender offer, the merger agreement provides for Mentor to consummate a second-step merger in which those shares not tendered will be converted into the right to receive $11.00 per share in cash. Closing of the tender offer is conditioned on shares being tendered which, together with shares held by Mentor, constitute more than 50% of the fully-diluted common stock of IKOS. If 90% of the outstanding shares are held by Mentor following completion - more - - 2 - of the tender offer, the second-step merger can be completed without a vote or meeting of IKOS' stockholders. "IKOS' emulation product line and patented technology substantially strengthen our existing emulation business and provide us with a product that we can sell in the United States immediately after the transaction is consummated," said Walden C. Rhines, Chairman and Chief Executive Officer of Mentor Graphics. "Mentor Graphics will now offer customers a broader range of emulation products and price points. IKOS also brings us a proven North American emulation sales and service infrastructure, which we expect to leverage across our entire product line." "We're delighted to combine IKOS Systems with our own emulation business and, together, build the best verification company in the industry," said Eric Selosse, General Manager of Mentor Graphics' emulation division in France to which IKOS will report. "This is an exciting opportunity for Mentor to leverage IKOS' skills and technology and extend our verification solutions into the important North American market." "I am excited about the opportunity to team up with a company that shares the vision that emulation is essential in the future of design verification of complex electronic designs," said Ramon Nunez, President and Chief Executive Officer of IKOS Systems, Inc. "IKOS' Board carefully considered all alternatives for the company and determined that Mentor's offer represents the best value for the IKOS stockholders. The purchase price represents a 49.5% premium over the closing price of IKOS stock on June 29, 2001, the last trading day before the terminated merger agreement with Synopsys was announced. I look forward to working with Mentor's management team to ensure a smooth integration of our two companies for customers, vendors and employees." - more - - 3 - ABOUT IKOS SYSTEMS IKOS Systems, Inc. (Nasdaq: IKOS) is a technology leader in high-performance, hardware assisted design verification. IKOS' mission is to develop and deliver high-performance solutions that enable its customers to verify the functional correctness of their complex electronic system designs. IKOS has direct sales operations in North America, the U.K., France, Germany, The Netherlands, Japan, and India, and a distribution network throughout Asia-Pacific. The corporate headquarters is located at 79 Great Oaks Blvd., San Jose, Calif., 95119, (408) 284-0400. For more information, visit http://www.ikos.com. ABOUT MENTOR GRAPHICS Mentor Graphics Corporation (Nasdaq: MENT) is a world leader in electronic hardware and software design solutions, providing products, consulting services and award-winning support for the world's most successful electronics and semiconductor companies. Established in 1981, Mentor Graphics reported revenues over the last 12 months of more than $600 million and employs approximately 3,000 people worldwide. Corporate headquarters are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777; Silicon Valley headquarters are located at 1001 Ridder Park Drive, San Jose, California 95131-2314. World Wide Web site: www.mentor.com. Mentor Graphics' emulation business unit, based in Les Ulis, France, is a world leader in emulation. With the ability to handle designs of up to 26 million gates and compile times of up to one million gates per hour, the Mentor Graphics emulators provide fast iteration of the design, allowing more design errors to be caught in less time. - more - - 4 - Mentor Graphics is a registered trademark of Mentor Graphics Corporation. All other company or product names are the registered trademarks or trademarks of their respective owners. ADDITIONAL INFORMATION Mentor has previously filed a tender offer statement regarding the acquisition and IKOS has previously filed a solicitation/recommendation statement regarding the acquisition. Mentor and IKOS will file an amended tender offer statement and an amended solicitation/recommendation statement with the Securities and Exchange Commission. IKOS stockholders are advised to read the amended tender offer statement and the amended solicitation/recommendation statement regarding the acquisition referenced in this news release when they become available. The amended tender offer statement (including an offer to purchase, letter of transmittal and related tender offer documents) and the amended solicitation/recommendation statement will contain important information which should be read carefully before any decision is made with respect to the offer. IKOS stockholders may obtain a free copy of the amended tender offer statement and the amended solicitation/recommendation statement when they are available, and copies of other documents filed by Mentor and IKOS with the SEC, at the SEC's web site at www.sec.gov. The amended tender offer statement, the amended solicitation/recommendation statement and these other documents may also be obtained by IKOS stockholders without cost to them from Mentor and IKOS. FORWARD-LOOKING STATEMENTS This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the expected benefits of the proposed merger. These statements are - more - - 5 - based on Mentor Graphics' and IKOS' current expectations and beliefs. Actual results could differ materially from the results implied by these statements. Risks include Mentor Graphics' and IKOS' ability to satisfy all conditions to the transaction and to realize the expected benefits of the merger. You are encouraged to review Mentor Graphics' and IKOS' recent filings with the Securities and Exchange Commission, including their current quarterly report on Form 10-Q, annual report on Form 10-K, and its other filings with the Securities and Exchange Commission, copies of which may be accessed through the SEC's web site at http://www.sec.gov. Descriptions of risk factors are not intended to be complete. Mentor Graphics and IKOS are under no obligation (and expressly disclaim any such obligation) to update or alter their forward-looking statements, whether as a result of new information, future events or otherwise. # # # CONTACTS For Mentor Graphics Corporation For IKOS Systems, Inc. Ryerson Schwark Joseph Rockom Tel: 503-685-1660 Chief Financial Officer Tel: 408-284-8514 The Abernathy MacGregor Group Chuck Burgess Jason Thompson Tel: 212-371-5999 EX-99.(A)(5)(P) 10 f77751b7ex99-a5p.txt EXHIBIT (A)(5)(P) Exhibit(a)(5)(P) FOR IMMEDIATE RELEASE MENTOR GRAPHICS EXTENDS TENDER OFFER FOR IKOS SYSTEMS, INC. WILSONVILLE, OR - MARCH 13, 2002 - Mentor Graphics Corporation (Nasdaq: MENT) today announced that in connection with its Agreement and Plan of Merger and Reorganization with IKOS Systems, Inc., it has extended its $11.00 per share cash tender offer for all outstanding shares of the common stock of IKOS Systems, Inc. (Nasdaq: IKOS) to 12:00 Midnight, New York City time, on Tuesday, March 26, 2002, unless further extended. The tender offer was previously scheduled to expire at 12:00 Midnight, New York City time, on Friday, March 15, 2002. As of the close of business on March 12, 2002, 558,002 shares of IKOS common stock had been validly tendered into the offer, which, together with the 841,600 shares already beneficially owned by Mentor, represents approximately 14.5% of IKOS' outstanding common stock (based upon 9,662,314 shares outstanding as of March 6, 2002). The shares tendered represent approximately 5.8% of the outstanding common stock. The IKOS Board has unanimously approved the Mentor tender offer and merger and unanimously recommends that IKOS stockholders tender their shares in the offer. Following completion of the tender offer, the merger agreement provides for Mentor to consummate a second-step merger in which those shares not tendered will be converted into the right to receive $11.00 per share in cash. Closing of the tender offer is conditioned on shares being tendered which, together with shares held by Mentor, constitute more than 50% of the fully-diluted common stock of IKOS. If 90% of the outstanding shares are held by Mentor following completion of the tender offer, the second-step merger can be completed without a vote or meeting of IKOS' stockholders. ADDITIONAL INFORMATION Mentor has previously filed a tender offer statement regarding the acquisition and IKOS has previously filed a solicitation/recommendation statement regarding the acquisition. Mentor and IKOS will file an amended tender offer statement and an amended solicitation/recommendation statement with the Securities and Exchange Commission. IKOS stockholders are advised to read the amended tender offer statement and the amended solicitation/recommendation statement regarding the acquisition referenced in this news release when they become available. The amended tender offer statement (including an offer to purchase, letter of transmittal and related tender offer documents) and the amended solicitation/recommendation statement will contain important information which should be read carefully before any decision is made with respect to the offer. IKOS stockholders may obtain a free copy of the amended tender offer statement and the amended solicitation/recommendation statement when they are available, and copies of other documents filed by Mentor and IKOS with the SEC, at the SEC's web site at www.sec.gov. The amended tender offer statement, the amended solicitation/recommendation statement and these other documents may also be obtained by IKOS stockholders without cost to them from Mentor and IKOS. FORWARD-LOOKING STATEMENTS This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the expected benefits of the proposed merger. These statements are based on Mentor Graphics' current expectations and beliefs. Actual results could differ materially from the results implied by these statements. Risks include Mentor Graphics' and IKOS' ability to satisfy all conditions to the transaction and to realize the expected benefits of the merger. You are encouraged to review Mentor Graphics' and IKOS' recent filings with the Securities and Exchange Commission, including their current quarterly report on Form 10-Q, annual report on Form 10-K, and its other filings with the Securities and Exchange Commission, copies of which may be accessed through the SEC's web site at http://www.sec.gov. Descriptions of risk factors are not intended to be complete. Mentor Graphics is under no obligation (and expressly disclaim any such obligation) to update or alter their forward-looking statements, whether as a result of new information, future events or otherwise. ABOUT MENTOR GRAPHICS Mentor Graphics Corporation (Nasdaq: MENT) is a world leader in electronic hardware and software design solutions, providing products, consulting services and award-winning support for the world's most successful electronics and semiconductor companies. Established in 1981, Mentor Graphics reported revenues over the last 12 months of more than $600 million and employs approximately 3,000 people worldwide. Corporate headquarters are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777; Silicon Valley headquarters are located at 1001 Ridder Park Drive, San Jose, California 95131-2314. World Wide Web site: www.mentor.com. Mentor Graphics' emulation business unit, based in Les Ulis, France, is a world leader in emulation. With the ability to handle designs of up to 26 million gates and compile times of up to one million gates per hour, the Mentor Graphics emulators provide fast iteration of the design, allowing more design errors to be caught in less time. Mentor Graphics is a registered trademark of Mentor Graphics Corporation. All other company or product names are the registered trademarks or trademarks of their respective owners. # # # CONTACTS Mentor Graphics Corporation The Abernathy MacGregor Group Ryerson Schwark Chuck Burgess Tel: 503-685-1660 Jason Thompson Tel: 212-371-5999 EX-99.(D)(11) 11 f77751b7ex99-d11.txt EXHIBIT (D)(11) Exhibit (d)(11) AGREEMENT AND PLAN OF MERGER AND REORGANIZATION BY AND AMONG MENTOR GRAPHICS CORPORATION, FRESNO CORPORATION AND IKOS SYSTEMS, INC. DATED AS OF MARCH 12, 2002 EXECUTION COPY TABLE OF CONTENTS
PAGE ---- ARTICLE I. DEFINITIONS....................................................... 1 Section 1.1 Definitions................................................ 1 ARTICLE II. THE MERGER....................................................... 7 Section 2.1 The Merger................................................. 7 Section 2.2 Closing; Effective Time.................................... 7 Section 2.3 Effect of the Merger....................................... 7 Section 2.4 Certificate of Incorporation; Bylaws....................... 8 Section 2.5 Directors and Officers..................................... 8 Section 2.6 Effect on Capital Stock.................................... 8 Section 2.7 Surrender of Certificates.................................. 9 Section 2.8 Transfer Books; No Further Ownership Rights in the Shares of Company Common Stock............................. 10 Section 2.9 Lost, Stolen or Destroyed Certificates..................... 10 Section 2.10 Accounting Consequences................................... 10 Section 2.11 Withholding Rights........................................ 10 Section 2.12 Taking of Necessary Action; Further Action................ 11 Section 2.13 Dissenters' Rights........................................ 11 Section 2.14 The Offer................................................. 11 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF COMPANY...................... 11 Section 3.1 Organization, Standing and Power.......................... 12 Section 3.2 Capital Structure......................................... 12 Section 3.3 Authority; No Conflicts................................... 13 Section 3.4 SEC Documents; Financial Statements....................... 14 Section 3.5 Absence of Certain Changes................................ 15 Section 3.6 Absence of Undisclosed Liabilities........................ 16 Section 3.7 Litigation................................................ 16 Section 3.8 Restrictions on Business Activities....................... 16 Section 3.9 Governmental Authorization................................ 16 Section 3.10 Title to Property........................................ 16 Section 3.11 Intellectual Property.................................... 17 Section 3.12 Environmental Matters.................................... 19 Section 3.13 Taxes.................................................... 20 Section 3.14 Employee Benefit Plans................................... 21 Section 3.15 Interested Party Transactions............................ 24 Section 3.16 Certain Agreements Affected by the Merger................ 24 Section 3.17 Employee Matters......................................... 24 Section 3.18 Insurance................................................ 26 Section 3.19 Compliance with Laws..................................... 26
i Section 3.20 Information to be Supplied............................... 27 Section 3.21 Vote Required............................................ 27 Section 3.22 Synopsys Agreement....................................... 27 Section 3.23 Board Approval; Rights Agreement; State Takeover Statutes........................................ 27 Section 3.24 Brokers' and Finders' Fees; Opinion of Financial Adviser........................................ 28 Section 3.25 Customers and Suppliers; Backlog......................... 28 Section 3.26 No Default............................................... 28 Section 3.27 Other Agreements......................................... 28 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB......... 29 Section 4.1 Organization, Standing and Power.......................... 29 Section 4.2 Authority................................................. 29 Section 4.3 Litigation................................................ 30 Section 4.4 Information to be Supplied................................ 30 Section 4.5 Board Approval............................................ 30 Section 4.6 Broker's and Finders' Fees................................ 30 Section 4.7 Parent Owned Shares of Company Common Stock............... 30 Section 4.8 No Financing Condition.................................... 31 ARTICLE V. CONDUCT PRIOR TO THE EFFECTIVE TIME.............................. 31 Section 5.1 Conduct of Business of Company............................ 31 Section 5.2 No Solicitation........................................... 34 ARTICLE VI. ADDITIONAL AGREEMENTS........................................... 36 Section 6.1 Preparation of Proxy Statement............................ 36 Section 6.2 Meeting of Stockholders................................... 36 Section 6.3 Access to Information..................................... 37 Section 6.4 Confidentiality........................................... 37 Section 6.5 Public Disclosure......................................... 40 Section 6.6 Consents; Cooperation..................................... 40 Section 6.7 Legal Requirements........................................ 41 Section 6.8 Intentionally omitted..................................... 41 Section 6.9 Employee Benefit Plans.................................... 41 Section 6.10 Form S-8................................................. 44 Section 6.11 Intentionally omitted.................................... 44 Section 6.12 Indemnification.......................................... 44 Section 6.13 Intentionally omitted.................................... 45 Section 6.14 Stockholder Litigation................................... 45 Section 6.15 Employee Agreements...................................... 45 Section 6.16 Injunctions or Restraints................................ 45 Section 6.17 Intentionally omitted.................................... 45 Section 6.18 Further Assurances....................................... 45 Section 6.19 Existing Litigation Termination.......................... 45
ii ARTICLE VII. CONDITIONS TO THE MERGER....................................... 45 Section 7.1 Conditions to Obligations of Each Party to Effect the Merger.................................................... 45 Section 7.2 Additional Conditions to Obligations of the Company....... 46 Section 7.3 Additional Conditions to the Obligations of Parent and Merger Sub............................................ 46 ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER............................. 47 Section 8.1 Termination............................................... 47 Section 8.2 Effect of Termination..................................... 49 Section 8.3 Expenses and Termination Fees............................. 49 Section 8.4 Amendment................................................. 50 Section 8.5 Extension; Waiver......................................... 50 ARTICLE IX. GENERAL PROVISIONS.............................................. 50 Section 9.1 Non-Survival at Effective Time............................ 50 Section 9.2 Notices................................................... 50 Section 9.3 Interpretation............................................ 51 Section 9.4 Counterparts.............................................. 52 Section 9.5 Entire Agreement; Nonassignability; Parties in Interest.................................................. 52 Section 9.6 Severability.............................................. 52 Section 9.7 Remedies Cumulative....................................... 52 Section 9.8 Governing Law............................................. 52 Section 9.9 Rules of Construction..................................... 53
iii SCHEDULES Company Disclosure Schedule EXHIBITS Exhibit A - Intentionally Omitted Exhibit B - Form of Certificate of Merger Exhibit C - Form of Certificate of Incorporation of the Surviving Corporation Exhibit D - Form of Employee Agreement for employees of the Company listed on Schedule 6.15(a) Exhibit E - Form of Employee Agreement for employees of the Company listed on Schedule 6.15(b) Exhibit F - Form of Amendment to Severance Agreement for employees of the Company listed on Schedule 6.15(c) Exhibit G - Form of Amendment to Severance Agreement for employees of the Company listed on Schedule 6.15(d) iv AGREEMENT AND PLAN OF MERGER AND REORGANIZATION This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement") is made and entered into as of March 12, 2002, by and among Mentor Graphics Corporation, an Oregon corporation ("Parent"), Fresno Corporation, a Delaware corporation ("Merger Sub") and wholly owned subsidiary of Parent, and IKOS Systems, Inc., a Delaware corporation (the "Company"). RECITALS WHEREAS the Boards of Directors of the Company, Parent and Merger Sub each have determined that it is advisable and in the best interests of each corporation and their respective stockholders to consummate the acquisition of the Company by Parent, upon the terms and subject to the conditions set forth herein; RECITALS WHEREAS in furtherance thereof, it is proposed that Merger Sub amend its cash tender offer commenced on December 7, 2001 (as amended prior to the date hereof and as it may be amended from time to time as permitted under this Agreement, the "Offer") to acquire any and all shares of the issued and outstanding common stock, $0.01 par value, of the Company (the "Company Common Stock"), including the related Rights (as hereinafter defined), for $11.00 per share, net to the seller in cash, upon the terms and conditions set forth in this Agreement, including Annex I and Annex II hereto; WHEREAS also in furtherance of such acquisition, the Boards of Directors of each of Parent, Merger Sub and the Company have approved this Agreement and the transactions contemplated hereby, including the merger of Merger Sub with and into the Company (the "Merger"), with the Company as the surviving corporation following the Merger; and WHEREAS the Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and other agreements in connection with the Merger. NOW, THEREFORE, in consideration of the premises, and the representations, warranties, covenants, agreements and additional agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1 DEFINITIONS . As used in this Agreement, the following capitalized terms shall have the meanings indicated below: "Agreement" has the meaning ascribed to it in the forepart of this Agreement. "Antitrust Laws" has the meaning ascribed to it in Section 6.6(b). "Authorized Option Shares" means the sum of (a) the number of options granted under the Company Stock Option Plans which are outstanding as of June 15, 2001; (b) the number of shares of Company Common Stock remaining available for grant under the Company Stock Option Plans as of June 15, 2001; and (c) such number of additional shares of Company Common Stock (if any) that are made available for issuance under the 1995 Stock Option Plan on October 1, 2001 pursuant to Section 4.1 thereof if the Closing Date is after October 1, 2001. "Backlog" as of June 30, 2001 or June 30, 2002, means (a) the dollar amount of all non-cancelable orders for products and services that (i) are not discounted in excess of historical discounts consistent with past practice, (ii) satisfy all criteria of the Company's orders acceptance policy as it existed on June 6, 2001, as amended by the Company with Parent's consent prior to the date of this Agreement (but excluding any orders for which an exception to the order acceptance policy was approved by an officer of the Company, regardless of whether the orders acceptance policy grants such officer authority to make such exceptions), and (iii) have not been invoiced, plus (b) all deferred revenue, as reflected in audited financial statements prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated and consistent with the Company's annual fiscal year-end audited financial statements, attributable to products and services that have been invoiced; provided, however, that (AA), for the avoidance of doubt, items that are included in the above clause (a) of this paragraph shall not be included in the above clause (b) of this paragraph, (BB) in the case of hardware and software, such products must have a scheduled ship date within six (6) months of the applicable Backlog date (i.e. June 30, 2001 or June 30, 2002, as the case may be) and (CC) in the case of software maintenance and support, consulting and training, such services must be scheduled to be performed within six (6) months of such date. "Bonus Plan" has the meaning ascribed to it in Section 6.9(g). "CERCLA" has the meaning ascribed to it in Section 3.12(b). "Certificate" has the meaning ascribed to it in Section 2.7(b). "Certificate of Incorporation" has the meaning ascribed to it in Section 3.1. "Certificate of Merger" has the meaning ascribed to it in Section 2.2. "Closing" has the meaning ascribed to it in Section 2.2. "Closing Date" has the meaning ascribed to it in Section 2.2. "COBRA" has the meaning ascribed to it in Section 3.14(d). "Company" has the meaning ascribed to it in the forepart to this Agreement. "Company Authorizations" has the meaning ascribed to it in Section 3.9. "Company Balance Sheet" has the meaning ascribed to it in Section 3.6. "Company Balance Sheet Date" has the meaning ascribed to it in Section 3.5. 2 "Company Common Stock" has the meaning ascribed to it in the Recitals to this Agreement. "Company Confidential Information" has the meaning ascribed to it in Section 6.4(e). "Company Disclosure Schedule" has the meaning ascribed to it in the forepart of Article III. "Company Employee Plans" has the meaning ascribed to it in Section 3.14(a). "Company ESPP" has the meaning ascribed to it in Section 3.2. "Company Financial Statements" has the meaning ascribed to it in Section 3.4. "Company Material Adverse Effect" means any event, matter, change, condition, circumstance or effect that is materially adverse to the business, condition (financial or otherwise), properties, assets (including intangible assets), liabilities, operations or results of operations of the Company (or, after the Effective Time, the Surviving Corporation) and its Subsidiaries, taking the Company (or, after the Effective Time, the Surviving Corporation) together with its Subsidiaries as a whole; provided, however, that none of the following, in and of themselves, either alone or in combination, shall constitute a Company Material Adverse Effect: (a) a decrease in the trading price of Company Common Stock; (b) any event, matter, change, condition, circumstance or effect which the Company successfully bears the burden of proving results from changes affecting any of the industries or economies in which the Company operates as a whole (which changes do not materially and disproportionately affect the Company); (c) any adverse event, matter, change, condition, circumstance or effect which the Company successfully bears the burden of proving is directly and primarily caused by the announcement or pendency of the Offer or the Merger; (d) any adverse event, matter, change, condition, circumstance or effect which the Company successfully bears the burden of proving is directly and primarily caused by the taking of any action expressly required by this Agreement; (e) any adverse event, matter, change, condition, circumstance or effect which the Company successfully bears the burden of proving is directly and primarily caused by any matter for which Parent has agreed (other than in this Agreement) to indemnify the Company; or (f) a failure in and of itself of results of operations of the Company and its Subsidiaries (on a consolidated basis) to meet internal projections or forecasts or published revenue or earnings predictions for any fiscal quarterly or annual period of the Company after the date hereof and prior to the Closing Date, but not either the underlying causes of such failure or the consequences of such failure. "Company Representatives" has the meaning ascribed to it in Section 5.2. "Company SEC Documents" has the meaning ascribed to it in Section 3.4. "Company Stock Option Plans" has the meaning ascribed to it in Section 2.6(c). "Company Stockholders Meeting" has the meaning ascribed to it in Section 6.2. "Competing Bidder" has the meaning ascribed to it in Section 5.2. 3 "Confidential Information" has the meaning ascribed to it in Section 3.11(g). "Continuing Employees" has the meaning ascribed to it in Section 6.9(d). "Dissenting Stockholders" has the meaning ascribed to it in Section 2.6(a). "DGCL" has the meaning ascribed to it in Section 2.1. "Effective Time" has the meaning ascribed to it in Section 2.2. "Environmental and Safety Laws" has the meaning ascribed to it in Section 3.12(a). "ERISA Affiliate" has the meaning ascribed to it in Section 3.14(a). "ERISA" has the meaning ascribed to it in Section 3.14(a). "Exchange Act" has the meaning ascribed to it in Section 3.4. "Facilities" has the meaning ascribed to it in Section 3.12(a). "Final Date" has the meaning ascribed to it in Section 8.1(b). "Foreign Plan" has the meaning ascribed to it in Section 3.14(j). "GAAP" has the meaning ascribed to it in Section 3.4. "Governmental Entity" has the meaning ascribed to it in Section 3.3. "Hazardous Materials" has the meaning ascribed to it in Section 3.12(a). "HSR Act" has the meaning ascribed to it in Section 3.3. "Indemnified Parties" has the meaning ascribed to it in Section 6.12. "Intellectual Property" has the meaning ascribed to it in Section 3.11(a). "Internal Revenue Code" has the meaning ascribed to it in Section 2.11. "Knowledge" with respect to a party means such party's actual knowledge after reasonable inquiry of officers, directors, vice presidents, persons of higher authority than, or equivalent authority to, a vice president, and all persons directly reporting to any of the foregoing. "Merger" has the meaning ascribed to it in the Recitals to this Agreement. "Merger Consideration" has the meaning ascribed to it in Section 2.6(a). "Merger Sub" has the meaning ascribed to it in the forepart of this Agreement. 4 "Merger Sub Common Stock" has the meaning ascribed to it in Section 2.6(d). "Minimum Condition" has the meaning ascribed to it in Section 1.1(a) of Annex I. "NASD" has the meaning ascribed to it in Section 3.3. "Needham Letter" means Needham & Co.'s letter agreement with the Company dated as of June 28, 2000. "Offer" has the meaning ascribed to it in the forepart of this Agreement. "Offer Documents" has the meaning ascribed to it in Section 1.1(b) of Annex I. "Offer Price" has the meaning ascribed to it in Section 1.1(a) of Annex I. "Order" has the meaning ascribed to it in Section 6.6(b). "Parent" has the meaning ascribed to it in the forepart to this Agreement. "Parent Confidential Information" has the meaning ascribed to it in Section 6.4(b). "Paying Agent" has the meaning ascribed to it in Section 2.7(a). "PCBs" has the meaning ascribed to it in Section 3.12(b). "Property" has the meaning ascribed to it in Section 3.12(a). "Proxy Statement" has the meaning ascribed to it in Section 6.1(a). "Recommendation" has the meaning ascribed to it in Section 8.1(e). "Rights" means the preferred share purchase rights issued by the Company pursuant to the Rights Agreement. "Rights Agreement" has the meaning ascribed to it in Section 3.23. "Schedule 14D-9" has the meaning ascribed to it in Section 1.2(b) of Annex I. "Schedule TO" has the meaning ascribed to it in Section 1.1(b) of Annex I. "SEC" has the meaning ascribed to it in Section 3.3. "Securities Act" has the meaning ascribed to it in Section 3.2. "Subsidiary" and "Subsidiaries" mean, with respect to any person, any corporation or other organization, whether incorporated or unincorporated, of which (i) such person or any other subsidiary of such person is a general partner (excluding partnerships, the general partnership interests of which held by such person or any subsidiary of such person do not have a majority of the voting interest in such partnership) or (ii) at least a majority of the securities or 5 other interests having by their terms ordinary voting power to elect a majority of the board of directors, or others performing similar functions with respect to such corporation or other organization, is directly or indirectly owned or controlled by such person or by one or more of its subsidiaries. "Superior Proposal" has the meaning ascribed to it in Section 5.2. "Surviving Corporation" has the meaning ascribed to it in Section 2.1. "Synopsys Agreement" means the Agreement and Plan of Merger and Reorganization dated July 2, 2001, as amended, among the Company, Synopsys, Inc. ("Synopsys") and Oak Merger Corporation. "Takeover Proposal" means any agreement, offer or proposal for, or any indication of interest, written or oral, in (A) a merger, reorganization, share exchange, consolidation, or other business combination involving the Company or any of its Subsidiaries, which would result in the holders of the Company's Common Stock immediately prior to the consummation of such transaction holding less than eighty five percent (85%) of the outstanding shares of any class of capital stock or voting power of the surviving, resulting or acquiring entity immediately following the consummation of such transaction; or (B) a tender offer for securities of the Company, which, if successful, would result in the tender offeror, either alone or as part of a group, holding beneficial ownership of fifteen percent (15%) or more of the outstanding shares of any class of capital stock or voting power of the Company immediately following the consummation of such tender offer; (C) the acquisition of fifteen percent (15%) or more of the outstanding shares of any class of capital stock or voting power of the Company; or (D) the acquisition of fifteen percent (15%) or more of the assets of the Company and its Subsidiaries (either on the basis of book value or fair market value, calculated in each case on a consolidated basis), other than, in each case, the transactions contemplated by this Agreement. For purposes of this definition, the terms "person", "group" and "beneficial ownership" have the meanings ascribed to them in the Securities Exchange Act of 1934, as amended and the rules and regulations of the SEC thereunder. "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any Tax Authority; (ii) any liability for the payment of any amounts of the type described in clause (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for any Taxable period; and (iii) any liability for the payment of any amounts of the type described in clause (i) or clause (ii) as a result of being a transferee of or successor to any person or as a result of any express or implied obligation to indemnify any other person, including pursuant to any Tax sharing or Tax allocation agreement. "Tax Authority" means any Governmental Entity responsible for the imposition of any Tax (domestic or foreign). 6 "Tax Return" means any return, statement, report or form (including estimated Tax returns and reports, withholding Tax returns and reports and information reports and returns) required to be filed with respect to Taxes. "Third Party Intellectual Property Rights" has the meaning ascribed to it in Section 3.11(b). "Trigger Event" means the acquisition by any person or group of beneficial ownership of securities representing fifteen percent (15%) or more of the outstanding shares of any class of capital stock or voting power of the Company, or the commencement or public announcement of a tender or exchange offer, other publicly announced initiative or open market purchase program following the successful consummation of which such person or group would have beneficial ownership of securities representing fifteen percent (15%) or more of the outstanding shares of any class of capital stock or voting power of the Company. For purposes of this definition, the terms "person", "group" and "beneficial ownership" have the meanings ascribed to them in the Securities Exchange Act of 1934 as amended and the rules and regulations of the SEC thereunder. ARTICLE II. THE MERGER SECTION 2.1 THE MERGER . At the Effective Time (as defined in Section 2.2) and upon the terms and subject to the conditions set forth in this Agreement and the applicable provisions of the General Corporation Law of the State of Delaware (the "DGCL"), Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation. The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." SECTION 2.2 CLOSING; EFFECTIVE TIME . The closing of the Merger (the "Closing") shall take place as soon as reasonably practicable (and in any event not later than two business days) after the satisfaction or waiver of each of the conditions set forth in Article VII hereof or at such other time as the parties hereto agree (the "Closing Date"). The Closing shall take place at the offices of Latham & Watkins, 505 Montgomery Street, Suite 1900, San Francisco, California, 94111, or at such other location as the parties hereto agree. As part of the Closing, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger in the form attached hereto as Exhibit B (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in accordance with the relevant provisions of the DGCL (the time of the filing of such document, or such later time as may be agreed to by the parties and specified in the Certificate of Merger in accordance with Section 103(d) of the DGCL, being the "Effective Time"). SECTION 2.3 EFFECT OF THE MERGER . At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, without revision or impairment, and debts, liabilities and 7 duties of the Company and Merger Sub shall be the debts, liabilities and duties of the Surviving Corporation. SECTION 2.4 CERTIFICATE OF INCORPORATION; BYLAWS . At the Effective Time, the Certificate of Incorporation of the Surviving Corporation shall be amended in its entirety to read as set forth in Exhibit C hereto. From and after the Effective Time, Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended in accordance with the DGCL, the Certificate of Incorporation of the Surviving Corporation and such Bylaws. SECTION 2.5 DIRECTORS AND OFFICERS . From and after the Effective Time, the directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, in each case until their successors are elected or appointed and qualified or until their earlier resignation or removal. SECTION 2.6 EFFECT ON CAPITAL STOCK . By virtue of the Merger and without any action on the part of Merger Sub, the Company or the holders of any of the following securities: (a) Exchange of Shares of Company Common Stock. At the Effective Time, each share of Company Common Stock (other than shares to be cancelled in accordance with Section 2.6(b) and any shares which are held by stockholders exercising appraisal rights pursuant to Section 262 of the DGCL ("Dissenting Stockholders")) issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive the Offer Price in cash, payable to the holder thereof, without interest (the "Merger Consideration"), upon surrender of the certificate formerly representing such share in the manner provided in Section 2.7. All such shares, when so converted, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration therefor upon the surrender of such certificate in accordance with Section 2.7, without interest, or the right, if any, to receive payment from the Surviving Corporation of the "fair value" of such shares of Company Common Stock as determined in accordance with Section 262 of the DGCL. (b) Cancellation of Company Common Stock Owned by Parent or Company. At the Effective Time, all shares of Company Common Stock that are owned by the Company as treasury stock and each share of Company Common Stock owned by Parent or any direct or indirect wholly owned Subsidiary of Parent or the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof or any other consideration paid or issued therefore. (c) Company Stock Option Plans; Company ESPP. At the Effective Time, the Company's 1995 Stock Option Plan, 1995 Outside Directors Stock Option Plan, 2000 Nonstatutory Stock Option Plan, Virtual Machine Works 1994 Incentive Stock Option Plan and the non-plan options to purchase Company Common Stock set forth in Section 2.6(c) of the Company Disclosure Schedule (collectively the "Company Stock Option Plans") and all options to purchase Company Common Stock then outstanding under the Company Stock Option Plans 8 shall be assumed by Parent in accordance with Section 6.9. The Company ESPP (as defined in Section 3.2) shall be terminated in accordance with Section 6.9(c). (d) Capital Stock of Merger Sub. At the Effective Time, each share of common stock, $0.01 par value, of Merger Sub ("Merger Sub Common Stock") issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation, and the Surviving Corporation shall be a wholly owned Subsidiary of Parent. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation. SECTION 2.7 SURRENDER OF CERTIFICATES. (a) Paying Agent. Prior to the Effective Time, Parent shall designate a New York City-based bank or trust company reasonably acceptable to the Company to act as agent for the holders of shares of Company Common Stock in connection with the Merger (the "Paying Agent") to receive the funds to which holders of such shares shall become entitled pursuant to Section 2.6(a). Prior to the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, Parent shall deposit with the Paying Agent cash in U.S. dollars in an amount sufficient to pay the consideration to be paid in the Merger as provided herein. The Paying Agent shall invest such funds as directed by the Surviving Corporation on a daily basis; provided that no such investment or loss thereon shall affect the amounts payable to the Company's stockholders pursuant to this Article II. Any interest and other income resulting from such investments shall be paid promptly to the Surviving Corporation. For purposes of determining the Merger Consideration to be made available, Parent shall assume that no holder of shares of Company Common Stock will perfect its right to appraisal of such shares. (b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Paying Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Common Stock (the "Certificates"), whose shares were converted pursuant to Section 2.6(a) into the right to receive the Merger Consideration (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 Paying 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 payment of the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for each share formerly represented by such Certificate and the Certificate so surrendered shall forthwith be cancelled. If payment of the Merger Consideration is to be made to a person other than the person in whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the person requesting such payment shall have paid any transfer and other Taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder of the Certificate surrendered or shall have established to the 9 satisfaction of the Surviving Corporation that such tax either has been paid or is not applicable. Until surrendered as contemplated by this Section 2.7, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration in cash, without interest, as contemplated by this Section 2.7. The right of any stockholder to receive the Merger Consideration shall be subject to and reduced by any applicable withholding Tax obligation. (c) Termination of Fund; No Liability. At any time following seven months after the Effective Time, Parent shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) which had been made available to the Paying Agent and which have not been disbursed to holders of Certificates, and thereafter such holders shall be entitled to look to Parent (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates, without any interest thereon. Notwithstanding the foregoing, none of Parent, the Surviving Corporation or the Paying Agent shall be liable to any holder of a Certificate for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. SECTION 2.8 TRANSFER BOOKS; NO FURTHER OWNERSHIP RIGHTS IN THE SHARES OF COMPANY COMMON STOCK . At the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of the shares of Company Common Stock on the records of the Company. From and after the Effective Time, the holders of Certificates evidencing ownership of the shares of Company Common Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares of Company Common Stock, except as otherwise provided for herein or by applicable law. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article II. SECTION 2.9 LOST, STOLEN OR DESTROYED CERTIFICATES . In the event any Certificate shall have been lost, stolen or destroyed, the Paying Agent shall issue in exchange for such lost, stolen or destroyed Certificate, upon the making of an affidavit of that fact by the holder thereof, the Merger Consideration as may be required pursuant to Section 2.6; provided, however, that Parent may, in its discretion and as a condition precedent to the payment thereof, require the owner of such lost, stolen or destroyed Certificate to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent, the Surviving Corporation or the Paying Agent with respect to the Certificate alleged to have been lost, stolen or destroyed. SECTION 2.10 ACCOUNTING CONSEQUENCES . It is intended by the parties hereto that the Merger shall be accounted for as a purchase. SECTION 2.11 WITHHOLDING RIGHTS . Parent and the Surviving Corporation shall be entitled to deduct and withhold from the Merger Consideration otherwise deliverable under this Agreement, and from any other payments made pursuant to this Agreement, such amounts as Parent and the Surviving Corporation are required to deduct and withhold with respect to such delivery and payment under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") or any provision of United States federal, state, local, or foreign national, 10 provincial, local or other Tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been delivered and paid to the holder of shares of Company Common Stock in respect of which such deduction and withholding was made by Parent and the Surviving Corporation. SECTION 2.12 TAKING OF NECESSARY ACTION; FURTHER ACTION . If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action, as long as such action is not inconsistent with this Agreement. SECTION 2.13 DISSENTERS' RIGHTS. (a) Notwithstanding anything in this Agreement to the contrary, if any Dissenting Stockholder shall demand to be paid the "fair value" of such holder's shares of Company Common Stock, as provided in Section 262 of the DGCL, such shares shall not be converted into or be exchangeable for the right to receive the Merger Consideration except as provided in this Section 2.13, and the Company shall give Parent notice thereof. Parent shall have the right to participate in all negotiations and proceedings with respect to any such demands. Neither the Company nor the Surviving Corporation shall, except with the prior written consent of Parent, voluntarily make any payment with respect to, or settle or offer to settle, any such demand for payment. If any Dissenting Stockholder shall fail to perfect or shall have effectively withdrawn or lost the right to dissent, the shares of Company Common Stock held by such Dissenting Stockholder shall thereupon be treated as though such shares had been converted into the Merger Consideration pursuant to Section 2.6. (b) Any portion of the Merger Consideration made available to the Paying Agent pursuant to Section 2.7(a) to pay for shares of Company Common Stock for which appraisal rights have been perfected shall be returned to Parent, upon demand. SECTION 2.14 THE OFFER . Certain provisions of this Agreement relating to the Offer are set forth in Annex I hereto. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF COMPANY The Company represents and warrants to Parent and Merger Sub that the statements contained in this Article III are true and correct as of July 2, 2001 (except where a representation is specifically stated as of the date of this Agreement and except for the representations and warranties set forth in Section 3.3, Section 3.22, Section 3.23 and Section 3.27 which shall be true and correct as of the date of this Agreement) except as set forth herein and in the disclosure schedule dated as of and delivered by the Company to Parent on the date of this Agreement (the "Company Disclosure Schedule"). The disclosures set forth in the Company Disclosure Schedule shall qualify only the disclosure under the section number referred to in the Company Disclosure Schedule. 11 SECTION 3.1 ORGANIZATION, STANDING AND POWER . Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each of the Company and its Subsidiaries has the corporate power to own its properties and to carry on its business as now being conducted and as presently proposed to be conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified and in good standing could reasonably be expected to have a Company Material Adverse Effect. The Company will deliver to Parent a true and correct copy of the Certificate of Incorporation, (the "Certificate of Incorporation"), and Bylaws or other charter documents, as applicable, of the Company and each of its Subsidiaries, each as amended to date. Neither the Company nor any of its Subsidiaries is in violation of any of the provisions of its respective charter or bylaws or equivalent organizational documents. The Company is the owner of all outstanding shares of capital stock of each of its Subsidiaries and all such shares are duly authorized, validly issued, fully paid and nonassessable. All of the outstanding shares of capital stock of each such Subsidiary are owned by the Company free and clear of all liens, charges, claims or encumbrances or rights of others and are not subject to preemptive rights or rights of first refusal created by statute, the certificate of incorporation, or Bylaws of such Subsidiary or any agreement to which such Subsidiary is a party or by which it is bound. There are no outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable or convertible securities or other commitments or agreements of any character relating to the issued or unissued capital stock or other securities of any such Subsidiary, or otherwise obligating the Company or any such Subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire any such securities. The Company does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, limited liability company, joint venture or other business association or entity (excluding the Subsidiaries and securities in publicly traded companies held for passive investment and comprising less than one percent (1%) of the outstanding stock of such company). SECTION 3.2 CAPITAL STRUCTURE . The authorized capital stock of the Company consists of fifty million (50,000,000) shares of Common Stock, $0.01 par value, of which there were issued and outstanding as of the close of business on June 15, 2001, 9,061,620 shares, and ten million (10,000,000) shares of Preferred Stock $0.01 par value of which five hundred thousand (500,000) shares have been designated as Series G Preferred Stock. As of the close of business on June 15, 2001 there were no shares of Preferred Stock issued and outstanding. No shares of Company Common Stock are held in treasury of the Company or by its Subsidiaries. There are no other outstanding shares of capital stock or voting securities and no outstanding commitments to issue any shares of capital stock or voting securities after June 15, 2001, except upon the exercise of options outstanding as of such date under the Company Stock Option Plans (as defined in Section 2.6(c)) or pursuant to the Company's 1996 Employee Stock Purchase Plan (the "Company ESPP"). All outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid and non-assessable and are free and clear of any liens or encumbrances, other than any liens, charges, claims, encumbrances or rights of others, and are not subject to preemptive rights or rights of first refusal created by statute, the Certificate of Incorporation, or Bylaws of the Company or any agreement to which the Company is a party or by which it is bound. As of the close of business on June 15, 2001, the Company had reserved (i) 5,736,884 shares of Common Stock for issuance to employees, consultants and directors pursuant to the Company Stock Option Plans, of which 2,264,058 shares had been issued 12 pursuant to option exercises or direct stock purchases, 3,155,594 shares were subject to outstanding, unexercised options, no shares were subject to outstanding stock purchase rights, and 316,872 shares were available for issuance thereunder and (ii) 1,050,000 shares of Common Stock for issuance to employees pursuant to the Company ESPP, of which 535,153 shares had been issued. Between June 15, 2001 and July 2, 2001, Company has not (i) issued or granted additional options under the Company Stock Option Plans, or (ii) accepted enrollments in the Company ESPP. Except for (i) the rights created pursuant to this Agreement, the Company Stock Option Plans and the Company ESPP and (ii) the Company's rights to repurchase any unvested shares under the Company Stock Option Plans, there are no other options, warrants, calls, rights, commitments or agreements of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of capital stock of the Company or obligating the Company to grant, extend, accelerate the vesting of, change the price of, or otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no contracts, commitments or agreements relating to voting, purchase or sale of the Company's capital stock (other than those granting the Company the right to purchase unvested shares upon employment or service termination) (i) between or among the Company and any of its stockholders and (ii) to the Company's Knowledge, between or among any of the Company's stockholders. The terms of the Company Stock Option Plans permit the assumption or substitution of options to purchase Parent Common Stock as provided in this Agreement, without the consent or approval of the holders of such securities, stockholders, or otherwise. The current Offering Period (as defined in the Company ESPP) commenced under the Company ESPP on February 1, 2001 and will end on July 31, 2001, and except for the purchase rights granted on such commencement date to participants in the current Purchase Period (as defined in the Company ESPP), there are no other purchase rights or options outstanding under the Company ESPP. True and complete copies of all forms of agreements and instruments relating to or issued under the Company Stock Option Plans or Company ESPP (and true and complete copies of all such agreements and instruments which differ in any material respect from any of such forms) will be provided to Parent. The shares of Company Common Stock issued under the Company Stock Option Plans, as amended and under all prior versions thereof, have either been registered under the Securities Act of 1933, as amended (the "Securities Act"), or were issued in transactions which qualified for exemptions under either Section 4(2) of, or Rule 701 under, the Securities Act for stock issuances under compensatory benefit plans. SECTION 3.3 AUTHORITY; NO CONFLICTS . The Company has all requisite corporate power and authority to enter into 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 authorized by all necessary corporate action on the part of the Company, subject only to the approval of the Merger by the Company's stockholders holding a majority of the outstanding shares of Company Common Stock as contemplated by Section 7.1(a), if required. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement by Parent and Merger Sub, constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights and remedies of creditors generally and general principles of equity. The execution and delivery of this Agreement by the Company do not, and the consummation of the transactions contemplated hereby will not, conflict with, or 13 result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under, or require the consent or approval of any person in respect of: (i) any provision of the Certificate of Incorporation or Bylaws of the Company or any of its Subsidiaries, as amended, or (ii) any material mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries or any of their properties or assets. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, arbitrator, tribunal, administrative agency or commission or other governmental authority or instrumentality, stock exchange or market system, in each case whether domestic or foreign (each a "Governmental Entity"), is required by or with respect to the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement, or the consummation of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger as provided in Section 2.2; (ii) the filing with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers, Inc. (the "NASD") of the Proxy Statement (as defined in Section 6.1) relating to the Company Stockholders Meeting (as defined in Section 6.1), if required; (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable state securities laws and the securities laws of any foreign country; (iv) such filings as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (v) the filing of an amendment to the Schedule 14D-9 with the SEC in accordance with the Securities Act; (vi) the filing of a Current Report on Form 8-K with the SEC; (vii) filings pursuant to Rule 165 and Rule 425 of the Securities Act; and (viii) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Company Material Adverse Effect and would not prevent, or materially alter or delay any of the transactions contemplated by this Agreement. SECTION 3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS . The Company will provide (or make available if publicly available at www.sec.gov or www.10kwizard.com or other widely available online EDGAR retrieval service) to Parent a true and complete copy of each statement, report, registration statement (with the prospectus in the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy statement and other filings made with the SEC by the Company since March 31, 2001 and, prior to the Effective Time, the Company will have provided (or made available if publicly available at www.sec.gov or www.10kwizard.com or other widely available online Edgar retrieval service) to Parent true and complete copies of any additional documents filed with the SEC by the Company prior to the Effective Time (collectively, the "Company SEC Documents"). The Company has timely filed all forms, statements and documents required to be filed by it with the SEC and The Nasdaq Stock Market since March 31, 2001. In addition, the Company will provide (or make available if publicly available at www.sec.gov or www.10kwizard.com or other widely available online Edgar retrieval service) to Parent true and complete copies of all exhibits to the Company SEC Documents filed prior to July 2, 2001, and will promptly provide (or make available if publicly available at www.sec.gov or www.10kwizard.com or other widely available online Edgar retrieval service) to Parent true and complete copies of all exhibits to any additional Company SEC Documents filed prior to the Effective Time. All documents required to be filed as exhibits to the Company SEC Documents have been so filed, and all material contracts so filed as exhibits are in full force and effect, except those which have expired in accordance with their terms. As of their respective filing 14 dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Securities Act, and none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a subsequently filed Company SEC Document. The financial statements of the Company, including the notes thereto, included in the Company SEC Documents (the "Company Financial Statements") were complete and correct in all material respects as of their respective dates, complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto as of their respective dates, and have been prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated and consistent with each other (except as may be indicated in the notes thereto or, in the case of unaudited statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The Company Financial Statements fairly present the consolidated financial condition and operating results of the Company and its Subsidiaries at the dates and during the periods indicated therein (subject, in the case of unaudited statements, to normal, recurring year-end adjustments none of which individually, or in the aggregate, are material). There has been no change in Company accounting policies since March 31, 2001. SECTION 3.5 ABSENCE OF CERTAIN CHANGES . Since March 31, 2001 (the "Company Balance Sheet Date"), the Company has conducted its business in the ordinary course consistent with past practice and there has not occurred: (i) any change, event or condition (whether or not covered by insurance) that has resulted in, or could reasonably be expected to result in, a Company Material Adverse Effect; (ii) any acquisition, sale or transfer of any material asset of the Company or any of its Subsidiaries other than in the ordinary course of business and consistent with past practice; (iii) any change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by the Company or any revaluation by the Company of any of its or any of its Subsidiaries' assets; (iv) any declaration, setting aside, or payment of a dividend or other distribution with respect to the shares of the Company, or any direct or indirect redemption, purchase or other acquisition by the Company of any of its shares of capital stock other than the purchase of unvested shares upon employment or service termination; (v) any entering into by the Company or any of its Subsidiaries of any material contract or agreement, or any material amendment or termination of, other than in the ordinary course of business, or default by the Company or any of its Subsidiaries under, any material contract or agreement to which the Company or any of its Subsidiaries is a party or by which it is bound (or, to the Knowledge of the Company, by any other party thereto); (vi) any amendment or change to the Certificate of Incorporation or Bylaws; or (vii) any increase in or modification of the compensation or benefits payable, or to become payable, by the Company to any of its directors, consultants or employees, other than pursuant to scheduled annual performance reviews, provided that any resulting modifications are in the ordinary course of business and consistent with the Company's past practices. The Company has not agreed since March 31, 2001 to effect any changes, events, or conditions or take any of the actions described in the preceding clauses (i) through (vii) and is not currently involved in any negotiations to do any of the things described in the preceding clauses (i) through (vii) (other than negotiations with Synopsys and its representatives regarding the transactions contemplated by the Synopsys Agreement). 15 SECTION 3.6 ABSENCE OF UNDISCLOSED LIABILITIES . The Company has no material obligations or liabilities of any nature (matured or unmatured, fixed or contingent) other than (i) those set forth or adequately provided for in the Consolidated Balance Sheets or in the related Notes to Consolidated Financial Statements included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 (the "Company Balance Sheet"), (ii) those incurred in the ordinary course of business since the Company Balance Sheet Date which are consistent with past practice and which could not reasonably be expected to have a Company Material Adverse Effect; and (iii) those incurred in connection with the execution of the Synopsys Agreement. SECTION 3.7 LITIGATION . There is no litigation, arbitration or investigation pending before any Governmental Entity, or, to the Knowledge of the Company or any of its Subsidiaries, threatened against the Company or any of its Subsidiaries or any of their respective properties or any of their respective officers or directors (in their capacities as such) that, individually or in the aggregate, could reasonably be expected to have a Company Material Adverse Effect or an adverse impact on the ability of the Company to consummate the transactions contemplated by this Agreement. There is no judgment, decree or order against the Company or any of its Subsidiaries, or, to the Knowledge of the Company and its Subsidiaries, any of their respective directors or officers (in their capacities as such), that could prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement, or that could reasonably be expected to have a Company Material Adverse Effect. SECTION 3.8 RESTRICTIONS ON BUSINESS ACTIVITIES . There is no agreement, judgment, injunction, order or decree binding upon the Company or any of its Subsidiaries which has or reasonably could be expected to have, whether before or after consummation of the Merger, the effect of prohibiting or materially impairing any current business practice of the Company or any of its Subsidiaries, any contemplated acquisition of property by the Company or any of its Subsidiaries or the conduct by the Company or any of its Subsidiaries of its business as currently conducted or as currently proposed to be conducted. SECTION 3.9 GOVERNMENTAL AUTHORIZATION . The Company and each of its Subsidiaries have obtained each federal, state, county, local or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Entity (i) pursuant to which the Company or any of its Subsidiaries currently operates or holds any interest in any of its properties or (ii) that is required for the operation of the Company's or any of its Subsidiaries' business or the holding of any such interest ((i) and (ii) herein collectively called "Company Authorizations"), and all of such Company Authorizations are in full force and effect, except where the failure to obtain or have any of such Company Authorizations could not reasonably be expected to have a Company Material Adverse Effect. SECTION 3.10 TITLE TO PROPERTY . The Company and its Subsidiaries have good and valid title to all of their respective properties, interests in properties and assets, real and personal, reflected in the Company Balance Sheet or acquired after the Company Balance Sheet Date (except properties, interests in properties and assets sold or otherwise disposed of since the Company Balance Sheet Date in the ordinary course of business), or in the case of leased properties and assets, valid leasehold interests in, in each case free and clear of all mortgages, liens, pledges, charges or encumbrances of any kind or character, except (i) the lien of current 16 taxes not yet due and payable, (ii) such imperfections of title, liens and easements as do not and will not materially detract from or interfere with the use of the properties subject thereto or affected thereby, or otherwise materially impair business operations involving such properties, and (iii) purchase money liens incurred in the ordinary course of business and liens securing debt which is reflected on the Company Balance Sheet. The plants, property and equipment of the Company and its Subsidiaries that are used in the operations of their businesses are in good operating condition and repair, ordinary wear and tear excepted, and except where the failure to be in good condition or repair would not have a Company Material Adverse Effect. Section 3.10 of the Company Disclosure Schedule identifies each parcel of real property owned or leased by the Company or any of its Subsidiaries. No lease relating to a foreign parcel contains any extraordinary payment obligation. SECTION 3.11 INTELLECTUAL PROPERTY. (a) The Company and its Subsidiaries own, or are licensed or otherwise possess legally enforceable and unencumbered rights to use all patents, trademarks, trade names, service marks, domain names, database rights, copyrights, and any other similar intellectual property rights or applications therefor, maskworks, net lists, schematics, technology, know-how, trade secrets, inventions, ideas, algorithms, processes, computer software programs or applications (in both source code and/or object code form), and tangible or intangible proprietary information or material ("Intellectual Property") that are used, or currently proposed to be used, in the business of the Company and its Subsidiaries as currently conducted, or currently proposed to be conducted. The Company has not (i) licensed any of its Intellectual Property in source code form to any person or (ii) entered into any exclusive agreements relating to its Intellectual Property to with any person. (b) Section 3.11(b) of the Company Disclosure Schedule lists (i) all patents and patent applications and all registered trademarks, trade names and service marks, registered copyrights, registered domain names, and registered maskworks included in the Intellectual Property owned by the Company, including the jurisdictions in which each such Intellectual Property right has been issued or registered or in which any application for such issuance and registration has been filed, (ii) all licenses (both in-bound and outbound), sublicenses and other agreements as to which the Company is a party and pursuant to which any person is authorized to use any Intellectual Property, and (iii) all licenses, sublicenses and other agreements (other than licenses for standard commercially available off-the-shelf software) as to which the Company is a party and pursuant to which the Company is authorized to use any third party patents, trademarks or copyrights, including software ("Third Party Intellectual Property Rights") which are incorporated in, are, or form a part of any the Company product. (c) To the Company's Knowledge, there is no unauthorized use, disclosure, infringement or misappropriation of any Intellectual Property rights of the Company or any of its Subsidiaries, or any Third Party Intellectual Property Rights by any third party, including any employee or former employee of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has entered into any agreement to indemnify any other person against any charge of infringement of any Intellectual Property, other than indemnification provisions contained in purchase orders or license agreements arising in the ordinary course of business. 17 No royalties or other continuing payment obligations are due in respect of Third Party Intellectual Property Rights. (d) The Company is not, nor will it be as a result of the execution and delivery of this Agreement or the performance of its obligations under this Agreement, in breach of any material license, sublicense or other agreement relating to the Intellectual Property or Third Party Intellectual Property Rights. (e) All patents, trademarks, service marks and copyrights held by the Company are valid and subsisting and have been properly assigned to the Company by the inventors, authors or previous owners thereof. The Company (i) has not been sued in any suit, action or proceeding (or received any notice or, to the Company's Knowledge, threat) which involves a claim of infringement of any patents, trademarks, service marks, copyrights or violation of any trade secret or other proprietary right of any third party and (ii) has not brought any action, suit or proceeding for infringement of Intellectual Property or breach of any license or agreement involving Intellectual Property against any third party. The manufacture, marketing, licensing or sale of the Company's products does not infringe any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party and, to the Knowledge of the Company, there is no substantial basis for a claim that any of the Company' past or current products are infringing or have infringed on any Third Party Intellectual Property Rights. (f) The Company has secured valid written assignments from all consultants and employees who contributed to the creation or development of Intellectual Property of the rights to such contributions that the Company does not already own by operation of law. (g) The Company has taken all necessary and appropriate steps to protect and preserve the confidentiality of all Intellectual Property not otherwise protected by patents or copyright ("Confidential Information"). All use, disclosure or appropriation of Confidential Information owned by the Company by or to a third party has been pursuant to the terms of a written agreement between the Company and such third party. All use, disclosure or appropriation of Confidential Information not owned by the Company has been pursuant to the terms of a written agreement between Company and the owner of such Confidential Information, or is otherwise lawful. (h) There are no actions that must be taken by the Company or any Subsidiary within ninety (90) days of the Closing Date that, if not taken, will result in the loss of any Intellectual Property, including the payment of any registration, maintenance or renewal fees or the filing of any responses to the U.S. Patent and Trademark Office actions, documents, applications or certificates for the purposes of obtaining, maintaining, perfecting or preserving or renewing any Intellectual Property. (i) The Company has not received any opinion of counsel that any third party patents apply to the Company's products. 18 (j) The period of exclusivity under Section 2.5 of the Patent License Agreement between MIT and Virtual Machine Works, Inc., dated December 22, 1993, extends until December, 2004. (k) Neither the Company nor any of its Subsidiaries is a party to any non-competition or non-solicitation or other similar restrictive agreement or arrangement relating to any business or service anywhere in the world. (l) The Company and its Subsidiaries have not disclosed or delivered, or permitted the disclosure or delivery, to any escrow holder or other third party, all or any part of the source code (including, without limitation, any algorithm or documentation contained in or relating to any source code) of its Intellectual Property. SECTION 3.12 ENVIRONMENTAL MATTERS. (a) The following terms shall be defined as follows: (i) "Environmental and Safety Laws" means any federal, state or local laws, ordinances, codes, regulations, rules, policies and orders that are intended to assure the protection of the environment, or that classify, regulate, call for the remediation of, require reporting with respect to, or list or define air, water, groundwater, solid waste, hazardous or toxic substances, materials, wastes, pollutants or contaminants, or which are intended to assure the safety of employees, workers or other persons, including the public. (ii) "Hazardous Materials" means any toxic or hazardous substance, material or waste or any pollutant or contaminant, or infectious or radioactive substance or material, including those substances, materials and wastes defined in or regulated under any Environmental and Safety Laws. (iii) "Property" means all real property leased or owned by the Company or its Subsidiaries either currently or in the past. (iv) "Facilities" means all buildings and improvements on the Property of the Company or its Subsidiaries. (b) Except in all cases as, in the aggregate, would not have a Company Material Adverse Effect, (i) no methylene chloride or asbestos is contained in or has been used at or released from the Facilities; (ii) all Hazardous Materials and wastes have been disposed of in accordance with all Environmental and Safety Laws; (iii) the Company and its Subsidiaries have received no notice (verbal or written) of any noncompliance of the Facilities or its past or present operations with Environmental and Safety Laws; (iv) no notices, administrative actions or suits are pending or, to the Company's Knowledge, threatened relating to a violation of any Environmental and Safety Laws; (v) to the Company's Knowledge, neither the Company nor its Subsidiaries have been or are a potentially responsible party under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), or state analog statute; 19 (vi) there have not been in the past, and are not now, any Hazardous Materials on, under or migrating to or from the Facilities or Property; (vii) there have not been in the past, and are not now, any underground tanks or underground improvements at, on or under the Property including treatment or storage tanks, sumps, or water, gas or oil wells; (viii) there are no polychlorinated biphenyls ("PCBs") deposited, stored, disposed of or located on the Property or Facilities or any equipment on the Property containing PCBs at levels in excess of fifty (50) parts per million; (ix) there is no formaldehyde on the Property or in the Facilities, nor any insulating material containing urea formaldehyde in the Facilities; (x) the Facilities and the Company's and its Subsidiaries uses and activities therein have at all times complied with all Environmental and Safety Laws; and (xi) the Company and its Subsidiaries have all the permits and licenses required to be issued and are in full compliance with the terms and conditions of those permits. SECTION 3.13 TAXES. The Company and each of its Subsidiaries, and any consolidated, combined, unitary or aggregate group for Tax (as defined below) purposes of which the Company or any of its Subsidiaries is or has been a member, have properly completed and timely filed all Tax Returns required to be filed by them and have paid all Taxes shown thereon to be due. All unpaid taxes of the Company and its Subsidiaries for periods through the Company Balance Sheet Date are reflected on the Company Balance Sheet. The Company has no liability for unpaid Taxes accruing after the Company Balance Sheet Date other than Taxes arising in the ordinary course of its business subsequent to the Company Balance Sheet Date. There is (i) no material claim for Taxes that is a lien against the property of the Company or any of its Subsidiaries or is being asserted against the Company or any of its Subsidiaries other than liens for Taxes not yet due and payable; (ii) no audit of any Tax Return of the Company or any of its Subsidiaries that is being conducted by a Tax authority; and (iii) no extension of the statute of limitations on the assessment of any Taxes that has been granted by the Company or any of its Subsidiaries and that is currently in effect. Neither the Company nor any of its Subsidiaries has been or will be required to include any material adjustment in Taxable income for any Tax period (or portion thereof) pursuant to Section 481 or 263A of the Internal Revenue Code or any comparable provision under state or foreign Tax laws solely as a result of transactions, events or accounting methods employed prior to the Merger other than as reported in the Tax Returns that have been provided to Parent. The Company has not been distributed in a transaction qualifying under Section 355 of the Internal Revenue Code within the last two years, nor has Company distributed any corporation in a transaction qualifying under Section 355 of the Internal Revenue Code within the last two years. There is no agreement, plan or arrangement to which Company or any of its Subsidiaries is a party, including this Agreement, covering any employee or former employee of Company or any of its Subsidiaries that, individually or collectively, would be reasonably likely to give rise to the payment of any amount that would not be deductible pursuant to Section 280G, 404 or 162(m) of the Internal Revenue Code. There is no contract, agreement, plan or arrangement to which Company is a party or by which it is bound to compensate any individual for excise taxes pursuant to Section 4999 of the Internal Revenue Code. The Company and each of its Subsidiaries have withheld or collected and paid over to the appropriate Tax Authorities (or are properly holding for such timely payment) all Taxes required by law to be withheld or collected. Neither the Company nor any of its Subsidiaries has filed or will file any consent to have the provisions of paragraph 341(f)(2) of the Internal Revenue Code (or comparable provisions of any state Tax laws) apply to the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is a party to, nor does the Company or any of its Subsidiaries have any liability under, any Tax sharing or Tax allocation 20 agreements. Neither the Company nor any of its Subsidiaries has filed any disclosures under Section 6662 of the Internal Revenue Code or comparable provisions of state, local or foreign law to prevent the imposition of penalties with respect to any Tax reporting position taken on any Tax Return. Neither the Company nor any of its Subsidiaries has refrained from filing any disclosures under Section 6662 of the Internal Revenue Code or comparable provisions of state, local or foreign law to prevent the imposition of penalties with respect to any Tax reporting position taken on any Tax Return based on or in substantial reliance on advice of outside counsel or other consultants. Neither the Company nor any of its Subsidiaries has ever been a United States real property holding corporation within the meaning of Section 897 of the Internal Revenue Code. Neither the Company nor any of its Subsidiaries has ever been a member of a consolidated, combined or unitary group of which the Company was not the ultimate parent corporation. The Company and each of its Subsidiaries have in their possession receipts for any Taxes paid to foreign Tax authorities. SECTION 3.14 EMPLOYEE BENEFIT PLANS. (a) Section 3.14(a) of the Company Disclosure Schedule lists, with respect to the Company, any Subsidiary of the Company and any trade or business (whether or not incorporated) which is treated as a single employer with the Company (an "ERISA Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the Internal Revenue Code, (i) all material employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (ii) any such employee benefit plan that has been adopted, maintained, contributed to, or required to be contributed to by the Company or any Subsidiary, whether formally or informally, for the benefit of employees outside the United States; (iii) each loan to a non-officer employee in excess of fifty thousand dollars ($50,000), loans to officers and directors and any stock option, stock purchase, phantom stock, stock appreciation right, supplemental retirement, severance, sabbatical, medical, dental, vision care, disability, employee relocation, cafeteria benefit (Internal Revenue Code Section 125) or dependent care (Internal Revenue Code Section 129), life insurance or accident insurance plans, programs or arrangements; (iv) all bonus, pension, profit sharing, savings, deferred compensation or incentive plans, programs or arrangements; (v) other fringe or employee benefit plans, programs or arrangements that apply to senior management of the Company and that do not generally apply to all employees; and (vi) any current or former employment or executive compensation or severance agreements, written or otherwise, as to which unsatisfied obligations of the Company of greater than fifty thousand dollars ($50,000) remain for the benefit of, or relating to, any present or former employee, consultant or director of the Company (collectively, the "Company Employee Plans"). (b) The Company will provide to Parent a copy of each of the Company Employee Plans and related plan documents (including trust documents, insurance policies or contracts, employee booklets, summary plan descriptions and other authorizing documents, and any material employee communications relating thereto) and will, with respect to each Company Employee Plan which is subject to ERISA reporting requirements, provide copies of the Form 5500 reports filed for the last three (3) plan years. Any Company Employee Plan intended to be qualified under Section 401(a) of the Internal Revenue Code either (i) has obtained from the Internal Revenue Service a favorable determination letter as to its qualified status under the Internal Revenue Code, including all amendments to the Internal Revenue Code effected by the 21 Tax Reform Act of 1986 and subsequent legislation other than the Uruguay Round Agreements Act of 1994, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, and the Taxpayer Relief Act of 1997, or (ii) has applied to the Internal Revenue Service for such a determination letter prior to the expiration of the requisite period under applicable Treasury Regulations or Internal Revenue Service pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination or (iii) the requisite period for application has not expired. The Company will also furnish Parent with the most recent Internal Revenue Service determination, opinion, advisory, or notification letter issued with respect to each such Company Employee Plan, and nothing has occurred since the issuance of each such letter which would reasonably be expected to cause the loss of the tax-qualified status of any Company Employee Plan subject to Internal Revenue Code Section 401(a). The Company will also provide to Parent all registration statements and prospectuses prepared in connection with each Company Employee Plan. (c) (i) None of the Company Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person, except as required by applicable law; (ii) there has been no "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Internal Revenue Code, with respect to any Company Employee Plan, which would reasonably be expected to have, in the aggregate, a Company Material Adverse Effect; (iii) each Company Employee Plan has been administered in accordance with its terms and in compliance with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Internal Revenue Code), except as would not have, in the aggregate, a Company Material Adverse Effect, and the Company and each Subsidiary or ERISA Affiliate have performed in all material respects all obligations required to be performed by them under, are not in default in any material respect under or violation of, and have no Knowledge of any material default or violation by any other party to, any of the Company Employee Plans; (iv) neither the Company nor any Subsidiary or ERISA Affiliate is subject to any material liability or material penalty under Sections 4976 through 4980 of the Internal Revenue Code or Title I of ERISA with respect to any of the Company Employee Plans; (v) all material contributions required to be made by the Company or any Subsidiary or ERISA Affiliate to any Company Employee Plan have been made on or before their due dates and a reasonable amount has been accrued for contributions to each Company Employee Plan for the current plan years; (vi) with respect to each Company Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no Company Employee Plan is covered by, and neither the Company nor any Subsidiary or ERISA Affiliate has incurred or expects to incur any liability under Title IV of ERISA or Section 412 of the Internal Revenue Code; and (viii) each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without liability to Parent (other than for benefits accrued through the date of termination and ordinary administrative expenses typically incurred in a termination event). With respect to each Company Employee Plan subject to ERISA or applicable foreign law as an employee pension plan within the meaning of Section 3(2) of ERISA, an employee welfare benefit plan within the meaning of Section 3(1) of ERISA, or an employee compensation, pension, welfare, or other benefit plan under applicable foreign law, the Company has prepared in good faith and timely filed all 22 requisite governmental reports (which were true and correct as of the date filed) and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such Company Employee Plan, except where the failure to do so would not have a Company Material Adverse Effect. No suit, administrative proceeding, action or other litigation has been brought, or to the Knowledge of the Company is threatened, against or with respect to any such Company Employee Plan, including any audit or inquiry by the IRS or United States Department of Labor. (d) With respect to each Company Employee Plan, the Company and each of its United States Subsidiaries have complied except to the extent that such failure to comply would not, individually or in the aggregate, have a Company Material Adverse Effect, with (i) the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the regulations (including proposed regulations) thereunder, (ii) the applicable requirements of the Family Medical and Leave Act of 1993 and the regulations thereunder, and (iii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996 and the regulations (including proposed regulations) thereunder. (e) The consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former employee or other service provider of the Company, any Company Subsidiary or any other ERISA Affiliate to severance benefits or any other payment, except as expressly provided in this Agreement, or (ii) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or service provider, except as may be required by Section 6.9 of this Agreement. Without limiting the generality of the foregoing, the execution and delivery of this Agreement, without more, does not constitute a change in or of control or a termination or constructive termination of employment within the meaning of any severance or option plan or agreement to which the Company or any of its Subsidiaries is a party. (f) There has been no amendment to, written interpretation or announcement (whether or not written) by the Company, any Company Subsidiary or other ERISA Affiliate relating to, or change in participation or coverage under, any Company Employee Plan which would materially increase the expense of maintaining such Plan above the level of expense incurred with respect to that Plan for the most recent fiscal quarter included in the Company's financial statements. (g) The Company does not currently maintain, sponsor, participate in or contribute to, nor has it ever maintained, established, sponsored, participated in, or contributed to, any pension plan (within the meaning of Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Internal Revenue Code. (h) Neither the Company nor any Company Subsidiary or other ERISA Affiliate is a party to, or has made any contribution to or otherwise incurred any obligation under, any "multiemployer plan" as defined in Section 3(37) of ERISA. 23 (i) There is no agreement, contract or arrangement to which the Company or any of its Subsidiaries is a party that may result in the payment of any amount that would not be deductible by reason of Section 280G or Section 404 of the Internal Revenue Code. (j) Each compensation and benefit plan adopted, maintained or contributed to or required to be maintained or contributed to by the Company or any of its Subsidiaries by the law or applicable custom or rule of a jurisdiction outside of the United States (the "Foreign Plans") is listed in Section 3.14(j) of the Company Disclosure Schedule. In regards to each such Foreign Plan (i) all material contributions to, and material payments from, the Foreign Plans which may have been required to be made in accordance with the terms of any such Foreign Plan, and, when applicable, the law, custom and rule of the jurisdiction in which such Foreign Plan is maintained, have been timely made or shall be made by the Closing Date, and all such contributions to the Foreign Plans, and all payments under the Foreign Plans, for any period ending before the Closing Date that are not yet, but will be, required to be made, are reflected as an accrued liability on the Company Balance Sheet, (ii) the Company and each of its Subsidiaries have complied in all material respects with all applicable reporting and notice requirements, and each of the Foreign Plans has obtained from the Governmental Entity having jurisdiction with respect to such plan all required determinations, if any, that such Foreign Plan is in compliance with the laws, customs and rules of the relevant jurisdiction if such determination is required in order to give effect to such Foreign Plan; (iv) each of the Foreign Plans has been administered in all material respects at all times in accordance with its terms and applicable law and regulations. SECTION 3.15 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the Company SEC Documents, neither the Company nor any of its Subsidiaries is indebted to any director, officer or employee of the Company or any of its Subsidiaries (except for amounts due as normal salaries and bonuses and in reimbursement of ordinary expenses), and no such person is indebted to the Company or any of its Subsidiaries, and there are no other transactions of the type required to be disclosed pursuant to Item 404 of Regulation S-K under the Securities Act and the Exchange Act. SECTION 3.16 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. At the Closing neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will: (i) result in any payment (including severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any, current or former, director or employee or service provider of the Company or any of its Subsidiaries; (ii) increase any benefits otherwise payable by the Company or its Subsidiaries; or (iii) result in the acceleration of the time of payment or vesting of any such benefits. SECTION 3.17 EMPLOYEE MATTERS. (a) Neither the Company nor any of its Subsidiaries is a party to any collective bargaining or other labor union contract applicable to employees of the Company or any of its Subsidiaries, no collective bargaining agreement is being negotiated by the Company or any of its Subsidiaries and neither the Company nor any of its Subsidiaries has any duty to bargain with any labor organization with respect to such persons. There is no pending demand for recognition or any other request or demand from a labor organization for representative status with respect to any persons employed by the Company or any of its Subsidiaries. There is no 24 labor dispute, strike or work stoppage against the Company or any of its Subsidiaries pending or, to the Knowledge of the Company, threatened which may interfere with the respective business activities of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries, or, to the Knowledge of the Company, any of their respective representatives or employees, has committed any unfair labor practices in connection with the operation of the respective businesses of the Company or any of its Subsidiaries, and there is no charge or complaint against the Company or any of its Subsidiaries by the National Labor Relations Board or any comparable Governmental Entity pending or, to the Knowledge of the Company, threatened. Neither the Company nor any of its Subsidiaries have any pending contract grievances under any collective bargaining agreements, other administrative charges, claims, grievances or lawsuits before any Governmental Entity or arbiter or arbitrator arising under any laws govern employment and, to the Knowledge of the Company and its Subsidiaries, there exist no facts that could reasonably be expected to give rise to such a claim. (b) The Company and each of its Subsidiaries are in compliance in all material respects with all currently applicable laws and regulations respecting employment, discrimination in employment, terms and conditions of employment, wages, hours and occupational safety and health and employment practices. The Company has in all material respects withheld all amounts required by law or by agreement to be withheld from the wages, salaries, and other payments to employees; and is not liable for any material arrears of wages or any material taxes or any material penalty for failure to comply with any of the foregoing. The Company is not liable for any material payment to any trust or other fund or to any Governmental Entity, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending claims against the Company or any of its Subsidiaries for any material amounts under any workers compensation plan or policy or for long term disability. Neither the Company nor any of its Subsidiaries has any obligations under COBRA with respect to any former employees or qualifying beneficiaries thereunder, except for obligations that are not material in amount. There are no material controversies pending or, to the Knowledge of the Company or any of its Subsidiaries, threatened, between the Company or any of its Subsidiaries and any of their respective employees, which controversies have or could reasonably be expected to result in an action, suit, proceeding, claim, arbitration or investigation before any Governmental Entity. (c) To the Company's Knowledge, no employees of the Company or any of its Subsidiaries are in violation of any term of any employment contract, patent disclosure agreement, noncompetition agreement, or any restrictive covenant to a former employer relating to the right of any such employee to be employed by the Company or its Subsidiaries because of the nature of the business conducted or presently proposed to be conducted by the Company or any of its Subsidiaries, or to the use of trade secrets or proprietary information of others. No employees of the Company or any of its Subsidiaries material to the conduct of their respective businesses have given written notice to the Company, nor is the Company otherwise aware, that any such employee intends to terminate his or her employment with the Company or any of its Subsidiaries. (d) The Company and its Subsidiaries will provide to Parent a list of the names, positions, rates and elements of compensation for all officers, directors, employees, 25 advisory board members and consultants of the Company and its Subsidiaries who are currently receiving compensation or other benefits or remuneration from the Company and its Subsidiaries, showing each such person's name, positions, an annual remuneration, bonuses and benefits for the current fiscal year and the most recently completed fiscal year. (e) With respect to any persons employed by the Company or any of its Subsidiaries, (i) the Company and the Company's Subsidiaries have not violated any legal requirement prohibiting discrimination on the basis of race, color, national origin, sex, religion, age, marital status, or handicap in its employment conditions or practices; and (ii) there are no pending or, to the Knowledge of the Company and the Company's Subsidiaries, threatened discrimination complaints relating to race, color, national origin, sex, religion, age, marital status, or handicap against the Company or its Subsidiaries, before any governmental entity nor, to the Knowledge of the Company and its Subsidiaries, does any basis therefor exist. (f) The Company and its Subsidiaries have complied, in all material respects, with all laws governing the employment of personnel by U.S. companies and the employment of non-U.S. nationals in the United States, including the Immigration and Nationality Act 8 U.S.C. Sections 1101 et seq. and its implementing regulations. (g) Intentionally omitted. (h) Section 3.17(h) of the Company Disclosure Schedule lists all non-U.S. employees of the Company or its Subsidiaries showing each such person's name, title (if applicable), city/country of employment, rate of annual remuneration, citizenship, stock option grants, terms and conditions of employment not in the ordinary course of business, manager's name and work location. SECTION 3.18 INSURANCE. Section 3.18 of the Company Disclosure Schedule lists all Company insurance policies as of the July 2, 2001. The Company and each of its Subsidiaries have policies of insurance and bonds of the type and in amounts customarily carried by persons conducting businesses or owning assets similar to those of the Company and its Subsidiaries. There is no material claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and the Company and its Subsidiaries are otherwise in compliance in all material respects with the terms of such policies and bonds. The Company has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. SECTION 3.19 COMPLIANCE WITH LAWS. Each of the Company and its Subsidiaries has complied in all material respects with, are not in violation of, and have not received any written or, to the Knowledge of the Company, other notices of violation with respect to, any federal, state, local or foreign statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business. Without limiting the generality of the foregoing, the Company has conducted its export transactions in accordance with applicable provisions of United States export control laws and regulations, including to the Export Administration Act and implementing Export Administration Regulations, except for such violations which could not reasonably be expected to have a Company Material Adverse Effect. Without limiting the 26 foregoing, except as could not reasonably be expected to have a Company Material Adverse Effect: (a) the Company has obtained all export licenses and other approvals required for its exports of products, software and technologies from the United States; (b) the Company is in compliance with the terms of all applicable export licenses or other approvals; (c) there are no pending or, to the Knowledge of the Company, threatened claims against the Company with respect to such export licenses or other approvals; (d) there are no actions, conditions or circumstances pertaining to the Company's export transactions that may give rise to any future claims; and (e) no consents or approvals for the transfer of export licenses to Parent are required, or such consents and approvals can be obtained without material cost and without undue delay. SECTION 3.20 INFORMATION TO BE SUPPLIED. No representation or warranty is made by the Company with respect to statements made or incorporated by reference in the Proxy Statement or the Schedule 14D-9 based on information supplied by Parent or Merger Sub expressly for inclusion or incorporation by reference therein or based on information which is not made in or incorporated by reference in such documents but which should have been disclosed pursuant to Section 4.4. SECTION 3.21 VOTE REQUIRED. If required, the affirmative vote of the holders of a majority of the shares of the Company Common Stock outstanding on the record date set for the Company Stockholders Meeting is the only vote of the holders of any of the Company's capital stock necessary to adopt this Agreement. SECTION 3.22 SYNOPSYS AGREEMENT. The Synopsys Agreement has been terminated in accordance with its terms, and the Company's only liability for such termination was the payment of the termination fee as set forth in Section 8.3 of the Synopsys Agreement. SECTION 3.23 BOARD APPROVAL; RIGHTS AGREEMENT; STATE TAKEOVER STATUTES. The Board of Directors of the Company has unanimously (i) approved this Agreement, the Offer and the Merger, (ii) determined that this Agreement, the Offer and the Merger are advisable and in the best interests of the stockholders of the Company and are on terms that are fair to such stockholders, (iii) recommended that the stockholders of the Company adopt this Agreement and approve the consummation of the Offer and the Merger and (iv) taken all action to the extent necessary so that neither Parent nor Merger Sub will become an "Acquiring Person" and that no "Triggering Event," "Distribution Date," "Flip-In Event," "Flip-Over Event" or "Stock Acquisition Date" (as such terms are defined in the Amended and Restated Rights Agreement dated as of January 22, 1999 between the Company and Bank Boston, N.A. (as Rights Agent) (the "Rights Agreement")) will occur as a result of the approval, execution, delivery or performance of this Agreement and the Offer, or the consummation of the Offer and the Merger 27 pursuant to this Agreement, or the consummation of the transactions contemplated hereby or thereby. Assuming the accuracy of Parent's representation set forth in Section 4.5 of this Agreement, the Board of Directors' approval of this Agreement, the Offer and the Merger is sufficient to render inapplicable to this Agreement, the Offer, the Merger, and the transactions contemplated by this Agreement, the restrictions of Section 203 of the DGCL to the extent, if any, such Section is applicable to this Agreement, the Offer, the Merger, or the transactions contemplated by this Agreement. No other state takeover statute or similar statute or regulation applies to or purports to apply to this Agreement, the Offer, the Merger, or the transactions contemplated by this Agreement. SECTION 3.24 BROKERS' AND FINDERS' FEES; OPINION OF FINANCIAL ADVISER. The Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby, except as specified in the Needham Letter. The Company further represents that Needham & Company, Inc. has delivered to the Company's Board of Directors its written opinion that the consideration to be paid in the Offer and the Merger is fair to the holders of shares of Company Common Stock (other than Parent, Merger Sub or their affiliates) from a financial point of view. SECTION 3.25 CUSTOMERS AND SUPPLIERS; BACKLOG. As of July 2, 2001, none of the Company's customers which individually accounted for more than five percent (5%) of the Company's gross revenues during the 12-month period preceding the Company Balance Sheet Date has terminated or materially reduced, or indicated in writing, or to the Knowledge of the Company, otherwise to the Company that it intends to terminate or materially reduce, any agreement with the Company. As of July 2, 2001, no material supplier of the Company has indicated in writing, or to the Knowledge of the Company, otherwise that it will stop, or decrease the rate of, supplying materials, products or services to the Company. All orders contained in Backlog have been accepted by the Company and the customer without exception to any of the original terms of the order and the Company has received no notice that any such customer intends to cancel its order, nor does the Company have a substantial basis to believe any such cancellation is likely. SECTION 3.26 NO DEFAULT. Neither the Company nor any of its Subsidiaries is, and has not received written, or to the Knowledge of the Company, other notice that it is or would be with the passage of time, (a) in violation of any provision of its Certificate of Incorporation or Bylaws or other organizational documents, or (b) in default or violation with any term, condition or provisions of (i) any judgment, decree, order, injunction or stipulation applicable to the Company or its Subsidiaries or (ii) any agreement, note, mortgage, indenture, contract, lease, instrument, permit, concession, franchise or license to which the Company or its Subsidiaries are party or by which their assets or properties are bound, except where such default or violation could not reasonably be expected to result in a Company Material Adverse Effect. SECTION 3.27 OTHER AGREEMENTS. As of the date hereof, neither the Company nor any of its Subsidiaries has entered into any agreement or transaction with any person or entity who is a competitor of Parent having the effect of materially diminishing the expected economic value to Parent of the acquisition of the Company, including any agreement by which such a competitor is granted original equipment manufacturing, marketing or other rights. 28 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub represent and warrant to the Company that the statements contained in this Article IV are true and correct except as set forth herein. SECTION 4.1 ORGANIZATION, STANDING AND POWER. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each of Parent and Merger Sub has the corporate power to own its properties and to carry on its business as now being conducted and as proposed to be conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified and in good standing could reasonably be expected to have a Parent Material Adverse Effect. Neither Parent nor Merger Sub is in violation of any of the provisions of its Certificate of Incorporation or Bylaws or equivalent organizational documents. SECTION 4.2 AUTHORITY. Parent and Merger Sub have all requisite corporate power and authority to enter into 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 authorized by all necessary corporate action on the part of Parent and Merger Sub. This Agreement has been duly executed and delivered by Parent and Merger Sub and, assuming the due authorization, execution and delivery of this Agreement by the Company, constitutes the valid and binding obligation of Parent and Merger Sub enforceable against Parent and Merger Sub in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights and remedies of creditors generally and general principles of equity. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a benefit under (i) any provision of the Certificate of Incorporation or Bylaws of Parent or any of its Subsidiaries, as amended, or (ii) any material mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or any of its Subsidiaries or any of their properties or assets. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity, is required by or with respect to Parent or any of its Subsidiaries in connection with the execution and delivery of this Agreement by Parent and Merger Sub or the consummation by Parent and Merger Sub of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger provided in Section 2.2; (ii) the filing with the SEC and the NASD of an amendment to the Schedule TO and Schedule 13D; (iii) the filing of a Form 8-K and Schedule 13D with the SEC and the NASD within fifteen (15) days after the Closing Date; (iv) any filings as may be required under applicable state securities laws and the securities laws of any foreign country; (v) such filings as may be required under the HSR Act; (vi) filings pursuant to Rule 165 and Rule 425 of the Securities Act; and (vii) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Parent Material Adverse Effect and would not prevent or materially alter or delay any of the transactions contemplated by this Agreement. 29 SECTION 4.3 LITIGATION. There is no litigation, arbitration or investigation pending against Parent or any of its Subsidiaries before any Governmental Entity, or, to the Knowledge of Parent, threatened against Parent or any of its Subsidiaries or any of their respective properties that, individually or in the aggregate, could reasonably be expected to materially and adversely affect the ability of Parent or its Subsidiaries to consummate the transactions contemplated by this Agreement. There is no judgment, decree or order against Parent or any of its Subsidiaries, or, to the Knowledge of Parent, any of their respective directors or officers (in their capacities as such), that would prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. SECTION 4.4 INFORMATION TO BE SUPPLIED. (a) Each of the Offer Documents and the other documents required to be filed by Parent with the SEC in connection with the Offer, the Merger and the other transactions contemplated hereby will comply as to form, in all material respects, with the requirements of the Exchange Act and will not, on the date of its filing, and none of the information supplied or to be supplied by Parent or Merger Sub expressly for inclusion or incorporation by reference in the Schedule 14D-9 or the Proxy Statement will, in the case of the Schedule 14D-9, at the time the Schedule 14D-9 is filed with the SEC and first published, sent or given to the Company's stockholders or, in the case of the Proxy Statement on the dates the Proxy Statement is mailed to stockholders of the Company and at the time of the Company Stockholders Meeting, 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. (b) Notwithstanding the foregoing provisions of this Section 4.4, no representation or warranty is made by Parent with respect to statements made or incorporated by reference in the Offer Documents, the Schedule 14D-9 or Proxy Statement based on information supplied by the Company expressly for inclusion or incorporation by reference therein. SECTION 4.5 BOARD APPROVAL. The Boards of Directors of Parent and Merger Sub, as the case may be, have (i) approved this Agreement and the Merger, (ii) determined that the Offer and the Merger are advisable and in the best interests of their respective stockholders and are on terms that are fair to such stockholders and (iii) recommended that the stockholder of Merger Sub adopt this Agreement and approve the consummation of the Offer and the Merger. The stockholder of Merger Sub has adopted this Agreement and approved the consummation of the Offer and the Merger. No vote of the stockholders of Parent is required under applicable law or Nasdaq National Market rules in connection with this Agreement, the Offer or the Merger. SECTION 4.6 BROKER'S AND FINDERS' FEES. Parent has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby. SECTION 4.7 PARENT OWNED SHARES OF COMPANY COMMON STOCK. Parent, Merger Sub and their respective Subsidiaries beneficially own an aggregate of 841,600 shares of Company Common Stock. 30 SECTION 4.8 NO FINANCING CONDITION. Parent and Merger Sub have adequate funds available to fund all obligations hereunder. ARTICLE V. CONDUCT PRIOR TO THE EFFECTIVE TIME SECTION 5.1 CONDUCT OF BUSINESS OF COMPANY. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, the Company agrees (except to the extent expressly contemplated by this Agreement), to carry on its and its Subsidiaries' business in the ordinary course in substantially the same manner as heretofore conducted, to pay and to cause its Subsidiaries to pay debts and Taxes when due subject to good faith disputes over such debts or taxes, to pay or perform other material obligations when due, and to use its commercially reasonable efforts consistent with past practice and policies to preserve intact its and its Subsidiaries' present business organizations, use its commercially reasonable efforts consistent with past practice to keep available the services of its and its Subsidiaries' present officers and key employees and use its commercially reasonable efforts consistent with past practice to preserve its and its Subsidiaries' relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it or its Subsidiaries, to the end that its and its Subsidiaries' goodwill and ongoing businesses shall be unimpaired at the Effective Time. The Company agrees to promptly notify Parent of any material event or occurrence not in the ordinary course of its or its Subsidiaries' business, and of any event which could reasonably be expected to have a Company Material Adverse Effect. Without limiting the generality of the foregoing, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, the Company shall not do, cause or permit any of the following actions, or allow, cause or permit any of its Subsidiaries to do, cause or permit any of the following actions: (a) Charter Documents. cause or permit any amendments to its Certificate of Incorporation or Bylaws; (b) Dividends; Changes in Capital Stock. declare or pay any cash or property dividends on or make any other cash or property distributions in respect of any of its capital stock, or repurchase or otherwise acquire, directly or indirectly, any shares of its capital stock except from former employees, directors and consultants in accordance with the Company's standard or usual (as at the date hereof) agreements providing for the repurchase of shares in connection with any termination of service to it or its Subsidiaries; (c) Stock Option Plans, Etc. take any action to accelerate, amend or change the period of exercisability or vesting, or waive any repurchase rights, in respect of options or other rights granted under the Company Stock Option Plans or authorize cash payments in exchange for any options or other rights granted under any of such plans or with respect to any restricted stock. (d) Material Contracts. enter into any contract or commitment involving payments by the Company or its Subsidiaries in excess of five hundred thousand dollars ($500,000) individually or three million dollars ($3,000,000) in the aggregate or which are 31 otherwise material to the Company and its Subsidiaries (excluding sales of products or purchases of supplies in the ordinary course of business consistent with past practice), or violate, amend or otherwise modify or waive any of the terms of any of its material contracts; (e) Issuance of Securities. issue, deliver, encumber or, sell, authorize or propose the issuance, delivery, encumbrance, or sale of, or purchase or propose the purchase of, any shares of its or its Subsidiaries' capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities, other than (i) the issuance of shares of its Common Stock pursuant to the exercise of stock options, warrants or other rights therefor outstanding as of the date of this Agreement, (ii) the grant of stock options under Company Stock Option Plans to employees and non-employee directors in the ordinary course of business (not to exceed the Authorized Option Shares), with an exercise price equal to the fair market value of the Company Common Stock on the date of grant and otherwise on terms (including vesting schedules) consistent with the Company's past practice with similarly situated employees, (iii) issuance of shares of Company Common Stock to participants in the Company ESPP pursuant to the terms thereof and (iv) the repurchase of Company Common Stock from former employees, directors and consultants in accordance with the Company's standard or usual (as at the date hereof) agreements providing for the repurchase of shares in connection with any termination of service; (f) Intellectual Property. transfer or license to any person or entity any rights to its Intellectual Property other than the license of non-exclusive rights to its Intellectual Property except for standard tool integrations, joint marketing and joint promotional arrangements entered into by the Company and another entity, in each case in the ordinary course of business consistent with past practice; (g) Exclusive Rights. enter into or amend any agreements pursuant to which any other party is granted exclusive marketing or other exclusive rights of any type or scope with respect to any of its products or technology; (h) Indebtedness. incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others other than pursuant to the Modification of Revolving Credit and Security Agreement, dated March 27, 2001 by and between the Company and Comerica Bank; (i) Insurance. materially reduce the amount or scope of any material insurance coverage provided by existing insurance policies; (j) Termination or Waiver. terminate or waive any right or claim of substantial value under contracts listed under Section 3.11(b) of the Company Disclosure Schedule or in connection with any litigation disclosed in the Company SEC Documents; (k) Employee Benefit Plans; Pay Increases. adopt or amend any employee benefit or stock purchase or option plan, pay any special bonus or special remuneration to any employees or consultants or directors (except as in accordance with the Bonus Plan), or increase the salaries, wage rates, target incentive percentages or fringe benefits or otherwise increase the 32 benefits of its employees or consultants or directors other than pursuant to scheduled annual performance reviews, except, in each case, for modifications in the ordinary course of business consistent with the Company's past practices, any amendments to any Company Employee Plan that may be required by applicable law, and any other incentive or retention bonuses or amendments or modifications to any Company Employee Plan that (i) the Company's board of directors approves and reasonably believes necessary in order for the Company to compete effectively with businesses of a similar nature to the Company's business and (ii) are paid or accrued on the Company's Financial Statements for a period ending not later than June 30, 2002. (l) Labor Agreements. enter into any employment contract (other than an offer letter for at will employment) or, except if required by applicable law, any collective bargaining agreement. (m) Severance Arrangements. grant any severance or termination pay, or any additional notice of termination, to, or grant any acceleration or extension of the exercisability or vesting of any equity securities held by, (i) any director or officer, or (ii) any other employee except, payments and stock option grants required by standard written agreements which are in force on the date hereof or are in the ordinary course of business consistent with past practice in nature and amount and provided, in each case, that such amounts shall be paid or accrued on the Company's Financial Statements for a period ending not later than June 30, 2002; (n) Lawsuits. commence a lawsuit other than (i) for the routine collection of obligations, (ii) in such cases where it in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business, or (iii) for a breach of this Agreement; (o) Acquisitions. acquire or agree to acquire any business, corporation, limited liability company, partnership, association, entity, or other business organization or division thereof (whether by merger, consolidation, share exchange, reorganization, stock purchase, asset purchase, or otherwise) or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to its and its Subsidiaries' business, taking the Company together with its Subsidiaries as a whole (except for purchases of supplies and components in the ordinary course of business consistent with past practice), or acquire or agree to acquire any equity securities of or interests in any corporation, partnership, limited liability company, association, entity, or business organization, or enter into any material strategic relationships or alliances, except for standard tool integrations, joint marketing and joint promotional arrangements entered into by the Company and another entity in the ordinary course of business consistent with past practice; (p) Taxes. make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, file any material Tax Return or any amendment to a material Tax Return, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; 33 (q) Revaluation. write down the value of inventory or write off notes or accounts receivable or otherwise revalue any of its assets except in a manner consistent with past practice; (r) Accounting Policies and Procedures. make any change to its accounting methods, principles, assumptions, policies (including reserve policies), procedures or practices, except as may be required by GAAP, Regulation S-X promulgated by the SEC or applicable statutory accounting principles; or (s) Other Agreements. enter into any agreement or transaction with any person or entity who is a competitor of Parent having the effect of materially diminishing the expected economic value to Parent of the acquisition of the Company, including any agreement by which such a competitor is granted original equipment manufacturing, marketing or other rights. (t) Other. take or agree in writing or otherwise to take any of the actions described in Section 5.1(a) through (s). SECTION 5.2 NO SOLICITATION. From and after the date hereof until the earlier of the Effective Time or the termination of this Agreement in accordance with Article VIII, the Company and each of its Subsidiaries and the officers, directors, and other agents, representatives and advisors (including any investment bankers, attorneys or accountants) of the Company or any of its Subsidiaries (collectively, "Company Representatives") shall not, directly or indirectly (and the Company shall not permit any of its or its Subsidiaries' other employees to), (a) take any action to solicit, initiate, intentionally encourage, or facilitate any Takeover Proposal, or (b) subject to the terms of the immediately following sentence, engage in any discussions or negotiations with, or disclose any nonpublic information relating to the Company or any of it Subsidiaries to, or afford access to the properties, books or records of the Company or any of its Subsidiaries to, any person that has advised the Company that such person may be considering making a Takeover Proposal (or that the Board of Directors or officers of the Company has reason to believe is seeking to make, or that has made, a Takeover Proposal) (each such person, a "Competing Bidder"), or endorse, approve or recommend any Takeover Proposal or enter into any agreement (including any letter of intent, preliminary agreement or similar arrangement) providing for any Takeover Proposal; provided that nothing herein shall prohibit the Board of Directors of the Company from complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act. If prior to the acceptance for payment of shares of Company Common Stock pursuant to the Offer (i) a bona fide unsolicited written Takeover Proposal shall be received by the Board of Directors of the Company, and (ii) the Board of Directors of the Company determines in good faith (after consultation with its outside financial advisor and after considering all terms and conditions of such Takeover Proposal, including the likelihood and timing of its consummation) that such Takeover Proposal would result in a transaction more favorable to the Company's stockholders from a financial point of view than the Merger as contemplated by this Agreement (any such more favorable Takeover Proposal being referred to in this Agreement as a "Superior Proposal"), and (iii) the Board of Directors of the Company determines in good faith, after consultation with outside legal counsel, that it is necessary in order for the Board of Directors of the Company to comply with its fiduciary duties to stockholders under applicable law, and (iv) the Company has notified Parent of such 34 determination by the Board of Directors of the Company and has provided Parent with true and complete copies of the Takeover Proposal received from the Competing Bidder and the financial assumptions and projections reviewed and relied upon by the Board of Directors of the Company in determining that a Takeover Proposal constitutes a Superior Proposal, then Company Representatives may engage in discussions and negotiations with the Competing Bidder, disclose nonpublic information relating to the Company and its Subsidiaries to the Competing Bidder, afford access to the properties, books or records of the Company and its Subsidiaries to the Competing Bidder, modify or withdraw its Recommendation, recommend such Superior Proposal to the stockholders of the Company, and (subject to Section 8.3(b)) approve the entering (but not enter) into an agreement for a Superior Proposal in accordance with Section 8.1(g), subject to compliance with each of the following requirements: (X) prior to furnishing such information, engaging in such discussions or negotiations, disclosing such nonpublic information, or affording such access, the Company shall provide to Parent all documents containing or referring to non-public information of the Company that are supplied to the Competing Bidder; and (Y) the Company shall enter into a nondisclosure agreement with the Competing Bidder containing, and shall provide such non-public information subject to, terms at least as restrictive on the Competing Bidder as the confidentiality agreement contained in Section 6.4(e)-(g) is on Parent; and (Z) the Company shall provide Parent at least three (3) business days prior notice before any modification or withdrawal of its Recommendation or any recommendation of a Superior Proposal or any approval of the entering into of an agreement for a Superior Proposal in accordance with Section 8.1(g) and Section 8.3(b). The Company shall immediately notify Parent after receipt of any Takeover Proposal, any inquiry looking toward a Takeover Proposal, or any request for non-public information relating to the Company or any of its Subsidiaries or for access to the properties, books or records of the Company or any of its Subsidiaries by any person that has made (or that the Company has reason to believe is considering making), a Takeover Proposal (such notice to include the identity of the person or persons making such proposal, inquiry, or request), and will keep Parent fully informed of the status and details of any such proposal, inquiry, or request (including all terms and conditions and modifications thereto) and shall provide Parent with a true and complete copy of such proposal, inquiry, or request and any amendment thereto, if it is in writing, or a written summary of the material terms thereof, if it is not in writing. The Company shall immediately cease and cause to be terminated all existing discussions or negotiations with any persons (other than Parent) conducted heretofore with respect to a Takeover Proposal. Promptly following the signing and delivery of this Agreement the Company shall inform all employees of the Company and its Subsidiaries of the actions which the Company is prohibited from taking by the first sentence of this Section 5.2 and shall direct each such employee to refrain from taking any such action. The Company shall further inform all such employees that any violation of such direction shall be grounds for immediate termination of employment. The Company shall not be considered to be in breach of the first sentence of this Section 5.2 with respect to the acts of any employee who is not a Company Representative unless such acts were performed at the direction or with the knowledge of a Company Representative. 35 ARTICLE VI. ADDITIONAL AGREEMENTS SECTION 6.1 PREPARATION OF PROXY STATEMENT. (a) If required by applicable law in order to consummate the Offer and the Merger, at the request of Parent and in accordance with applicable law, the Company and Parent shall prepare and the Company shall file with the SEC (if necessary), preliminary proxy materials relating to the approval of the Merger and the adoption of this Agreement by the stockholders of the Company. As promptly as practicable following receipt of SEC comments thereon, if any, or upon receipt of notification that the SEC will not comment thereon, the Company shall file with the SEC definitive proxy materials (such proxy materials as amended or supplemented are referred to herein as the "Proxy Statement") which comply in form with applicable SEC requirements. The Company and Parent will notify each other promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Proxy Statement or any other filing or for additional information and will supply each other with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Proxy Statement or other filing. Whenever any event occurs that is required to be set forth in an amendment or supplement to the Proxy Statement or any other filing, the Company shall promptly inform Parent of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to stockholders of the Company, such amendment or supplement. If required, the Proxy Statement shall solicit the approval of the Merger and adoption of this Agreement by the stockholders of the Company and shall include the approval of this Agreement and the Merger by the Board of Directors of the Company and, subject to the fiduciary duties of the directors of the Company and the provisions of Section 5.2, Section 8.1(e), and Section 8.3(b)(i), the recommendation of the Board of Directors of the Company to the Company's stockholders that they vote in favor of the adoption of this Agreement (provided that the Board of Directors of the Company may exclude such recommendation if, pursuant to Section 5.2, it is permitted to endorse or recommend a Superior Proposal) and shall include the opinion of the Company's financial advisors as described in Section 3.24 (unless subsequently withdrawn). (b) Each of Parent and the Company shall provide promptly to the other such information concerning its business and financial statements and affairs as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the Proxy Statement, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with the other with the other's counsel and auditors in the preparation of the Proxy Statement. Each of the Company and Parent will respond to any comments of the SEC and the Company will cause the Proxy Statement to be mailed to its stockholders at the earliest practicable time after clearance by the SEC. SECTION 6.2 MEETING OF STOCKHOLDERS. If required by applicable law in order to consummate the Offer and the Merger, at the request of Parent, the Company shall promptly take all action necessary in accordance with the DGCL and its Certificate of Incorporation and Bylaws to convene a meeting of the Company's stockholders, to consider the Merger (the 36 "Company Stockholders Meeting"). The Company shall consult with Parent regarding the date of the Company Stockholders Meeting and shall not postpone or adjourn (other than for the absence of a quorum) the Company Stockholders Meeting without the consent of Parent. Subject to Section 6.1, if required the Company shall use its commercially reasonable efforts to solicit from stockholders of the Company proxies in favor of adoption of this Agreement and shall take all other action reasonably necessary or advisable to secure the vote or consent of stockholders required to effect the Merger. SECTION 6.3 ACCESS TO INFORMATION. (a) The Company shall afford Parent and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Effective Time to (i) all of the Company's and its Subsidiaries' properties, books, contracts, commitments and records, and (ii) all other information concerning the business, properties and personnel of the Company and its Subsidiaries as Parent may reasonably request. The Company agrees to provide to Parent and its accountants, counsel and other representatives copies of internal financial statements promptly upon request. (b) No information or knowledge obtained in any investigation pursuant to this Section 6.3 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Offer and the Merger. (c) The Company shall provide Parent and its accountants, counsel and other representatives reasonable access, during normal business hours during the period prior to the Effective Time, to all of the Company's and Subsidiaries Tax Returns and other records and workpapers relating to Taxes, and shall also provide the following information upon the request of Parent or its Subsidiaries: (i) a schedule of the types of Tax Returns being filed by the Company and each of its Subsidiaries in each taxing jurisdiction, (ii) a schedule of the year of the commencement of the filing of each such type of Tax Return, (iii) a schedule of all closed years with respect to each such type of Tax Return filed in each jurisdiction, (iv) a schedule of all material Tax elections filed in each jurisdiction by the Company and each of its Subsidiaries, (v) a schedule of any deferred intercompany gain with respect to transactions to which the Company or any of its Subsidiaries has been a party, and (vi) receipts for any Taxes paid to foreign Tax authorities. The Company shall also, promptly upon Parent's request during the period prior to the Effective Time, prepare and provide the following information to Parent and its accountants, counsel and other representatives in a form reasonably acceptable to Parent: (i) such transfer-pricing information, studies and documentation as may be requested by Parent relating to transactions between the Company and any of its Subsidiaries (and any other related parties); (ii) such information, studies and documentation relating to the amount and use of net operating losses and Tax credits by Company and its Subsidiaries as may be requested by Parent and (iii) such records and information as may be requested by Parent substantiating any Tax credits claimed or to be claimed by the Company and any of its Subsidiaries. SECTION 6.4 CONFIDENTIALITY. (a) Intentionally omitted. 37 (b) The Company shall keep confidential all information and knowledge concerning Parent obtained from Parent or any of its advisers in connection with this Agreement or the consideration by the Company of a possible transaction with the Parent, or the effectuation of the transactions contemplated by this Agreement, including all notes, analyses, compilations, studies, interpretations, or other documents prepared by the Company which contain, reflect or are based upon, in whole or in part, the information furnished to the Company (the "Parent Confidential Information"); provided, however, that the foregoing shall not apply to information or knowledge which (i) the Company can demonstrate was already lawfully in its possession prior to the disclosure thereof by Parent, (ii) has been approved in writing for use or disclosure by Parent, (iii) is or becomes generally known to the public and does not become so known through any violation of law or this Agreement by the Company, (iv) is later lawfully acquired by the Company from other sources, (v) is required to be disclosed by order of court or government agency after seeking any reasonably available protection against general disclosure, (vi) is required to be disclosed in the course of any litigation between any of the parties hereto and is disclosed in accordance with any protective order or confidentiality order or arrangement applicable thereto, or (vii) is independently developed by the Company without the use of any Parent Confidential Information; it being understood that the Company may disclose relevant information and knowledge to its employees and agents on a "need to know" basis, provided that the Company causes such employees and agents to treat such information and knowledge confidentially. (c) The Company agrees that it shall use the Parent Confidential Information solely for the purpose of effectuating the transactions contemplated by this Agreement, that the Parent Confidential Information shall be kept confidential and that the Company shall not disclose any of the Parent Confidential Information in any manner whatsoever except as permitted in Section 6.4. The Company agrees to be responsible for any breach of Section 6.4 and agrees, at its sole expense, to take all reasonable measures (including court proceedings) to restrain its representatives (including attorneys, accountants, consultants, bankers, and financial advisors) from prohibited or unauthorized disclosure of the Parent Confidential Information. (d) In the event that the Company is requested or required (by deposition, interrogatories, requests for information or documents or other discovery mechanism in legal proceedings, subpoena, civil investigative demand or other similar process) to disclose any of the Parent Confidential Information, the Company shall provide Parent with prompt written notice of any such request or requirement so that Parent may seek a protective order or other appropriate remedy or waive compliance with the provisions of this Agreement. If, in the absence of a protective order or other remedy or the receipt of a waiver by Parent, the Company is nonetheless, in the written opinion of its counsel, legally compelled to disclose the Parent Confidential Information to any court or tribunal or else stand liable for contempt or suffer other censure or penalty, the Company may, without liability hereunder, disclose to such court or tribunal only that portion of the Parent Confidential Information which such counsel advises the Company is legally required to be disclosed, provided that the Company exercises its commercially reasonable efforts to preserve the confidentiality of the Parent Confidential Information, including by cooperating with Parent to obtain an appropriate protective order or other assurance that confidential treatment will be accorded the Parent Confidential Information by such court or tribunal. 38 (e) Parent shall keep confidential all information and knowledge concerning the Company obtained from the Company or any of its advisers in connection with this Agreement or the consideration by Parent of a possible transaction with the Company, or the effectuation of the transactions contemplated by this Agreement, including all notes, analyses, compilations, studies, interpretations, or other documents prepared by Parent which contain, reflect or are based upon, in whole or in part, the information furnished to Parent (the "Company Confidential Information"); provided, however, that the foregoing shall not apply to information or knowledge which (i) Parent can demonstrate was already lawfully in its possession prior to the disclosure thereof by the Company, (ii) has been approved in writing for use or disclosure by the Company, (iii) is or becomes generally known to the public and does not become so known through any violation of law or this Agreement by Parent, (iv) is later lawfully acquired by Parent from other sources, (v) is required to be disclosed by order of court or government agency after seeking any reasonably available protection against general disclosure, (vi) is required to be disclosed in the course of any litigation between any of the parties hereto and is disclosed in accordance with any protective order or confidentiality order or arrangement applicable thereto, or (vii) is independently developed by Parent without the use of any Company Confidential Information; it being understood that Parent may disclose relevant information and knowledge to its employees and agents on a "need to know" basis, provided that Parent causes such employees and agents to treat such information and knowledge confidentially. (f) Parent agrees that it shall use the Company Confidential Information solely for the purpose of effectuating the transactions contemplated by this Agreement, that the Company Confidential Information shall be kept confidential and that Parent shall not disclose any of the Company Confidential Information in any manner whatsoever except as permitted in Section 6.4. Parent agrees to be responsible for any breach of Section 6.4 and agrees, at its sole expense, to take all reasonable measures (including court proceedings) to restrain its representatives (including attorneys, accountants, consultants, bankers, and financial advisors) from prohibited or unauthorized disclosure of the Company Confidential Information. (g) In the event that Parent is requested or required (by deposition, interrogatories, requests for information or documents or other discovery mechanism in legal proceedings, subpoena, civil investigative demand or other similar process) to disclose any of the Company Confidential Information, Parent shall provide the Company with prompt written notice of any such request or requirement so that the Company may seek a protective order or other appropriate remedy or waive compliance with the provisions of this Agreement. If, in the absence of a protective order or other remedy or the receipt of a waiver by the Company, Parent is nonetheless, in the written opinion of its counsel, legally compelled to disclose the Company Confidential Information to any court or tribunal or else stand liable for contempt or suffer other censure or penalty, Parent may, without liability hereunder, disclose to such court or tribunal only that portion of the Company Confidential Information which such counsel advises Parent is legally required to be disclosed, provided that Parent exercises its commercially reasonable efforts to preserve the confidentiality of the Company Confidential Information, including by cooperating with the Company to obtain an appropriate protective order or other assurance that confidential treatment will be accorded the Company Confidential Information by such court or tribunal. 39 (h) In the event this Agreement is terminated pursuant to Section 8.1 this Section 6.4 shall survive indefinitely and otherwise shall survive until the Effective Time. SECTION 6.5 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement, Parent and the Company shall consult with each other before issuing any press release or otherwise making any public statement or making any other public (or non-confidential) disclosure (whether or not in response to an inquiry) about the other party or their relationship or activities or regarding the terms of this Agreement and the transactions contemplated hereby, and neither shall issue any such press release or make any such statement or disclosure without the prior approval of the other (which approval shall not be unreasonably withheld), except as may be required by law or by obligations pursuant to any listing agreement with any national securities exchange or with the NASD, in which case the party proposing to issue such press release or make such public statement or disclosure shall use its commercially reasonable efforts to consult with the other party before issuing such press release or making such public statement or disclosure. SECTION 6.6 CONSENTS; COOPERATION. (a) Each of Parent and the Company shall promptly apply for or otherwise seek, and use its commercially reasonable efforts to obtain, all consents and approvals required to be obtained by it for the consummation of the Merger, including those required under the HSR Act; provided, however, that neither party shall be required to make any out-of-pocket expenditures (other than filing or similar fees) to any Governmental Entity or third party in connection therewith. The Company shall use its commercially reasonable efforts to obtain all necessary consents, waivers and approvals under any of its material contracts in connection with the Merger for the assignment thereof or otherwise. The parties hereto will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and 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 federal or state antitrust or fair trade law. (b) Each of Parent and the Company shall use its commercially reasonable efforts to resolve such objections, if any, as may be asserted by any Governmental Entity with respect to the transactions contemplated by this Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other Federal, state or foreign statutes, rules, regulations, orders or decrees that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, "Antitrust Laws"). In connection therewith, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any Antitrust Law, each of Parent and the Company shall cooperate and use its commercially reasonable efforts vigorously to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent (each, an "Order"), that is in effect and that prohibits, prevents, or restricts consummation of the Merger or any such other transactions, unless by mutual agreement Parent and the Company decide that litigation is not in their respective best interests. Notwithstanding the provisions of the immediately preceding sentence, it is expressly understood and agreed that 40 neither Parent nor the Company shall have any obligation to litigate or contest any administrative or judicial action or proceeding or any Order beyond the Final Date (as defined in Section 8.1(b)). Each of Parent and the Company shall use its commercially reasonable efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other Antitrust Laws with respect to such transactions as promptly as possible after the execution of this Agreement. Parent and the Company also agree to take any and all of the following actions to the extent necessary to obtain the approval of any Governmental Entity with jurisdiction over the enforcement of any applicable laws regarding the transactions contemplated hereby: entering into negotiations; providing information required by law or governmental regulation; and substantially complying with any second request for information pursuant to the Antitrust Laws. (c) Notwithstanding anything to the contrary in this Agreement, (i) neither Parent nor any of its Subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or the Company's or any of its Subsidiaries' respective businesses, product lines or assets or to qualify to do business in any jurisdiction in which it is not now so qualified, or to file a general consent to service of process under any applicable state laws, and (ii) without the prior written consent of Parent, neither the Company nor its Subsidiaries shall, or shall be required to, divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that would reasonably be expected to have a Company Material Adverse Effect or a Parent Material Adverse Effect. SECTION 6.7 LEGAL REQUIREMENTS. Subject to the provisions and provisos of Section 6.6, each of Parent, Merger Sub and the Company will, and will cause their respective Subsidiaries to, (a) take all requisite commercially reasonable actions necessary to comply promptly with all legal requirements which may be imposed on them with respect to the consummation of the transactions contemplated by this Agreement, (b) cooperate with and furnish information to any party hereto necessary in connection with any such requirements imposed upon such other party in connection with the consummation of the transactions contemplated by this Agreement, and (c) subject to Section 6.6(c) take all requisite commercially reasonable actions necessary to obtain (and cooperate with the other parties hereto in obtaining) any consent, approval, order or authorization of, or any registration, declaration or filing with, any Governmental Entity required to be obtained or made in connection with the taking of any action contemplated by this Agreement. SECTION 6.8 INTENTIONALLY OMITTED. SECTION 6.9 EMPLOYEE BENEFIT PLANS. (a) At the Effective Time, the Company Stock Option Plans and each outstanding option to purchase shares of Company Common Stock under the Company Stock Option Plans, whether vested or unvested, shall be assumed by Parent. The Company represents and warrants to Parent that Section 6.9(a) of the Company Disclosure Schedule hereto sets forth a true and complete list as of July 2, 2001, of all holders of outstanding options under the Company Stock Option Plans, including the number of shares of the Company's capital stock subject to each such option, the exercise or vesting schedule, the exercise price per share and the term of each such option. On the Closing Date, the Company shall deliver to Parent an updated 41 Section 6.9(a) of the Company Disclosure Schedule hereto current as of such date. Each such option so assumed by Parent under this Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the Company Stock Option Plans and the applicable stock option agreements, immediately prior to the Effective Time, except that (i) such option will be exercisable for that number of whole shares of Parent Common Stock equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such option immediately prior to the Effective Time multiplied by the Option Exchange Ratio (as defined below) and rounded down to the nearest whole number of shares of Parent Common Stock, and (ii) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such assumed option shall be equal to the quotient determined by dividing the exercise price per share of Company Common Stock at which such option was exercisable immediately prior to the Effective Time by the Option Exchange Ratio, rounded up to the nearest whole cent. The Merger shall not terminate any of the outstanding options under the Company Stock Option Plans or accelerate the exercisability or vesting of such options or the shares of Parent Common Stock which shall be subject to those options upon Parent's assumption of the options in the Merger. It is the intention of the parties that the options so assumed by Parent qualify, to the maximum extent permissible, following the Effective Time as incentive stock options as defined in Section 422 of the Internal Revenue Code to the extent such options qualified as incentive stock options prior to the Effective Time. Within ten (10) business days after the Effective Time, Parent will issue to each person who, immediately prior to the Effective Time was a holder of an outstanding option under the Company Stock Option Plans a document evidencing the foregoing assumption of such option by Parent, and Parent may prohibit option exercises prior to the filing of the registration statement on Form S-8 in accordance with Section 6.10. The Option Exchange Ratio shall mean the quotient obtained by dividing (i) $11.00 per share by (ii) the average last sale price per share of the Parent Common Stock on the Nasdaq Stock Market as reported in The Wall Street Journal (or, if either party disputes the accuracy of the prices therein reported, another mutually agreeable authoritative source) for the ten (10) full trading-day period ending on the fifth (5th) full trading day prior to the Closing Date (e.g., if the Closing Date falls on a Sunday, the ten (10) trading day period used to calculate this on such date would end on, and include, the previous Monday, assuming that Monday through Friday are full trading days). (b) All outstanding rights of the Company which it may hold immediately prior to the Effective Time to repurchase unvested shares of Company Common Stock shall lapse immediately prior to the Effective Time. (c) Outstanding purchase rights under the Company ESPP shall be exercised immediately prior to the Effective Time, and each participant in the Company ESPP shall accordingly be issued shares of Company Common Stock at that time which shall be converted into the right to receive $11.00 per share. The Company ESPP shall terminate with such exercise date (after the purchase described in the preceding sentence has been effected), and no purchase rights shall be subsequently granted or exercised under the Company ESPP and no Company ESPP payroll deductions from Company employees shall be made thereafter. Company employees who meet the eligibility requirements for participation in the Parent Employee Stock Purchase Plan shall be eligible to begin payroll deductions under that plan as of the start date of the first offering period thereunder beginning after the Effective Time and prior to such date, Parent shall name the Surviving Corporation as a subsidiary whose employees may participate in 42 the Parent ESPP, provided that such employees satisfy the eligibility requirements for participation. (d) On or as soon as practicable following the Effective Time, continuing employees of the Company and its Subsidiaries ("Continuing Employees") shall be eligible to participate in those benefit plans and programs maintained for similarly situated employees of Parent (or in substantially similar programs), on the same terms applicable to similarly situated employees of Parent and to the extent that such plans and programs provide the following benefits: medical/dental/vision care, life insurance, disability income, sick pay, holiday and vacation pay, 401(k) plan coverage, Internal Revenue Code Section 125 benefit arrangements, bonus, profit-sharing or other incentive plans, pension or retirement programs, dependent care assistance and severance benefits. Each Continuing Employee shall be given credit, for purposes of any service requirements for participation or vesting, for his or her period of service with the Company or any of its Subsidiaries credited under a similar plan prior to the Effective Time, subject to appropriate break in service rules. Each such employee shall, with respect to any Parent plans or programs which have co-payment, deductible or other co-insurance features, receive credit for any amounts such individual has paid to date in the plan year of the Effective Time under comparable plans or programs maintained by the Company or any of its Subsidiaries prior to the Effective Time. Each Continuing Employee and eligible dependent who, at the Effective Time, was participating in an employee group health plan maintained by the Company or any of its Subsidiaries shall not be excluded from Parent's employee group health plan or limited in coverage thereunder by reason of any waiting period restriction or pre-existing condition limitation. (e) The Company shall take all action necessary to terminate, or cause to terminate, before the Effective Time, any Company Benefit Plan that is a 401(k) plan or other defined contribution retirement plan or the Company ESPP. With respect to each Company Employee Plan subject to ERISA as an employee pension plan within the meaning of Section 3(2) of ERISA, and to the Company's knowledge, no partial termination could be deemed to have occurred as a result of a reduction in the Company's workforce. (f) Within five (5) business days following the date of this Agreement, the Company shall set forth on Section 6.9(f) of the Company Disclosure Schedule a list of all persons who the Company reasonably believes are, with respect to the Company and as of the date of this Agreement, "disqualified individuals" (within the meaning of Section 280G of the Internal Revenue Code and the regulations promulgated thereunder). Within a reasonable period of time after the last business day of the month prior to the expected Closing Date and on or about the date five (5) business days prior to the expected Closing Date, the Company shall revise Section 6.9(f) of the Company Disclosure Schedule to reflect the most recently available closing price of Company Common Stock as of the last business day of such month and to reflect any additional information which the Company reasonably believes would impact the determination of persons who are, with respect to the Company and as of the each such date, "disqualified individuals" (within the meaning of Section 280G of the Internal Revenue Code and the regulations promulgated thereunder). (g) For purposes of this Section 6.9(g), the definitions of "Revenue," "Net Backlog," and "PBT" will have the same meanings as those assigned to them in the Synopsys 43 Agreement. Promptly following calculation, certain employees of the Company or its Subsidiaries shall be eligible to participate in a bonus plan, which shall be accrued by the Company prior to the Closing Date, in substantially the form attached hereto as Schedule 6.9(g) (the "Bonus Plan"). The dollar amount available for distribution to such employees under the Bonus Plan shall be as set forth in Schedule 6.9(g) and shall be calculated pursuant to the Bonus Plan based on Revenue plus Net Backlog, or PBT, whichever produces a lower total Bonus Plan dollar amount, except that if PBT produces a lower total Bonus Plan dollar amount than Revenue plus Net Backlog but the same or higher total Bonus Plan dollar amount than Revenue, the total Bonus Plan dollar amount shall be calculated based upon Revenue plus Net Backlog. The aggregate dollar amount to be distributed to management and non-management employees shall be as set forth on Schedule 6.9(g). The identification of employees to participate in the Bonus Plan, as well as the amounts payable to each shall be determined solely by the Company. SECTION 6.10 FORM S-8. Parent agrees to file, no later than ten (10) business days after the Effective Time (provided that Parent has received within five (5) business days after the Effective Time all option documentation it reasonably requires relating to the outstanding options) a registration statement on Form S-8 under the Securities Act covering the shares of Parent Common Stock issuable pursuant to outstanding options and shares granted to employees, officers, and directors of, and bona fide consultants to, the Company if they are individuals for whom a Form S-8 registration statement is available and are listed on Section 6.10 of the Company Disclosure Schedule. The Company shall cooperate with and assist Parent in the preparation of such registration statement. SECTION 6.11 INTENTIONALLY OMITTED. SECTION 6.12 INDEMNIFICATION. (a) For not less than six (6) years after the Effective Time, Parent will indemnify and hold harmless the present and former officers, directors, employees and agents of Company (the "Indemnified Parties") in respect of acts or omissions occurring on or prior to the Effective Time to the extent provided for under Company's Certificate of Incorporation and Bylaws and each indemnification agreement with Company officers and directors to which Company is a party, in each case in effect on the date hereof; provided that such indemnification shall be subject to any limitation imposed from time to time under applicable law. (b) For six (6) years after the Effective Time, Parent will provide officers' and directors' liability insurance in respect of acts or omissions occurring on or prior to the Effective Time covering each such person currently covered by Company's officers' and directors' liability insurance policy on terms at least as favorable as the coverage currently in effect on the date hereof, provided that, in satisfying its obligation under this Section 6.12(b), Parent shall not be obligated to pay, or to cause the Surviving Corporation to pay, premiums in excess of one hundred fifty percent (150%) of the amount per annum Company paid in its last full fiscal year, which amount has been disclosed to Parent, and if the Parent or the Surviving Corporation is unable to obtain the insurance required by this Section 6.12(b) it shall obtain as much comparable insurance as possible for an annual premium equal to such maximum amount. 44 (c) The provisions of this Section 6.12 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs. SECTION 6.13 INTENTIONALLY OMITTED. SECTION 6.14 STOCKHOLDER LITIGATION. Unless and until the Board of Directors of the Company has withdrawn its Recommendation (as defined in Section 8.1(e)), the Company shall give Parent the opportunity to participate at its own expense in the defense of any stockholder litigation against the Company and/or its directors relating to the transactions contemplated by this Agreement. SECTION 6.15 EMPLOYEE AGREEMENTS. The Company shall use its commercially reasonable efforts to obtain the signatures of (i) the employees of the Company specified in Schedules 6.15(a) and (b) to the Employee Agreements in the forms attached as Exhibits D and E, respectively, and (ii) the employees of the Company specified in Schedules 6.15(c) and (d) to the amendments to their existing severance agreements in the forms attached as Exhibits F and G, respectively, prior to the Closing Date. SECTION 6.16 INJUNCTIONS OR RESTRAINTS. In the event an injunction or other order preventing the consummation of the Merger shall have been issued, each party agrees to use commercially reasonable efforts to have such injunction or other order lifted. SECTION 6.17 INTENTIONALLY OMITTED. SECTION 6.18 FURTHER ASSURANCES. Subject to Section 5.2, Section 6.1 and Section 6.6(c), (a) each of the parties to this Agreement shall use its commercially reasonable efforts to effectuate the transactions contemplated hereby and to fulfill and cause to be fulfilled the conditions to closing under this Agreement, and (b) each party hereto, at the reasonable request of another party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or reasonably desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby. Nothing in this Agreement shall be construed to require Parent to seek the approval of its stockholders for any of the transactions contemplated by this Agreement. SECTION 6.19 EXISTING LITIGATION TERMINATION. Upon consummation of the Merger, the parties shall promptly take such actions as required to cause the dismissal with prejudice of the litigations currently pending before the Delaware Court of Chancery and the United States District Court for the District of Delaware relating to the Synopsys Agreement and the Offer. ARTICLE VII. CONDITIONS TO THE MERGER SECTION 7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The respective obligations of each party to this Agreement to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, by agreement of all the parties hereto: 45 (a) Stockholder Approval. If required, this Agreement and the Merger shall have been approved by the requisite vote of the stockholders of the Company under the DGCL and the Certificate of Incorporation of the Company. (b) Purchase of Company Common Stock. Merger Sub shall have purchased pursuant to the Offer all shares of Company Common Stock duly tendered and not withdrawn; provided, however, that neither Parent nor Merger Sub shall be entitled to rely on the condition in this clause (b) if either of them shall have failed to purchase shares of Company Common Stock pursuant to the Offer in breach of their obligations under this Agreement. (c) No Injunctions, Restraints or Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other Governmental Entity seeking any of the foregoing be pending, threatened; and no action shall have been taken by any Governmental Entity, and no statute, rule, regulation or order shall have been enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger illegal. SECTION 7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Closing of each of the following additional conditions, any of which may be waived, in writing, by the Company: (a) Representations, Warranties and Covenants. (i) The representations and warranties of Parent and Merger Sub in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality or Parent Material Adverse Effect, which representations and warranties as so qualified shall be true and correct in all respects) on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date, except where the failure to be so true and correct, without regard to any materiality or Parent Material Adverse Effect qualifications contained therein, could not reasonably be expected, either individually or in the aggregate, to have a Parent Material Adverse Effect; and (ii) Parent and Merger Sub shall have performed and complied in all material respects with all covenants, agreements and obligations in this Agreement required to be performed and complied with by them prior to the Effective Time; and (iii) the Company shall have received a certificate of an appropriate officer of Parent certifying that the conditions set forth in this Section 7.2(a) are satisfied. SECTION 7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of Parent and Merger Sub to consummate and effect the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following additional conditions, any of which may be waived, in writing, by Parent: (a) Representations, Warranties and Covenants. (i) The representations and warranties of the Company in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to 46 materiality or Company Material Adverse Effect, which representations and warranties as so qualified shall be true and correct in all respects) on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date, except, in the case of the representations and warranties of the Company in Section 3.1 through Section 3.20, Section 3.25 and Section 3.26, where the failure to be so true and correct, without regard to any materiality or Company Material Adverse Effect qualifications contained therein, could not reasonably be expected, either individually or in the aggregate, to have a Company Material Adverse Effect, (ii) the Company shall have performed and complied in all material respects with all covenants, agreements and obligations in this Agreement required to be performed and complied with by it prior to the Effective Time, and (iii) Parent shall have received a certificate of the chief executive officer and chief financial officer of the Company certifying that the conditions set forth in this Section 7.3(a) are satisfied. (b) Intentionally omitted. (c) Third Party Consents. Parent shall have received evidence reasonably satisfactory to it of the consent or approval of those persons whose consent or approval shall be required in connection with the Merger under each material contract of the Company or any of its Subsidiaries set forth on Schedule 7.3(c). (d) Injunctions or Restraints on Conduct of Business. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition materially limiting or restricting Parent's ownership, conduct or operation of the business of the Company and its Subsidiaries following the Effective Time shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other Governmental Entity, seeking the foregoing be pending or threatened. ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER SECTION 8.1 TERMINATION. At any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Merger by the stockholders of the Company, this Agreement may be terminated and the Merger abandoned: (a) by mutual consent of the Boards of Directors of Parent and the Company; (b) by either Parent or the Company, by written notice to the other party, if the Closing shall not have occurred on or before September 14, 2002 or such later date as may be agreed upon in writing by the parties hereto (the "Final Date"); (c) by Parent, by written notice to the Company, if (i) any of the Company's representations and warranties in the Agreement would be inaccurate if made as of the time of such notice, or the Company shall have breached any of its covenants, agreements or obligations in this Agreement, and (ii) the condition set forth in Section 7.3(a) would not be satisfied if such inaccuracy or breach were to remain uncured, and (iii) such inaccuracy or breach, if curable, shall not have been cured within thirty (30) business days after receipt by the Company of written notice of such inaccuracy or breach; 47 (d) by the Company, by written notice to Parent, if (i) any of Parent's representations and warranties in this Agreement would be inaccurate if made as of the time of such notice, or Parent shall have breached any of its covenants, agreements or obligations in this Agreement, and (ii) the condition set forth in Section 7.2(a) would not be satisfied if such inaccuracy or breach were to remain uncured, and (iii) such inaccuracy or breach shall not have been cured within thirty (30) business days after receipt by Parent of written notice of such inaccuracy or breach; (e) by Parent, by written notice to the Company, if: (i) a Trigger Event shall have occurred or a Takeover Proposal shall have been made and, in either case, shall not have been absolutely and unconditionally abandoned or withdrawn, and the Board of Directors of the Company, if so requested by Parent, does not within ten (10) business days of such request, (A) reconfirm its unanimous recommendation of this Agreement and the transactions contemplated hereby, and (B) (in the case of a Takeover Proposal or Trigger Event involving a tender or exchange offer) reject such Takeover Proposal or Trigger Event; (ii) the Board of Directors of the Company shall have failed to unanimously recommend that the Company's stockholders vote to approve the Merger and adopt this Agreement (a "Recommendation"), or shall have withdrawn (including by failing to include such Recommendation in the Proxy Statement) or modified its Recommendation in a manner adverse to Parent, or shall have resolved to do any of the foregoing; (iii) the Board of Directors of the Company shall have recommended, endorsed, accepted, approved, or otherwise agreed to a Takeover Proposal or shall have resolved to do any of the foregoing; or (iv) the Company or any Company Representative shall have failed to comply with Section 5.2. (f) by either Parent or the Company, by written notice to the other party, if: (i) any permanent injunction or other order of a court or other competent authority preventing the consummation of the Merger shall have become final and nonappealable, provided such party used commercially reasonable efforts to have such injunction or other order lifted or (ii) any required vote of the stockholders of the Company shall not have been obtained at a duly held meeting of stockholders or at any adjournment thereof (provided that the right to terminate this Agreement under this clause (ii) shall not be available to the Company where the failure to obtain such stockholder approval shall have been caused by the action or failure to act of the Company and such action or failure constitutes a breach of this Agreement); or (g) by the Company, by written notice to Parent and compliance with the provisions of this Section 8.1(g), if (i) the Company has received a Takeover Proposal constituting a Superior Proposal, the Board of Directors of the Company in accordance with Section 5.2 has determined that it desires to approve entering into a written agreement providing for such Superior Proposal and has notified Parent in writing of such desire; and (ii) five (5) business days have elapsed after Parent's receipt of such written notification (which notification shall include a copy of such Superior Proposal and a description of any additional material non-written modifications thereof), and during such five (5) business day period the Company has reasonably cooperated with Parent with the intent of enabling Parent to make an offer that is at least as favorable to the stockholders of the Company as such Superior Proposal; and (iii) prior to 6:00 p.m. California time on the fifth business day of such five (5) business day period Parent has not made an offer that is at least as favorable to the Company's stockholders as such Superior Proposal; and (iv) at the end of such five (5) business day period the Board of Directors 48 of the Company reasonably believes that such Takeover Proposal continues to be a Superior Proposal; and (v) the Company prior to such termination pays to Parent in immediately available funds all amounts required to be paid pursuant to Section 8.3(b). The Company agrees to notify Parent promptly if its desire to enter into a written agreement with respect to the Superior Proposal referred to in its notification shall change at any time after giving such notification. SECTION 8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Merger Sub or the Company or their respective officers, directors, stockholders or affiliates; provided that (a) the provisions of Section 6.4 and Section 8.3, this Section 8.2 and Article IX shall remain in full force and effect and survive any termination of this Agreement, and (b) nothing herein shall relieve any party from liability in connection with a willful or intentional breach of any of such party's representations or warranties set forth in this Agreement or the breach of any such party's covenants or agreements set forth in this Agreement. SECTION 8.3 EXPENSES AND TERMINATION FEES. (a) Except as provided in subsections (b) and (c) of this Section 8.3, whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby (including the fees and expenses of its advisers, accountants and legal counsel) shall be paid by the party incurring such expense, except that expenses incurred in connection with printing the proxy materials and the Offer Documents, registration, and filing fees incurred in connection with the Offer Documents, the Schedule 14D-9 and the proxy materials shall be shared equally by the Company and Parent. (b) In the event that: (i) Parent shall terminate this Agreement pursuant to Section 8.1(e); (ii) the Company shall terminate this Agreement pursuant to Section 8.1(g); or (iii) Parent or the Company shall terminate this Agreement pursuant to Section 8.1(b) or Section 8.1(f)(ii) and, prior to such termination pursuant to Section 8.1(b) or Section 8.1(f)(ii), there shall have been (A) a Trigger Event with respect to the Company, or (B) a Takeover Proposal with respect to the Company, in either case which at the time of such termination shall not have been absolutely and unconditionally withdrawn or abandoned by the other party thereto, then, in each such event, in addition to any other remedies Parent may have, the Company shall pay to Parent (1) in the case of a termination described in Section 8.3(b)(i) or Section 8.3(b)(ii), the sum of three million eight hundred thousand dollars ($3,800,000), and (2) in the case of a termination described in Section 8.3(b)(iii), if within twelve (12) months of a termination described in Section 8.3(b)(iii) any Takeover Proposal or any Trigger Event shall be consummated or any letter of intent or preliminary or definitive agreement with respect thereto shall be signed, the sum of three million eight hundred thousand dollars ($3,800,000) (provided, however, that the amount payable by the Company shall be three million five hundred thousand dollars ($3,500,000) if the Takeover Proposal or Trigger Event shall be consummated with a person or entity other than the person or entity making the Takeover Proposal or Trigger Event which originally triggered the right of termination under Section 8.1(b) or Section 8.1(f)(ii) or with an affiliate of such person or entity). The payments required by this Section 8.3(b) shall be made within two (2) business days after termination in the case of a termination by Parent pursuant to Section 8.1(e), prior to termination in the event of a termination by the Company 49 pursuant to Section 8.1(g), and upon the earlier of the consummation of a Trigger Event or Takeover Proposal or the execution and delivery of any letter of intent or preliminary or definitive agreement with respect to a Takeover Proposal in the event of termination pursuant to Section 8.1(b) or Section 8.1(f)(ii). Solely for purposes of Section 8.3(b), all references to fifteen percent (15%) in the definition of the term "Takeover Proposal" shall be increased to forty percent (40%) and all references to eighty five percent (85%) therein shall be reduced to sixty percent (60%). SECTION 8.4 AMENDMENT. Subject to Section 251(d) of the DGCL, the boards of directors of the parties hereto may cause this Agreement to be amended at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. SECTION 8.5 EXTENSION; WAIVER. At any time prior to the Effective Time any party hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a 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. ARTICLE IX. GENERAL PROVISIONS SECTION 9.1 NON-SURVIVAL AT EFFECTIVE TIME. The representations, warranties, covenants and agreements set forth in this Agreement shall terminate at the Effective Time, except that the agreements set forth in Article II, Section 6.4 (Confidentiality), Section 6.5 (Public Disclosure), Section 6.9 (Employee Benefit Plans), Section 6.10 (Form S-8), Section 6.12 (Indemnification), Section 6.18 (Further Assurances), Section 8.2 (Effect of Termination), Section 8.3 (Expenses and Termination Fees), Section 8.4 (Amendment), and this Article IX shall survive the Effective Time. SECTION 9.2 NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be addressed to the intended recipient as set forth below): (a) if to Parent or Merger Sub, to: Mentor Graphics Corporation 8005 SW Boeckman Road Wilsonville, OR 97070 Attention: General Counsel Telephone No.: (503) 685-1200 Facsimile No.: (503) 685-7704 50 with a copy to: Latham & Watkins 135 Commonwealth Drive Menlo Park, CA 94025 Attention: Christopher L. Kaufman, Esq. Telephone No.: (650) 328-4600 Facsimile No.: (650) 463-2600 (b) if to the Company, to: IKOS Systems, Inc. 79 Great Oaks Blvd. San Jose, CA 95119 Attention: CEO Telephone No.: (408) 284-0400 Facsimile No: (408) 361-9698 with a copy to: Gray Cary Ware & Freidenrich LLP 400 Hamilton Avenue Palo Alto, CA 94301 Attention: James M. Koshland Diane Holt Frankle Telephone No.: (650) 833-2000 Facsimile No.: (650) 833-2001 All notices so given shall be effective upon receipt, and shall in any event be deemed received (a) three (3) calendar days after deposit with the U.S. Postal Service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) upon telephonic confirmation of delivery, if delivered by facsimile transmission SECTION 9.3 INTERPRETATION. (a) Prior to the Effective Time: (i) nothing in this Agreement shall be construed as establishing a joint venture, strategic alliance, or license between Parent or any of its Subsidiaries, on the one hand, and the Company or any of its Subsidiaries, on the other hand, and (ii) nothing in this Agreement shall be construed to require Parent or any of its Subsidiaries to make any investment of cash or other property in or any loan to the Company or any of its Subsidiaries. (b) When a reference is made in this Agreement to Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to this Agreement unless otherwise indicated. The words "include," "includes" and "including" when used in this Agreement shall be deemed in each case to be followed by the words "without limitation." The phrase "provided to," "furnished to," and terms of similar import in this Agreement means that a paper copy of the 51 information referred to has been furnished to the party to whom such information is to be provided. In this Agreement, the phrases "the date of this Agreement", "the date hereof", and terms of similar import, unless the context otherwise requires, shall be deemed to refer to date this Agreement is executed by the Company. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. SECTION 9.5 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including the Exhibits, the Schedules, including the Company Disclosure Schedule (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) shall not be assigned by operation of law or otherwise except as otherwise specifically provided; and (c) are not intended to, and shall not be construed as, conferring upon any person other than the parties hereto any rights or remedies. SECTION 9.6 SEVERABILITY. In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. SECTION 9.7 REMEDIES CUMULATIVE. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. SECTION 9.8 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to the laws that might otherwise govern under applicable principles of conflicts of law. Each of the parties hereto irrevocably consents to the exclusive jurisdiction and venue of any court located within the County of New Castle in the State of Delaware, in connection with any matter based upon or arising out of this Agreement or the matters contemplated herein, agrees that process may be served upon them in any manner authorized by the laws of the State of Delaware for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process. 52 SECTION 9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been represented by counsel during the preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. [Signature page follows.] 53 EXECUTION COPY IN WITNESS WHEREOF, the Company, Parent and Merger Sub have caused this Agreement and Plan of Merger and Reorganization to be executed and delivered by their respective officers thereunto duly authorized, all as of the date first written above. MENTOR GRAPHICS CORPORATION By: /s/ Gregory K. Hinckley ------------------------------------ Name: Gregory K. Hinckley Title: President and Chief Operating Officer IKOS SYSTEMS, INC. By: /s/ Ramon A. Nunez ------------------------------------ Name: Ramon A. Nunez Title: President and Chief Executive Officer FRESNO CORPORATION By: /s/ Gregory K. Hinckley ------------------------------------ Name: Gregory K. Hinckley Title: Chief Financial Officer SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION 54 ANNEX I THE OFFER SECTION 1.1 THE OFFER. (a) Provided that this Agreement shall not have been terminated pursuant to Section 8.1 of the Agreement, following the public announcement of the terms of the Agreement (which public announcement shall occur no later than the first business day following the execution of the Agreement), as soon as reasonably practicable, Merger Sub shall, and Parent shall cause Merger Sub to amend (within the meaning of Rule 14d-2 under the Exchange Act) the Offer to provide for the purchase of any and all of the shares of Company Common Stock outstanding (including the related Rights pursuant to the Rights Agreement) at a price of $11.00 per share, net to the seller in cash (such price, or such higher price per share of Company Common Stock as may be paid in the Offer, being referred to herein as the "Offer Price"). The Offer shall be subject solely to the condition that there shall be validly tendered in accordance with the terms of the Offer, prior to the expiration date of the Offer and not withdrawn, a number of shares of Company Common Stock that, together with the shares of Company Common Stock then owned by Parent and/or Merger Sub, represents at least a majority of the shares of Company Common Stock outstanding on a fully-diluted basis (the "Minimum Condition") and to the other conditions set forth in Annex II to the Agreement. The Offer shall be made by means of an offer to purchase (the "Offer to Purchase") and the related letter of transmittal containing the terms set forth in this Agreement and the conditions set forth in Annex II. Merger Sub expressly reserves the right, subject to compliance with the Exchange Act, to waive any of the conditions to the Offer and to make any change in the terms of the Offer; provided that (i) the Minimum Condition may be waived only with the prior written consent of the Company and (ii) no change may be made that changes the form of consideration to be paid, decreases the Offer Price, decreases the number of shares of Company Common Stock sought in the Offer, adds to or modifies, in a manner adverse to the stockholders of the Company, the conditions to the Offer set forth in Annex II or any other term of the Offer, or (except as provided in the next sentence) changes the expiration date of the Offer, without the prior written consent of the Company. Without the consent of the Company, Merger Sub shall have the right to extend the expiration date of the Offer in compliance with the requirements of the Exchange Act (which extension shall initially be ten business days from and after the date of announcement of the execution of Merger Agreement to provide for the purchase of all of the outstanding shares of Company Common Stock in accordance with the terms hereof), (i) from time to time thereafter if, at the scheduled or extended expiration date of the Offer, any of the conditions to the Offer shall not have been satisfied or waived, until such conditions are satisfied or waived, (ii) for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer or any period required by applicable law, or (iii) for up to ten additional business days, if, immediately prior to the scheduled or extended expiration date of the Offer, the Company Common Stock tendered and not withdrawn pursuant to the Offer constitute more than 50% but less than 90% of the outstanding Company Common Stock. I-1 If any of the conditions to the Offer is not satisfied or waived on any scheduled or extended expiration date of the Offer, Merger Sub shall, and Parent shall cause Merger Sub to, extend the Offer, if such condition or conditions could reasonably be expected to be satisfied, from time to time until such conditions are satisfied or waived; provided that Merger Sub shall not be required to extend the Offer beyond September 14, 2002. Subject to the foregoing and upon the terms and subject to the conditions of the Offer, Merger Sub shall, and Parent shall cause it to, accept for payment and pay for, as promptly as practicable after the expiration of the Offer, all shares of Company Common Stock validly tendered and not withdrawn pursuant to the Offer. (b) As soon as reasonably practicable following the date hereof, Parent and Merger Sub shall file with the SEC an amendment to their Tender Offer Statement on Schedule TO initially filed on December 7, 2001 (the "Schedule TO") with respect to the Offer in accordance with the terms hereof (such Schedule TO and such documents included therein pursuant to which the Offer will be made, including the Offer to Purchase and the related letter of transmittal, together with any supplements or amendments thereto, the "Offer Documents"). Parent, Merger Sub and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect. Parent and Merger Sub agree to take all steps necessary to cause the Schedule TO as so corrected to be filed with the SEC and the other Offer Documents as so corrected to be disseminated to holders of shares of Company Common Stock, in each case as and to the extent required by applicable federal securities laws. Merger Sub also agrees to provide the Company and its counsel in writing with any comments Merger Sub and its counsel may receive from the SEC or its staff after the date hereof with respect to the Offer Documents promptly after the receipt of such comments and shall provide the Company and its counsel a reasonable opportunity to review and comment on the response of Merger Sub to such comments. SECTION 1.2 COMPANY ACTION. (a) The Company hereby approves of and consents to the Offer and represents that its Board of Directors, at a meeting duly called and held, has (i) determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are advisable and are fair to and in the best interests of the Company's stockholders, (ii) approved and adopted this Agreement and the transactions contemplated hereby, including the Offer and the Merger, in accordance with the requirements of the DGCL, and (iii) resolved to recommend acceptance of the Offer and approval and adoption of this Agreement and the Merger by its stockholders. The Company further represents that Needham & Company, Inc. has delivered to the Company's Board of Directors its written opinion that the consideration to be paid in the Offer and the Merger is fair to the holders of shares of Company Common Stock (other than Parent, Merger Sub or their affiliates) from a financial point of view. The Company will promptly furnish Parent with a list of its stockholders, mailing labels and any available listing or computer file containing the names and addresses of all holders of shares of Company Common Stock and lists of securities positions of shares of Company Common Stock held in stock depositories, in each case true and correct as of the most recent practicable date, and will provide to Parent such additional information (including updated lists of stockholders, mailing labels and lists of securities positions) and such other assistance as Parent may reasonably request in I-2 connection with the Offer. Subject to the requirements of applicable law and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent and Merger Sub and each of their respective affiliates and associates shall (a) hold in confidence the information contained in any of such labels and lists, (b) use such information only in connection with the Offer and the Merger and (c) if the Agreement is terminated, promptly deliver to the Company all copies of such information then in their possession. (b) As soon as reasonably practicable following the date hereof, the Company shall file with the SEC and disseminate to holders of shares of Company Common Stock, in each case as and to the extent required by applicable federal securities laws, an amendment to the Solicitation/Recommendation Statement on Schedule 14D-9 (together with any amendments or supplements thereto, the "Schedule 14D-9") that shall reflect the recommendations of the Company's Board of Directors referred to above (subject to the right of the Company's Board of Directors to withdraw, amend or modify such recommendation in accordance with the terms of the Agreement). The Company, Parent and Merger Sub each agree promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material respect. The Company agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of shares of Company Common Stock, in each case as and to the extent required by applicable federal securities laws. Parent and its counsel shall be given a reasonable opportunity to review and comment on the Schedule 14D-9 prior to its being filed with the SEC. The Company also agrees to provide Parent and its counsel in writing with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments and shall provide Parent and its counsel a reasonable opportunity to review and comment on the response of the Company to such comments. SECTION 1.3 MERGER WITHOUT A MEETING OF STOCKHOLDERS. In the event that Merger Sub shall acquire at least 90% of the outstanding shares of Company Common Stock pursuant to the Offer or otherwise, each of the parties hereto shall take all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after such acquisition, without the Company Stockholders Meeting, in accordance with Section 253 of the DGCL. I-3 ANNEX II CONDITIONS OF THE OFFER Notwithstanding any other provision of the Offer, but subject to compliance with Section 1.1(a) of Annex I to the Agreement and Plan of Merger and Reorganization dated as of March 12, 2002 among Parent, Merger Sub and the Company (the "Merger Agreement") (each defined term used herein shall have the meaning assigned to such term in the Merger Agreement), Merger Sub shall not be required to accept for payment or pay for any shares of Company Common Stock (the "Shares") tendered pursuant to the Offer to Purchase dated December 7, 2001, as amended from time to time (the "Offer to Purchase") and the related Letter of Transmittal (the "Letter of Transmittal" which, together with the Offer to Purchase, as each may be amended and supplemented from time to time, constitute the "Offer"), and may terminate or amend the Offer in accordance with the Merger Agreement, if: (1) prior to the expiration date of the Offer, any of the following conditions has not been satisfied: (a) the Company's stockholders validly tender and do not withdraw prior to the expiration date of the Offer the number of Shares (including the associated Rights) representing, together with the Shares owned by Parent, at least a majority of the total number of outstanding Shares on a fully diluted basis; (b) (i) the Company shall have breached or failed to perform in all material respects any of its covenants or other obligations under the Merger Agreement, (ii) any of the representations and warranties of the Company contained in the Merger Agreement that are qualified by reference to a Company Material Adverse Effect shall not be true when made or at any time prior to the consummation of the Offer as if made at and as of such time (except for representations and warranties which speak as of a particular date, shall not be true as of such particular date), or (iii) any of the representations and warranties of the Company contained in the Merger Agreement that are not so qualified shall not be true in all material respects when made or at any time prior to the consummation of the Offer as if made at and as of such time (except for representations and warranties which speak as of a particular date, shall not be true as of such particular date); (2) at any time on or after the date of the Offer to Purchase and prior to the expiration date of the Offer, any of the following conditions exists: (a) there shall have been any law or order promulgated, entered, enforced, enacted, issued or deemed applicable to the Offer or the Merger Agreement by any court of competent jurisdiction or other competent governmental or regulatory authority which, directly or indirectly, (1) prohibits, or imposes any material limitations on, Parent's or Merger Sub's ownership or operation (or that of any of their respective subsidiaries or affiliates) of any portion of their or the Company's businesses or assets which is material to the business of all such entities taken as a whole, or compels Parent or Merger Sub (or their respective subsidiaries or affiliates) to dispose of or hold separate any portion of their or the Company's business or assets which is material to the business of all such entities taken as a whole, (2) prohibits, restrains or makes or seeks to make illegal the acceptance for payment, payment for or purchase of Shares II-1 pursuant to the Offer or the consummation of the Merger Agreement, (3) imposes material limitations on the ability of Merger Sub or Parent (or any of their respective subsidiaries or affiliates) effectively to acquire or to hold or to exercise full rights of ownership of the Shares purchased pursuant to the Offer including, without limitation, the right to vote such Shares on all matters properly presented to the Company's stockholders, (4) imposes material limitations on the ability of Merger Sub or Parent (or any of their respective subsidiaries or affiliates) effectively to control in any material respect any material portion of the business, assets, liabilities, capitalization, stockholder's equity, condition (financial or otherwise), licenses or franchises or results of operations of the Company and its subsidiaries taken as a whole, (5) seeks to require divestiture by Parent, Merger Sub or any affiliate of Parent of any Share, (6) in the reasonable discretion of Parent, imposes or seeks to impose any material condition to the Offer which is unacceptable to Parent or Merger Sub, (7) in the reasonable discretion of Parent, might result in a diminution of the value of the Shares or the benefits expected to be derived by Parent as a result of the Offer or the Merger Agreement, (8) restrains or prohibits or seeks to restrain or prohibit the performance of any of the contracts or other arrangements entered into by Parent, Merger Sub or any of their affiliates in connection with the acquisition of the Company or obtains or seeks to obtain any material damages or otherwise directly or indirectly relates to the Offer, or (9) otherwise materially adversely affects the Company and its subsidiaries or Parent or any of its subsidiaries, including Merger Sub, taken as a whole; (b) there shall be threatened, instituted or pending any action, suit, proceeding, application, claim or counterclaim brought by a governmental or regulatory authority or by any other person, domestic or foreign (whether brought by the Company, an affiliate of the Company, or any other person) (1) challenging or seeking to make illegal the acquisition by Parent or Merger Sub of Shares or otherwise seeking to restrain, delay or prohibit the making or consummation of the Offer, the Merger Agreement or any other subsequent business transaction with the Company, (2) challenging or seeking to, or which is reasonably likely to, make illegal, materially delay or otherwise directly or indirectly restrain or prohibit or seeking to, or which is reasonably likely to, impose voting, procedural, price or other requirements, including any such requirements under California law, in addition to those required by the federal securities laws and the DGCL (each as in effect on the date of the Offer to Purchase), in connection with making the Offer, the acceptance for payment of, or payment for, any Shares by Merger Sub or any other affiliate of Parent of the Merger Agreement or other business combination with the Company, or seeking to obtain material damages in connection therewith, or (3) that could reasonably be expected to result, directly or indirectly, in any of the consequences referred to in clauses (1) through (9) of paragraph (a) above; (c) there shall have occurred (1) any general suspension of trading in, or limitation on prices for, securities on any United States national securities exchange or in the over-the-counter market in excess of one day, (2) any limitation (whether or not mandatory) by any United States governmental or regulatory authority on the extension of credit by banks or other financial institutions, (3) any decline in either the Dow Jones Industrial Average, the Standard & Poor's 500 Index or the Nasdaq National Market by an amount in excess of 10% measured from the close of business on the date of the Offer to Purchase or (4) in the case of any of the foregoing (other than clause (3)) existing at the time of the Offer, a material acceleration or worsening thereof; II-2 (d) there shall have occurred a Company Material Adverse Effect; (e) the Agreement shall have been terminated in accordance with its terms, or Parent, Merger Sub and the Company shall have agreed that Merger Sub shall amend the Offer, to terminate the Offer or postpone the payment for Shares thereunder; (f) any required approval, permit, authorization or consent of any governmental authority or agency (including under applicable antitrust laws and those described or referred to in the Offer to Purchase) shall not have been obtained on terms satisfactory to Parent in its reasonable discretion; or (g) the Company shall have entered into any agreement or transaction with any person or entity who is a competitor of Parent having the effect of materially diminishing the expected economic value to Parent of the acquisition of the Company, including any agreement by which such a competitor is granted original equipment manufacturing, marketing or other rights; which, in the reasonable judgment of Parent or Merger Sub in any such case, and regardless of the circumstances (including any action or inaction by Parent or Merger Sub or any of their affiliates) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment. Subject to the provisions of the Merger Agreement, the foregoing conditions are for the sole benefit of Parent and Merger Sub and may be asserted by Parent or Merger Sub, subject to the terms of the Merger Agreement, or may be waived by Parent or Merger Sub in whole or in part at any time and from time to time in their reasonable discretion. The failure by Parent or Merger Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances; and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. In compliance with the requirements of the Exchange Act, Merger Sub has the right to extend the Offer for up to ten business days, if, immediately prior to the scheduled or extended expiration date of the Offer, the Company Common Stock tendered and not withdrawn pursuant to the Offer constitute more than 50% but less than 90% of the outstanding Company Common Stock. II-3 -----END PRIVACY-ENHANCED MESSAGE-----