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SUBMITTED CONFIDENTIALLY TO THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 2017.

This draft registration statement has not been publicly filed with the United States Securities and Exchange Commission and all information herein remains strictly confidential.

As filed with the Securities and Exchange Commission on                     , 2017

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

 

ALTAIR ENGINEERING INC.

(Exact name of registrant as specified in its charter)

 

 

 

Michigan (prior to reincorporation) Delaware (after reincorporation) (State or other jurisdiction of incorporation or organization)		7372 (Primary Standard Industrial Classification Code Number)		38-2591828 (I.R.S. Employer Identification Number)

1820 E. Big Beaver Road

Troy, Michigan 48083

(248) 614-2400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

James R. Scapa

Chief Executive Officer

Altair Engineering Inc.

1820 E. Big Beaver Road, Troy, Michigan 48083

(248) 614-2400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

Selim Day, Esq. Sarah Travis, Esq. Lowenstein Sandler LLP 1251 Avenue of the Americas New York, NY 10020 (212) 262-6700		William J. Schnoor, Esq. Edwin M. O’Connor, Esq. Goodwin Procter LLP 100 Northern Avenue Boston, MA 02210 (617) 570-1000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:   ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒  (do not check if a smaller reporting company)		Smaller reporting company		☐
Emerging growth company		☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.   ☐

 

 

Calculation of Registration Fee

 

Title of Each Class of Securities to be Registered		Proposed Maximum Aggregate Offering Price(1)(2)		Amount of Registration Fee
Class A common stock, par value $         per share		$		$

 

(1)	Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

 

(2)	Includes the aggregate offering price of the additional shares that the underwriters have the option to purchase to cover over allotments, if any.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.

 

 

 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities or a solicitation of an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to completion, dated                     , 2017

Prospectus

            Shares

 

Class A common stock

$             per share

This is the initial public offering of the Class A common stock of Altair Engineering Inc.

The selling stockholders identified in this prospectus are offering             shares of our Class A common stock, and we are offering             shares of our Class A common stock in this offering. We will not receive any proceeds from the sales of shares of our Class A common stock by the selling stockholders. The estimated initial public offering price is expected to be between $             and $             per share.

Prior to this offering, there has been no public market for our common stock. We intend to apply to list our Class A common stock on the             under the symbol “             .”

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012, as amended, and may elect to comply with certain reduced United States public company reporting requirements for future filings.

Investing in our Class  A common stock involves a high degree of risk. Please see the section entitled “Risk factors” starting on page 20 to read about risks you should consider carefully before buying shares of our Class A common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

		Per share				Total
Initial public offering price		$				$
Underwriting discounts and commissions(1)		$				$
Proceeds to Altair Engineering Inc., before expenses		$				$
Proceeds to the selling stockholders, before expenses		$				$

 

(1)

See the section entitled “Underwriting” for a description of the underwriting discounts and commissions and offering expenses.

We have granted the underwriters a 30-day option to purchase up to an additional             shares of Class A common stock at the initial public offering price, less the underwriting discount, to cover over-allotments.

The underwriters expect to deliver the shares on or about                     , 2017.

 

J.P. Morgan		RBC Capital Markets		Deutsche Bank Securities

 

Canaccord Genuity		William Blair

The date of this prospectus is                     , 2017

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		Page
Prospectus summary			1
Risk factors			20
Information regarding forward looking statements			49
Market, industry and other data			50
Use of proceeds			51
Dividend policy			52
Capitalization			53
Dilution			55
Selected historical consolidated financial and other data			57
Management’s discussion and analysis of financial condition and results of operations			61
Business			92
Management			127
Executive compensation			134
Certain relationships and related party transactions			145
Principal and selling stockholders			148
Description of capital stock			151
Shares eligible for future sale			157
Material United States federal income tax consequences to non-U.S. holders of our Class A common stock			161
Underwriting			166
Legal matters			173
Experts			173
Where you can find more information			173
Index to consolidated financial statements			F-1

None of the Company, the selling stockholders or the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. The Company, the selling stockholders, and the underwriters take no responsibility for, and can provide no assurance as to the reliability for any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

 

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Investors outside the United States

None of the Company, the selling stockholders or the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.

Until                     , 2017 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

 

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Risk factors

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all the other information in this prospectus, including “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the notes related thereto, before investing in our Class A common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect our business. If any of the following risks occur, our business, financial condition, operating results and prospects could be materially harmed. In that event, the trading price of our Class A common stock could decline, and you could lose part or all of your investment.

Risks relating to our business and industry

We have experienced significant revenue growth and we may fail to sustain that growth rate or may not grow in the future.

We were founded in 1985 and launched our first commercial software in 1990. Our growth has primarily been attributed to the increasing reliance of manufacturers on our simulation and optimization software to support development of their products and designs. Revenue from our simulation and analysis software, HyperWorks, has historically constituted a significant portion of our total revenue. Our revenue growth could decline over time as a result of a number of factors, including increasing competition from smaller entities and well-established, larger organizations, limited ability to, or our decision not to, increase pricing, contraction of our overall market or our failure to capitalize on growth opportunities. Other factors include managing our global organization, revenues generated outside the United States that are subject to adverse currency fluctuations and uncertain international geopolitical landscapes. In connection with operating as a public company, we will also incur additional legal, accounting and other expenses that we did not incur as a private company. Accordingly, we may not achieve similar growth rates in future periods, and you should not rely on our historical revenue growth as an indication of our future revenue or revenue growth.

If we cannot maintain our company culture of innovation, teamwork, and communication our business may be harmed.

We believe that a critical component to our success has been our company culture, which is based on our core values of innovation, envisioning the future, communicating honestly and broadly, seeking technology and business firsts, and embracing diversity. We have invested substantial time and resources in building a company embodying this culture. As we develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain personnel, encourage innovation and teamwork, and effectively focus on and pursue our corporate objectives.

If our existing customers or users do not increase their usage of our software, or we do not add new customers, the growth of our business may be harmed.

Our software includes a multitude of broad and deep design, simulation, optimization, and analysis applications and functionalities.

Our future success depends, in part, on our ability to increase the:

 

•

number of customers and users accessing our software;

 

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•

usage of our software to address expanding design, engineering, computing and analytical needs; and/or

 

•

number of our applications and functionalities accessed by users and customers through our licensing model.

In addition, through our Altair Partner Alliance, or APA, our customers have access to additional software offered by independent third parties, without the need to enter into additional license agreements.

If we fail to increase the number of customers or users and/or application usage among existing users of our software and the software of our APA partners, our ability to license additional software will be adversely affected, which would harm our operating results and financial condition.

Our ability to acquire new customers is difficult to predict because our software sales cycle can be long.

Our ability to increase revenue and maintain or increase profitability depends, in part, on widespread acceptance of our software by mid- to- large-size organizations worldwide. We face long, costly, and unpredictable sales cycles. As a result of the variability and length of the sales cycle, we have only a limited ability to forecast the timing of sales. A delay in or failure to complete sales could harm our business and financial results, and could cause our financial results to vary significantly from period to period. Our sales cycle varies widely, reflecting differences in potential customers’ decision making processes, procurement requirements and budget cycles, and is subject to significant risks over which we have little or no control, including:

 

•

longstanding use of competing products and hesitancy to change;

 

•

customers’ budgetary constraints and priorities;

 

•

timing of customers’ budget cycles;

 

•

need by some customers for lengthy evaluations;

 

•

hesitation to adopt new processes and technologies;

 

•

length and timing of customers’ approval processes; and

 

•

development of software by our competitors perceived to be equivalent or superior to our software.

To the extent any of the foregoing occur, our average sales cycle may increase and we may have difficulty acquiring new customers.

Reduced spending on product design and development activities by our customers may negatively affect our revenues.

Our revenues are largely dependent on our customers’ overall product design and development activities, particularly demand from mid- to- large-size organizations worldwide and their supplier base. The licensing of our software is discretionary. Our customers may reduce their research and development budgets, which could cause them to reduce, defer, or forego licensing of our software. To the extent licensing of our software is perceived by existing and potential customers to be extraneous to their needs, our revenue may be negatively affected by our customers’ delays or reductions in product development research and development spending. Customers may delay or cancel software licensing or seek to lower their costs. Deterioration in the demand for product design and development software for any reason would harm our business, operating results, and financial condition in the future.

 

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Our business largely depends on annual renewals of our software licenses.

We typically license our software to our customers on an annual basis. In order for us to maintain or improve our operating results, it is important that our customers renew and/or increase the amount of software licensed on an annual basis. Customer renewal rates may be affected by a number of factors, including:

 

•

our pricing or license term and those of our competitors;

 

•

our reputation for performance and reliability;

 

•

new product releases by us or our competitors;

 

•

customer satisfaction with our software or support;

 

•

consolidation within our customer base;

 

•

availability of comparable software from our competitors;

 

•

effects of global or industry specific economic conditions;

 

•

our customers’ ability to continue their operations and spending levels; and

 

•

other factors, a number of which are beyond our control.

If our customers fail to renew their licenses or renew on terms that are less beneficial to us, our renewal rates may decline or fluctuate, which may harm our business.

We believe our future success will depend, in part, on the growth in demand for our software by customers other than simulation engineering specialists and in additional industry verticals.

Historically, our customers have been simulation engineering specialists. To enable concept engineering, driven by simulation, we make our physics solvers more accessible to designers by wrapping them in powerful simple interfaces. We believe our future success will depend, in part, on growth in demand for our software by these designers, which could be negatively impacted by the lack of:

 

•

continued and/or growing reliance on software to optimize and accelerate the design process;

 

•

adoption of simulation technology by designers other than simulation engineering specialists;

 

•

continued proliferation of mobility, large data sets, cloud computing and IoT; our ability to predict demands of designers other than simulation engineering specialists and achieve market acceptance of our products within these additional areas and customer bases or in additional industry verticals; or

 

•

our ability to respond to changes in the competitive landscape, including whether our competitors establish more widely adopted products for designers other than simulation engineering specialists.

If some or all of this software does not achieve widespread adoption, our revenues and profits may be adversely affected.

We face significant competition, which may adversely affect our ability to add new customers, retain existing customers, and grow our business.

The market for CAE software is highly fragmented but has been undergoing significant consolidation. Our primary competitors include Dassault Systèmes, Siemens, Ansys and MSC Software. Dassault and Siemens are large public companies, with significant financial resources, which have historically focused on CAD and product data management. More recently, these two companies have been investing in simulation software through acquisitions. Ansys and MSC are focused on CAE. In addition to these competitors, we compete with many smaller companies offering CAE software applications.

 

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A significant number of companies have developed or are developing software and services that currently, or in the future may, compete with some or all of our software and services. We may also face competition from participants in adjacent markets, including two-dimensional, or 2D, and 3D, CAD, and broader PLM competitors, that may enter our markets by leveraging related technologies and partnering with or acquiring other companies.

The principal competitive factors in our industry include:

 

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breadth, depth and integration of software;

 

•

domain expertise of sales and technical support personnel;

 

•

consistent global support;

 

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performance and reliability; and

 

•

price.

Many of our current and potential competitors have longer-term and more extensive relationships with our existing and potential customers that provide them with an advantage in competing for business with those customers. They may be able to devote greater resources to the development and improvement of their offerings than we can. These competitors could incorporate additional functionality into their competing products from their wider product offerings or leverage their commercial relationships in a manner that uses product bundling or closed technology platforms to discourage enterprises from purchasing our applications.

Many existing and potential competitors enjoy competitive advantages over us, such as:

 

•

larger sales and marketing budgets and resources;

 

•

access to larger customer bases, which often provide incumbency advantages;

 

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broader global distribution and presence;

 

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greater resources to make acquisitions;

 

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the ability to bundle competitive offerings with other software and services;

 

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greater brand recognition;

 

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lower labor and development costs;

 

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greater levels of aggregate investment in research and development;

 

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larger and more mature intellectual property portfolios; and

 

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greater financial, technical, management and other resources.

These competitive pressures in our markets or our failure to compete effectively may result in fewer customers, price reductions, licensing of fewer units, increased sales and marketing expenses, reduced revenue and gross profits and loss of market share. Any failure to address these factors could harm our business.

Because we derive a substantial portion of our revenues from customers in the automotive and aerospace industries, we are susceptible to factors affecting these industries.

The automotive and aerospace industries combined accounted for approximately 58% of our total revenue for the year ended December 31, 2016. An adverse occurrence, including industry slowdown, recession, political

 

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instability, costly or constraining regulations, excessive inflation, prolonged disruptions in one or more of our customers’ production schedules or labor disturbances, that results in significant decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could adversely affect our business.

The automotive and aerospace industries are highly cyclical in nature and sensitive to changes in general economic conditions, consumer preferences and interest rates. Any weakness in demand in these industries, the insolvency of a manufacturer or their suppliers, or constriction of credit markets may cause these customers to reduce their amount of software licensed or request discounts or extended payment terms, any of which may cause fluctuations or a decrease in our revenues and timing of cash flows.

Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.

Our quarterly results of operations and our key metrics, including billings, Adjusted EBITDA and Free Cash Flow may vary significantly in the future. Period-to-period comparisons of our operating results may not be meaningful. The results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results and key metrics may fluctuate as a result of a variety of factors including:

 

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our ability to retain and/or increase sales to existing customers at various times;

 

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our ability to attract new customers;

 

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the addition or loss of large customers, including through their acquisitions or industry consolidations;

 

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the timing of recognition of revenues;

 

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the amount and timing of billings;

 

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the amount and timing of operating expenses and capital expenditures;

 

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significant security breaches, technical difficulties or unforeseen interruptions to the functionality of our software;

 

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the number of new employees added;

 

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the amount and timing of billing for professional services engagements;

 

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the timing and success of new products, features, enhancements or functionalities introduced by us or our competitors;

 

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changes in our pricing policies or those of our competitors;

 

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changes in the competitive dynamics of our industry, including consolidation among competitors;

 

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the timing of expenses related to the development or acquisition of technology;

 

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any future charges for impairment of goodwill from acquired companies;

 

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extraordinary expenses such as litigation or other dispute-related settlement payments;

 

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the impact of new accounting pronouncements; and

 

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general economic conditions.

 

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Billings have historically been highest in the first and fourth quarters of any calendar year and may vary in future quarters. This seasonality or the occurrence of any of the factors above may cause our results of operations to vary and our financial statements may not fully reflect the underlying performance of our business.

In addition, we may choose to grow our business for the long-term rather than to optimize for profitability or cash flows for a particular shorter term period. If our quarterly results of operations fall below the expectations of investors or securities analysts the price of our Class A common stock could decline and we could face lawsuits, including securities class action suits.

Seasonal variations in the purchasing patterns of our customers may lead to fluctuations in the timing of our cash flows.

We have experienced and expect to continue to experience seasonal variations in the timing of customers’ purchases of our software and services. Many customers make purchase decisions based on their fiscal year budgets, which often coincide with the calendar year. These seasonal trends materially affect the timing of our cash flows, as license fees become due at the time the license term commences based upon agreed payment terms that customers may not adhere to. As a result, new and renewal licenses have been concentrated in the first and fourth quarter of the year, and our cash flows from operations have been highest late in the first quarter and early in the second quarter of the succeeding fiscal year.

In connection with the preparation of our consolidated financial statements in recent years, we and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. If we are not able to remediate the material weaknesses and otherwise maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our common stock could be adversely affected.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. Section 404 of SOX, or Section 404, requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and, beginning with our second annual report following this offering, provide a management report on internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

In connection with the audits of fiscal years 2015 and 2016 financial statements, we and our independent registered public accounting firm identified two material weaknesses in our internal controls over financial reporting. The first material weakness pertained to controls over accounting for income taxes. Specifically, that: (i) certain misstatements were either not identified by management or were not identified timely by management; (ii) the preparation of the consolidation provision and various technical accounting analysis were not prepared or reviewed timely; and (iii) additional technical resources were necessary to enable timely and sufficient review controls over accounting for income taxes. We are taking steps to remediate this by hiring additional technical resources and increasing management review and oversight over the income tax process.

Also in connection with our audits of the fiscal year 2015 and 2016 consolidated financial statements, we and our independent registered public accounting firm identified a second material weakness related to the lack of timely preparation and review of our consolidated financial statements and related disclosures consistent with the requirements for a publicly traded company. Specifically that our internal controls over the financial statement close process were not designed to be precise enough to detect a material error in the financial statements in a timely manner. We are taking steps to remediate this material weakness, by hiring additional personnel and increasing management review and oversight over the financial statement close process.

 

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We cannot at this time estimate how long it will take to remediate these material weaknesses. If we are unable to successfully remediate the material weaknesses and otherwise establish and maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our common stock could be materially and adversely affected. The process of designing and implementing internal control over financial reporting required to comply with Section 404 will be time consuming, costly and complicated. Our independent registered public accounting firm was not engaged to audit the effectiveness of our internal control over financial reporting. We may discover other control deficiencies in the future, and we cannot assure you that we will not have a material weakness in future periods.

Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. For as long as we are an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. We could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.

Fluctuations in foreign currency exchange rates could result in declines in our reported revenue and operating results.

As a result of our international activities, we have revenue, expenses, cash, accounts receivable and payment obligations denominated in foreign currencies including Euros, British Pounds Sterling, Indian Rupees, Japanese Yen, and Chinese Yuan. Foreign currency risk arises primarily from the net difference between non-United States dollar receipts from customers and non-United States dollar operating expenses. The value of foreign currencies against the United States dollar can fluctuate significantly, and those fluctuations may occur quickly. We cannot predict the impact of future foreign currency fluctuations.

Further strengthening of the United States dollar could cause our software to become relatively more expensive to some of our customers leading to decreased sales and a reduction in billings and revenue not denominated in United States dollars. A reduction in revenue or an increase in operating expenses due to fluctuations in foreign currency exchange rates could have an adverse effect on our financial condition and operating results. Such foreign currency exchange rate fluctuations may make it more difficult to detect underlying trends in our business and operating results.

We do not currently, and do not have plans to, engage in currency hedging activities to limit the risk of exchange rate fluctuations. In the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place, and the cost of those hedging techniques may have a significant negative impact on our operating results. The use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments. If we are not able to successfully manage or hedge against the risks associated with currency fluctuations, our financial condition and operating results could be adversely affected.

 

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If we fail to attract new or retain existing third party independent software vendors to participate in the APA, we may not be able to grow the APA program.

The APA program allows our customers to use third party software that may be unrelated to our software, without the need to enter into additional license agreements. The APA program results in increased revenues through revenue sharing, and encourages users to stay within the Altair software ecosystem. If third party software providers are unwilling to join the APA on appropriate terms, including agreeing with our revenue share allocations, or if we are unable to retain our current APA participants, we may not be able to grow the APA program.

Licensing of our solidThinking software is dependent on performance of our distributors and resellers.

We have historically licensed our software primarily through our direct sales force. Our solidThinking offerings are primarily licensed through a recently expanded network of distributors and resellers. If these distributors and resellers become unstable, financially insolvent, or otherwise do not perform as we expect, our revenue growth derived from solidThinking could be negatively impacted.

If we fail to adapt to technology changes our software may become less marketable, less competitive, or obsolete.

Our success depends in part on our ability to:

 

•

anticipate customer needs;

 

•

foresee changes in technology, including to cloud-enabled hardware, software, networking, browser and database technologies;

 

•

differentiate our software;

 

•

maintain operability of our software with changing technology standards; and

 

•

develop or acquire additional or complementary technologies.

We may not be able to develop or market new or enhanced software in a timely manner, which could result in our software becoming less marketable, less competitive, or obsolete.

We believe our long-term value as a company will be greater if we focus on growth, which may negatively impact our profitability in the near term.

Part of our business strategy is to focus on our long-term growth. As a result, our profitability may be lower in the near term than it would be if our strategy was to maximize short-term profitability. Expanding our research and development efforts, sales and marketing efforts, infrastructure and other such investments may not ultimately grow our business or cause higher long-term profitability. If we are ultimately unable to achieve greater profitability at the level anticipated by analysts and our stockholders, our Class A common stock price may decline.

Our research and development may not generate revenue or yield expected benefits.

A key element of our strategy is to invest significantly in research and development to create new software and enhance our existing software to address additional applications and serve new markets. Research and development projects can be technically challenging and expensive, and there may be delays between the time we incur expenses and the time we are able to generate revenue, if any. Anticipated customer demand for any software we may develop could decrease after the development cycle has commenced, and we could be unable

 

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to avoid costs associated with the development of any such software. If we expend a significant amount of resources on research and development and our efforts do not lead to the timely introduction or improvement of software that is competitive in our current or future markets, it could harm our business.

Our continued innovation may not generate revenue or yield expected benefits.

As a business focused on innovation, we expect to continue developing new software and products both internally and through acquisitions. These offerings may focus either on our existing markets or other markets in which we see opportunities. We may not receive revenue from these investments sufficient to either grow our business or cover the related development or acquisition costs.

If we lose our senior executives, we may be unable to achieve our business objectives.

We currently depend on the continued services and performance of James Scapa, our chief executive officer, and other senior executives. Many members of this executive team have served the Company for more than 15 years, with Mr. Scapa having served since our founding in 1985. Loss of Mr. Scapa’s services or those of other senior executives could delay or prevent the achievement of our business objectives.

If we are unable to attract and retain key personnel, we may be unable to achieve our business objectives.

Our business is dependent on our ability to attract and retain highly skilled software engineers, salespeople, and support teams. There is significant industry competition for these individuals. We have many employees whose equity awards in our company are fully vested and may increase their personal wealth after giving effect to our offering, which could affect their decision to remain with the Company. Failure to attract or retain key personnel could delay or prevent the achievement of our business objectives.

Defects or errors in our software could result in loss of revenue or harm to our reputation.

Our software is complex and, despite extensive testing and quality control, may contain undetected or perceived bugs, defects, errors, or failures. From time to time we have found defects or errors in our software and we may discover additional defects in the future. We may not find defects or errors in new or enhanced software before release and these defects or errors may not be discovered by us or our customers until after they have used the software. We have in the past issued, and may in the future need to issue, corrective releases or updates of our software to remedy bugs, defects and errors or failures. The occurrence of any real or perceived bugs, defects, errors, or failures could result in:

 

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lost or delayed market acceptance of our software;

 

•

delays in payment to us by customers;

 

•

injury to our reputation;

 

•

diversion of our resources;

 

•

loss of competitive position;

 

•

claims by customers for losses sustained by them;

 

•

breach of contract claims or related liabilities;

 

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increased customer support expenses or financial concessions; and

 

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increased insurance costs.

Any of these problems could have a material adverse effect on our business, financial position, results of operations and cash flows.

 

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Acquisitions may dilute our stockholders, disrupt our core business, divert our resources, or require significant management attention.

Most of our software has been developed internally with acquisitions used to augment our capabilities. We may not effectively identify, evaluate, integrate, or use acquired technology or personnel from future acquisitions, or accurately forecast the financial impact of an acquisition, including accounting charges.

After the completion of an acquisition, it is possible that our valuation of such acquisition for purchase price allocation purposes may change compared to initial expectations and result in unanticipated write-offs or charges, impairment of our goodwill, or a material change to the fair value of the assets and liabilities associated with a particular acquisition.

We may pay cash, incur debt, or issue equity securities to fund an acquisition. The payment of cash will decrease available cash. The incurrence of debt would likely increase our fixed obligations and could subject us to restrictive covenants or obligations. The issuance of equity securities would likely be dilutive to our stockholders. We may also incur unanticipated liabilities as a result of acquiring companies. Future acquisition activity may disrupt our core business, divert our resources, or require significant management attention.

Failure to protect and enforce our proprietary technology and intellectual property rights could substantially harm our business.

The success of our business depends, in part, on our ability to protect and enforce our proprietary technology and intellectual property rights, including our trade secrets, patents, trademarks, copyrights, and other intellectual property. We attempt to protect our intellectual property under trade secret, patent, trademark, and copyright laws. Despite our efforts, we may not be able to protect our proprietary technology and intellectual property rights, if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. It may be possible for unauthorized third parties to copy our technology and use information that we regard as proprietary to create products and services that compete with ours. Provisions in our licenses protect against unauthorized use, copying, transfer and disclosure of our technology, but such provisions may be difficult to enforce or are unenforceable under the laws of certain jurisdictions and countries. The laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. Our international activities expose us to unauthorized copying and use of our technology and proprietary information.

We primarily rely on our unpatented proprietary technology and trade secrets. Despite our efforts to protect our proprietary technology and trade secrets, unauthorized parties may attempt to misappropriate, reverse engineer or otherwise obtain and use them. The contractual provisions that we enter into with employees, consultants, partners, vendors and customers may not be sufficient to prevent unauthorized use or disclosure of our proprietary technology or trade secrets and may not provide an adequate remedy in the event of unauthorized use or disclosure of our proprietary technology or trade secrets.

Policing unauthorized use of our technologies, software and intellectual property is difficult, expensive and time-consuming, particularly in countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. We may be unable to detect or determine the extent of any unauthorized use or infringement of our software, technologies or intellectual property rights.

From time to time, we may need to engage in litigation or other administrative proceedings to protect our intellectual property rights or to defend against allegations by third parties that we have infringed or misappropriated their intellectual property rights, including in connection with requests for indemnification by our customers who may face such claims. We have been approached and may be approached in the future by

 

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certain of our customers to indemnify them against third party intellectual property claims. Litigation and/or any requests for indemnification by our customers could result in substantial costs and diversion of resources and could negatively affect our business and revenue. If we are unable to protect and enforce our intellectual property rights, our business may be harmed.

Intellectual property disputes could result in significant costs and harm our business.

Intellectual property disputes may occur in the markets in which we compete. Many of our competitors are large companies with significant intellectual property portfolios, which they may use to assert claims of infringement, misappropriation or other violations of intellectual property rights against us, or our customers. Any allegation of infringement, misappropriation or other violation of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs defending against the claim, could distract our management from our business, and could cause uncertainty among our customers or prospective customers, all of which could have an adverse effect on our business or revenue. We are currently engaged in ongoing litigation with MSC, a competitor of ours, who brought suit against us in 2007 alleging misappropriation of trade secrets, breach of confidentiality and other employment-related claims. A jury returned a verdict against us in April 2014. After a successful challenge by us in November 2014, this verdict was partially vacated except for damages for $425,000 related to certain employment matters and the court ordered a new trial on damages for the trade secrets claims. The court is currently considering several motions and has not specified a new trial date. We cannot be certain of the outcome of this trial. We agreed to indemnify our employees named in the MSC litigation. See the section entitled “Business—Legal and regulatory—Legal proceedings—Litigation.”

Our agreements may include provisions that require us to indemnify others for losses suffered or incurred as a result of our infringement of a third party’s intellectual property rights infringement, including certain of our employees and customers.

An adverse outcome of a dispute or an indemnity claim may require us to:

 

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pay substantial damages;

 

•

cease licensing our software or portions of it;

 

•

develop non-infringing technologies;

 

•

acquire or license non-infringing technologies; and

 

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make substantial indemnification payments.

Any of the foregoing or other damages could harm our business, decrease our revenue, increase our expenses or negatively impact our cash flow.

Security breaches, computer malware, computer hacking attacks and other security incidents could harm our business, reputation, brand and operating results.

Security incidents have become more prevalent across industries and may occur on our systems. Security incidents may be caused by, or result in but are not limited to, security breaches, computer malware or malicious software, computer hacking, unauthorized access to confidential information, denial of service attacks, security system control failures in our own systems or from vendors we use, email phishing, software vulnerabilities, social engineering, sabotage and drive-by downloads. Such security incidents, whether intentional or otherwise, may result from actions of hackers, criminals, nation states, vendors, employees or customers.

 

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We may experience disruptions, data loss, outages and other performance problems on our systems due to service attacks, unauthorized access or other security related incidents. Any security breach or loss of system control caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss, modification or corruption of data, software, hardware or other computer equipment and the inadvertent transmission of computer malware could harm our business.

In addition, our software stores and transmits customers’ confidential business information in our facilities and on our equipment, networks and corporate systems. Security incidents could expose us to litigation, remediation costs, increased costs for security measures, loss of revenue, damage to our reputation and potential liability. Our customer data and corporate systems and security measures may be compromised due to the actions of outside parties, employee error, malfeasance, capacity constraints, a combination of these or otherwise and, as a result, an unauthorized party may obtain access to our data or our customers’ data. Outside parties may attempt to fraudulently induce our employees to disclose sensitive information in order to gain access to our customers’ data or our information. We must continuously examine and modify our security controls and business policies to address new threats, the use of new devices and technologies, and these efforts may be costly or distracting.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement sufficient control measures to defend against these techniques. Though it is difficult to determine what harm may directly result from any specific incident or breach, any failure to maintain confidentiality, availability, integrity, performance and reliability of our systems and infrastructure may harm our reputation and our ability to retain existing customers and attract new customers. If an actual or perceived security incident occurs, the market perception of the effectiveness of our security controls could be harmed, our brand and reputation could be damaged, we could lose customers, and we could suffer financial exposure due to such events or in connection with remediation efforts, investigation costs, regulatory fines and changed security control, system architecture and system protection measures.

Adverse global conditions, including economic uncertainty, may negatively impact our financial results.

Global conditions, including the effects of the outcome of the United Kingdom’s referendum on membership in the European Union or any negative financial impacts affecting United States corporations operating on a global basis as a result of tax reform or changes to existing trade agreements or tax conventions, could adversely impact our business in a number of ways, including longer sales cycles, lower prices for our software license fees, reduced licensing renewals or foreign currency fluctuations.

During challenging economic times our customers may be unable or unwilling to make timely payments to us, which could cause us to incur increased bad debt expenses. Our customers may unilaterally extend the payment terms of our invoices, adversely affecting our short-term or long-term cash flows.

International operations expose us to risks inherent in international activities.

Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic and political risks that are different from those in the United States. We face risks in doing business internationally that could adversely affect our business, including:

 

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the need to localize and adapt our software for specific countries, including translation into foreign languages and associated expenses;

 

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foreign exchange risk;

 

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•

import and export restrictions and changes in trade regulation, including uncertainty regarding renegotiation of international trade agreements and partnerships;

 

•

sales and customer service challenges associated with operating in different countries;

 

•

enhanced difficulties of integrating any foreign acquisitions;

 

•

difficulties in staffing and managing foreign operations and working with foreign partners;

 

•

different pricing environments, longer sales cycles, longer accounts receivable payment cycles, and collections issues;

 

•

compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including the Foreign Corrupt Practices Act of 1977, or the FCPA, employment, ownership, tax, privacy and data protection laws and regulations;

 

•

limitations on enforcement of intellectual property rights;

 

•

more restrictive or otherwise unfavorable government regulations;

 

•

increased financial accounting and reporting burdens and complexities;

 

•

restrictions on the transfer of funds;

 

•

withholding and other tax obligations on remittance and other payments made by our subsidiaries; and

 

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unstable regional, economic and political conditions.

Our inability to manage any of these risks successfully, or to comply with these laws and regulations, could reduce our sales and harm our business.

We may lose customers if our software does not work seamlessly with our customers’ existing software.

Our customers may use our software, which in many instances has been designed to seamlessly interface with software from some of our competitors, together with their own software and software they license from third parties. If our software ceases to work seamlessly with our customers’ existing software applications, we may lose customers.

Our customers use our software and services to design and develop their products, which when built and used may expose us to claims.

Many of our customers use our software and services, together with software and services from other third parties and their own resources, to assist in the design and development of products intended to be used in a commercial setting. To the extent our customers design or develop a product that results in potential liability, including product liability, we may be included in resulting litigation. We may be subject to litigation defense costs or be subject to potential judgments or settlement costs for which we may not be fully covered by insurance, which would result in an increase of our expenses.

We also license our software on Altair branded computer hardware, which we acquire from an original equipment manufacturer, which we refer to as an OEM, exposing us to potential liability for the hardware, such as product liability. To the extent this liability is greater than the warranty and liability protection from our OEM, we may incur additional expenses, which may be significant.

 

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If we fail to educate and train our users regarding the use and benefits of our software, we may not generate additional revenue.

Our software is complex and highly technical. We continually educate and train our existing and potential users regarding the depth, breadth, and benefits of our software including through classroom and online training. If these users do not receive education and training regarding the use and benefits of our software, or the education and training is ineffective, they may not increase their usage of our software. We incur costs of training directly related to this activity prior to generating additional revenue, if any.

If we are unable to match engineers to open positions in our CES business or are otherwise unable to grow our CES business, our revenue could be adversely affected.

We operate our client engineering services business by hiring engineers for placement at a customer site for specific customer-directed assignments and pay them only for the duration of the placement. The success of this business is dependent upon our ability to recruit and retain highly skilled, qualified engineers to meet the requirements of our customers and to maintain ongoing relationships with these customers. Our CES business constituted approximately 15% of our total revenues for each of the years ended December 31, 2015 and 2016. Some of our customers operate their engineering personnel needs through managed service providers, or MSPs. A significant percentage of the engineers we place, either directly or through MSPs, are with U.S.-based customers and are citizens of countries other than the United States. In the event these engineers are unable to enter into the United States legally, we may be unable to match engineers with the appropriate skill sets matched to open customer positions. If we are unable to attract highly skilled, qualified engineers because of competitive factors or immigration laws, or otherwise fail to match engineers to open customer positions, our revenue may be adversely affected.

Our sales to United States government agencies and their suppliers may be subject to reporting and compliance requirements.

Our customers include agencies of the United States government and their suppliers of products and services. These customers may procure our software and services through United States government mandated procurement regulations. Because of United States government reporting and compliance requirements we may incur unexpected costs. United States government agencies and their suppliers may have statutory, contractual or other legal rights to terminate contracts for convenience or due to a default, and any such termination may adversely affect our future operating results.

Our sales to non-United States government agencies and their suppliers may be subject to reporting and compliance requirements.

Our customers include agencies of various non-United States governments and their suppliers of products and services. These customers procure our software and services through various governments’ mandated procurement regulations. Because of governmental reporting and compliance requirements we may incur unexpected costs. Government agencies and their suppliers may have statutory, contractual or other legal rights to terminate contracts for convenience or due to a default, and any such termination may adversely affect our future operating results.

We may require additional capital to support our business, which may not be available on acceptable terms.

We expect to continue to make investments in our business, which may require additional funds. We may raise these funds through either equity or debt financings. Issuances of equity or convertible debt securities may significantly dilute stockholders and any new equity securities could have rights, preferences and privileges superior to those holders of our Class A common stock. Future debt financings could contain restrictive

 

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covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital, manage our business and pursue business opportunities, including potential acquisitions.

We may not be able to obtain additional financing on terms favorable to us. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our growth, develop new software or add capabilities and enhancements to our existing software and respond to business challenges could be significantly impaired, and our business may be adversely affected.

Our loan agreements contain operating and financial covenants that may restrict our business and financing activities.

Our Credit Agreement is unconditionally guaranteed by us and all existing and subsequently acquired controlled domestic subsidiaries. It is also collateralized by a first priority, perfected security interest in, and mortgages on, substantially all of our tangible assets. The Credit Agreement contains operating financial restrictions and covenants, including liens, limitations on indebtedness, fundamental changes, limitations on guarantees, limitations on sales of assets and sales of receivables, dividends, distributions and other restricted payments, transactions with affiliates, prepayment of indebtedness and limitations on loans and investments in each case subject to certain exceptions. The Credit Agreement also requires us to maintain a minimum level of liquidity, which shall not be less than $20,000,000 at the end of each fiscal quarter. We expect to repay borrowings under our Credit Agreement with the proceeds of this offering. The restrictions and covenants in the Credit Agreement, as well as those contained in any future debt financing agreements that we may enter into, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies. Our ability to comply with these covenants and restrictions may be affected by events beyond our control, and breaches of these covenants and restrictions could result in a default under the loan agreement and any future financing agreements that we may enter into. See the section entitled “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources—Credit facility” and Note 7 to our consolidated financial statements included elsewhere in this prospectus for further information about our credit facility.

We operate internationally and must comply with employment and related laws in various countries, which may, in turn, result in unexpected expenses.

We are subject to a variety of domestic and foreign employment laws, including those related to safety, discrimination, whistle-blowing, employment of illegal aliens, classification of employees, wages, statutory benefits, and severance payments. Such laws are subject to change as a result of judicial decisions or otherwise, and there can be no assurance that we will not be found to have violated any such laws in the future. Such violations could lead to the assessment of significant fines against us by federal, state or foreign regulatory authorities or to the award of damages claims, including severance payments, against us in judicial or administrative proceedings by employees or former employees, any of which would reduce our net income or increase our net loss.

Changes in government trade, immigration or currency policies may harm our business.

We operate our business globally in multiple countries that have policies and regulations relating to trade, immigration and currency, which may change. Governments may change their trade policies by withdrawing from negotiations on new trade policies, renegotiating existing trade agreements, imposing tariffs or imposing other trade restrictions or barriers. Any such changes may result in:

 

•

changes in currency exchange rates;

 

•

changes in political or economic conditions;

 

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•

import or export licensing requirements or other restrictions on technology imports and exports;

 

•

laws and business practices favoring local companies;

 

•

changes in diplomatic and trade relationships;

 

•

modification of existing or implementation of new tariffs;

 

•

imposition or increase of trade barriers; or

 

•

establishment of new trade or currency restrictions.

Any of these changes, changes in immigration policies, government intervention in currency valuation or other government policy changes may adversely impact our ability to sell software and services, which could, in turn, harm our revenues and our business. We are headquartered in the United States and may be particularly impacted by changes affecting the United States.

Our use of open source technology could impose limitations on our ability to commercialize our software.

We use open source software in some of our software and expect to continue to use open source software in the future. Although we monitor our use of open source software to avoid subjecting our software to conditions we do not intend, we may face allegations from others alleging ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the open source software, derivative works, or our proprietary source code that was developed using such software. These allegations could also result in litigation. The terms of many open source licenses have not been interpreted by United States courts. There is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our software. In such an event, we may be required to seek licenses from third parties to continue commercially offering our software, to make our proprietary code generally available in source code form, to re-engineer our software or to discontinue the sale of our software if re-engineering could not be accomplished on a timely basis, any of which could adversely affect our business and revenue.

The use of open source software subjects us to a number of other risks and challenges. Open source software is subject to further development or modification by anyone. Others may develop such software to be competitive with or no longer useful by us. It is also possible for competitors to develop their own solutions using open source software, potentially reducing the demand for our software. If we are unable to successfully address these challenges, our business and operating results may be adversely affected and our development costs may increase.

We currently open source certain of our software and may open source other software in the future, which could have an adverse effect on our revenues and expenses.

We offer a portion of our Altair PBS workload management software in an open source version to generate additional usage and broaden user-community development and enhancement of the software. We offer related software and services on a paid basis. We believe increased usage of open source software leads to increased purchases of these related paid offerings. We may offer additional software on an open source basis in the future. There is no assurance that the incremental revenues from related paid offerings will outweigh the lost revenues and incurred expenses attributable to the open sourced software.

Our revenue mix may vary over time, which could harm our gross margin and operating results.

Our revenue mix may vary over time due to a number of factors, including the mix of term-based licenses and perpetual licenses. Due to the differing revenue recognition policies applicable to our term-based licenses, perpetual licenses and professional services, shifts in the mix between subscription and perpetual licenses from

 

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quarter to quarter, or increases or decreases in revenue derived from our professional engineering services, which have lower gross margins than our software services, could produce substantial variation in revenues recognized even if our billings remain consistent. Our gross margins and operating results could be harmed by changes in revenue mix and costs, together with other factors, including: entry into new markets or growth in lower margin markets; entry into markets with different pricing and cost structures; pricing discounts; and increased price competition. Any one of these factors or the cumulative effects of certain of these factors may result in significant fluctuations in our gross margin and operating results. This variability and unpredictability could result in our failure to meet internal expectations or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could decline.

The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts included in this prospectus, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Even if the market in which we compete meets the size estimates and growth forecasted in this prospectus, our business could fail to grow for a variety of reasons, which would adversely affect our results of operations. For more information regarding the estimates of market opportunity and the forecasts of market growth included in this prospectus, see the section entitled “Business—Market opportunity.”

We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.

Our software, services and hardware are subject to export control and import laws and regulations. As a company headquartered in the United States we are subject to regulations, including the International Traffic in Arms Regulations, or ITAR, and Export Administration Regulations, or EAR, United States Customs regulations and various economic and trade sanctions regulations administered by the United States Treasury Department’s Office of Foreign Assets Controls presenting further risk of unexpected reporting and compliance costs. Compliance with these regulations may also prevent and restrict us from deriving revenue from potential customers in certain geographic locations for certain of our technologies.

If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, fines which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers. Obtaining the necessary authorizations, including any required license, for a particular sale may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities. In addition, changes in our software or changes in applicable export or import regulations may create delays in the introduction and sale of our software in international markets, prevent our customers with international operations from deploying our software or, in some cases, prevent the export or import of our software to certain countries, governments or persons altogether. Any change in export or import regulations, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could also result in decreased use of our software, or in our decreased ability to export or license our software to existing or potential customers with international operations. Any decreased use of our software or limitation on our ability to export or license our software will likely adversely affect our business.

We incorporate encryption technology into portions of our software. Various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have

 

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enacted laws that could limit our ability to distribute our software or could limit our customers’ ability to implement our software in those countries. Encrypted software and the underlying technology may also be subject to export control restrictions. Governmental regulation of encryption technology and regulation of imports or exports of encryption products, or our failure to obtain required import or export approval for our software, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our software, including with respect to new releases of our software, may create delays in the introduction of our software in international markets, prevent our customers with international operations from deploying our software throughout their globally-distributed systems or, in some cases, prevent the export of our software to some countries altogether.

United States export control laws and economic sanction programs prohibit the shipment of certain software and services to countries, governments and persons that are subject to United States economic embargoes and trade sanctions. Any violations of such economic embargoes and trade sanction regulations could have negative consequences, including government investigations, penalties and reputational harm.

Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our software by, or in our decreased ability to export or license our software to, existing or potential customers with international operations. Any decreased use of our software or limitation on our ability to export or license our software could adversely affect our business.

Our business is subject to a wide range of laws and regulations, and our failure to comply with those laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, privacy and data protection laws, anti-bribery laws, import and export controls, federal securities laws and tax laws and regulations. In certain foreign jurisdictions, these regulatory requirements may be more stringent than those in the United States. These laws and regulations are subject to change over time and thus we must continue to monitor and dedicate resources to ensure continued compliance. Non-compliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.

If we or any of our employees violate the United States Foreign Corrupt Practices Act, the U.K. Bribery Act or similar anti-bribery laws we could be adversely affected.

The United States Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act and similar anti-bribery laws generally prohibit companies and their intermediaries from authorizing, offering or providing, directly or indirectly, improper payments or benefits for the purpose of obtaining or retaining business to government officials, political parties and private-sector recipients. United States based companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. We operate in areas of the world that potentially experience corruption by government officials to some degree and, in certain circumstances, compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure that our employees, resellers or distributors will not engage in prohibited conduct. If we are found to be in violation of the FCPA, the U.K. Bribery Act or other anti-bribery laws we could suffer criminal or civil penalties or other sanctions.

 

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Business interruptions could adversely affect our business.

Our operations and our customers are vulnerable to interruptions by fire, flood, earthquake, power loss, telecommunications failure, terrorist attacks, wars and other events beyond our control. A catastrophic event that results in the destruction of any of our critical business or information technology systems could severely affect our ability to conduct normal business operations, including system interruptions, reputational harm, delays in our software development, breaches of data security and loss of critical data.

We rely on our network and third party infrastructure and applications, internal technology systems, and our websites for our development, marketing, operational support, hosted services and sales activities. If these systems were to fail or be negatively impacted as a result of a natural disaster or other event, our ability to deliver software and training to our customers could be impaired.

Our business interruption insurance may not be sufficient to compensate us fully for losses or damages that may occur as a result of these events, if at all.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

GAAP are subject to interpretation by the Financial Accounting Standards Board, or FASB, the United States Securities and Exchange Commission, or the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results for periods prior and subsequent to such change. We will need to comply with the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most existing revenue recognition guidance under GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. We expect the timing of revenue recognition to be accelerated because we anticipate that license revenue will be recognized at a point in time, rather than over time, which is our current practice. Generally, the license revenue component of an arrangement represents a significant portion of the overall fair value of a software arrangement. While we continue to assess the potential impacts, under the new standards there is the potential for significant impacts on the consolidated financial statements.

The application of this new guidance may result in a change in the timing and pattern of revenue recognition including the retrospective recognition of revenue in historical periods that may negatively affect our future revenue trend, which, despite no change in associated cash flows, could have a material adverse effect on our net income (loss). The adoption of new standards may potentially require enhancements or changes in our systems and will require significant time and cost on behalf of our financial management.

As an “emerging growth company” the JOBS Act allows us an extended transition period for complying with new and revised accounting standards that have different effective dates for public and private companies until the earlier of the date (i) we are no longer an emerging growth company, or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We have elected to use this extended transition period under the JOBS Act, including with respect to ASU 2014-09. As a result, we will not be required to apply ASU 2014-09 until January 1, 2019.

We cannot predict the impact of all of the future changes to accounting principles or our accounting policies on our consolidated financial statements going forward, which could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of the change. In addition, if we were to change our critical accounting estimates, including those related to the recognition of license revenue and other revenue sources, our operating results could be significantly affected.

 

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If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings, which could harm our business.

Under GAAP, we review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. As of March 31, 2017 and December 31, 2016 respectively, we have $37.1 million and $36.6 million of goodwill and $10.5 million and $11.2 million of other intangible assets—net. An adverse change in market conditions, particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to the estimation of fair value that could result in an impairment charge.

We have significant deferred tax assets in the United States, which we may not use in future taxable periods.

As of March 31, 2017 and December 31, 2016 we had net deferred tax assets, or DTAs, of $61.6 million and $61.5 million, respectively, primarily related to tax credits, share-based compensation, deferred revenue, and capitalized research and development expenses associated with acquisitions. We are entitled to a United States federal tax deduction when non-qualified stock options, or NSOs, are exercised. In connection with this offering, we expect a significant number of our NSOs will be exercised, creating substantial additional tax deductions for us. These deductions may result in future net operating losses for United States tax purposes which could result in our needing to establish a valuation allowance for our DTAs. Our ability to utilize any net operating losses or tax credits could be limited under provisions of the Internal Revenue Code of 1986, or the Code, if we undergo an ownership change in connection with or after this offering, provided, that for this purpose an ownership change is generally defined as a greater than 50-percentage-point cumulative change, by value, in the equity ownership of certain stockholders over a rolling three-year period. We do not expect to experience an ownership change in connection with our initial public offering. We may also be unable to realize our tax credit carryforwards as they begin to expire in 2018.

If our global tax methodology is challenged our tax expense may increase.

As a global business headquartered in the United States, we are required to pay tax in a number of different countries, exposing us to transfer pricing and other adjustments. Transfer pricing refers to the methodology of allocating revenue and expenses for tax purposes to particular countries. Taxing authorities may challenge our transfer pricing methodology, which if successful could increase our professional expenses and result in one-time tax charges, a higher worldwide effective tax rate, reduced cash flows, and lower overall profitability of our operations.

Our tax expense could be impacted depending on the applicability of withholding and other taxes including taxes on software licenses and related intercompany transactions under the tax laws of jurisdictions in which we have business operations. Our future income taxes may fluctuate if our earnings are either lower in countries that have low statutory tax rates or higher in countries that have high statutory tax rates. We are subject to review and audit by the United States and other taxing authorities. Any review or audit could increase our professional expenses and, if determined adversely, could result in unexpected costs.

Sales and use, value-added and similar tax laws and rates vary by jurisdiction. Any of these jurisdictions may assert that such taxes are applicable, which could result in tax assessments, penalties and interest.

In addition to our software, we manufacture, distribute and sell products, which may expose us to product liability claims, product recalls, and warranty claims that could be expensive and harm our business.

We manufacture, distribute and sell products through two wholly owned subsidiaries, Altair Product Design, Inc., which we refer to as APD, and Ilumisys, Inc. doing business as toggled and which we refer to in this prospectus as toggled. Generally, APD supports our customers with engineering and design services, which may

 

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include the fabrication of equipment and prototypes that are sold to businesses but not sold to consumers. From time to time, certain customers may contract directly with us for services similar to those provided by APD. toggled designs, sources through contract manufacturers, and assembles in our own facilities LED lighting and related products for sale to consumers and businesses.

To the extent these products do not perform as expected, cause injury or death or are otherwise unsuitable for usage, we may be held liable for claims, including product liability and other claims. A product liability claim, any product recalls or an excessive warranty claim, whether arising from defects in design or manufacture or otherwise could negatively affect our APD or toggled sales or require a change in the design or manufacturing process of these products, any of which may harm our reputation and business.

Failure to protect and enforce toggled’s proprietary technology and intellectual property rights could substantially harm toggled’s lighting business.

Part of the success of toggled’s lighting business depends on our ability to protect and enforce toggled’s proprietary rights, including its patents, trademarks, copyrights, trade secrets and other intellectual property rights. As of December 31, 2016, toggled had 109 issued patents in the United States and more than 20 pending patent applications. We attempt to protect toggled’s intellectual property under patent, trademark, copyright, and trade secret laws. However, the steps we take to protect its intellectual property may be inadequate. We will not be able to protect toggled’s intellectual property if we are unable to enforce its rights or if we do not detect unauthorized use of its intellectual property. It may be possible for unauthorized third parties to copy toggled’s technology and use information that it regards as proprietary to create products that compete with toggled’s products. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of toggled’s technology may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States.

The process of obtaining patent protection is uncertain, expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, issuance of a patent does not guarantee that we have an absolute right to practice our patented technology, or that we have the right to exclude others from practicing our patented technology. As a result, we may not be able to obtain adequate patent protection or to enforce our issued patents effectively.

From time to time, toggled enforces its patents and other intellectual property rights. We are currently engaged in a litigation with Forest Lighting, seeking to have Forest Lighting pay for a license to use toggled’s LED patents. Such litigation could result in substantial costs and diversion of resources and could negatively affect toggled’s business, operating results, financial condition and cash flows. If toggled is unable to protect toggled’s intellectual property rights, its business, operating results and financial condition will be harmed.

Assertions by third parties of infringement or other violations by toggled of their intellectual property rights, or other lawsuits brought against toggled, could result in significant costs and substantially harm toggled’s business.

Patent and other intellectual property disputes are common in the markets in which toggled competes. Some of toggled’s competitors, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims of infringement, misappropriation or other violations of intellectual property rights against toggled or its customers. As the number of patents and competitors in this market increases, allegations of infringement, misappropriation and other violations of intellectual property rights may increase. Any allegation of infringement, misappropriation or other violation of intellectual property rights by a third party, even those without merit, could cause toggled to incur substantial costs and resources defending against

 

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the claim, which could have an adverse effect on toggled’s business. For more information see the section entitled “Business—Legal and regulatory—Legal proceedings—Litigation.”

Some of our businesses may collect personal information and are subject to privacy laws.

Companies that collect personal information are required to comply with the privacy laws adopted by United States and various state and foreign governments, including member states of the European Union. These privacy laws regulate the collection, use, storage, disclosure and security of data, such as names, email addresses and, in some jurisdictions, Internet Protocol addresses, that may be used to identify or locate an individual, including a customer or an employee.

Our Company includes the WEYV business, a consumer music and content service, which in the course of providing its service directly to consumers, collects and stores consumer information. Currently we expect to operate WEYV only within the United States and are only subject to the United States privacy laws. To the extent we expand our WEYV offering beyond the United States we will need to comply with the privacy laws of every country in which we operate. Some of our other products may collect personal data and would also be subject to these privacy laws.

These laws and regulations may require us to implement privacy and security policies, permit end-customers to access, correct and delete personal information stored or maintained by us, inform individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consent to use personally identifiable information for certain purposes. Governments could require that any personally identifiable information collected in a country not be disseminated outside of that country. We also may find it necessary or desirable to join industry or other self-regulatory bodies or other information security, or data protection, related organizations that require compliance with their rules pertaining to information security and data protection. We may agree to be bound by additional contractual obligations relating to our collection, use and disclosure of personal, financial and other data. Our failure to comply with these privacy laws or any actual or suspected security incident may result in governmental actions, fines and non-monetary penalties, which may harm our business.

The privacy laws in the member states of the European Union are in a state of flux and may evolve or change in the near to mid-term. To the extent any European Union member state or other country in which we operate, modifies or changes its interpretation of an existing privacy law or enacts any new privacy law, we may incur unexpected costs.

Risks related to this offering and ownership of our Class A common stock

An active public trading market for our Class A common stock may not develop or be sustained.

Prior to this offering, there has been no public market or active private market for trading shares of our Class A common stock. We expect to list our Class A common stock on                 , in connection with this offering, however, an active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the price of shares of Class A common stock. An inactive market may impair our ability to raise capital by selling shares and our ability to use our capital stock to acquire other companies or technologies. We cannot predict the prices at which our Class A common stock will trade. The initial public offering price of our Class A common stock may not bear any relationship to the market price at which our Class A common stock will trade after this offering.

 

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The market price of our Class A common stock may be volatile, and you could lose all or part of your investment.

The market price of our Class A common stock following this offering will depend on a number of factors, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our Class A common stock, since you might not be able to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the market price of our Class A common stock include the following:

 

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price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole;

 

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volatility in the market prices and trading volumes of technology stocks;

 

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changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

 

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the expiration of market stand-off or contractual lock-up agreements and sales of shares of our Class A common stock by us or our stockholders;

 

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the volume of shares of our Class A common stock available for public sale;

 

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failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

 

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the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

 

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announcements by us or our competitors of new software or new or terminated significant contracts, commercial relationships or capital commitments;

 

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public analyst or investor reaction to our press releases, other public announcements and filings with the SEC;

 

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rumors and market speculation involving us or other companies in our industry;

 

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actual or anticipated changes or fluctuations in our operating results;

 

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actual or anticipated developments in our business, our customers’ businesses, or our competitors’ businesses or the competitive landscape generally;

 

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litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

 

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developments or disputes concerning our intellectual property or our solutions, or third party proprietary rights;

 

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announced or completed acquisitions of businesses or technologies by us or our competitors;

 

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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

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changes in accounting standards, policies, guidelines, interpretations or principles;

 

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any major changes in our management or our board of directors;

 

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general economic conditions and slow or negative growth of our markets; and

 

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other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may affect the market price of our Class A common stock, regardless of our actual operating performance. In the past, following periods of volatility in the overall market and the market prices of a particular company’s securities, securities class action litigation has often been instituted against that company. We may become the target of this type of litigation in the future. Securities litigation, if instituted against us, could result in substantial costs and divert our management’s attention and resources from our business.

Sales of substantial amounts of our Class A common stock may dilute your voting power and your ownership interest in us.

Sales of a substantial number of shares of our Class A common stock after this offering, particularly sales by our directors, executive officers and significant stockholders could adversely affect the market price of our Class A common stock and may make it more difficult to sell Class A common stock at a time and price that you deem appropriate. Based on the total number of outstanding shares of our common stock as of March 31, 2017, upon completion of this offering, we will have an aggregate of                 shares of Class A common stock and                 shares of Class B common stock outstanding, assuming no exercise of our outstanding stock options after March 31, 2017 and assuming the underwriters do not exercise their option to purchase additional shares.

All of the shares of Class A common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act.

A substantial majority our outstanding shares of common stock are currently restricted from resale as a result of market standoff and “lock-up” agreements, as more fully described in “Shares Eligible for Future Sale.” These shares will become available to be sold 181 days after the date of this prospectus. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements. In addition, the underwriters may, in their sole discretion, release all or some portion of the shares subject to market standoff or lock-up agreements prior to the expiration of the lock-up period. See the section entitled “Shares eligible for future sale” for more information. Sales of a substantial number of such shares upon expiration of the market standoff and lock-up agreements, or the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

We intend to register the offer and sale of an aggregate of approximately                 shares of Class A common stock that have been issued or reserved for future issuance under our equity compensation plans on a Form S-8 registration statement. Once we register the offer and sale of these shares, they can be freely sold in the public market upon issuance, subject to the market standoff or lock-up agreements or unless they are held by “affiliates,” as that term is defined in Rule 144 of the Securities Act. If the holders of these shares choose to sell a large number of shares, they could adversely affect the market price for our Class A common stock.

We may also issue shares of our Class A common stock or securities convertible into shares of our Class A common stock from time to time in connection with a financing, acquisition, investment or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our Class A common stock to decline.

 

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Our initial public offering price is substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding Class A common stock, and new investors will experience immediate and substantial dilution.

Our initial public offering price is substantially higher than the pro forma as adjusted net tangible book value per share of our Class A common stock based on the expected total value of our total assets, less our goodwill and other intangible assets, less our total liabilities immediately following this offering. If you purchase shares of our Class A common stock in this offering, you will experience immediate and substantial dilution of $         per share in the price you pay for our Class A common stock as compared to the pro forma as adjusted net tangible book value as of March 31, 2017, after giving effect to the issuance of shares of our Class A common stock in this offering at the initial public offering price of $         per share. Furthermore, if the underwriters exercise their option to purchase additional shares, if outstanding options are exercised, if we issue awards to our employees under our equity incentive plans, or if we otherwise issue additional shares of our Class A common stock, you could experience further dilution. For a further description of the dilution that you will experience immediately after this offering, see the section entitled “Dilution.”

If financial or industry analysts do not publish research or reports about our business or if they issue inaccurate or unfavorable commentary or downgrade our Class A common stock, our stock price and trading volume could decline.

The trading market for our Class A common stock will be influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts or the content and opinions included in their reports. As a new public company, we may be slow to attract research coverage, and the analysts who publish information about our Class A common stock will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. In the event we obtain industry or financial analyst coverage, if any of the analysts who cover us issue an inaccurate or unfavorable opinion regarding our stock price, our stock price would likely decline. In addition, the stock prices of many companies in the technology industry have declined significantly after those companies have failed to meet, or often times exceeded, the financial guidance publicly announced by the companies or the expectations of analysts. If our financial results fail to meet, or significantly exceed, our announced guidance or the expectations of analysts or public investors, analysts could downgrade our Class A common stock or publish unfavorable research about us. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

The dual class structure of our common stock has the effect of concentrating voting control with certain stockholders who hold shares of our Class B common stock, including our founders, certain of our directors and executive officers and affiliates, who will hold in the aggregate     % of the voting power of our capital stock following the completion of this offering. This will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.

Upon the completion of the Recapitalization, our Class B common stock was granted ten votes per share, and our Class A common stock, which is the common stock we are offering pursuant to this prospectus, has one vote per share. Following this offering, our Class B stockholders, including our founders, certain of our directors and executive officers, and affiliates, will hold, in the aggregate     % of the voting power of our capital stock. The ten-to-one voting ratio between our Class B and Class A common stock, results in the holders of our Class B common stock collectively controlling a majority of the combined voting power of our common stock and therefore being able to control all matters submitted to our stockholders for approval until 2029, or upon the occurrence of a

 

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triggering event at which time all shares of our Class B common stock will automatically convert into shares of our Class A common stock, or on an earlier date, as set forth in our Delaware certificate of incorporation.

This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.

Future transfers by holders of our Class B common stock will generally result in those shares converting to Class A common stock, subject to the specific exceptions set forth in our Delaware certificate of incorporation, such as certain transfers effected for estate planning purposes and between or among our founders. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long-term. For a description of the dual class structure, see the section entitled “Description of capital stock—Anti-takeover effects of Delaware law and our certificate of incorporation and bylaws.”

Our management has broad discretion in the use of the net proceeds from this offering, and our use of the net proceeds may not enhance our operating results or the price of our Class A common stock.

We intend to use a portion of our net proceeds that we receive from this offering for the repayment of our existing term loan, which had an outstanding balance of $55.0 million as of March 31, 2017 and to pay off our revolving credit balance of $12.6 million as of March 31, 2017. We intend to use the remaining net proceeds we receive from this offering for general corporate purposes, including working capital, sales and marketing activities, application and application enhancement development, acquisition, investment in our technology and analytics, general and administrative matters and capital expenditures. We may use a portion of the net proceeds to acquire complementary businesses, products, services or technologies and to build and develop our new headquarters building. While we do not have agreements or commitments for any specific acquisitions at this time, other than as disclosed elsewhere in this prospectus, we continually evaluate potential acquisition candidates to enhance our product offerings. Accordingly, our management will have considerable discretion over the specific use of the net proceeds that we receive in this offering and might not be able to obtain a significant return, if any, on investment of these net proceeds. You will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds. Until the net proceeds are used, they may be placed in investments that do not produce significant income, may be held in demand deposit accounts, or in investments intended to be highly liquid that may nevertheless lose value. If we do not use the net proceeds that we receive in this offering effectively, our business and prospects could be harmed, and the market price of our Class A common stock could decline.

We do not intend to pay dividends in the foreseeable future. As a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock.

We have never declared or paid any cash dividends on our Class A common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our Class A common stock in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our Class A common stock appreciates and you sell your shares at a profit. There is no guarantee that the price of our Class A common stock that will prevail in the market after this offering will ever exceed the price that you pay. For additional information about our dividend policy, see the section entitled “Dividend policy” elsewhere in this prospectus.

 

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Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors, and complying with laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.

We will incur increased costs and devote additional management time as a result of operating as a public company.

As a public company, we will incur legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act of 2002, or SOX, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank, as well as rules and regulations subsequently implemented by the SEC and the             , including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote additional time to these public company requirements. In particular, we expect to incur additional expenses and devote additional management effort toward ensuring compliance with the requirements of Section 404 of SOX, which will increase when we are no longer an emerging growth company, as defined by the JOBS Act. We may need to hire additional accounting and financial staff with appropriate experience and technical accounting knowledge to support internal auditing. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

If we fail to maintain effective internal controls, we may not be able to report financial results accurately or on a timely basis, or to detect fraud, which could have a material adverse effect on our business or share price.

Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent financial fraud. Pursuant to SOX, we will be required to periodically evaluate the effectiveness of the design and operation of our internal controls. Internal controls over financial reporting may not prevent or detect misstatements because of inherent limitations, including the possibility of human error or collusion, the circumvention or overriding of controls, or fraud. If we fail to maintain an effective system of internal controls, our business and operating results could be harmed, and we could fail to meet our reporting obligations, which could have a material adverse effect on our business and our share price.

As a public company, we will be required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of SOX requires annual management assessments of the effectiveness of our internal controls over financial reporting beginning with our Annual Report for the year ending December 31, 2018. Both our independent auditors and we will be testing our internal controls pursuant to the requirements of Section 404 of SOX and could, as part of that documentation and testing, identify areas for further attention or improvement. We are in the process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation, which process is time consuming, costly, and complicated. We have identified material weaknesses in our internal controls over financial reporting for the fiscal years ended December 31, 2015 and 2016. If we identify

 

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material weaknesses in our internal control over financial reporting in the future or if we are unable to successfully remediate the identified material weaknesses or, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

We are an emerging growth company and we cannot be certain if (i) the reduced disclosure requirements or (ii) extended transition periods for complying with new or revised accounting standards applicable to emerging growth companies will make our common stock less attractive to investors.

We qualify as an emerging growth company. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company, or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30, (ii) the end of the fiscal year in which we have total annual gross revenues of $1 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) the end of the fiscal year that is five years from the date of this prospectus.

Certain provisions in our charter documents and Delaware law could prevent an acquisition of our company, limit attempts by our stockholders to replace or remove members of our board of directors or current management and may adversely affect the market price of our Class A common stock.

Our Delaware certificate of incorporation and bylaws, which will be effective upon completion of this offering, contain provisions that could delay or prevent a change in control of our company that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or delay attempts by stockholders to replace or remove our current management or members of our board of directors. These provisions include:

 

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providing for a dual class common stock structure for 15 years following the completion of this offering;

 

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providing for a classified board of directors with staggered three-year terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

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authorizing our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval;

 

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the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, our chief executive officer, our president, or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

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requiring the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our certificate of incorporation relating to the issuance of preferred stock and management of our business or our bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;

 

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the ability of our board of directors, by majority vote, to amend our bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend our bylaws to facilitate an unsolicited takeover attempt; and

 

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requiring advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law upon completion of this offering. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. See the section entitled “Description of capital stock—Anti-takeover effects of Delaware law and our certificate of incorporation and bylaws.”

These and other provisions in our certificate of incorporation, our bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our Class A common stock in the future and result in the market price being lower than it would be without these provisions. See the sections entitled “Description of capital stock—Preferred Stock” and “Description of capital stock—Anti-takeover effects of Delaware law and our certificate of incorporation and bylaws.”

 

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Information regarding forward looking statements

This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, customer lifetime value, strategy and plans, market size and opportunity, competitive position, industry environment, potential growth opportunities and our expectations for future operations, are forward-looking-statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would” or the negative version of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. The forward-looking statements are contained principally in “Prospectus summary,” “Risk factors,” “Management’s discussion and analysis of financial condition and result of operations” and “Business.”

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

 

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Market, industry and other data

We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research, as well as from industry and general publications, in addition to research, surveys and studies conducted by third parties. Internal estimates are derived from publicly-available information released by industry analysts and third party sources, our internal research and our industry experience, and are based on assumptions made by us based on such data and our knowledge of our industry and market, which we believe to be reasonable. In addition, while we believe the industry, market and competitive position data included in this prospectus is reliable and is based on reasonable assumptions, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed in the section entitled “Risk factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Information based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which data is derived.

Certain information in this prospectus is contained in independent industry publications. The sources of these independent industry publications include CIMdata, Gartner, and IDC. Research opinions or viewpoints published are not representations of fact and are subject to change without notice.

 

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Use of proceeds

We estimate that the net proceeds from our sale of                  shares of Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the front cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $         million, or $         million if the underwriters’ option to purchase additional shares is exercised in full. A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us from this offering by $         million, assuming the number of shares offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. We will not receive any proceeds from the sale of Class A common stock by the selling stockholders.

We currently intend to use $         million of the net proceeds of this offering to repay our term loan, which had an outstanding balance of $55.0 million as of March 31, 2017 and to pay off the revolving credit balance under our credit facility as set forth in the Credit Agreement. At March 31, 2017, we were required to make quarterly principal payments on Term Loan A of $2.5 million in 2017, 2018 and March 2019. Any outstanding principal balance is to be paid in full on the maturity date of April 18, 2019. At December 31, 2015 and 2016, and March 31, 2017, there was $67.1 million, $57.5 million, and $55.0 million, respectively outstanding under Term Loan A at an interest rate of 2.2%, 2.6% and 2.8%.

As of March 31, 2017, the principal amount of the revolving loans outstanding was $12.6 million. See Note 7 to the financial statements included elsewhere in this prospectus.

We intend to use the remaining net proceeds to us from this offering primarily for general corporate purposes, including real estate development, working capital, sales and marketing activities, general and administrative matters and capital expenditures. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business. We will have broad discretion over the uses of the net proceeds in this offering. Pending these uses, we may invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the United States government.

By establishing a public market for our Class A common stock, this offering is also intended to facilitate our future access to public markets.

 

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Dividend policy

We have never declared or paid and do not anticipate declaring or paying, any cash dividends on our Class A common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

 

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Capitalization

The following table shows our cash and cash equivalents and our capitalization as of March 31, 2017 on:

 

•

an actual basis;

 

•

a pro forma basis, giving effect to the Recapitalization as if it had occurred on March 31, 2017; and

 

•

a pro forma as adjusted basis, giving effect to (i) the pro forma adjustments set forth above, (ii) the receipt of $         million in net proceeds from the sale and issuance by us of                  shares of common stock offered by us in this prospectus at an assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions from this offering and estimated offering expenses paid or payable by us and (iii) our use of a portion of our net proceeds from this offering to fully repay our term loan and revolving credit balance under our credit facility, which had an outstanding balance of $55.0 million and $12.6 million, respectively, as of March 31, 2017.

You should read the following table in conjunction with “Management’s discussion and analysis of financial condition and results of operations,” “Description of capital stock” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

 

		As of March 31, 2017
(In thousands, except share and per share data)		Actual				Pro forma				Pro forma as adjusted(1)
Cash and cash equivalents		$	16,531			$				$
Credit Agreement:
Revolving credit facility(2)		$	12,565
Term Loan A(2)			55,000
Stockholders’ equity (deficit):
Preferred stock, no par value per share: no shares authorized, issued and outstanding, actual;                 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted			—				—
Old Class A Common stock, no par value per share: 24,819,971 shares authorized, 10,300,857 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted			—				—
Old Class B common stock, no par value per share; 6,288,468 shares authorized, 2,238,980 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted			—				—
Class A common stock, no par value per share: no shares authorized, issued and outstanding, actual; no par value per share: 19,000,000 shares authorized, 2,238,980 shares issued and outstanding, pro forma;                  shares authorized, shares issued and outstanding, pro forma as adjusted			—				—
Class B common stock, no par value per share: no shares authorized, issued and outstanding, actual; no par value per share; 11,000,000 shares authorized, 10,300,857 shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted			—				—
Additional paid-in capital			39,973
Accumulated deficit			(69,280	)
Accumulated other comprehensive loss			(6,918	)
Total stockholders’ equity (deficit)			(36,225	)
Total capitalization		$	31,340			$				$

 

 

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(1)

The pro forma as adjusted information is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the range on the cover of this prospectus, would increase (decrease) our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

 

(2)

Our credit facility consists of a $60 million term loan, of which $55.0 million was outstanding as of March 31, 2017, a $60 million revolving commitment, of which $12.6 million was outstanding as of March 31, 2017, and a $4.0 million ancillary facility.

The total number of shares of our common stock to be outstanding following this offering is based on 10,300,857 shares of our old Class A common stock and 2,238,980 shares of our old Class B common stock, outstanding as of March 31, 2017, without giving effect to the Recapitalization, and excludes:

 

•

shares of our Class A common stock to be reserved for issuance under our 2017 Plan;

 

•

806,917 shares of our old Class B common stock reserved for issuance under our 2012 Plan;

 

•

1,586,960 shares of our old Class B common stock issuable upon exercise of stock options outstanding as of March 31, 2017, with an exercise price of $0.001, under our 2001 NQSO Plan.

 

•

737,186 shares of our old Class B common stock issuable upon exercise of stock options outstanding as of March 31, 2017, with a weighted average exercise price of $2.56, under our 2001 Incentive and Non-Qualified Stock Option Plan, or 2001 ISO and NQSO Plan (other than the stock options to be exercised by certain of the selling stockholders in connection with this offering, as set forth elsewhere in this prospectus); and

 

•

438,063 shares of our old Class B common stock issuable upon exercise of stock options outstanding as of March 31, 2017, with a weighted average exercise price of $12.48, under our 2012 Plan.

See the section entitled “Executive compensation—Employee benefit and equity compensation plans” and Note 11 in the notes to consolidated financial statements included elsewhere in this prospectus for a description of our equity plans.

 

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Dilution

If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after this offering. The historical net tangible negative book value of our common stock as of March 31, 2017 was $(83.7) million, or $(6.68) per share. Historical net tangible negative book value per share represents our total tangible assets less our total liabilities, divided by the number of shares of outstanding common stock.

After giving effect to the (i) automatic conversion pursuant to the Recapitalization on April 3, 2017, of all outstanding shares of our old Class A common stock and our old Class B common stock into Class A common stock and Class B common stock, respectively, immediately prior to the effectiveness of the registration statement of which this prospectus is a part and (ii) receipt of the net proceeds from our sale of shares of our Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2017 would have been $         million, or $         per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $         per share to existing stockholders and an immediate dilution of $         per share to new investors purchasing Class A common stock in this offering.

The following table illustrates this dilution on a per share basis to new investors:

 

Initial public offering price per share, based on the midpoint of the price range set forth of the cover page of this prospectus.		$
Historical net tangible book value per share as of March 31, 2017		$
Increase in net tangible book value per share attributable to new investors
Pro forma as adjusted net tangible book value per share after this offering
Dilution per share to new investors in this offering						$

A $1.00 increase (decrease) in the assumed initial public offering price of $                 per share would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $     per share and the dilution to new investors by $         per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of Class A common stock offered by us would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $         per share and the dilution to new investors by $         per share, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us. If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share of our common stock, as adjusted to give effect to this offering, would be $         per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $         per share of common stock.

The table below summarizes as of March 31, 2017, on a pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by existing stockholders and (ii) to be paid by new investors purchasing our Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the

 

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cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses:

 

		Shares purchased								Total consideration								Average price per share
		Number				Percent				Amount				Percent
Existing stockholders							%			$					%			$
New investors
Totals							100.0%							$	100.0%

The total number of shares of our common stock to be outstanding following this offering is based on 10,300,857 shares of our old Class A common stock and 2,238,980 shares of our old Class B common stock, outstanding as of March 31, 2017, without giving effect to the Recapitalization, and excludes:

 

•

shares of our Class A common stock to be reserved for issuance under our 2017 Plan;

 

•

806,917 shares of our old Class B common stock reserved for issuance under our 2012 Plan;

 

•

1,586,960 shares of our old Class B common stock issuable upon exercise of stock options outstanding as of March 31, 2017, with an exercise price of $0.001, under our 2001 NQSO Plan;

 

•

737,186 shares of our old Class B common stock issuable upon exercise of stock options outstanding as of March 31, 2017, with a weighted average exercise price of $2.56, under our 2001 Incentive and Non-Qualified Stock Option Plan, or 2001 ISO and NQSO Plan (other than the stock options to be exercised by certain of the selling stockholders in connection with this offering, as set forth elsewhere in this prospectus); and

 

•

438,063 shares of our old Class B common stock issuable upon exercise of stock options outstanding as of March 31, 2017, with a weighted average exercise price of $12.48, under our 2012 Plan.

Sales by the selling stockholders in this offering will cause the number of shares held by existing stockholders to be reduced to             shares, or     % of the total number of shares of our common stock outstanding after this offering, and will increase the number of shares held by new investors to             shares, or     % of the total number of shares of our common stock outstanding after this offering. In addition, if the underwriters’ over-allotment option is exercised in full, the number of shares held by the existing stockholders after this offering would be reduced to     % of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors would increase to             shares, or     % of the total number of shares of our common stock outstanding after this offering.

To the extent that any outstanding options are exercised, new options are issued under our stock-based compensation plans or we issue additional shares of our common stock in the future, there will be further dilution to investors participating in this offering. If all outstanding options under our 2012 Plan, our 2001 NQSO Plan and our 2001 ISO and NQSO Plan as of March 31, 2017 were exercised, then our existing stockholders, including the holders of these options, would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon the completion of this offering. In such event, the total consideration paid by our existing stockholders, including the holders of these options, would be approximately $         million, or     %, the total consideration paid by our new investors would be $         million, or     %, the average price per share paid by our existing stockholders would be $         and the average price per share paid by our new investors would be $            .

 

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Selected historical consolidated financial and other data

The following selected consolidated financial data should be read in conjunction with the section entitled “Management’s discussion and analysis of financial condition and results of operations” and the consolidated financial statements and related notes included within this prospectus. The consolidated statement of operations data for the years ended December 31, 2015 and 2016, and the consolidated balance sheet data as of December 31, 2015 and 2016, are derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated statement of operations data for the three months ended March 31, 2016 and 2017, and the consolidated balance sheet data as of March 31, 2017, are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of our future results and the results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the full fiscal year or any other period. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes, and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

 

		Years ended December  31,								Three months ended March 31,
(in thousands, except share data)		2015				2016				2016				2017
Consolidated Statements of Operations Data:
Revenue:
Software		$	205,567			$	223,818			$	52,132			$	54,097
Software related services			37,294				35,770				9,134				8,971
Total software			242,861				259,588				61,266				63,068
Client engineering services			45,075				47,702				11,946				12,229
Other			6,193				5,950				1,617				1,585
Total revenue			294,129				313,240				74,829				76,882
Cost of revenue:
Software(1)			27,406				31,962				7,381				8,904
Software related services			30,079				27,653				6,958				6,659
Total software			57,485				59,615				14,339				15,563
Client engineering services			36,081				38,106				9,720				10,141
Other			5,642				4,879				1,359				1,050
Total cost of revenue			99,208				102,600				25,418				26,754
Gross profit			194,921				210,640				49,411				50,128
Operating expenses:
Research and development(1)			62,777				71,325				16,111				18,770
Sales and marketing(1)			63,080				66,086				15,601				16,910
General and administrative(1)			54,069				57,202				13,737				16,089
Amortization of intangible assets			2,624				3,322				657				943
Other operating income			(2,576	)			(2,742	)			(327	)			(594	)
Total operating expense			179,974				195,193				45,779				52,118

 

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Operating income (loss)			14,947				15,447				3,632				(1,990	)
Interest expense			2,416				2,265				690				611
Other expense (income), net			782				(520	)			(260	)			359
Income (loss) before income taxes			11,749				13,702				3,202				(2,960	)
Income tax expense (benefit)			818				3,539				1,721				(772	)
Net income (loss)		$	10,931			$	10,163			$	1,481			$	(2,188	)
Net income (loss) per share attributable to common stockholders, basic(2)		$	0.94			$	0.83			$	0.13			$	(0.17	)
Net income (loss) per share attributable to common stockholders, diluted(2)		$	0.74			$	0.70			$	0.10			$	(0.17	)
Weighted average number of shares used in computing net income (loss) per share attributable to common stockholders, basic(2)			11,652				12,213				11,797				12,533
Weighted average number of shares used in computing net income (loss) per share attributable to common stockholders, diluted(2)			14,677				14,464				14,780				12,533

 

(1)

Includes stock-based compensation expense as follows:

 

		Year ended December  31,								Three months ended March 31,
(in thousands)		2015				2016				2016				2017
Cost of revenue—software		$	44			$	22			$	8			$	5
Sales and marketing			109				775				13				431
General and administrative			295				2,965				26				1,658
Research and development			149				1,370				12				775
Total stock-based compensation expense		$	597			$	5,132			$	59			$	2,869

 

(2)

See Note 14 in the notes to consolidated financial statements for an explanation of the method used to calculate basic and diluted net income (loss) per share attributable to common stockholders.

 

		As of December 31,								As of March 31,
(in thousands)		2015				2016				2017
Consolidated balance sheet data:
Cash and cash equivalents		$	13,756			$	16,874			$	16,531
Working capital			(55,097	)			(52,902	)			(71,401	)
Total assets			221,850				250,776				248,794
Deferred revenue, current and non-current			106,516				113,929				132,466
Debt			83,177				85,241				67,776
Total stockholders’ deficit			(42,039	)			(34,653	)			(36,225	)

Key metrics

We monitor the following key non-GAAP financial and operating metrics to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to our results determined in accordance with GAAP, we believe the following non-GAAP financial and operating metrics are useful in evaluating our operating performance.

Billings.    Billings consists of our total revenue plus the change in our deferred revenue in a given period. As we generally bill our customers at the time of sale, but typically recognize a majority of the related revenue ratably

 

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over time, management believes that Billings is a meaningful way to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers. While we believe that billings provides valuable insight into the cash that will be generated from sales of our software and services, this metric may vary from period-to-period for a number of reasons including the impact of changes in foreign currency exchange rates and the potential impact of acquisitions.

See the section entitled “Selected historical consolidated financial and other data—Reconciliation of non-GAAP financial measures” for information regarding the limitations of using Billings as a financial measure and for a reconciliation of Billings to revenue, the most directly comparable financial measure calculated in accordance with GAAP.

Our Billings were as follows:

 

		Year ended December  31,								Three months  ended March 31,
(in thousands)		2015				2016				2016				2017
Billings		$	297,358			$	320,653			$	91,838			$	95,419

Adjusted EBITDA.    We define Adjusted EBITDA as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, restructuring charges, asset impairment charges and other special items as determined by management. We believe that Adjusted EBITDA is a meaningful measure of performance as it is commonly utilized by us and the investment community to analyze operating performance in our industry. See the section entitled “Selected historical consolidated financial and other data—Reconciliation of non-GAAP financial measures” for information regarding the limitations of using Adjusted EBITDA as a financial measure and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP.

Our Adjusted EBITDA was as follows:

 

		Year ended December  31,								Three months ended March 31,
(in thousands)		2015				2016				2016				2017
Adjusted EBITDA		$	22,949			$	30,830			$	6,260			$	2,909

Free Cash Flow.    Free Cash Flow is a non-GAAP financial measure that we calculate as cash flow provided by operating activities less capital expenditures. We believe that Free Cash Flow is useful in analyzing our ability to service and repay debt and return value directly to stockholders. See the section entitled “Selected historical consolidated financial and other data—Reconciliation of non-GAAP financial measures” for information regarding the limitations of using Free Cash Flow as a financial measure and for a reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP.

Our Free Cash Flow was as follows:

 

		Year ended December  31,								Three months ended March 31,
(in thousands)		2015				2016				2016				2017
Free Cash Flow		$	5,605			$	11,941			$	17,381			$	18,233

These non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures

 

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included in the tables below, may provide a more complete understanding of factors and trends affecting our business. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures and are by definition an incomplete understanding of the Company and must be considered in conjunction with GAAP measures.

We believe that the non-GAAP measures disclosed herein are only useful as an additional tool to help management and investors make informed decisions about our financial and operating performance and liquidity. By definition, non-GAAP measures do not give a full understanding of the Company. To be truly valuable, they must be used in conjunction with the comparable GAAP measures. In addition, non-GAAP financial measures are not standardized. It may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. We strongly encourage investors to review our consolidated financial statements and the notes thereto in their entirety and not to rely on any single financial measure.

Reconciliation of Non-GAAP Financial Measures

The following tables provide reconciliations of revenue to Billings, net income (loss) to Adjusted EBITDA and net cash provided by operating activities to Free Cash Flow:

Billings

 

		Year ended December  31,								Three months ended March 31,
(in thousands)		2015				2016				2016				2017
Revenue		$	294,129			$	313,240			$	74,829			$	76,882
Ending deferred revenue			106,516				113,929				123,525				132,466
Beginning deferred revenue			(103,287	)			(106,516	)			(106,516	)			(113,929	)
Billings		$	297,358			$	320,653			$	91,838			$	95,419

Adjusted EBITDA

 

		Year Ended December  31,								Three months ended March 31,
(in thousands)		2015				2016				2016				2017
Net income (loss)		$	10,931			$	10,163			$	1,481			$	(2,188	)
Income tax expense (benefit)			818				3,539				1,721				(772	)
Stock-based compensation			597				5,132				59				2,869
Interest expense			2,416				2,265				690				611
Interest income and other			(191	)			(249	)			37				(85	)
Depreciation and amortization			8,378				9,980				2,272				2,474
Adjusted EBITDA		$	22,949			$	30,830			$	6,260			$	2,909

Free Cash Flow

 

		Year ended December 31,								Three months ended March 31,
(in thousands)		2015				2016				2016				2017
Net cash provided by operating activities		$	10,838			$	21,385			$	18,954			$	19,202
Capital expenditures			(5,233	)			(9,444)	(1)			(1,573)				(969)
Free Cash Flow		$	5,605			$	11,941			$	17,381			$	18,233

 

(1)

Includes $4.0 million purchase of real property adjacent to our corporate headquarters.

 

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Management’s discussion and analysis of financial condition and

results of operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Selected historical consolidated financial and other data” and our financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk factors” and “Information regarding forward looking statements” included elsewhere in this prospectus.

Vision

Our vision is to transform product design and organizational decision making by applying simulation, optimization and high performance computing throughout product lifecycles.

Overview

We are a leading provider of enterprise-class engineering software enabling innovation across the entire product lifecycle from concept design to in-service operation. Our simulation-driven approach to innovation is powered by our broad portfolio of high-fidelity and high performance physics solvers. Our integrated suite of software optimizes design performance across multiple disciplines encompassing structures, motion, fluids, thermal management, electromagnetics, system modeling and embedded systems, while also providing data analytics and true-to-life visualization and rendering.

Our engineering and design platform offers a wide range of multi-disciplinary computer aided engineering, or CAE, solutions which we believe is one of the most innovative and comprehensive offerings available in the market. To ensure customer success and deepen our relationships with them, we engage with our customers to provide consulting, implementation services, training, and support, especially when applying optimization. We participate in five software categories related to CAE and high performance computing, or HPC:

 

•

Solvers & Optimization;

 

•

Modeling & Visualization;

 

•

Industrial & Concept Design;

 

•

Internet of Things, or IoT; and

 

•

HPC.

Altair also provides client engineering services, or CES, to support our customers with long-term ongoing product design and development expertise. This has the benefit of embedding us within customers, deepening our understanding of their processes, and allowing us to more quickly perceive trends in the overall market. Our presence at our customers’ sites helps us to better tailor our software products’ research and development, or R&D, and sales initiatives.

Our business model

We pioneered a patented digital-currency subscription model for software and other digital content. Our customers license a pool of units for their organizations, which allows individual users within the organization

 

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to have flexible and shared access to our entire portfolio of software applications, along with over 150 partner products. We believe our units-based subscription model lowers barriers to adoption, creates broad engagement, and encourages users to work within our ecosystem. This, in turn, helps drive our recurring software revenues which have been on average approximately 88% over the past five years and increases revenue. Each year approximately 60% of new revenue comes from expansion within existing customers.

Our corporate history and culture

We were founded in 1985 in Michigan and have a balanced global footprint, with 67 offices in 23 countries, and over 2,000 engineers, scientists and creative thinkers. We believe a critical component of our success has been our company culture, based on our core values of innovation, envisioning the future, communicating honestly and broadly, seeking technology and business firsts, and embracing diversity. This culture is important because it helps attract and retain top people, encourages innovation and teamwork, and enhances our focus on achieving Altair’s corporate objectives.

Factors affecting our performance

We believe that our future success will depend on many factors, including those described below. While these areas present significant opportunity, they also present risks that we must manage to achieve successful results. If we are unable to address these challenges, our business, operating results and prospects could be harmed. See the section entitled “Risk factors” included elsewhere in this prospectus.

Seasonality and quarterly results

Our billings have historically been highest in the first and fourth quarters of any calendar year and may vary in future quarters. The timing of recording billings and the corresponding effect on our cash flows may vary due to the seasonality of the purchasing patterns of our customers. In addition, the timing of the recognition of revenue, the amount and timing of operating expenses including, employee compensation, sales and marketing activities, and capital expenditures, may vary from quarter-to-quarter which may cause our reported results to fluctuate significantly. In addition, we may choose to grow our business for the long-term rather than to optimize for profitability or cash flows for a particular shorter term period. This seasonality or the occurrence of any of the factors above may cause our results of operations to vary and our financial statements may not fully reflect the underlying performance of our business.

Foreign currency fluctuations

As a result of our substantial international operations, we are exposed to foreign currency risks that arise from our normal business operations, including in connection with our transactions that are denominated in foreign currencies, including the Euro, British Pound Sterling, Indian Rupee, Japanese Yen, and Chinese Yuan. In an attempt to represent the changes in our underlying business without regard to the impact of currency fluctuations, we evaluate certain of our operating results both on an as reported basis, as well as on a constant currency basis.

Constant currency, which is a non-GAAP measure, excludes the effect of foreign currency fluctuations on our reported results. To present this information, the results for the year ended December 31, 2016 for entities whose functional currency is a currency other than the United States dollar were converted to United States dollars at rates that were in effect for the year ended December 31, 2015. These adjusted amounts are then compared to our current period reported amounts to provide operationally driven variances in our results.

 

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Business Segments

We have identified two reportable segments: Software and Client Engineering Services:

 

•

Software—our Software segment includes software and software related services. The software component of this segment includes our portfolio of software products including our solvers and optimization technology products, modeling and visualization tools, industrial and concept design tools, IoT platform and analytics tools, and high performance computing, or HPC, software applications, as well as support and the complementary software products we offer through our Altair Partner Alliance, or APA. The APA includes technologies ranging from computational fluid dynamics and fatigue to manufacturing process simulation and cost estimation. The software related services component of this segment includes consulting, implementation services, and training focused on product design and development expertise and analysis from the component level up to complete product engineering.

 

•

Client Engineering Services—our client engineering services, or CES, segment provides client engineering services to support our customers with long-term, ongoing product design and development expertise. We operate our CES business by hiring engineers for placement at a customer site for specific customer-directed assignments. We employ and pay the engineers only for the duration of the placement.

Our other businesses which do not meet the criteria to be separate reportable segments are combined and reported as “Other” which represents innovative services and products, including toggled, our LED lighting and IoT business. toggled is focused on developing and selling next-generation solid state lighting technology along with communication and control protocols based on our intellectual property for the direct replacement of fluorescent light tubes with LED lamps. Other businesses combined within Other include potential services and product concepts that are still in their development stages.

For additional information about our reportable segments and other businesses, see Note 19 in the notes to consolidated financial statements included elsewhere in this prospectus.

Components of results of operations

Revenue

We primarily derive revenue from our digital-currency subscription model for software and other digital content, other software licensing, and software related services. Our CES business derives revenue from providing engineers to support our customers’ long-term, ongoing product design and development projects.

Software Segment

Software segment revenue consists of revenue from software licenses and software related services including consulting, implementation services, training, and support.

Software

Software revenue is principally comprised of subscription license agreements, typically with 12 month terms, which include maintenance and support. Software revenue is also comprised of perpetual license agreements, and associated maintenance and support agreements. We generally recognize software license revenue ratably over the period of the arrangement. Each year approximately 60% of our new revenue comes from expansion within existing customers.

 

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Software related services

Software related services includes consulting, implementation services and training. Our software related services team is comprised of almost 700 highly technical people globally. We focus on establishing a strong working relationship with the user community allowing us to offer guidance and expertise throughout their product creation process.

We generally recognize revenue for software related services on a time and materials or, for fixed price arrangements, on a proportional performance basis.

Client engineering services segment

We provide CES to support our customers with long-term, ongoing product design and development expertise. We operate our CES business by hiring engineers for placement at a customer site for specific customer-directed assignments. We employ and pay the engineers only for the duration of the placement.

Our CES business generates revenue from placing simulation specialists, industrial designers, design engineers, materials experts, development and test engineers, manufacturing engineers and information technology specialists on-site with our customers in businesses operating in the virtual simulation, product design and development, software development, and high-performance computing spaces. We recognize CES revenue based upon hours worked and contractually agreed-upon hourly rates.

The average CES assignment was 1.8 years during the period from 2011 through 2016, with a current average length of service for all CES employees of 2.4 years. As of December 31, 2016, 44% of CES employees were in their assignments for over two years. The terms of our CES arrangements generally provide that our customers pay us within 30 days of invoice. The amount and timing of CES revenue depends on our customers demand for engineering services and the number of available qualified employees to service our customers’ needs.

Other

Our Other revenue consists primarily of revenue related to our LED lighting business operated out of our wholly-owned subsidiary, toggled. toggled designs, sources through contract manufacturers, and assembles in our own facilities, LED lighting and related products for sale to consumers and businesses. We also generate revenue through royalties from licensing our technology to third party manufacturers and resellers.

Cost of revenue

Software segment

Cost of software revenue consists of expenses related to software licensing and customer support. Significant expenses include employee related costs for support team members, travel costs, and royalties for third-party software products available to customers through our products or as part of our APA.

Software

Cost of software revenue consists of the cost of personnel and related costs such as salaries, benefits, bonuses and stock-based compensation, travel expenses and certain data center and facility costs and substantially all royalty expenses.

Software related services

Cost of software related services revenue consists of the cost of personnel and related costs such as salaries, benefits, bonuses and stock-based compensation, travel expenses and certain data center and facility costs.

 

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Cost of client engineering services

Cost of engineering services revenue consists primarily of employee compensation costs. We operate our CES business by hiring engineers for placement at a customer site for specific customer-directed assignments. We employ and pay the engineers only for the duration of the placement.

Cost of other

Cost of other revenue includes the cost of LED lighting products and freight related to products sold to retail and commercial sales channels.

Operating expenses

Operating expenses, as defined and discussed below, support all of the products and services that we provide to our customers and, as a result, they are presented in an aggregate total.

Research and development

Research and development expenses consist primarily of expenses of our development team, including salaries, benefits, bonuses, stock-based compensation expense and allocated overhead costs. Our research and development efforts are focused on enhancing the functionality, breadth and scalability of our software, addressing new use cases, and developing additional innovative simulation technologies. Timely development of new products is essential to maintaining our competitive position, and we release new versions of our software on a regular basis. All software development costs are expensed as incurred as our current software development process is essentially completed concurrent with the establishment of technological feasibility.

Sales and marketing

Sales and marketing expenses consist primarily of the cost of personnel and related costs associated with our sales and marketing staff, including salaries, benefits, bonuses, commissions and stock-based compensation, and costs relating to our marketing and business development programs including trade shows and events. We intend to continue to invest resources in our sales and marketing initiatives in order to continue to drive growth and extend our market position.

General and administrative

General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, human resources, recruiting, and employee-related information technology and administrative personnel, including salaries, benefits, bonuses and stock-based compensation expense, professional fees for external legal, accounting, facilities, recruiting and other consulting services, allocated overhead costs, and legal settlements.

Amortization of intangible assets

Amortization of intangible assets consists primarily of amortization of intangibles associated with acquisitions. We expect to incur additional amortization expenses resulting from future strategic acquisitions.

Other operating income

Other operating income consists primarily of government subsidies, primarily in France, in the form of grant income associated with certain of our research and development activities.

 

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Interest expense

Interest expense consists of interest expense on our outstanding indebtedness and accretion of interest expense on debt issuance costs. In connection with this offering, we intend to repay substantially all our outstanding indebtedness.

Other expense (income), net

Other expense (income), net is comprised primarily of foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units.

Income tax expense (benefit)

Income tax expense (benefit) is comprised primarily of income taxes related to United States, foreign, and state jurisdictions in which we conduct business. We record interest and penalties related to income tax matters as income tax expense. We expect the amount of income tax expense (benefit), if any, to vary each reporting period depending upon fluctuations in our income. We have substantial United States tax credit carryforwards which, if not utilized, will begin to expire in 2018. The ability to utilize these tax credit carryforwards is highly dependent upon our ability to generate taxable income in the United States in the future.

Our future effective annual tax rate may be materially impacted by the amount of benefits and charges from tax amounts associated with our foreign earnings that are taxed at rates different from the federal statutory rate, changes in valuation allowances, level of profit before tax, accounting for uncertain tax positions, stock-based compensation, business combinations, closure of statute of limitations, or settlements of tax audits, and changes in tax laws including possible United States tax law changes that, if enacted, could significantly impact how United States multinational companies are taxed on foreign subsidiary earnings. A significant amount of our earnings is generated in the EMEA and APAC regions. Our future effective tax rates may be adversely affected to the extent earnings are lower than anticipated in countries where we have lower statutory tax rates or we repatriate certain foreign earnings on which United States taxes have not previously been provided.

As of March 31, 2017 and December 31, 2016, we had net deferred tax assets, or DTAs, of $61.6 million and $61.5 million, respectively, primarily related to tax credits, share-based compensation, deferred revenue, and capitalized research and development expenses. We are also entitled to a United States federal tax deduction when non-qualified stock options, or NSOs, are exercised. In connection with this offering, we expect a significant number of our NSOs will be exercised, creating substantial additional tax deductions for us. These deductions may result in future net operating losses for United States tax purposes which could result in our needing to establish a valuation allowance for our DTAs. Our ability to utilize any net operating losses or tax credits could be limited under provisions of the Code if we undergo an ownership change in connection with or after this offering (generally defined as a greater than 50-percentage point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period). It is also possible that we will be unable to realize our tax credit carryforwards as they begin to expire in 2018.

 

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Results of operations

The following table sets forth our results of operations and the period-over-period percentage change in certain financial data for the years ended December 31, 2015 and 2016 and the three months ended March 31, 2016 and 2017:

 

		Year ended December 31,								Increase/ (decrease)				Three Months Ended March 31,								Increase / (decrease)
(dollars in thousands)		2015				2016				%				2016				2017				%
Revenue:
Software		$	205,567			$	223,818				9%			$	52,132			$	54,097				4%
Software related services			37,294				35,770				(4%	)			9,134				8,971				(2%	)
Total software			242,861				259,588				7%				61,266				63,068				3%
Client engineering services			45,075				47,702				6%				11,946				12,229				2%
Other			6,193				5,950				(4%	)			1,617				1,585				(2%	)
Total revenue			294,129				313,240				6%				74,829				76,882				3%
Cost of revenue:
Software			27,406				31,962				17%				7,381				8,904				21%
Software related services			30,079				27,653				(8%	)			6,958				6,659				(4%	)
Total software			57,485				59,615				4%				14,339				15,563				9%
Client engineering services			36,081				38,106				6%				9,720				10,141				4%
Other			5,642				4,879				(14%	)			1,359				1,050				(23%	)
Total cost of revenue			99,208				102,600				3%				25,418				26,754				5%
Gross profit			194,921				210,640				8%				49,411				50,128				1%
Operating expenses:
Research and development			62,777				71,325				14%				16,111				18,770				17%
Sales and marketing			63,080				66,086				5%				15,601				16,910				8%
General and administrative			54,069				57,202				6%				13,737				16,089				17%
Amortization of intangible assets			2,624				3,322				27%				657				943				44%
Other operating income			(2,576	)			(2,742	)			6%				(327	)			(594	)			82%
Total operating expenses			179,974				195,193				8%				45,779				52,118				14%
Operating income (loss)			14,947				15,447				3%				3,632				(1,990	)			NM
Interest expense			2,416				2,265				(6%	)			690				611				(11%	)
Other expense (income), net			782				(520	)			NM				(260	)			359				NM
Income (loss) before income taxes			11,749				13,702				17%				3,202				(2,960	)			NM
Income tax expense (benefit)			818				3,539				333%				1,721				(772	)			NM
Net income (loss)		$	10,931			$	10,163				(7%	)		$	1,481			$	(2,188	)			NM
Other Financial Information:
Billings(1)		$	297,358			$	320,653				8%			$	91,838			$	95,419				4%
Adjusted EBITDA(2)		$	22,949			$	30,830				34%			$	6,260			$	2,909				(54%	)
Free Cash Flow(3)		$	5,605			$	11,941				113%			$	17,381			$	18,233				5%

NM=Not meaningful.

 

(1)

Billings consists of our total revenue plus the change in our deferred revenue. For more information about Billings and our other non-GAAP financial measures and reconciliations of our non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, see the section entitled “Selected historical consolidated financial and other data—Reconciliation of non-GAAP financial measures.”

 

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(2)

We define Adjusted EBITDA as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, restructuring charges, asset impairment charges and other special items as determined by management. For more information about Adjusted EBITDA and our other non-GAAP financial measures and reconciliations of our non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP, see the section entitled “Selected historical consolidated financial and other data—Reconciliation of non-GAAP financial measures.”

 

(3)

We define Free Cash Flow as net cash provided by operating activities less capital expenditures. See the section entitled “Selected historical consolidated financial and other data—Reconciliation of non-GAAP financial measures” for a reconciliation of Free Cash Flow.

Three months ended March 31, 2016 and 2017

Revenue

Total revenue increased by $2.0 million, or 3% for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. The increase was primarily attributable to an increase in subscription and software revenue.

Software segment

Software

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Software revenue		$	52,132			$	54,097			$	1,965				4%
As a percent of software segment revenue			85%				86%
As a percent of consolidated revenue			70%				70%

The 4% increase in our software revenue for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016, was primarily the result of an expansion in the number of units licensed by our existing customers under renewed software license agreements and, to a lesser extent, licensing of units to new customers pursuant to new software license agreements.

Software related services

 

		Three months  ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Software related services revenue		$	9,134			$	8,971			$	(163	)			(2%	)
As a percent of software segment revenue			15%				14%
As a percent of consolidated revenue			12%				12%

The 2% decrease in our software related services revenue for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016, was primarily the result of our (i) continued focus on higher-value projects aligned with our software products and (ii) the completion of projects that had been in process.

Client engineering services

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Client engineering services revenue		$	11,946			$	12,229			$	283				2%
As a percent of consolidated revenue			16%				16%

 

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The 2% increase in our CES revenue for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016 was primarily due to an increase in demand for our contracting services and corresponding higher billable headcount placements during the period. Our headcount in the CES business increased 4% in the first quarter of 2017 as compared to the first quarter of 2016.

Other

 

		Three months  ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Other revenue		$	1,617			$	1,585			$	(32	)			(2%	)
As a percent of consolidated revenue			2%				2%

There was a 2% decrease in Other revenue for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016.

Cost of revenue

Software segment

Software

 

		Three months  ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Cost of software revenue		$	7,381			$	8,904			$	1,523				21%
As a percent of software revenue			14%				16%
As a percent of consolidated revenue			10%				12%

Cost of software revenue increased by $1.5 million, or 21%, for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. This increase was due to increased employee compensation and related costs of $0.9 million for the addition of new personnel in connection with acquisitions that occurred subsequent to March 31, 2016, and increased third party royalty costs of $0.7 million for software programs.

Software related services

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Cost of software related services revenue		$	6,958			$	6,659			$	(299	)			(4%	)
As a percent of software related services revenue			76%				74%
As a percent of consolidated revenue			9%				9%

Cost of software related services revenue decreased by $0.3 million, or 4% for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. This decrease is consistent with the decrease in software related services revenue.

 

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Client engineering services segment

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Cost of client engineering services revenue		$	9,720			$	10,141			$	421				4%
As a percent of client engineering services segment revenue			81%				83%
As a percent of consolidated revenue			13%				13%

Cost of CES revenue increased by $0.4 million, or 4%, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. This increase is primarily due to compensation expenses associated with a larger number of placements to meet customer demand and compensation increases to the CES staff in advance of when those costs can be passed through to our CES clients.

Other

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Cost of other revenue		$	1,359			$	1,050			$	(309	)			(23%	)
As a percent of other revenue			84%				66%
As a percent of consolidated revenue			2%				1%

Cost of Other revenue decreased by $0.3 million, or 23%, for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. This decrease is primarily due to our introduction of new products that have a lower average cost than the older products.

Gross profit

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Gross profit		$	49,411			$	50,128			$	717				1%
As a percent of consolidated revenue			66%				65%

Gross profit increased by $0.7 million, or 1%, for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. This increase in gross profit was primarily attributable to the growth of our software revenue of $2.0 million driven by the expansion in the number of units purchased by our existing customers and, to a lesser extent, sales to new customers. The increase in revenue was partially offset by the increase in cost of software revenue which related to higher employee related costs and royalty payments to our partners for the three months ended March 31, 2017.

 

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Operating expenses

Operating expenses, as discussed below, support all of the products and services that we provide to our customers and, as a result, they are reported and discussed here in an aggregate total.

Research and development

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Research and development		$	16,111			$	18,770			$	2,659				17%
As a percent of consolidated revenue			22%				24%

Research and development expenses increased by $2.7 million, or 17%, for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. This increase is attributable to higher employee costs of $1.6 million resulting from an increase in our headcount, primarily due to acquisitions and annual compensation adjustments. In addition, the stock-based compensation expense component of our research and development expense increased during the three months ended March 31, 2017 by $0.8 million as compared to the three months ended March 31, 2016 primarily due to the increased value of our shares of common stock.

Sales and marketing

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Sales and marketing		$	15,601			$	16,910			$	1,309				8%
As a percent of consolidated revenue			21%				22%

Sales and marketing expenses increased by $1.3 million, or 8%, for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. This increase is primarily attributable to a $0.8 million increase in employee compensation costs, including stock-based compensation expense of $0.4 million, and a $0.3 million increase in our sales and marketing campaigns to support our direct sales force.

General and administrative

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
General and administrative		$	13,737			$	16,089			$	2,352				17%
As a percent of consolidated revenue			18%				21%

General and administrative expenses increased by $2.4 million, or 17%, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. This increase is primarily attributable to a $1.6 million increase in stock-based compensation expense. Excluding the impact of stock-based compensation, general and administrative expenses increased by 5%, from $13.7 million to $14.4 million for the three months ended March 31, 2017 and 2016, respectively.

 

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Amortization of intangible assets

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Amortization of intangible assets		$	657			$	943			$	286				44%
As a percent of consolidated revenue			1%				1%

Amortization of intangible assets increased by $0.3 million, or 44%, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. This increase was attributable to the amortization of intangible assets associated with acquisitions completed during the year ended December 31, 2016.

Other operating income

 

		Three months  ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Other operating income		$	(327	)		$	(594	)		$	(267	)			(82)%
As a percent of consolidated revenue			—%				(1	)%

Other operating income increased $0.3 million, or 82%, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. This increase was due to an increase in grant income as a result of an acquisition in the second quarter of 2016.

Interest expense

 

		Three months  ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Interest expense		$	690			$	611			$	(79	)			(11%	)
As a percent of consolidated revenue			1%				1%

Interest expense decreased by $0.1 million, or 11%, for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. This decrease was due to a reduction in our interest expense related to our Credit Agreement as a result of a partial debt repayment and the use of lower cost short-term borrowing contracts related to our line of credit borrowings.

Other expense (income), net

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Other expense (income), net		$	(260	)		$	359			$	619				NM
As a percent of consolidated revenue			—%				—%

Other expense (income), net increased by $0.6 million for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. This increase was due to fluctuations in the United States dollar relative to other functional currencies during the three months ended March 31, 2017, compared to the three months ended March 31, 2016.

 

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Income tax expense (benefit)

 

		Three months ended March 31,								Period-to-period change
(dollars in thousands)		2016				2017				$				%
Income tax expense (benefit)		$	1,721			$	(772	)		$	(2,493	)			NM

Our effective tax rate was 26% and 54% for the three months ended March 31, 2017 and 2016, respectively. The tax rate is affected by the Company being a United States resident taxpayer, the tax rates in the United States and other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income which no benefit or expense was recognized due to a valuation allowance. The effective tax rate was impacted by the geographic income mix in 2017 as compared to 2016 primarily related to the United States pre-tax income of $4.3 million in 2016 to a $5.5 million pre-tax loss in 2017.

Years Ended December 31, 2015 and 2016

Revenue

Total revenue increased by $19.1 million, or 6%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase was primarily attributable to an increase in software revenue of $18.3 million, or 9%, for the same period, partially offset by a decrease in software related services revenue of $1.5 million, or 4%. Our CES revenue also increased by $2.6 million, or 6% for the year ended December 31, 2016 as compared to the corresponding prior year.

Software segment

Software

 

		Year  ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Software revenue		$	205,567			$	223,818			$	18,251				9%
As a percent of software segment revenue			85%				86%
As a percent of consolidated revenue			70%				71%

The 9% increase in our software revenue for the year ended December 31, 2016 as compared to the year ended December 31, 2015, was primarily the result of an expansion in the number of units licensed by our existing customers under renewed software license agreements and, to a lesser extent, licensing of units to new customers pursuant to new software license agreements. This increase in software revenue occurred across the Americas, EMEA and APAC.

Software related services

 

		Year  ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Software related services revenue		$	37,294			$	35,770			$	(1,524	)			(4%	)
As a percent of software segment revenue			15%				14%
As a percent of consolidated revenue			13%				11%

 

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The 4% decrease in our software related services revenue for the year ended December 31, 2016 as compared to the year ended December 31, 2015, was primarily the result of our continued focus on higher-value projects aligned with our software.

Client engineering services

 

		Year  ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Client engineering services revenue		$	45,075			$	47,702			$	2,627				6%
As a percent of consolidated revenue			15%				15%

The 6% increase in our CES revenue for the year ended December 31, 2016 as compared to the year ended December 31, 2015, was primarily due to an increase in demand for our consulting services and corresponding higher billable headcount placements during the period. Our headcount in the CES business increased 4% in 2016 as compared to the prior year.

Other

 

		Year  ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Other revenue		$	6,193			$	5,950			$	(243	)			(4%	)
As a percent of consolidated revenue			2%				2%

Other revenue for the year ended December 31, 2015 included $2.0 million of revenue related to royalties from our licensing of intellectual property technology that did not reoccur in the year ended December 31, 2016. Excluding the impact of these royalties, our Other revenue increased 42% for the year ended December 31, 2016 as compared to the prior year. This increase in our Other revenue was primarily due to an increase in demand for LED lighting and increased royalties received from licensing our technology to third party manufacturers and resellers.

Cost of revenue

Software segment

Software

 

		Year  ended December 31,								Period-to  -period change
(dollars in thousands)		2015				2016				$				%
Cost of software revenue		$	27,406			$	31,962			$	4,556				17%
As a percent of software revenue			13%				14%
As a percent of consolidated revenue			9%				10%

Cost of software revenue increased by $4.6 million, or 17%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015, primarily attributable to a $3.3 million increase in employee compensation costs, including stock-based compensation expense of $0.3 million and increased third party royalty costs for software programs we include in our APA program of $0.7 million.

 

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Software related services

 

		Year  ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Cost of software related services revenue		$	30,079			$	27,653			$	(2,426	)			(8%	)
As a percent of software related services revenue			81%				77%
As a percent of consolidated revenue			10%				9%

Cost of software related services revenue decreased by $2.4 million, or 8%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015, primarily related to a reorganization of personnel and the corresponding decrease in software related services revenue and our continued focus on higher-value projects aligned with our software.

Client engineering services segment

 

		Year  ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Cost of client engineering services revenue		$	36,081			$	38,106			$	2,025				6%
As a percent of client engineering services segment revenue			80%				80%
As a percent of consolidated revenue			12%				12%

Cost of CES revenue increased by $2.0 million, or 6%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase is primarily due to compensation expenses associated with a larger number of placements to meet customer demand.

Other

 

		Year  ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Cost of other revenue		$	5,642			$	4,879			$	(763	)			(14%	)
As a percent of other revenue			91%				82%
As a percent of consolidated revenue			2%				2%

Cost of Other revenue decreased by $0.8 million, or 14%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This decrease is primarily due to our introduction of new products that have a lower cost of manufacturing.

Gross profit

 

		Year  ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Gross profit		$	194,921			$	210,640			$	15,719				8%
As a percent of consolidated revenue			66%				67%

Gross profit increased by $15.7 million, or 8%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase in gross profit was primarily attributable to the growth of our software revenue of $18.3 million driven by the expansion in the number of units purchased by our existing customers and, to a lesser extent, sales to new customers. Gross profit margin increased to 67% in the year ended December 31, 2016 from 66% in the year ended December 31, 2015.

 

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Operating expenses

Operating expenses, as discussed below, support all of the products and services that we provide to our customers and, as a result, they are reported and discussed here in an aggregate total.

Research and development

 

		Year  ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Research and development		$	62,777			$	71,325			$	8,548				14%
As a percent of consolidated revenue			21%				23%

Research and development expenses increased by $8.5 million, or 14%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase is attributable to an increase in employee costs of $6.2 million resulting from an increase in our headcount in 2016, primarily due to acquisitions and annual compensation adjustments. In addition, the share-based compensation expense component of our research and development expense increased during the year ended December 31, 2016 by $1.2 million as compared to the corresponding prior year primarily due to the increased value of our shares of common stock. Excluding the impact of stock-based compensation, research and development costs increased by 12% from $62.6 million to $70.0 million for the years ended December 31, 2015 and 2016, respectively.

Sales and marketing

 

		Year ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Sales and marketing		$	63,080			$	66,086			$	3,006				5%
As a percent of consolidated revenue			21%				21%

Sales and marketing expenses increased by $3.0 million, or 5%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This increase is primarily attributable to a $2.4 million increase in employee compensation costs, including stock-based compensation and a $0.7 million increase in our sales and marketing campaigns to support our direct sales force.

General and administrative

 

		Year ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
General and administrative		$	54,069			$	57,202			$	3,133				6%
As a percent of consolidated revenue			18%				18%

General and administrative expenses increased by $3.1 million, or 6%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase is primarily attributable to a $2.7 million increase in share-based compensation expense. These expenses were partially offset by decreases in professional services expenses primarily related to a decline in legal costs for outstanding legal matters. Excluding the impact of stock-based compensation, general and administrative expenses increased by 1%, from $53.8 million to $54.2 million for the years ended December 31, 2015 and 2016, respectively.

 

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Amortization of intangible assets

 

		Year ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Amortization of intangible assets		$	2,624			$	3,322			$	698				27%
As a percent of consolidated revenue			1%				1%

Amortization of intangible assets increased by $0.7 million, or 27%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase was attributable to the amortization of intangible assets associated with acquisitions completed during the year ended December 31, 2016 and a full year of amortization related to acquisitions completed during the year ended December 31, 2015.

Other operating income

 

		Year ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Other operating income		$	(2,576	)		$	(2,742	)		$	(166	)			(6)%
As a percent of consolidated revenue			(1	)%			(1	)%

Other operating income increased by $0.2 million, or 6%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase was primarily attributable to an increase in government subsidies, primarily in France, in the form of grant income associated with certain of our research and development activities.

Interest expense

 

		Year ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Interest expense		$	2,416			$	2,265			$	(151	)			(6%	)
As a percent of consolidated revenue			1%				1%

Interest expense decreased by $0.2 million, or 6%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This decrease was due to a reduction in our interest expense related to our Credit Agreement as a result of a partial debt repayment and the use of lower cost short-term borrowing contracts related to our line of credit borrowings.

Other expense (income), net

 

		Year ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Other expense (income), net		$	782			$	(520	)		$	(1,302	)			NM
As a percent of consolidated revenue			—%				—%

Other expense (income), net decreased by $1.3 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This decrease was due to fluctuations in the United States dollar relative to other functional currencies during the year ended December 31, 2016 compared to the prior year.

 

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Income tax expense

 

		Year ended December 31,								Period-to-period change
(dollars in thousands)		2015				2016				$				%
Income tax expense		$	818			$	3,539			$	2,721				333%

Income tax expense increased by $2.7 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase is primarily due to a $1.8 million increase in tax expense related to nondeductible stock-based compensation, a $0.8 million increase in the expense related to an increase in pre-tax income related to foreign operations, partially offset by certain tax deductions and credits and foreign income taxes at rates other than the federal statutory rates. See Note 13 in the notes to consolidated financial statements included elsewhere in this prospectus.

Key metrics

We monitor the following key non-GAAP financial and operating metrics to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to our results determined in accordance with GAAP, we believe the following non-GAAP financial and operating metrics are useful in evaluating our operating performance.

Billings.    Billings consists of our total revenue plus the change in our deferred revenue in a given period. As we generally bill our customers at the time of sale, but typically recognize a majority of the related revenue ratably over time, management believes that Billings is a meaningful way to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers. While we believe that billings provides valuable insight into the cash that will be generated from sales of our software and services, this metric may vary from period-to-period for a number of reasons including the impact of changes in foreign currency exchange rates and the potential impact of acquisitions. See the section entitled “Selected historical consolidated financial and other data—Reconciliation of non-GAAP financial measures” for information regarding the limitations of using Billings as a financial measure and for a reconciliation of Billings to revenue, the most directly comparable financial measure calculated in accordance with GAAP.

Our Billings were as follows:

 

		Year ended December 31,								Period-to-period change				Three months ended March 31,								Period-to-period change
(dollars in thousands)		2015				2016				%				2016				2017				%
Billings		$	297,358			$	320,653				8%			$	91,838			$	95,419				4%

Billings increased by $3.6 million, or 4%, for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. This increase in Billings was primarily attributable to a 5% increase in Software segment billings.

Billings increased by $23.3 million, or 8%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase in Billings was primarily attributable to an 8% increase in Software segment billings equaling $22.5 million, with the remaining increase in the CES segment and our other businesses.

Adjusted EBITDA.    We define Adjusted EBITDA as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, restructuring charges, asset impairment charges and other special items as determined by management. We believe that Adjusted EBITDA is a meaningful measure of performance as it is commonly utilized by us and the investment community to analyze operating performance in our industry. See the section

 

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entitled “Selected historical consolidated financial and other data—Reconciliation of non-GAAP financial measures” for information regarding the limitations of using Adjusted EBITDA as a financial measure and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP.

Our Adjusted EBITDA was as follows:

 

		Year ended December 31,								Period-to-period change				Three months ended March 31,								Period-to-period change
(dollars in thousands)		2015				2016				%				2016				2017				%
Adjusted EBITDA		$	22,949			$	30,830				34%			$	6,260			$	2,909				(54%	)

Adjusted EBITDA decreased by $3.4 million, or 54%, for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. This decrease in Adjusted EBITDA was primarily attributable to the Software segment. The increase in revenue was offset by the increase in cost of revenue which related to higher employee related costs and royalty payments to our partners for the three months ended March 31, 2017. The increase in operating expenses was primarily related to annual employee cost adjustments and increased headcount as a result of acquisitions in 2016.

Adjusted EBITDA increased by $7.9 million, or 34%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase in Adjusted EBITDA was primarily attributable to increases in all segments with the largest increase in the Software segment. The increase in revenue more than offset the increase in cost of revenue which related to higher employee related costs and royalty share payments to our partners for the year ended December 31, 2016. The increase in operating expenses was primarily related to annual employee cost adjustments and for those employees who joined us associated with acquisitions in 2016 and a full year of compensation expense related to those employees who joined us from acquisitions completed in 2015.

Free Cash Flow.    Free Cash Flow is a non-GAAP financial measure that we calculate as cash flow provided by operating activities less capital expenditures. We believe that Free Cash Flow is useful in analyzing our ability to service and repay debt and return value directly to stockholders. See the section entitled “Selected historical consolidated financial and other data—Reconciliation of non-GAAP financial measures” for information regarding the limitations of using Free Cash Flow as a financial measure and for a reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP.

Our Free Cash Flow was as follows:

 

		Year ended December 31,								Period-to-period change				Three months ended March 31,								Period-to-period change
(dollars in thousands)		2015				2016				%				2016				2017				%
Free Cash Flow		$	5,605			$	11,941				113%			$	17,381			$	18,233				5%

Free Cash Flow increased by $0.9 million, or 5%, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. This increase in Free Cash Flow was attributable to an increase in net cash from operating activities of $0.2 million and a decrease of $0.6 million in capital expenditures.

Free Cash Flow increased by $6.3 million, or 113%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase in Free Cash Flow was primarily attributable to the increase in net cash from operating activities of $10.5 million, which was partially offset by an increase of $4.2 million in capital expenditures. Net cash from operating activities increased primarily due to higher net income, adjusted for non-cash items and changes in working capital. The capital expenditures increase included a $4.0 million

 

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capital expenditure for the purchase of land adjacent to our corporate headquarters. Excluding this land purchase, our capital expenditures were consistent with the prior year and our Free Cash Flow would have increased by $10.3 million.

Liquidity and capital resources

Our principal sources of liquidity have been the net payments received from global customers using our software and services as well as our periodic draws on our credit facilities. We believe that funds generated from operations, with cash and cash equivalents and the amounts available to us to borrow under our credit facility will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Credit facility

As of December 31, 2015, our credit facility, the 2013 Credit Agreement, consisted of a $67.1 million term loan, a $20.0 million revolving commitment and a $1.0 million ancillary facility. We were required to make quarterly principal payments on our term loan and any outstanding balance was to be paid in full on the maturity date of December 18, 2018.

On April 18, 2016, we entered into an amended and restated credit agreement, the 2016 Credit Agreement, with JPMorgan Chase Bank, N.A., as administrative agent, which restated the 2013 Credit Agreement in its entirety. The 2016 Credit Agreement originally consisted of a $65.0 million term loan, or Term Loan A, and a $35.0 million revolving commitment, or the Revolving Credit Facility. In October 2016, the 2016 Credit Agreement was amended to facilitate our purchase of certain real property adjacent to our corporate headquarters. In November 2016, the 2016 Credit Agreement was further amended pursuant to which the Royal Bank of Canada became a lender thereunder and the commitment under the Revolving Credit Facility was increased to $60.0 million. Included in the Revolving Credit Facility are a $5.0 million swingline subfacility, provisions for an additional $4.0 million ancillary facility, and a letter of credit subfacility. As of March 31, 2017 and December 31, 2016, respectively, we had $55.0 million and $57.5 million outstanding on Term Loan A and $12.6 million and $27.4 million outstanding on our Revolving Credit Facility.

On June 14, 2017, we entered into a second amended and restated credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, which restated the 2016 Credit Agreement, as amended, in its entirety, the 2017 Credit Agreement or, along with the 2016 Credit Agreement, as the context so requires, the Credit Agreement. This amendment was administrative in nature and did not change amounts, terms, or rates.

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to incur additional indebtedness; create liens on assets; make investments, loans, advances or acquisitions; pay dividends or other distributions; redeem or repurchase certain equity interests; guarantee the obligations of others; and change the business conducted by us. In addition, the Credit Agreement contains financial covenants relating to minimum liquidity of $20.0 million, maintaining a minimum debt service coverage ratio of 1.3 to 1.0 and maximum leverage ratio of 3.0 to 1.0, as defined in the Credit Agreement. At March 31, 2017 and December 31, 2016, we were in compliance with all financial covenants. For additional information about the Credit Agreement, see Note 7 in the notes to consolidated financial statements included elsewhere in this prospectus.

Cash flows

As of March 31, 2017, and December 31, 2016, respectively, we had an aggregate of cash and cash equivalents of $16.5 million and $16.9 million, which we held for working capital purposes and capital expenditures. As of March 31, 2017 and December 31, 2016, respectively, $0.6 million and $1.6 million of this aggregate amount was

 

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held in the United States and $15.0 million and $14.2 million was held in the APAC and EMEA regions with the remainder held in Canada, Mexico, and South America.

The following table summarizes our cash flows for the periods indicated:

 

		Year ended December 31,								Three months ended March 31,
(in thousands)		2015				2016				2016				2017
Net cash provided by operating activities		$	10,838			$	21,385			$	18,954			$	19,202
Net cash used in investing activities			(8,030	)			(16,033	)			(2,781	)			(2,232	)
Net cash used in financing activities			(4,697	)			(1,864	)			(12,084	)			(17,765	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(1,639	)			(362	)			560				490
Net (decrease) increase in cash, cash equivalents and restricted cash		$	(3,528	)		$	3,126			$	4,649			$	(305	)

Net cash provided by operating activities

Net cash provided by operating activities for the three months ended March 31, 2017 was $19.2 million which reflects an increase of $0.2 million compared to the three months ended March 31, 2016. This increase primarily reflects a $2.8 million increase in non-cash stock-based compensation expense and a $1.9 million improvement in deferred taxes along with net changes to our working capital position, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016.

Net cash provided by operating activities for the year ended December 31, 2016 was $21.4 million which reflects an increase of $10.5 million compared to the year ended December 31, 2015. This increase primarily reflects a $4.5 million increase in non-cash stock-based compensation expense and a $3.1 million improvement in deferred taxes along with net changes to our working capital position, as compared to the prior year.

Net cash used in investing activities

Net cash used in investing activities for the three months ended March 31, 2017 was $2.2 million which reflects a decrease in cash used of $0.5 million compared to the three months ended March 31, 2016. This decrease is a result of a reduction in capital expenditures in the first quarter of 2017.

Net cash used in investing activities for the year ended December 31, 2016 was $16.0 million which reflects an increase in cash used of $8.0 million compared to the year ended December 31, 2015. This reflects a $4.0 million purchase of real property adjacent to our corporate headquarters. The remaining $4.0 million primarily relates to increased use of cash for acquisitions.

Net cash used in financing activities

Net cash used in financing activities for the three months ended March 31, 2017 was $17.8 million which reflects an increase in cash used of $5.7 million compared to three months ended March 31, 2016. This reflects a $6.6 million increase in net debt payments for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 partially offset by the absence of a $0.7 million return of capital in the three months ended March 31, 2016.

Net cash used in financing activities for the year ended December 31, 2016 was $1.9 million which reflects a decrease in cash used of $2.8 million compared to the year ended December 31, 2015. This reflects a $4.8 million decrease in net debt payments compared to the prior year partially offset by a $1.3 million increase in redemptions of our common stock, and a $0.7 million return of capital in the year ended December 31, 2016.

 

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Effect of exchange rate changes on cash, cash equivalents and restricted cash

The effect of exchange rate changes on cash, cash equivalents and restricted cash for the three months ended March 31, 2017 was not significantly different from the three months ended March 31, 2016.

The adverse effect of exchange rate changes on cash, cash equivalents and restricted cash for the year ended December 31, 2016 decreased by $1.3 million as compared to the prior year due to decreased impact from fluctuations in foreign currency exchange rates.

Commitments and contractual obligations

Our principal commitments and contractual obligations at December 31, 2016 consisted of obligations under operating leases for our office facilities and other debt obligations. There have been no significant changes to commitments and contractual obligations as of March 31, 2017. As of December 31, 2016, the future non-cancelable minimum lease payments under these obligations, and our future non-cancelable minimum payments under our other contractual obligations, were as follows:

 

						Payments due by period
(in thousands)		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Long-term debt obligations (excluding interest)		$	85,185			$	10,304			$	74,881			$	—			$	—
Capital lease obligations			196				131				65				—				—
Post-retirement benefits			2,829				356				454				484				1,535
Operating lease obligations			18,531				7,362				8,110				3,038				21
Royalties			902				399				503				—				—
Related parties			1,164				1,045				119				—				—
Other long-term liabilities			6,888				3,307				3,081				500				—
Total		$	115,695			$	22,904			$	87,213			$	4,022			$	1,556

Contractual obligations identified in the table above do not include liabilities associated with uncertain tax positions due to the high degree of uncertainty regarding the future cash outflows associated with these amounts. For additional discussion of uncertain tax positions, see Note 13 in the notes to consolidated financial statements included elsewhere in this prospectus.

Off-balance sheet arrangements

Through March 31, 2017, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical accounting policies and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical

 

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to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. For further discussion on our significant accounting policies, see Note 2 in the notes to the consolidated financial statements included elsewhere in this prospectus.

Revenue recognition

We generate revenue from our Software and CES segments and our other businesses. Revenue is recognized when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collection of the fee is probable or reasonably assured.

Software

Software revenue includes product revenue from software product licensing arrangements consisting of software and software maintenance and support in the form of post-contract customer support, or PCS.

Our software products are sold to customers primarily through our patented digital-currency subscription model through a term-based software licensing and to a lesser degree, perpetual software licensing. This units-based business model allows customers to license a pool of units for their organizations, providing individual users flexible access to our entire portfolio of software applications as well as to our growing portfolio of partner products. These arrangements are referred to as “unit” arrangements. Units are a fixed means of measuring usage. The amount of software usage is limited by the number of the units licensed by the customer. Revenue from these arrangements is fixed (based on the units licensed) and is not based on actual customer usage of each software product.

Software product license arrangements may include PCS and professional services, such as consulting, implementation services, training, and support, which represent multiple-element arrangements. We have analyzed the elements included in its multiple element arrangements and have determined that we do not have vendor-specific objective evidence, or VSOE of fair value to allocate revenue to our software products license, PCS, and professional services including consulting, implementation services, training and support. Revenue from the software products licenses, including perpetual licenses, PCS and professional services, if applicable, are considered to be one accounting unit and, once all services have commenced, are recognized ratably over the remaining period of the arrangement which consists of the longer of the contractual service term or PCS term. If the professional services are essential to the functionality of the software products, then revenue recognition does not commence until such services are completed.

Our term-based software license arrangements typically have a term of 12 months and include PCS, including the right to receive unspecified software upgrades, when and if available during the license term. We do not charge separately for PCS. Revenues for software licenses sold on a term-based model basis are recognized ratably over the term of the license arrangement, once all other revenue recognition criteria have been met.

We also sell perpetual licenses to certain of our customers. We do not have VSOE of fair value for the PCS, which is sold along with the perpetual licenses. As a result, revenue from these perpetual arrangements is recognized ratably over the initial PCS term.

Software related services

Software related services revenue is derived from our consulting, implementation services and training for product design and development projects.

Software services are provided to customers on a time and materials or fixed-price basis. We recognize software services revenue for time and materials contracts based upon hours worked and contractually agreed-

 

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upon hourly rates. Revenue from fixed-price engagements is recognized using the proportional performance method based on the ratio of costs incurred, to the total estimated project costs. Project costs are based on standard rates, which vary by the consultant’s professional level, plus all direct expenses incurred to complete the engagement that are not reimbursed by the client. Project costs are typically expensed as incurred. The use of the proportional performance method is dependent upon management’s ability to reliably estimate the costs to complete a project. We use historical experience as a basis for future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. If the costs to complete a project are not estimable or the completion is uncertain, the revenue is recognized upon completion of the services.

Client engineering services

CES revenue is derived from our hiring of engineers for placement at a customer site for specific customer-directed assignments. These engineers are hired and paid only for the duration of the placement. We recognize client engineering services revenue based upon hours worked and contractually agreed-upon hourly rates.

Other

Other revenue is derived from the sale of LED products for the replacement of fluorescent tubes. Revenue from the sale of LED products for the replacement of fluorescent tubes is recognized when all revenue recognition criteria stated above are met, which is generally when the products are transferred to resellers or to end customers. We recognize revenues from royalties for licensing our technology when received.

Goodwill and indefinite-lived intangible assets

In accordance with ASC Topic 360, we conduct an assessment of the carrying value of goodwill each year, based on weighting estimates of future cash flows from the reporting units or estimates of the market value of the reporting units, based on comparable companies. We also perform impairment analyses whenever events or circumstances indicate that goodwill or certain intangibles may be impaired. These estimates of future discounted cash flows are based upon historical results, adjusted to reflect our best estimate of future market and operating conditions. Historically, actual results have occasionally differed from our estimated future cash flow estimates. In the future, actual results may differ materially from these estimates. In addition, the comparable companies used to establish market value for our reporting units is based on management’s judgment.

The timing and size of any future impairment charges involves the application of our estimates and judgment and could result in the impairment of all, or substantially all, of our goodwill or intangible assets.

Stock-based compensation

Stock-based compensation expense, consisting of stock options expected to be settled by issuing shares of our common stock, are recorded as equity awards. The fair value of these awards on the date of grant is measured using the Black-Scholes option pricing model.

Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the fair value of our underlying common stock, expected term of the option, expected volatility of the price of our common stock, risk-free interest rates, and expected dividend yield. The assumptions used in our option-pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

 

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These assumptions and estimates are as follows:

 

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Fair value of common stock.    Due to the absence of an active market for our common stock, our board of directors, with the assistance of a third-party valuation specialist, determines the fair value of our common stock. The valuation methodology includes estimates and assumptions including forecasts of future cash flows that require significant judgments. These valuations consider a number of objective and subjective factors, including our actual operating and financial performance, external market conditions, performance of comparable publicly traded companies, comparable transactions, business developments, likelihood of achieving a liquidity event, such as an initial public offering or sale, and common stock transactions, among other factors. We utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities issued as Compensation, to estimate the fair value of its common stock. Significant changes to the key assumptions used in the valuations could result in different fair values of our common stock at each valuation date.

 

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Expected term.    The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. To determine the expected term, we generally apply the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award as we do not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term.

 

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Risk-free interest rate.    We base the risk-free interest rate on the yields of United States Treasury securities with maturities approximately equal to the term of employee stock option awards.

 

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Expected volatility.    As we do not have a trading history for our common stock, the expected volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option awards. Industry peers consist of several public companies in our industry which are either similar in size, stage of life cycle or financial leverage.

We must also estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. A higher revised forfeiture rate than previously estimated will result in an adjustment that will decrease the stock-based compensation expense recognized in the consolidated statement of operations. A lower revised forfeiture rate than previously estimated will result in an adjustment that will increase the stock-based compensation expense recognized in the consolidated statement of operations.

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

Employee stock-based awards, consisting of stock options with repurchase features that allow them to be settled in cash at a purchase price that is less than the current fair value are considered liability-based awards. These awards are initially recorded at fair value and remeasured to fair value at the end of each reporting period until settled.

Our 2001 ISO and NQSO Plan was terminated in 2011. Options granted under the 2001 ISO and NQSO Plan are accounted for as liability awards as the terms of the awards could require or allow repurchase of the shares at amounts different than fair value. We made the accounting policy election to use the intrinsic value method of accounting to determine stock-based compensation liabilities for these awards.

 

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The 2001 ISO and NQSO Plan also includes stock-based compensation liability for our old Class B shares outstanding resulting from our call feature with a purchase price that may be set at less than the fair market value at the redemption date. We utilized the fair value of the outstanding old Class B shares to determine the stock-based compensation liabilities for these shares. We expect a one-time significant decrease in our stock-based compensation expense in the periods following this offering as the call feature is terminated upon certain triggering events including an initial public offering in which our capital stock is admitted to and begins trading on any United States securities exchange.

Accounting for income taxes

We utilize the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and statutes that will be in effect when those differences are expected to reverse. Deferred tax assets can result from unused operating losses, research and development credits, foreign tax credit carryforwards, and deductions recorded for financial statement purposes prior to them being deductible on a tax return. Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of taxable temporary differences. We consider, among other available information, scheduled reversals of deferred tax liabilities, projected future taxable income, limitations on the availability of tax credit carryforwards, and other evidence assessing the potential realization of deferred tax assets. Adjustments to the valuation allowance are included in the tax provision in our consolidated statements of operations in the period they become known or can be estimated.

Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets and liabilities. The valuation allowance is based on our estimates of taxable income for jurisdictions in which we operate and the period over which our deferred tax assets may be recoverable. Historically, we have had substantial United States tax credit carryforwards which, if not utilized, will begin to expire in 2018. The ability to utilize these DTAs is highly dependent upon our ability to generate taxable income in the United States in the future.

We apply a more-likely-than-not recognition threshold to our accounting for tax uncertainties. We review all of our tax positions and make determinations as to whether our tax positions are more likely than not to be sustained upon examination by the relevant taxing authorities. Only those benefits that have a greater than fifty percent likelihood of being sustained upon examination by taxing authorities are recognized. Interest and penalties related to uncertain tax positions are recorded in income tax expense (benefit) in the consolidated statements of operations.

Quantitative and qualitative disclosures about market risk

We are exposed to certain global market risks, including foreign currency exchange risk and interest rate risk associated with our debt.

Foreign currency exchange risk

As a result of our substantial international operations, we are exposed to foreign currency risks that arise from our normal business operations, including in connection with our transactions that are denominated in foreign currencies, including Euro, British Pound Sterling, Indian Rupee, Japanese Yen, and Chinese Yuan. In addition,

 

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we translate sales and financial results denominated in foreign currencies into United States dollars for purposes of our consolidated financial statements. As a result, appreciation of the United States dollar against these foreign currencies generally will have a negative impact on our reported revenues and operating income while depreciation of the United States dollar against these foreign currencies will generally have a positive effect on reported revenues and operating income.

Interest rate sensitivity

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. As of March 31, 2017 and December 31, 2016, we had cash, cash equivalents and restricted cash of $16.8 million and $17.1 million, respectively, consisting primarily of bank deposits. As of March 31, 2017 and December 31, 2016, respectively, we had $55.0 million and $57.5 million outstanding on Term Loan A and $12.6 million and $27.4 million outstanding on our Revolving Credit Facility. Such interest-bearing instruments carry a degree of interest rate risk; however, historical fluctuations of interest expense have not been significant.

Interest rate risk relates to the gain/increase or loss/decrease we could incur on our debt balances and interest expense associated with changes in interest rates. It is our policy not to enter into derivative instruments for speculative purposes, and therefore, we hold no derivative instruments for trading purposes.

Non-GAAP financial measures

In analyzing and planning for our business, we supplement our use of GAAP financial measures with non-GAAP financial measures, including Billings as a liquidity measure, Adjusted EBITDA as a performance measure and Free Cash Flow as a liquidity measure.

 

		Year ended December 31,								Three months ended March 31,
(in thousands)		2015				2016				2016				2017
Other Financial Data:
Billings		$	297,358			$	320,653			$	91,838			$	95,419
Adjusted EBITDA			22,949				30,830				6,260				2,909
Free Cash Flow			5,605				11,941				17,381				18,233

Billings consists of our total revenue plus the change in our deferred revenue. Billings is a non-GAAP financial measure. Given that we generally bill our customers at the time of sale, but typically recognize a majority of the related revenue ratably over time, management believes that Billings is a meaningful way to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers.

We define Adjusted EBITDA as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, restructuring charges, asset impairment charges and other special items as determined by management. Adjusted EBITDA is a non-GAAP financial measure. Our management team believes that Adjusted EBITDA is a meaningful measure of performance as it is commonly utilized by management and the investment community to analyze operating performance in our industry.

We define Free Cash Flow as cash flow provided by operating activities less capital expenditures. Free Cash Flow is a non-GAAP financial measure. Management believes that Free Cash Flow is useful in analyzing our ability to service and repay debt and return value directly to stockholders.

 

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These non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures included in the tables below, may provide a more complete understanding of factors and trends affecting our business. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures and are by definition an incomplete understanding of the Company and must be considered in conjunction with GAAP measures.

We believe that the non-GAAP measures disclosed herein are only useful as an additional tool to help management and investors make informed decisions about our financial and operating performance and liquidity. By definition, non-GAAP measures do not give a full understanding of the Company. To be truly valuable, they must be used in conjunction with the comparable GAAP measures. In addition, non-GAAP financial measures are not standardized. It may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. We strongly encourage investors to review our consolidated financial statements and the notes thereto in their entirety and not rely on any single financial measure.

The following tables provide reconciliations of revenue to Billings, income to before income taxes Adjusted EBITDA and net cash provided by operating activities to Free Cash Flow:

Billings

 

		Year ended December 31,								Three months ended March 31,
(in thousands)		2015				2016				2016				2017
Revenues		$	294,129			$	313,240			$	74,829			$	76,882
Ending deferred revenue			106,516				113,929				123,525				132,466
Beginning deferred revenue			(103,287	)			(106,516	)			(106,516	)			(113,929	)
Billings		$	297,358			$	320,653			$	91,838			$	95,419

Adjusted EBITDA

 

		Year Ended December 31,								Three months  ended March 31,
(in thousands)		2015				2016				2016				2017
Net income (loss)		$	10,931			$	10,163			$	1,481			$	(2,188	)
Income tax expense (benefit)			818				3,539				1,721				(772	)
Stock-based compensation			597				5,132				59				2,869
Interest expense			2,416				2,265				690				611
Interest income and other			(191	)			(249	)			37				(85	)
Depreciation and amortization			8,378				9,980				2,272				2,474
Adjusted EBITDA		$	22,949			$	30,830			$	6,260			$	2,909

 

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Free cash flow

 

		Year ended December 31,								Three months ended March 31,
(in thousands)		2015				2016				2016				2017
Net cash provided by operating activities		$	10,838			$	21,385			$	18,954			$	19,202
Capital expenditures			(5,233	)			(9,444	)(1)			(1,573	)			(969	)
Free Cash Flow		$	5,605			$	11,941			$	17,381			$	18,233

 

(1)

Includes $4.0 million purchase of real property adjacent to our corporate headquarters.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Recently issued accounting pronouncements

Accounting standards adopted

We adopted Accounting Standards Update, “ASU” No. 2014-15, Presentation of Financial Statements—Going Concern, effective for the year ended December 31, 2016. This update provides guidance regarding management’s responsibility to evaluate whether there exists substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The adoption did not have a material effect on our consolidated financial statements.

We adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, ASU 2015-03, effective for the year ended December 31, 2016. This update amended existing guidance to require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 was applied retrospectively and did not have a material effect on the Company’s consolidated financial statements.

We adopted ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, ASU 2015-05, effective for the year ended December 31, 2016. The amendments in this update provided guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance did not change United States GAAP for a customer’s accounting for service contracts. ASU 2015-05 was applied retrospectively and did not have a material effect on the Company’s consolidated financial statements.

We adopted ASU No. 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments, ASU 2015-16, effective for the year ended December 31, 2016. The amendments in ASU 2015-16 eliminate the requirement to restate prior period financial statements for measurement period adjustments. The amendments also require that the cumulative impact of a measurement period adjustment (including the

 

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impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The amendments for ASU-2015-16 were prospectively applied and did not have a material effect on our consolidated financial statements.

We adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, ASU 2016-18, effective as of December 15, 2017. ASU 2016-18 clarifies the presentation of restricted cash and restricted cash equivalents in the statements of cash flows. Under ASU 2016-18 restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. We early adopted ASU No 2016-18 in 2016 on a retrospective basis, and the adoption did not have a material effect on our consolidated financial statements.

We adopted ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory, ASU 2015-11, effective for fiscal years and interim periods beginning after December 15, 2016. ASU 2015-11 requires an entity to measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. We adopted ASU No 2015-11 on January 1, 2017, on a prospective basis, and the adoption did not have a material effect on our consolidated financial statements.

Accounting standards not yet adopted

Revenue Recognition—In May 2014, the Financial Accounting Standards Board, or “FASB”, issued ASU No. 2014-09, Revenue from Contracts with Customers, ASU 2014-09. This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most existing revenue recognition guidance under GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires enhanced disclosures about the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date that defers the effective date of ASU 2014-09 for all entities by one year for public business entities. This ASU is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period. For all other entities, including emerging growth companies, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted.

We are evaluating the use of either the retrospective or modified retrospective transition method. Under existing software industry GAAP, we do not have VSOE of fair value for PCS sold along with software products licenses; therefore, revenues for the software products licenses (including perpetual licenses), PCS and professional services, if applicable, are considered to be one accounting unit and, once all services have commenced, are recognized ratably over the remaining period of the arrangement (the longer of the contractual service term or PCS term). Under ASU 2014-09, the concept of assessing VSOE has been eliminated and the Company must estimate a fair value associated with each performance obligation within an arrangement. As a result, we expect the timing of revenue recognition to be accelerated because it anticipates that license revenue will be recognized at a point in time, rather than over time, which is its current practice. Generally, the license revenue component of an arrangement represents a significant portion of the overall fair value of a software arrangement. As a result, we expect the impact of adopting ASU 2014-09 to have a significant impact on the consolidated financial statements. We are currently evaluating the method of implementation and impact this standard will have on its consolidated financial statements.

Financial Instruments—In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-01. This standard affects

 

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the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 is effective in the first quarter of 2019. We are evaluating the impact of the adoption of ASU 2016-01 on its financial statements and related disclosures.

Leases—In February 2016, the FASB issued ASU No. 2016-02, Leases, ASU 2016-02. This standard amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. For all other entities, including emerging growth companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. The new standard must be adopted using a modified retrospective approach, and provides for certain practical expedients. We are evaluating the impact of the adoption of ASU 2016-02 on its financial statements and related disclosures.

Employee Share-Based Payment Accounting—In March 2016, FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, ASU 2016-09. This standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods for public business entities. For all other entities, including emerging growth companies, ASU 2016-09 is effective for annual periods beginning after December 15, 2017 and interim periods within fiscal years beginning after December 15, 2018. The method of adoption is dependent on the specific aspect of accounting addressed in this new guidance. Early adoption is permitted in any interim or annual period. We are evaluating the impact of the adoption of ASU 2016-09 on our financial statements and related disclosures.

Cash Classification—In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, ASU 2016-15, to improve financial reporting in regards to how certain transactions are classified in the statement of cash flows. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017. For all other entities, including emerging growth companies, ASU 2016-15 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. We are evaluating the impact of the adoption of ASU No. 2016-15 on our financial statements and related disclosures.

Business Combinations—In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, or ASU_2017-01. This update narrows the definition of a business. If substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the acquiree is not a business. The update also requires a business to include an input and a substantive process that significantly contributes to the ability to create outputs. This definition is expected to reduce the number of acquisitions accounted for as business combinations, which will impact the accounting treatment of certain items, including the accounting treatment of contingent consideration and transaction expenses. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. For all other entities, including emerging growth companies, ASU 2017-01 is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted and the update will be applied prospectively. The effect of the implementation will depend upon the nature of our future acquisitions.

 

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Business

Vision

Our vision is to transform product design and organizational decision making by applying simulation, optimization and high performance computing throughout product lifecycles.

Overview

Altair exists to unleash the limitless potential of the creative mind.

We are a leading provider of enterprise-class engineering software enabling innovation across the entire product lifecycle from concept design to in-service operation. Our simulation-driven approach to innovation is powered by our broad portfolio of high-fidelity and high-performance physics solvers. Our integrated suite of software optimizes design performance across multiple disciplines encompassing structures, motion, fluids, thermal management, electromagnetics, system modeling and embedded systems, while also providing data analytics and true-to-life visualization and rendering.

The engineering software industry is challenged by increasingly sophisticated design requirements and enabled by the ever expanding availability of cost effective computing power. Rising expectations of end-market customers, new manufacturing methods such as 3D printing, and new materials such as composites, combined with more powerful math-based computational technologies, are expanding the application of simulation across many industry verticals. The Internet of Things, or IoT, is also changing engineering by broadening the scope of Product Lifecycle Management, or PLM, affording the opportunity to leverage simulation and analytics toward the development of “digital twins” to predict failure or to schedule maintenance operations for in-service equipment.

CIMdata in its 2016 Simulation and Analysis Market Analysis Report, the CIMdata Report, forecasts, “the PLM market to grow at a compound annual growth rate (CAGR) of 6.3% to $52.3 billion” in 2020. The CIMdata Report estimates the CAE market as a subset of the PLM market to be $4.8 billion and $5.2 billion in 2015 and 2016, respectively. The CIMdata Report forecasts the CAE market, “will be one of the fastest growing segments of the PLM market with a 7.9% CAGR to exceed $7 billion” in 2020.

Altair’s engineering and design platform offers a wide range of multi-disciplinary CAE solutions which we believe is one of the most innovative and comprehensive offerings available in the market. To ensure customer success and deepen our relationships with them, we engage with our customers to provide consulting, implementation services, training, and support, especially when applying optimization. Altair participates in five software categories related to CAE and HPC:

 

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Solvers & Optimization:    Solvers are mathematical software “engines” that use advanced computational algorithms to predict physical performance. Optimization leverages solvers to derive the most efficient solutions to meet desired complex multi-objective requirements.

 

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Modeling & Visualization:    Tools that allow advanced physics attributes to be modeled and rendered on top of object geometry in high fidelity. These tools are becoming more design-centric and relevant earlier in the development process.

 

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Industrial & Concept Design:    Tools that generate early concepts to address requirements for ergonomics, aesthetics, performance, and manufacturing feasibility. These tools are simulation-driven and, we believe, emerging as a market force eclipsing traditional CAD.

 

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IoT:    Tools to develop new IoT enabled products, including device and data management, system level and full 3-D digital twin simulation, and exploration, predictive analysis, optimization, and visualization of in-service performance.

 

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HPC:    Software applications that streamline the workflow management of compute-intensive tasks including solvers, optimization, modeling, visualization, and analytics in fields such as PLM, weather modeling, bio-informatics and electronic design analysis. The HPC middleware software market is forecasted by IDC to exceed $1.6 billion by 2019.

Our software enables customers to enhance product performance, compress development time, and reduce costs. Our thirty-year heritage is in solving some of the most challenging design problems faced by engineers and scientists. Altair is also a leading provider of high-performance computing workflow tools which empower our customers to explore designs in ways not possible in traditional computing environments. We believe we are unique in the industry for the depth and breadth of our engineering application software offerings combined with our domain expertise and proprietary technology for harnessing HPC and cloud infrastructures.

Our primary users are highly educated and technical engineers, commonly referred to as simulation specialists. We predominantly reach customers with simulation specialists through Altair’s experienced, direct sales force, especially in industries requiring highly engineered products, such as automotive, aerospace, heavy machinery, rail and ship design. To enable concept engineering driven by simulation we make our physics solvers more accessible to designers, who may be less technical and not expert in simulation, by wrapping them in powerful, yet simple interfaces. We are increasing our use of indirect channels to more efficiently address a broader set of customers in consumer products, electronics, energy and other industries.

Altair pioneered a patented digital-currency subscription model for software and other digital content. This units-based model allows flexible and shared access to all of our offerings, along with over 150 partner products. Our customers license a pool of units for their organizations giving individual users access to our entire portfolio of software applications as well as our growing portfolio of partner products. We believe our units-based subscription model lowers barriers to adoption, creates broad engagement, and encourages users to work within our ecosystem. This, in turn, helps drive our recurring software revenues which have been on average approximately 88% over the past five years and increases revenue. Each year approximately 60% of new software revenue comes from expansion within existing customers.

Altair also provides CES to support our customers with long-term ongoing product design and development expertise. This has the benefit of embedding us within customers, deepening our understanding of their processes, and allowing us to more quickly perceive trends in the overall market. Our presence at our customers’ sites helps us to better tailor our software products’ R&D and sales initiatives.

We were founded in 1985 in Michigan and have a balanced global footprint, with 67 offices in 23 countries, and over 2,000 engineers, scientists and creative thinkers. For the three months ended March 31, 2017, we generated 36%, 25% and 39% of our total billings from customers in the Americas, the APAC region, and the EMEA region, respectively. In 2016, we generated 38%, 32% and 30% of our total billings from customers in the Americas, APAC, and EMEA, respectively. Billings by geographical region can significantly vary by quarter. As of March 31, 2017, we had tens of thousands of users across approximately 5,000 customers worldwide.

We believe a critical component of our success has been our company culture, based on our core values of innovation, envisioning the future, communicating honestly and broadly, seeking technology and business firsts, and embracing diversity. This culture is important because it helps attract and retain top people, encourages innovation and teamwork, and enhances our focus on achieving Altair’s corporate objectives.

Industry background

CAE software is essential to innovation across a wide range of highly engineered products in industry verticals ranging from automotive, aerospace, heavy machinery, rail and ship design to consumer electronics and

 

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sporting goods. Physical prototypes and testing have been largely supplanted by CAE for design validation over the last twenty-five years. This process continues unabated. Manual drawing and drafting were also replaced by 3D CAD during the same time period. More recently, CAE is emerging in a conceptualization process called simulation-driven design where new design tools are beginning to replace traditional 3D CAD.

CAE software allows engineers to simulate, predict, and optimize how physical products will perform in the real world under a range of operating conditions. CAE applications can accurately solve complex physical interactions through mathematical methods such as finite element analysis, simulate an extensive set of material types, and generate high-fidelity outputs that are realistic virtual representations of physical system behaviors. Modern CAE software can rapidly solve a wide range of complex physics, including structural, fluid, thermal, electromagnetic, system modeling, and embedded system design.

Beyond just simulating physical behavior, CAE can now solve multi-disciplinary optimization problems to numerically optimize parameters and achieve design objectives such as to minimize weight or cost. Utilizing such advanced simulation and optimization methods, engineers and designers can shorten development cycles, virtually test product performance, explore alternatives, and synthesize designs that enhance product functionality, performance and reliability while reducing complexity and costs.

Principal drivers of growth in demand for simulation & analysis software include:

Improving sophistication and fidelity of CAE technologies

The engineering software industry is challenged by increasingly sophisticated design requirements and enabled by the ever-expanding availability of cost effective computing power. Simulation models continue to grow in size, complexity, and range of physics, driving demand for additional computational power and parallelization algorithms, more powerful modeling and visualization tools and more advanced multi-physics solvers. Advances in computing infrastructure have kept pace over time, drastically reducing the time it takes to perform complex simulations and solve large-scale problems such as automotive crash simulation, fluid-structure interaction of subsea oil pipelines and detailed composite simulation of full aircraft structures. As these models continue to grow larger and solve faster, the knowledge and power of these methods to impact design decisions expands across a department, an industry, or from one industry to another, fueling consumption of CAE software.

Fundamental transformations in product engineering

The nature of modern manufactured products is rapidly evolving toward intelligent, connected systems. Once composed solely of mechanical parts, products have become complex systems often combining mechanical hardware, electronics, sensors, controls, software, and communications in myriad ways to monitor and adjust behavior using embedded logic. Advanced driver-assistance systems, or ADAS, autonomous vehicles, or AVs, modern industrial robots and most new consumer products are examples of this new paradigm. This complex interplay across domains is forcing engineers to take a systems-level approach to design, and in turn to rely on advanced computer-aided systems simulation as a necessity in product design. Controls algorithm development, modeling of linked systems, and transfer of control logic into embedded systems can all be done using CAE software to achieve optimal performance and cost and ensure product integrity while minimizing physical prototype iterations.

Democratization of CAE

CAE software access was historically limited to a small pool of specialist engineers in large organizations with a high level of domain expertise and knowledge of complex mathematical modeling and underlying physics.

 

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Exploring different product design ideas at the same time through simulation software required reliable, secure, and dedicated high-speed computing infrastructure, which was typically expensive to own and operate. The dramatic increase in computing performance, and an equally dramatic reduction in computing cost over the last twenty years coupled with the growth of cloud computing is making CAE, and especially optimization, cost effective. Coupled with user-friendly software applications which make multi-run design studies less expensive, businesses have the opportunity to expand their CAE user community and overall application of simulation.

We believe record numbers of engineers and designers involved in product development now have access to CAE tools, and any one engineer involved in product development has access to more CAE tools than ever, thus driving increased adoption of CAE solutions across large organizations and by small and medium businesses.

An emerging paradigm of simulation-driven design

Simulation is now driving design innovation, rather than following design. The product development process of recent decades involved creation of a product concept followed by development of a detailed design using 3D CAD. The designs were then passed along to engineering teams to refine, test and optimize. CAE was often too late or too slow to effectively impact the rapid decisions required to correct flawed product designs. Design changes late in the product development process are costly, may delay product launches, and can adversely affect product quality and performance.

Democratization of CAE offers product designers easy access to a user-friendly subset of simulation tools to take into account product performance objectives and manufacturability early in the design process. Going forward, engineering specialists can focus more on detailed validations and complex simulations. This is driving a positive movement toward simulation-driven design processes and a corresponding growth in simulation software consumption.

Expanding scope of simulations to “Digital Twins”

The evolution of products into intelligent, connected devices—which are increasingly embedded in broader systems—is reshaping how products are engineered, manufactured, operated and serviced. Smart, connected products underpin the IoT and generate vast amounts of actionable data. As consumers and industries begin to realize tangible benefits from connected products, IoT adoption is accelerating. Gartner estimates that the number of internet-connected end points will grow at a rate of 33% a year to reach more than 20 billion units by 2020.

CAE software combined with advanced analytics and operating data from sensors make it possible for manufacturers to improve product performance through complete life-cycles. In-service measurements, combined with simulation models, or digital twins, provide information to predict and prescribe maintenance of components or systems. The IoT is changing engineering by broadening the scope of PLM to leverage simulation and analytics for better and more robust in-service operation.

Market opportunity

Rising expectations of end-market customers, new manufacturing methods such as 3D printing, the ability to design and process composites and new materials, combined with more powerful math-based computational technologies, are expanding the application of simulation across many industry verticals and throughout product life-cycles. CAE software offers companies opportunities to achieve better, lower cost products with fewer physical prototypes and tests, and reduces the time required to bring products to market.

The CIMdata Report, forecasts, “the PLM market to grow at a compound annual growth rate (CAGR) of 6.3% to $52.3 billion” in 2020. The CIMdata Report estimates the CAE market as a subset of the PLM market to be

 

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$4.8 billion and $5.2 billion in 2015 and 2016, respectively. The CIMdata Report forecasts the CAE market, “will be one of the fastest growing segments of the PLM market with a 7.9% CAGR to exceed $7 billion” in 2020.

We believe our strategy of making CAE technologies more accessible through simplified user interfaces with easy access to a broad range of applications and new cloud offerings will help us expand to more designers, engineers and architects at larger companies as well as at small and medium enterprises, thus driving a growth rate that exceeds the overall S&A market. In addition, our recent offerings including software for math-based systems modeling, embedded systems design, and visual analytics present an opportunity to expand our customer base.

Our addressable opportunity also includes software to facilitate and optimize the use of HPC infrastructure critical for running complex simulation models in industries ranging from manufacturing to weather prediction, bio-informatics and financial risk-management. According to IDC, the market for high-end HPC servers is estimated to reach $7 billion by 2020. We believe we are positioned attractively to capture spending related to workload management systems for these high-end servers.

We believe Altair’s simulation and HPC expertise uniquely positions us to address a portion of spending in the massive and fast growing IoT and analytics market. IDC estimates that $36 billion was spent on IoT platforms in 2015, and an additional $14.0 billion was spent on business intelligence and analytics software tools. IDC expects these markets to grow at CAGRs of 15% and 9%, respectively, through 2020. We have decades of experience helping our customers aggregate, analyze and visualize vast datasets created by large scale simulations, laboratory tests and in-field sensors. Through our analytics product suite and IoT platform, we are expanding our market reach to a broader set of customers, enabling them to collect and analyze data from an increasing number of connected products to support key business decisions.

Competitive strengths

We believe the following strengths will allow us to maintain and build our position in the growing market for engineering and simulation solutions:

Experienced management and culture of innovation

As a technology and product driven company, we believe Altair’s culture of innovation creates engagement and loyalty among our employees and customers.

Our founder and leadership team are deeply experienced with a strong track record of both business and product innovation. Our diversified and global workforce is highly experienced and energetic. Altair’s culture affords many opportunities for people to take on new roles and assignments, including significant mobility between locations around the world. Approximately 50% of our employees have been with Altair more than five years and approximately 50% of our managers have a tenure exceeding ten years. Many of our key executives have worked at the company for over 20 years. All of this translates into a significant competitive advantage through deeply rooted institutional knowledge about our market, our competitors’ strengths and weaknesses, and engineering technology.

Units-based subscription model

Altair pioneered a patented digital-currency subscription model for software and other digital content which has transformed the way our customers use software, delivering strong retention rates and revenue growth.

This units-based business model allows customers to license a pool of units for their organizations, providing individual users flexible access to our entire portfolio of software applications as well as to our growing

 

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portfolio of partner products. In 2016, customers accessed an average of 14.6 applications from our overall portfolio. Altair’s business model is particularly suited to CAE, as engineers and designers often require several different applications across multiple disciplines when developing products. This model lowers barriers to adoption, creates broad engagement, and encourages users to work within our ecosystem and access applications they might otherwise have purchased from competitors. This, in turn, helps drive our recurring software revenues which have been on average approximately 88% over the last five years, and increases revenue. Each year approximately 60% of new revenue comes from expansion within existing customers.

 

Units-Based Subscription Model

Broad simulation portfolio and open interfaces

Altair’s broad portfolio of solutions as well as our open philosophy toward interfacing with other solutions, including competitors, positions us as a strong and strategic partner for customers.

We have assembled one of the broadest portfolios of simulation and optimization applications in the industry, spanning multiple domains and technology disciplines. Our software offers multidisciplinary capabilities in simulation, optimization and predictive analytics. We address the entire product lifecycle including concept design, engineering, manufacturing processes, and in-service operations.

Altair has historically offered broad and complete interfaces to most major third party CAD and CAE software on the market. Customers using a variety of platforms within their enterprises and throughout their supply chain have the ability to use Altair’s software as a central method to share models across multiple formats and between different simulation disciplines.

Industry-leading simulation performance

Our simulation solutions including modeling, visualization and solvers are noted in the market for their ability to handle large and complex models.

Altair’s software applications are highly industrialized and state-of-the-art and take thorough advantage of new compute architectures as they become available including new processors, storage systems, GPUs, and on-premise and public high-performance cloud computing. In addition, we are developing and experimenting with solutions for HPC workload management and remote visualization which will allow the delivery of our own as well as other software via a cloud model.

Our software applications deliver high-performance and high scalability, including massive parallelization, which is increasingly important in the CAE market. This allows our customers to run complex high-fidelity

 

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simulations quickly and cost-effectively. As the market moves to drive design with numerical optimization and stochastic studies to improve quality, this requires models to be run multiple times, often with hundreds or thousands of changes to input variables. Compute performance and the ability to run larger models are critical to delivering timely and accurate results, and best-in-class designs.

Altair is a leader in integrating optimization technology across all our products including multi-disciplinary applications. We believe our ability to leverage HPC as the industry transitions to cloud computing also provides an important differentiator.

Deep technical engagement with customers

Our services including consulting, implementation services, training and support enhance our ability to drive grassroots demand for our applications.

Altair’s software related services team is comprised of approximately 700 highly technical people globally and is differentiated by its significant size and the breadth of their real world experience. We believe our approach differentiates us from our competitors, as we focus on establishing a strong working relationship with the user community allowing us to offer guidance and expertise throughout their product creation process.

Altair has a philosophy of significant engagement with strategic customers on key development projects in our software product roadmap to ensure we deliver solutions which are innovative and comprehensive in addressing customer requirements.

We believe our close technical engagement with users, along with senior engineering relationships developed by our sales personnel, helps our ability to sell future products and services.

Growth strategies

We believe the following represent opportunities for Altair’s growth in the engineering simulation market:

 

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Grow market share for solvers;

 

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Grow indirect business through our OEM and reseller networks;

 

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Establish leadership position in the expanding Cloud HPC market;

 

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Expand client adoption for simulation-driven design offerings; and

 

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Target the emerging IoT market with platform, analytics and digital twin solutions.

We intend to pursue growth by leveraging these opportunities with the following growth strategies:

Increase software usage within our existing customer base

Our existing base of tens of thousands of users across approximately 5,000 customers provides a significant opportunity to increase revenues. Historically, we have derived 60% of our new software revenue from existing clients. The units-based business model lowers barriers to usage, and provides customers the flexibility to initially deploy one or more of our products and later expand usage to more of our applications along with partner products. This land and expand strategy combined with our leadership position in modeling and visualization and our strong portfolio of solver products presents a clear path toward increased usage.

We believe Altair PBS Cloud can revolutionize how customer organizations manage their on-premises HPC computing and off-premises cloud infrastructure. As companies transition more HPC workloads to the cloud, we believe Altair PBS Cloud will help them to easily provision, manage and optimize these resources to maximize return on investment.

 

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Invest in our direct sales force

Our direct sales force is highly technical and experienced, and consistently delivers solid growth and customer loyalty. Our subscription business model sometimes results in smaller new and expansion deal sizes than traditional paid-up licensing approaches. However, our model drives recurring software revenues and consistent growth, creates broad engagement, and encourages users to work within our ecosystem. This drives our recurring software revenues which have been on average approximately 88% over the past five years, and is powerful when competing for new business.

We plan to hire additional field and inside sales professionals in most major markets in which we operate, and to support these teams with continued brand and product marketing. We believe adding sales capacity in our direct sales force will grow revenue.

Expand through indirect sales channels

We believe there is growth and margin expansion opportunity through our OEM and reseller networks, and we plan to continue adding more partners across all product suites in the future.

solidThinking indirect channels are intended to deliver important new top line growth into middle-market companies not requiring the full suite of enterprise solutions. We plan to focus significant attention on growing our base of Envision OEMs, implementation partners, and resellers by targeting specific vertical IoT markets. These relationships are important in creating opportunities for digital twin simulation related to the design of, and in-service predictive analytics of, connected products.

Continue investment in R&D

We organically developed over 15 products which came to market commercially in the last 25 years. These include HyperMesh, HyperView, HyperGraph, OptiStruct, Compose, Activate, Click2Form, HyperStudy, Inspire, MotionView, MotionSolve, Altair PBS Access, Altair PBS Cloud, and Envision. We believe this level of organic product creation sustained over such a long period of time is unique in the PLM market.

Analytics from our units-based subscription licensing model gives us insight into our customers’ workflows and usage patterns. This helps guide our product development and R&D efforts. We pay attention to how problems are being solved by currently available solutions and look for opportunities to create new products where we can make significant improvements in quality or performance and deliver future revenue streams for our company. We experiment with new methods and emerging technologies as they become available to learn and to find ways they can be relevant in advancing our products’ technologies in the markets we serve.

We view our continued investment in R&D as essential to developing new products and technologies, as well as new features for existing products, to support the needs of our users.

Selectively pursue acquisitions and strategic investments

We may explore and pursue selective acquisitions and strategic investments to complement and strengthen our product offerings, expand the functionality of our solution, acquire technology or talent, or gain access to new customers and markets.

We acquired 17 companies since 1996, including nine in the last three years. These acquisitions brought strategic IP assets, and approximately 200 developers with expertise in disciplines ranging from electronics, material science, crash and safety to industrial design and rendering. Products which are commercially available as a result of these acquisitions include Click2Extrude, Altair PBS Professional, Radioss, Evolve, Acusolve, SimLab, Embed, Click2Cast, Multi-scale Designer, FEKO, FLUX, WinProp and Thea Render.

 

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We believe our ability to integrate expert teams and new IP into our organization, and quickly bring acquired products to market with our business model, is unique in the PLM market.

Sales

We take our products to market in different combinations, through several packaged offerings, each having defined channels and pricing strategies. The product “suites” are HyperWorks, solidThinking, Altair PBS Works and Envision.

Product suites

HyperWorks

HyperWorks is a suite of software products which primarily targets simulation specialists and some test engineers at large enterprises, and users with deep technical needs at small and medium sized companies. HyperWorks Units, or HWUs, are an embodiment of our patented units-based subscription licensing model, and provide access to all of Altair’s more than 30 software products including those available in our solidThinking, Altair PBS Works, and Envision suites, and all of the more than 150 APA applications.

HyperWorks represents the majority of Altair’s revenue. To sell HyperWorks we primarily engage with our customers through our direct global sales force. Our sales teams interact with key information technology, or IT, decision makers, engage deeply with users of our products by leveraging a team of Altair’s technical specialists, and work with user-group managers and executives to ensure they are maximizing the utility of our HyperWorks suite. Resellers of HyperWorks are mainly in APAC and Eastern Europe. They are managed by our direct field offices.

solidThinking

solidThinking is a more recent suite offering, a subset of our HyperWorks products focused on industrial design, concept engineering, manufacturing feasibility, and model-based design. solidThinking primarily targets designers, engineers and architects at small and medium enterprises. Historically, solidThinking has been offered under a traditional licensing model. We are currently transitioning to a units-based subscription model similar to HyperWorks.

solidThinking represented less than 1% of Altair’s revenue in 2016, while it grew well over 50% from 2015 to 2016. solidThinking Inc. is a wholly owned subsidiary of Altair, created to market this suite through resellers who provide sales and first line support for these customers.

Altair PBS Works

Altair PBS Works is a suite of three products including, Altair PBS Professional, Altair PBS Access, and Altair PBS Cloud, targeting IT professionals, engineers, and scientists at commercial enterprises, universities and research institutes. Altair PBS Works optimizes the use of HPC to design products, predict weather, perform drug discovery research, calculate financial risk, and support other compute intensive work. Altair PBS Works licensing and support is generally on a per node and per user subscription basis.

Altair PBS Works is sold by Altair’s global strategic sales force with sales overlay support from Altair HPC sales specialists and application engineers. Some major HPC hardware companies bundle Altair PBS Works on new HPC computer systems. We offer Altair PBS Professional as both an open source and a commercial solution. Commercial sites generally license the commercial version along with support. However, many universities,

 

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government agencies and small commercial sites prefer the open source version as their work often needs to be freely available for societal benefit. Large government and research installations generally still purchase support and often pay for specific development.

Envision

Envision is a newer offering which enables data scientists and casual users to visualize and analyze big data from the IoT and other structured in-service operational data. Envision is available under the HyperWorks suite and as a stand-alone product.

Envision is sold by our direct sales force, supported by an overlay team, to HyperWorks customers where we have longstanding relationships to promote Envision usage. We also sell through resellers and implementation consultants who sell and support Envision in markets where they are strong. Envision is designed to easily embed in other software products to provide analytics capabilities, we work with other software companies to implement Envision in their applications focused on vertical domains where these companies have deep experience and customer relationships.

Direct and indirect sales channels

Direct sales channels

More than 90% of our 2016 software revenue was generated through our direct global sales force. Our direct sales force is responsible for developing new customers, ensuring high recurring rates from our existing customers, and expanding the use of Altair and partner products within customers’ environments through continuous training, support, and consulting engagements. Each of our field sales professionals are supported by technical specialists with deep knowledge of our products and the broader product development domain. We believe this approach differentiates Altair from our competitors, as our focus on establishing a strong working relationship with the user community has led to expanded usage of Altair and partner products.

Our direct sales force is organized by geographic regions, consisting of Americas, EMEA, and APAC. As of March 31, 2017, we had over 900 field employees consisting of over 135 account managers, approximately 80 administrative support people, and over 700 application engineers and technical consultants in 67 offices in 23 countries.

Indirect sales channels

More than 9% of our 2016 software revenue was generated through our growing network of indirect channel partners and resellers. These companies are central to Altair’s software sales growth strategy by expanding our market reach to small and medium-sized customers. We ended 2016 with approximately 300 reseller and OEM relationships, including over 180 solidThinking resellers, primarily added in the last three years, and over 120 HyperWorks and Altair PBS resellers and OEMs. We are increasing our use of indirect channels in an effort to address a broader set of customers in consumer products, electronics, energy and other industries and expect the share of indirect channel sales to increase in the coming years.

To enable concept engineering driven by simulation we make our physics solvers more accessible to designers, who may be technical and not expert in simulation, by wrapping them in powerful, yet simple interfaces. In addition to being available under the HyperWorks suite, these products are sold through resellers worldwide under the solidThinking brand.

solidThinking is sold by over 180 resellers worldwide. The solidThinking resellers in the Americas and EMEA are managed by the solidThinking corporate team, while in APAC these resellers are managed by Altair field offices. This channel is relatively new and beginning to produce meaningful results.

 

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We have OEM arrangements for Altair PBS Works with most of the major HPC hardware companies when they sell new computer systems. We believe these arrangements reduce competition, grow our market share and improve sales efficiency.

In addition to being available under HyperWorks, Envision goes to market through OEM and strategic relationships worldwide including third party software companies seeking to embed analytics capabilities into their applications, implementation partners, and resellers. Most of these companies are focused on, and have vertical domain expertise outside of, Altair’s traditional manufacturing base and help Envision gain entry to these markets. In the utility market we have established several key alliances.

Marketing

Altair’s global marketing team of approximately 65 people is focused on generating new business opportunities by driving awareness, deepening customer engagement, and developing content specific to technical fields and industry verticals. Our corporate marketing programs include social media, earned media, and publications including Concept to Reality magazine, blogs, white papers and case studies. Our regional marketing program supports working relationships with our user community through education, participation in local industry events, Altair technical conferences, and webinars.

We provide marketing support to our ecosystem of resellers and third party technology partners on both a corporate and regional level.

In 2016 our online activities included:

 

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230,000 resource library video views;

 

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25,000 self-service training sessions;

 

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18,500 webinar registrations;

 

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30,000 software downloads;

 

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1.9 million website visitors; and

 

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63,000 social media followers.

Approximately 6,500 customers and prospects attended Altair’s user conferences in 2016.

In order to continue to drive growth and extend our market position, we intend to continue to invest significant resources into our marketing initiatives.

Software products

Altair’s software products, available under our HyperWorks, solidThinking, Altair PBS, and Envision suites, represent a comprehensive, open architecture CAE simulation platform. We believe our products offer the industry’s broadest set of technologies to design and optimize high performance, efficient, and innovative products. Our products are categorized by:

 

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Solvers & Optimization;

 

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Modeling & Visualization;

 

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Industrial & Concept Design;

 

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IoT; and

 

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HPC.

Solvers & optimization

Solvers are mathematical software “engines” that use advanced computational algorithms to predict physical performance. Optimization leverages solvers to derive the most efficient solutions to meet desired complex multi-objective requirements.

Altair’s solvers are a comprehensive set of fast, scalable and reliable physics solvers that can solve complex problems in linear and non-linear mechanics, fluid dynamics, electromagnetics, motion, systems and manufacturing simulation.

Altair’s optimization technology is a key differentiator and spans our product offering. Our focus on optimization combined with multiphysics and multi-domain simulation has changed product development, and we believe customers using our technologies can gain a sustainable competitive advantage by developing better products in less time.

OptiStruct^® Our flagship solver for structural analysis simulation and optimization for linear and nonlinear events under static and dynamic loadings. Winner of Industry Week’s Technology of the Year award in 1994, OptiStruct is widely used in industry for topology, shape, size, and composite material optimization.

 

 

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RADIOSS^® Crashworthiness, safety, and impact solver for non-linear problems under transient, dynamic loadings. RADIOSS is highly scalable, and contains multi-physics solution capabilities for the most complex mechanical events, including fluid-structure interaction, composite failure and crack propagation.

 

 

AcuSolve^® Computational Fluid Dynamics (CFD) solver with a full range of simulations including flow, heat transfer, turbulence, and non-Newtonian materials. Highly accurate and scalable solutions, even on fully unstructured meshes, provide fast and accurate solutions for both transient and steady-state solutions.

 

 

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FEKO^® Comprehensive electromagnetics, or EM, solver used widely in telecommunications, automobile, space and defense industries. With a particular strength in the high frequency domain, FEKO uses multiple frequency and time domain techniques for efficient analysis of a broad spectrum of EM problems, and designed to solve problems such as antenna placement and investigation of electromagnetic compatibility.

 

Flux™ Finite element solver for low-frequency EM and thermal simulations, including those required for electric motor design. Flux features extended multiparametric analysis capabilities, and electrical circuit and kinematic couplings, with applications ranging from rotating machinery and linear actuators to induction heating processes.

 

 

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WinProp™ Wave propagation and radio network planning suite, with applications ranging from satellite to terrestrial. Accurate with short computation times, WinProp’s broad capabilities provide wireless planning guidance in rural/urban, indoor/outdoor, underground, moving vehicle and many other environments.

 

Multiscale Designer™ Design tool for simulating composite and other multi-scale materials. Applications include the modeling of continuous, woven, or chopped fiber composites, honeycomb cores, reinforced concrete, soil, bones, and various other heterogeneous materials.

 

 

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HyperStudy^® Design exploration and multi-disciplinary optimization software for improving product performance, quality and robustness. HyperStudy’s simple interface and powerful tools for design of experiments, approximation and optimization methods allow creation of intelligent design variants, manage simulation runs, and collect the data necessary to gain design insight and make product improvement decisions.

 

MotionSolve^® Multi-body systems solver for analyzing and optimizing mechanical system performance. MotionSolve solves the equations of motion using kinematic, dynamic, static, quasi-static, and other analysis methods for applications including vehicle suspension systems, aerial vehicle dynamics, robotics and general machinery mechanisms.

 

 

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Modeling & visualization

Modeling & visualization tools allow for advanced physics attributes to be modeled and rendered on top of object geometry in high fidelity. These tools are becoming more design-centric and relevant earlier in the development process.

HyperMesh ^® A market leader in high-fidelity CAE modeling, able to handle large and complex models and manage the modeling process from import of CAD geometry to exporting a ready-to-run solver input file. HyperMesh provides engineers a highly interactive and visual environment, a complete set of meshing, assembly, and model setup tools, and a broad set of direct interfaces to third party commercial CAD and CAE systems.

 

HyperView ^® High-performance post-processing and visualization environment for CAE and test data. HyperView is a solution for visualizing, correlating and interrogating large models and sets of data from finite element analysis, multi-body system simulations, digital video, and engineering test data.

 

 

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SimLab ^® Process oriented finite element modeling software especially suited for complex solid element modeling. SimLab uses process automation of simulation modeling tasks to reduce time spent and human errors in creating finite element models of complicated 3D assemblies such as automotive engines and braking systems.

 

 

HyperCrash^® Pre-processing technology for automotive crash analysis and safety simulation. HyperCrash provides safety engineers a dedicated virtual workflow to automate the creation of high-fidelity crash simulation models, including tools for dummy modeling and positioning, airbag folding and seat belt routing.

 

 

 

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MotionView^® A multi-body systems modeling environment with parametric capabilities to build, analyze, and improve mechanical system designs. MotionView is designed as an end-to-end solution with an intuitive user interface, hierarchical, parametric and flexible-body modeling capabilities, and an open architecture for interfacing with MotionSolve or other third party motion and finite element simulation products.

 

 

Excavator arm flexbody simulation		Automotive front suspension simulation

HyperGraph^® A data analysis and plotting tool with interfaces to many file formats. Plotting and analyzing data in an environment made for demanding scenarios, HyperGraph allows users to graph, visualize, and study massive data sets and process even the most complex mathematical expressions.

 

Visualization of mathematical “raindrop” plot		Colormap plot for modal participation analysis

 

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Industrial & concept design

Industrial & concept design tools that generate early concepts to address requirements for ergonomics, aesthetics, performance, and manufacturing feasibility. These tools are simulation-driven and, we believe, emerging as a market force eclipsing traditional CAD.

Inspire ^™ concept design software to generate and analyze design concepts using OptiStruct^® technology. With a user experience tailored to design engineers, product designers, and architects, Inspire gets users to the right design, faster.

 

Robot arm designed and optimized using Inspire		Optimized and 3D printed metal aerospace bracket

Evolve ^™ An Industrial Design tool for fast form generation, manipulation and rendering. Evolve enables the capture of an initial sketch, exploration of styling alternatives, and visualization of products with realistic renderings generated in real time.

 

Goggles concept design		Mars rover concept design

 

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Thea Render™ A fast and versatile rendering software with unbiased, biased and GPU engines and its own advanced studio. Thea Render offers light simulation and a powerful material system using physically-based models for outstanding image quality.

 

 

Digitally rendered conservatory by Massimo Siracusa		Digitally rendered watch by Patrick Nieborg

Click2Cast^® Casting process simulation software for efficient mold design and process development. The five step interface in Click2Cast lets users identify and correct any filling and solidification issues early in the manufacturing process to avoid typical defects of air entrapment, shrinkage porosity and cold shuts.

 

Complete casting process simulation		Fast and accurate casting defect prediction
in five steps

 

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Click2Extrude™ A metal and polymer extrusion simulation environment to validate and optimize extrusion die designs and processes. Click2Extrude helps extrusion companies produce complex profiles with tight tolerances, quality surface finishes, and high strength at reduced cost.

 

Extrusion simulation to visualize, predict,		Velocity and pressure distribution
and prevent defects		in a spiral extrusion die

Click2Form^™ An industry-proven sheet metal forming simulation tool to optimize development of stamped products. Click2Form offers a solution for managing the entire stamping simulation process, including robust modules for cost and feasibility, parametric die design, process validation, results visualization and die structure optimization.

 

Early stamping process feasibility		Stamping analysis visualization

IoT

Tools to develop new IoT enabled products, including device and data management, system level and full 3-D digital twin simulation, and exploration, predictive analysis, optimization, and visualization of in-service performance. We expect our tools for multidisciplinary simulation and development to become increasingly important for product design. Our software is used to design and optimize IoT devices and connectivity, and for modeling in-service product performance.

We believe Altair’s math and systems solutions are unique for their openness, usability, and ability to provide signal-based and physical modeling from “0D” to “3D” all within our units-based business model. A truly simulation-driven design process means that simulation models support decision making in each stage of the

 

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product development process. To support this, models need to be multidisciplinary and may include mechanics, electrical and electronics, and software among other technical elements, and must encompass a scope of products ranging from components to IoT-enabled “systems of systems”. Varying degrees of fidelity aid the process where computational requirements or data availability might otherwise prove to be obstacles.

We believe a key strength to Altair’s math and systems solutions is allowing development organizations to move seamlessly in this multi-discipline, multi-component, multi-detail space while integrating models from various authoring tools. With a broad range of multi-physics solvers based on an open-system approach, a strong set of model reduction techniques can be employed toward IoT-enabled product development which can then be carried forward into device management and application development on the Carriots platform.

Carriots™ An IoT Cloud platform that allows easy device management and application development of new IoT enabled products with use cases ranging from smart cities, energy, and agriculture to consumer products and logistics.

 

 

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Modeliis™ Electronic Design Automation, or EDA, software for circuit modeling, system design and simulation geared towards the Internet of Things, or IoT, autonomous vehicles, and complex hybrid systems. The software simulates C-code behavior for various chips and include a very high-performance SPICE circuit simulator.

 

Envision™ Cloud-based Business Intelligence, or BI, platform for hosted and on-premises environments to simplify data visualization, exploration, and analysis. Architected for an optimized self-service user experience, Envision speeds up data visualization, exploration and discovery.

 

Interactive reports and dashboards		Interactive maps with drill down capability

 

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Compose™ A numerical computing environment for science and engineering, including a high level matrix-based numerical computing language and an interactive and unified programming environment for all types of math operations. Engineers, scientists, and product creators can perform numerical computations, develop algorithms, perform signal analysis, design control systems, and analyze and visualize data in Compose.

 

Activate™ Model-based development of multidisciplinary systems incorporating functions of sensing, actuation, and control from diverse components. Activate’s block diagram modeling environment empowers users to build demonstrations of how real world systems function and quickly explore new concepts without the need to build prototypes.

 

Embed™ A visual environment for model-based development of embedded control systems. Embed allows users to quickly develop virtual prototypes of dynamic systems. Embed features Software-in-the-Loop, Processor-in-the-Loop, and Hardware-in-the-Loop simulations, and automatically converts the control diagrams into C-code to be downloaded to the target hardware.

 

 

 

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High-performance computing

HPC software applications designed to streamline the workflow management of compute-intensive tasks including solvers, optimization, modeling, visualization and analytics in fields such as PLM, weather modeling, bio-informatics and electronic design analysis.

Altair’s HPC offerings support engineers and scientists across a wide range of industries including automotive, aerospace, academia, energy, electronic design automation, defense, and weather. Altair PBS Works is our secure workload management suite to improve HPC performance and reliability in on-premise, cloud, and hybrid environments.

Our simulation technology users are moving to ever-larger models to achieve higher-fidelity results for more realistic simulations. As these models are computationally intensive, they require special equipment and cloud access for deeper design exploration and optimization. We believe HPC addresses the performance needs of our users and is critical to companies and research organizations working on complex, simulation-intensive design problems.

Altair PBS Works™ HPC workload management suite designed to improve resource utilization and ROI with policy-based job scheduling, user-friendly portals for job submission and remote visualization, and deep analytics and reporting with the following suite highlights:

 

•

Altair® PBS Professional® Workload management and job scheduling systems software available in both open source and commercial licensing.

 

 

 

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•

Altair PBS Cloud™ A platform to create, provision, manage, monitor, simulate and analyze HPC appliances on any cloud infrastructure (private, hybrid and public). It allows real-time monitoring for preventive maintenance in a single command center interface.

 

 

•

Altair PBS Access™ A portal for engineers and researchers to access, monitor and manage batch and interactive jobs, including remote 3D visualization on HPC resources.

 

Altair Partner Alliance

The Altair Partner Alliance provides access to a broad spectrum of complementary software products using customers’ existing HyperWorks Units. They can download and use partner product applications on-demand. This constantly growing portfolio extends their simulation and design capabilities to help create better products faster.

Software products in the APA include technologies ranging from computational fluid dynamics and fatigue to manufacturing process simulation and cost estimation, with applications specific to industry-verticals including marine, motorcycles, aerospace, chemicals, and architecture. Altair plans to continue to add valuable third party software solutions to the HyperWorks platform to empower innovation with comprehensive enterprise analytic tools.

We believe the Altair Partner Alliance is unique, because it:

 

•

Allows customers access to non-Altair software with their existing HyperWorks Units;

 

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•

Provides customers an opportunity to reduce infrastructure and administrative costs;

 

•

Gives customers the ability to quickly evaluate and deploy software on-demand;

 

•

Provides partners who participate with a new channel for software distribution with shorter sales cycles due to established relationships and infrastructures; and

 

•

Incorporates a new paradigm, where Altair shares software royalties with our partners based on actual customer usage reports.

 

Example Altair Partner Alliance products

Software related services

To ensure customer success and deepen our relationships with them, we engage with our customers to provide services related to our software including consulting, training, and implementation services, especially when applying optimization. We provide clients with technical services throughout their entire product development lifecycle including design, engineering, and development. Altair’s headquarters includes an industrial design studio, a prototype shop, and test facilities. We have expertise designing and working with controls, power electronics, traditional and composite structures, and total system level development in the automotive, aerospace, consumer products and other markets.

 

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Implementation and custom software services are available to help customers leverage their investment in Altair’s software to streamline CAE workflows and solve specialized industry vertical engineering problems. We work closely with our clients to increase organizational efficiency and decision making by tailoring these solutions to a client’s own environment and processes.

We believe the unique combination of our broad industry domain knowledge and software expertise has enabled Altair to enhance and replace customers’ legacy applications, integrate our software applications with client business systems, develop clean-sheet designs or custom software solutions, and transform their product development processes.

Client engineering services

Altair provides Client Engineering Services, to support our customers with long-term ongoing product design and development expertise. This has the benefit of embedding us within customers, deepening our understanding of their processes, and allowing us to more quickly perceive trends in the overall market. Our presence at our customers’ sites helps us to better tailor our software products’ R&D and sales initiatives.

We operate our CES business by hiring engineers for placement at a customer site for specific customer-directed assignments. We employ and pay the engineers only for the duration of the placement.

We concentrate on placing simulation specialists, industrial designers, design engineers, materials experts, development and test engineers, manufacturing engineers and information technology specialists. As a leader in the simulation market, Altair attracts high caliber talent from around the world. CES is focused on placements that align strategically with customer usage of our software. We have a strong recruiting operation with over ten sourcing specialists who identify, attract, vet, and hire technical professionals for our in-house and customer needs. We maintain a candidate database of over 80,000 highly qualified engineers and designers. Our CES candidates and placed employees are valuable sources of talent acquisition for Altair’s other business segments.

The average CES assignment was 1.8 years during the period from 2011-2016, with current average length of service for all CES employees at 2.4 years. As of December 31, 2016 44% of CES employees were in their assignments for over two years.

Research and development

Our research and development efforts are focused on enhancing the functionality, breadth and scalability of our software, addressing new use cases, and developing additional innovative simulation technologies. Timely development of new products is essential to maintaining our competitive position, and we release new versions of our software on a regular basis.

Customer feedback, combined with our roadmap, enables us to deliver long-term value and stay ahead of market trends. The majority of product enhancements and new capabilities added to our platform over the years have been developed internally, with acquisitions used to augment our capabilities with strategic technology.

Our research and development initiatives foster a culture of innovation within the organization, helping us attract and retain a highly motivated team. Altair’s research and development team consists of approximately 840 people worldwide. Most of our research and development team is based in Michigan and India; however, we also maintain research and development centers with specific technical expertise (for example, Stellenbosch, South Africa for electromagnetics).

 

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Since Altair’s first commercial software release in 1990, there have been over 35 new software products brought to market under the HyperWorks, solidThinking, and Altair PBS Works brands.

From time-to-time, we incubate related technologies developed by our employees. For example, as a result of an internal initiative, we developed and patented next-generation solid-state lighting technology. We commercialized this technology under our toggled subsidiary, which generated $6.0 million in revenue in the twelve-month period ending December 31, 2016. WEYV, a mobile application that brings our patented units-based business model to digital content distribution and delivery, is expected to be released commercially.

Our research and development efforts relating to our software focus on five areas:

 

•

Solvers & Optimization:    Solvers are mathematical software “engines” that use advanced computational algorithms to simulate physics. Altair initially specialized in structural simulation, and now continuously develops our portfolio of solvers to simulate fluid dynamics, high and low frequency electromagnetics, mechanical systems, electronic controls and more. Altair also invests to “couple” our solvers to simulate multiple physics domains simultaneously, and is considered a world leader in the development of optimization technology, which drives solvers to find solutions to complex multi-objective design problems. R&D is also conducted to leverage high-performance computing technology for these compute intensive applications. Solver and optimization development is conducted by researchers with advanced degrees in engineering, physics, computer science and mathematics.

 

•

Modeling & Visualization:    The graphical applications used to construct and visualize simulation models require continuous R&D in the areas of data structures, computational methods, graphics, geometric modeling, mesh generation, and user interface design. Altair’s modeling tools are becoming more design-centric and are adopting some of the capabilities of traditional CAD while leveraging simulation and optimization technology to drive design decisions rather than just simulate designs. Specific areas of R&D include handling large scale models of highly detailed and complex products, developing new methods to derive design geometry from optimizations, and unifying the modeling environment for multi-physics simulation. Adapting modeling and visualization technology for cloud deployment is also an area of active development as is supporting virtual and augmented reality hardware.

 

•

Industrial & Concept Design:    Simulation-driven design requires tools to generate early concepts addressing requirements for ergonomics, aesthetics, performance, and manufacturing feasibility. These tools are simulation-driven, and we believe, emerging as a market force eclipsing traditional CAD. We believe Inspire is key to the democratization of simulation capabilities across large groups of designers and engineers who are not simulation specialists. Significant investment continues toward making the Inspire environment capable of providing most early design stage simulation needs. We expect to further integrate the visualization capabilities of Evolve and Thea Render across Altair’s product suites. The development teams for Industrial & Concept Design products include deep experience with industrial design processes and manufacturing methods.

 

•

IoT:    The Internet of Things requires tools to enable development of products that sense, collect, and communicate information. Our IoT toolsets perform device and data management, system level and full 3-D digital twin simulation, and allow exploration, predictive analysis, optimization, and visualization of in-service performance. We expect that integrating our recent acquired products, Modeliis and Carriots for EDA and IoT Cloud platform device management and application development, with our Envision cloud data analytics platform will help our tools for multidisciplinary simulation and development continue to become increasingly important for product design and in-service operating data. Designed for visualizing and exploring large data sets, we are currently enhancing Envision to facilitate the deployment of analytics apps by third party developers and linked to IoT stacks.

 

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Compose, Activate, and Embed support product development for the IoT through a math-based programming environment, multidisciplinary system modeling, and control system development and are an important ongoing research and development effort. We support our own high level matrix-based numerical computing language, as well as Python and Tcl, in an interactive programming environment for all types of math operations. We expect to add more language and library support, broaden the math libraries, and integrate these products more deeply with Altair’s other software.

 

•

HPC:    Altair’s acquisition and development of HPC software complements our compute intensive simulation and optimization technology. While investments continue in the core workload management technology, new areas of R&D include innovative workload simulation and resource optimization, a cloud-based user interface to facilitate the deployment and administration of HPC clusters, and the development of new web-based job submission, monitoring and management tools. The HPC development teams work closely with the modeling and visualization teams and IoT Analytics teams to ensure that Altair’s overall technology portfolio interoperates effectively and shares a common infrastructure and user experience.

In order to maintain and extend our technology leadership and competitive position, we intend to continue devoting significant effort to our research and development activities.

Customers

As of December 31, 2016, we had tens of thousands of users across approximately 5,000 customers worldwide. Our customers are primarily large manufacturing enterprises. We have a growing presence in small and mid-size companies and compete in markets beyond manufacturing including Architecture/Engineering/Construction, or AEC, energy, life and earth sciences, and government entities. In 2016, we generated 38%, 32% and 30% of our total billings from customers in the Americas, APAC, and EMEA, respectively. None of our customers accounted for more than 10% of our 2016 billings.

Automotive and aerospace combined account for over 50% of our 2016 software billings, including 15 out of 15 of the world’s leading automotive manufacturers and 10 out of 10 of the world’s leading aerospace manufacturers. Other important industry segments include heavy machinery, rail and ship design, energy, government, life and earth sciences, and consumer electronics. No single customer, nor any of our approximately 300 resellers and OEMS, accounted for more than 3% of our 2016 software billings.

Customer Case Studies

Robot Bike Company: Developing a Fully Customizable, Additively Manufactured Mountain Bike

Robot Bike Company is a new startup established in the United Kingdom by aerospace engineers and mountain biking enthusiasts who identified the potential of combining additive manufacturing technologies with carbon fiber to, in their own words, “create the best bike frames possible.” Robot Bike Company wanted to use additive manufacturing technologies to create a very high end mountain bike that could be built to order and tailored to an individual’s weight, height and riding style, all within acceptable delivery timescales and manufacturing costs.

Weight is a concern for bike manufacturers as heavier bikes take more energy to move, a fact that is particularly notable for off-road bikes where the rider must power the bike over a wide variety of terrain, including steep inclines. When developing a bike however, the reduction of weight must not negatively impact the strength of the frame as this will have an obvious detrimental effect on the ‘feel’ of the bike, a difficult attribute to design for in engineering terms but a crucial one when riders come to a buying decision.

 

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“Altair has assisted Robot Bike Co. to further reduce the weight of our frame whilst also ensuring that stresses are kept below a pre-determined maximum. This has allowed us to provide a life-time warranty and give our customers confidence that the product will be enduring”, said a representative of Robot Bike Co.

Boeing: Altair PBS Professional at The Boeing Company: Workflow Management for R&D

The Boeing Information Technology group provides a wide range of computing services to the entire corporation from its Bellevue, Washington computing campus. For the engineers who design Boeing commercial aircraft, the heartbeat of this campus is the Data Center, which houses the HPC systems that they access to run engineering simulations and analyses.

The HPC systems of the enterprise servers subgroup are accessed by all Boeing engineering departments, but the heaviest demand is from engineers running aerodynamics and structural models, particularly during the early stages of aircraft design. Most users log on from Boeing’s four engineering and development locations around Puget Sound, but the servers are accessed by Boeing engineers in Philadelphia and other sites around the world.

“We rely on our batch scheduling system for adopting and managing queuing policies, and that’s what Altair PBS Professional is all about. When we add clusters, we will continue to use more Altair PBS Professional”, said a representative of Boeing.

University of Stellenbosch: The SKA Radio Telescope: a Global Project for a Better Understanding of the Universe

Challenging Einstein’s seminal theory of relativity to the limits, how the very first stars and galaxies formed just after the Big Bang, the study of dark energy and the vast magnetic fields in the cosmos, and the age old question “Are we alone in the Universe?” These are some of the key scientific goals of the Square Kilometer Array, or SKA, project, led by the SKA Organization from Jodrell Bank Observatory in the United Kingdom, supported by 11 member countries—South Africa, Australia, Canada, China, Germany, India, Italy, New Zealand, Sweden, The Netherlands and the United Kingdom.

The SKA will be a collection of various types of antennas, ranging from large dish reflectors to aperture antennas. Spread over large distances, they work together as an interferometric array to provide higher resolution images of astronomical objects. When completed, the SKA will be 10,000 times faster and 50 times more sensitive than any existing radio telescope. It will be constructed in two phases: Phase 1 (SKA1) is estimated to be completed in 2023 and is being built in South Africa and Australia; Phase 2 (SKA2) will be started after SKA1 and will take the project into other African countries, with the Australian component also being expanded. For Phase 1 the 64-dish MeerKAT precursor array, which is currently under construction and expected to come online in a few years’ time, will be integrated into SKA1 MID, with the construction of another 190 dishes.

“FEKO modelling on the Cape Town CHPC has been pivotal in our RFI mitigation research. We have successfully validated dish scale models with measurement and continue to use FEKO to study EM induced current paths and provide RFI mitigation recommendations to SKA South Africa.” said a representative of University of Stellenbosch, South Africa.

Philips: Personal Care / Personal Health

Royal Philips, Founded in 1891 in The Netherlands, is one of the largest electronics companies in the world employing over 105,000 individuals in over 100 countries. It is a leading health technology company with a keen focus on improving people’s health. This spans from healthy living, to diagnosis, treatment, and home care. Philips puts strong emphasis on leveraging the latest in technology, design, and deep consumer insights

 

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when developing each of the products in its broad portfolio. The company is a leader in diagnostic imaging, image-guided therapy, patient monitoring and health informatics, as well as consumer health and home care.

“As a designer, we are always under pressure to deliver results in a short period of time. Evolve has been a big advantage for me over other conceptual CAD packages,” said a Philips representative.

Competition

The market for CAE software is highly fragmented but has been undergoing significant consolidation. Our primary competitors include Dassault Systèmes, Siemens, Ansys and MSC Software. Dassault and Siemens are large public companies, with significant financial resources, which have historically focused on CAD and product data management. More recently, these two companies have been investing in simulation software via acquisitions. Ansys and MSC are focused on CAE. In addition to these competitors, we compete with many smaller companies offering CAE software applications.

We believe the breadth and depth of Altair’s software offering is unique in the PLM industry. We also believe no single competitor addresses our entire solution set. Our integrated suite of software optimizes design performance across multiple disciplines encompassing structures (including crashworthiness and safety), motion, fluids, thermal management, electromagnetics, system modeling and embedded systems, while also providing data analytics and true-to-life visualization and rendering. The HyperWorks Units model further extends this advantage with a growing APA marketplace of third party software.

Our simulation solutions including modeling, visualization and solvers are noted in the market for their ability to handle large and complex models. Our software applications deliver high-performance and high scalability, including massive parallelization, which is extremely important in the CAE market. Altair is a leader in integrating optimization technology across all our products including multi-disciplinary applications.

To ensure customer success and deepen our relationships with them, we engage with our customers to provide consulting, implementation services, training, and support, especially when applying optimization. We believe these services, combined with our ability to leverage HPC as the industry transitions to cloud computing, positions us for future success.

We compete on a variety of factors including the breadth, depth, performance, and quality of our technical solutions. We believe our patented units-based subscription licensing model provides us with a competitive advantage by lowering barriers to adoption, creating broad engagement, and encouraging users to work within our ecosystem.

Intellectual property

We believe that our intellectual property rights are valuable and important to our business. We actively protect our investment in technology through establishment and enforcement of intellectual property rights. We protect our intellectual property through a combination of patent, copyright, trademark and trade secret protections, confidentiality procedures, and contractual provisions. The nature and extent of legal protection associated with each such intellectual property right depends on, among other things, the type of intellectual property right and the given jurisdiction in which such right arises.

As of December 31, 2016, we, inclusive of our wholly-owned subsidiaries, have 136 issued patents and more than 20 published patent applications worldwide. These patents and patent applications seek to protect proprietary inventions relevant to our business. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost effective. Additionally we are the registered holder of a variety of trademarks and domain names that include “Altair” and similar variations.

 

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Nonetheless, our intellectual property rights may not be successfully asserted in the future or may be invalidated, circumvented or challenged. In addition, the laws and enforcement of the laws of various countries where our products are distributed do not protect our intellectual property rights to the same extent as United States laws. Our inability to assert or enforce our intellectual property rights could harm our business.

From time to time, we receive claims alleging infringement of a third party’s intellectual property rights, including patents. Disputes involving our intellectual property rights or those of another party have in the past and may in the future lead to, among other things, costly litigation, diversion of time, money and resources to develop or obtain non-infringing products, or delay product distribution. Any significant impairment of our core intellectual property rights could harm our business or our ability to compete.

Our products are licensed to users pursuant to signed license agreements or ‘click through’ agreements containing restrictions on use, duplication, disclosure, and transfer. Cloud based products and associated services are provided to users pursuant to online or signed terms of service agreements containing appropriate restrictions on access and use.

We are unable to measure the full extent to which piracy of our software products exists. We believe, however, that software piracy is and can be expected to be a persistent problem that negatively impacts our revenue and financial results. We believe that our predominant subscription based business model combined with the change from desktop to cloud based computing will shift the incentives and means by which software is pirated.

In addition, through various licensing arrangements, we receive certain rights to intellectual property of others. We expect to maintain current licensing arrangements and to secure additional licensing arrangements in the future, as needed and to the extent available on reasonable terms and conditions, to support continued development and sales of our products and services. Some of these licensing arrangements require or may require royalty payments and other licensing fees. The amount of these payments and fees may depend on various factors, including but not limited to: the structure of royalty payments, offsetting considerations, if any, and the degree of use of the licensed technology.

Employees

We have over 2,000 in-house employees and over 400 on-site Client Engineering Service employees globally. Over two-thirds of our employees are located in the United States, India, France, Germany and China. None of our employees in the United States are represented by a labor organization or are party to any collective bargaining arrangement. In certain of the European countries in which we operate, we are subject to, and comply with, local labor law requirements in relation to the establishment of works councils. We are often required to consult and seek the consent or advice of these works councils. We have never experienced a work stoppage and we believe our employee relations are good.

Facilities

Our corporate headquarters are located in Troy, Michigan. We own our corporate headquarters facility consisting of 132,900 square feet of office space. In addition, we maintain 16 domestic offices some of which are subject to master leases or subleases with multiyear lease terms in Alabama, California, Massachusetts, New York, Texas, Virginia, Washington, and Wisconsin. We maintain offices in Arizona and North Carolina which are leased under annual lease terms.

In 2016, we acquired an undeveloped parcel of land adjacent to our headquarters, which we expect to develop over the next few years. In 2010, we acquired 136,000 square feet of industrial space in Troy, Michigan that is now used as the headquarters of our wholly-owned subsidiary toggled.

 

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We maintain 51 international offices in Australia, Austria, Brazil, Canada, China, France, Germany, Greece, India, Israel, Italy, Japan, Malaysia, Mexico, South Africa, South Korea, Spain, Sweden, Taiwan, the United Kingdom and Vietnam. We lease all of our international facilities and do not own any real property outside of the United States. We expect to add facilities as we grow our employee base and expand geographically. We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations.

Legal and regulatory

Legal proceedings

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of third party proprietary rights, or to establish and enforce our proprietary rights. The results of any current or future litigation cannot be predicted with certainty and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Litigation

On July 5, 2007, MSC Software Corporation, or MSC, filed a lawsuit against us and certain of our named employees in the United States District Court for the Eastern District of Michigan, asserting, among other things, that we and certain of our employees misappropriated alleged trade secrets that certain of our employees breached contractual non-solicitation and confidentiality obligations owed to MSC and that we tortiously interfered with MSC’s contractual relations with these employees. In April 2014, a jury returned a $26.1 million verdict against us on three trade secrets claims and a tortious interference claim as well as against certain of our employees for breach of contractual obligations to MSC. In November 2014, this verdict was partially vacated except for damages of $425,000 related to the employment matters, and the Court ordered a new trial on damages for the trade secrets claims. The court is currently considering several motions and has not specified a new trial date.

On September 15, 2016, our wholly-owned subsidiary, toggled filed a lawsuit against Forest Lighting USA, or Forest, a wholly-owned subsidiary of MLS Co., Ltd. in the United States District Court for the Southern District of Texas alleging infringement of 11 patents and seeking to have Forest pay damages for its infringement of toggled’s LED patents. On December 1, 2016, Forest filed an inter partes review related to one of the 11 patents with the Patent Trial and Appeal Board (IPR 2017-00383). In March 2017, the parties agreed to stay the litigation while they discuss settlement. As part of the on-going settlement discussion, the parties agreed to petition the Patent Trial and Appeal Board to dismiss IPR 2017-00383, and petition the United States District Court for the Southern District of Texas to dismiss claims and counterclaims regarding US Patent No. 7,510,299 from the lawsuit. Both petitions were granted May 19, 2017.

We can express no opinion regarding the ultimate resolution of any of these matters. Litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could negatively affect our business, results of operations and financial condition.

 

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Management

Executive officers and directors

The following table sets forth information regarding our executive officers and directors as of June 12, 2017.

 

Name		Age		Position
Executive Officers and Directors:
James R. Scapa		60		Chairman, Chief Executive Officer and Director
Brett Chouinard		52		Chief Operating Officer
Howard N. Morof		56		Chief Financial Officer
Massimo Fariello		55		Chief Strategy Officer
James P. Dagg		50		Chief Technical Officer, Modeling/Visualization
Dr. Uwe Schramm		59		Chief Technical Officer, Solvers/Optimization
Srikanth Mahalingam		46		Chief Technical Officer, HPC/Cloud Solutions
Jeffrey M. Brennan		50		Chief Marketing Officer
Martin Nichols		54		Chief Information Officer
Tom M. Perring		68		Chief Administrative Officer
James E. Brancheau		66		Director
Non-Employee Directors
Steve Earhart(1)(2)		69		Director
Jan Kowal(1)(2)(3)		64		Director
Trace Harris(2)(3)		52		Director
Richard Hart(1)(3)		53		Director

 

(1)

Member of our audit committee

 

(2)

Member of our compensation committee

 

(3)

Member of our nominating and corporate governance committee

Executive officers and directors

James R. Scapa co-founded our company and has served as Chairman of our board of directors and our chief executive officer since 1992. Prior to his role as our chief executive officer, Mr. Scapa served as secretary and treasurer since our inception in 1985. Mr. Scapa holds a bachelor’s degree in mechanical engineering from Columbia University and a masters of business administration from the University of Michigan. We believe that the perspective and experience that Mr. Scapa brings as our chief executive officer and founder uniquely qualifies him to serve as the Chairman of our board of directors.

Brett Chouinard has served as our chief operating officer since January 2010. Prior to his role as our chief operating officer, Mr. Chouinard served in various roles with us since 1994. Prior to joining us, Mr. Chouinard worked as an engineer at GE Aircraft, a subsidiary of General Electric, Inc. specializing in aircraft engines. Mr. Chouinard holds a bachelor’s degree in mechanical engineering from the University of Cincinnati and a master’s degree in mechanical engineering from the University of Michigan.

 

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Howard N. Morof has served as our chief financial officer since February 2013. Mr. Morof also served as a member of our board of directors from February 2011 to February 2013. Prior to joining us, Mr. Morof served as chief financial officer of North American Bancard, LLC, an independent merchant and credit card processing company, from February 2008 to February 2013. Mr. Morof is a certified public accountant and holds a master’s degree in taxation from Walsh College and a bachelor’s degree in business administration from the University of Michigan.

Massimo Fariello has served as our chief strategy officer since January 2015. Prior to this role, Mr. Fariello served as our senior vice president of corporate development from April 2013 to December 2014 and prior to that, as our senior vice president of software technology alliances and strategies from July 2011 to March 2013. Mr. Fariello received his master’s degree in automotive engineering from the Polytechnic University of Turin, Italy.

James P. Dagg has served as our chief technical officer of modeling and visualization since November 2014. Prior to this role, Mr. Dagg served as the chief technical officer from January 2014 to December 2014 and the vice president from May 2008 to December 2013 of our wholly-owned subsidiary solidThinking, Inc. Mr. Dagg holds a bachelor’s degree in mechanical engineering and a master’s degree in applied mechanics from the University of Michigan.

Dr. Uwe Schramm has served as our chief technical officer of solvers and optimization since November 2014. Prior to this role, Dr. Schramm served as managing director of Altair GmbH, our wholly-owned German subsidiary, from September 2011 to December 2013. Dr. Schramm holds a master’s degree and a doctorate degree in solid mechanics and doctorate degree in mechanical engineering from the University of Rostock in Rostock, Germany.

Srikanth Mahalingam has served as our chief technical officer for HPC and cloud solutions since November 2013. Prior to this role, Mr. Mahalingam was a senior vice president at Altair from July 2011 to November 2013 and a vice president from January 2008 to June 2011 at Altair. Mr. Mahalingam holds a bachelor’s degree in computer science and engineering from Gulbarga University in Gulbarga, India and an executive masters of business administration from the Indian School of Business in Hyderabad, India.

Jeffrey M. Brennan has served as our chief marketing officer since January 2010. Prior to this role, Mr. Brennan served as vice president of the HyperWorks business unit from January 2002 to January 2010. Mr. Brennan joined the Company in June 1, 1992 as an engineering consultant. Mr. Brennan holds a bachelor’s degree in mechanical engineering from the University of Notre Dame and a master’s degree in mechanical engineering from the University of Michigan.

Martin Nichols has served as our chief information officer since July 2011. Prior to this role, Mr. Nichols served as our executive vice president of global alliances and operations from January 2010 to June 2011. Mr. Nichols joined the Company in July 1992 as a technical support engineer. Mr. Nichols holds a bachelor’s degree in mechanical engineering from the University of Michigan.

Tom M. Perring has served as our chief administration officer since July 2011. Prior to this role, Mr. Perring served as our chief financial officer from January 2000 to April 2007 and January 2010 to July 2011. Mr. Perring joined Altair in 1993 as an account manager. Mr. Perring holds a bachelor’s degree and master’s degree in physics from Oakland University in Rochester, Michigan and a master of business administration degree from the University of Michigan.

James E. Brancheau has served as a member of our board of directors since October 2004 and was a member of our compensation committee from January to December 2016. Mr. Brancheau also serves as a member of the board of our wholly-owned subsidiary, Altair Engineering Ltd. (Japan), since February 2010. Mr. Brancheau has

 

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been providing engineering services to us on a part-time basis since January 2014. Mr. Brancheau previously served as our chief technical officer from January 2005 to December 2013, when he assumed a consulting role for the Company. Mr. Brancheau joined us in 1988 as a consultant. Mr. Brancheau holds a bachelor’s degree in mechanical engineering from the University of Detroit. We believe Mr. Brancheau is qualified to serve as a member of our board of directors because of his more than 40 years of experience in engineering, software development and technical management. Mr. Brancheau has a deep understanding of the technology, culture and operations of the Company.

Non-employee directors

Steve Earhart has served as a member of our board of directors since May 2011. Mr. Earhart is the chair of our audit committee, a position he has held since January 2016, and a member of our compensation committee, a position he has held since January 2015. Mr. Earhart served as chief financial officer of World Kitchen, LLC, a branded consumer products company, from April 2012 to January 2017. From December 2007 to June 2010, Mr. Earhart served as executive vice president and chief financial officer of Torex Retail Holdings, Ltd., a retail software provider based in the United Kingdom. Mr. Earhart is a certified public accountant and holds a bachelor’s degree in business and accounting from the University of Illinois and master’s degree in business administration from the University of Wisconsin. We believe Mr. Earhart is qualified to serve on our board of directors because of his significant corporate finance, operational and business experience gained from holding senior executive positions at both publicly-traded and private technology and consumer companies.

Jan Kowal has served as a member of our board of directors since July 2013. Mr. Kowal is a member of our compensation committee, a role he has held since January 2016, our audit committee, a role he has held since January 2017 and a member of our nominating and corporate governance committee, a position he has held since April, 2017. Since May 2015, Mr. Kowal has served as a consultant to Brose Fahrzeugteile GmbH & Co., an international automotive parts supplier based in Germany, and its affiliates in the United States and Europe. Mr. Kowal served as the chairman of Brose Fahrzeugteile’s American subsidiary Brose North America, Inc. from August 2012 to May 2015 and as its president and chief executive officer prior to that. Mr. Kowal holds a master’s degree in mechanical engineering from Charmers University of Technology in Goteborg, Sweden. We believe Mr. Kowal is qualified to serve on our board of directors because of his substantial international business experience and deep familiarity with the automotive industry.

Trace Harris has served as a member of our board of directors since August 2016. Ms. Harris is the chair of our compensation committee a role she has held since January 2017 and a member of our nominating and corporate governance committee, a role she has held since April 2017. Ms. Harris currently serves as the chief financial officer of A-List Services, LLC, an educational services provider, a position she has held since January 2017. From December 2014 to December 2016, Ms. Harris was a principal at T-Harris LLC, a media and education consulting firm. Prior to that, Ms. Harris spent 13 years working in various roles at Vivendi S.A., most recently serving as senior vice president, strategy, finance and business innovation from September 2001 to November 2014. Ms. Harris holds a bachelor’s degree in economics from Stanford University and a master’s degree in business administration with a concentration in finance from the Yale School of Management. We believe Ms. Harris is qualified to serve on our board of directors because of her significant corporate finance, operational and business experience.

Richard Hart has served as a member of our board of directors since April 2017. Mr. Hart is the chair of our corporate governance committee, and a member of our audit committee, roles he has held since April 2017. Mr. Hart currently serves as the chief financial officer of Guidewire Software, Inc., a publicly-traded software publishing company, a position he has held since March 2015. Mr. Hart also serves as a member of the board of directors of Wonolo, Inc., a private on-demand labor and workforce staffing platform business, a position he

 

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has held since February 2016. Mr. Hart was a managing director at Deutsche Bank from May 2004 through November 2013. Mr. Hart holds a bachelor’s degree in physics from the University of Pennsylvania and a juris doctorate degree from the New York University School of Law. We believe Mr. Hart is qualified to serve on our board of directors because of his significant corporate finance, legal and business experience.

Selection of officers

Our executive officers serve at the discretion of our board of directors. There are no familial relationships among our directors and executive officers.

Board composition

Our board of directors currently consists of six members. Following the completion of this offering, our Delaware certificate of incorporation and Delaware bylaws will provide for a classified board of directors, with each director serving a staggered, three-year term. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. The terms of the directors will expire upon the election and qualification of successor directors at the annual meeting of stockholders to be held during 2018 for the Class I directors, 2019 for the Class II directors and 2020 for the Class III directors. Our directors will be divided among the three classes as follows:

 

•

the Class I directors will be                  and                  and their terms will expire at the annual meeting of stockholders to be held in 2018;

 

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the Class II directors will be                  and                  and their terms will expire at the annual meeting of stockholders to be held in 2019; and

 

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the Class III directors will be                  and                  and their term will expire at the annual meeting of stockholders to be held in 2020.

Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which that term expires. Each director’s term shall continue until the election and qualification of his or her successor, or the director’s earlier death, resignation or removal. Any additional directorships resulting from an increase in the number of authorized directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change of control. Under Delaware law and our Delaware certificate of incorporation, for so long as our board of directors is divided into classes, our directors may be removed for cause by the affirmative vote of the holders of at least 66 ²/₃% of our voting stock.

Director independence

Under the rules of the                 , independent directors must comprise a majority of a listed company’s board of directors within a specified period of the completion of an initial public offering. In addition, the rules of the                  require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent. Under the rules of the                , a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in

 

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carrying out the responsibilities of a director. Compensation committee members must not have a relationship with us that is material to the director’s ability to be independent from management in connection with the duties of a compensation committee member. Additionally, audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act.

In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries or be an affiliated person of the listed company or any of its subsidiaries.

Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his background, employment and affiliations, our board of directors determined that Messrs. Earhart, Hart and Kowal and Ms. Harris do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing requirements and rules of                 . In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in the section titled “Certain relationships and related party transactions.”

Committees of the board of directors

Upon completion of this offering our board of directors will have an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below upon completion of this offering. Each committee operates under a written charter that satisfies the applicable rules of the SEC and the listing standards of                 . Members serve on these committees until their resignation or until otherwise determined by our board of directors.

Audit committee

Our audit committee is comprised of Messrs. Earhart, Kowal and Hart, each of whom is a non-employee member of our board of directors. Mr. Earhart is the chair of our audit committee. Our board of directors has determined that each of the members of our audit committee satisfies the requirements for independence and financial literacy under the rules and regulations of the                 and the SEC. Our board of directors has also determined that Mr. Earhart qualifies as an “audit committee financial expert” as defined in the SEC rules and satisfies the financial sophistication requirements of the                 . The audit committee is responsible for, among other things:

 

•

selecting and hiring our independent registered public accounting firm;

 

•

evaluating the performance and independence of our independent registered public accounting firm;

 

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approving the audit and pre-approving any non-audit services to be performed by our independent registered public accounting firm;

 

•

reviewing our financial statements and related disclosures and reviewing our critical accounting policies and practices;

 

•

reviewing the adequacy and effectiveness of our internal control policies and procedures and our disclosure controls and procedures;

 

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•

overseeing procedures for the treatment of complaints on accounting, internal accounting controls or audit matters;

 

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reviewing and discussing with management and the independent registered public accounting firm the results of our annual audit, our quarterly financial statements and our publicly filed reports;

 

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reviewing and approving in advance any proposed related-person transactions; and

 

•

preparing the audit committee report that the SEC requires in our annual proxy statement.

Compensation committee

Our compensation committee is comprised of Ms. Harris and Messrs. Earhart and Kowal, each of whom is a non-employee member of our board of directors. Ms. Harris is the chair of our compensation committee. Our board of directors has determined that each member of our compensation committee meets the requirements for independence under the rules of the             and the SEC, is a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act, and is an “outside director” within the meaning of Section 162(m) of the Code. The compensation committee is responsible for, among other things.

 

•

reviewing and approving our president and chief executive officer’s and other executive officers’ annual base salaries, incentive compensation plans, including the specific goals and amounts, equity compensation, employment agreements, severance arrangements and change in control agreements and any other benefits, compensation or arrangements;

 

•

administering our equity compensation plans;

 

•

overseeing our overall compensation philosophy, compensation plans and benefits programs; and

 

•

preparing the compensation committee report that the SEC will require in our annual proxy statement.

Nominating and corporate governance committee

Our nominating and corporate governance committee is comprised of Ms. Harris, Messrs Hart and Kowal each of whom is a non-employee member of our board of directors. Mr. Hart is the chair of our nominating and corporate governance committee. Our board of directors has determined that each member of our nominating and corporate governance committee meets the requirements for independence under the rules of the                 . The nominating and corporate governance committee will be responsible for, among other things:

 

•

evaluating and making recommendations regarding the composition, organization and governance of our board of directors and its committees;

 

•

evaluating and making recommendations regarding the creation of additional committees or the change in mandate or dissolution of committees;

 

•

developing and monitoring a set of corporate governance guidelines and compliance with laws and regulations; and

 

•

reviewing and approving conflicts of interest of our directors and officers, other than related-person transactions reviewed by the audit committee.

We intend to post the charters of our audit, compensation and nominating and corporate governance committees, and any amendments thereto that may be adopted from time to time, on our website. Information on or that can be accessed through our website is not part of this prospectus. Our board of directors may from time to time establish other committees.

 

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Code of business conduct and ethics

Prior to the completion of this offering, we will adopt a code of business conduct and ethics that is applicable to all of our employees, officers and directors. The full text of our code of business conduct and ethics will be available on our website at www.altair.com. We intend to post any amendment to our code of business conduct and ethics, and any waivers of such code for executive officers and directors, on our website. Information on or that can be accessed through our website is not part of this prospectus.

Compensation committee interlocks and insider participation

No member of our compensation committee is or has been an officer or employee of our company. None of our executive officers currently serves, or during fiscal 2016 has served, as a member of the compensation committee or director (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving on our compensation committee or our board of directors.

Mr. Scapa, the chairman of our board of directors and our founder and chief executive officer owns more than 5% of our capital stock. Please see the section entitled “Certain relationships and related-party transactions.”

Director compensation

The table below shows the total compensation paid to or earned by each of our directors who are not executive officers during fiscal 2016 for service on our board of directors. Directors who are not executive officers receive a fee of $20,000 for attending meetings of our board of directors and performing any related service as a director. No director has another arrangement with respect to cash fees. Directors are also eligible for awards under our 2012 Plan. Directors who are executive officers do not receive any additional compensation for their service on our board of directors. We reimburse our directors who are not executive officers for their reasonable out-of-pocket costs and travel expenses in connection with their attendance at board of directors and committee meetings.

 

Name		Fees earned or paid in cash ($)				Option awards  ($)(1)(2)				All other compensation ($)				Total ($)
James E. Brancheau			20,000				—				23,025	(3)			43,025
Stephen Earhart			20,000				—				—				20,000
Trace Harris(4)			10,000				33,050				—				43,050
Jan Kowal			20,000				—				—				20,000
Richard Hart(5)			—				—				—				—
Marc. F. McMorris(6)			20,000				—				—				20,000
Oren Michels(7)			10,000				33,050				—				43,050

 

(1)

The amounts in this column represent the aggregate grant date fair value of option awards granted to the directors in 2016, computed in accordance with FASB ASC Topic 718. For a discussion of the assumptions made in determining the grant date fair value of our equity awards, see Note 11 to our audited financial statements included elsewhere in this prospectus.

 

(2)

Giving effect to the Recapitalization as if it had occurred on December 31, 2016, as of that date Mr. Brancheau held unexercised options to purchase 792 shares of our Class A common stock, Ms. Harris held unexercised options to purchase 5,000 shares of our Class A common stock, Mr. Kowal held unexercised options to purchase 5,000 shares of our Class A common stock, Mr. McMorris held unexercised options to purchase 5,000 shares of our Class A common stock, and Mr. Michels held unexercised options to purchase 5,000 shares of our Class A common stock.

 

(3)

Reflects consulting fees paid to Mr. Brancheau for engineering services provided to us. Mr. Brancheau provides these engineering consulting services at a rate of $150 per hour.

 

(4)

Ms. Harris joined our board of directors on August 16, 2016.

 

(5)

Mr. Hart joined our board of directors on April 1, 2017.

 

(6)

Mr. McMorris resigned from our board of directors on December 31, 2016.

 

(7)

Mr. Michels resigned from our board of directors on January 5, 2017.

 

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Executive compensation

Our named executive officers, for the fiscal year ended December 31, 2016, who consisted of our chief executive officer and our two most highly compensated executive officers for such year other than our chief executive officer, were:

 

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James R. Scapa, our Chief Executive Officer and Chairman;

 

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Howard N. Morof, our Chief Financial Officer; and

 

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Massimo Fariello, our Chief Strategy Officer.

2016 Summary compensation table

The following table provides information regarding the total compensation for services rendered in all capacities earned by our named executive officers for the fiscal year ended December 31, 2016.

 

Name and principal position		Year				Salary ($)				Bonus ($)				Option awards ($)(1)				All other compensation ($)				Total ($)
James R. Scapa,			2016				809,000				310,000				—				11,330	(2)(3)			1,130,330
Chief Executive Officer and Chairman
Howard N. Morof,			2016				335,000				125,901	(4)			5,489				9,200	(2)(5)			475,590
Chief Financial Officer
Massimo Fariello,			2016				—				—				5,392				459,694	(7)			465,086
Chief Strategy Officer(6)

 

(1)

The amounts in this column represent the aggregate grant date fair value of option awards granted to the named executive officer computed in accordance with FASB ASC Topic 718. For a discussion of the assumptions made in determining the grant date fair value of our equity awards, see Note 11 to our audited financial statements included elsewhere in this prospectus.

 

(2)

Includes a 401(k) matching contribution made by us under a matching program available to all participating employees.

 

(3)

Includes annual automobile allowance of $9,330.

 

(4)

Fifty percent (50%) of Mr. Morof’s target bonus was paid in equal monthly installments during the year, and any additional bonus earned with respect to the year was paid after final bonus amounts were determined in March 2017.

 

(5)

Includes automobile allowance of $600 per month.

 

(6)

On January 1, 2007, we entered into a consulting agreement with Advanced Studies Holding Future, Srl, an Italian entity controlled by Mr. Fariello which we refer to as AShF. Under the consulting agreement, Mr. Fariello provides consulting services to us. His compensation is payable to AShF in euros. The foregoing table converts the payment amounts to dollars based on exchange rate information found on Bloomberg Market System. The average exchange rate for fiscal year 2016, as found on Bloomberg Market System, was €1.00 to $1.1069.

 

(7)

Includes base consulting fees of $221,380, variable consulting fees of $85,083, and an additional consulting bonus to approximate the employment taxes, benefits and other expenses that would have been applicable had Mr. Fariello been directly employed by the Company. Fifty percent (50%) of the additional consulting bonus was paid in monthly installments during the year, and any additional bonus earned with respect to the year was paid after final bonus amounts were determined in March 2017.

Executive employment and service agreements and change in control arrangements

James Scapa

Mr. Scapa is not party to an employment agreement or offer letter with the Company. Mr. Scapa’s employment with the Company is at-will. His current base salary is $809,000, and he is eligible for an annual bonus in the discretion of our board of directors. In addition, he receives an annual automobile allowance in the amount of $9,330. He is also eligible to earn a matching contribution to our 401(k) Plan as determined annually by us.

 

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Howard N. Morof employment letter

We entered into an employment letter with Howard N. Morof, our chief financial officer, on January 10, 2013. The employment letter has an indefinite term, and Mr. Morof’s employment is at-will. Mr. Morof’s current annual base salary is $335,000. In addition, he is entitled to an automobile allowance of $600 per month, and he is currently eligible to earn annual incentive compensation with a target bonus equal to $125,000, payable from our Executive Bonus Pool applicable to other members of our senior executive team. He is also eligible to earn a matching contribution to our 401(k) Plan as determined annually by us.

Mr. Morof’s employment letter provided that he would be granted stock options covering an aggregate of 165,000 Class B shares, subject to annual time-based vesting of 25% per year over four years. This option was granted to Mr. Morof on August 6, 2013. Notwithstanding the terms of Mr. Morof’s employment letter, on that date he was granted a stock option covering an aggregate of 170,000 Class B shares, which included an additional 5,000 Class B shares subject to the option related to his service on our board of directors. This stock option vests in four equal installments on each anniversary of the date of grant, subject to continued employment through the applicable date.

If Mr. Morof resigns from employment for good reason, or is terminated without cause, he is entitled to 12 months of base salary plus any accrued annual bonus and a prorated annual bonus for the year of termination. He is also entitled to continued participation in our employee benefit programs, as if still employed as chief financial officer, during that 12 month period.

Pursuant to Mr. Morof’s employment letter, if Mr. Morof is involuntarily terminated for any reason other than cause or voluntarily terminates his employment for good reason within the one month prior to, or twelve months following, a change in control (as defined in our 2012 Plan) Mr. Morof will also be entitled to a one-time special bonus equal to $500,000, payable in full within three business days following such termination.

For purposes of Mr. Morof’s employment letter, “cause” means the occurrence of any of the following:

 

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a felony conviction or admission of guilt (other than as relates to a misdemeanor motor vehicle accident);

 

•

any material (i) willful, intentional, or deliberate neglect of Mr. Morof’s proper responsibilities, or (ii) non-compliance by Mr. Morof with the lawful and reasonable orders or directions of our chief executive officer and/or our board of directors;

 

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participation in a fraud or act of dishonesty against us; or

 

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other material non-compliance with our policies or guidelines generally applicable to our C-level executives that results in substantial injury to us.

For purposes of Mr. Morof’s employment letter, “good reason” means the occurrence of any of the following:

 

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a material diminution in Mr. Morof’s duties or responsibilities or the assignment to Mr. Morof of duties that are materially inconsistent with his duties as our chief financial officer;

 

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any material reduction in Mr. Morof’s compensation and benefit opportunities, unless applied in a substantially equal or pro rata fashion across our C-level executives; or

 

•

the requirement to relocate Mr. Morof’s principal place of employment more than 30 miles from our Troy, Michigan offices.

Mr. Morof is required to provide written notice of any such good reason condition and we shall have 30 days from receipt of such written notice to remedy such condition.

 

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Prior to completion of this offering, we intend to amend and restate Mr. Morof’s employment letter to, among other things, reflect his current compensation and to add language to address provisions of Section 409A of the Internal Revenue Code of 1986, as amended.

AShF, Srl consulting agreement

On January 1, 2007, we entered into a consulting agreement with AShF, a Società a Responsabilità Limitata incorporated under the laws of Italy. AShF is wholly-owned by our chief strategy officer, Massimo Fariello, and Mr. Fariello serves as chief executive officer of AShF.

Under the consulting agreement, AShF agreed to make available Mr. Fariello to provide services to us, and Mr. Fariello would be located in Torino, Italy. The consulting agreement will continue for as long as we seek or obtain services from AShF and the consulting agreement can be terminated at any time. AShF is compensated at a rate of €150 per hour, subject to a maximum fee of €241,200 per year. In addition, we reimburse AShF for pre-approved actual out-of-pocket expenses incurred in furtherance of AShF’s performance of services, plus travel expenses, other than vehicle expenses for travel by car within Italy.

The consulting agreement provides that all work performed by AShF and its personnel in connection with the consulting agreement will be performed as an independent contractor. AShF agreed not to provide comparable work to our competitors for a period of one year after the date of acceptance of the project work. AShF also agreed not to disclose any proprietary or confidential information obtained in the course of the consulting agreement with us and for a period of five years following completion of services.

In addition to the consulting agreement, Mr. Fariello is currently eligible to earn annual incentive compensation with a target bonus equal to $75,000, payable from our Executive Bonus Pool applicable to other members of our senior executive team.

Further, we have an oral agreement with Mr. Fariello to provide him with a cash payment equal to 50% of his fees and bonus payment as compensation for the fact that as a consultant Mr. Fariello is ineligible to receive certain compensation available to our employees.

Benefits upon termination or change in control

Each of Messrs. Morof and Fariello are party to certain stock option agreements with us which provide that if such individual’s employment is terminated by us for any reason other than cause or by the named executive officer voluntarily for good reason (each as defined in our 2012 Plan) within one month prior to or within 12 months following a change in control (as defined in our 2012 Plan), all unvested options shall vest in full.

Mr. Morof’s employment letter also provides for certain severance benefits, the terms of which are described above under the heading “Executive compensation—Executive employment and service agreements and change in control arrangements—Howard N. Morof employment letter.”

 

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Outstanding equity awards at fiscal year end 2016

The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2016. All references to our Class A shares herein refer to our currently existing Class A shares following the Recapitalization.

 

										Option awards
Name		Grant date				Number of securities underlying unexercised options (#) exercisable				Number of securities underlying unexercised options (#) unexercisable				Option exercise price ($)				Option expiration date
James R. Scapa			7/1/2010	(1)			433,749				—				2.56				6/30/2020
Howard N. Morof			8/6/2013	(2)			97,230				42,500				9.91				8/5/2023
			12/15/2014	(3)			433				432				15.15				12/14/2024
			12/17/2015	(4)			189				567				15.35				12/16/2025
			5/17/2016	(5)			—				968				14.57				5/16/2026
Massimo Fariello			7/1/2010	(1)			15,000				—				2.56				6/30/2020
			12/21/2012	(6)			200				—				9.91				11/20/2022
			12/15/2014	(7)			396				396				15.15				12/14/2024
			12/17/2015	(8)			204				609				15.35				12/16/2025
			5/17/2016	(9)			—				951				14.57				5/16/2026

 

(1)

All of the Class A shares subject to the option were fully vested as of July 1, 2010.

 

(2)

One-fourth of the Class A shares subject to the option vested on each of August 6, 2014, August 6, 2015, and August 6, 2016, and one-fourth of the Class A shares subject to the option are scheduled to vest on August 6, 2017, subject to continued employment with us.

 

(3)

One-fourth of the Class A shares subject to the option vested on each of December 15, 2015, and December 15, 2016, and one-fourth of the Class A shares subject to the option are scheduled to vest on each of the next two anniversaries of December 15th thereafter, in each case, subject to continued employment with us.

 

(4)

One-fourth of the Class A shares subject to the option vested on December 17, 2016, and one-fourth of the Class A shares subject to the option are scheduled to vest on each of the next three anniversaries of December 17th thereafter, in each case, subject to continued employment with us.

 

(5)

One-fourth of the Class A shares subject to the option are scheduled to vest on each of the first four anniversaries of May 17, 2016, in each case, subject to continued employment with us.

 

(6)

All of the Class A shares subject to the option were fully vested as of December 21, 2016.

 

(7)

One-fourth of the Class A shares subject to the option vested on each of December 15, 2015, and December 15, 2016, and one-fourth of the Class A shares subject to the option are scheduled to vest on each of the next two anniversaries of December 15th thereafter, in each case, subject to continued service with us.

 

(8)

One-fourth of the Class A shares subject to the option vested on December 17, 2016, and one-fourth of the Class A shares subject to the option are scheduled to vest on each of the next three anniversaries of December 17th thereafter, in each case, subject to continued service with us.

 

(9)

One-fourth of the Class A shares subject to the option are scheduled to vest on each of the first four anniversaries of May 17, 2016, in each case, subject to continued service with us.

See the section entitled “Executive compensation—Benefits upon termination or change in control” for a description of vesting acceleration applicable to stock options held by our named executive officers.

Employee benefit and equity compensation plans

The equity incentive plans described in this section are our 2017 Equity Incentive Plan, or our 2017 Plan, which we intend to adopt prior to the completion of this offering, our 2012 Plan, our 2001 NQSO Plan, and our 2001 ISO and NQSO Plan. Prior to the Recapitalization, each of our 2012 Plan, 2001 NQSO Plan, and 2001 ISO and NQSO Plan provided for the grant of shares of our Class B nonvoting common stock. As a result of the Recapitalization, in order to prevent the enlargement of participants’ rights, each of the 2012 Plan, 2001 NQSO

 

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Plan, and 2001 ISO and NQSO Plan was amended on April 3, 2017 to provide that the definition of common stock in each such plan, and the shares issuable pursuant to each option agreement entered into thereunder, would mean Class A voting common stock. The following description of each of our equity incentive plans gives effect to the amendment to each plan and each option agreement entered into thereunder to provide for the issuance of Class A voting common stock as if it had occurred on December 31, 2016.

Altair Engineering Inc. 2017 equity incentive plan

Prior to the completion of this offering, our board of directors intends to adopt, and we expect our stockholders to approve, our 2017 Plan. Our 2017 Plan will be effective, subject to stockholder approval, one business day prior to the effective date of the registration statement of which this prospectus forms a part. Our 2017 Plan will provide for the grant of incentive stock options, within the meaning of Section 422 of the Code, to our employees and any parent and subsidiary corporations’ employees, and for the grant of non-statutory stock options, restricted stock, RSUs, stock appreciation rights, performance units and performance shares to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants.

Altair Engineering Inc. 2012 incentive and non-qualified stock option plan

On December 20, 2012, our board of directors adopted, and our stockholders approved, our 2012 Plan, effective as of December 20, 2012.

Authorized shares.    1,300,000 shares of our Class A common stock were reserved for issuance under our 2012 Plan. No options or shares will be available for issuance under our 2012 Plan after this offering. As of December 31, 2016, options to purchase 449,913 shares of our Class A common stock remained outstanding under our 2012 Plan. Our 2012 Plan provides for the grant of incentive stock options and non-qualified stock options to our service providers. Following this offering, our 2012 Plan will continue to govern outstanding awards granted thereunder.

Plan administration.    Our board of directors administers our 2012 Plan. Subject to the provisions of our 2012 Plan, the administrator has the power to administer the plan, including but not limited to, the power to: (i) prescribe, amend and rescind rules and regulations relating to our 2012 Plan; (ii) select recipients to receive options; (iii) determine the number of shares subject to options; (iv) determine the terms and form of options; (v) determine whether options will be granted singly, in combination or in tandem with, in replacement of, or as alternatives to other options under our 2012 Plan or any other incentive or compensation plan offered by us; (vi) construe and interpret our 2012 Plan, any option agreement and any other document executed pursuant thereto; (vii) correct any defect or omission, or reconcile any inconsistency in our 2012 Plan, any option or any option agreement; (viii) determine when an option has been earned and/or vested; (ix) accelerate or defer, with the consent of the participant, the vesting of any option; (x) authorize any person on our behalf to execute documents to effectuate the grant of an option as made by our board of directors under our 2012 Plan; (xi) with the consent of any adversely affected participant, effect (A) the reduction of the exercise price of any outstanding option under our 2012 Plan; (B) the cancellation of any outstanding option under our 2012 Plan and the grant in substitution therefor of (1) a new option under our 2012 Plan or another equity plan offered by us covering the same or a different number of shares of our Class A common stock, (2) cash, and/or (3) other valuable consideration as determined by our board of directors in its sole discretion; or (C) any other action that is treated as a repricing under generally accepted accounting principles; (xii) with the consent of any adversely affected participant, otherwise adjust the terms of an option previously issued to such participant; (xiii) determine whether a transaction or event should be treated as a change in control, and if our board of directors determines that a transaction or event shall be a change in control, the effect of that change in control; and (xiv) make all other determinations deemed necessary or advisable for administration of our 2012

 

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Plan. Our board of directors shall have the sole authority to determine the fair market value of our Class A common stock. Our board of directors shall have the authority to grant options to eligible participants who are foreign nationals, without amending our 2012 Plan, provided such grants are not inconsistent with the terms of our 2012 Plan. Our board of directors may make such modifications to the 2012 Plan as are necessary or advisable to comply with the laws of other countries in which we operate or have eligible participants.

Stock options.    The exercise price per share of all incentive stock options and non-qualified stock options must be at least 100% of the fair market value per share of our Class A common stock on the date of grant (110% for incentive stock options for 10% stockholders). The term of an option cannot exceed ten years (five years for 10% stockholders). After a termination of service, the participant may generally exercise his or her option, to the extent vested, for 90 days following a termination (or such other time period as set forth in the option agreement) or twelve months if termination is on account of death or disability. However, in no event may an option be exercised later than the expiration of its term.

Non-transferability.    Our 2012 Plan generally does not allow for the transfer of options except by the laws of descent and distribution and only the recipient of an option may exercise such an award during his or her lifetime.

Certain adjustments.    In the event of certain changes in our capitalization without our receipt of consideration, such as a reorganization, takeover or liquidation, then the number of shares reserved for issuance under our 2012 Plan, the exercise price of and number of shares subject to outstanding options as well as any other factor pertaining to outstanding options shall be proportionally adjusted, subject to action by our board of directors or stockholders and compliance with securities laws.

Reorganization.    Notwithstanding any other provision of our 2012 Plan to the contrary, our 2012 Plan provides that in the event of a reorganization, subject to any required action by our stockholders, our board of directors may make any adjustments to (i) the class and/or number of shares covered under our 2012 Plan; (ii) the number of shares for which each outstanding option pertains; (iii) the exercise price of an option; and/or (iv) any other aspect of our 2012 Plan to prevent the dilution or enlargement of the rights of participants under our 2012 Plan in connection with any increase or decrease in the number of issued and outstanding shares of our Class A common stock resulting from the payment of a stock dividend, stock split, reverse stock split, or any other event which results in an increase or decrease in the number of issued and outstanding shares of our Class A common capital stock without receipt of adequate consideration.

Change in control.    Unless otherwise set forth in an option agreement, if (i) a change in control occurs (as defined in our 2012 Plan) and (ii) within the one month prior to, or the twelve months following the date of the change in control, a participant’s employment is involuntarily terminated without cause or the participant voluntarily terminates for good reason (as such term is defined in our 2012 Plan), then all outstanding options held by such participant shall be fully vested. In addition, our board of directors has discretion to take action with respect to outstanding options in the event of a change in control, including substitution for an equivalent option, assumption or cancellation in exchange for a payment of cash or stock or any combination of cash and stock based on the price per share received or to be received by our other stockholders in such instance.

Modification, extension and renewal of options.    Our board of directors may modify, extend or renew any outstanding options or accept cancellation of an outstanding option in substitution for a new option; however, our board of directors cannot adversely impact any rights or obligations under any previously granted option without the participant’s consent.

Amendment; termination.    Our board of directors may amend, terminate, suspend, or discontinue our 2012 Plan at any time, provided that no amendment, termination or modification of our 2012 Plan may affect any option previously granted without the participant’s consent. Approval by our stockholders is required to

 

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(i) increase the number of shares subject to our 2012 Plan; (ii) change the designation of the class of persons eligible to receive options; (iii) increase the maximum duration of an option; (iv) change the manner of determining the exercise price of an option; (v) extend the term of our 2012 Plan; and (vi) amend the amendment and termination provision of our 2012 Plan in a way that defeats its purpose.

Altair Engineering Inc. 2001 non-qualified stock option plan

On October 31, 2001, our board of directors adopted, and our stockholders approved, our 2001 NQSO Plan, effective as of December 1, 2001.

Authorized shares.    3,500,000 shares of our Class A common stock were reserved for issuance under our 2001 NQSO Plan. Under the terms of our 2001 NQSO Plan, no options may be issued after December 31, 2003, and, accordingly, no shares will be available for issuance under our 2001 NQSO Plan after this offering. As of December 31, 2016, options to purchase 1,586,960 shares of our Class A common stock remained outstanding under our 2001 NQSO Plan. Following this offering, our 2001 NQSO Plan will continue to govern outstanding awards granted thereunder.

Plan administration.    Our board of directors administers our 2001 NQSO Plan. Subject to the provisions of our 2001 NQSO Plan, the administrator has the power to administer the plan, including but not limited to, the power to: (i) prescribe, amend and rescind rules and regulations relating to our 2001 NQSO Plan; (ii) select recipients to receive options; (iii) determine the number of shares subject to options; (iv) determine the terms and form of options; (v) determine whether options will be granted singly, in combination or in tandem with, in replacement of, or as alternatives to other options under our 2001 NQSO Plan or any other incentive or compensation plan offered by us; (vi) construe and interpret our 2001 NQSO Plan, any option agreement and any other document executed pursuant thereto; (vii) correct any defect or omission, or reconcile any inconsistency in our 2001 NQSO Plan, any option or any option agreement; (viii) determine when an option has been earned; (ix) authorize any person on our behalf to execute documents to effectuate the grant of an option as made by our board of directors under our 2001 NQSO Plan; (x) with the consent of the participant, reprice, cancel and reissue, or otherwise adjust the terms of a previously granted option; and (xi) make all other determinations deemed necessary or advisable for administration of our 2001 NQSO Plan. Our board of directors shall have the sole authority to determine the fair market value of our Class A common stock.

Stock options.    Eligibility to receive options under our 2001 NQSO Plan was limited to employees that were then participants in our phantom stock plan. After a termination of service for cause or a voluntary termination, the participant may generally exercise his or her option for three months following such termination (or such other time periods set forth in the option agreement). Absent a termination for cause or a voluntary termination, each option will remain outstanding until the expiration of its term. In no event may an option be exercised later than the expiration of its term.

Non-transferability.    Our 2001 NQSO Plan generally does not allow for the transfer of options except by the laws of descent and distribution and only the recipient of an option may exercise such option during his or her lifetime.

Certain adjustments.    In the event of certain changes in our capitalization without our receipt of consideration, such as a reorganization, takeover or liquidation, then the number of shares reserved for issuance under our 2001 NQSO Plan, the exercise price of and number of shares subject to outstanding options as well as any other factor pertaining to outstanding options shall be proportionally adjusted, subject to action by our board of directors or stockholders and compliance with securities laws.

Reorganization.    Notwithstanding any other provision of our 2001 NQSO Plan to the contrary, our 2001 NQSO Plan provides that in the event of a reorganization, subject to any required action by our stockholders, our

 

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board of directors may make any adjustments to: (i) the class and/or number of shares covered under our 2001 NQSO Plan; (ii) the number of shares for which each outstanding option pertains; (iii) the exercise price of an option; and/or (iv) any other aspect of our 2001 NQSO Plan to prevent the dilution or enlargement of the rights of participants under our 2001 NQSO Plan in connection with any increase or decrease in the number of issued and outstanding shares of our Class A common stock resulting from the payment of a stock dividend, stock split, reverse stock split, or any other event which results in an increase or decrease in the number of issued and outstanding shares of our Class A common capital stock without receipt of adequate consideration.

Merger and consolidation.    If we are a party to a merger or consolidation as the surviving corporation, each outstanding option shall pertain to the securities of our company to which a holder of the number of shares issued would be entitled, subject to any required action by our stockholders. If we are a party to a merger or consolidation and we are not the surviving corporation, unless the surviving corporation expressly assumes the outstanding options, our board of directors shall exercise reasonable efforts to provide participants advanced notice before the effective date of the transaction to exercise options, subject to any required action by our stockholders.

Modification, extension and renewal of options.    Our board of directors may modify, extend or renew any outstanding options or accept cancellation of an outstanding option in substitution for a new option; however, our board of directors cannot adversely impact any rights or obligations under any previously granted option without the participant’s consent.

Amendment; termination.    Our board of directors may amend, terminate, suspend, or discontinue our 2001 NQSO Plan at any time, provided that no amendment, termination or modification of our 2001 NQSO Plan may affect any option previously granted without the participant’s consent. Approval by our stockholders is required to (i) increase the number of shares subject to our 2001 NQSO Plan; (ii) change the designation of the class of persons eligible to receive options; (iii) increase the maximum duration of an option; (iv) change the manner of determining the exercise price of an option; (v) extend the term of our 2001 NQSO Plan; and (vi) amend the amendment and termination provision of our 2001 NQSO Plan in a way that defeats its purpose.

Altair Engineering Inc. 2001 incentive and non-qualified stock option plan

On March 31, 2001, our board of directors adopted, and our stockholders approved, our 2001 ISO and NQSO Plan, effective as of January 31, 2001.

Authorized shares.    1,156,112 shares of our Class A common stock were reserved for issuance under our 2001 ISO and NQSO Plan. No options or shares will be available for issuance under our 2001 ISO and NQSO Plan after this offering. As of December 31, 2016, options to purchase 743,206 shares of our Class A common stock remained outstanding under our 2001 ISO and NQSO Plan. Our 2001 ISO and NQSO Plan provides for the grant of incentive stock options and non-qualified stock options to our service providers. Following this offering, our 2001 ISO and NQSO Plan will continue to govern outstanding awards granted thereunder.

Plan administration.    Our board of directors administers our 2001 ISO and NQSO Plan. Subject to the provisions of our 2001 ISO and NQSO Plan, the administrator has the power to administer the plan, including but not limited to, the power to: (i) prescribe, amend and rescind rules and regulations relating to our 2001 ISO and NQSO Plan; (ii) select recipients to receive options; (iii) determine the number of shares subject to options; (iv) determine the terms and form of options; (v) determine whether options will be granted singly, in combination or in tandem with, in replacement of, or as alternatives to other options under our 2001 ISO and NQSO Plan or any other incentive or compensation plan offered by us; (vi) construe and interpret our 2001 ISO and NQSO Plan, any option agreement and any other document executed pursuant thereto; (vii) correct any defect or omission, or reconcile any inconsistency in our 2001 ISO and NQSO Plan, any option or any option

 

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agreement; (viii) determine when an option has been earned and/or vested; (ix) accelerate or defer, with the consent of a participant, the vesting of any option; (x) authorize any person on our behalf to execute documents to effectuate the grant of an option as made by our board of directors under our 2001 ISO and NQSO Plan; (xi) with the consent of the participant, reprice, cancel and reissue, or otherwise adjust the terms of a previously granted option; and (xii) make all other determinations deemed necessary or advisable for administration of our 2001 ISO and NQSO Plan. Our board of directors shall have the sole authority to determine the fair market value of our Class A common stock.

Stock options.    The exercise price per share of all incentive stock options must be at least 100% of the fair market value per share of our Class A common stock on the date of grant (110% for 10% stockholders) and the exercise price per share of all non-qualified stock options must be at least 100% of the net book value of our shares on the date of grant. The term of an option cannot exceed ten years (five years for 10% stockholders). After a termination of service, the participant may generally exercise his or her option, to the extent vested, for 90 days following a termination (or such other time period as set forth in the option agreement), or twelve months if termination is on account of death or disability. However, in no event may an option be exercised later than the expiration of its term.

Non-transferability.    Our 2001 ISO and NQSO Plan generally does not allow for the transfer of options except by the laws of descent and distribution and only the recipient of an option may exercise his or her option during his or her lifetime.

Certain adjustments.    In the event of certain changes in our capitalization without our receipt of consideration, such as a reorganization, takeover or liquidation, then the number of shares reserved for issuance under our 2001 ISO and NQSO Plan, the exercise price of and number of shares subject to outstanding options as well as any other factor pertaining to outstanding options shall be proportionally adjusted, subject to action by our board of directors or stockholders and compliance with securities laws.

Reorganization.    Notwithstanding any other provision in our 2001 ISO and NQSO Plan to the contrary, our 2001 ISO and NQSO Plan provides that in the event of a reorganization, subject to any required action by our stockholders, our board of directors may make any adjustments to: (i) the class and/or number of shares covered under our 2001 ISO and NQSO Plan; (ii) the number of shares for which each outstanding option pertains; (iii) the exercise price of an option; and/or (iv) any other aspect of our 2001 ISO and NQSO Plan to prevent the dilution or enlargement of the rights of participants under our 2001 ISO and NQSO Plan in connection with any increase or decrease in the number of issued and outstanding shares of our Class A common stock resulting from the payment of a stock dividend, stock split, reverse stock split, or any other event which results in an increase or decrease in the number of issued and outstanding shares of our Class A common capital stock without receipt of adequate consideration.

Change in control.    Unless otherwise set forth in an option agreement, if a change in control occurs (as defined in our 2001 ISO and NQSO Plan) our board of directors has discretion to (i) accelerate the vesting of any outstanding options, or (ii) upon at least ten days’ notice to any affected participants, cancel any outstanding options and pay to such participants, in cash or stock, or any combination thereof, the value of such options based upon the price per share of our Class A common stock received or to be received by our other stockholders in the change in control.

Modification, extension and renewal of options.    Our board of directors may modify, extend or renew any outstanding options or accept cancellation of outstanding options in substitution for new options; however, our board of directors cannot adversely impact any rights or obligations under any previously granted option without the participant’s consent.

 

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Amendment; termination.    Our board of directors could amend, terminate, suspend, or discontinue our 2001 ISO and NQSO Plan at any time, provided that no amendment, termination or modification of our 2001 ISO and NQSO Plan could affect any option previously granted without the participant’s consent. Approval by our stockholders was required to (i) increase the number of shares subject to our 2001 ISO and NQSO Plan; (ii) change the designation of the class of persons eligible to receive options; (iii) increase the maximum duration of an option; (iv) change the manner of determining the exercise price of an option; (v) extend the term of our 2001 ISO and NQSO Plan; and (vi) amend the amendment and termination provision of our 2001 ISO and NQSO Plan in a way that defeats its purpose. In accordance with the terms of our 2001 ISO and NQSO Plan, our 2001 ISO and NQSO Plan expired in January 2011.

401(k) plan

We maintain a tax-qualified retirement plan, or our 401(k) Plan, that provides eligible employees in the United States with an opportunity to save for retirement on a tax-advantaged basis. Under the terms of our 401(k) Plan, participants are able to defer up to 80% of their eligible compensation subject to applicable annual Internal Revenue Service limits. Participants are immediately and fully vested in their own contributions. Our 401(k) Plan permits us to make discretionary matching contributions and discretionary contributions to eligible participants, subject to five year graded vesting: twenty percent (20%) vests after one year, forty percent (40%) after two years, sixty percent (60%) after three years, eighty percent (80%) after four years and 100% after five years. Our 401(k) Plan has an automatic enrollment feature for all employees hired on or after April 1, 2014, automatically withholding elective deferrals equal to 3% of eligible compensation, unless the participant affirmatively changes the deferral amount.

Executive bonus pool

Each year we establish an annual executive bonus pool, or our Executive Bonus Pool, for (i) our C-level executive officers, excluding our chief executive officer, (ii) employees who report directly to our chief executive officer and (iii) vice presidents in key positions as selected by us. Incentives under our Executive Bonus Pool are based upon each individual’s target amount as set and approved by our chief executive officer, multiplied by the achievement of (i) certain company financial targets and (ii) certain individual performance targets. Individuals are paid fifty percent (50%) of their potential bonus under our Executive Bonus Pool in equal monthly installments each year, and any additional earned bonus is paid after final bonus amounts are determined. We retain the right to change or suspend payment of potential bonuses at any time.

Limitation on liability and indemnification matters

Our Delaware certificate of incorporation and bylaws, each to be effective immediately prior to the effectiveness of the registration statement of which this prospectus is a part contain provisions that limit the personal liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

 

•

any breach of the director’s duty of loyalty to us or our stockholders;

 

•

any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

•

unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

•

any transaction from which the director derived an improper personal benefit.

 

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Our Delaware certificate of incorporation, that will become effective immediately prior to the effectiveness of the registration statement of which this prospectus is a part, provides that we must indemnify our directors to the fullest extent permitted by Delaware law. In addition, our Delaware bylaws, that will become effective immediately prior to the effectiveness of the registration statement of which this prospectus is a part, provide that we must indemnify our directors and officers to the fullest extent permitted by Delaware law. Our Delaware bylaws also provide that we will advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity, regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We plan to enter into and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. With certain exceptions, these agreements provide for indemnification for related expenses including, among others, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’ liability insurance.

The limitation of liability and indemnification provisions in our Delaware certificate of incorporation and bylaws, that will become effective immediately prior to the effectiveness of the registration statement of which this prospectus is a part, may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty of care. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

 

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Certain relationships and related party transactions

In addition to the executive officer and director compensation arrangements discussed above in the sections titled “Management” and “Executive Compensation,” the following is a description of each transaction since January 1, 2014 and each currently proposed transaction in which:

 

•

we have been or are to be a participant;

 

•

the amounts involved exceeded or will exceed $120,000; and

 

•

any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock, or entities affiliated with them, or any immediate family members of or person sharing the household with any of these individuals, had or will have a direct or indirect material interest.

Redemptions of our old Class B and old Class A common stock

On November 10, 2012, we redeemed 131,400 shares of our old Class A Common Stock held by George J. Christ, one of the holders of more than 5% of our outstanding capital stock, for an aggregate purchase price of $1,971,000, payable in 36 monthly installments with an interest rate of 1% per year, commencing on December 10, 2012 and ending on November 10, 2015.

On December 10, 2012, we redeemed 131,400 shares of our old Class A Common Stock held by Mark Kistner, Trustee of the Mark Kistner Revocable Living Trust dated January 22, 1998, as amended, one of the holders of more than 5% of our outstanding capital stock, for an aggregate purchase price of $1,971,000, payable in 36 monthly installments with an interest rate of 1% per year, commencing on January 10, 2013 and ending on December 10, 2015.

On May 1, 2015, we redeemed 50,000 shares of our old Class B Common Stock held by Upali Fonseka, one of our holders of more than 5% of our outstanding capital stock, for an aggregate purchase price of $711,000.00, payable in 12 equal quarterly installments with an interest rate of 1% per year, commencing on August 1, 2015 and ending on May 1, 2018.

On January 1, 2016, we redeemed 43,800 shares of our old Class A Common Stock held by the Mark Kistner Trust, one of the holders of more than 5% of our outstanding capital stock, for an aggregate purchase price of $671,892, which was paid in 12 equal monthly installments commencing on January 10, 2016.

On January 1, 2016, we redeemed 43,800 shares of our old Class A Common Stock held by George J. Christ and Deborah M. Christ, Trustees of The Christ Revocable Trust dated May 8, 2015, one of the holders of more than 5% of our outstanding capital stock, for an aggregate purchase price of $671,892, which was paid in 12 equal monthly installments commencing on January 10, 2016.

On June 6, 2016, we redeemed 34,317 shares of our old Class B Common Stock held by Dennis Zuccaro, Trustee of the Dennis & Kathleen Zuccaro Trust dated January 19, 1987, one of the holders of more than 5% of our outstanding capital stock, for an aggregate purchase price of $499,998.69, which was paid in two installments of $250,000.00 and $249,998.69, on August, 1, 2016 and December 1, 2016, respectively.

On December 1, 2016, we redeemed 28,347 shares of our old Class A Common Stock held by George J. Christ and Deborah M. Christ, Trustees of The Christ Revocable Trust dated May 8, 2015, one of the holders of more than 5% of our outstanding capital stock, for an aggregate purchase price of $540,010, which is payable in 9 equal monthly installments commencing on January 10, 2017.

On December 1, 2016, we redeemed 14,777 shares of our old Class B Common Stock held by James E. Brancheau & Paula M. Brancheau JTWROS for an aggregate purchase price of $267,316, which is

 

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payable in 11 installments and accrues interest at a rate of 1% per month. We paid the first installment of $22,464 on January 10, 2017 and are paying the remainder of the purchase price, plus interest, in 10 equal monthly installments commencing on February 10, 2017.

Altair Bellingham, LLC lease and acquisition

On December 28, 2000, we signed a real estate lease with Altair Bellingham LLC, or Bellingham, a Michigan limited liability company, of which the James R. Scapa Declaration of Trust dated March 5, 1987, as amended, or the Scapa Trust, owned 39.56% of the outstanding membership interest, Mark E. Kistner owned 24.18% of the outstanding membership interest and George J. Christ owned 36.26% of the outstanding membership interest to lease the building that we use as our world headquarters in Troy Michigan. James R. Scapa, the chairman of our board of directors and our chief executive officer, is the trustee of the Scapa Trust. Mr. Kistner, and Mr. Christ are each holders of more than 5% of our outstanding capital stock. Pursuant to the terms of the lease, we paid Bellingham rent of $577,501 and $416,225 in each of 2014 and 2015, respectively. On October 1, 2015, we acquired 100% of the outstanding equity of Bellingham from the Scapa Trust, Mr. Kistner and Mr. Christ pursuant to a membership interest purchase agreement, or the Bellingham Purchase Agreement. On January 31, 2016, pursuant to the Bellingham Purchase Agreement, we paid the Scapa Trust, Mr. Kistner and Mr. Christ $286,609, $175,182 and $262,701, respectively, as consideration for the purchase of their membership interest in Bellingham.

2013 credit agreement

In 2013, we entered into a credit agreement with JP Morgan Chase Bank, N.A. pursuant to which Bellingham, was an unconditional guarantor until the agreement was amended in 2016. For more information about our credit facilities, including the 2016 Credit Agreement, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and capital resources—Credit facility.”

Investments in Groupknit, Inc.

On October 22, 2015, we acquired 5,000 shares of the common capital stock of Groupknit, Inc. a Michigan corporation, for an aggregate cash purchase price of $80,000. As part of the same investment, our executive officers Mr. Scapa, Mr. Dagg, Mr. Mahalingam, Mr. Chouinard and Mr. Fariello acquired an aggregate of 5,000 shares in Groupknit, Inc. for an aggregate cash purchase price of $80,000. Groupknit, Inc. also issued 15,000 shares each to two individuals in exchange for the contribution by each individual of his rights in the Groupknit Program technology and intellectual property. One such individual is the significant other of Mr. Scapa’s daughter, the chief executive officer of one of our wholly-owned subsidiaries.

On December 27, 2016, we acquired an additional 2,500 shares of the common capital stock of Groupknit, Inc. for an aggregate cash purchase price of $40,000. As part of the same investment, our executive officers, Mr. Scapa, Mr. Dagg, Mr. Mahalingam, Mr. Chouinard and Mr. Fariello, acquired an aggregate of 2,500 shares in Groupknit, Inc. for an aggregate cash purchase price of $40,000.

Stock option grants to executive officers and directors

We have granted stock options to our named executive officers and our directors. For a description of equity awards to our named executive officers, see the section entitled “Executive compensation—Outstanding equity awards at fiscal year end 2016 table.”

 

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Employment letter

We intend to enter into an amended and restated employment letter with Mr. Morof, our chief financial officer, see the section entitled “Executive compensation—Executive employment and service agreements and change in control arrangements.”

Indemnification of officers and directors

We plan to enter into indemnification agreements with each of our directors and executive officers prior to the completion of the offering. The indemnification agreements and our Delaware certificate of incorporation and bylaws will require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. See the sections entitled “Management” and “Executive compensation” above.

Policies and procedures for related-party transactions

Our audit committee has the primary responsibility for the review, approval and oversight of any “related party transaction,” which is any transaction, arrangement, or relationship (or series of similar transactions, arrangements, or relationships) in which we are, were, or will be a participant and the amount involved exceeds $120,000, and in which the related person has, had, or will have a direct or indirect material interest. Under our related party transaction policy, our management will be required to submit any related person transaction not previously approved or ratified by our audit committee to our audit committee. In approving or rejecting the proposed transactions, our audit committee will take into account all of the relevant facts and circumstances available.

 

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Principal and selling stockholders

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of June 12, 2017, after giving effect to the automatic conversion, pursuant to the Recapitalization on April 3, 2017, of all outstanding shares of our old Class A common stock and our old Class B common stock into Class B common stock and Class A common stock, respectively, and as adjusted to reflect the shares of Class A common stock to be issued and sold in the offering, assuming no exercise of the underwriters’ over-allotment option, by:

 

•

each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our common stock;

 

•

each of our current directors;

 

•

each of our named executive officers;

 

•

all executive officers and directors as a group; and

 

•

the selling stockholders.

The amounts and percentage of shares of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of the date of this prospectus, if any, are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as indicated by footnote, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable.

The percentages reflect beneficial ownership immediately prior to and immediately after the completion of this offering as determined in accordance with Rule 13d-3 under the Exchange Act and are based on                  shares of our common stock outstanding as of                 , 2017 and assumes there are                  shares of our common stock outstanding as of the date immediately following the completion of this offering, assuming no exercise by the underwriters of their option to purchase additional shares of our common stock, and there are                  shares of our common stock outstanding as of the date immediately following the completion of this offering, assuming full exercise by the underwriters of their option to purchase additional shares of our common stock. Except as noted below, the address for all beneficial owners in the table below is c/o Altair Engineering Inc. at 1820 E Big Beaver Rd, Troy MI 48083.

 

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Principal and selling stockholders

 

		Beneficial Ownership of Common Stock Prior to the Offering																								Beneficial Ownership of Common Stock After the Offering
		Class A								Class B								% of Total Voting Power (Pre- Offering)				Class A Shares Being Offered				Class A								Class B								% of Total Voting Power (Post- Offering)
Name of Beneficial Owner		Shares				%				Shares				%				%				Shares				Shares				%				Shares				%
Selling Stockholders and other 5% Stock holders:
James R. Scapa(1)			433,749				15.60%				5,018,855				48.72%				47.85%
George J. Christ(2)			—				—				3,942,683				38.28%				37.42%
Mark E. Kistner			—				—				715,381				6.94%				6.79%
Dennis Zuccaro(3)			265,683				11.32%				—				—				*																—				—
G. Upali Fonseka			314,777				13.41%				—				—				*																—				—
John Brink(4)			368,777				13.64%				—				—				*																—				—
Regu Ramoo(5)			368,777				13.60%				—				—				*																—				—
Robert B. Little(6)			369,191				15.73%				—				—				*																—				—
Michael White(7)			184,388				7.28%				—				—				*																—				—
Executive Officers and Directors
Brett Chouinard(8)			29,136				1.24%				4,000				*				*																				*
Howard N. Morof(9)			175,864				7.17%				—				—				*																—				—
Massimo Fariello(10)			16,038				*				83,000				*				*												*								*
James P. Dagg(11)			184,626				7.29%				—				—				*																—				—
Dr. Uwe Schramm(12)			23,640				1.01%				—				—				*																				*
Mahalingam Srikanth(13)			10,934				*				—				—				*												*				—				—
Jeffrey M. Brennan(14)			59,414				2.48%				4,000				*				*																				*
Martin Nichols(15)			22,606				*				1,000				*				*																				*
Tom M. Perring(16)			116,416				4.96%				5,000				*				*																				*
James E. Brancheau(17)			315,792				13.45%				—				—				*																—				—
Steve Earhart(18)			10,000				*				—				—				*												*				—				—
Jan Kowal(19)			5,000				*				—				—				*								—				*				—				—
Trace Harris(20)			—				—				—				—				—								—				—				—				—
Richard Hart(21)			—				—				—				—				—								—				—				—				—
All executive officers and directors as a group (15 individuals)(22)			1,403,211				44.38%				5,115,855				49.66%				49.51%				—

 

(*)

Represents beneficial ownership of less than 1%

 

(1)

Consists of (i) 3,162,854 shares of Class B common stock held of record by Mr. Scapa as trustee of the James R. Scapa Declaration of Trust dated March 5, 1987, and (ii) 1,856,001 shares of Class B common stock held of record by JRS Investments, LLC. Mr. Scapa is the manager of JRS Investments, LLC and has voting and investment power over the securities held by JRS Investments, LLC. Mr. Scapa also holds 433,749 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 30,000 shares subject to options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(2)

Consists of (i) 2,336,682 shares of Class B common stock held of record by George J. Christ and Deborah M. Christ, as trustees of the Christ Revocable Trust dated May 8, 2015, and (ii) 1,606,001 shares of Class B common stock held of record by GC Investments, LLC. Mr. Christ is the manager of GC Investments, LLC and has voting and investment power over the securities held by GC Investments, LLC.

 

(3)

Consists of 265,683 shares of Class A common stock held of record by Dennis Zuccaro as trustee of the Dennis and Kathleen Zuccaro Trust dated January 19, 1987.

 

(4)

Consists of 355,777 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date.

 

(5)

Consists of 363,777 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date.

 

(6)

Consists of 414 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 846 shares subject to options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(7)

Consists of 184,388 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date.

 

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(8)

Consists of 3,875 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 14,696 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(9)

Consists of (i) 70,270 shares of Class A common stock held of record by Mr. Morof as trustee of the Howard N. Morof Revocable Trust dated August 7, 1992, and (ii) 105,594 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, 63,094 of which are vested as of such date and 42,500 of which will vest on August 6, 2017. Excludes 8,532 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(10)

Consists of (i) 83,000 shares of Class B common stock held of record by Advanced Studies Holding Future Srl, an Italian Company, and (ii) 16,037 shares subject to options exercisable for Class A within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 6,539 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(11)

Consists of 184,626 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 5,533 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(12)

Consists of 2,140 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 11,845 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(13)

Consists of 10,934 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 11,593 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(14)

Consists of 48,719 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 2,477 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(15)

Consists of 1,106 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 7,272 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(16)

Consists of 2,319 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 2,427 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(17)

Consists of 792 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date.

 

(18)

Excludes 1,000 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(19)

Consists of 5,000 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, all of which are vested as of such date. Excludes 1,000 options which vest subject to time-based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(20)

Excludes 6,000 options which vest subject to time- based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(21)

Excludes 6,000 options which vest subject to time- based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

(22)

Total includes all individuals listed under the heading “Executive Officers and Directors” and, James R. Scapa, our chairman and chief executive officer. Consists of (i) 588,323 shares of Class A common stock beneficially owned by our executive officers and directors, and not subject to our right of repurchase upon completion of this offering (ii) 5,115,855 shares of Class B common stock beneficially owned by our executive officers and directors and not subject to our right of repurchase upon completion of this offering, and (iii) 814,888 shares subject to options exercisable for Class A common stock within 60 days of the date of this prospectus, 772,388 of which are vested as of such date and 42,500 of which will vest on August 6, 2017. Excludes 114,913 options which vest subject to time based vesting conditions that will not be satisfied within 60 days of the date of this prospectus.

 

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Description of capital stock

General

The following is a summary of the rights of our Class A and Class B common stock and preferred stock and certain provisions of our Delaware certificate of incorporation and bylaws as they will be in effect immediately prior to the effectiveness of the registration statement of which this prospectus is a part. This summary does not purport to be complete and is qualified in its entirety by the provisions of our Delaware certificate of incorporation and bylaws, copies of which will be filed as exhibits to the registration statement of which this prospectus is a part.

Immediately following the completion of this offering, our authorized capital stock will consist of                  shares, with a par value of $         per share, of which:

 

•

shares are designated as Class A common stock;

 

•

shares are designated as Class B common stock; and

 

•

shares are designated as preferred stock.

Our board of directors is authorized, without stockholder approval, except as required by the listing standards of the                 , to issue additional shares of our capital stock.

As of March 31, 2017, we had 10,300,857 shares of our old Class A common stock and 2,238,980 shares of our old Class B common stock outstanding, held by approximately 475 stockholders of record and no shares of preferred stock outstanding.

Class A and Class B common stock

Immediately prior to the effectiveness of the registration statement of which this prospectus is a part, and giving effect to the Recapitalization, we had two classes of common stock—Class A common stock and Class B common stock. Upon completion of this offering and in connection with our reincorporation in Delaware, we will have authorized a new class of Class A common stock entitled to one vote per share and a new class of Class B common stock entitled to 10 votes per share.

Voting rights

Holders of our Class A common stock and Class B common stock upon completion of this offering will have identical rights, provided however that, except as otherwise expressly provided in our Delaware certificate of incorporation or required by applicable law, on any matter that is submitted to a vote of our stockholders, holders of Class A common stock are entitled to one vote per share of Class A common stock and holders of Class B common stock are entitled to 10 votes per share of Class B common stock. Holders of shares of Class A common stock and Class B common stock vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by Delaware law or our Delaware certificate of incorporation. Delaware law could require either holders of our Class A common stock or Class B common stock to vote separately as a single class in the following circumstances:

 

•

if we were to seek to amend our Delaware certificate of incorporation to increase or decrease the par value of a class of our capital stock, then that class would be required to vote separately to approve the proposed amendment; and

 

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•

if we were to seek to amend our Delaware certificate of incorporation in a manner that alters or changes the powers, preferences or special rights of a class of our capital stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment.

Under our Delaware certificate of incorporation, we may not issue any shares of Class B common stock, other than those shares issuable upon exercise of options, warrants, or similar rights to acquire Class B common stock outstanding immediately prior to the completion of the offering and in connection with stock dividends, unless that issuance is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting separately as a class.

We have not provided for cumulative voting for the election of directors in our Delaware certificate of incorporation. Our Delaware certificate of incorporation and bylaws provide for a classified board of directors consisting of three classes of approximately equal size, each class serving staggered three-year terms. Only one class will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms.

No preemptive or similar rights

Our classes of common stock are not entitled to preemptive rights and are not subject to conversion, redemption or sinking fund provisions.

Economic rights

Except as otherwise expressly provided in our Delaware certificate of incorporation or required by applicable law, shares of Class A common stock and Class B common stock have the same rights and privileges and rank equally, share ratably and are identical in all respects as to all matters, including, without limitation those described below.

Dividends and distributions

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Class A common stock and Class B common stock are entitled to share equally, identically and ratably, on a per share basis, with respect to any dividend or distribution of cash, property or shares of our capital stock paid or distributed by us, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting separately as a class. In the event a dividend or distribution is paid in the form of shares of Class A common stock or Class B common stock or rights to acquire shares of such stock, the holders of Class A common stock shall receive Class A common stock, or rights to acquire Class A common stock, as the case may be, and the holders of Class B common stock shall receive Class B common stock, or rights to acquire Class B common stock, as the case may be.

Liquidation rights

Upon our liquidation, dissolution or winding-up, the holders of Class A common stock and Class B common stock are entitled to share equally, identically and ratably in all assets remaining after the payment of any liabilities and the liquidation preferences and any accrued or declared but unpaid dividends, if any, with respect to any outstanding preferred stock, unless different treatment of the shares of each class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting separately as a class.

 

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Change of control transactions

Upon (A) the closing of the sale, transfer or other disposition of all or substantially all of our assets, (B) the consummation of a merger, consolidation, business combination or share transfer which results in our voting securities outstanding immediately prior to the transaction (or the voting securities issued with respect to our voting securities outstanding immediately prior to the transaction) representing less than a majority of the combined voting power of our voting securities or the voting securities of the surviving or acquiring entity, (C) the closing of the transfer (whether by merger, consolidation or otherwise), in one transaction or a series of related transactions, to a person or group of affiliated persons of securities of the Company if, after closing, the transferee person or group would hold 50% or more of our outstanding voting stock (or the outstanding voting stock of the surviving or acquiring entity), (D) any voluntary or involuntary recapitalization, liquidation, dissolution or winding-up, or (E) the issuance by us of voting securities representing more than 2% of our total voting power to a person who held 50% or less of our total voting power immediately prior to such transaction and who following such transaction holds more than 50% of our total voting power, the holders of Class A common stock and Class B common stock will be treated equally and identically with respect to shares of Class A common stock or Class B common stock owned by them, unless different treatment of the shares of each class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting separately as a class.

Subdivisions and combinations

If we subdivide or combine in any manner outstanding shares of Class A common stock or Class B common stock, the outstanding shares of the other class will be subdivided or combined in the same manner, unless different treatment of the shares of each class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting as a separate class.

Conversion

Each share of our Class B common stock is automatically convertible into one share of our Class A common stock pursuant to the terms of our Delaware certificate of incorporation upon the occurrence of certain events. With respect to all beneficial owners, as defined in our Delaware certificate of incorporation, of Class B common stock, each share of Class B common stock will convert automatically into one share of Class A common stock upon (i) the date specified by affirmative vote of the holders of at least 66-2/3% of the outstanding shares of Class B common stock, (ii) the executive holder, as defined in our Delaware certificate of incorporation, is neither (x) an executive officer of the company nor (y) a director of the company, (iii) the date on which the executive has beneficial ownership of less than 10% of the capital stock of the company, or (iv) the 12 year anniversary of the date of filing of our Delaware certificate of incorporation in connection with this offering.

With respect to each individual beneficial owner of Class B common stock, each share of Class B common stock held by a beneficial owner will convert automatically into one share of Class A common stock (i) at any time at the option of such owner, (ii) upon any transfer, whether or not for value, except for certain transfers described in our Delaware certificate of incorporation, including, without limitation, transfers from a founder, as defined in our Delaware certificate, to another founder, or certain permitted transferees, or (iii) in the event any beneficial owner owns shares of Class B common stock constituting less than 3% of the outstanding shares of Class B common stock.

Each share of Class B common stock held by all beneficial owners of Class B common stock, except the executive holder, will convert automatically into one share of Class A common stock in the event the key holders, as defined in our Delaware certificate of incorporation, beneficially own, in the aggregate, more shares of Class B

 

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common stock than the executive holder in which event the only holder of Class B common stock will be the executive holder.

In addition, upon the death or incapacity of a beneficial owner of Class B common stock, other than the executive holder, each share of Class B common stock held by such beneficial owner will convert automatically into one share of Class A common stock, immediately upon such death or incapacity, except, with respect to the key holders, such automatic conversion will occur on the date which is nine (9) months after the date of such death or incapacity. Upon the death or incapacity of the executive holder, each share of Class B common stock held by all beneficial owners of Class B common stock will convert automatically into one share of Class A common stock on the date which is nine (9) months after the date of such death or incapacity.

Preferred stock

After the completion of this offering, no shares of preferred stock will be outstanding. Pursuant to our Delaware certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue from time to time up to                  shares of preferred stock in one or more series. Our board of directors may designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, redemption rights, liquidation preference, sinking fund terms and the number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on the Class A and Class B common stock, diluting the voting power of the Class A and Class B common stock, impairing the liquidation rights of the Class A and Class B common stock or delaying, deterring or preventing a change in control. Such issuance could have the effect of decreasing the market price of the Class A and Class B common stock. We currently have no plans to issue any shares of preferred stock.

Option awards

As of March 31, 2017, we had outstanding options to purchase an aggregate of 2,583,315 shares of our old Class B common stock pursuant to our 2001 NQSO Plan, 2001 ISO and NQSO Plan and 2012 Plan, with weighted-average exercise prices of $0.00, $2.56, and $12.12, respectively. We do not have any issued and outstanding options exercisable for any shares of our old Class A common stock.

Anti-takeover effects of Delaware law and our certificate of incorporation and bylaws

Our Delaware certificate of incorporation and bylaws to be immediately prior to the effectiveness of the registration statement of which this prospectus is a part will contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions and certain provisions of Delaware law, which are summarized below, could discourage takeovers, coercive or otherwise. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us.

Dual class stock.    As described above in “—Class A and Class B Common Stock—Voting Rights,” our Delaware certificate of incorporation provides for a dual class common stock structure, which will provide our founders and certain others with significant influence over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.

 

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Issuance of undesignated preferred stock.    As discussed above under “—Preferred Stock,” our board of directors will have the ability to designate and issue preferred stock with voting or other rights or preferences that could deter hostile takeovers or delay changes in our control or management.

Limits on ability of stockholders to act by written consent or call a special meeting.    Our Delaware certificate of incorporation will provide that our stockholders may not act by written consent. This limit on the ability of stockholders to act by written consent may lengthen the amount of time required to take stockholder actions. As a result, the holders of a majority of our capital stock would not be able to amend the bylaws or remove directors without holding a meeting of stockholders called in accordance with the bylaws.

In addition, our bylaws will provide that special meetings of the stockholders may be called only by the chairman of our board of directors, the chief executive officer, the president (in the absence of a chief executive officer) or a majority of our board of directors. A stockholder may not call a special meeting, which may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action, including the removal of directors.

Requirements for advance notification of stockholder nominations and proposals.    Our bylaws will establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of the board of directors. These advance notice procedures may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed and may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempt to obtain control of our company.

Board classification.    Our Delaware certificate of incorporation provides that our board of directors will be divided into three classes, one class of which is elected each year by our stockholders. The directors in each class will serve for a three-year term. For more information on the classified board of directors, see the section entitled “Management—Board composition.” Our classified board of directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us because it generally makes it more difficult for stockholders to replace a majority of the directors.

Election and removal of directors.    Our certificate of incorporation and bylaws contain provisions that establish specific procedures for appointing and removing members of our board of directors. Under our certificate of incorporation and bylaws, vacancies and newly created directorships on our board of directors may be filled only by a majority of the directors then serving on our board of directors. Under our certificate of incorporation and bylaws, directors may be removed only for cause.

No cumulative voting.    The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulative votes in the election of directors unless our certificate of incorporation provides otherwise. Our certificate of incorporation and bylaws do not expressly provide for cumulative voting. Without cumulative voting, a minority stockholder may not be able to gain as many seats on our board of directors as the stockholder would be able to gain if cumulative voting were permitted. The absence of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our board of directors to influence our board of directors’ decision regarding a takeover.

Amendment of charter provision.    Any amendment of the above provisions in our certificate of incorporation would require approval by holders of at least two-thirds of our then outstanding Class A and Class B common stock, voting together as a single class.

Delaware anti-takeover statute.    We will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, Section 203 prohibits a publicly held Delaware

 

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corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder unless:

 

•

prior to the date of the transaction, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

 

•

upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

 

•

at or subsequent to the date of the transaction, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may discourage attempts that might result in a premium over the market price for the shares of Class A common stock held by stockholders.

The provisions of Delaware law and the provisions of our certificate of incorporation and bylaws could have the effect of discouraging others from attempting hostile takeovers and as a consequence, they might also inhibit temporary fluctuations in the market price of our Class A common stock that often result from actual or rumored hostile takeover attempts. These provisions might also have the effect of preventing changes in our management. It is also possible that these provisions could make it more difficult to accomplish transactions that stockholders might otherwise deem to be in their best interests.

Transfer agent and registrar

Upon the completion of this offering, the transfer agent and registrar for our common stock will be                 . The transfer agent’s address is                 , and its telephone number is .

Exchange listing

We intend to apply to list our Class A common stock on                  under the symbol “                .”

 

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Shares eligible for future sale

Prior to this offering, there has been no public market for our common stock. Future sales of our Class A common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect the market price of our Class A common stock prevailing from time to time. As described below, only a limited number of Class A shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of a substantial number of shares of our Class A common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our Class A common stock at such time and our ability to raise equity-related capital at a time and price we deem appropriate.

Sales of restricted shares

Upon completion of this offering, we will have outstanding an aggregate of                  shares of Class A common stock and                  shares of Class B common stock. Of these shares, all of the                  shares of Class A common stock to be sold in this offering (or                  shares assuming the underwriters exercise the option to purchase additional shares in full) will be freely tradable without restriction or further registration under the Securities Act, unless the shares are held by any of our “affiliates” as such term is defined in Rule 144 under the Securities Act. All remaining shares of Class A and Class B common stock will be deemed “restricted securities” as such term is defined under Rule 144. The restricted securities were, or will be, issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below.

As a result of the lock-up agreements described below and the provisions of Rule 144 and Rule 701 under the Securities Act, all of the shares of our common stock (excluding the shares to be sold in this offering) will be available for sale in the public market upon the expiration of the lockup agreements, beginning 180 days after the date of this prospectus (subject to extension) and when permitted under Rule 144 or Rule 701, subject to the limitations set forth below.

Lock-up agreements

We, each of our current directors, executive officers, the selling stockholders and certain of our principal stockholders, have agreed that, we and they will not, during the period ending 180 days after the date of this prospectus, except with the prior written consent of J.P. Morgan Securities LLC and RBC Capital Markets, LLC:

 

•

offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock;

 

•

file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or

 

•

enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock;

whether any such transaction described above is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise, subject to certain exceptions, as set forth in “Underwriting.”

 

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In addition to the restrictions contained in the lock-up agreements described above, we have entered into agreements with certain security holders, including our standard form of stock purchase agreement, option agreement and restricted stock unit agreement, that contain certain market stand-off provisions imposing restrictions on the ability of such security holders to offer, sell or transfer our equity securities for a period of 180 days following the date of this prospectus.

Restrictions on transfer and repurchase rights

Prior to the completion of this offering, the holders of approximately 2,276,878 shares of our Class A common stock will be subject to certain restrictions on these holders’ abilities to transfer their Class A common stock without our consent pursuant to stock restriction and repurchase agreements that we have entered into with these holders. Each stock option holder who has exercised stock options granted under our 2001 NQSO Plan, 2001 ISO and NQSO Plan, and 2012 Plan has executed a stock restriction and repurchase agreement. Under each stock restriction and repurchase agreement (other than certain agreements entered into with members of our board) we have a mandatory obligation to repurchase shares received on exercise of the option in the event of breach of restrictive covenants. We have a mandatory repurchase right upon a termination for cause under each stock restriction and repurchase agreement pursuant to our 2001 NQSO Plan and our 2001 ISO and NQSO Plan, and a discretionary repurchase right upon a termination for cause under each stock restriction and repurchase agreement pursuant to our 2012 Plan, in each case, other than certain agreements entered into with members of our board. Each stock restriction and repurchase agreement under our 2001 ISO and NQSO Plan and our 2012 Plan also requires us to repurchase any shares that are unvested on the date of termination with us.

In the event of a repurchase as a result of a breach of restrictive covenants, termination for cause, or with respect to unvested shares, the repurchase price under our 2001 NQSO Plan and 2001 ISO and NQSO Plan equals the exercise price paid by the participant for the underlying shares (plus, in the case of the 2001 NQSO Plan, any amount paid by the participant in exchange for rights under our phantom equity plan), and the repurchase price under our 2012 Plan equals the lesser of (i) the exercise price paid by the participant for the underlying shares, and (ii) the fair market value per share determined as of the closing date of the repurchase. Each stock restriction and repurchase agreement also provides us with a right of first refusal and certain repurchase rights upon terminations other than for cause (other than certain agreements entered into with members of our board), each of which will terminate upon the completion of this offering.

Prior to the completion of this offering, the holders of approximately 70,000 shares of our Class A common stock will be subject to certain restrictions on these holders’ abilities to transfer their Class A common stock without our consent pursuant to stock restriction and repurchase agreements that we have entered into with these holders.

Prior to the completion of this offering, the holders of approximately 538,812 shares of our Class B common stock will be subject to certain restrictions on these holders’ abilities to transfer their Class B common stock without our consent pursuant to stock restriction and repurchase agreements that we have entered into with these holders.

Pursuant to these agreements, the holders of the shares of our common stock subject to these agreements, or the Restricted Shares, must notify us prior to transferring or selling any Restricted Shares. The notice must include the purchase price of any such proposed transfer or sale. If the proposed transfer or sale is for value, we have a right of first refusal (subject to certain exceptions for transfers related to estate planning) to purchase all of the Restricted Shares subject to the proposed transfer or sale from the holder on terms no less favorable than the terms described in the notice of proposed transfer. If we choose not to exercise our right to repurchase the transfer restrictions on the Restricted Shares, the holder may transfer the Restricted

 

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Shares, subject to the transferee agreeing to be bound to the terms of the stock restriction and repurchase agreement.

These transfer restrictions terminate upon the earliest to occur of (i) the sale by us of all or substantially all of our capital stock (including the Restricted Shares), (ii) the date on which we consummate the sale of all or substantially all of the our assets pursuant to or followed by a plan of liquidation or (iii) the date on which our capital stock (including the Restricted Shares) is first eligible and admitted for trading on any United States securities exchange or on any formal over-the-counter quotation system in general use in the United States. Following the completion of this offering and the commencement of trading of our Class A shares on the transfer restrictions on the Restricted Shares will automatically be lifted.

Pledged shares as collateral

In connection with certain of our acquisitions, we issued shares of our common stock as partial acquisition consideration, the Consideration Shares. The recipients of the Consideration Shares concurrently entered into stock pledge agreements with us pursuant to which each recipient pledged its Consideration Shares as collateral to secure certain indemnification obligations of the recipient under the applicable purchase agreement. The stock pledge agreements provide that in the event the relevant holder defaults on any indemnification obligation owed to us under the applicable purchase agreement or in the performance of such stockholder’s obligations under the stock pledge agreement, subject to certain conditions, we may take possession of or sell the applicable Consideration Shares for up to the fair market value of the liability we incur.

As of June 1, 2017, we have issued and outstanding an aggregate of 147,500 Consideration Shares of which 40,000 shares will be released on August 17, 2017, 12,500 shares will be released March 12, 2018, 25,000 shares will be released on March 12, 2019 and 70,000 shares will be released on May 5, 2020.

Rule 144

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

 

•

1% of the number of shares of Class A common stock then outstanding, which will equal approximately             shares immediately after this offering; or

 

•

the average weekly trading volume of the Class A common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

 

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Rule 701

Rule 701 generally allows a stockholder who purchased shares of our Class A common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701.

Stock issued under employee benefit plans

We intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of our common stock subject to options outstanding or reserved for issuance under our equity plans. We expect to file this registration statement as soon as practicable after the completion of this offering. This registration statement will become effective immediately upon filing, and shares covered by this registration statement will thereupon be eligible for sale in the public markets, subject to vesting restrictions, the terms of the applicable stock restriction agreement, the lock-up agreements described above and Rule 144 limitations applicable to affiliates. For a more complete discussion of our stock plans, see the section entitled “Executive compensation—Employee benefit and equity compensation plans.”

 

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Material United States federal income tax consequences to non-U.S. holders of our Class A common stock

The following is a summary of the material United States federal income tax consequences to non-U.S. holders (as defined below) of their ownership and disposition of our Class A common stock, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon current provisions of the Code, existing and proposed United States Treasury Regulations promulgated thereunder, current administrative rulings, and judicial decisions, all as in effect as of the date hereof. Especially in light of recent legislative proposals, these authorities may be changed, possibly retroactively, so as to result in United States federal tax consequences different from those set forth below. We have not obtained, and do not intend to obtain, any opinion of counsel or ruling from the Internal Revenue Service, or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.

This summary also does not address the tax considerations arising under the laws of any non-United States, state or local jurisdiction or under any non-income tax laws, including United States federal gift and estate tax laws, except to the limited extent set forth below. In addition, this discussion does not address the potential application of the tax on net investment income or the alternative minimum tax. This discussion may not apply, in whole or in part, to particular non-U.S. holders in light of their individual circumstances or to holders subject to special treatment under the United States federal income tax laws, including, without limitation:

 

•

insurance companies, banks or other financial institutions;

 

•

tax-exempt organizations;

 

•

pension plans;

 

•

controlled foreign corporations or passive foreign investment companies;

 

•

brokers or dealers in securities or currencies;

 

•

traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

 

•

persons that own, or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below);

 

•

certain former citizens or long-term residents of the United States;

 

•

persons that hold our Class A common stock as a position in a hedging transaction, straddle, conversion transaction, synthetic security or other integrated investment;

 

•

persons that hold or receive our Class A common stock pursuant to the exercise of any employee stock option or otherwise as compensation; and

 

•

persons that do not hold our Class A common stock as a capital asset within the meaning of Section 1221 of the Code.

In addition, this discussion does not address the tax treatment of partnerships, including any entity or arrangement treated as a partnership for United States federal income tax purposes. Generally, the tax treatment of a person treated as a partner in such an entity will depend on the status of the partner, the activities of the partner and the partnership, and certain determinations made at the partner level. Accordingly, partnerships that hold our Class A common stock, and partners in such partnerships, should consult their tax advisors.

 

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Non-U.S. holder defined

For purposes of this discussion, you are a non-U.S. holder if you are a beneficial owner of our Class A common stock that is not, for United States federal income tax purposes:

 

•

an individual citizen or resident of the United States;

 

•

a corporation, or other entity taxable as a corporation, created or organized in the United States or under the laws of the United States or any political subdivision thereof;

 

•

an estate whose income is subject to United States federal income tax regardless of its source; or

 

•

a trust whose administration is subject to the primary supervision of a United States court and which has one or more “United States persons” (as defined in the Code) who have the authority to control all substantial decisions of the trust, or which has made a valid election to be treated as a United States person.

Distributions to non-U.S. holders

As described in the section titled “Dividend Policy,” we do not anticipate paying any cash dividends or making distributions of other property on our Class A common stock in the foreseeable future. However, if we do make distributions of cash or property on our Class A common stock, those payments will constitute dividends for United States tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, the excess will constitute a return of capital and will first reduce a non-U.S. holder’s tax basis in our Class A common stock, but not below zero, and then will be treated by a non-U.S. holder as gain from the sale of stock as described below under “—Gain on dispositions of our Class A common stock by non-U.S. holders.”

Subject to the discussion below on effectively connected income, any dividend paid to a non-U.S. holder generally will be subject to United States withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. To receive a reduced treaty rate, a non-U.S. holder must provide us with an IRS Form W-8BEN or W-8BEN-E (or applicable successor form) and certify qualification for the reduced rate. If a non-U.S. holder is eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty, such non-U.S. holder may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim with the IRS. If a non-U.S. holder holds our Class A common stock through a financial institution or other agent acting on such non-U.S. holder’s behalf, appropriate documentation will need to be provided to the agent, which then will be required to provide certification to us or our paying agent, either directly or through other intermediaries.

Dividends received by a non-U.S. holder that are effectively connected with such non-U.S. holder’s conduct of a trade or business in the United States (and, if an applicable income tax treaty so provides, that are attributable to a permanent establishment or a fixed base maintained by such non-U.S. holder in the United States), are generally exempt from the 30% withholding tax if certain certification and disclosure requirements are satisfied. To obtain this exemption, a non-U.S. holder must provide us with an IRS Form W-8ECI (or applicable successor form) properly certifying such exemption. However, such effectively connected dividends, although not subject to withholding tax, generally are taxed at the same graduated United States federal income tax rates applicable to United States persons, net of certain deductions and credits. In addition, dividends received by a corporate non-U.S. holder that are effectively connected with the conduct of a trade or business in the United States may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Non-U.S. holders should consult with tax advisors regarding any applicable income tax or other treaties that may provide for different rules.

 

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Any documentation provided to an applicable withholding agent may need to be updated in certain circumstances. The certification requirements described above also may require a non-U.S. holder to provide a United States taxpayer identification number.

For additional withholding rules that may apply to dividends, including dividends paid to foreign financial institutions (as specifically defined by the applicable rules) or to certain other foreign entities that have substantial direct or indirect United States owners, see the discussion below under the headings “—Backup withholding and information reporting” and “—Withholdable payments to foreign financial institutions and other foreign entities.”

Gain on dispositions of our Class A common stock by non-U.S. holders

Subject to the discussion below under the headings “—Backup withholding and information reporting” and “—Withholdable payments to foreign financial institutions and other foreign entities,” a non-U.S. holder generally will not be required to pay United States federal income tax or withholding tax on any gain recognized upon the sale, exchange or other taxable disposition of our Class A common stock unless:

 

•

the gain is effectively connected with the conduct of a trade or business by such non-U.S. holder in the United States (and, if an applicable income tax treaty so provides, the gain is attributable to a permanent establishment or a fixed base maintained by such non-U.S. holder in the United States), in which case the non-U.S. holder will be required to pay tax on the net gain derived from the sale or disposition at the graduated rates and in the manner applicable to United States persons, and an additional branch profits tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) may also apply to a corporate non-U.S. holder;

 

•

such non-U.S. holder is a nonresident alien individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met, in which case the non-U.S. holder will be required to pay a flat 30% tax (or such lower rate as may be specified by an applicable income tax treaty) on the gain derived from the sale or disposition, which gain may be offset by United States-source capital losses for the taxable year of the sale or disposition; or

 

•

our Class A common stock constitutes a United States real property interest by reason of our status as a “United States real property holding corporation”, or USRPHC, for United States federal income tax purposes at any time within the shorter of the five-year period preceding such non-U.S. holder’s disposition of, or holding period for, our Class A common stock, in which case the non-U.S. holder generally will be taxed on net gain derived from the sale or disposition at the graduated rates applicable to United States persons.

We believe that we are not currently and will not become a USRPHC and the remainder of this discussion so assumes. However, because the determination of whether we are a USRPHC depends on the fair market value of our United States real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our Class A common stock is regularly traded on an established securities market, such Class A common stock will be treated as United States real property interests only if a non-U.S. holder actually or constructively holds more than 5% of such regularly traded Class A common stock at any time during the shorter of the five-year period preceding such non-U.S. holder’s disposition of, or holding period for, our Class A common stock. Non-U.S. holders should consult with tax advisors regarding any applicable income tax or other treaties that may provide for different rules.

 

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Backup withholding and information reporting

We (or the applicable paying agent) must report annually to the IRS the amount of dividends on our Class A common stock paid to non-U.S. holders and the amount of tax withheld, if any. A similar report will be sent to each non-U.S. holder. Copies of this information reporting may also be made available under the provisions of a specific income tax treaty or agreement with the tax authorities in a non-U.S. holder’s country of residence.

Non-U.S. holders will generally be subject to backup withholding (at a current rate of 28%) for dividends on our Class A common stock paid to such non-U.S. holders unless an exemption is established such as by, for example, properly certifying non-United States status on an IRS Form W-8BEN or W-8BEN-E (or applicable successor form). Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that a holder of our Class A common stock is a United States person.

Information reporting and backup withholding generally are not required with respect to the amount of any proceeds from the sale or other disposition of our Class A common stock by a non-U.S. holder outside the United States through a foreign office of a foreign broker that does not have certain specified connections to the United States. However, if a non-U.S. holder sells or otherwise disposes of shares of Class A common stock through a United States broker or the United States offices of a foreign broker, the broker will generally be required to report the amount of proceeds paid to such non-U.S. holder to the IRS and also to backup withhold on that amount unless the broker is provided appropriate certification of status as a non-United States person or an exemption is otherwise established. Information reporting will also apply if a non-U.S. holder sells shares of Class A common stock through a foreign broker deriving more than a specified percentage of its income from United States sources or having certain other connections to the United States, unless such broker has documentary evidence in its records that such non-U.S. holder is a non-United States person and certain other conditions are met, or an exemption is otherwise established.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment may be refunded or credited against a non-U.S. holder’s United States federal income tax liability, if any, provided that an appropriate claim is timely filed with the IRS. Non-U.S. holders should consult with tax advisors regarding the application of the information reporting and backup withholding rules to investment in our Class A common stock.

Withholdable payments to foreign financial institutions and other foreign entities

The Foreign Account Tax Compliance Act, or FATCA, imposes a United States federal withholding tax of 30% on certain payments to “foreign financial institutions” (as specifically defined under these rules) and certain other non-United States persons that fail to comply with certain information reporting and certification requirements pertaining to their direct and indirect United States securityholders and/or United States account holders. Such payments include dividends on and, on or after January 1, 2019, gross proceeds from the sale or other disposition of our Class A common stock. Under certain circumstances, a non-U.S. holder may be eligible for refunds or credits of such taxes. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult with tax advisors regarding the possible implications of this legislation and any applicable intergovernmental agreements on investment in our Class A common stock.

Federal estate tax

Our Class A common stock beneficially owned by an individual who is not a citizen or resident of the United States (as defined for United States federal estate tax purposes) at the time of their death will generally

 

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be includable in the decedent’s gross estate for United States federal estate tax purposes and, therefore, may be subject to United States federal estate tax unless an applicable estate tax treaty or other treaty provides otherwise. Investors are urged to consult their own tax advisors regarding the United States federal estate tax consequences of the ownership or disposition of our Class A common stock.

THIS DISCUSSION IS NOT TAX ADVICE. NON-U.S. HOLDERS ARE URGED TO CONSULT WITH TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR CLASS A COMMON STOCK ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, NON-UNITED STATES OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.

 

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Underwriting

We and the selling stockholders are offering the shares of Class A common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and RBC Capital Markets, LLC are acting as joint book-running managers of the offering and as representatives of the underwriters. We and the selling stockholders have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we and the selling stockholders have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of Class A common stock listed next to its name in the following table:

 

Name		Number of shares
J.P. Morgan Securities LLC
RBC Capital Markets, LLC
Deutsche Bank Securities Inc.
William Blair & Company, L.L.C.
Canaccord Genuity Inc.
Total

The underwriters are committed to purchase all the shares of Class A common stock offered by us and the selling stockholders if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.

The underwriters propose to offer the shares of Class A common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $         per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $         per share from the initial public offering price. After the initial offering of the shares to the public, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters.

The underwriters have an option to buy up to                 additional shares of Class A common stock from us. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares of Class A common stock are purchased with this option to purchase additional shares, the underwriters will purchase shares of Class A common stock in approximately the same proportion as shown in the table above. If any additional shares of Class A common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

The underwriting fee is equal to the public offering price per share of Class A common stock less the amount paid by the underwriters to us per share of Class A common stock. The underwriting fee is $         per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the

 

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underwriters assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of Class A common stock from us and the selling stockholders.

 

		Without option to purchase additional shares exercise				With full option to purchase additional shares exercise
Per Share		$				$
Total		$				$

We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $            .

A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

We have agreed that we will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our Class A common stock or Class B common stock, or securities convertible into or exchangeable or exercisable for any shares of our Class A common stock or Class B common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any shares of common stock or any such other securities (regardless of whether any of these transactions are to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise), in each case without the prior written consent of J.P. Morgan Securities LLC and RBC Capital Markets, LLC for a period of 180 days after the date of this prospectus, other than the shares of our common stock to be sold hereunder and any shares of our common stock issued upon the exercise of options granted under our existing equity compensation plans.

Our directors and executive officers, the selling stockholders, and certain of our significant stockholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of J.P. Morgan Securities LLC and RBC Capital Markets, LLC, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our Class A common stock or Class B common stock, or any securities convertible into or exercisable or exchangeable for our Class A common stock or Class B common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock.

 

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We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended.

We intend to apply to have our Class A common stock approved for listing on                  under the symbol “            ”.

In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of Class A common stock in the open market for the purpose of preventing or retarding a decline in the market price of the Class A common stock while this offering is in progress. These stabilizing transactions may include making short sales of the Class A common stock, which involves the sale by the underwriters of a greater number of shares of Class A common stock than they are required to purchase in this offering, and purchasing shares of Class A common stock on the open market to cover positions created by short sales. Short sales may be “covered” shorts, which are short positions in an amount not greater than the underwriters’ option to purchase additional shares referred to above, or may be “naked” shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

The underwriters have advised us that, pursuant to Regulation M of the Securities Act of 1933, as amended, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the Class A common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase Class A common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.

These activities may have the effect of raising or maintaining the market price of the Class A common stock or preventing or retarding a decline in the market price of the Class A common stock, and, as a result, the price of the Class A common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the                 , in the over-the-counter market or otherwise.

Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price will be determined by negotiations between us, the selling stockholders and the representatives of the underwriters. In determining the initial public offering price, we, the selling stockholders and the representatives of the underwriters expect to consider a number of factors including:

 

•

the information set forth in this prospectus and otherwise available to the representatives;

 

•

our prospects and the history and prospects for the industry in which we compete;

 

•

an assessment of our management;

 

•

our prospects for future earnings;

 

•

the general condition of the securities markets at the time of this offering;

 

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•

the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and

 

•

other factors deemed relevant by the underwriters, the selling stockholders and us.

Neither we, the selling stockholders nor the underwriters can assure investors that an active trading market will develop for our Class A common shares, or that the shares will trade in the public market at or above the initial public offering price.

Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. Affiliates of J.P. Morgan Securities LLC and RBC Capital Markets, LLC are lenders under our revolving credit facilities, and will receive more than 5% of the net proceeds of this offering in connection with the repayment of outstanding loans under our revolving facilities. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Conflicts of interest

The offering is being conducted in accordance with the applicable provisions of Rule 5121 of the FINRA Conduct Rules because certain of the underwriters will have a “conflict of interest” pursuant to Rule 5121(f)(5)(C)(i). Affiliates of J.P. Morgan Securities LLC and RBC Capital Markets, LLC will receive more than 5% of the net proceeds of this offering in connection with the repayment of outstanding loans under our revolving credit agreement. See the section entitled “Use of proceeds.” As such, any underwriter that has a conflict of interest pursuant to Rule 5121 will not confirm sales to accounts in which it exercises discretionary authority without the prior written consent of the customer. Rule 5121 requires that a “qualified independent underwriter” as defined in Rule 5121 must participate in the preparation of the prospectus and perform its usual standard of diligence with respect to the registration statement and this prospectus. Accordingly, Deutsche Bank Securities Inc. is assuming the responsibilities of acting as the qualified independent underwriter in the offering. We and the selling stockholders have agreed to indemnify Deutsche Bank Securities Inc. against certain liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act.

Selling restrictions

General

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a

 

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solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

Canada

The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

European economic area

In relation to each Member State of the European Economic Area (each, a “Relevant Member State”), no offer of shares may be made to the public in that Relevant Member State other than:

 

A.

to any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

B.

to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives; or

 

C.

in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of shares shall require the Company, the selling stockholders or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

Each person in a Relevant Member State who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive. In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.

The Company, the selling stockholders, the representatives and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.

 

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This prospectus has been prepared on the basis that any offer of shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Relevant Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for the Company or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the Company, the selling stockholders, nor the underwriters have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for the Company, the selling stockholders or the underwriters to publish a prospectus for such offer.

For the purpose of the above provisions, the expression “an offer to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

United Kingdom

In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or “the Order”, and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”).

Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

Hong Kong

The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

 

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Japan

The shares have not been and will not be registered under the Financial Instruments and Exchange Act. Accordingly, the shares may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to or for the benefit of a resident of Japan, except pursuant to an exemption from the registration requirements, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other applicable laws, regulations and ministerial guidelines of Japan.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or “the SFA”, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

(a)

a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

(b)

a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the securities pursuant to an offer made under Section 275 of the SFA except:

 

(a)

to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

 

(b)

where no consideration is or will be given for the transfer;

 

(c)

where the transfer is by operation of law;

 

(d)

as specified in Section 276(7) of the SFA; or

 

(e)

as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

 

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Legal matters

The validity of the shares of Class A common stock offered hereby will be passed upon for us by Lowenstein Sandler LLP, New York City, New York. Goodwin Procter LLP, Boston, Massachusetts is representing the underwriters in this offering.

Experts

Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements at December 31, 2015 and 2016, and for each of the two years in the period ended December 31, 2016, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

Where you can find more information

We filed a registration statement on Form S-1 with the SEC with respect to the registration of the Class A common stock offered for sale with this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits to the registration statement. For further information about us, the Class A common stock we are offering by this prospectus and related matters, you should review the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits that were filed with the registration statement may be inspected without charge at the public reference facilities maintained by the SEC at 100 F. Street, N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the SEC upon payment of the prescribed fee. Information on the operation of the public reference facilities may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov.

Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and, in accordance with such requirements, will file periodic reports, proxy statements, and other information with the SEC. These periodic reports, proxy statements, and other information will be available for inspection and copying at the regional offices, public reference facilities, and web site of the SEC referred to above. We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by our independent registered accounting firm.

 

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Altair Engineering Inc. and subsidiaries

Index to consolidated financial statements

 

		Page
Report of independent registered public accounting firm			F-2
Consolidated financial statements
Consolidated balance sheets			F-3
Consolidated statements of operations			F-4
Consolidated statements of comprehensive income (loss)			F-5
Consolidated statement of changes in stockholders’ deficit			F-6
Consolidated statements of cash flows			F-7
Notes to consolidated financial statements			F-8

 

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

Altair Engineering Inc.

We have audited the accompanying consolidated balance sheets of Altair Engineering Inc. and subsidiaries as of December 31, 2015 and 2016, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Altair Engineering Inc. and subsidiaries at December 31, 2015 and 2016, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Detroit, Michigan

June 16, 2017

 

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Altair Engineering Inc. and subsidiaries

Consolidated balance sheets

 

		December 31,								March 31,
(in thousands)		2015				2016				2017
										(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	13,756			$	16,874			$	16,531
Accounts receivable—net			66,821				70,498				63,426
Inventory			2,075				1,227				1,447
Income tax receivable			6,075				9,069				11,062
Prepaid expenses and other current assets			7,096				7,435				9,662
Total current assets			95,823				105,103				102,128
Property and equipment—net			25,379				29,708				29,215
Goodwill			29,240				36,625				37,052
Other intangible assets—net			9,390				11,168				10,471
Deferred tax assets			57,199				62,896				62,941
Other long-term assets			4,819				5,276				6,987
TOTAL ASSETS		$	221,850			$	250,776			$	248,794
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt		$	13,817			$	10,435			$	10,243
Accounts payable			6,216				5,009				4,856
Accrued compensation and benefits			20,327				22,955				20,784
Other accrued expenses and current liabilities			17,052				18,945				17,603
Deferred revenue			93,508				100,661				120,043
Total current liabilities			150,920				158,005				173,529
Long-term debt, net of current portion			69,360				74,806				57,533
Deferred revenue—non-current			13,008				13,268				12,423
Stock-based compensation awards			17,725				22,236				24,921
Other long-term liabilities			12,876				17,114				16,613
TOTAL LIABILITIES			263,889				285,429				285,019
Commitments and contingencies
STOCKHOLDERS’ DEFICIT:
Common stock (no par value)
Class A, authorized 24,820 shares; issued and outstanding, 10,420, 10,301, and 10,301 as of December 31, 2015 and 2016 and March 31, 2017, respectively			—				—				—
Class B, authorized 6,288 shares; issued and outstanding, 1,437, 2,225, and 2,239 as of December 31, 2015 and 2016 and March 31, 2017, respectively			—				—				—
Additional paid-in capital			41,914				39,693				39,973
Accumulated deficit			(77,255	)			(67,092	)			(69,280	)
Accumulated other comprehensive loss			(6,708	)			(7,264	)			(6,918	)
Total Altair Engineering Inc. stockholders’ deficit			(42,049	)			(34,663	)			(36,225	)
Noncontrolling interest			10				10				—
TOTAL STOCKHOLDERS’ DEFICIT			(42,039	)			(34,653	)			(36,225	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	221,850			$	250,776			$	248,794

See accompanying notes to consolidated financial statements.

 

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Altair Engineering Inc. and subsidiaries

Consolidated statements of operations

 

		Years ended December  31,								Three months ended March 31,
(in thousands, except share data)		2015				2016				2016				2017
										(unaudited)
Revenue:
Software		$	205,567			$	223,818			$	52,132			$	54,097
Software related services			37,294				35,770				9,134				8,971
Total software			242,861				259,588				61,266				63,068
Client engineering services			45,075				47,702				11,946				12,229
Other			6,193				5,950				1,617				1,585
Total revenue			294,129				313,240				74,829				76,882
Cost of revenue:
Software			27,406				31,962				7,381				8,904
Software related services			30,079				27,653				6,958				6,659
Total software			57,485				59,615				14,339				15,563
Client engineering services			36,081				38,106				9,720				10,141
Other			5,642				4,879				1,359				1,050
Total cost of revenue			99,208				102,600				25,418				26,754
Gross profit			194,921				210,640				49,411				50,128
Operating expenses:
Research and development			62,777				71,325				16,111				18,770
Sales and marketing			63,080				66,086				15,601				16,910
General and administrative			54,069				57,202				13,737				16,089
Amortization of intangible assets			2,624				3,322				657				943
Other operating income			(2,576	)			(2,742	)			(327	)			(594	)
Total operating expenses			179,974				195,193				45,779				52,118
Operating income (loss)			14,947				15,447				3,632				(1,990	)
Interest expense			2,416				2,265				690				611
Other expense (income), net			782				(520	)			(260	)			359
Income (loss) before income taxes			11,749				13,702				3,202				(2,960	)
Income tax expense (benefit)			818				3,539				1,721				(772	)
Net income (loss)		$	10,931			$	10,163			$	1,481			$	(2,188	)
Income (loss) per share:
Net income (loss) per share attributable to common stockholders, basic		$	0.94			$	0.83			$	0.13			$	(0.17	)
Net income (loss) per share attributable to common stockholders, diluted		$	0.74			$	0.70			$	0.10			$	(0.17	)
Weighted average shares outstanding:
Weighted average number of shares used in computing net income (loss) per share, basic			11,652				12,213				11,797				12,533
Weighted average number of shares used in computing net income (loss) per share, diluted			14,677				14,464				14,780				12,533

See accompanying notes to consolidated financial statements.

 

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Altair Engineering Inc. and subsidiaries

Consolidated statements of comprehensive income (loss)

 

		Years ended December  31,								Three months  ended March 31,
(in thousands)		2015				2016				2016				2017
										(unaudited)
Net income (loss)		$	10,931			$	10,163			$	1,481				(2,188	)
Other comprehensive income (loss), net of tax:
Foreign currency translation (net of tax effect of $953, $(60), $0 and $0, respectively)			(2,115	)			20				(220	)			357
Retirement related benefit plans (net of tax effect of $(36), $195, $0 and $0, respectively)			(253	)			(576	)			(121	)			(11	)
Total other comprehensive (loss) income			(2,368	)			(556	)			(341	)			346
Comprehensive income (loss)			8,563				9,607				1,140				(1,842	)
Less: comprehensive loss attributable to noncontrolling interest			(1	)			—				—				—
Comprehensive income (loss) attributable to Altair Engineering Inc.		$	8,564			$	9,607			$	1,140			$	(1,842	)

 

 

See accompanying notes to consolidated financial statements.

 

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Altair Engineering Inc. and subsidiaries

Consolidated statement of changes in stockholders’ deficit

 

		Common stock																Additional paid-in capital								Accumulated other comprehensive loss				Total Altair Engineering Inc. stockholders’ deficit				Non- controlling interest				Total stockholders’ deficit
(in thousands, except share data)		Class A voting								Class B non-voting												Accumulated deficit
		Shares				Amount				Shares				Amount
Balance at January 1, 2015			10,391			$	—				1,071			$	—			$	41,530			$	(87,461	)		$	(4,341	)		$	(50,272	)		$	11			$	(50,261	)
Net income			—				—				—				—				—				10,931				—				10,931				—				10,931
Issuance of common stock			50				—				432				—				1,036				—				—				1,036				—				1,036
Stock redemptions			(21	)			—				(66	)			—				(1,221	)			—				—				(1,221	)			—				(1,221	)
Return of capital			—				—				—				—				—				(725	)			—				(725	)			—				(725	)
Stock-based compensation			—				—				—				—				569				—				—				569				—				569
Foreign currency translation, net of tax			—				—				—				—				—				—				(2,114	)			(2,114	)			(1	)			(2,115	)
Retirement related benefit plans, net of tax			—				—				—				—				—				—				(253	)			(253	)			—				(253	)
Balance at December 31, 2015			10,420				—				1,437				—				41,914				(77,255	)			(6,708	)			(42,049	)			10				(42,039	)
Net income			—				—				—				—				—				10,163				—				10,163				—				10,163
Issuance of common stock			—				—				871				—				456				—				—				456				—				456
Stock redemptions			(119	)			—				(83	)			—				(3,291	)			—				—				(3,291	)			—				(3,291	)
Stock-based compensation			—				—				—				—				614				—				—				614				—				614
Foreign currency translation, net of tax			—				—				—				—				—				—				20				20				—				20
Retirement related benefit plans, net of tax			—				—				—				—				—				—				(576	)			(576	)			—				(576	)
Balance at December 31, 2016			10,301			$	—				2,225			$	—			$	39,693			$	(67,092	)		$	(7,264	)		$	(34,663	)		$	10			$	(34,653	)

See accompanying notes to consolidated financial statements.

 

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Altair Engineering Inc. and subsidiaries

Consolidated statements of cash flows

 

		Years Ended December  31,								Three Months Ended March 31,
(in thousands)		2015				2016				2016				2017
										(unaudited)
OPERATING ACTIVITIES:
Net income (loss)		$	10,931			$	10,163			$	1,481			$	(2,188	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			8,378				9,980				2,272				2,461
Provision for bad debt			145				291				75				91
Write-down of inventory to net realizable value			1,003				179				—				—
Stock-based compensation expense			597				5,132				59				2,869
Deferred income taxes			(9,131	)			(6,076	)			(1,747	)			182
Other, net			124				86				25				18
Changes in assets and liabilities:
Accounts receivable			(8,120	)			(4,397	)			6,158				8,153
Prepaid expenses and other current assets			(5,115	)			(2,337	)			(883	)			(4,058	)
Other long-term assets			(1,526	)			(930	)			(437	)			(1,523	)
Accounts payable			558				(1,321	)			484				(186	)
Accrued compensation and benefits			2,006				2,366				(1,687	)			(2,478	)
Other accrued expenses and current liabilities			2,488				(1,173	)			(1,326	)			(632	)
Deferred revenue			8,500				9,422				14,480				16,493
Net cash provided by operating activities			10,838				21,385				18,954				19,202
INVESTING ACTIVITIES:
Capital expenditures			(5,233	)			(9,444	)			(1,573	)			(969	)
Payments for acquisition of businesses			(2,757	)			(6,499	)			(1,152	)			(1,099	)
Purchase of noncontrolling interests			—				—				—				(29	)
Other investing activities, net			(40	)			(90	)			(56	)			(135	)
Net cash used in investing activities			(8,030	)			(16,033	)			(2,781	)			(2,232	)
FINANCING ACTIVITIES:
Borrowings under revolving commitment			103,186				151,928				31,827				17,271
Payments on revolving commitment			(91,673	)			(136,087	)			(37,915	)			(32,061	)
Principal payments on long-term debt			(15,950	)			(16,232	)			(4,778	)			(2,688	)
Proceeds from issuance of debt			1,248				2,030				—				—
Payments of deferred offering costs			—				—				—				(81	)
Principal payments on capital leases			(55	)			(185	)			(8	)			(16	)
Payment for return of capital			—				(725	)			(725	)			—
Proceeds from issuance of common stock			291				456				100				115
Payments for redemption of common stock			(1,744	)			(3,049	)			(585	)			(305	)
Net cash used in financing activities			(4,697	)			(1,864	)			(12,084	)			(17,765	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(1,639	)			(362	)			560				490
Net (decrease) increase in cash, cash equivalents and restricted cash			(3,528	)			3,126				4,649				(305	)
Cash, cash equivalents and restricted cash at beginning of year			17,541				14,013				14,013				17,139
Cash, cash equivalents and restricted cash at end of period		$	14,013			$	17,139			$	18,662			$	16,834
Supplemental disclosures of cash flow:
Interest paid		$	2,261			$	2,190			$	554			$	634
Income taxes paid		$	5,626			$	5,909			$	1,105			$	1,641
Supplemental disclosure of non-cash investing and financing activities:
Notes issued for stock redemptions		$	753			$	807			$	1,026			$	—
Capital leases		$	270			$	129			$	—			$	—
Promissory notes issued for acquisitions		$	750			$	4,182			$	1,133			$	—
Issuance of common stock in connection with acquisitions		$	745			$	—			$	—			$	—
Obligations for return of capital in other current liabilities		$	725			$	—			$	—			$	—
Deferred offering costs in other long-term assets		$	—			$	—			$	—			$	1,625
Property and equipment in accounts payable, other accrued expenses and current liabilities, and other liabilities		$	178			$	1,777			$	2,659			$	64

See accompanying notes to consolidated financial statements.

 

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Altair Engineering Inc. and subsidiaries

Notes to consolidated financial statements

(Unaudited as of March 31, 2017 and for the three months ended March 31, 2016 and 2017)

1. Description of business

Altair Engineering Inc. (“Altair” or the “Company”) was formed in 1985 and incorporated in the state of Michigan. The Company, together with its subsidiaries, is a provider of enterprise-class engineering software to enable innovation across the entire product lifecycle from concept design to in-service operation.

The Company’s simulation-driven approach to innovation is powered by its broad portfolio of high-fidelity and high-performance physics solvers. The Company’s integrated suite of software optimizes design performance across multiple disciplines including structures, motion, fluids, thermal management, electromagnetics, system modeling and embedded systems, while also providing data analytics and true-to-life visualization and rendering.

Altair’s engineering and design platform offers a wide range of multi-disciplinary computer aided engineering (“CAE”) solutions. The Company engages with its customers to provide consulting, training, and support, especially when applying optimization.

Altair also provides Client Engineering Services to support its customers with long-term ongoing product design and development expertise. This has the benefit of embedding the Company within customers, deepening its understanding of their processes, and allowing the Company to more quickly perceive trends in the overall market, helping the Company to better tailor its research and development and sales initiatives. The Company hires simulation specialists, industrial designers, design engineers, materials experts, development and test specialists, manufacturing engineers and information technology specialists for placement at a customer site for specific customer-directed assignments.

2. Summary of significant accounting policies

Principles of consolidation

The accompanying consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the results of the Company and its controlled subsidiaries. Third-party holdings of equity interests in the Company’s subsidiaries that are less than controlled represent noncontrolling interests. Intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its significant estimates including provision for doubtful accounts, tax valuation allowances, liabilities for uncertain tax provisions, impairment of goodwill and intangible assets, retirement obligations, useful lives of intangible assets, revenue for fixed price contracts, valuation of common stock, and stock-based compensation. Actual results could differ from those estimates.

 

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Unaudited interim consolidated financial information

The accompanying interim consolidated balance sheet as of March 31, 2017, the interim consolidated statements of operations and comprehensive income (loss), and the cash flows for the three months ended March 31, 2016 and 2017 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited consolidated financial statements, and in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2017, and its results of operations and cash flows for the three months ended March 31, 2016 and 2017. The financial data and the other financial information disclosed in the notes to these consolidated financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the full year or any other period.

Foreign currency translation

The functional currency of the Company’s foreign subsidiaries is their respective local currency. The assets and liabilities of the subsidiaries are translated to U.S. dollars at the exchange rate on the balance sheet date. Equity balances and transactions are translated using historical exchange rates. Revenues and expenses are translated at the average exchange rate during the period. Translation adjustments arising from the use of differing exchange rates from period to period are recorded as a component of accumulated other comprehensive loss within stockholders’ deficit.

All assets and liabilities denominated in a currency other than the functional currency are remeasured into the functional currency with gains and losses recognized in foreign currency losses, net, in the consolidated statements of operations. The Company has no transactions which hedge purchase commitments and no intercompany balances which are designated as being of a long-term investment in nature.

Revenue recognition

The Company generates revenue from the following sources: (1) Software; (2) Client engineering services; and (3) Other. Revenue is recognized when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collection of the fee is probable or reasonably assured. Certain transactions require that government imposed taxes be assessed to the customer. The Company presents revenue net of such government imposed taxes.

Software revenue

Software component

Software revenue includes product revenue from software product licensing arrangements, related services consisting of software maintenance and support in the form of post-contract customer support (“PCS”), and professional services such as consulting and training services. Software products are sold to customers primarily under a term-based software licensing model and to a lesser degree, perpetual software licenses. Software revenue also includes consulting services from product design and development projects.

Most term-based software license agreements include the Company’s patented digital-currency subscription model which allows customers to license a pool of units for their organizations, providing individual users flexible access to the Company’s entire portfolio of software applications as well as to its growing portfolio of partner products. The amount of software usage is limited by the number of the units licensed by the customer. Revenue from these arrangements is fixed (based on the units licensed) and is not based on actual customer usage of each software product.

 

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Software product license arrangements may include PCS and professional services, such as consulting and training services, which represent multiple-element arrangements. The Company has analyzed the elements included in its multiple element arrangements and has determined that it does not have vendor-specific objective evidence (“VSOE”) of fair value to allocate revenue to its software products license, PCS, and professional services including consulting and training. For arrangements that have two or more elements such as software, PCS or professional services for which the Company has not established VSOE of fair value, the Company uses the combined services approach to recognize revenue for these transactions. Under the combined services approach, revenue from the software product licenses, including perpetual licenses, PCS and professional services, if applicable, are considered to be one accounting unit and, once the software has been delivered and the provision of each undelivered service has commenced, are recognized ratably over the remaining period of the arrangement which consists of the longer of the PCS period, or the period the professional services are expected to be performed. If the professional services are essential to the functionality of the software products, then revenue recognition does not commence until such services are completed. In transactions with resellers, the Company contracts only with the reseller, in which pricing, length of licenses and support services are agreed upon. The reseller negotiates the price charged and length of licenses and support service directly with its customer.

The term-based software license arrangements typically have a duration of 12 months and include PCS, including the right to receive unspecified software upgrades, when and if available during the license term. The Company does not charge separately for PCS. Revenues for software licenses sold on a term-based model are recognized ratably over the term of the license arrangement, once all other revenue recognition criteria have been met

The Company also sells perpetual licenses to its customers. The Company does not have VSOE of fair value for PCS, which is sold along with the perpetual licenses. As a result, revenue from these arrangements is recognized ratably over the initial PCS term.

Software related services component

Consulting services from product design and development projects are provided to customers on a time-and-materials (“T&M”) or fixed-price basis. Altair recognizes software services revenue for T&M contracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using the proportional performance method based on the ratio of costs incurred, to the total estimated project costs. Project costs are based on standard rates, which vary by the consultant’s professional level, plus all direct expenses incurred to complete the engagement that are not reimbursed by the client. Project costs are typically expensed as incurred. The use of the proportional performance method is dependent upon management’s ability to reliably estimate the costs to complete a project. We use historical experience as a basis for future estimates to complete current projects. Additionally, the Company believes that costs are the best available measure of performance. If the costs to complete a project are not estimable or the completion is uncertain, the revenue is recognized upon completion of the services.

Client engineering services revenue

Client engineering services revenue are derived from professional services for staffing primarily representing engineers located at a customer site. These professional services are provided to customers on a T&M basis. The Company recognizes engineering services revenue for T&M contracts based upon hours worked and contractually agreed-upon hourly rates.

 

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Other revenue

Other revenue includes product revenue from the sale of LED products for the replacement of fluorescent tubes. Revenue from the sale of LED products for the replacement of fluorescent tubes is recognized when all revenue recognition criteria stated above are met, which is generally when the products are delivered to resellers or to end customers. Sales returns, which reduce revenue and cost of revenue, are estimated using historical experience.

Cost of revenue

Cost of software

Cost of software revenue consist of expenses related to software licensing and customer support. Significant expenses include employee related costs for support team members, travel costs, and royalties for third-party software products available to customers through the Company’s products or as part of the Company’s Partner Alliance Program.

Cost of client engineering services

Cost of engineering services revenue consist primarily of employee compensation costs.

Cost of other

Cost of other revenue includes the cost of LED lighting products and freight related to products sold to retail and commercial sales channels.

Deferred revenue

Deferred revenue consists of customer billings or payments received in advance of the recognition of revenue and is recognized as revenue when revenue recognition criteria are met.

Deferred offering costs

Deferred offering costs, which consist of direct incremental legal and accounting fees, and other direct costs relating to the Company’s initial public offering (“IPO”), are capitalized. The deferred offering costs will be offset against IPO proceeds upon the consummation of the IPO. In the event the offering is terminated or suspended, deferred offering costs will be expensed. No amounts were deferred as of December 31, 2015 or 2016. As of March 31, 2017, the Company deferred $1.6 million of offering costs, which are recorded as other long-term assets in the accompanying consolidated balance sheet.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with original or remaining maturities of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value.

 

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Restricted cash is included in other long-term assets on the consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets that sum to the total of the amounts reported in the consolidated statements of cash flows (in thousands):

 

		December 31,								March 31,
		2015				2016				2017
		(unaudited)
Cash and cash equivalents		$	13,756			$	16,874			$	16,531
Restricted cash included in other long-term assets			257				265				303
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows		$	14,013			$	17,139			$	16,834

Restricted cash represents amounts required for a contractual agreement with an insurer for the payment of potential health insurance claims, and term deposits for bank guarantees.

Accounts receivable, net

An allowance for doubtful accounts is recorded when amounts are determined to be uncollectible based on specific identification of customer circumstances, age of the receivable and other available information. Accounts are written off when it becomes apparent that such amounts will not be collected. Generally, the Company does not require collateral or charge interest on accounts receivable. Accounts receivable were reported net of an allowance for doubtful accounts of $0.9 million and $0.6 million at December 31, 2015 and 2016, respectively. Activity in the allowance for doubtful accounts was as follows (in thousands):

 

		For the year ended December 31,
		2015				2016
Balance, beginning of year		$	(1,439	)		$	(937	)
Provision charged to expense			(145	)			(291	)
Write-offs, net of recoveries			536				638
Effects of foreign currency translation			111				25
Balance, end of year		$	(937	)		$	(565	)

Concentrations of credit risk

The Company’s financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and trade receivables. The risk with respect to trade receivables is partially mitigated by the diversity, both by geography and by industry, of the Company’s customer base. The Company’s accounts receivable are derived from sales to a large number of direct customers and resellers around the world. Sales to customers within the automotive industry accounted for 51% and 50%, respectively, of the Company’s 2015 and 2016 revenue, with no other industry representing more than 10% of revenue. No individual customer accounted for 10% or more of revenue in the years ended December 31, 2015 or 2016.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. The valuation of inventory requires management to estimate excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires management to estimate market conditions and future demand for the Company’s products.

 

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Inventory consisted of the following (in thousands):

 

		December 31,								March 31,
		2015				2016				2017
										(unaudited)
Raw materials		$	790			$	570			$	547
Finished goods			2,241				1,507				1,572
Obsolescence and excess reserve			(956	)			(850	)			(672	)
Total inventory		$	2,075			$	1,227			$	1,447

Property and equipment, net

Property and equipment are stated at cost, less accumulated depreciation and amortization. Equipment held under capital leases are stated at the present value of minimum lease payments less accumulated amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements and assets acquired under capital leases are amortized over the lease term or the estimated useful life of the related asset or improvement, whichever is shorter.

Expenditures for maintenance and repairs are charged to expense in the period incurred. Major expenditures for betterments are capitalized when they meet the criteria for capitalization. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statements of operations in the period realized.

Software development costs

Software development costs incurred prior to the establishment of technological feasibility are expensed as incurred. Technological feasibility is established upon the completion of a detailed program design. Capitalization of software development costs begins upon the establishment of technological feasibility and ends when the product is available for general release. Generally, the time between the establishment of technological feasibility and commercial release of software is short. As such, all internal software development costs have been expensed as incurred and included in research and development expense in the accompanying consolidated statements of operations.

Impairment of long-lived assets

Long-lived assets, such as property and equipment, and definite-lived intangible assets, including developed technology, and customer relationships, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company compares the undiscounted future cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models and third-party independent appraisals. No impairment losses were recognized in 2015, 2016, or for the three months ended March 31, 2017.

Goodwill and other indefinite-lived intangible assets

Goodwill represents the excess of the consideration transferred for an acquired entity over the estimated fair values of the net tangible assets and the identifiable assets acquired. As described in Note 4—Acquisitions, the

 

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Company has recorded goodwill in connection with certain acquisitions. Goodwill and other indefinite-lived intangible assets are not amortized, but rather are reviewed for impairment annually or more frequently if facts or circumstances indicate that its carrying value may not be recoverable.

The Company has determined that there is one reporting unit with goodwill subject to goodwill impairment testing. An entity has the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount prior to performing the quantitative two-step impairment test. The qualitative assessment evaluates various events and circumstances, such as macro-economic conditions, industry and market conditions, cost factors, relevant events and financial trends that may impact a reporting unit’s fair value. If it is determined that the estimated fair value of the reporting unit is more likely than not less than its carrying amount, including goodwill, the two-step goodwill impairment test is required. Otherwise, no further analysis would be required.

If the two-step impairment test for goodwill is deemed necessary, this quantitative impairment analysis compares the fair value of the Company’s reporting unit to its related carrying value. If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists and the Company must perform step two of the impairment test. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting units is determined using an income approach. The income approach is based on projected debt-free cash flows which are discounted to the present value using discount factors that consider the timing and risk of cash flows. The Company also takes into consideration a multiple of earnings valuation technique. The Company believes that this approach is appropriate because it provides a reasonable estimate of the price that would be received to sell the reporting unit in an orderly transaction between market participants at the measurement date. While there are inherent uncertainties related to the assumptions used in this analysis, the Company believes that this approach provides a reasonable estimate of fair value. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed.

The Company performs its annual impairment review of goodwill in the fourth quarter of each year and when a triggering event occurs between annual impairment dates. For 2015 and 2016, the Company performed a qualitative assessment of goodwill and determined that it was not more likely than not that the fair value of its reporting unit with goodwill was less than the carrying amounts. Accordingly, the Company determined that its goodwill was not impaired.

Valuation of common stock

Due to the absence of an active market for the Company’s common stock, the Board of Directors, with the assistance of a third-party valuation specialist, determines the fair value of the Company’s common stock. The valuation methodology includes estimates and assumptions including forecasts of future cash flows that require significant judgments. These valuations consider a number of objective and subjective factors, including the Company’s actual operating and financial performance, external market conditions, performance of comparable publicly traded companies, comparable transactions, business developments, likelihood of achieving a liquidity event, such as an initial public offering or sale, and common stock transactions, among other factors. The Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities issued as Compensation, to estimate the fair value of its common stock. Significant changes to the key assumptions used in the valuations could result in different fair values of the Company’s common stock at each valuation date.

 

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Derivative financial instruments

The Company may use derivative financial instruments, primarily interest rate swap contracts, to hedge its exposure to interest rate risk. Such derivative financial instruments are initially recorded at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value at period end. Any gains or losses arising from changes in fair value on derivative contracts during the year are recorded in other expense (income), net in the consolidated statement of operations. Hedge accounting has not been applied.

Income taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company records net deferred tax assets to the extent it believes that these assets will more likely than not be realized. These deferred tax assets are subject to periodic assessments as to recoverability and if it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recorded which increase the provision for income taxes. In making such determination, the Company considers all available positive and negative evidence, including historical taxable income, projected future taxable income, the expected timing and reversal of existing temporary differences and tax planning strategies. If based upon the evidence, it is more likely than not that the deferred tax asset will not be realized, a valuation allowance is recorded. A valuation allowance is recognized to reduce deferred tax assets to the amount that management believes is more likely than not to be realized.

The Company applies a more-likely-than-not recognition threshold to its accounting for tax uncertainties. The Company reviews all of its tax positions and makes determinations as to whether its tax positions are more likely than not to be sustained upon examination by the relevant taxing authorities. Only those benefits that have a greater than fifty percent likelihood of being sustained upon examination by taxing authorities are recognized. Interest and penalties related to uncertain tax positions are recorded in the provision for income taxes in the consolidated statements of operations.

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet Classification of Deferred Taxes, which eliminates the guidance in Topic 740, Income Taxes, that required an entity to separate deferred tax assets and liabilities between current and noncurrent amounts in a classified balance sheet. The amendments require that all deferred tax assets and liabilities of the same jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, and may be applied on either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early adoption is permitted. The Company adopted this standard early for the year ended December 31, 2015. The adoption of this standard did not have a material impact on the Company’s financial statements.

Research and development costs

Research and development costs are expensed as incurred. Research and development expenses consist primarily of salaries and benefits of research and development employees and costs incurred related to the

 

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development of new software products and significant enhancements and engineering changes to existing software products.

Advertising costs

Advertising costs are expensed as incurred. Advertising expenses were $2.2 million and $2.5 million for the years ended December 31, 2015 and 2016, respectively.

Stock-based compensation

Employee stock-based awards, consisting of stock options expected to be settled by issuing shares of Class B Common Stock, are recorded as equity awards. The fair value of these awards on the date of grant is measured using the Black-Scholes option pricing model. The Company expenses the grant date fair value of its time-vested stock options subject to graded vesting using the straight-line method over the applicable service period.

Employee stock-based awards, consisting of stock options with repurchase features that allow them to be settled in cash at a purchase price that is less than the current fair value are considered liability-based awards. These awards are initially recorded at fair value and remeasured to fair value at the end of each reporting period until settled.

Recent accounting guidance

Accounting standards adopted

The Company adopted ASU No. 2014-15, Presentation of Financial Statements—Going Concern, effective for the year ended December 31, 2016. This update provides guidance regarding management’s responsibility to evaluate whether there exists substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The adoption did not have a material effect on the Company’s consolidated financial statements.

The Company adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), effective for the year ended December 31, 2016. This update amended existing guidance to require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 was applied retrospectively and did not have a material effect on the Company’s consolidated financial statements.

The Company adopted ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”), effective for the year ended December 31, 2016. The amendments in this update provided guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance did not change U.S. GAAP for a customer’s accounting for service contracts. ASU 2015-05 was applied retrospectively and did not have a material effect on the Company’s consolidated financial statements.

The Company adopted ASU No. 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”), effective for the year ended December 31, 2016. The amendments in ASU 2015-16 eliminate the requirement to restate prior period financial statements for measurement period

 

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adjustments. The amendments also require that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The amendments for ASU 2015-16 were prospectively applied and did not have a material effect on the Company’s consolidated financial statements.

The Company adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), effective for all periods beginning after December 15, 2017. ASU 2016-18 clarifies the presentation of restricted cash and restricted cash equivalents in the statements of cash flows. Under ASU 2016-18 restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The Company early adopted ASU No 2016-18 in 2016 on a retrospective basis, and the adoption did not have a material effect on the Company’s consolidated financial statements.

The Company adopted ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory, ASU 2015-11, effective for fiscal years and interim periods beginning after December 15, 2016. ASU 2015-11 requires an entity to measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The Company adopted ASU No 2015-11 on January 1, 2017, on a prospective basis, and the adoption did not have a material effect on the Company’s consolidated financial statements.

Accounting standards not yet adopted

Revenue Recognition—In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most existing revenue recognition guidance under U.S. GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires enhanced disclosures about the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date that defers the effective date of ASU 2014-09 for all entities by one year for public business entities. This ASU is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period. For all other entities, including emerging growth companies, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted.

The Company is evaluating the use of either the retrospective or modified retrospective transition method and the timing of adopting this standard. Under existing U.S. GAAP, the Company does not have VSOE of fair value for PCS sold along with software products licenses; therefore, revenues for the software products licenses (including perpetual licenses), PCS and professional services, if applicable, are considered to be one accounting unit and, once all services have commenced, are recognized ratably over the remaining period of the arrangement (the longer of the contractual service term or PCS term). Under ASU 2014-09, the concept of assessing VSOE has been eliminated and the Company must estimate a fair value associated with each performance obligation within an arrangement. As a result, the Company expects the timing of revenue recognition to be accelerated because it anticipates that license revenue will be recognized at a point in time, rather than over time, which is its current practice. Generally, the license revenue component of an arrangement represents a significant portion of the overall fair value of a software arrangement. As a result, the Company expects the impact of adopting ASU 2014-09 to have a significant impact on the consolidated

 

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financial statements. The Company is currently evaluating the method of implementation and impact this standard will have on its consolidated financial statements.

Financial Instruments—In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The standard is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including emerging growth companies, ASU 2016-01 is effective for fiscal years beginning after December 21, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact of the adoption of ASU 2016-01 on its financial statements and related disclosures.

Leases—In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). This standard amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard also introduces new disclosure requirements for leasing arrangements. The standard is effective for public entities for annual reporting periods, and interim periods within those annual reporting periods, beginning after December 15, 2018. For all other entities, including emerging growth companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. The new standard must be adopted using a modified retrospective approach, and provides for certain practical expedients. The Company is evaluating the impact of the adoption of ASU 2016-02 on its financial statements and related disclosures.

Employee Share-Based Payment Accounting—In March 2016, FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). This standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard is effective for public entities for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2016. For all other entities, including emerging growth companies, ASU 2016-09 is effective for annual periods beginning after December 15, 2017 and interim periods within fiscal years beginning after December 15, 2018. The method of adoption is dependent on the specific aspect of accounting addressed in this new guidance. The Company is evaluating the impact of the adoption of ASU 2016-09 on its financial statements and related disclosures.

Cash Classification—In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to improve financial reporting in regards to how certain transactions are classified in the statement of cash flows. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The standard is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including emerging growth companies, ASU 2016-15 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact of the adoption of ASU No. 2016-15 on its financial statements and related disclosures.

Business Combinations—In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). This update narrows the definition of a business. If substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or group

 

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of similar identifiable assets, the acquiree may not be considered a business. The update also requires a business to include an input and a substantive process that significantly contributes to the ability to create outputs. This definition is expected to reduce the number of acquisitions accounted for as business combinations, which will impact the accounting treatment of certain items, including the accounting treatment of contingent consideration and transaction expenses. The standard is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including emerging growth companies, ASU 2017-01 is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted and the update will be applied prospectively. The effect of the implementation will depend upon the nature of the Company’s future acquisitions.

3. Fair value measurements

The accounting guidance for fair value, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The framework for measuring fair value consists of a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

 

Level 1—		Quoted prices in active markets for identical assets and liabilities at the measurement date;
Level 2—		Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3—		Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

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Items measured at fair value on a recurring basis

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):

 

		Class B redeemable common shares				Liability for stock-based compensation awards
Balance at December 31, 2014		$	6,172			$	11,654
Shares issued upon exercise of stock options			609				—
Repurchase of shares			(218	)			—
Forfeitures of stock options			—				(188	)
Exercise of stock options			—				(687	)
Change in fair value			129				254
Balance at December 31, 2015			6,692				11,033
Shares issued upon exercise of stock options			1,841				—
Repurchase of shares			(79	)			—
Exercise of stock options			—				(2,084	)
Forfeitures of stock options			—				(110	)
Change in fair value			2,178				2,765
Balance at December 31, 2016			10,632				11,604
Shares issued upon exercise of stock options (unaudited)			73				—
Exercise of stock options (unaudited)			—				(94	)
Change in fair value (unaudited)			1,202				1,504
Balance at March 31, 2017 (unaudited)		$	11,907			$	13,014

The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short maturities. Interest on the Company’s long-term debt is at a variable rate, and as such the debt obligation outstanding approximates fair value.

The carrying value of the Company’s derivative financial instruments are measured at fair value on a recurring basis. The fair value of derivatives is determined based on inputs derived from or corroborated by observable market data pertaining to relevant interest rates and is considered a level 2 fair value measurement. See Note 9—Financial instruments for additional information regarding the use and fair value of derivatives.

4. Acquisitions

CEDRAT S.A.

In April 2016, the Company completed the acquisition of all of the common shares of CEDRAT S.A. (“CEDRAT”) for $3.7 million in cash and $1.4 million in a note payable. CEDRAT is in the field of simulating low-frequency electromagnetics and thermal simulations for electric motor design. The acquisition of CEDRAT and its Flux technology complements Altair’s broad software coverage, including Altair’s comprehensive set of solvers for the rapidly growing electromagnetic market.

 

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The following table summarizes the consideration transferred to acquire CEDRAT and the amounts of identified assets acquired and liabilities assumed at the acquisition date (in thousands):

 

Fair value of consideration transferred		$	5,122
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash		$	363
Accounts receivable			542
Income tax receivable			995
Other assets			206
Trade names			269
Developed technology (4-year life)			1,085
Customer relationships (7-year life)			938
Accounts payable and other liabilities			(2,742	)
Deferred revenue			(290	)
Total net identifiable assets acquired and liabilities assumed			1,366
Goodwill(1)		$	3,756

 

(1)

The goodwill included $3.5 million that was tax deductible.

Other business acquisitions

During the years ended December 31, 2015 and 2016, the Company completed other business acquisitions that were individually and in the aggregate insignificant. The Company has accounted for all of its acquisitions using the acquisition method. The operating results of each acquisition have been included in the consolidated financial statements since the respective dates of acquisition.

The combined consideration transferred related to the 2015 acquisitions was $4.4 million, which consisted of cash of $2.9 million, equity of $0.7 million and notes of $0.8 million. The total consideration transferred was allocated to assets and liabilities of each acquisition based on management’s estimates of the fair values of the assets acquired and liabilities assumed. The allocation included $1.9 million to intangibles, consisting of developed technology, customer relationships, and trade names and $2.9 million to goodwill, of which $1.0 million was tax deductible.

The combined purchase price related to the 2016 acquisitions, excluding CEDRAT, was $6.0 million, which consisted of cash of $3.1 million and notes payable of $2.9 million. The total consideration transferred was allocated to assets and liabilities of each acquisition based on management’s estimates of the fair values of the assets acquired and liabilities assumed. The allocation included $2.3 million to intangibles, consisting of developed technology, customer relationships, and trade names and $4.1 million to goodwill. There was no taxable goodwill associated with the Company’s other 2016 acquisitions.

For each of its acquisitions the Company typically engages a third party valuation firm to assist the Company in valuing certain assets and liabilities acquired.

 

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5. Property and equipment, net

Property and equipment consists of the following (in thousands):

 

		Estimated useful lives				December 31,								March 31,
						2015				2016				2017
														(unaudited)
Land			Indefinite			$	3,994			$	7,994			$	7,994
Building and improvements			5-39 years				14,924				14,956				14,995
Computer equipment and software			3-5 years				25,324				27,461				28,572
Office furniture and equipment			5-15 years				5,534				5,306				5,270
Leasehold improvements			*				5,245				5,397				5,484
Total property and equipment							55,021				61,114				62,315
Less: accumulated depreciation and amortization							29,642				31,406				33,100
Property and equipment, net						$	25,379			$	29,708			$	29,215

 

*

Shorter of lease term or estimated useful life, generally ranging from five to ten years.

In November 2016, the Company purchased land adjacent to our corporate headquarters for future expansion of our facilities for $4.0 million.

Depreciation expense was $5.8 million and $6.7 million for the years ended December 31, 2015 and 2016 and $1.6 million and $1.5 million for the three months ended March 31, 2016 and 2017, respectively.

6. Goodwill and other intangible assets

Goodwill

The changes in the carrying amount of goodwill, which is attributable to the Software reporting segment, are as follows (in thousands):

 

Balance at December 31, 2014		$	28,859
Acquisitions			2,897
Effects of foreign currency translation			(2,516	)
Balance at December 31, 2015			29,240
Acquisitions			7,855
Effects of foreign currency translation			(470	)
Balance at December 31, 2016			36,625
Effects of foreign currency translation (unaudited)			427
Balance at March 31, 2017 (unaudited)		$	37,052

 

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Other intangible assets

A summary of other intangible assets is shown below (in thousands):

 

		December 31, 2015
		Weighted average amortization period				Gross carrying amount				Accumulated amortization				Net carrying amount
Definite-lived intangible assets:
Developed technology			4 years			$	7,179			$	2,433			$	4,746
Customer relationships			7 years				7,323				4,051				3,272
Noncompete agreements			5 years				824				824				—
Other intangibles			10 years				105				30				75
Total definite-lived intangible assets							15,431				7,338				8,093
Indefinite-lived intangible assets:
Trade names							1,297				—				1,297
Total other intangible assets						$	16,728			$	7,338			$	9,390

 

		December 31, 2016
		Weighted average amortization period				Gross carrying amount				Accumulated amortization				Net carrying amount
Definite-lived intangible assets:
Developed technology			4 years			$	10,631			$	5,034			$	5,597
Customer relationships			7 years				8,646				4,977				3,669
Noncompete agreements			5 years				824				824				—
Other intangibles			10 years				117				40				77
Total definite-lived intangible assets							20,218				10,875				9,343
Indefinite-lived intangible assets:
Trade names							1,825								1,825
Total other intangible assets						$	22,043			$	10,875			$	11,168

 

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		March 31, 2017
		Weighted average amortization period				Gross carrying amount				Accumulated amortization				Net carrying amount
		(unaudited)
Definite-lived intangible assets:
Developed technology			4 years			$	10,888			$	5,812			$	5,076
Customer relationships			7 years				8,687				5,238				3,449
Noncompete agreements			5 years				824				824				—
Other intangibles			10 years				121				42				79
Total definite-lived intangible assets							20,520				11,916				8,604
Indefinite-lived intangible assets:
Trade names							1,867								1,867
Total other intangible assets						$	22,387			$	11,916			$	10,471

Amortization expense related to amortizing intangible assets was $2.6 million and $3.3 million for the years ended December 31, 2015 and 2016, respectively, and $0.7 million and $0.9 million for the three months ended March 31, 2016 and 2017, respectively.

Estimated amortization expense for the next five years as of December 31, 2016 is as follows (in thousands):

 

Year ending
December 31, 2017		$	3,527
December 31, 2018		$	2,641
December 31, 2019		$	1,440
December 31, 2020		$	1,035
December 31, 2021		$	428

7. Debt

The carrying value of debt is as follows (in thousands):

 

		December 31,								March 31,
		2015				2016				2017
										(unaudited)
Secured Credit Agreement:
Revolving Credit Facility		$	11,513			$	27,355			$	12,565
Term Loan A			67,122				57,500				55,000
Note payable, equipment			3,296				—				—
Obligations held under capital leases (Note 18)			310				196				195
Other borrowings			1,118				330				142
Total debt			83,359				85,381				67,902
Less: unamortized debt issuance costs			182				140				126
Less: current portion of long-term debt			13,817				10,435				10,243
Long-term debt, net of current portion		$	69,360			$	74,806			$	57,533

 

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Secured credit agreement

As of March 31, 2017, the Company’s credit agreement consisted of a $55.0 million term loan (“Term Loan A”), a $60.0 million revolving commitment (“Revolving Credit Facility”) and a $4.0 million ancillary facility (collectively, the “2016 Credit Agreement”). Included in the Revolving Credit Facility are a $5.0 million swingline subfacility, and a letter of credit subfacility.

At December 31, 2015, the Company’s credit agreement consisted of a $67.1 million term loan (“Term Loan A”), a $20.0 million revolving commitment (“Revolving Credit Facility”) and a $1.0 million ancillary facility (collectively, the “2013 Credit Agreement”). The Company was required to make quarterly principal payments on Term Loan A and any outstanding balance was to be paid in full on the maturity date of December 18, 2018.

On April 18, 2016, the Company entered into an Amended and Restated Credit Agreement (“2016 Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, which restated in its entirety the 2013 Credit Agreement. The 2016 Credit Agreement originally consisted of a $65.0 million term loan (“Term Loan A”) and a $35.0 million revolving commitment (“Revolving Credit Facility”). In November 2016, the 2016 Credit Agreement was amended pursuant to which the Royal Bank of Canada became a lender thereunder and the commitment under the Revolving Credit Facility was increased to $60.0 million. Included in the Revolving Credit Facility are a $5.0 million swingline subfacility, and a letter of credit subfacility. In addition, the 2016 Credit Agreement provides for a $4.0 million ancillary facility adding additional borrowing capacity. In connection with the 2016 Credit Agreement, the Company updated the December 31, 2015 balance sheet to reflect the reclassification from short-term to long-term debt for the revolving credit facility and a portion of the long-term debt to reflect updated debt service requirements.

Interest rates on borrowings outstanding under the 2016 Credit Agreement range from (i) an adjusted LIBO rate ((the London Interbank Offered Rate multiplied by the Statutory Reserve Rate)) plus 1.5% to 2.0% (dependent upon the Company’s leverage ratio) for Eurodollar-based borrowings or (ii) the Commercial Bank Floating Rate (“CBFR”) (the greater of the Prime Rate or the adjusted LIBO rate plus 2.5%) for CBFR borrowings. The Company can elect the type of borrowing for each loan.

Term loan facilities

At December 31, 2016, the Company was required to make quarterly principal payments on Term Loan A of $2.5 million in 2017, 2018 and March 2019. Any outstanding principal balance is to be paid in full on the maturity date of April 18, 2019. At December 31, 2015 and 2016, respectively, there was $67.1 million and $57.5 million outstanding under Term Loan A at an interest rate of 2.2% and 2.6% based on the LIBO rate and the applicable margin.

At March 31, 2017, there was $55.0 million outstanding under Term Loan A.

Revolving credit facilities

As of December 31, 2015 and 2016 and March 31, 2017, respectively, the Company had $11.5 million, $27.4 million, and $12.6 million outstanding under the Revolving Credit Facility and there was $8.5 million, $32.6 million and $47.4 million available for future borrowing. The Revolving Credit Facility is available for general corporate purposes, including working capital, capital expenditures, and permitted acquisitions. All borrowings under the Revolving Credit Facility are due on the termination date in April 2019. The weighted-average interest rate on borrowings under the Revolving Credit Facility was 3.3% and 2.6% for the years ended December 31, 2015 and 2016, respectively.

 

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The Company pays quarterly commitment fees of 0.25% per annum on the unused portion of the Revolving Credit Facility. Fees with respect to letters of credit accrue daily based on the stated amount of each outstanding letter of credit at the adjusted LIBO rate plus 1.5% to 2.0% (dependent upon the Company’s leverage ratio).

Debt covenants

The 2016 Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability to incur additional indebtedness; create liens on assets; make investments, loans, advances or acquisitions; pay dividends or other distributions; redeem or repurchase certain equity interests; guarantee the obligations of others; and change the business conducted by the Company. In addition, the 2016 Credit Agreement contains financial covenants relating to minimum liquidity of $20.0 million, maintaining a minimum debt service coverage ratio of 1.3 to 1.0 and maximum leverage ratio of 3.0 to 1.0, as defined in the 2016 Credit Agreement. At December 31, 2016 and March 31, 2017, the Company was in compliance with all such financial covenants.

Collateral and guarantees

The 2016 Credit Agreement is unconditionally guaranteed by the Company and all existing and subsequently acquired controlled domestic subsidiaries. Any obligations of foreign subsidiaries are unconditionally guaranteed by the Company and certain foreign subsidiaries. Furthermore, the 2016 Credit Agreement is collateralized by a first priority, perfected security interest in, and mortgages on, substantially all tangible assets of the Company. In addition, foreign borrowings under the credit agreement will be secured by assets of the foreign borrowers.

Equipment term loan

In 2013, the Company entered into a promissory note for $6 million with a commercial lender to finance the purchase of manufacturing equipment. The note required interest at 5.25% per annum with monthly payments of principal and interest. The note was paid in full in June 2016 from borrowings under the Revolving Credit Facility.

Other borrowings

Other borrowings includes notes payable with U.S. based financial institutions. The notes total $1.0 million and $0.3 million at December 31, 2015 and 2016, respectively. The terms of the notes are three to five years and bear interest rates that range from 1.9% to 5.25%.

The Company has available overdraft and line of credit facilities in several countries in which it operates. These credit facilities are with various domestic and international banks and are at quoted market rates. The Company had $3.3 million of availability under these facilities and there were $0.3 million of commitments at December 31, 2015. The Company had $3.5 million of availability under these facilities and there were no outstanding commitments at December 31, 2016.

 

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Scheduled maturities of long-term debt

At December 31, 2016, future maturities of long-term debt, excluding capital leases, were as follows (in thousands):

 

Year ending December 31,
2017		$	10,304
2018			10,026
2019			64,855
Total		$	85,185

8. Other liabilities

The following table provides the details of other accrued expenses and current liabilities (in thousands):

 

		December 31,								March 31,
		2015				2016				2017
										(unaudited)
Accrued VAT		$	3,747			$	3,928			$	3,603
Accrued royalties			1,490				1,583				2,364
Non-income tax liabilities			1,364				739				398
Billings in excess of cost			1,315				1,021				680
Related party liabilities			1,349				1,045				799
Defined contribution plan liabilities			1,144				1,139				721
Income taxes payable			1,381				2,156				—
Self-insurance and other insurance reserves			646				764				634
Obligations for acquisition of businesses			250				2,649				1,699
Accrued legal expenses			405				295				2,258
Other current liabilities			3,961				3,626				4,447
Total		$	17,052			$	18,945			$	17,603

The following table provides the details of other long-term liabilities (in thousands):

 

		December 31,								March 31,
		2015				2016				2017
										(unaudited)
Pension and other post retirement liabilities		$	4,436			$	5,959			$	6,112
Deferred tax liabilities			1,100				1,379				1,313
Other liabilities			7,340				9,776				9,188
Total		$	12,876			$	17,114			$	16,613

9. Financial instruments

The Company is exposed to certain financial market risks related to its ongoing business operations. The primary risks the Company manages through derivative financial instruments and hedging activities are foreign currency exchange rate risk and interest rate risk. Derivative financial instruments and hedging activities can be utilized to protect the Company’s cash flow from adverse movements in foreign currency exchange rates and to manage interest costs. Although the Company is exposed to credit loss in the event of nonperformance by the counterparty to the derivative financial instruments, the Company attempts to limit this exposure by

 

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entering into agreements directly with major financial institutions that meet the Company’s credit standards and that are expected to fully satisfy their obligations under the contracts.

Interest rate swaps

Interest rate exposures are reviewed periodically and the Company may enter into interest rate swap agreements to manage its exposure. The Company’s exposure to interest rate risk arises primarily from changes in the LIBO rate. The Company will hold these derivatives for economic purposes but does not designate these derivatives to obtain hedge accounting treatment. As such, gains or losses on these contracts (including contracts that do not qualify for hedge accounting under ASC 815), are reported in earnings immediately as Other expense (income), net. These contracts limit exposure to changes in interest payments associated with variable rate debt. However, as the change in the fair value of the interest rate swaps is impacted by both realized and unrealized gains and losses on the contracts, the amount recognized in earnings may not offset the changes in the variability of interest expense during a given period.

As of December 31, 2015 and 2016, the Company had a notional value of $4.8 million and $4.5 million, respectively, in outstanding interest rate swaps. As of March 31, 2017, the Company had an interest rate swap outstanding with a notional value of $4.5 million. This interest rate swap matures at various dates through December 23, 2019.

On January 27, 2014, the Company paid a nominal fee for an interest rate cap that terminated on December 31, 2015, to protect against rising interest rates associated with the Company’s term loan. The notional amount on the interest rate cap was $40 million and protected the Company in the event the LIBO rate rose above 1.5%.

Foreign currency derivatives

The Company sells its products (and incurs costs) in countries throughout the world. As a result, it is exposed to fluctuations in foreign currency exchange rates. Foreign currency exposures are reviewed on a periodic basis and any natural offsets are considered prior to entering into a derivative financial instrument. The Company could enter into foreign exchange contracts to hedge portions of its foreign currency denominated forecasted revenues, purchases and the subsequent cash flows after considering natural offsets within the consolidated group. The Company will hold these derivatives for economic purposes but does not designate these derivatives to obtain hedge accounting treatment. As such, gains or losses on these contracts (including contracts that do not qualify for hedge accounting under ASC 815), are reported in earnings immediately and are substantially offset by the effect of the revaluation of the underlying foreign currency denominated transactions. There were no foreign exchange contracts outstanding at December 31, 2015 or 2016 or March 31, 2017.

Derivative instruments

The fair value of the Company’s derivative instruments as of December 31, 2015 and 2016 was a liability of $0.5 million and $0.3 million, respectively.

Credit-risk-related contingent features

The Company has entered into International Swaps and Derivatives Association (“ISDA”) agreements with its significant derivative counterparty. These agreements provide bilateral netting and offsetting of accounts that are in a liability position with those that are in an asset position. These agreements do not require the Company to maintain a minimum credit rating in order to be in compliance and do not contain any margin call provisions or collateral requirements that could be triggered by derivative instruments in a net liability position. As of December 31, 2016, the Company had not and was not required to post any collateral to support its derivatives in a liability position.

 

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10. Stockholders’ deficit

Class A and Class B common stock

The Company’s authorized common stock consists of 24,819,971 shares of no par, Class A Voting Common Stock and 6,288,468 shares of no par, Class B Nonvoting Common Stock.

Each class of common stock has equal and identical rights, preferences and limitations, other than voting. The holders of Class A common stock are entitled to one vote per share on all matters submitted to the stockholders for a vote and holders of Class B common stock have no voting rights. Also, the holders of Class A and Class B common stock are entitled to dividends at the sole discretion of the Board of Directors. No common stock dividends were declared or paid in 2015 and 2016.

In October 2015, the Company acquired Altair Bellingham, LLC from significant stockholders of the Company for cash of $0.7 million, which was paid in February 2016. This transaction was reported as a return of capital for the year ended December 31, 2015.

In December 2013, the Company issued warrants to purchase 750,000 shares, subject to certain terms and conditions, at an exercise price of $18.00 per share as part of a Class A Voting Common Stock repurchase from a single investor. The warrants expired in December 2015 without having been exercised.

11. Stock-based compensation

2001 stock-based compensation plans

Nonqualified stock option plan

In 2001, the Company established the Nonqualified Stock Option Plan (“NSO Plan”) under which 1,586,960 stock options with an exercise price of $.0001 remain outstanding at December 31, 2016. The NSO Plan was terminated in 2003. Stock options under the NSO plan were immediately vested and have a contractual term of 35 years from the date of grant. The outstanding awards will continue to be governed by their existing terms under the NSO Plan. The NSO Plan is accounted for as an equity plan.

The following table summarizes the stock option activity under the NSO Plan:

 

		Number of options				Weighted average exercise price per share				Weighted average remaining contractual term (years)
Outstanding at January 1, 2016			2,272,611			$	0.0001				21 years
Granted			—				—
Exercised			(685,651	)		$	0.0001
Forfeited			—			$	—
Outstanding at December 31, 2016			1,586,960			$	0.0001				20 years
Granted (unaudited)			—				—
Exercised (unaudited)			—			$	—
Forfeited (unaudited)			—			$	—
Outstanding at March 31, 2017 (unaudited)			1,586,960			$	0.0001				20 years
Exercisable at December 31, 2016			1,586,960			$	0.0001				20 years
Exercisable at March 31, 2017 (unaudited)			1,586,960			$	0.0001				20 years

 

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Incentive and nonqualified stock-based plan

Also in 2001, the Company established the Incentive and Nonqualified Stock-based Plan (“ISO Plan”) which was terminated in 2011 and was authorized to issue nonqualified stock options (“NQSO”) and incentive stock options (“ISO”) totaling 2,788,468 shares of Class B, nonvoting stock. The NQSO grants could be issued at less than the fair market value at date of grant under the terms of the ISO Plan, while ISO grants were issued at a price equal to or greater than the fair market value at date of grant. Options generally vest over a two to three year period. All options have a contractual term of ten years from the date of grant. At December 31, 2015 and 2016, and March 31, 2017, there were 905,938, 743,186 and 737,186 options outstanding, respectively, under the ISO Plan.

Options granted under the ISO Plan are accounted for as liability awards as the terms of the awards could require or allow repurchase of the shares at amounts different than fair value. The Company made the accounting policy election to use the intrinsic value method of accounting to determine stock-based compensation liabilities for these awards.

The ISO Plan also includes stock-based compensation liability for 435,601, 585,149, and 589,149 Class B shares outstanding at December 31, 2015 and 2016 and March 31, 2017, respectively, resulting from the Company’s call feature with an exercise price that may be set at less than the fair market value at date of grant under the terms of the ISO Plan. The Company utilized fair value of the outstanding Class B shares to determine the stock-based compensation liabilities for these shares.

The following table summarizes the stock option activity under the 2001 Stock-based compensation plans for the periods indicated as follows:

 

		Number of options				Weighted average exercise price per share				Weighted average remaining contractual term (years)
Outstanding at December 31, 2015			905,938			$	2.27				3.8
Granted			—				—
Exercised			(154,206	)		$	0.94
Expired			(3,903	)		$	0.92
Forfeited			(4,643	)		$	2.12
Outstanding at December 31, 2016			743,186			$	2.56				3.4
Granted (unaudited)			—				—
Exercised (unaudited)			(6,000	)		$	2.56
Forfeited (unaudited)			—			$	—
Outstanding at March 31, 2017 (unaudited)			737,186			$	2.56				3.1
Exercisable at December 31, 2016			743,186			$	2.56				3.4
Exercisable at March 31, 2017 (unaudited)			737,186			$	2.56				3.1

The total intrinsic value of the ISO Plan stock options exercised during the years ended December 31, 2015 and 2016 was $0.7 million and $2.7 million, respectively.

2012 stock-based compensation plans

During 2012, the Company established the 2012 Incentive and Nonqualified Stock Option Plan (“2012 Plan”) which permits the issuance of 1,300,000 shares of Class B Nonvoting Common Stock for the grant of nonqualified stock options (“NQSO”) and incentive stock options (“ISO”) for management, other employees, and board of directors of the Company. The options are issued at a price equal to or greater than fair market value at date of grant. All options have a contractual term of 10 years from date of grant.

 

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The 2012 Plan is accounted for as an equity plan. For those options expected to vest, compensation expense is recognized on a straight-line basis over a four year period, the total requisite service period of the awards. Compensation expense related to the 2012 Plan was $0.6 million and $0.6 million for the years ended December 31, 2015 and 2016, respectively.

The following table summarizes the stock option activity under the 2012 Plan for the periods indicated as follows:

 

		Number of options				Weighted average exercise price per share				Weighted average remaining contractual term (years)
Outstanding at December 31, 2015			452,955			$	12.12				8.2
Granted			33,988			$	15.61
Exercised			(31,180	)		$	9.91
Forfeited			(6,450	)		$	12.90
Outstanding at December 31, 2016			449,313			$	12.52				7.5
Granted (unaudited)			—			$	—
Exercised (unaudited)			(8,025	)		$	12.46
Forfeited (unaudited)			(3,225	)		$	17.35
Outstanding at March 31, 2017 (unaudited)			438,063			$	12.48				7.2
Exercisable at December 31, 2016			264,919			$	11.43				6.9
Exercisable at March 31, 2017 (unaudited)			259,169			$	11.46				6.7

Total compensation cost related to nonvested awards not yet recognized as of December 31, 2016 totaled $0.9 million, and is expected to be recognized over a weighted average period of 2.4 years.

The Company measures the fair value of its equity awards on the date of grant using the Black-Scholes option pricing model. This valuation model requires the Company to make certain estimates and assumptions, including assumptions related to the expected price volatility of the Company’s stock, the period under which the options will be outstanding, the rate of return on risk-free investments, and the expected dividend yield for the Company’s stock.

The weighted average assumptions used in the Black-Scholes option pricing model used to calculate the fair value of options granted during the year ended December 31, 2015 and 2016, were as follows:

 

		2015 grants				2016 grants
Weighted average grant date fair value per share		$	5.70			$	5.67-$6.61
Expected volatility			37%				37%
Expected term (in years)			6.25				5.75-6.25
Risk-free interest rate			1.98%				1.37%-1.79%
Expected dividend yield			0%				0%

 

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The Company’s equity value was estimated utilizing a combination of the Discounted Cash Flow Method under the Income Approach, the Guideline Public Company Method, and the Transaction Method under the Market Approach. The equity value is used to derive the fair value per share which is used as an input in the Black Scholes option pricing model. The estimated volatility was derived using the historical volatility of the returns of comparable publicly traded companies. The risk-free rate was based on U.S. Treasury zero-coupon yield curves with a remaining term equal to the expected term of the option. The Company has not historically paid dividends and does not anticipate paying cash dividends in the foreseeable future. The Company used the simplified method to determine expected term.

The stock-based compensation expense was recorded as follows (in thousands):

 

		Year ended December  31,								Three months ended March 31,
		2015				2016				2016				2017
										(unaudited)
Cost of revenue-software		$	44			$	22			$	8			$	5
Sales and marketing			109				775				13				431
General and administrative			295				2,965				26				1,658
Research and development			149				1,370				12				775
Total stock-based compensation expense		$	597			$	5,132			$	59			$	2,869

12. Other expense (income), net

Other expense (income), net consists of the following (in thousands):

 

		Year ended December  31,								Three months ended March 31,
		2015				2016				2016				2017
										(unaudited)
Foreign exchange (gain) loss		$	973			$	(271	)		$	(297	)		$	444
Other			(191	)			(249	)			37				(85	)
Other expense (income), net		$	782			$	(520	)		$	(260	)		$	359

13. Income taxes

The components of income (loss) before income taxes are as follows (in thousands):

 

		Year ended December  31,
		2015				2016
U.S.		$	(6,861	)		$	(2,225	)
Non-U.S.			18,610				15,927
		$	11,749			$	13,702

 

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The significant components of the income tax expense are as follows (in thousands):

 

		Year ended December  31,
		2015				2016
Current
U.S. Federal		$	—			$	—
Non-U.S.			9,893				9,413
U.S. State and Local			56				202
Total current			9,949				9,615
Deferred
U.S. Federal			(8,445	)			(5,358	)
Non-U.S.			(587	)			(610	)
U.S. State and Local			(99	)			(108	)
Total deferred			(9,131	)			(6,076	)
Income tax expense		$	818			$	3,539

The reconciliation of income taxes calculated at the U.S. Federal statutory income tax rate of 35% to income tax expense is as follows (in thousands):

 

		Year ended December  31,
		2015				2016
Income taxes at U.S. federal statutory rate		$	4,117			$	4,796
Foreign income taxes at rates other than the federal statutory rate			(10	)			(584	)
U.S. state and local income taxes, net of U.S. federal tax benefit			(47	)			94
Foreign withholding taxes			3,790				4,235
Foreign dividends			4,152				5,077
U.S. foreign tax credit			(9,808	)			(8,786	)
Research and development tax credit			(1,608	)			(2,696	)
Domestic production activities deduction			(833	)			(840	)
Non-deductible stock-based compensation			234				2,064
Meals & entertainment			258				235
Other			125				(91	)
Deferred tax on investment in subsidiary			(214	)			(264	)
Uncertain tax position			662				299
Income tax expense		$	818			$	3,539

 

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Deferred income tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statements purposes. The approximate tax effect of each type of temporary difference, and operating losses and tax credit carryforwards that give rise to a significant portion of the deferred tax assets and liabilities are as follows (in thousands):

 

		December 31,
		2015				2016
Deferred tax assets:
Deferred revenue		$	11,806			$	16,966
Net operating loss carryforwards			2,165				3,550
Tax credit carryforwards			22,878				17,839
Stock-based compensation			15,850				15,825
Capitalized research and development			8,343				12,492
Accrued expenses			1,775				1,775
Employee benefits			2,427				3,995
Other			1,974				2,527
Total deferred tax assets			67,218				74,969
Less: valuation allowance for deferred tax assets			(2,452	)			(4,153	)
Net deferred tax assets			64,766				70,816
Deferred tax liabilities:
Prepaid royalties			4,889				5,821
Property and equipment and intangibles			2,619				2,394
Deferred tax on investment in subsidiary			536				272
Other			623				812
Total deferred tax liabilities			8,667				9,299
Net deferred tax assets		$	56,099			$	61,517

Provisions are made for estimated U.S. and non-U.S. income taxes, less available tax credits and deductions, which may be incurred on the remittance of basis differences in investments in foreign subsidiaries not deemed to be indefinitely reinvested. Deferred income taxes have not been provided on basis differences in investments of certain foreign subsidiaries which are deemed to be indefinitely reinvested of approximately $3.6 million for the year ended December 31, 2016. There are no other material liabilities for income taxes on the undistributed earnings of foreign subsidiaries as the Company has concluded that such earnings are indefinitely reinvested or should not give rise to additional income tax liabilities as a result of the distribution of such earnings.

The following table summarizes the changes to the valuation allowance balance at December 31, 2016 (In thousands):

 

Beginning balance		$	2,452
Additions charged to expense			177
Deductions			(207	)
Other			1,731
Ending balance		$	4,153

 

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The following table summarizes the amount and expiration dates of operating loss and tax credit carryforwards at December 31, 2016 (in thousands):

 

		Expiration dates				Amounts
U.S. general business credits and loss carryforwards			2018-2036			$	19,003
Foreign loss carryforwards			indefinite				1,993
U.S. foreign tax credits			2024				393
Total operating loss and tax credit carryforwards						$	21,389

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):

 

		Year ended December 31,
		2015				2016
Unrecognized tax benefits—January 1		$	4,712			$	5,305
Increase in unrecognized tax benefits as a result of:
Additions for tax positions of current period			826				299
Reductions for tax positions of prior periods			(233	)			—
Unrecognized tax benefits—December 31		$	5,305			$	5,604

At December 31, 2016, the Company had $5.6 million of gross unrecognized tax benefits that if recognized would affect the effective tax rate and adjustments to other tax accounts, primarily deferred taxes. It is reasonably possible that a change in the Company’s gross unrecognized tax benefits may occur in the next twelve months; however, it is not possible to reasonably estimate the effect this may have upon the gross unrecognized tax benefits.

The Company operates globally but considers its more significant tax jurisdictions to include the United States, India, Germany, Japan, and China. India has tax years open for examination from 2005 through 2015. All other significant jurisdictions have open tax years from 2013 through 2015.

The Company records interest and penalties with respect to unrecognized tax benefits as a component of the provision for income taxes. For the year ended December 31, 2015, accrued interest and penalties related to unrecognized tax benefits were $0.1 million and for the year ended December 31, 2016, accrued interest and penalties related to unrecognized tax benefits were insignificant.

At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date income (loss) before income taxes. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.

The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected income (loss) before income taxes for the year, projections of the proportion of income (and/or loss) earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. Jurisdictions with a projected loss for the year or a year-to-date loss for which no tax benefit or expense can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The

 

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estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or our tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.

The Company’s income tax expense (benefit) and effective tax rate for the three months ended March 31, 2016 and 2017 were as follows (in thousands, except percentages):

 

		Three months ended March 31,
		2016				2017
		(unaudited)
Income tax expense (benefit)		$	1,721			$	(772	)
Effective tax rate			54%				26%

The effective tax rate was 26% and 54% for the three months ended March 31, 2017 and 2016, respectively. The tax rate is affected by the Company being a U.S. resident taxpayer, the tax rates in the U.S. and other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income which no benefit or expense was recognized due to a valuation allowance. The effective tax rate was impacted by the geographic income mix in 2017 as compared to 2016, primarily related to United States pre-tax income of $4.3 million for 2016 versus $5.5 million pre-tax loss for 2017.

14. Income (loss) per share

Basic income (loss) per share attributable to common stockholders is computed using the weighted average number of shares of common stock outstanding for the period, excluding stock options. Diluted income (loss) per share attributable to common stockholders is based upon the weighted average number of shares of common stock outstanding for the period and potentially dilutive common shares, including the effect of stock options under the treasury stock method. The following table sets forth the computation of the numerators and denominators used in the basic and diluted income (loss) per share amounts (in thousands, except per share data):

 

		Year ended December  31,								Three months ended March 31,
		2015				2016				2016				2017
										(unaudited)
Numerator:
Net income (loss)		$	10,931			$	10,163			$	1,481			$	(2,188	)
Denominator:
Denominator for basic income (loss) per share—weighted average shares			11,652				12,213				11,797				12,533
Effect of dilutive securities, stock options			3,025				2,251				2,983				—
Denominator for dilutive income (loss) per share			14,677				14,464				14,780				12,533
Net income (loss) per share attributable to common stockholders, basic		$	0.94			$	0.83			$	0.13			$	(0.17	)
Net income (loss) per share attributable to common stockholders, diluted		$	0.74			$	0.70			$	0.10			$	(0.17	)

 

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The computation of diluted income (loss) per share does not include shares that are anti-dilutive under the treasury stock method because their exercise prices are higher than the average fair value of the Company’s stock during the year. For the year ended December 31, 2015 there were 0.2 million potentially anti-dilutive shares, which were excluded from the computation of income (loss) per share. For the year ended December 31, 2016 there were no anti-dilutive shares excluded from the computation of income (loss) per share. For the three months ended March 31, 2016 and 2017, respectively, there were 0.1 million and 2.4 million anti-dilutive shares excluded from the computation of income (loss) per share.

15. Retirement benefits

The Company sponsors a 401(k) profit sharing plan (the “Plan”) for all eligible U.S. employees. This Plan allows eligible employees to contribute up to 80% of their compensation to the Plan. The Company makes discretionary matching contributions to the Plan provided the employee is employed on the last day of the year. Such discretionary contributions vest ratably over five years of service. The Company’s contributions to the Plan were $0.9 million and $1.1 million for the years ended December 31, 2015 and 2016, respectively.

The Company also participates in government-mandated retirement and/or termination indemnity plans, benefiting certain non-U.S. employees. Termination benefits are generally lump sum payments based upon an individual’s years of credited service and annual salary at retirement. These plans are generally unfunded and employees receive payments at the time of retirement or termination under applicable labor laws or agreements. The amount of net benefit cost recorded in the consolidated statements of operations for these plans was $0.6 million and $0.9 million in 2015 and 2016, respectively. The amount of benefits paid under these plans was $0.1 million and $0.2 million in 2015 and 2016, respectively. The accumulated benefit obligation, unlike the projected benefit obligation, does not reflect expected benefit increases from future salary levels, and was $1.7 million and $3.0 million at December 31, 2015 and 2016, respectively, under these plans. The liability for pension benefits representing the projected benefit obligation, net of plan assets of $0.4 million and $0.7 million, under these plans was $4.7 million and $6.3 million at December 31, 2015 and 2016, respectively. A summary of the components of the pension benefits obligation recorded in the consolidated balance sheets are as follows (in thousands):

 

		December 31,
		2015				2016
Accrued compensation and benefits		$	265			$	332
Other long-term liabilities			4,436				5,959
		$	4,701			$	6,291

The estimated future benefit payments, which reflect expected future service, that are expected to be paid for each of the next five years (in thousands):

 

Year ending
December 31, 2017		$	356
December 31, 2018		$	193
December 31, 2019		$	261
December 31, 2020		$	299
December 31, 2021		$	185
Next five years		$	1,535

 

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16. Accumulated other comprehensive loss

The components of accumulated other comprehensive loss is as follows (in thousands):

 

		Foreign currency translation				Retirement related benefit plans				Total
Balance at December 31, 2014		$	(3,631	)		$	(710	)		$	(4,341	)
Other comprehensive loss before reclassification			(3,068	)			(217	)			(3,285	)
Tax effects			953				(36	)			917
Other comprehensive loss			(2,115	)			(253	)			(2,368	)
Less: Other comprehensive income (loss) attributable to noncontrolling interest			(1	)			—				(1	)
Balance at December 31, 2015			(5,745	)			(963	)			(6,708	)
Other comprehensive loss before reclassification			80				(771	)			(691	)
Tax effects			(60	)			195				135
Other comprehensive income (loss)			20				(576	)			(556	)
Less: Other comprehensive income (loss) attributable to noncontrolling interest			—				—				—
Balance at December 31, 2016			(5,725	)			(1,539	)			(7,264	)
Other comprehensive income (loss) before reclassification (unaudited)			357				(55	)			302
Amounts reclassified from accumulated other comprehensive loss (unaudited)			—				44				44
Tax effects (unaudited)			—				—				—
Other comprehensive income (loss) (unaudited)			357				(11	)			346
Balance at March 31, 2017 (unaudited)		$	(5,368	)		$	(1,550	)		$	(6,918	)

17. Related party transactions

In February 2017, the Company purchased the noncontrolling interest in a consolidated subsidiary from a founder stockholder for an aggregate purchase price of $29 thousand (unaudited).

In January 2016, the Company redeemed 87,600 shares of Class B Non-Voting Common Stock from founder stockholders for an aggregate purchase price of $1.3 million payable in twelve equal monthly installments.

In June 2016, the Company redeemed 34,317 shares of Class B Non-Voting Common Stock from a related party for an aggregate purchase price of $0.5 million payable in two equal installments.

In December 2016, the Company redeemed 14,777 shares of Class B Non-Voting Common Stock from a related party for an aggregate purchase price of $0.3 million payable in twelve equal monthly installments.

In December 2016, the Company redeemed 28,347 shares of Class A Voting Common Stock from a founder stockholder for an aggregate purchase price of $0.6 million payable in nine equal monthly installments.

In October 2015, the Company acquired Altair Bellingham, LLC from significant stockholders of the Company for cash of $0.7 million, which was paid in February 2016.

In 2015, the Company redeemed 50,000 shares of Class B Non-Voting Common Stock for an aggregate purchase price of $0.7 million payable in equal monthly installments of principal and interest over three years.

 

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At December 31, 2015 and 2016, and March 31, 2017, respectively, the Company had obligations to related parties for the redemptions summarized above in the amounts of $1.3 million, $1.0 million and $0.8 million (unaudited) recorded in other accrued expenses and current liabilities, and $0.4 million, $0.1 million and $0.1 million (unaudited) recorded in other long-term liabilities.

At December 31, 2015 and 2016, and March 31, 2017, respectively, the Company had receivables from an equity investment for $0.2 million, $0.4 million and $0.5 million (unaudited) recorded in other long-term assets.

18. Commitments and contingencies

MSC Litigation

In July 2007, MSC Software Corporation filed a lawsuit against the Company alleging misappropriation of trade secrets, breach of confidentiality and other claims. On April 10, 2014, a jury returned a verdict against the Company. The Company challenged the verdict and on November 13, 2014, a judge vacated all but $0.4 million of the judgment and ordered a new trial on damages. The Company has estimated and recorded a liability for the probable loss.

Legal proceedings

From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company has received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend the Company, its partners and its customers by determining the scope, enforceability and validity of third party proprietary rights, or to establish and enforce the Company’s proprietary rights. The results of any current or future litigation cannot be predicted with certainty and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

Royalty agreements

The Company has entered into various renewable, nonexclusive license agreements under which the Company has been granted access to the licensor’s technology and the right to sell or use the technology in the Company’s products. Royalties are payable to developers of the software at various rates and amounts, which generally are based upon unit sales or revenue. Royalty fees were $7.1 million, and $7.9 million for the years ended December 31, 2015 and 2016, respectively, and are reported in Cost of revenue-software.

Leases

The Company leases office space, vehicles, and computer equipment. Such leases, some of which are noncancelable, are set to expire at various dates. Certain of these lease arrangements contain escalation clauses whereby monthly rent increases over time.

 

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The future minimum annual lease payments under noncancelable operating leases with an initial term in excess of one year and future minimum capital lease payments at December 31, 2016 are as follows (in thousands):

 

		Capital leases				Operating leases
Year Ending December 31,
2017		$	131			$	7,362
2018			65				4,801
2019			—				3,309
2020			—				1,879
2021			—				1,159
Thereafter			—				21
Total minimum lease payments			196			$	18,531
Less: current installments under capital lease obligations			131
Total long-term portion		$	65

Rent expense for operating leases was $7.7 million and $8.5 million for the years ended December 31, 2015 and 2016, respectively.

19. Segment information

The Company defines its operating segments as components of its business where separate financial information is available and used by the chief operating decision maker (“CODM”) in deciding how to allocate resources to its segments and in assessing performance. The Company’s CODM is its Chief Executive Officer.

The Company has identified two reportable segments for financial reporting purposes: Software and Client Engineering Services. The primary measure of segment operating performance is Adjusted EBITDA, which is defined as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, restructuring charges, asset impairment charges and other special items as determined by management. Adjusted EBITDA includes an allocation of corporate headquarters costs.

The Software reportable segment derives revenue from the sale and lease of licenses for software products focused on the development and application of simulation technology to synthesize and optimize designs, processes and decisions for improved business performance. The Software segment also derives revenue from software support, upgrades, training and consulting services focused on product design and development expertise and analysis support from the component level up to complete product engineering at any stage of the lifecycle.

The Client Engineering Services reportable segment provides support to its customers with long-term ongoing product design and development expertise in its market segments of Solvers & Optimization, Modeling & Visualization, Industrial and Concept Design, and high-performance computing. The Company hires simulation specialists, industrial designers, design engineers, materials experts, development and test specialists, manufacturing engineers and information technology specialists for placement at customer sites for specific customer-directed assignments.

The “All other” represents innovative services and products, including toggled^®, the Company’s LED lighting and IoT business. toggled^® is focused on developing and selling next-generation solid state lighting technology along with communication and control protocols based on intellectual property for the direct replacement of fluorescent light tubes with LED lamps. Potential services and product concepts that are still in their development stages are also included in “All other.”

 

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Inter-segment sales are not significant for any period presented. The CODM does not review asset information by segment when assessing performance, therefore no asset information is provided for reportable segments. The accounting policies of the segments are the same as those described in Note 2—Summary of significant accounting policies. The following tables are in thousands:

 

Year ended December 31, 2015		Software				Client engineering services				All other				Total
Revenue		$	242,861			$	45,075			$	6,193			$	294,129
Adjusted EBITDA		$	23,149			$	4,776			$	(4,976	)		$	22,949

 

Year ended December 31, 2016		Software				Client engineering services				All other				Total
Revenue		$	259,588			$	47,702			$	5,950			$	313,240
Adjusted EBITDA		$	29,411			$	5,425			$	(4,006	)		$	30,830

 

Three months ended March 31, 2016		Software				Client engineering services				All other				Total
Revenue (unaudited)		$	61,266			$	11,946			$	1,617			$	74,829
Adjusted EBITDA (unaudited)		$	6,137			$	977			$	(854	)		$	6,260

 

Three months ended March 31, 2017		Software				Client engineering services				All other				Total
Revenue (unaudited)		$	63,068			$	12,229			$	1,585			$	76,882
Adjusted EBITDA (unaudited)		$	2,933			$	1,029			$	(1,053	)		$	2,909

 

		Year ended December 31,								Three months ended March 31,
		2015				2016				2016				2017
										(unaudited)
Reconciliation of U.S. GAAP Net income (loss) to Adjusted EBITDA:
Net income (loss)		$	10,931			$	10,163			$	1,481			$	(2,188	)
Income tax expense (benefit)			818				3,539				1,721				(772	)
Stock-based compensation expense			597				5,132				59				2,869
Interest expense			2,416				2,265				690				611
Interest income and other			(191	)			(249	)			37				(85	)
Depreciation and amortization			8,378				9,980				2,272				2,474
Adjusted EBITDA		$	22,949			$	30,830			$	6,260			$	2,909

 

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Revenue is attributed to geographic areas based on the country of origin. The following table provides sales to external customers and long-lived assets for each of the geographic areas in which the Company operates (in thousands):

 

		December 31, 2016
		Revenue								Long-lived assets(1)
		2015				2016				2015				2016
United States		$	130,791			$	139,079			$	22,301			$	25,901
Other countries			4,841				6,032				95				120
Total Americas			135,632				145,111				22,396				26,021
Germany			37,549				39,470				1,871				2,660
France			14,057				15,729				572				2,175
Other countries			35,933				34,909				4,619				4,317
Total Europe, Middle East and Africa			87,539				90,108				7,062				9,152
Japan			26,795				33,198				976				879
Other countries			44,163				44,823				3,038				2,999
Total Asia Pacific			70,958				78,021				4,014				3,878
Total		$	294,129			$	313,240			$	33,472			$	39,051

 

(1)

Includes property and equipment, net and definite-lived intangible assets, net.

20. Subsequent events

On April 3, 2017, the Company completed a recapitalization of its capital stock by filing a certificate of amendment to our articles of incorporation with the State of Michigan pursuant to which: (i) each share of the Company’s Class A voting common stock, or the Company’s old Class A shares, automatically converted into one share of new Class B voting common stock entitled to ten votes per share; and (ii) each share of the Company’s Class B non-voting common stock, or the Company’s old Class B shares, automatically converted into one share of new Class A voting common stock entitled to one vote per share, in each case, without any further action on the part of the holders thereof. This transaction is referred to as the “Recapitalization.”

In May 2017 the Company entered into a software assignment agreement with Easii IC SAS, a Société par Actions Simplifiée, or Easii, and acquired all rights, title and interests in certain of Easii’s software, known as Modeliis, for $2.0 million and 50,000 shares of our Class A voting common stock. Modeliis is Electronic Design Automation, or EDA, software for circuit modeling, system design, and simulation.

In May 2017, the Company acquired 100% of the shares of Carriots S.L. for $3.6 million cash, $3.2 million notes payable, and 20,000 shares of the Company’s new Class A voting stock. Carriots is an Internet of Things (“IoT”) Cloud platform that allows easy development of new IoT enabled products.

The Company has evaluated subsequent events through June 16, 2017, the date the consolidated financial statements were available to be issued.

 

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             shares

ALTAIR ENGINEERING INC.

Class A common stock

 

 

J.P Morgan		RBC Capital Markets		Deutsche Bank Securities

 

Canaccord Genuity		William Blair

Until                     , 2017 (the 25th day after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

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Part II

Information not required in the prospectus

Item 13. Other expenses of issuance and distribution.

The following table sets forth all fees and expenses to be paid by us, other than estimated underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the registration fee, the FINRA filing fee and the exchange listing fee.

 

		Amount to be paid
SEC registration fee				*
FINRA filing fee				*
Securities exchange fee				*
Printing and engraving expenses				*
Legal fees and expenses				*
Accounting fees and expenses				*
Blue Sky fees and expenses (including legal fees)				*
Transfer agent and registrar fees and expenses				*
Miscellaneous				*
Total		$		*

 

*

To be filed by amendment.

Item 14. Indemnification of directors and officers.

In connection with the completion of this offering, we intend to reincorporate in Delaware. Section 145 of the Delaware General Corporation Law, or DGCL, authorizes a corporation’s board of directors to grant, and authorizes a court to award, indemnity to officers, directors, and other corporate agents under certain circumstances and subject to certain limitations. The terms of Section 145 of the DGCL are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, or the Securities Act.

On completion of this offering, as permitted by the DGCL, our certificate of incorporation and bylaws will include provisions that eliminate the personal liability of its directors and officers for monetary damages for breach of their fiduciary duty as directors and officers.

In addition, as permitted by Section 145 of the DGCL, our certificate of incorporation and bylaws will provide that:

 

•

we shall indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;

 

•

we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;

 

•

we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such director or officer shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;

 

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•

we will not be obligated pursuant to our Delaware bylaws to indemnify a person with respect to proceedings initiated by that person, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification;

 

•

the rights conferred in our certificate of incorporation and bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees, and agents and to obtain insurance to indemnify such persons; and

 

•

we may not retroactively amend the bylaw provisions to reduce our indemnification obligations to directors, officers, employees, and agents.

Our policy is to enter into separate indemnification agreements with each of our directors and certain officers that provide the maximum indemnity allowed to directors and executive officers by Section 145 of the DGCL and also to provide for certain additional procedural protections. We also maintain directors and officers insurance to insure such persons against certain liabilities.

These indemnification provisions and the indemnification agreements to be entered into between us and our directors and officers may be sufficiently broad to permit indemnification of our officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act.

The Underwriting Agreement to be filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of us, our executive officers and directors and the selling stockholders, and by us and the selling stockholders of the underwriters for certain liabilities, including liabilities arising under the Securities Act and otherwise.

We have purchased and intend to maintain insurance on behalf of any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to certain exclusions. Prior to the completion of this offering, we may procure additional insurance to provide coverage to our directors and officers against loss arising from claims relating to, among other things, public securities matters.

See also the undertakings set out in response to Item 17 herein.

Item 15. Recent sales of unregistered securities.

Set forth below is information regarding shares of our capital stock issued by us within the past three years. Also included is the consideration received by us for such shares and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.

Plan-related issuances

From June 12, 2014 through June 12, 2017, we granted to our directors, officers, employees, consultants and other service providers options to purchase an aggregate of 367,167 shares of our old Class B Common Stock with per share exercise prices ranging from $14.22 to $20.73 under our 2012 Stock Plan.

From June 12, 2014 through June 12, 2017, we issued to our directors, officers, employees, consultants and other service providers an aggregate of 85,618 shares of our old Class B Common Stock with per share exercise prices ranging from $9.91 to $18.09 pursuant to exercises of options granted under our 2012 Stock Plan.

From June 12, 2014 through June 12, 2017, we issued to our directors, officers, employees, consultants and other service providers an aggregate of 1,044,871 shares of our old Class B Common Stock with per share exercise prices ranging from $0.0001 to $0.0001 pursuant to exercises of options granted under our 2001 Nonqualified Stock Option Plan.

From June 12, 2014 through June 12, 2017, we issued to our directors, officers, employees, consultants and other service providers an aggregate of 236,617 shares of our old Class B Common Stock with per share exercise

 

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prices ranging from $0.92 to $5.15 pursuant to exercises of options granted under our 2001 Incentive and Nonqualified Stock-based Plan.

Shares issued in connection with acquisitions

On May 31, 2014, we issued an aggregate of 164,841 shares of our old Class A common stock to the stockholders of EM Software & Systems GmbH and EM Software & Systems (USA) Inc., or the EMSS Entities, as partial consideration for our acquisition of all of the outstanding equity of the EMSS Entities pursuant to the terms of the agreement for stock subscription, purchase and sale and related transactions under which we acquired the EMSS Entities.

In connection with our acquisition of the EMSS Entities, on May 31, 2014, we issued 3,500 shares of our old Class A Common Stock to an EMSS-affiliated purchaser for an aggregate purchase price of $55,230.

From September 10, 2014 to October 14, 2014, we issued an aggregate of 31,659 shares of our old Class A Common Stock to certain EMSS-affiliated purchasers for an aggregate purchase price of $499,579.02, in connection with the acquisition of the EMSS Entities.

On August 15, 2014, we issued an aggregate of 40,000 shares of our old Class A Common Stock to the stockholders of Visual Solutions, Inc., or VSI, as partial consideration for our acquisition of all of the outstanding equity of VSI pursuant to the terms of the stock purchase agreement under which we acquired VSI.

On March 12, 2015, we issued 50,000 shares of our old Class A Common Stock to the sole stockholder of Multiscale Design Systems, LLC, or MDS, as partial consideration for our acquisition of all of the outstanding equity of MDS pursuant to the terms of the membership interest purchase agreement under which we acquired MDS.

On May 5, 2017, we issued 20,000 shares of our Class A Common Stock to the shareholders of Carriots,S.L, or Carriots, as partial consideration for our acquisition of all of the outstanding equity of Carriots pursuant to the terms of the share purchase agreement under which we acquired Carriots.

On May 5, 2017, we issued 50,000 shares of our Class A Common Stock to Easii IC SAS, or Easii, as partial consideration for its assignment of all of its rights to some of its software pursuant to the terms of the software assignment agreement under which we acquired the software.

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. We believe these transactions were exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act (or Regulation D or Regulation S promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.

Item 16. Exhibits and financial statement schedules.

(a) Exhibits:

The exhibit index attached hereto is incorporated herein by reference.

 

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(b) Financial statement schedules.

All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Item 17. Undertakings.

(a) The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(c) The undersigned Registrant hereby undertakes that:

 

(1)

For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(2)

For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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Signatures

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of                             , State of                             , on the             day of                    , 2017.

 

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints                and                     , and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Registration Statement and any or all amendments (including post-effective amendments) thereto and any new registration statement with respect to the offering contemplated thereby filed pursuant to Rule 462(b) of the Securities Act, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in connection therewith and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated below:

 

Signature		Title		Date
James R. Scapa		Chairman, Chief Executive Officer and Director (Principal Executive Officer)		, 2017
Howard N. Morof		Chief Financial Officer (Principal Financial and Accounting Officer)		, 2017
James E. Brancheau		Director		, 2017
Steve Earhart		Director		, 2017
Jan Kowal		Director		, 2017
Trace Harris		Director		, 2017
Richard Hart		Director		, 2017

 

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Exhibit index

 

Exhibit No.				Description
	1.1*			Form of Underwriting Agreement
	3.1			Certificate of Incorporation, as amended and as currently in effect
	3.2*			Form of Certificate of Incorporation to be effective immediately prior to the effectiveness of this registration statement
	3.3			Third Amended and Restated Bylaws, as currently in effect
	3.4*			Form of Bylaws to be effective immediately prior to the effectiveness of this registration statement
	4.1*			Specimen Stock Certificate of the Registrant
	5.1*			Opinion of Lowenstein Sandler LLP
	10.1*			Form of Indemnification Agreement between the Registrant and each of its directors and executive officers
	10.2+			2001 Incentive and Non-Qualified Stock Option Plan
	10.3+			Form of 2001 Incentive and Non-Qualified Stock Option Plan Incentive Stock Option Agreement
	10.4+			Form of 2001 Incentive and Non-Qualified Stock Option Plan Stock Restriction and Repurchase Agreement
	10.5+			2001 Non-Qualified Stock Option Plan
	10.6+			Form of 2001 Non-Qualified Stock Option Plan Non-Qualified Stock Option Agreement
	10.7+			Form of 2001 Non-Qualified Stock Option Plan Stock Restriction Agreement
	10.8+			2012 Incentive and Non-Qualified Stock Option Plan
	10.9+			Form of 2012 Incentive and Non-Qualified Stock Option Plan Option Agreement
	10.10+			Form of 2012 Incentive and Non-Qualified Stock Option Plan Stock Restriction and Repurchase Agreement
	10.11+			Form of 2012 Incentive and Non-Qualified Stock Option Plan Stock Restriction and Repurchase Agreement (Directors)
	10.12+*			2017 Equity Incentive Plan and forms of equity agreements thereunder
	10.13+*			Employment Letter, dated January 10, 2013, by and between the Registrant and Howard N. Morof as amended on                 , 2017
	10.14			2017 Second Amended and Restated Credit Agreement, dated June 14, 2017, by and among the Registrant, the foreign subsidiary borrowers, the Lenders named therein and JP Morgan Chase Bank, N.A. as administrative agent
	21.1			List of Subsidiaries of the Registrant
	23.1*			Consent of Independent Registered Public Accounting Firm
	23.2*			Consent of Lowenstein Sandler LLP (contained in Exhibit 5.1)
	24.1*			Power of Attorney (contained in the signature page of this registration statement)

 

*

To be filed by amendment.

 

+

Indicates management contract or compensatory plan.

Exhibit 3.1

BCS/CD-515 (Rev. 11/11)

 

MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS BUREAU OF COMMERCIAL SERVICES
Date Received
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.
Name Steven M. Rivkin, Altair Engineering, Inc.
Address 1820 E. Big Beaver Road
City Troy		State MI		ZIP Code 48083				EFFECTIVE DATE:

Document will be returned to the name and address you enter above.

If left blank, document will be returned to the registered office.

CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION

For use by Domestic Profit and Nonprofit Corporations

(Please read information and instructions on the last page)

Pursuant to the provisions of Act 284, Public Acts of 1972, (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

 

 

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COMPLETE ONLY ONE OF THE FOLLOWING:

 

 

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BCS/CD-515 (Rev. 11/11)		Name of person or organization remitting fees.
Preparer’s Name Steven M. Rivkin		Altair Engineering Inc.
Business telephone number (    248    ) 470-2176

INFORMATION AND INSTRUCTIONS

 

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BCS/CD-510    (Rev. 04/11)

 

MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS BUREAU OF COMMERCIAL SERVICES
Date Received		(FOR BUREAU USE ONLY)
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.
Name Steven M. Rivkin, Altair Engineering, Inc.
Address 1820 E. Big Beaver Road
City Troy		State MI		ZIP Code 48083				EFFECTIVE DATE:

Document will be returned to the name and address you enter above.
If left blank document will be mailed to the registered office.

RESTATED ARTICLES OF INCORPORATION

OF

ALTAIR ENGINEERING INC.

Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned corporation executes the following Articles:

 

1.

The present name of the corporation is: ALTAIR ENGINEERING INC.

 

2.

The identification number assigned by the Bureau is: 151-138

 

3.

All former names of the corporation are: N/A

 

4.

The date of filing the original Articles of Incorporation was: APRIL 17, 1985

The following Restated Articles of Incorporation supersede the Articles of Incorporation as

amended and shall be the Articles of Incorporation for the corporation:

ARTICLE I

NAME

The name of the Corporation is ALTAIR ENGINEERING INC.

ARTICLE II

PURPOSE

The purpose or purposes for which the Corporation is formed is to engage in any activity within the purposes for which corporations may be formed under the Business Corporation Act of Michigan (the “Act”).

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ARTICLE III

SHARES

A. AUTHORIZED SHARES: The aggregate number of shares which the Corporation is authorized to issue is 31,108,439 shares, divided into and consisting of (a) 24,819,971 shares of Class A Voting Common Stock (the “Class A Common Stock”) and (b) 6,288,468 shares of Class B Non-Voting Common Stock (the “Class B Common Stock”, and together with the Class A Common Stock, the “Common Stock”). The Class A Common Stock shall not in any event be converted into Class B Common Stock.

B. VOTING RIGHTS: Each holder of Class A Common Stock, as such, shall be entitled to one vote for each share of Class A Common Stock held of record by such holder on all matters and questions on which shareholders generally are entitled to vote, except as otherwise specifically provided pursuant to these Articles of Incorporation or pursuant to the Act. Holders of the Class B Common Stock shall not be entitled to vote upon any matter or question except as otherwise specifically required by the Act.

C. DISTRIBUTIONS AND DIVIDENDS: The holders of the Common Stock shall be entitled to such distribution, dividend, liquidation and other rights ratably in proportion to the number of shares of Common Stock held by them respectively.

ARTICLE IV

REGISTERED OFFICE/RESIDENT AGENT

1. The address and mailing address of the registered office is:

1820 E. Big Beaver Road, Troy, Michigan 48083

2. The name of the resident agent at the registered office is: James R. Scapa

ARTICLE V

ACTION WITHOUT MEETING

Any action required or permitted by the Act to be taken at an annual or special meeting of shareholders may be taken without a meeting, without prior notice, and without a vote, if consents in writing, setting forth the action so taken, are signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote on the action were present and voted. A written consent shall bear the date of signature of the shareholder who signs the consent. Written consents are not effective to take corporate action unless within 60 days after the record date for determining shareholders entitled to express consent to or to dissent from a proposal without a meeting, written consents dated not more than 10 days before the record date and signed by a sufficient number of shareholders to take the action are delivered to the Corporation. Delivery shall be to the Corporation’s registered office, its principal place of business, or an officer or agent of the Corporation having custody of the minutes of the proceedings of its shareholders. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.

Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to shareholders who would have been entitled to notice

 

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of the shareholder meeting if the action had been taken at a meeting and who have not consented to the action in writing. An electronic transmission consenting to an action must comply with Section 407(3) of the Act.

ARTICLE VI

DIRECTOR LIABILITY

To the full extent permitted by the Act or any other applicable laws presently or hereafter in effect no director of the Corporation shall be personally liable to the Corporation or its shareholders for or with respect to any acts or omissions in the performance of his or her duties as a director of the Corporation. Any repeal or modification of this Article VI shall not adversely affect any right or protection of a director of the Corporation existing hereunder immediately prior to, or for or with respect to any acts or omissions occurring before, such repeal or modification.

ARTICLE VII

INDEMNIFICATION OF OFFICERS AND DIRECTORS

Each person who is or was or had agreed to become a director or officer of the Corporation, or each such person who is or was serving or who had agreed to serve at the request of the Board of Directors as an employee or agent of the Corporation or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Corporation to the full extent permitted by the Act or any other applicable laws as presently or hereafter in effect. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person which provides for indemnification greater or different than that provided in this Article. Any repeal or modification of this Article VII shall not adversely affect any right or protection existing hereunder immediately prior to, or for or with respect to any acts or omissions occurring before, such repeal or modification.

These Restated Articles of Incorporation were duly adopted on the 9th day of November, 2011, in accordance with the provisions of Section 642 of the Act and were duly adopted by the written consent of the shareholders having not less than the minimum number of votes required by statute in accordance with Section 407(1) of the Act. Written notice to shareholders who have not consented in writing has been given.

Signed this 9th day of November, 2011.

 

 

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Exhibit 3.3

THIRD AMENDED AND RESTATED

BYLAWS

OF

ALTAIR ENGINEERING INC.

(A MICHIGAN CORPORATION)

NOVEMBER         , 2011

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TABLE OF CONTENTS

 

ARTICLE I
OFFICES
Section 1.01		Principal Office			1
Section 1.02		Additional Offices			1
ARTICLE II
STOCKHOLDERS/SHAREHOLDERS
Section 2.01		Location of Shareholders Meetings			1
Section 2.02		Time of Annual Shareholders Meetings			1
Section 2.03		Quorum for Transaction of Business			1
Section 2.04		Voting Rights			2
Section 2.05		Notice of Annual Meetings			2
Section 2.06		Time for Notice of Annual Meetings			2
Section 2.07		Closing of Stock Transfer Books; Record Dates			2
Section 2.08		Maintenance and Examination of Voting Shareholders List			2
Section 2.09		Calling of Special Meeting of Shareholders			3
Section 2.10		Scope of Special Meetings of Shareholders			3
Section 2.11		Notice of Special Meetings			3
Section 2.12		Voting by Minors			3
Section 2.13		Voting by Incompetents			3
Section 2.14		Shares Held in Joint Tenancy			3
Section 2.15		Nomination of Directors			3
Section 2.16		Voting for Directors			3
Section 2.17		Waivers of Notice			4
Section 2.18		Proxies			4
Section 2.19		Action by Consent Without Meetings			4
Section 2.20		Participation in Meeting by Conference Telephone			4
Section 2.21		Organization			4
ARTICLE III
DIRECTORS
Section 3.01		Number of Directors			4
Section 3.02		Term of Directorship			4
Section 3.03		Filling of Vacancies on Board			4
Section 3.04		Removal of Directors			5
Section 3.05		Resignation by Directors			5
Section 3.06		Directors Need Not Be Residents or Shareholders			5
Section 3.07		Time of Regular Directors Meetings			5
Section 3.08		Notice of Special Meetings			5
Section 3.09		Quorum for Transaction of Business			5
Section 3.10		Compensation of Directors			5
Section 3.11		Director’s Dissent to Corporate Action			5
Section 3.12		Committees			6
Section 3.13		Action by Consent Without Meetings			6
Section 3.14		Participation in Meeting by Conference Telephone			6
Section 3.15		Powers of the Board			6

 

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ARTICLE IV
OFFICERS
Section 4.01		Mandatory and Optional Officers			6
Section 4.02		Chief Executive Officer			6
Section 4.03		Election and Term of Officers			7
Section 4.04		Removal of Officers			7
Section 4.05		Filling of Vacancies in Offices			7
Section 4.06		Rights and Duties of Chief Executive Officer			7
Section 4.07		Rights and Duties of Chairman of the Board (If Appointed)			8
Section 4.08		Rights and Duties of President			8
Section 4.09		Rights and Duties of Vice President			8
Section 4.10		Rights and Duties of Secretary			8
Section 4.11		Rights and Duties of Treasurer			8
Section 4.12		Rights and Duties of Assistant and Acting Officers			9
Section 4.13		Salaries of Officers			9
Section 4.14		Holding of Dual Offices			9
ARTICLE V
SPECIAL CORPORATE ACTS
Section 5.01		Authorization to Execute and Deliver Contracts			9
Section 5.02		Authorization to Borrow Money or Execute Debt Instruments			9
Section 5.03		Contracts Involving Interested Directors			9
Section 5.04		Representation of Shares of Other Corporations			9
ARTICLE VI
CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 6.01		Signatures and Designations on Share Certificates			10
Section 6.02		Transfer of Shares on Corporate Books			10
Section 6.03		Replacement of Lost or Destroyed Certificates			10
Section 6.04		Consideration Payable for Shares			10
Section 6.05		Further Rules and Regulations Concerning Shares			10
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 7.01		Third Party Proceedings			11
Section 7.02		Derivative Shareholder Liability			11
Section 7.03		Determination of Indemnification			11
Section 7.04		Payment of Defense Expenses in Advance			12
Section 7.05		Right of Officer or Director to Bring Suit			12
Section 7.06		Other Indemnification			13
Section 7.07		Liability Insurance			13
Section 7.08		Definitions			13
ARTICLE VIII
FISCAL YEAR
Section 8.01		Fiscal Year			14

 

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ARTICLE IX
DISALLOWED EXPENSE
Section 9.01		Disallowed Expense			14
ARTICLE X
AMENDMENTS
Section 10.01		Amendments			14
ARTICLE XI
DIVIDENDS
Section 11.01		Dividends			14
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01		Gender and Number			14
Section 12.02		Severability			14
Section 12.03		Captions			15
Section 12.04		Stockholders Agreement			15
Section 12.05		Definitions			15

 

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THIRD AMENDED AND RESTATED

BYLAWS

OF

ALTAIR ENGINEERING INC.

(a Michigan Corporation)

 

 

 

ARTICLE I

OFFICES

Section 1.01 Principal Office. The principal office shall be in the City of Troy, County of Oakland, State of Michigan, or at such other place as the Board of Directors may from time to time determine. The registered office of the Corporation for any particular state may be, but need not be, identical with the principal office of the Corporation in that state and the address of the registered office may be changed from time to time by appropriate resolution of the Board of Directors.

Section 1.02 Additional Offices. The corporation may also have offices and places of business at such other places within or without the State of Michigan as the Board of Directors may determine from time to time.

ARTICLE II

STOCKHOLDERS/SHAREHOLDERS

Section 2.01 Location of Shareholders Meetings. All meetings of the stockholders shall be held at the principal office of the corporation or at any other place within or without the City of Troy, Michigan, as designated by the Board of Directors.

Section 2.02 Time of Annual Shareholders Meetings. The annual meeting of the stockholders shall be held on the second Tuesday in May of each year or such other date, in any particular year, designated by the Board of Directors, for the purpose of electing directors and for the transaction of any other business authorized to be transacted. If the appointed day is a legal holiday the meeting shall be held at the same time on the next succeeding day not a holiday. In the event that the annual meeting is omitted by oversight or otherwise on the date herein provided for, the Board of Directors shall cause a meeting in lieu thereof to be held as soon thereafter as conveniently may be, and any business transacted or elections held at such meeting shall be as valid as if transacted or held at the annual meeting. Such subsequent meeting shall be called in the same manner as provided for the annual stockholders meeting.

Section 2.03 Quorum for Transaction of Business. The holders of a majority of the stock of issued and outstanding, and entitled to vote thereat, present in person, or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these Bylaws. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person, or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of voting stock shall be present. At such adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. If a quorum is present at such meeting, action on a matter, other than the election of directors, taken by vote of the shareholders shall be authorized by a majority of the votes cast by the holders of shares entitled to vote on such action, unless a greater vote is required by the Articles of Incorporation or the Michigan Business Corporation Act. Directors shall be elected by a plurality of the votes cast at any election.

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Section 2.04 Voting Rights. At any meeting of the stockholders every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder. Each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the corporation, except where the transfer books of the corporation shall have been closed or date shall have been fixed as a record date for the determination of its stockholders entitled to vote and except as the Articles of Incorporation otherwise provide.

Section 2.05 Notice of Annual Meetings. Written notice of the annual meeting shall be delivered personally, mailed or delivered via overnight courier to each stockholder entitled to vote thereat at such address designated by the shareholder for that purpose or, if none is designated, at his or her last known address.

Section 2.06 Time for Notice of Annual Meetings. Not less than ten (10) days, nor more than sixty (60) days prior to the date fixed by Section 2.02 of this Article for the holding of an annual meeting of stockholders, written notice stating the place, day and hour of the meeting and the purposes for which the meeting is called shall be delivered personally, mailed or delivered via overnight courier to each shareholder of record entitled to vote at such meeting. If delivered personally, such notice shall be deemed to be delivered when received. If mailed or delivered via overnight courier service, such notice shall be deemed to be delivered when deposited in the United States Mail in a sealed envelope with postage thereon prepaid, or deposited with the overnight courier service, as the case may be, addressed to the shareholder at his address designated by the shareholder for that purpose or, if none is designated, at his or her last known address.

Section 2.07 Closing of Stock Transfer Books; Record Dates. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or entitled to receive the allotment of rights or for the purpose of making necessary determinations in connection with the change or conversion or exchange of capital stock, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period, but not to exceed in any case, sixty (60) days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than sixty (60) days, and in case of a meeting of stockholders, not less than ten (10) days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the close of business on the day next preceding the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders provided that such date shall in no case be more than sixty (60) days prior to the date on which the particular action requiring such determination of stockholders, is to be taken. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section, such determination shall apply to any adjournment thereof. Nothing in this Section shall affect the right of a shareholder and his transferee or transferor as between themselves.

Section 2.08 Maintenance and Examination of Voting Shareholders List. A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order within each class and series, with the address of each, and the number of voting shares held by each, shall be prepared by the Secretary and produced at the time and place, if any, of the meeting and may be inspected by any shareholder during the entire meeting.

 

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Section 2.09 Calling of Special Meeting of Shareholders. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chief Executive Officer and shall be called by the Chief Executive Officer or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders holding shares entitled to cast not less than ten (10%) percent of the votes at such meeting or as soon as practicable following any vacancy in the office of any Director, for the purpose of electing the new Director. Any such request shall state the purpose or purposes of the proposed meeting.

Section 2.10 Scope of Special Meetings of Shareholders. Business transacted at all special meetings shall be confined to the objects stated in the call.

Section 2.11 Notice of Special Meetings. Written notice of a special meeting of stockholders, stating the time and place and purpose thereof shall be given not less than 10 days, nor more than 60 days before such meeting, to each stockholder entitled to vote and otherwise in the manner proscribed in Section 2.06 hereof.

Section 2.12 Voting by Minors. Shares held by a minor may be voted by such minor in person or by proxy and no such vote shall be subject to disaffirmance or avoidance, unless prior to such vote the Secretary of the corporation has received written notice or has actual knowledge that such stockholder is a minor.

Section 2.13 Voting by Incompetents. Shares held by an incompetent person may be voted by such incompetent person in person or by proxy and no such vote shall be subject to disaffirmance or avoidance, unless prior to such vote the Secretary of the corporation has actual knowledge that such stockholder has been adjudicated an incompetent or actual knowledge of filing of judicial proceedings for appointment of a guardian or conservator for such person.

Section 2.14 Shares Held in Joint Tenancy. Shares registered in the names of two or more individuals who are named in the registration as joint tenants may be voted in person or by proxy signed by any one or more of such individuals if either (i) no other such individual or his legal representative is present and claims the right to participate in the voting of such shares or prior to the vote filed with the Secretary of the corporation a contrary written voting authorization or direction or written denial of authority of the individual present or signing the proxy proposed to be voted or (ii) all such other individuals are deceased and the Secretary of the corporation has no actual knowledge that the survivor has been adjudicated not to be the successor to the interests of those deceased.

Section 2.15 Voting for Directors. Except as otherwise provided in the Articles of Incorporation of the corporation or in any stockholders agreement to which the corporation is a party, at each election of Directors every stockholder entitled to vote at such election shall have the right to vote in person or by proxy, the number of shares of voting stock owned by him in the manner provided by the Articles of Incorporation, or if not so provided, in the manner provided by law. No stockholder shall be entitled to cumulate votes at any election of Directors.

Section 2.16 Waivers of Notice. Whenever any notice is required to be given to any stockholder of the corporation under the provisions of these Bylaws or under provisions of the Articles of Incorporation or under any provision of law, a waiver thereof in writing, signed by the person or persons entitled to such notice, or by facsimile transmission, email, telegram, radiogram, or cablegram sent by them, whether before or after the holding of the meeting, shall be deemed equivalent to the giving of such notice. Any meeting at which all stockholders entitled to vote have waived or at any time shall waive notice in the manner provided herein shall be a legal meeting for the transaction of business, notwithstanding that notice has not been given as hereinbefore provided.

 

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Section 2.17 Proxies. Shareholders of record who are entitled to vote may vote at any meeting either in person or by written proxy, which shall be filed with the secretary of the meeting before being voted. Such proxy shall entitle the holders thereof to vote at any adjournment of such meeting. A proxy shall be valid for the length of time specified therein, provided that no proxy shall be valid after the expiration of three (3) years from the date of its execution. A proxy is revocable by the shareholder unless it conspicuously states that it is irrevocable and the appointment of the proxy is coupled with an interest or otherwise complies with Section 422 of the Michigan Business Corporation Act.

Section 2.18 Action by Consent Without Meetings. Any action by the stockholders required or permitted by the Articles of Incorporation or Bylaws or any provision of law may be taken without a meeting, if consent in writing, setting forth the action so taken, shall be signed the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were present and voted. Such consent shall have the same effect as a vote of stockholders.

Section 2.19 Participation in Meeting by Conference Telephone. A stockholder may participate in a meeting of stockholders by means of a conference telephone or similar communications equipment if (i) all persons participating in the meeting are able to hear each other and (ii) all participants are advised of the communications equipment as well as the names of the participants in the conference. Participation in a meeting pursuant to this Section shall constitute presence in person at the meeting.

Section 2.20 Organization. At every meeting of the shareholders the Chief Executive Officer of the corporation, or, in his absence, a director or an officer of the corporation designated by the Board shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary, shall act as secretary at all meetings of the shareholders. In the absence from any such meeting of the Secretary and any Assistant Secretary, the chairman may appoint any person to act as secretary of the meeting.

ARTICLE III

DIRECTORS

Section 3.01 Number of Directors. The property and business of the corporation shall be managed by its Board of Directors. At each annual meeting of the shareholders, the shareholders shall elect Directors to hold office until the succeeding annual meeting. Unless otherwise provided by the Articles of Incorporation of this corporation, the number of Directors may be increased or decreased from time to time by vote of the shareholders at any meeting during which Directors may be elected.

Section 3.02 Term of Directorship. Each Director shall hold office until the next annual meeting of the stockholders following his election and until his successor shall be elected and shall qualify, or until his or her resignation or removal.

Section 3.03 Filling of Vacancies on Board. Except as otherwise specifically provided in the Articles of Incorporation of the corporation, if the office of any Director or Directors becomes vacant by reason of increase in the authorized number of directors, death, resignation, retirement, disqualification, removal from office, or otherwise, such vacancy may be filled by the Board of Directors or by the shareholders. Any Director so chosen shall hold office until the next annual election and until a successor or successors have been duly elected and have qualified or until his resignation or removal. A special meeting of the stockholders shall be held as soon as practicable following any such vacancy, for the purpose of electing the new Director.

 

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Section 3.04 Removal of Directors. Except as otherwise specifically provided in the Articles of Incorporation of the corporation, at a meeting of the stockholders of this corporation at which a quorum is present, called for the purpose of removing any Director, such Director may be removed from office, with or without cause, by a vote of a majority of the shares of stock entitled to vote at an election of directors. When any Director is removed, a new Director shall be elected to fill the unexpired term of the Director removed in accordance with the terms of Section 3.03 hereof.

Section 3.05 Resignation by Directors. Any Director of the corporation may resign at any time by delivering written notice to the Board of Directors or the Chief Executive Officer of the corporation. Any such resignation is effective when the notice is delivered, unless the notice specifies a later effective date.

Section 3.06 Directors Need Not Be Residents or Shareholders. Directors need not be residents of the State of Michigan or stockholders of the corporation.

Section 3.07 Time of Regular Directors Meetings. A regular meeting of the Board of Directors shall be held without other notice than these Bylaws immediately after, and at the same place as each annual meeting of stockholders. The Board of Directors may provide, by resolution, the time and place, within or without the State of Michigan, for the holding of additional regular meetings without other notice than such resolution.

Section 3.08 Notice of Special Meetings. Notice of any special meeting shall be given at least three days previously thereto by written notice stating the place, day, hour and purpose or purposes of the meeting delivered personally, mailed or delivered via overnight courier to each Director at the address designated by him or her for that purpose or, if none is designated, at his or her last known address. If delivered personally, such notice shall be deemed to be delivered when received. If mailed or delivered via overnight courier service, such notice shall be deemed to be delivered when deposited in the United States Mail in a sealed envelope with postage thereon prepaid, or deposited with the overnight courier service, as the case may be, properly addressed to the Director. Any Director may waive notice of any meeting by written statement, facsimile transmission, email, telegram, radiogram or cablegram sent by him, signed before or after the holding of the meeting. The attendance of a Director at or participation in a meeting shall constitute a waiver of notice of such meeting, except where a Director at the beginning of the meeting or upon his or her arrival, objects to the meeting or the transacting of business at the meeting and does not thereafter vote for or assent to any action taken at the meeting.

Section 3.09 Quorum for Transaction of Business. A majority of the total number of Directors established for the corporation shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice.

Section 3.10 Compensation of Directors. By resolution of the Board of Directors, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a fixed sum for attendance at each meeting of the Board of Directors, or a stated salary as Director. No such payment shall preclude any Director from serving the corporation in any other capacity and receiving compensation therefor.

Section 3.11 Director’s Dissent to Corporate Action. A Director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action.

 

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Section 3.12 Committees. Except as otherwise specifically provided in the Articles of Incorporation of the corporation, the Board of Directors by resolution adopted by the affirmative vote of a majority of the number of Directors may designate one or more committees, each committee to consist of one or more Directors elected by the Board of Directors, which to the extent provided in said resolution as initially adopted, and as thereafter supplemented or amended by further resolution adopted by a like vote, shall have and may exercise, when the Board of Directors is not in session, to the extent not inconsistent with the provisions of the Michigan Business Corporation Act, the powers of the Board of Directors in the management of the business and affairs of the corporation, except action in respect to dividends to stockholders, election of the principal officers or the filling of vacancies in the Board of Directors or committees created pursuant to this Section. The Board of Directors may elect one or more of its members as alternate members of any such committee who may take the place of any absent member or members at any meeting of such committee, upon request by the Chief Executive Officer or upon request by the Chairman of such meeting. Each such committee shall fix its own rules governing the conduct of its activities and shall make such reports to the Board of Directors of its activities as the Board of Directors may request.

Section 3.13 Action by Consent Without Meetings. Any action required or permitted by the Articles of Incorporation or Bylaws or any provision of law to be taken by the Board of Directors or Committee thereof at a meeting or by resolution may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors or members of the committee then in office.

Section 3.14 Participation in Meeting by Conference Telephone. A member of the Board of Directors or a Committee thereof may participate in a meeting by means of a conference telephone or similar communications equipment if (i) all persons participating in the meeting are able to hear each other and (ii) all participants are advised of the communications equipment as well as the names of the participants in the conference. Participants in a meeting pursuant to this Section shall constitute presence in person at the meeting.

Section 3.15 Powers of the Board. In addition to the powers and authorities by these Bylaws expressly conferred upon it the Board of Directors may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute, by the Articles of Incorporation, by these Bylaws or by any stockholders agreement to which the corporation is a party, directed or required to be exercised or done by the stockholders.

ARTICLE IV

OFFICERS

Section 4.01 Mandatory and Optional Officers. The officers of the corporation shall be a President, a Secretary and a Treasurer, each of whom shall be selected by the Board of Directors. The Board of Directors may select a Chairman of the Board and one or more Vice Presidents (who may be further designated as Executive Vice Presidents, Senior Vice Presidents, or Group Vice Presidents), Assistant Secretaries, and Assistant Treasurers, and may also appoint such other officers and agents as they may deem necessary for the transaction of the business of the corporation.

Section 4.02 Chief Executive Officer. For purposes of the corporation’s operations and for purposes of these Bylaws, one of the existing officers of the corporation shall be known as the Chief Executive Officer (“C.E.O.”). The officer so designated from time to time shall be the then serving officer holding the highest office or position of the corporation in which there is no permanent or temporary vacancy. For this purpose, the ranking of corporate offices shall be in the following order, from highest to lowest office:

 

(i)

Chairman of the Board

 

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(ii)

President;

 

(iii)

Vice President;

 

(iv)

Treasurer;

 

(v)

Assistant Treasurer;

 

(vi)

Secretary; and

 

(vii)

Assistant Secretary.

If more than one person is serving in the same office (for example, two Vice Presidents), then the officer with the highest position within that office shall be the person whose name would appear first in an alphabetical listing. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors.

Section 4.03 Election and Term of Officers. Except as otherwise specifically provided in the Articles of Incorporation of the corporation or in any stockholders agreement to which the corporation is a party, the officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held immediately following each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office for the term for which he is elected and until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed.

Section 4.04 Removal of Officers. Except as otherwise specifically provided in the Articles of Incorporation of the corporation, any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause.

Section 4.05 Filling of Vacancies in Offices. Except as otherwise specifically provided in the Articles of Incorporation of the corporation or in any stockholders agreement to which the corporation is a party, a vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term.

Section 4.06 Rights and Duties of Chief Executive Officer. The Chief Executive Officer shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. The Chief Executive Officer shall be ex officio a member of all standing committees of the Board of Directors, and shall be Chairman of such committees as may be determined by the Board of Directors. He shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the corporation as he shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the Chief Executive Officer. He shall have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation’s regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he may authorize any other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in his place and stead. In general, he shall perform all duties incident to the office of Chief Executive Officer and such other duties as may be prescribed by the Board of Directors from time to time. The title of Chief Executive Officer may be abbreviated, and shall be deemed to have been formally designated, on any documents, instruments, agreements, articles, statements, certificates or reports, through use of the initials “CEO.”

 

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Section 4.07 Rights and Duties of Chairman of the Board (If Appointed). If the Board of Directors appoints a Chairman of the Board, then the Chairman of the Board shall be the corporation’s Chief Executive Officer, as provided in Section 4.02 hereof. The Chairman of the Board, if appointed, shall be a Director of the corporation. The Chairman of the Board, if appointed, shall preside at all meetings of the stockholders and Directors at which he is present. The Chairman of the Board shall have the powers vested in, and the duties imposed upon, the Chief Executive Officer, as set forth in Section 4.06 above. He shall have such other powers and duties as may from time to time be prescribed or assigned by the Bylaws or by resolutions of the Board of Directors.

Section 4.08 Rights and Duties of President. The President may (but need not) be a Director of the corporation. The President shall be an executive officer of the corporation, subordinate to the Chairman of the Board, if any. If there is no Chairman of the Board, or in the event the Chairman of the Board is unable or does not wish to preside at meetings, the President shall preside at all meetings of the stockholders and Directors at which he is present. Subject to the control of the Board of Directors and the Chairman of the Board, if any, the President shall in general have the powers vested in, and the duties imposed upon, the Chief Executive Officer, as set forth in Section 4.06 above. Furthermore, if there is no Chairman of the Board, then the President shall be the corporation’s Chief Executive Officer, as provided in Section 4.02 hereof. In general, the President shall perform all duties incident to the office of President. He shall have such other powers and duties as may from time to time be prescribed or assigned by the Bylaws, or by resolutions of the Board of Directors, or by the Chairman of the Board, if any.

Section 4.09 Rights and Duties of Vice President. In the absence of both the Chairman of the Board and the President, or in the event of the death, inability or refusal to act of both the Chairman of the Board and the President, the Vice President shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice President shall have such other powers and duties as may from time to time be prescribed or assigned by the Bylaws, or by resolutions of the Board of Directors, or by the Chairman of the Board, if any, or by the President. Only a Vice President who is a Director may perform the duties of the President as provided in these Bylaws; provided, however, that if the Vice President is or becomes the Chief Executive Officer as provided in Section 4.02 hereof (due to a vacancy in all higher offices or positions), then the Vice President (as C.E.O.) shall have the powers and duties set forth in Section 4.06 hereof.

Section 4.10 Rights and Duties of Secretary. The Secretary shall: (a) keep the minutes of the stockholders’ and of the Board of Directors’ meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records; (d) keep a register of the post office address of each stockholder which shall be furnished to the Secretary by such stockholder; (e) have general charge of the stock transfer books of the corporation; and (f) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Chief Executive Officer or by the Board of Directors.

Section 4.11 Rights and Duties of Treasurer. If required by the Board of Directors, the Treasurer and any Assistant Treasurer selected by the Board of Directors shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Article V of these Bylaws and (b) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Chief Executive Officer or by the Board of Directors.

 

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Section 4.12 Rights and Duties of Assistant and Acting Officers. The Assistant Secretaries and Assistant Treasurers, if any, selected by the Board of Directors, shall perform such duties and have such authority as shall from time to time be delegated or assigned to them by the Secretary or the Treasurer, respectively, or by the Chief Executive Officer or the Board of Directors. The Board of Directors shall have the power to appoint any person to perform the duties of an officer whenever for any reason it is impracticable for such officer to act personally. Such acting officer so appointed shall have the powers of and be subject to all the restrictions upon the officer to whose office he is so appointed except as the Board of Directors may by resolution otherwise determine.

Section 4.13 Salaries of Officers. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the corporation.

Section 4.14 Holding of Dual Offices. Any two or more offices of the corporation may be held by the same person, and any officer may execute, acknowledge or verify any instrument in more than one capacity, unless otherwise required by law.

ARTICLE V

SPECIAL CORPORATE ACTS

Section 5.01 Authorization to Execute and Deliver Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract, to execute and deliver any instrument, or to acknowledge any instrument required by law to be acknowledged in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. When the Board of Directors authorizes the execution of a contract or of any other instrument in the name of and on behalf of the corporation, without specifying the executing officers, the Chief Executive Officer and the Secretary or Assistant Secretary may execute the same.

Section 5.02 Authorization to Borrow Money or Execute Debt Instruments. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. No loan or advance to or overdraft or withdrawal by an officer, Director or stockholder of the corporation otherwise than in the ordinary and usual course of the business of the corporation, and on the ordinary and usual terms of payment and security shall be made or permitted unless each such transaction shall be approved by a vote of a majority of the members of the Board of Directors excluding any Director involved in such transaction and a full and detailed statement of all such transactions and any payments shall be submitted at the next annual meeting of stockholders and the aggregate amount of such transactions less any repayments shall be stated in the next annual report to stockholders.

Section 5.03 Contracts Involving Interested Directors. Any contract or other transaction in which a Director is determined to have an interest shall not, because of such interest, be enjoined, set aside, or give rise to an award of damages or other sanctions in a proceeding by a shareholder or by or in the right of the corporation, notwithstanding the presence of, or vote cast by, such Director or Directors at the meeting of the Board of Directors of the corporation which acts upon, or in reference to, such contract or transaction, if the material facts of the contract or transaction and such interest shall be disclosed or known to the Board of Directors and the Board of Directors, shall, nevertheless, authorize, approve or ratify such contract or transaction by a vote of a majority of the Directors on the Board who had no interest in the contract or transaction, though less than a quorum is present. This Section shall not be construed to invalidate any contract or other transaction which would otherwise be valid under the common and statutory law applicable thereto.

Section 5.04 Representation of Shares of Other Corporations. The President or any other officer or officers authorized by the Board or the President are each authorized to vote, represent,

 

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and exercise on behalf of the corporation all rights incident to any and all shares of, or other voting interest in, any other corporation or other entity standing in the name of the corporation. The authority herein granted may be exercised either by any such officer in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officer.

ARTICLE VI

CERTIFICATES OF STOCK AND THEIR TRANSFER

Section 6.01 Signatures and Designations on Share Certificates. The certificates of stock of the corporation shall be numbered and shall be entered in the books of the corporation. They shall exhibit the holder’s name and number of shares and shall be signed by the Chairman of the Board or the President or a Vice President, and may also be signed by another officer of the corporation. A full statement of the designation, preferences and relative rights and limitations of each class of stock authorized to be issued and the designation, relative rights, preferences, and limitations of each series so far as the same have been prescribed and the authority of the Board to designate and prescribe the relative rights, preferences and limitations of other series shall be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock or such certificate shall state on its face or back that the corporation will furnish to a shareholder upon request and without charge such a statement.

Section 6.02 Transfer of Shares on Corporate Books. Prior to due presentment of a certificate for shares for registration of transfer, the corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and power of an owner. Where a certificate for shares is presented to the corporation with a request to register for transfer, the corporation shall not be liable to the owner or any other person suffering loss as a result of such registration or transfer if (a) there were on or with the certificate the necessary endorsements, and (b) the corporation had no duty to inquire into adverse claims or has discharged any such duty. The corporation may require reasonable assurance that said endorsements are genuine and effective and compliance with such other regulations as may be prescribed under the authority of the Board of Directors.

Section 6.03 Replacement of Lost or Destroyed Certificates. Any person claiming a certificate of stock to be lost or destroyed, shall make an affidavit or affirmation of that fact, and the Board of Directors may, in its discretion, require the owner of the lost or destroyed certificate or his legal representative, to give the corporation a bond, in such sum as it may direct, not exceeding double the value of the stock, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any such certificate. A new certificate of the same tenor and for the same number of shares as the one alleged to be lost or destroyed, may be issued without requiring any bond when, in the judgment of the Directors, it is proper to do so.

Section 6.04 Consideration Payable for Shares. The shares of the corporation may be issued for such consideration as shall be fixed from time to time by the Board of Directors. The consideration to be paid for shares may be paid in whole or in part, in money, in other property, tangible or intangible, or in labor or services actually performed for the corporation. When payment of the consideration for which shares are to be issued shall have been received by the corporation, such shares shall be deemed to be fully paid and nonassessable by the corporation. No certificate shall be issued for any share until such share is fully paid for, except as otherwise authorized in writing by the Board of Directors and memorialized in a written subscription agreement signed by the subscriber.

Section 6.05 Further Rules and Regulations Concerning Shares. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with the statutes of the State of Michigan as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the corporation.

 

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ARTICLE VII

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 7.01 Third Party Proceedings. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to a threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal, other than an action by or in the right of the corporation, by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, or trustee of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, whether for profit or not, against expenses, including attorneys’ fees, judgments, penalties, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit, or proceeding, if the person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders, and the person submits a written claim for indemnification as herein after provided, and with respect to a criminal action or proceeding, if the person had no reasonable cause to believe his or her conduct was unlawful, and the person submits a written claim for indemnification as hereinafter provided. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders, and, with respect to a criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. The right to indemnification conferred in this Section shall be a contract right.

The corporation may, by action of its Board of Directors, or by action of any person to whom the Board of Directors has delegated such authority, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers.

Section 7.02 Derivative Shareholder Liability. The corporation shall indemnify any person who was or is a party to or is threatened to be made a party to a threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director of officer of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, or trustee of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, whether for profit or not, against expenses, including attorneys’ fees, and amounts paid in settlement actually and reasonably incurred by the person in connection with the action or suit, if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders, and the person submits a written claim of indemnification as hereinafter provided. However, indemnification shall not be made for a claim, issue, or matter in which the person has been found liable to the corporation unless and only to the extent that the court conducting the proceeding or another court of competent jurisdiction has determined upon application that, in view of all the relevant circumstances, the person is fairly and reasonably entitled to indemnification, limited to reasonable expenses incurred. The right to indemnification conferred in this Section shall be a contract right.

The corporation may, by action of its Board of Directors, or by action of any person to whom the Board of Directors has delegated such authority, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers.

Section 7.03 Determination of Indemnification. An indemnification under Section 7.01 or Section 7.02, unless ordered by a court, shall be made by the corporation only as authorized in the

 

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specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 7.01 or Section 7.02 and upon an evaluation of the reasonableness of expenses and amounts paid in settlement. This determination shall occur within thirty (30) days after a written claim for indemnification has been received by the corporation, and shall be made in any of the following ways:

(a) By a majority vote of a quorum of the board consisting of directors who are not parties or threatened to be made parties to the action, suit, or proceeding;

(b) If the quorum described in subparagraph (a) is not obtainable, then by a majority vote of a committee duly designated by the board and consisting of two or more directors not at the time parties or threatened to be made parties to the action, suit or proceeding;

(c) By independent legal counsel in a written opinion;

(d) By all Independent Directors who are not parties or threatened to be made parties to the action, suit or proceeding; or

(e) By the shareholders, but the shares held by directors, officers, employees or agents who are parties or threatened to be made parties to the action, suit or proceeding may not be voted.

If a person is entitled to indemnification under Section 7.01 or Section 7.02 for a portion of expenses, including reasonable attorneys’ fees, judgments, penalties, fines, and amounts paid in settlement, but not for the total amount thereof, the corporation shall indemnify the person for the portion of the expenses, judgments, penalties, fines, or amounts paid in settlement for which the person is entitled to be indemnified.

To the extent the Articles of Incorporation include a provision eliminating or limiting the liability of a director pursuant to Section 209(1)(c) of the Michigan Business Corporation Act, the corporation shall indemnify any Director for the expenses and liabilities described in this paragraph without a determination that the director has met the standard of conduct set forth in Section 7.01 or Section 7.02, but no indemnification may be made except to the extent authorized in Section 564c of the Michigan Business Corporation Act if the director received a financial benefit to which he or she was not entitled, intentionally inflicted harm on the corporation or its shareholders, violated Section 551 of the Michigan Business Corporation Act, or intentionally committed a criminal act. In connection with an action or suit by or in the right of the corporation as described in Section 7.02, indemnification under this paragraph shall be for expenses, including attorneys’ fees, actually and reasonably incurred. In connection with an action, suit or proceeding other than an action, suit or proceeding by or in the right of the corporation, as described in Section 7.01, indemnification under this paragraph may be for expenses, including attorneys’ fees, actually and reasonably incurred, and for judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred.

Section 7.04 Payment of Defense Expenses in Advance. Reasonable expenses incurred by a director or officer who is a party or is threatened to be made a party to an action, suit or proceeding shall be paid or reimbursed by the corporation in advance of the final disposition of the action, suit, or proceeding if the person furnishes the corporation a written claim for indemnification and an undertaking, executed personally or on his or her behalf, to repay the advance if it is ultimately determined that he or she did not meet the standard of conduct, if any, required for indemnification. The undertaking shall be an unlimited general obligation of the person on whose behalf advances are made but need not be secured.

Section 7.05 Right of Officer or Director to Bring Suit. If a claim for indemnification is not paid in full by the corporation within forty-five (45) days after a written claim has been received by

 

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the corporation, the officer or director who submitted the claim (hereinafter the “indemnitee”) may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit or in a suit brought by the corporation to recover advances, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such claim. In any action brought by the indemnitee to enforce a right hereunder (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) it shall be a defense that, and in any action bought by the corporation to recover advances the corporation shall be entitled to recover such advances if, the indemnitee has not met the applicable standard of conduct set forth in Section 7.01 and Section 7.02. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the indemnitee is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 7.01 or Section 7.02, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the indemnitee has not met such applicable standard of conduct, shall be a defense to an action brought by the indemnitee or create a presumption that the indemnitee has not met the applicable standard of conduct. In any action brought by the indemnitee to enforce a right hereunder or by the corporation to recover payments by the corporation of advances, the burden of proof shall be on the corporation.

Section 7.06 Other Indemnification. The indemnification or advancement of expenses provided under Sections 7.01 through 7.05 is not exclusive of other rights to which a person seeking indemnification or advancement of expenses may be entitled under the corporation’s Articles of Incorporation, Bylaws, or a contractual agreement. However, the total amount of expenses advanced or indemnified from all sources combined shall not exceed the amount of actual expenses incurred by the person seeking indemnification or advancement of expenses.

The indemnification provided for in Sections 7.01 through 7.06 continues as to a person who ceases to be a director, officer, partner, or trustee and shall inure to the benefit of the heirs, personal representatives, and administrators of the person.

Section 7.07 Liability Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have power to indemnify him or her against such liability under the Michigan Business Corporation Act or Sections 7.01 through 7.06.

Section 7.08 Definitions. As used herein, “corporation” includes all constituent corporations absorbed in a consolidation or merger and the resulting or surviving corporation, so that a person who is or was a director, officer, employee, or agent of the constituent corporation or is or was serving at the request of the constituent corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise whether for profit or not shall stand in the same position under the provisions of this Article VII with respect to the resulting or surviving corporation as the person would if he or she had served the resulting or surviving corporation in the same capacity.

As used herein, “other enterprises” shall include employee benefit plans; “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and “serving at the request of the corporation” shall include any service as a director or officer of the corporation which imposes duties on, or involves services by, the director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an

 

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employee benefit plan shall be considered to have acted in a manner “not opposed to the best interest of the corporation or its shareholders” as referred to in Section 7.01 and Section 7.02.

ARTICLE VIII

FISCAL YEAR

Section 8.01 Fiscal Year. The fiscal year of the corporation shall end on the last day of December in each year.

ARTICLE IX

DISALLOWED EXPENSE

Section 9.01 Disallowed Expense. Any salary payment or other payment including, but not limited to, pension and profit sharing contributions, travel and entertainment expenses, bonuses or other fringe benefits made to or on behalf of a stockholder/employee of the corporation, which shall be disallowed in whole or in part as a deductible expense of the corporation for federal income tax purposes, and shall further be determined to be taxable to the stockholder/employee as a dividend, shall be reimbursed by such stockholder/employee to the corporation to the full extent of the disallowance. It shall be the responsibility of the Board of Directors to enforce payment of any such amount disallowed.

ARTICLE X

AMENDMENTS

Section 10.01 Amendments. Except as otherwise specifically provided in the Articles of Incorporation of the corporation, these Bylaws may be altered, amended or repealed and new Bylaws may be adopted either by the stockholders or by the affirmative vote of the majority of the Board of Directors at any regular or special meeting, if a notice setting forth the terms of the proposal has been given in accordance with the notice requirements for special meetings of stockholders or for special meetings of Directors, whichever may be applicable. The Board of Directors may make and alter all Bylaws, except those Bylaws fixing their number, or term of office; provided, that any Bylaw amended, altered or repealed by the Directors as provided herein may thereafter be amended, altered, or repealed by the stockholders.

ARTICLE XI

DIVIDENDS

Section 11.01 Dividends. The Board of Directors may from time to time declare dividends upon the outstanding stock of the corporation, subject to the provisions of the Articles of Incorporation of the corporation, and pursuant to the Michigan Business Corporation Act, as amended.

ARTICLE XII

MISCELLANEOUS PROVISIONS

Section 12.01 Gender and Number. As the context of any provision may require, nouns and pronouns of any gender and number shall be construed in any other gender and number.

Section 12.02 Severability. Should any covenant, condition, term or provision of these Bylaws be deemed to be illegal, or if the application thereof to any person or in any circumstances shall, to any extent, be invalid or unenforceable, the remainder of these Bylaws, or the application of such covenant, condition, term or provision to persons or in circumstances other than those to which

 

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it is held invalid or unenforceable, shall not be affected thereby; and each covenant, condition, term and provision of these Bylaws shall be valid and enforceable to the fullest extent permitted by law.

Section 12.03 Captions. Captions used herein are inserted for reference purposes only and shall not affect the interpretation or construction of these Bylaws.

EXECUTION OF BYLAWS BY CORPORATE SECRETARY

These Bylaws were adopted as and for the Bylaws of ALTAIR ENGINEERING INC., a Michigan corporation effective as of the 9th day of November, 2011.

 

 

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Exhibit 10.2

ALTAIR ENGINEERING INC.

2001 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

(AS AMENDED AS OF APRIL 3, 2017)

1. Purpose. The purpose of the Plan is to encourage and enable selected management, other employees, and directors of the Company, to acquire a proprietary interest in the Company through the ownership of the Common Stock of the Company. The Company intends to use the Plan to attract, retain and motivate Participants to attain exceptional levels of performance and provide Participants with an opportunity to participate in the increased value of the Company which their efforts, initiative, and skill have helped produce. The Plan design enables the Company to grant to Participants Incentive Stock Options and/or Non-Qualified Stock Options to purchase shares of Common Stock of the Company. The Plan is effective as of January 31, 2001.

2. Definitions.

(a) “Board” shall mean the Board of Directors of the Company.

(b) “Change in Control” shall, unless in the case of a particular Option the applicable Option Agreement states otherwise or contains a different definition of “Change in Control,” be deemed to occur upon:

(1) the acquisition (whether by merger, consolidation, share exchange, tender offer or similar form of corporate transaction) (a “Business Combination”) by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”) unless immediately following such Business Combination, the holders of more than 50% of the total voting power of the Outstanding Company Voting Securities immediately prior to such Business Combination own more than 50% of the total voting power of (x) the entity resulting from such Business Combination (the “Surviving Company”) or (y) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the members of the board of directors (or the analogous governing body) of the Surviving Company; provided, however, that for purposes of this Plan, the following acquisitions shall not constitute a Change in Control: (I) any acquisition by the Company of its Outstanding Company Voting Securities, (II) any acquisition by any employee benefit plan sponsored or maintained by the Company, (III) any acquisition of Outstanding Company Voting Securities by investment entities affiliated with General Atlantic Partners, LLC or any group of which such investment entities affiliated with General Atlantic Partners, LLC are a member, or (IV) in respect of an Option held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant);

(2) the dissolution or liquidation of the Company; or

(3) the sale, transfer or other disposition of all or substantially all of the assets of the Company.

(c) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(d) “Common Stock” shall mean the Class A common capital stock of the Company.

(e) “Company” shall mean Altair Engineering Inc., a Michigan corporation and any Subsidiary of the Company.

(f) “Employee” shall mean any individual who is employed, within the meaning of Section 3401 of the Code and the regulations promulgated thereunder, by the Company. The Board shall be responsible for determining when an Employee’s period of employment is deemed to be continued during an approved leave of absence.

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(g) “Exchange Act” shall mean the Securities Exchange Act of 1934,as amended.

(h) “Exercise Price” shall mean the price per Share at which an Option may be exercised, as determined by the Board and as specified in the Participant’s Option Agreement.

(i) “Fair Market Value” shall mean the value of each Share determined as of any specified date as follows:

(1) If the Shares are traded on any United States securities exchange, or if the Shares are not traded on any United States securities exchange but are traded on any formal over-the-counter quotation system in general use in the United States, the value per Share shall be the closing price on such exchange or quotation system on the business day immediately preceding such specified date; provided, however, that if no Shares are traded on the business day immediately preceding such specified date, the value per Share shall be the mean between the closing high bid and closing low asked quotations on the business day immediately preceding such specified date; or

(2) If Paragraph (1) does not apply, the value per Share shall be determined by the Board in accordance with Section 4(e) in good faith and based on uniform principles consistently applied. Such determination shall be conclusive and binding on all persons.

(j) “Incentive Stock Option” shall mean an Option of the type which is described in Section 422(b) of the Code.

(k) “Non-qualified Stock Option” shall mean an Option which does not qualify as an Incentive Stock Option.

(l) “Option” shall mean an option which is granted pursuant to the Plan to purchase Shares of Common Stock, whether granted as an Incentive Stock Option or as a Non-qualified Stock Option.

(m) “Option Agreement” shall mean, with respect to each Option, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Option.

(n) “Participant” shall mean any individual to whom an Option has been granted or issued under the Plan.

(o) “Plan” shall mean this Altair Engineering Inc. 2001 Incentive and Non-qualified Stock Option Plan.

(p) “Plan Year” shall mean the 12 consecutive month period coinciding with the Company’s fiscal year.

(q) “Purchase Price” shall mean, at any specified time, the Exercise Price per Share multiplied by the number of Shares being purchased pursuant to the exercise of an Option.

(r) “Securities Act” shall mean the Securities Act of 1933,as amended.

(s) “Share” shall mean one authorized share of Common Stock.

(t) “Subsidiary” shall mean any corporation or other business entity (other than the Company) in an unbroken chain of corporations and/or other business entities beginning with the Company if, at the time of granting an Option, each of the corporations and/or other business entities (other than the last business entity in the unbroken chain) owns stock possessing at least 50% of the total combined voting power of all classes of ownership in one of the other corporations and/or other business entities in such chain.

(u) “Vest” or “Vesting” shall mean the event or point in time at which an Option becomes exercisable for the first time.

3. Effective Date. The Plan was adopted by the Company effective as of January 31, 2001.

 

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4. Administration.

(a) Administration by the Board or the Committee. The Board shall administer the Plan in accordance with the provisions hereof. The Board may appoint a committee (the “Committee”) to administer the Plan. If a Committee is appointed, the Committee shall have the powers and authority otherwise delegated to the Board in this Plan document. The Board may, from time to time, increase or decrease the size of the Committee, fill vacancies however caused, remove members with or without cause, and disband the Committee and thereafter directly administer the Plan. The Company may engage a third party to administer routine matters under the Plan, such as establishing and maintaining accounts for Participants and facilitating transactions by Participants pursuant to the Plan.

(b) Powers of the Board. On behalf of the Company and subject to the provisions of the Plan, the Board shall have the authority and discretion to: (i) Prescribe, amend and rescind rules and regulations relating to the Plan; (ii) Select Participants to receive Options; (iii) Determine the form and terms of Options; (iv) Determine the number of Shares or other consideration subject to Options; (v) Determine whether Options will be granted singly, in combination or in tandem with, in replacement of, or as alternatives to, other Options under the Plan or any other incentive or compensation plan of the Company; (vi) Construe and interpret the Plan, any Option Agreement and any other agreement or document executed pursuant to the Plan; (vii) Correct any defect or omission, or reconcile any inconsistency in the Plan, any Option or any Option Agreement; (viii) Determine whether an Option has been earned and/or Vested; (ix) Accelerate or defer, with the consent of the Participant, the Vesting of any Option; (x) Authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option as made by the Board; (xi) With the consent of the Participant, reprice, cancel and reissue, or otherwise adjust the terms of an Option previously issued to the Participant; and (xii) Make all other determinations deemed necessary or advisable for the administration of the Plan. The interpretations and decisions made by the Board with regard to any question arising under the Plan shall be final and conclusive on all persons participating or eligible to participate in the Plan.

(c) Conflicts of Interest. Members of the Board or the Committee who are either eligible for Options or have been granted an Option may vote on any matters affecting the administration of the Plan or the grant of any Option pursuant to the Plan. However, no such member shall act upon the granting of an Option to himself or herself (unless such grant is part of a plan under which Options are to be granted to a classification of Employees). In the event of cases such as those described in the preceding sentence, such member shall be counted in determining the existence of a quorum at a meeting of the Board or the Committee but shall be excluded in determining the number of members voting or taking written action with respect to an Option granted to such member.

(d) Board’s Interpretation of the Plan. The Board’s interpretation and construction of any provision of the Plan, of any Option granted under the Plan, or of any Option Agreement shall be final and binding on all parties claiming an interest in an Option granted or issued under the Plan. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan.

(e) Board’s Determination of Fair Market Value. Notwithstanding anything contained herein to the contrary, the Board shall have the sole and exclusive authority to determine, upon review of relevant information, the Fair Market Value of the Common Stock, subject to the provisions of the Plan and irrespective of whether the Board has appointed a Committee to administer the Plan.

5. Eligibility for Participation. Plan Participants shall be limited to such individuals as the Board may select. A Participant may be granted more than one type of Option under the Plan.

6. Shares of Stock of the Corporation.

(a) Shares Subject to This Plan. Stock with respect to which Options are granted or issued under this Plan shall be authorized but unissued or reacquired Shares of the Company’s Common Stock. The aggregate number of Shares which may be issued under this Plan shall not exceed 1,156,112 Shares, subject to adjustment under Section 9.

 

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(b) Adjustment of Shares. In the event of an adjustment described in Section 9, then (i) the number of Shares reserved for issuance under the Plan, (ii) the Exercise Prices of and number of Shares subject to outstanding Options, and (iii) any other factor pertaining to outstanding Options shall be duly and proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share shall not be issued but shall either be paid in cash at Fair Market Value or shall be rounded up to the nearest Share, as determined by the Board.

(c) Options Not to Exceed Shares Available. The number of Shares subject to Options which have been granted under this Plan at any time during the Plan Term shall not exceed the number of Shares authorized for issuance under the Plan. The number of Shares subject to an Option which expires, is canceled, is forfeited or is terminated for any reason, shall again be available for issuance under the Plan.

7. Terms and Conditions of Options.

(a) Option Agreement. Each Option shall be evidenced by a written Option Agreement which shall set forth the terms and conditions pertaining to such Option, provided that all such terms shall be subject to and consistent with this Plan. An Option Agreement shall be in such form as the Board shall approve from time to time, which Option Agreements need not be identical.

(b) Number of Shares Covered by an Option. Each Option Agreement shall state the number of Shares for which the Option is exercisable and shall provide for the adjustment of such Shares in accordance with Section 9.

(c) Exercise of Options. A Participant may exercise an Option only on or after the date on which the Option Vests, as provided in Subsection (d) below, and only on or before the date on which the Option expires, as provided in Subsection (e) below.

(d) Vesting of Options. A Participant may exercise an Option to purchase Shares only on or after the date the Option has Vested with respect to such Shares. Each Option Agreement shall include a Vesting schedule applicable to the Shares to which such Option pertains. The Vesting schedule shall not impose upon the Company any obligation to retain the Participant in its employ for any period. A Participant’s Option Agreement shall so specify if all or any non-Vested Options held by the Participant on the date of death or total and permanent disability shall become Vested.

(e) Term and Lapse of Options. A Participant may exercise an Option to purchase Shares only on or before the date on which the term of the Option expires. Each Option Agreement shall set forth the term of the Option and the events described in the immediately following sentence which will cause the Option to lapse or otherwise end, in whole or in part, as of an earlier date. An Option shall lapse on the first to occur of the following events:

(i) The tenth anniversary of the date that an Incentive Stock Option was granted; provided, however, that in the case of an Incentive Stock Option granted to a Participant owning, actually or constructively under Section 424(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the Company (a “10% Stockholder”), such option, by its terms, shall be exercisable only within five years from the date of grant.

(ii) The date determined under Section 7(i) for a Participant who ceases to be an Employee by reason of the Participant’s death or total and permanent disability, within the meaning of Section 22(e)(3) of the Code unless the Board at its discretion extends such date before the applicable expiration date (provided, that upon any such extension, in the event that a Participant fails to exercise any Incentive Stock Option on or before the date which is twelve months after the date the Participant ceases to be an Employee, such Incentive Stock Option shall thereupon become a Non-qualified Stock Option);

(iii) The date determined under Section 7(j) for a Participant who ceases to be an Employee for any reason, other than by reason of death or total and permanent disability, unless the Board at its discretion extends such date before the applicable expiration date (provided, that upon any such extension, in the event that a Participant fails to exercise any Incentive Stock Option on or before

 

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the date which is three months after the date the Participant ceases to be an Employee, such Incentive Stock Option shall thereupon become a Non-qualified Stock Option); or

(iv) The expiration date specified in the Participant’s Option Agreement.

(f) Exercise Price. The Exercise Price under each Incentive Stock Option shall be not less than 100% of the Fair Market Value of the Shares determined on the date the Incentive Stock Option is granted. In the case of an Incentive Stock Option granted to a 10% Stockholder, the Exercise Price shall not be less than 110% of the Fair Market Value of the Shares determined on the date the Incentive Stock Option is granted. The Exercise Price under each Non-qualified Stock Option shall be specified by the Board, but shall in no case be less than 100% of the Net Book Value of the Shares determined on the date the Non-qualified Stock Option is granted.

(g) Medium and Time of Payment of Purchase Price. A Participant exercising an Option shall pay the Purchase Price of the Shares to which such exercise pertains in full in cash (in U.S. dollars) as a condition of such exercise, unless the Board at its discretion allows the Participant to pay the Purchase Price in any manner allowable under Section 14, so long as the sum of cash so paid and such other consideration equals the Purchase Price.

(h) Nontransferability of Options. An Option granted to a Participant shall, during the lifetime of the Participant, be exercisable only by the Participant or the Participant’s conservator or legal representative and shall not be assignable or transferable. In the event of the Participant’s death, the Option is transferable by the Participant only by will or the laws of descent and distribution.

(i) Death or Disability of Participant. If a Participant dies while an Employee or ceases to be an Employee as a consequence of becoming totally and permanently disabled (within the meaning of Section 22(e)(3) of the Code), any Option granted to the Participant may be exercised, to the extent it was Vested on the date of the Employee’s death or disability, at any time within 12 months after the Participant’s death or disability (but not beyond the otherwise applicable term of the Option) by the Participant’s conservator or legal representative, by the executors or administrators of the Participant’s estate or by any person who has acquired the Option directly from the Participant by will or the laws of descent and distribution, as the case may be.

(j) Termination Other than by Death or Disability.

(i) If a Participant ceases to be an Employee for any reason other than death or total and permanent disability (as defined in Section 7(i)), any unexercised Option (whether Vested or not) shall expire at 12:00 p.m. on the 90th day following the date the Participant’s employment with the Company terminates. In addition, the Board may, in its sole and absolute discretion, Vest any non-Vested Options within 30 days following such termination of employment.

(ii) For purposes of this Section 7(j), the employment relationship shall be treated as continuing intact while the Participant is an active employee of the Company or is on military leave, sick leave or other bona fide leave of absence, as determined by the Board in its discretion. The preceding sentence notwithstanding, in the case of an Incentive Stock Option, employment shall be deemed to terminate on the date the Participant ceases active employment with the Company unless the Participant’s reemployment rights are guaranteed by statute or contract.

(k) Rights as a Stockholder. A Participant, or an allowable transferee of a Participant, shall have no rights as a shareholder of the Company with respect to any Shares for which an Option is exercisable until the date a stock certificate for such Shares is issued. No adjustment shall be made for dividends (ordinary or extraordinary or whether in currency, securities, or other property), distributions, or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 9.

(l) Modification, Extension, and Renewal of Options. Within the limitations of the Plan, the Board may at its discretion modify, extend or renew any outstanding Option or accept the cancellation of an outstanding Option for the granting of a new Option in substitution. Notwithstanding the preceding sentence, no modification of an Option shall, without the consent of the Participant, alter or impair any rights or obligations under any Option previously granted.

 

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(m) Other Provisions. An Option Agreement may contain such other provisions as the Board deems advisable which are not inconsistent with the terms of the Plan, including but not limited to:

(i) Restrictions on the exercise of the Option;

(ii) Submission by the Participant of such forms and documents as the Board may require; and/or

(iii) Procedures to facilitate the broker-assisted exercise of the Option.

(n) No Disqualification of Incentive Stock Options. Notwithstanding any other provision of the Plan, the Plan shall not be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Participant affected, disqualify any Incentive Stock Option under Section 422 of the Code.

(o) Limitations on Incentive Stock Options. The aggregate Fair Market Value (determined as of the date of grant) of Shares subject to grant(s) of Incentive Stock Options which will become Vested by a Participant during any calendar year (under the Plan or under any other incentive stock option plan of the Company) shall not exceed $100,000. If the Fair Market Value of the Shares described in the preceding sentence exceeds $100,000, the Options for the first $100,000 worth of Shares to become Vested shall be Incentive Stock Options and the Options for the amount in excess of $100,000 that become Vested shall be Non-qualified Stock Options. In the event the Code or the regulations promulgated thereunder are amended after the Effective Date of the Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to Incentive Stock Options, such different limit shall be automatically incorporated into this Section 7(o) and shall apply to any Options granted on or after the effective date of such amendment.

8. Term of Plan. Options may be granted pursuant to the Plan through the period ending on January 31, 2011. All Options which are outstanding on such date shall remain in effect until they are exercised or expire by their terms.

9. Recapitalizations, Takeovers, and Liquidations.

(a) Reorganizations. Notwithstanding any other provision of the Plan to the contrary, but subject to any required action by the stockholders of the Company, the Board shall make any adjustments to the class and/or number of Shares covered by the Plan, the number of Shares for which each outstanding Option pertains, the Exercise Price of an Option, and/or any other aspect of this Plan to prevent the dilution or enlargement of the rights of Participants under this Plan in connection with any increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company resulting from the payment of a stock dividend, a stock split, a reverse stock split or any other event which results in an increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company effected without receipt of adequate consideration by the Company.

(b) Effect of Change in Control. Except to the extent provided in a particular Option Agreement:

(i) In the event of a Change in Control, the Board may, in its discretion, provide that notwithstanding any vesting schedule set forth in any Option Award, such Option shall become immediately Vested with respect to 100 percent of the Shares subject to such Option.

(ii) In addition, in the event of a Change in Control, the Board may, in its discretion and upon at least 10 days’ advance notice to the affected Participants, cancel any outstanding Options and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such Options based upon the price per Share received or to be received by other shareholders of the Company in the event.

(iii) The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other

 

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reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. The Company agrees that it will make appropriate provisions for the preservation of Participants’ rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets.

(c) Determination by the Board. All adjustments described in this Section 9 shall be made by the Board, whose determination shall be conclusive and binding on all persons.

(d) Limitation on Rights of Participants. Except as expressly provided in this Section 9, no Participant shall have any rights by reason of any payment of any stock dividend, stock split, reverse stock split, or any other change in the number of shares of stock of any class, or by reason of any reorganization, consolidation, dissolution, liquidation, merger, exchange, split-up or reverse split-up, or spin-off of assets or stock of another corporation. Any issuance by the Company of Options shall not affect, and no adjustment by reason thereof shall be made with respect to, Options under the Plan.

(e) No Limitation on Rights of Company. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets.

10. Securities Law Requirements.

(a) Legality of Issuance. No Share shall be issued upon the exercise of any Option unless and until the Board has determined that:

(i) The Company and the Participant have taken all actions required to register the Shares under the Securities Act, or to perfect an exemption from registration requirements of the Securities Act, or to determine that the registration requirements of the Securities Act do not apply to such exercise;

(ii) Any applicable listing requirement of any stock exchange on which the Share is listed has been satisfied; and

(iii) Any other applicable provision of state, federal or foreign law has been satisfied.

(b) Restrictions on Transfer; Representations of Participant; Legends. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or has been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law. If the offering and/or sale of Shares under the Plan is not registered under the Securities Act and the Company determines that the registration requirements of the Securities Act apply but an exemption is available which requires an investment representation or other representation, the Participant shall be required, as a condition to acquiring such Shares, to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Securities Act, and to make such other representations as are deemed necessary or appropriate by the Company and its counsel. Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Securities Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”). THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER EITHER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT OR THE REGISTRATION PROVISIONS OF THE ACT DO NOT APPLY TO SUCH PROPOSED TRANSFER.

 

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(c) Registration or Qualification of Securities. The Company may, but shall not be obligated to, register or qualify the offering or sale of Shares under the Securities Act or any other applicable law.

(d) Exchange of Certificates. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares issued pursuant to the Plan is no longer required, the Participant or the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but lacking such legend.

(e) Determination of Company Binding. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 10 shall be conclusive and binding on all persons.

11. Limitations on Shares. All Shares issued pursuant to the Plan shall be subject to the terms and conditions of the Company’s Stock Restriction and Repurchase Agreement and the Company shall place legends on stock certificates representing that the Shares are subject to such Stock Restriction and Repurchase Agreement.

12. Exercise of Unvested Options.

(a) Purpose of Section 12. This Section 12 is intended to apply for the benefit of a Participant prior to the time Shares held by the Participant are freely transferable under applicable federal and state securities laws without the Participant holding the Shares for a minimum period of time (e.g., the holding period requirement of Rule 144 adopted by the Securities and Exchange Commission under the Securities Act). More specifically, a Participant with an unvested Option may commence this holding period for the Shares subject to the Option by exercising the unvested Option and receiving Shares of restricted stock which will Vest on the same date as the Option would have Vested. In this way, the Participant is able to begin the holding period for the Shares prior to the date the Option would have Vested.

(b) Exercise of Unvested Options and Issuance of Restricted Stock. The Board, at its discretion, may grant any Participant the right to exercise any Option prior to the Vesting of such Option, provided that the Shares issued upon such exercise shall remain subject to Vesting, as restricted stock, at the same rate as under the Option so exercised and:

(i) Shares issued pursuant to an Option which is Vested or which thereafter become Vested shall be subject to the terms and conditions of the Company’s Stock Restriction and Repurchase Agreement; and

(ii) Shares issued pursuant to an Option which is not Vested on or before the applicable date described in Section 7 for determining the forfeiture or lapsing of the Option pursuant to which such Shares were issued pursuant to this Section 12, shall be forfeited at the Exercise Price paid by the Participant to the Company to acquire such Shares.

13. Amendment of the Plan. The Board may, from time to time, terminate, suspend or discontinue the Plan, in whole or in part, or revise or amend it in any respect whatsoever including, but not limited to, the adoption of any amendment deemed necessary or advisable to qualify the Options under rules and regulations promulgated by the Securities and Exchange Commission with respect to Employees who are subject to the provisions of Section 16 of the Exchange Act, or to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option granted under the Plan, with or without approval of the shareholders of the Company, but if any such action is taken without the approval of the Company’s shareholders, no such revision or amendment shall:

(a) Increase the number of Shares subject to the Plan, other than any increase pursuant to Section 9;

(b) Change the designation of the class of persons eligible to receive Options;

 

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(c) Increase the maximum duration of an Option;

(d) Change the manner of determining the Exercise Price of an Option;

(e) Extend the term of the Plan; or

(f) Amend this Section 13 to defeat its purpose. No amendment, termination or modification of the Plan shall, without the consent of the Participant, affect any Option previously granted.

14. Payment for Share Purchases.

(a) Payment. Payment of the Purchase Price for any Shares purchased pursuant to the Plan may be made in cash (in U.S. dollars) or, where expressly approved for the Participant by the Board, in its sole and absolute discretion, and where permitted by law:

(i) By check;

(ii) By cancellation of indebtedness of the Company to the Participant;

(iii) By surrender of Shares that either: (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144; or (B) were obtained by Participant in the public market;

(iv) By waiver of compensation due or accrued to Participant for services rendered;

(v) With respect only to purchases upon exercise of an Option, and provided that a public market for the Company’s stock exists (A) through a “same day sale” commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD dealer”) whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company; or (B) through a “margin” commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company; or

(vi) In the event that no public market for the Company’s stock exists, by the issuance of Shares equal in value to the excess of (A) the then Fair Market Value of the Shares being purchased over (B) the Purchase Price for the Shares being purchased.

(vii) By any combination of the foregoing.

(b) Loan Guarantees. The Board may help the Participant pay for Shares purchased under the Plan by authorizing a guarantee by the Company of a third-party loan to the Participant.

15. Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to the exercise of an Option shall be used for general corporate purposes.

16. Privileges of Stock Ownership. No Participant shall have any of the rights of a shareholder with respect to any Shares until the date a stock certificate for such Shares is issued to the Participant. After certificates are issued to the Participant, the Participant shall be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to receive all dividends or other distributions made or paid with respect to such Shares. The preceding sentence notwithstanding, a Participant who, pursuant to Section 12, (i) exercises an unvested Option and receives Shares of restricted stock and (ii) forfeits such Shares by terminating employment prior to the date such Shares Vest shall have no right to retain dividends or distributions received with respect to such Shares and shall return such dividends and distributions to the Company without consideration.

 

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17. Transferability. Options granted under the Plan, and any interest therein, shall not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Option Agreement provisions relating thereto. During the lifetime of the Participant an Option may be exercisable only by the Participant, and any elections with respect to any Option may be made only by the Participant.

18. Withholding of Taxes. Whenever Shares are to be issued under the Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan, payments in satisfaction of Options are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.

19. Statement to Participants. Within a reasonable time after the last day of each Plan Year, the Board shall furnish to each Participant a statement setting forth the Participant’s total number of Shares subject to Options, the date such Options were granted, the Fair Market Value of such Options as of the grant or issuance date, and such other information as the Board shall deem advisable to furnish.

20. Rights as an Employee. The Plan shall not be construed to give any individual the right to remain in the employ of the Company or to affect the right of the Company to terminate such individual’s employment at any time, with or without cause. The grant of an Option shall not entitle the Participant to, or disqualify the Participant from, participation in the grant of any other Option under the Plan or participation in any other plan maintained by the Company.

21. Non-Uniform Determinations. The Board’s determinations under the Plan (including without limitation determinations of the persons to receive Options, the form, amount and timing of such Options, the terms and provisions of such Options and the Option Agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made by the Board selectively among persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated.

22. Inspection of Records. Copies of the Plan, records reflecting each Participant’s Options and any other documents and records which a Participant is entitled by law to inspect shall be open to inspection by the Participant and his or her duly authorized representative at the office of the Company at any reasonable business hour upon reasonable advance notice from the Participant.

 

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Exhibit 10.3

ALTAIR ENGINEERING INC.

2001 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

INCENTIVE STOCK OPTION AGREEMENT

(AS AMENDED AS OF APRIL 3, 2017)

For the purpose of (a) encouraging and enabling selected management, other employees, and directors of the Company to acquire a proprietary interest in the Common Stock of the Company, (b) attracting, retaining and motivating Participants to attain exceptional levels of performance and (c) providing Participants with an opportunity to participate in the increased value of the Company which their efforts, initiative, and skill have helped produce, the Company, pursuant to the terms and conditions of the Altair Engineering Inc. 2001 Incentive and Non-qualified Stock Option Plan, will award Options to purchase Common Stock to certain Participants.

This Agreement, entered into pursuant to the terms of the Plan, evidences that the Committee has designated «FName» «LName» (“Participant”) as a participant under the Plan, has awarded Incentive Stock Options to Participant to purchase «Options» Shares, has designated «DATE» as the Award Date for such Options, has designated the sum of «PRICE» Dollars as the Exercise Price, and, subject to the provisions of this Agreement, has designated the period from «DATE» to «DATE» as the Exercise Period applicable to such Options.

The grant, holding, and exercise of such Incentive Stock Options shall be subject to the terms and conditions of the Plan and the following:

1. Definitions.

(a) “Agreement” means this “Incentive Stock Option Agreement” between the Company and Participant.

(b) “Award” shall mean any grant of Incentive Stock Options made to Participant under the Plan and this Agreement.

(c) “Award Date” means the date designated by the Committee as of which Options are awarded to Participant under the Plan.

(d) “Board” shall mean the Board of Directors of the Company.

(e) “Change in Control” shall be deemed to occur upon:

(1) the acquisition (whether by merger, consolidation, share exchange, tender offer or similar form of corporate transaction) (a “Business Combination”) by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”), unless immediately following such Business Combination the holders of more than 50% of the total voting power of the Outstanding Company Voting Securities immediately prior to such Business Combination own more than 50% of the total voting power of (x) the entity resulting from such Business Combination (the “Surviving Company”) or (y) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the members of the board of directors (or the analogous governing body) of the Surviving Company; provided, however, that for purposes of this Plan, the following acquisitions shall not constitute a Change in Control: (I) any acquisition by the Company of its Outstanding Company Voting Securities, (II) any acquisition by any employee benefit plan sponsored or maintained by the Company, (III) any acquisition of Outstanding Company Voting Securities by investment entities affiliated with General Atlantic Partners, LLC or any group of which such investment entities affiliated with General Atlantic Partners, LLC are a member, or (IV) in respect of an Option held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant);

(2) the dissolution or liquidation of the Company; or

 

Altair Engineering Inc. – ISO Agreement

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(3) the sale, transfer or other disposition of all or substantially all of the assets of the Company.

(f) “Common Stock” means the Class A common capital stock of the Company.

(g) “Company” shall mean Altair Engineering Inc., a Michigan corporation and any Subsidiary of the Company.

(h) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(i) “Exercise Period” means the period of time specified by the Board on the Award Date and set forth in the second paragraph of this Agreement within which a Participant may exercise an Option, which period has been determined by the Board pursuant to the Plan, subject however to the Board’s exercise of its discretion pursuant to the provisions hereof.

(j) “Exercise Price” means the price per Share specified by the Board and set forth in the second paragraph of this Agreement at which the Participant may exercise an Option during the Exercise Period, which price has been determined by the Board pursuant to the Plan.

(k) “Fair Market Value” shall mean the value of each Share determined as of any specified date as follows:

(1) If the Shares are traded on any United States securities exchange, or if the Shares are not traded on any United States securities exchange but are traded on any formal over-the-counter quotation system in general use in the United States, the value per Share shall be the closing price on such exchange or quotation system on the business day immediately preceding such specified date; provided, however, that if no Shares are traded on the business day immediately preceding such specified date, the value per Share shall be the mean between the closing high bid and closing low asked quotations on the business day immediately preceding such specified date; or

(2) If Paragraph (1) does not apply, the value per Share shall be determined by the Board in accordance with Section 4 in good faith and based on uniform principles consistently applied. Such determination shall be conclusive and binding on all persons.

(l) “Incentive Stock Option” or “Option” means a right granted under the Plan and this Agreement to purchase Share(s) at a specified Exercise Price within a specified Exercise Period, which right is intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986, or any successor provision thereto.

(m) “Non-qualified Stock Option” shall mean an Option granted under the Plan and this Agreement which does not qualify as an Incentive Stock Option.

(n) “Participant” shall have the meaning set forth in the second paragraph of this Agreement.

(o) “Plan” shall mean the Altair Engineering Inc. 2001 Incentive and Non-qualified Stock Option Plan.

(p) “Plan Year” shall mean the 12 consecutive month period coinciding with the Company’s fiscal year.

(q) “Purchase Price” shall mean, at any specified time, the Exercise Price per Share multiplied by the number of Shares being purchased pursuant to the exercise of an Option.

(r) “Securities Act” shall mean the Securities Act of 1933, as amended.

(s) “Share” shall mean one authorized share of Common Stock.

(t) “Subsidiary” shall mean any corporation or other business entity (other than the Company) in an unbroken chain of corporations and/or other business entities beginning with the Company if, at the time of granting an Option, each of the corporations and/or other business entities (other than the last

 

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business entity in the unbroken chain) owns stock possessing at least 50% of the total combined voting power of all classes of ownership in one of the other corporations and/or other business entities in such chain.

(u) “Termination of Employment” means the termination of the Participant’s employment with the Company or a Subsidiary, but not the transfer of employment from the Company to a Subsidiary of the Company or vice versa or from one Subsidiary of the Company to another such Subsidiary. If the Board in its sole discretion so determines, employment shall not be considered as terminated for the purposes of Section 3.1 so long as Participant continues to perform services for the Company or a Subsidiary thereof on either a full or part time basis.

(v) “Vest”, “Vesting” or “Vested” shall mean the event or point in time at which an Option becomes exercisable for the first time pursuant to the terms of this Agreement.

(w) “Vested Options” shall mean the Options as to which Participant has become one hundred (100%) percent vested pursuant to the provisions of Section 2(d) of this Agreement.

2. Terms and Conditions of Options.

(a) Person Eligible to Exercise. During Participant’s lifetime, only Participant or, in the event of disability, Participant’s conservator or legal representative may exercise an Option granted under the Plan and such Option shall not be transferable or assignable. After the death of Participant, any Options held by Participant prior to death that continue to be exercisable may be exercised by Participant’s personal representative or by any person empowered to do so by will or by the laws of descent and distribution. The terms of the Plan and this Agreement, as well as the interpretations and decisions of the Board, shall be binding upon any such conservator, legal representative, personal representative, or other person acting on behalf of or in lieu of the Participant.

(b) Manner of Exercise. Subject to the provisions of Paragraphs (c), (d) and (e) hereof, Participant may exercise an Option on any business day of the Company within the Exercise Period by delivery to the Company at the Company’s principal office, either by mail, facsimile, or in person, of a properly completed notice of exercise, on a form approved by the Board, together with full payment of the Purchase Price and the Federal, state and local tax withholding obligation as hereinafter provided for. The date such form is received by the Company shall be the date of exercise. Such form shall specify the Participant, Participant’s Social Security number, the Award Date, the number of Options being exercised, the Exercise Price, the Purchase Price and the manner in which the Participant intends to satisfy any applicable tax withholding obligation. The minimum number of Options that may be exercised at any one time shall be for 100 Shares or, if less, the aggregate number of Shares for which there are outstanding Options then credited to Participant and exercisable. In the event the Option is being exercised pursuant to Paragraph (a) hereof by any person other than Participant, such person shall also submit at the time of exercise satisfactory proof of the right of such person to exercise the Option.

(c) Exercise of Options. Participant may exercise an Option only on or after the date on which the Option Vests, as provided in Subsection (d) below, and only on or before the date on which the Option expires, as provided in Subsection (e) below.

(d) Vesting of Options. A Participant may exercise an Option to purchase Shares only on or after the date the Option has Vested with respect to such Shares.

(i) Subject to the exceptions set forth below, in the event that a Participant experiences a Termination of Employment for any reason, or for no reason, whether voluntarily or involuntarily, prior to the date which is three (3) years from and after the Award Date, Participant shall not have any Vested rights in the Options.

(ii) Participant shall immediately become 100% Vested in the Options upon the occurrence of any of the following:

(A) the death or Disability of the Participant;

 

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(B) the Participant has not experienced a Termination of Employment prior to the date which is two (2) years from and after the Award Date; or

(C) the sale of all or substantially all of the assets or common capital stock of the Company.

(iii) Upon the earlier to occur of (A) the expiration of the Exercise Period and (B) the termination of the Option pursuant to the provisions of Paragraph (e) hereof, any and all Options which are not Vested pursuant to the provisions of this Paragraph (d) shall forthwith be forfeited and surrendered to the Company without consideration, irrespective of the then current fair market value of any such Options.

(e) Term and Lapse of Options. An Option shall terminate immediately upon the first to occur of the following events:

(i) The tenth anniversary of the date that an Incentive Stock Option was granted; provided, however, that in the case of an Incentive Stock Option granted to a Participant owning, actually or constructively under Section 424(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the Company (a “10% Stockholder”), such Option, by its terms, shall be exercisable only within five years from the Award Date.

(ii) The date determined under Section 2(f) for a Participant who ceases to be an Employee by reason of the Participant’s death or total and permanent disability, within the meaning of Section 22(e)(3) of the Code unless the Board at its discretion extends such date before the applicable expiration date (provided, that upon any such extension, in the event that a Participant fails to exercise any Incentive Stock Option on or before the date which is twelve months after the date the Participant ceases to be an Employee, such Incentive Stock Option shall thereupon become a Non-qualified Stock Option);

(iii) The date determined under Section 2(g) for a Participant who ceases to be an Employee for any reason, other than by reason of death or total and permanent disability, unless the Board at its discretion extends such date before the applicable expiration date (provided, that upon any such extension, in the event that a Participant fails to exercise any Incentive Stock Option on or before the date which is three months after the date the Participant ceases to be an Employee, such Incentive Stock Option shall thereupon become a Non-qualified Stock Option); or

(iv) The expiration of the Exercise Period.

(f) Death or Disability of Participant. In the event that Participant experiences a Termination of Employment by reason of the Participant’s death or total and permanent disability (within the meaning of Section 22(e)(3)of the Code), any Option granted to the Participant may be exercised, to the extent it was Vested on the effective date of Participant’s Termination of Employment, at any time within 12 months after the Participant’s death (but not beyond the otherwise applicable term of the Option) by the Participant’s conservator or legal representative, by the executors or administrators of the Participant’s estate or by any person who has acquired the Option directly from the Participant by will or the laws of descent and distribution.

(g) Termination Other than by Death or Disability.

(i) If Participant experiences a Termination of Employment for any reason other than death or total and permanent disability (as defined in Section 2(f)), any unexercised Option (whether Vested or not) shall expire at 12:00 p.m. on the 90th day following the effective date of the Participant’s Termination of Employment with the Company. In addition, the Board may, in its sole and absolute discretion, Vest any non-Vested Options within 30 days following such Termination of Employment.

(ii) For purposes of this Section 2(g), the employment relationship shall be treated as continuing intact while the Participant is an active employee of the Company or is on military leave, sick leave or other bona fide leave of absence, as determined by the Board in its discretion. The preceding sentence notwithstanding, in the case of an Incentive Stock Option, employment shall be deemed to

 

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terminate on the date the Participant ceases active employment with the Company unless the Participant’s reemployment rights are guaranteed by statute or contract.

(h) Payment and Issuance. Shares acquired pursuant to the exercise of Options shall be paid for in full at the time of exercise, in cash (in U.S. dollars) as a condition of such exercise, unless the Board, in its sole and absolute discretion allows the Participant to pay the Purchase Price in any manner set forth below, so long as the sum of cash so paid and such other consideration equals the Purchase Price. A certificate for the net amount of Shares attributable to an exercise shall be issued to Participant as soon as practicable following payment of the aggregate Purchase Price and all applicable withholding taxes.

(i) Payment of the Purchase Price for any Shares purchased pursuant to the Plan may be made, where expressly approved for the Participant by the Board, in its sole and absolute discretion, and where permitted by law:

(A) By check;

(B) By cancellation of indebtedness of the Company to the Participant;

(C) By surrender of Shares that either: (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144; or (B) were obtained by Participant in the public market;

(D) By waiver of compensation due or accrued to Participant for services rendered;

(E) With respect only to purchases upon exercise of an Option, and provided that a public market for the Company’s stock exists (A) through a “same day sale” commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD dealer”) whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company; or (B) through a “margin” commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company; or

(F) In the event that no public market for the Company’s stock exists, by the issuance of Shares equal in value to the excess of (A) the then Fair Market Value of the Shares being purchased over (B) the Purchase Price for the Shares being purchased.

(G) By any combination of the foregoing.

(ii) The Board may help the Participant pay for Shares purchased under this Option Agreement by authorizing a guarantee by the Company of a third-party loan to the Participant.

(i) Non-Registration. Regardless of whether the Shares to be issued hereunder upon the exercise of an Option have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law. If the Shares to be issued hereunder upon the exercise of an Option have not been registered under the Securities Act, or a registration is not then currently effective with respect to such Shares, and the Company determines that the registration requirements of the Securities Act apply but an exemption is available which requires an investment representation or other representation, the Participant shall be required, as a condition to acquiring such Shares, to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Securities Act, and to make such other representations as are deemed necessary or appropriate by the Company and its counsel, and that Participant or other person then entitled to exercise such Option will indemnify

 

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the Company against and hold it free and harmless from any loss, damages, expense or liability resulting to the Company if any sale or distribution of the Shares by such person is contrary to the representation and agreement referred to above. The Board may take whatever additional actions it reasonably deems appropriate to ensure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other Federal or state securities laws or regulations, including but not limited to Rule 144 promulgated under the Securities Act. Without limiting the generality of the foregoing, the Board may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of Shares acquired on an Option exercise does not violate the Securities Act, and may issue stop-transfer orders covering such Shares.

Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Securities Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”) OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION. THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

(j) Exercise of Unvested Options.

(i) Purpose of Section. This Section is intended to apply for the benefit of Participant prior to the time Shares held by the Participant are freely transferable under applicable federal and state securities laws without the Participant holding the Shares for a minimum period of time (e.g., the holding period requirement of Rule 144 adopted by the Securities and Exchange Commission under the Securities Act). More specifically, if the Participant holds an unvested Option, he or she may commence this holding period for the Shares subject to the Option by exercising the unvested Option and receiving Shares of restricted stock which will Vest on the same date as the Option would have Vested. In this way, the Participant is able to begin the holding period for the Shares prior to the date the Option would have Vested.

(ii) Exercise of Unvested Options and Issuance of Restricted Stock. The Board, at its discretion, may grant Participant the right to exercise any Option prior to the Vesting of such Option, provided that the Shares issued upon such exercise shall remain subject to Vesting, as restricted stock, at the same rate as under the Option so exercised and (A) Shares issued pursuant to an Option which is Vested or which thereafter become Vested shall be subject to the terms and conditions of the Company’s Stock Restriction and Repurchase Agreement – 2001 Incentive and Non-Qualified Stock Option Plan (Standard) (the “Stock Restriction and Repurchase Agreement”) and (B) Shares issued pursuant to an Option which is not Vested on or before the applicable date described in Section 2 for determining the forfeiture or lapsing of the Option pursuant to which such Shares were issued pursuant to this Section, shall be forfeited at the Exercise Price paid by the Participant to the Company to acquire such Shares.

3. Limitations on Shares.

(a) Shares Subject to Stock Restriction and Repurchase Agreement. All Shares issued hereunder upon the exercise of an Option shall be subject to the terms and conditions of the Company’s Stock Restriction and Repurchase Agreement and the Company shall place legends on stock certificates representing that the Shares are subject to such Stock Restriction and Repurchase Agreement.

(b) Limitations on Incentive Stock Options. It is the intent of the Board that all options granted hereunder qualify as of the Award Date as Incentive Stock Options. Nevertheless, the aggregate Fair Market Value (determined as of the date of grant) of Shares subject to grant(s) of Incentive Stock Options which will become Vested by Participant during any calendar year (under the Plan or under any other incentive stock option plan of the Company) shall not exceed $100,000. If the Fair Market Value of the Shares described in the preceding sentence exceeds $100,000, the Options for the first $100,000 worth

 

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of Shares to become Vested shall be Incentive Stock Options and the Options for the amount in excess of $100,000 that become Vested shall be Non-qualified Stock Options.

(c) Premature Disposition of Shares. The Board may require Participant to give the Company prompt notice of any disposition of Shares acquired by exercise of an Incentive Stock Option if such disposition occurs within 2 years from the Award Date of such Option or 1 year from the date of transfer of such Shares to Participant. Such notice shall specify the date of such disposition or other transfer and the amount realized (whether in cash, other property, assumption of indebtedness or other consideration) by Participant in such transaction. These requirements to give prompt notice of disposition may be referred to in legends contained on the certificates evidencing such Shares.

4. Administration of Plan. The Board shall administer the Plan and this Agreement in accordance with their provisions and shall have full and final authority in its discretion to (a) interpret the provisions of the Plan and this Agreement and decide all questions of fact arising in their application, and its interpretation and decisions shall be in all respects final, conclusive and binding; and (b) make all other determinations, rules and regulations necessary or advisable for the administration of the Plan and this Agreement. Notwithstanding any provisions of this Agreement to the contrary, the Board shall have the power to permit, in its discretion, an acceleration of any previously determined Option exercise terms or to otherwise amend the terms of an Option, under such circumstances and upon such modified or different terms and conditions as it deems appropriate, subject, however, to the provisions of the Plan. No member of the Board shall be personally liable for any action or determination in respect to the administration of the Plan and this Agreement if made in good faith.

5. Restrictive Covenants. In order to induce the Company to Award the Options hereunder and in consideration therefor:

(a) Covenants Not to Compete or Solicit. The Participant will not directly or indirectly (whether as a principal, agent, independent contractor, employer, employee, investor, partner, shareholder, director or otherwise):

(i) During the Participant’s employment with the Company, solicit business or provide products and/or services which are the same as or competitive with that solicited or provided by the Company from any company, enterprise or person which was a customer of the Company at any time during Participant’s employment with the Company;

(ii) During the Participant’s employment with the Company, engage in any business or participate, invest or have any interest in, by way of example but without limitation, any person, firm, corporation, sole proprietorship or business, that engages in any business or activity anywhere in the world, which business or activity is the same as, similar to, or competitive with any business or activity now, heretofore or hereafter engaged in by the Company; or

(iii) During the Participant’s employment with the Company, induce or attempt to persuade any employee, agent, supplier or customer of the Company to terminate any similar employment, agency, supplier or customer relationship with the Company in order to enter into any such relationship on behalf of any other company, enterprise or person.

Notwithstanding anything contained herein to the contrary, (A) Participant shall not be prohibited from owning any interest in or shares of mutual or similar funds which are nationally recognized and which own equity securities of any corporation, if such securities are publicly traded and listed on any national or regional stock exchange and (B) Participant shall not be prohibited from accepting a position of full-time employment with any such customer of the Company, provided that Participant shall not engage in any activities prohibited hereunder with respect to any other customer(s) of the Company.

(b) Covenant Regarding Confidential Information. The Participant acknowledges and agrees that all records and other information not released to the general public, all trade secrets, unpublished data or other information and all trade secrets and confidential or proprietary information, in each case relating to the services, business and operations of the Company or its subsidiaries and affiliates, whether reduced to writing or not, are confidential and the sole property of the Company and its subsidiaries and affiliates (all of the same being herein collectively called the “Confidential Information”). The Participant will not, at any time during his employment with the Company or thereafter, directly or indirectly, use any

 

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of the Confidential Information, except in the regular course of employment with the Company hereunder, or disclose any of the Confidential Information to any other person or entity, except to the extent that the Board may so authorize in writing, and that, upon Participant’s Termination of Employment, he or she will surrender to the Company all Confidential Information then in his or her possession or under his or her control. Participant acknowledges and agrees that the Confidential Information and other aspects of the Company’s business have been established and maintained at great expense, and kept and protected as confidential and secret information and are of great value to the Company and provide it with a substantial competitive advantage in conducting said business. Participant further acknowledges and agrees that as a result of his or her knowledge of the Confidential Information, Company would suffer great loss and irreparable injury if Participant were to disclose the Confidential Information or use the Confidential Information to compete with the Company.

(c) Rights and Remedies upon Breach. Participant expressly agrees that in the event of any violation by the Participant of the covenants and restrictions contained in paragraphs (a) and/or (b) hereof, Company and its successors or assigns shall have the following cumulative rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any and all other legal and equitable rights and remedies available to the Company:

(i) Institute proceedings in any court of competent jurisdiction against the Participant, or any other person, organization or entity acting with him, to enjoin and restrain him or her and/or them from a threatened or further and continuing breach of the covenants and restrictions set forth herein. Participant hereby expressly consents that an order, either temporary or permanent, may be entered in any suit, in equity or law, brought for the purposes of enjoining Participant, or any other person, organization or entity acting with him or her, from violating or threatening to violate the covenants and restrictions set forth herein. It is the intent and understanding of each party hereto that if, in any action before any court, agency or tribunal legally empowered to enforce the covenants contained in such paragraphs (a) and (b), any term, restriction, covenant or promise contained therein is found to be invalid, illegal or unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it valid, legal or enforceable by such court, agency or tribunal. The covenants contained in such paragraphs (a) and (b) shall survive termination of this Agreement and the Participant’s Termination of Employment for any reason;

(ii) Require the Participant to account for and pay over to the Company, as liquidated damages, and not as a penalty, one hundred (100%) percent of any and all salaries, fees, commissions, income, profits, or other remuneration which he or she receives or becomes entitled to receive, from or by reason of the conducting of any activity in violation of the covenants and restrictions set forth in this Section 5 during the period that the violation of such covenants and restrictions continues;

(iii) Withhold any and all payments due hereunder or under the Stock Restriction and Repurchase Agreement while the breach or violation continues; and

(iv) Declare any and all rights of the Participant under this Option Agreement to be immediately terminated and of no further force nor effect.

(d) Covenants Reasonable and Necessary. Participant agrees that the terms and conditions of the covenants and restrictions set forth herein are reasonable and necessary for the protection of the Company, Company’s business and the Confidential Information and to prevent damage or loss to Company as a result of actions taken by the Participant.

6. Withholding of Taxes. Whenever Shares are to be issued under the Plan or this Agreement, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan or this Agreement, payments in satisfaction of Options are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.

7. Rights as an Employee. Neither the Plan nor this Agreement shall be construed to give any individual the right to remain in the employ of the Company or to continue in any position or at any level of remuneration, or to affect the right of the Company to terminate such individual’s employment at any time,

 

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with or without cause. The grant of an Option shall not entitle the Participant to, or disqualify the Participant from, participation in the grant of any other Option under the Plan or participation in any other plan maintained by the Company.

8. Non-Alienation of Benefits. Prior to its settlement in the form of Shares, no right or benefit under the Plan and this Agreement shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same whether voluntary, involuntary or by operation of law, shall be void except by will or by the laws of descent and distribution or by such other means as the Board may approve from time to time. No right or benefit under the Plan and this Agreement shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. If Participant should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under the Plan and this Agreement, then such right or benefit shall, in the sole discretion of the Board, cease and terminate, and in such event, the Company may hold or apply the same or any part thereof for the benefit of Participant, the Participant’s spouse, children or other dependents, or any of them, in such manner and in such proportion as the Board may determine. Any restrictions on transferability of the Shares either described above or otherwise provided for in this Agreement may be referred to in legends contained on the certificates evidencing such Shares.

9. Rights of a Shareholder. The recipient of any Award under the Plan and this Agreement, and any person claiming under or through such recipient or under the Plan or this Agreement, shall not be, nor have any of the rights of, a shareholder with respect thereto, nor shall they have any right or interest in any cash or other property, unless and until certificates for Shares are issued to such Participant after compliance with all the terms and conditions of the Plan and this Agreement.

10. Non-Uniform Determinations. The Board’s determinations under the Plan (including without limitation determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made by the Board selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated.

11. Funding of the Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under the Plan or this Agreement, and payment of Awards shall be subordinate to the claims of the Company’s general creditors.

 

12.	Recapitalizations, Takeovers, and Liquidations.

(a) Recapitalizations. Notwithstanding any other provision of the Plan to the contrary, but subject to any required action by the stockholders of the Company, the Board shall make any adjustments to the class and/or number of Shares covered by the Plan, the number of Shares for which each outstanding Option pertains, the Exercise Price of an Option, and/or any other aspect of the Plan to prevent the dilution or enlargement of the rights of Participants under the Plan in connection with any increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company resulting from the payment of a stock dividend, a stock split, a reverse stock split or any other event which results in an increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company effected without receipt of adequate consideration by the Company.

(b) Effect of Change in Control. In the event of a Change in Control:

(i) The Board may, in its discretion, provide that notwithstanding any vesting provisions set forth herein, that the Option shall become immediately Vested with respect to 100 percent of the Shares subject to the Option.

(ii) In addition, the Board may, in its discretion and upon at least 10 days’ advance notice to the Participant, cancel any outstanding Options and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such Options based upon the price per Share received or to be received by other shareholders of the Company as part of the Change in Control transaction.

 

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(iii) The obligations of the Company under the Plan and this Agreement shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. The Company agrees that it will make appropriate provisions for the preservation of Participant’s rights under the Plan, this Agreement and in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets.

(c) Determination by the Board. All adjustments described in this Section shall be made by the Board, whose determination shall be conclusive and binding on all persons.

(d) Limitation on Rights of Participants. Except as expressly provided in this Section, the Participant shall not have any rights by reason of any payment of any stock dividend, stock split, reverse stock split, or any other change in the number of shares of stock of any class, or by reason of any reorganization, consolidation, dissolution, liquidation, merger, exchange, split-up or reverse split-up, or spin-off of assets or stock of another corporation. Any issuance by the Company of Options shall not affect, and no adjustment by reason thereof shall be made with respect to, Options under the Plan.

(e) No Limitation on Rights of Company. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets.

13. Severability. If any provision of the Plan or this Agreement or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person, or Award, and the remainder of the Plan and this Agreement and any such Award shall remain in full force and effect. Each covenant, condition, term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

14. Gender and Number. As the context of any provision may require, nouns and pronouns of any gender and number shall be construed in any other gender and number.

15. Governing Law. This Agreement and the Plan shall be governed by and interpreted under the laws of the State of Michigan and applicable Federal law, irrespective of where this Agreement is made or to be performed, and irrespective of any applicable principles of conflict of laws.

16. Venue. The venue of any dispute, controversy, litigation or proceeding (formal or informal) arising out of or pertaining to the Plan or this Agreement or the subject hereof shall lie exclusively in the County of Oakland, State of Michigan. Provided, however, that if any such dispute, controversy, litigation or proceeding requires or permits jurisdiction in a federal court or agency of the United States, then venue shall lie in no federal court or agency other than those located in (or nearest to) the County of Wayne, State of Michigan. No term or provision of this Section is intended to establish a priority as between state court or federal court, for instances in which a choice of such venue is available to the parties or litigants. The parties hereto knowingly and expressly waive any rights they may have in existing venue statutes, either state or federal, to the extent that such statutes would require a different venue than otherwise provided for herein.

17. Captions. Captions used herein are inserted for reference purposes only and shall not affect the interpretation or construction of this Agreement.

18. Independent Legal Representation . Participant acknowledges that the parties’ interests hereunder are divergent and conflicting in many material respects. Accordingly, Participant acknowledges being advised to retain independent legal counsel before executing this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

Altair Engineering Inc. – ISO Agreement		10

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19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and such counterparts together shall constitute but one and the same Agreement.

 

				ALTAIR ENGINEERING INC.
				A Michigan Corporation
Dated:				By:
						Tom M. Perring
						Its: Chief Operating Officer

Participant hereby acknowledges receipt of a copy of the Plan and this Agreement, accepts his or her designation as a Participant under and subject to all the terms and conditions set forth herein and in the Plan, and agrees to all such terms and conditions.

 

Dated:
						«FName» «LName»
						PARTICIPANT

 

Altair Engineering Inc. – ISO Agreement		11

Exhibit 10.4

STOCK RESTRICTION AND REPURCHASE AGREEMENT -

2001 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

ARTICLE I

DEFINITIONS; SHARES SUBJECT TO AGREEMENT

Section 1.1 Definitions. As used in this Agreement, the following words and phrases shall have the meanings set forth below, unless the context clearly indicates that a different meaning is intended:

(a) “Code” shall mean the United States Internal Revenue Code of 1986, as amended.

(b) “Incentive Stock Option Agreement” means an Incentive Stock Option Agreement entered into between the Company and Participant pursuant to the terms of the Plan.

(c) “Legal Representative” shall mean, with reference to any Person, a personal representative, executor, administrator or conservator of the Person’s estate, or a legal guardian or attorney-in-fact of the Person, or a successor trustee of such Person under his or her revocable living trust, or anyone else legally acting as the representative or successor in interest of the Person, as the context of any provision may require.

(d) “Non-qualified Stock Option Agreement” means a Non-qualified Stock Option Agreement entered into between the Company and Participant pursuant to the terms of the Plan.

(e) “Person” shall mean any natural individual or legal entity, or any association of natural individuals or legal entities.

(f) “Plan” shall mean the Altair Engineering Inc. 2001 Incentive and Non-qualified Stock Option Plan.

(g) “Share” or “Shares” shall mean any and all shares of the common capital stock of the Company which are issued to a Participant pursuant to the Plan and an Incentive Stock Option Agreement(s) and/or a Non-qualified Stock Option Agreement(s).

(h) “Transfer” shall mean any assignment, transfer, sale, exchange, conveyance, disposition, pledge, hypothecation, attachment, gift, testamentary bequest or other disposition or encumbrance of any nature or description whatsoever, whether occurring voluntarily or involuntarily, directly or indirectly, or by operation or process of law.

(i) “Triggering Event” shall mean an event in which, or circumstances under which, (1) Participant (or his Legal Representative) first becomes obligated to sell or offer for sale his Shares in the Company pursuant to this Agreement or (2) the Company first has the option to purchase the Shares of the Participant in the Company pursuant to this Agreement.

(j) “Vested Shares” shall mean the Shares as to which Participant has become one hundred (100%) percent vested pursuant to the provisions of Section 2.1 of this Agreement.

Section 1.2 Non-Registration. Regardless of whether the Shares have been registered under the Securities Act of 1933, as amended (the “Securities Act”) or have been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law.

Section 1.3 Restrictive Legends.

(a) The certificates representing the Shares subject to the terms of this Agreement shall bear substantially the following legend:

 

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THE TRANSFER, ASSIGNMENT, SALE, ENCUMBRANCE, PLEDGE OR OTHER DISPOSITION OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE IS RESTRICTED UNDER THE TERMS OF A STOCK RESTRICTION AND REPURCHASE AGREEMENT—2001 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE COMPANY. BY ACCEPTING THIS CERTIFICATE, ANY TRANSFEREE AGREES TO BE BOUND BY THE TERMS OF SUCH AGREEMENT. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT.

(b) Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Securities Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”) OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION. THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

Section 1.4 Endorsement. Participant agrees to tender all stock certificates pertaining to Shares subject to this Agreement held by him to the secretary of the Company for endorsement in the manner set forth in Section 1.3 of this Article.

ARTICLE II

VESTING; TRANSFER AND PURCHASE OF SHARES

Section 2.1 Vesting of Shares. Participants shall be 100% vested in all Shares at all times hereunder. Notwithstanding the foregoing to the contrary, in the event that a Participant acquires Shares by exercising a non-Vested Option pursuant to the terms of an Incentive Stock Option Agreement and/or a Non-qualified Stock Option Agreement, such Shares shall remain subject to the vesting provisions contained in said Incentive Stock Option Agreement and/or Non-qualified Stock Option Agreement, as applicable.

Section 2.2 Lifetime Transfers. While this Agreement is in force, Participant shall not Transfer all or any portion of his Shares, except under the terms of this Agreement. In the event that there is any proposed, attempted or actual Transfer of any or all of Participant’s Vested Shares, then prior to accomplishment of such Transfer, the Company shall have the right to purchase such Vested Shares in accordance with the terms of this Section.

(a) Participant shall furnish the Company with written notice of the proposed Transfer, which notice shall identify the proposed transferee and fully describe the purchase price and other terms of the offer of sale from such proposed transferee.

(1) The Company shall have the right and option, exercisable by written notice furnished to Participant within sixty (60) days from the date as of which the Company has been furnished with written notice of the proposed Transfer, to acquire all but not less than all of Participant’s Vested Shares upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(2) If the Company timely exercises its right of first refusal to purchase all of Participant’s Vested Shares as provided above, the purchase and sale of Participant’s Vested Shares shall be completed at a closing to be held within one hundred twenty (120) days from the date as of which the Company has been furnished with the written notice of the proposed Transfer.

(3) If the Company does not exercise its right of first refusal to purchase all of Participant’s Vested Shares as provided above, then Participant may complete the Transfer for the purchase price and upon such other terms as are set forth in the Participant’s notice of the proposed Transfer; subject

 

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however to rights of first refusal on the part of the Company to purchase no less than all of the Participant’s Vested Shares.

(A) The purchase price and terms of any such sale to the Company shall be at the same price and upon the same terms (including timing of a closing) as the Participant deems acceptable in the offer of sale from the third person.

(B) The right of first refusal on the part of the Company shall be exercisable for sixty (60) days from the date as of which the Company has been furnished with written notice of the proposed Transfer.

(C) If a sale of Participant’s Vested Shares is not completed within forty five (45) days after the expiration of the Company’s option to purchase and rights of first refusal provided for herein, then the Transfer may not be consummated without Participant again complying with the terms of this Section 2.2(a) and the provisions and restrictions of this Agreement shall continue to apply to such Shares.

(D) If a sale of Participant’s Vested Shares to the third person is completed, then the provisions and restrictions of this Agreement shall continue to apply to such Shares in the hands of the third person.

(E) If any Transfer subject to this Agreement involves a transaction other than a bona fide sale for a readily ascertainable sale price under fixed terms and conditions, then the rights of first refusal provided herein shall be administered and effectuated through the use of a price, terms and conditions which are fair and just under the circumstances, as reasonably determined by the Company.

(b) The rights and options provided in Subsection (a) above shall not apply with respect to any Transfer to a revocable living trust, to the extent provided in Article V hereof.

(c) The rights and options provided in Subsection (a) above shall terminate and be of no further force or effect upon the earlier to occur of (i) the date on which the Company consummates the sale of all or substantially all of the assets of the Company and/or the Shareholders consummate the sale of all or substantially all of the common capital stock of the Company, or (ii) the date on which the common capital stock of the Company is first traded on any United States securities exchange or on any formal over-the-counter quotation system in general use in the United States.

Section 2.3 Termination of Employment other than for Cause. In the event that the employment relationship of Participant with the Company is or was terminated for any reason, whether voluntarily or involuntarily, other than by the Company for “Cause”:

(a) The Company shall have the option to purchase all, but not less than all, of the Participant’s Vested Shares upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof. The Company must exercise this option, if at all, in writing within ninety (90) days after the effective date of Participant’s termination of employment with the Company.

(b) The purchase and sale of the Participant’s Vested Shares shall be completed at a closing to be held within ninety (90) days from the effective date of Participant’s termination of employment with the Company.

(c) In the event that the Company does not timely exercise the right and option provided in Subsection (a) above, the Participant or his Legal Representative shall continue to own the Vested Shares and the provisions and restrictions of this Agreement shall continue to apply to such Vested Shares.

(d) The rights and obligations provided in this Section 2.3 shall terminate and be of no further force or effect upon the earlier to occur of (i) the date on which the Company consummates the sale of all or substantially all of the assets of the Company and/or the Shareholders consummate the sale of all or substantially all of the common capital stock of the Company, or (ii) the date on which the common capital stock of the Company is first traded on any United States securities exchange or on any formal over-the-counter quotation system in general use in the United States.

Section 2.4 Termination of Employment for Cause. In the event that the employment relationship of Participant with the Company is or was terminated by the Company for “Cause”:

 

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(a) The Company shall purchase from the Participant and the Participant (or his Legal Representative) shall sell and transfer to the Company all Vested Shares owned by Participant upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(b) The purchase and sale of Participant’s Vested Shares shall be completed at a closing to be held within ninety (90) days from the effective date of Participant’s termination of employment with the Company.

(c) For purposes of this Article II, Cause shall be defined as the occurrence of any one or more of the following acts or events: (1) fraud, misappropriation, embezzlement, or other act of material dishonesty against the Company; (2) any act or acts by Participant with respect to Company which constitute a breach of Participant’s fiduciary duties or duties of honesty, good faith and loyalty (including derogatory statements regarding the Company, but excluding statements made in connection with any legal action filed against the Company); (3) any act by Participant which is intentionally damaging to the Company; (4) commission by Participant of a felony or misdemeanor involving moral turpitude; (5) a material breach by Participant of any provision of this Agreement within his control or failure of Participant to properly and diligently perform his duties as an employee, officer and/or director of the Company, which violation is not remedied within three (3) days after notice from Company specifying such violation; (6) alcohol or drug abuse affecting in any material respect the performance by the Participant of his duties and responsibilities as an employee, officer and/or director of the Company; (7) commission of any other act or acts which substantially impairs the reputation and standing of Company with its customers or the community at large; and (8) any act or circumstance constituting “cause” for termination under applicable statutory or common law.

Section 2.5 Violation of Restrictive Covenants. In the event of any violation by Participant of the covenants and restrictions contained in Article VI hereof, in addition to, and not in lieu of, any and all other legal and equitable rights and remedies available to the Company:

(a) The Company shall purchase from the Participant and the Participant (or his Legal Representative) shall sell and transfer to the Company all Vested Shares owned by Participant upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(b) The purchase and sale of Participant’s Vested Shares shall be completed at a closing to be held within ninety (90) days from and after the date upon which the Company provides written notice to Participant of the violation by Participant of the covenants and restrictions contained in Article VI hereof.

Section 2.6 Purchase of Non-Vested Shares. Upon the occurrence of a Triggering Event, the Company shall purchase from the Participant and the Participant (or his Legal Representative) shall sell and transfer to the Company all non-Vested Shares owned by Participant upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof. The purchase and sale of Participant’s non-Vested Shares shall be completed at the closing of the purchase and sale of the Participant’s Vested Shares, or in default thereof, within ninety (90) days of the occurrence of the Triggering Event.

Section 2.7 Employment Relationship with the Company. Notwithstanding the provisions of this Agreement, Participant understands that his employment relationship with the Company is controlled by such manuals, procedures or directives as are promulgated from time to time by the Company. Nothing in this Agreement shall be interpreted to change the terms of Participant’s employment with the Company to anything other than an “at-will” employment relationship and Participant hereby acknowledges and reaffirms that his employment with the Company may be terminated by the Company at the will of the Company, with or without cause.

ARTICLE III

PAYMENT TERMS

Section 3.1 Terms of Payment. The purchase price to be paid by the Company to Participant for all Vested and/or non-Vested Shares purchased by the Company pursuant to the terms of this Agreement shall be paid in full in immediately available United States funds at the closing of the sale of the Vested and/or non-Vested Shares hereunder; provided, however, that there shall be credited against such purchase price (and against such down payment) the amount of any indebtedness then due and payable to the Company by Participant.

 

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ARTICLE IV

PURCHASE PRICE

Section 4.1 Determination of Purchase Price—Lifetime Sale/Termination Other Than For Cause. In the event that the Triggering Event under which the purchase price of Participant’s Vested Shares is to be determined under this Article is a lifetime Transfer pursuant to Section 2.2 hereof or the termination of the Participant’s employment with the Company for any reason, whether voluntarily or involuntarily, other than by the Company for “Cause”, such purchase price shall be equal to the Fair Market Value of such Vested Shares determined as of December 31st of the year preceding the year in which such Triggering Event occurs (the “Valuation Date”).

(a) For purposes of this Agreement, Fair Market Value shall mean:

(i) The fair market value per Share determined by the Board of Directors of the Company as of the applicable Valuation Date in accordance with the terms of the Plan or any other stock option plan subsequently adopted by the Company; or

(ii) If Subparagraph (i) does not apply, the fair market value per Share shall be determined by the Board of Directors of the Company as of such Valuation Date. Such determination shall be made in good faith and shall be consistent with the principles applied with respect to any such determinations of the fair market value of the Shares previously thereto made by the Board of Directors of the Company in accordance with the terms of the Plan, or any other stock option plan subsequently adopted by the Company.

(b) All determinations of Fair Market Value by the Board of Directors pursuant to the terms of this Agreement shall be conclusive and binding on all persons.

Section 4.2 Determination of Purchase Price—Termination for Cause/Violation of Restrictive Covenants. In the event that the Triggering Event under which the purchase price of Participant’s Vested Shares is to be determined under this Article is the termination of the Participant’s employment by the Company for “Cause” and/or a violation by Participant of the covenants and restrictions contained in Article VI hereof or where the purchase price of any non-Vested Shares is to be determined under this Article, such purchase price shall be equal to the aggregate purchase price paid by Participant for such Shares pursuant to the applicable Incentive Stock Option Agreement(s) and/or Non-qualified Stock Option Agreement(s).

Section 4.3 Company’s Performance. In any situation in which the Company is or may be unable to fulfill any obligation to redeem or pay for any Shares due to the prohibitive provisions of any statute, or due to limitations contained in its articles of incorporation or bylaws, the Company shall use its best efforts to take such action as may be reasonably necessary to enable the Company, if possible, to fulfill such redemption or payment obligation. The actions to be taken shall include, but not be limited to, the reappraisal and revaluation of the total assets, properties and rights of the Company (including accounts receivable and goodwill, if applicable) at their then current fair market value.

ARTICLE V

GENERAL PROVISIONS

Section 5.1 Assignments to Revocable Living Trusts. Notwithstanding any term or provision of this Agreement to the contrary, the assignment of Shares, or any portion thereof, to a revocable living trust of which Participant is (during his lifetime) grantor, trustee or co-trustee and primary beneficiary, shall be subject to the following conditions:

(a) Participant must continue to remain liable for all of his obligations hereunder notwithstanding the assignment to such trust;

(b) All provisions of this Agreement which relate to Participant in his status as an individual shall apply to the Shares so assigned based upon the status of Participant, notwithstanding the assignment to such trust;

(c) The trust shall be completely bound by the terms and provisions of this Agreement, as a shareholder; and

 

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(d) The occurrence of any Triggering Event with respect to such Shares shall be determined (1) by reference to Participant in his capacity as an individual (including but not limited to his death or disability), as well as (2) by reference to events affecting the trust alone (including but not limited to any Transfer of the Shares by such trust).

Section 5.2 Encumbrance. Participant shall not encumber his Shares in any way, and such Shares shall at all times be deemed security for all indebtedness due to the Company or the Company by Participant; such security interest arising as of the date such debt was incurred, and notice thereof is deemed given by the legend referred to in Article I of this Agreement. If no other provision has been made to adjust the applicable purchase price for Participant’s Shares upon the occurrence of a Triggering Event, there shall be credited against such purchase price the amount of any indebtedness then due and payable to the Company by Participant.

ARTICLE VI

RESTRICTIVE COVENANTS

Section 6.1 Covenant Not to Compete/Solicit. Participant will not directly or indirectly (whether as a principal, agent, independent contractor, employer, employee, investor, partner, shareholder, director or otherwise):

(a) During the Participant’s employment with the Company, solicit business or provide products and/or services which are the same as or competitive with that solicited or provided by the Company from any company, enterprise or person which was a customer of the Company at any time during Participant’s employment with the Company;

(b) During the Participant’s employment with the Company, engage in any business or participate, invest or have any interest in, by way of example but without limitation, any person, firm, corporation, sole proprietorship or business, that engages in any business or activity anywhere in the world, which business or activity is the same as, similar to, or competitive with any business or activity now, heretofore or hereafter engaged in by the Company; or

(c) During the Participant’s employment with the Company, induce or attempt to persuade any employee, agent, supplier or customer of the Company to terminate any similar employment, agency, supplier or customer relationship with the Company in order to enter into any such relationship on behalf of any other company, enterprise or person.

Notwithstanding anything contained herein to the contrary, (A) Participant shall not be prohibited from owning any interest in or shares of mutual or similar funds which are nationally recognized and which own equity securities of any corporation, if such securities are publicly traded and listed on any national or regional stock exchange and (B) Participant shall not be prohibited from accepting a position of full-time employment with any such customer of the Company, provided that Participant shall not engage in any activities prohibited hereunder with respect to any other customer(s) of the Company.

Section 6.2 Covenant Regarding Confidential Information. Participant acknowledges and agrees that all records and other information not released to the general public, all trade secrets, unpublished data or other information and all trade secrets and confidential or proprietary information, in each case relating to the services, business and operations of the Company or its subsidiaries and affiliates, whether reduced to writing or not, are confidential and the sole property of the Company and its subsidiaries and affiliates (all of the same being herein collectively called the “Confidential Information”). The Participant will not, at any time during his employment with the Company or thereafter, directly or indirectly, use any of the Confidential Information, except in the regular course of employment with the Company hereunder, or disclose any of the Confidential Information to any other person or entity, except to the extent that the Board may so authorize in writing, and that, upon Participant’s Termination of Employment, he or she will surrender to the Company all Confidential Information then in his or her possession or under his or her control. Participant acknowledges and agrees that the Confidential Information and other aspects of the Company’s business have been established and maintained at great expense, and kept and protected as confidential and secret information and are of great value to the Company and provide it with a substantial competitive advantage in conducting said business. Participant further acknowledges and agrees that as a result of his or her knowledge of the Confidential Information, Company would suffer great loss and irreparable injury if Participant were to disclose the Confidential Information or use the Confidential Information to compete with the Company.

 

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Section 6.3 Rights and Remedies upon Breach. Participant expressly agrees that in the event of any violation by Participant of the covenants and restrictions contained in this Article VI, Company and its successors or assigns shall have the following cumulative rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any and all other legal and equitable rights and remedies available to the Company:

(a) Institute proceedings in any court of competent jurisdiction against the Participant, or any other person, organization or entity acting with him, to enjoin and restrain him or her and/or them from a threatened or further and continuing breach of the covenants and restrictions set forth herein. Participant hereby expressly consents that an order, either temporary or permanent, may be entered in any suit, in equity or law, brought for the purposes of enjoining Participant, or any other person, organization or entity acting with him or her, from violating or threatening to violate the covenants and restrictions set forth herein. It is the intent and understanding of each party hereto that if, in any action before any court, agency or tribunal legally empowered to enforce the covenants contained in this Article, any term, restriction, covenant or promise contained therein is found to be invalid, illegal or unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it valid, legal or enforceable by such court, agency or tribunal. The covenants contained in this Article shall survive the termination of this Agreement and the termination of Participant’s employment for any reason;

(b) Require the Participant to account for and pay over to the Company, any amounts paid to Participant hereunder which are in excess of the aggregate purchase price paid by Participant to the Company for the Participant’s Shares pursuant to the applicable Incentive Stock Option Agreement(s) and/or Non-qualified Stock Option Agreement(s);

(c) Withhold any and all payments due hereunder which are in excess of the aggregate purchase price paid by Participant to the Company for the Participant’s Shares pursuant to the applicable Incentive Stock Option Agreement(s) and/or Non-qualified Stock Option Agreement(s); and

(d) Declare any and all rights of the Participant under any Option Agreement to be immediately terminated and of no further force nor effect.

Section 6.4 Covenants & Restrictions Reasonable and Necessary. Participant agrees that the terms and conditions of the covenants and restrictions set forth herein are reasonable and necessary for the protection of the Company, Company’s business and the Confidential Information and to prevent damage or loss to Company as a result of actions taken by the Participant.

ARTICLE VII

MISCELLANEOUS PROVISIONS

Section 7.1 Agreement Binding. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, administrators, executors, personal representatives, successor trustees, successors and assigns.

Section 7.2 Waiver of Breach. A waiver by any party of a breach of any provision of this Agreement by any other party shall not operate or be construed (a) as continuing, or (b) as a bar to, or a waiver or release of, any subsequent right, remedy, or recourse as to a subsequent event, or (c) as a waiver of any subsequent breach by that other party.

Section 7.3 Course of Conduct. No course of conduct between the parties hereto, nor any delay in exercising any rights or remedies hereunder or under any communication, report, notice or other document or instrument referred to herein, shall operate as a waiver of any of the rights or remedies of the parties hereto.

Section 7.4 Further Assurances. The parties hereto shall take such further steps and execute such further documents and instruments as may be necessary or appropriate to carry this Agreement into force and effect or to effectuate the intention hereof.

Section 7.5 Entire Agreement. This Agreement contains all the covenants, promises, agreements, conditions, representations and understandings between the parties hereto, and supersedes any prior agreements between the parties hereto, with respect to the subject matter hereof. There are no covenants, promises, agreements, conditions, representations or understandings, either oral or written, between the parties

 

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hereto, other than those set forth herein or provided for herein, with respect to the subject matter hereof. Participant hereby acknowledges that he is not relying on any statement, representation, or agreement of the Company as an inducement to enter into this Agreement, except as specifically provided herein and that neither the Company, nor anyone acting on behalf of the Company has made any representation, agreement, guaranty or warranty of any kind whatsoever, express or implied, written or oral, concerning or relating to the subject matter hereof, except as specifically set forth herein.

Section 7.6 Amendment. This Agreement shall not be changed orally, but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

Section 7.7 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Michigan, irrespective of where this Agreement is made or to be performed, and irrespective of any applicable principles of conflict of laws.

Section 7.8 Venue. The venue of any dispute, controversy, litigation or proceeding (formal or informal) arising out of or pertaining to this Agreement or the subject hereof shall lie exclusively in the County of Oakland, State of Michigan. Provided, however, that if any such dispute, controversy, litigation or proceeding requires or permits jurisdiction in a federal court or agency of the United States, then venue shall lie in no federal court or agency other than those located in (or nearest to) the County of Wayne, State of Michigan. No term or provision of this Section is intended to establish a priority as between state court or federal court, for instances in which a choice of such venue is available to the parties or litigants. The parties hereto knowingly and expressly waive any rights they may have in existing venue statutes, either state or federal, to the extent that such statutes would require a different venue than otherwise provided for herein.

Section 7.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.

Section 7.10 Gender and Number. As the context of any provision may require, nouns and pronouns of any gender and number shall be construed in any other gender and number.

Section 7.11 Notices, Statements, Etc. All notices, statements or other communications which are required or contemplated by this Agreement shall be in writing (unless otherwise expressly provided herein) and shall be either personally served at or mailed to the last known mailing address of the person entitled thereto. In addition, a copy of each such notice, statement or communication intended for a party shall be furnished to such single additional addressee for that party as may be specified herein or specified in a like notice. All such notices, statements and other communications (or copies thereof) shall be deemed furnished to the person entitled thereto (a) on the date of service, if personally served at the last known mailing address of such person, or (b) on the date on which mailed, if mailed to such person in accordance with the terms of this Section. For purposes hereof, an item shall be considered mailed if the sender can establish that it was sent by means including, but not limited to, the following: (i) by United States Postal Service, postage prepaid; (ii) by air courier service (Federal Express or the like); or (iii) by telefax or other means of electronic communication.

Section 7.12 Severability. Should any covenant, condition, term or provision of this Agreement be deemed to be illegal, or if the application thereof to any person or in any circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such covenant, condition, term or provision to persons or in circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby; and each covenant, condition, term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

Section 7.13 Captions. Captions used herein are inserted for reference purposes only and shall not affect the interpretation or construction of this Agreement.

Section 7.14 Incorporation by Reference. All schedules, exhibits and other attachments which are affixed to and referred to in this Agreement are incorporated herein and made a part hereof by this reference.

Section 7.15 Survival. The parties acknowledge and agree that this Agreement contains substantial terms and provisions which are intended to govern the rights, duties and obligations of the parties following the closing on any purchase and sale of any Shares. Accordingly, this Agreement shall survive and shall not be

 

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deemed merged into, the execution or delivery of any documents, property, or payments pursuant to the terms hereof; and this Agreement shall remain in full force and effect following the closing on any such purchase and sale.

Section 7.16 Construction. Each party has participated fully in the negotiation and preparation of this Agreement with full benefit or availability of counsel. Accordingly, this Agreement shall not be more strictly construed against either party.

Section 7.17 Independent Legal Representation. Participant acknowledges that the parties’ interests hereunder are divergent and conflicting in many material respects. Accordingly, Participant acknowledges being advised to retain independent legal counsel before executing this Agreement.

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Section 7.18 Equitable Relief. The parties acknowledge that the stock in the Company which is the subject of this Agreement is unique and that the failure of any party to perform or fulfill such party’s obligations hereunder may result in irreparable harm to the other parties. Accordingly, the parties agree that specific performance of the terms hereof and/or other equitable relief may be obtained through a court of competent jurisdiction.

 

								ALTAIR ENGINEERING INC.
								A Michigan Corporation
Dated:						By:

Participant hereby acknowledges receipt of a copy of this Agreement, accepts his or her designation as a Participant under and subject to all the terms and conditions set forth herein, and agrees to all such terms and conditions.

 

Dated:
						PARTICIPANT

 

Altair Engineering Inc. - 2001 ISO & NSO Plan Stock Restriction & Repurchase Agreement (Standard)		10

Exhibit 10.5

ALTAIR ENGINEERING INC.

2001 NON-QUALIFIED STOCK OPTION PLAN

(AS AMENDED AS OF APRIL 3, 2017)

1. Purpose. The purpose of the Plan is to encourage and enable selected management and other employees of the Company who currently have rights under the Company’s Phantom Stock Plan, to acquire a proprietary interest in the Company through the ownership of the Common Stock of the Company. The Company intends to use the Plan to retain and motivate Participants to attain exceptional levels of performance and provide Participants with an opportunity to participate in the increased value of the Company which their efforts, initiative, and skill have helped produce. The Plan design enables the Company to grant to Participants Non-Qualified Stock Options to purchase shares of Common Stock of the Company. The Plan is effective as of December 1, 2001.

2. Definitions.

(a) “Board” shall mean the Board of Directors of the Company.

(b) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(c) “Common Stock” shall mean the Class A common capital stock of the Company.

(d) “Company” shall mean Altair Engineering Inc., a Michigan corporation and any Subsidiary of the Company.

(e) “Employee” shall mean any individual who is employed, within the meaning of Section 3401 of the Code and the regulations promulgated thereunder, by the Company. The Board shall be responsible for determining when an Employee’s period of employment is deemed to be continued during an approved leave of absence.

(f) “Exchange Act” shall mean the Securities Exchange Act of 1934,as amended.

(g) “Exercise Price” shall mean the price per Share at which an Option may be exercised, as determined by the Board and as specified in the Participant’s Option Agreement.

(h) “Fair Market Value” shall mean the value of each Share determined as of any specified date as follows:

(1) If the Shares are traded on any United States securities exchange, or if the Shares are not traded on any United States securities exchange but are traded on any formal over-the-counter quotation system in general use in the United States, the value per Share shall be the closing price on such exchange or quotation system on the business day immediately preceding such specified date; provided, however, that if no Shares are traded on the business day immediately preceding such specified date, the value per Share shall be the mean between the closing high bid and closing low asked quotations on the business day immediately preceding such specified date; or

(2) If Paragraph (1) does not apply, the value per Share shall be determined by the Board in accordance with Section 4(e) in good faith and based on uniform principles consistently applied. Such determination shall be conclusive and binding on all persons.

(i) “Non-qualified Stock Option” means all of the Options granted pursuant to this Plan, which Options are not intended to be qualified as incentive stock options under Section 422(b) of the Code.

(j) “Option” shall mean an option which is granted pursuant to the Plan to purchase Shares of Common Stock.

(k) “Option Agreement” shall mean, with respect to each Option, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Option.

(l) “Participant” shall mean any individual to whom an Option has been granted or issued under the Plan.

 

Altair Engineering Inc. 2001 Non-qualified Stock Option Plan

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(m) “Plan” shall mean this Altair Engineering Inc. 2001 Non-qualified Stock Option Plan.

(n) “Plan Year” shall mean the 12 consecutive month period coinciding with the Company’s fiscal year.

(o) “Purchase Price” shall mean, at any specified time, the Exercise Price per Share multiplied by the number of Shares being purchased pursuant to the exercise of an Option.

(p) “Securities Act” shall mean the Securities Act of 1933,as amended.

(q) “Share” shall mean one authorized share of Common Stock.

(r) “Subsidiary” shall mean any corporation or other business entity (other than the Company) in an unbroken chain of corporations and/or other business entities beginning with the Company if, at the time of granting an Option, each of the corporations and/or other business entities (other than the last business entity in the unbroken chain) owns stock possessing at least 50% of the total combined voting power of all classes of ownership in one of the other corporations and/or other business entities in such chain.

3. Effective Date. The Plan was adopted by the Company effective as of December 1, 2001.

4. Administration.

(a) Administration by the Board or the Committee. The Board shall administer the Plan in accordance with the provisions hereof. The Board may appoint a committee (the “Committee”) to administer the Plan. If a Committee is appointed, the Committee shall have the powers and authority otherwise delegated to the Board in this Plan document. The Board may, from time to time, increase or decrease the size of the Committee, fill vacancies however caused, remove members with or without cause, and disband the Committee and thereafter directly administer the Plan. The Company may engage a third party to administer routine matters under the Plan, such as establishing and maintaining accounts for Participants and facilitating transactions by Participants pursuant to the Plan.

(b) Powers of the Board. On behalf of the Company and subject to the provisions of the Plan, the Board shall have the authority and discretion to: (i) Prescribe, amend and rescind rules and regulations relating to the Plan; (ii) Select Participants to receive Options; (iii) Determine the form and terms of Options; (iv) Determine the number of Shares or other consideration subject to Options; (v) Determine whether Options will be granted singly, in combination or in tandem with, in replacement of, or as alternatives to, other Options under the Plan or any other incentive or compensation plan of the Company; (vi) Construe and interpret the Plan, any Option Agreement and any other agreement or document executed pursuant to the Plan; (vii) Correct any defect or omission, or reconcile any inconsistency in the Plan, any Option or any Option Agreement; (viii) Determine whether an Option has been earned; (ix) Authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option as made by the Board; (x) With the consent of the Participant, reprice, cancel and reissue, or otherwise adjust the terms of an Option previously issued to the Participant; and (xi) Make all other determinations deemed necessary or advisable for the administration of the Plan. The interpretations and decisions made by the Board with regard to any question arising under the Plan shall be final and conclusive on all persons participating or eligible to participate in the Plan.

(c) Conflicts of Interest. Members of the Board or the Committee who are either eligible for Options or have been granted an Option may vote on any matters affecting the administration of the Plan or the grant of any Option pursuant to the Plan. However, no such member shall act upon the granting of an Option to himself or herself (unless such grant is part of a plan under which Options are to be granted to a classification of Employees). In the event of cases such as those described in the preceding sentence, such member shall be counted in determining the existence of a quorum at a meeting of the Board or the Committee but shall be excluded in determining the number of members voting or taking written action with respect to an Option granted to such member.

(d) Board’s Interpretation of the Plan. The Board’s interpretation and construction of any provision of the Plan, of any Option granted under the Plan, or of any Option Agreement shall be final and binding on all parties claiming an interest in an Option granted or issued under the Plan. No member of

 

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the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan.

(e) Board’s Determination of Fair Market Value. Notwithstanding anything contained herein to the contrary, the Board shall have the sole and exclusive authority to determine, upon review of relevant information, the Fair Market Value of the Common Stock, subject to the provisions of the Plan and irrespective of whether the Board has appointed a Committee to administer the Plan.

5. Eligibility for Participation. Plan Participants shall be limited to those Employees that are currently participants in the Company’s Phantom Stock Plan.

6. Shares of Stock of the Corporation.

(a) Shares Subject to This Plan. Stock with respect to which Options are granted or issued under this Plan shall be authorized but unissued or reacquired Shares of the Company’s Common Stock. The aggregate number of Shares which may be issued under this Plan shall not exceed three million five hundred thousand (3,500,000) Shares, subject to adjustment under Section 9.

(b) Adjustment of Shares. In the event of an adjustment described in Section 9, then (i) the number of Shares reserved for issuance under the Plan, (ii) the Exercise Prices of and number of Shares subject to outstanding Options, and (iii) any other factor pertaining to outstanding Options shall be duly and proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share shall not be issued but shall either be paid in cash at Fair Market Value or shall be rounded up to the nearest Share, as determined by the Board.

(c) Options Not to Exceed Shares Available. The number of Shares subject to Options which have been granted under this Plan at any time during the Plan Term shall not exceed the number of Shares authorized for issuance under the Plan. The number of Shares subject to an Option which expires, is canceled, is forfeited or is terminated for any reason, shall again be available for issuance under the Plan.

7. Terms and Conditions of Options.

(a) Option Agreement. Each Option shall be evidenced by a written Option Agreement which shall set forth the terms and conditions pertaining to such Option, provided that all such terms shall be subject to and consistent with this Plan. An Option Agreement shall be in such form as the Board shall approve from time to time, which Option Agreements need not be identical.

(b) Number of Shares Covered by an Option. Each Option Agreement shall state the number of Shares for which the Option is exercisable and shall provide for the adjustment of such Shares in accordance with Section 9.

(c) Exercise of Options. A Participant may exercise an Option only on or before the date on which the Option expires, as provided in Subsection (d) below.

(d) Term and Lapse of Options. A Participant may exercise an Option to purchase Shares only on or before the date on which the term of the Option expires. Each Option Agreement shall set forth the term of the Option and the events described in the immediately following sentence which will cause the Option to lapse or otherwise end, in whole or in part, as of an earlier date. An Option shall lapse on the first to occur of the following events:

(i) The date determined under Section 7(i) for a Participant who ceases to be an Employee by reason of the Participant’s termination of employment by the Company for Cause, unless the Board at its discretion extends such date before the applicable expiration date;

(ii) The date determined under Section 7(j) for a Participant who ceases to be an Employee by reason of the Participant’s voluntary Termination of Employment with the Company, unless the Board at its discretion extends such date before the applicable expiration date;

 

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(iii) The expiration date specified in the Participant’s Option Agreement.

(e) Cause. For purposes of this Section 7, “Cause” shall be defined as the occurrence of any one or more of the following acts or events: (1) fraud, misappropriation, embezzlement, or other act of material dishonesty against the Company; (2) any act or acts by Participant with respect to Company which constitute a breach of Participant’s fiduciary duties or duties of honesty, good faith and loyalty (including derogatory statements regarding the Company, but excluding statements made in connection with any legal action filed against the Company); (3) any act by Participant which is intentionally damaging to the Company; (4) commission by Participant of a felony or misdemeanor involving moral turpitude; (5) a material breach by Participant of any provision of this Agreement within his control or failure of Participant to properly and diligently perform his duties as an employee, officer and/or director of the Company, which violation is not remedied within three (3) days after notice from Company specifying such violation; (6) alcohol or drug abuse affecting in any material respect the performance by the Participant of his duties and responsibilities as an employee, officer and/or director of the Company; (7) commission of any other act or acts which substantially impairs the reputation and standing of Company with its customers or the community at large; and (8) any act or circumstance constituting “cause” for termination under applicable statutory or common law.

(f) Exercise Price. The Exercise Price under each Non-qualified Stock Option shall be specified by the Board, in its sole and absolute discretion.

(g) Medium and Time of Payment of Purchase Price. A Participant exercising an Option shall pay the Purchase Price of the Shares to which such exercise pertains in full in cash (in U.S. dollars) as a condition of such exercise, unless the Board at its discretion allows the Participant to pay the Purchase Price in any manner allowable under Section 13, so long as the sum of cash so paid and such other consideration equals the Purchase Price.

(h) Nontransferability of Options. An Option granted to a Participant shall, during the lifetime of the Participant, be exercisable only by the Participant or the Participant’s conservator or legal representative and shall not be assignable or transferable. In the event of the Participant’s death, the Option is transferable by the Participant only by will or the laws of descent and distribution.

(i) Termination for Cause. If a Participant ceases to be an Employee by reason of the Participant’s termination of employment by the Company for Cause, any Option granted to the Participant may be exercised at any time within three (3) months after the Participant’s termination of employment (but not beyond the otherwise applicable term of the Option) by the Participant.

(j) Voluntary Termination. If a Participant ceases to be an Employee by reason of the Participant’s voluntary Termination of Employment with the Company, any Option granted to the Participant may be exercised at any time within three (3) months after the Participant’s termination of employment (but not beyond the otherwise applicable term of the Option) by the Participant.

(k) Rights as a Stockholder. A Participant, or an allowable transferee of a Participant, shall have no rights as a shareholder of the Company with respect to any Shares for which an Option is exercisable until the date a stock certificate for such Shares is issued. No adjustment shall be made for dividends (ordinary or extraordinary or whether in currency, securities, or other property), distributions, or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 9.

(l) Modification, Extension, and Renewal of Options. Within the limitations of the Plan, the Board may at its discretion modify, extend or renew any outstanding Option or accept the cancellation of an outstanding Option for the granting of a new Option in substitution. Notwithstanding the preceding sentence, no modification of an Option shall, without the consent of the Participant, alter or impair any rights or obligations under any Option previously granted.

(m) Other Provisions. An Option Agreement may contain such other provisions as the Board deems advisable which are not inconsistent with the terms of the Plan, including but not limited to:

(i) Restrictions on the exercise of the Option;

 

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(ii) Submission by the Participant of such forms and documents as the Board may require; and/or

(iii) Procedures to facilitate the broker-assisted exercise of the Option.

8. Term of Plan.     Options may be granted pursuant to the Plan through the period ending on December 31, 2003. All Options which are outstanding on such date shall remain in effect until they are exercised or expire by their terms.

9. Recapitalizations, Takeovers, and Liquidations.

(a) Reorganizations. Notwithstanding any other provision of the Plan to the contrary, but subject to any required action by the stockholders of the Company, the Board shall make any adjustments to the class and/or number of Shares covered by the Plan, the number of Shares for which each outstanding Option pertains, the Exercise Price of an Option, and/or any other aspect of this Plan to prevent the dilution or enlargement of the rights of Participants under this Plan in connection with any increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company resulting from the payment of a stock dividend, a stock split, a reverse stock split or any other event which results in an increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company effected without receipt of adequate consideration by the Company.

(b) Mergers and Consolidations. Subject to any required action by the stockholders of the Company:

(i) In the event the Company is a party to a merger or consolidation in which the Company is the surviving corporation, each outstanding Option shall pertain to the securities of the Company to which a holder of the number of Shares subject to the Option would be entitled; and

(ii) In the event the Company is a party to a merger or consolidation in which it is not the surviving corporation, unless the surviving corporation expressly assumes outstanding Options, the Board shall exercise reasonable efforts to give each Participant as much advance notice as practicable before the effective date of such transaction to enable such Participant to exercise Options.

(c) Determination by the Board. All adjustments described in this Section 9 shall be made by the Board, whose determination shall be conclusive and binding on all persons.

(d) Limitation on Rights of Participants. Except as expressly provided in this Section 9, no Participant shall have any rights by reason of any payment of any stock dividend, stock split, reverse stock split, or any other change in the number of shares of stock of any class, or by reason of any reorganization, consolidation, dissolution, liquidation, merger, exchange, split-up or reverse split-up, or spin-off of assets or stock of another corporation. Any issuance by the Company of Options shall not affect, and no adjustment by reason thereof shall be made with respect to, Options under the Plan.

(e) No Limitation on Rights of Company. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets.

10. Securities Law Requirements.

(a) Legality of Issuance. No Share shall be issued upon the exercise of any Option unless and until the Board has determined that:

(i) The Company and the Participant have taken all actions required to register the Shares under the Securities Act, or to perfect an exemption from registration requirements of the Securities Act, or to determine that the registration requirements of the Securities Act do not apply to such exercise;

(ii) Any applicable listing requirement of any stock exchange on which the Share is listed has been satisfied; and

 

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(iii) Any other applicable provision of state, federal or foreign law has been satisfied.

(b) Restrictions on Transfer; Representations of Participant; Legends. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or has been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law. If the offering and/or sale of Shares under the Plan is not registered under the Securities Act and the Company determines that the registration requirements of the Securities Act apply but an exemption is available which requires an investment representation or other representation, the Participant shall be required, as a condition to acquiring such Shares, to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Securities Act, and to make such other representations as are deemed necessary or appropriate by the Company and its counsel. Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Securities Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”). THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER EITHER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT OR THE REGISTRATION PROVISIONS OF THE ACT DO NOT APPLY TO SUCH PROPOSED TRANSFER.

(c) Registration or Qualification of Securities. The Company may, but shall not be obligated to, register or qualify the offering or sale of Shares under the Securities Act or any other applicable law.

(d) Exchange of Certificates. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares issued pursuant to the Plan is no longer required, the Participant or the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but lacking such legend.

(e) Determination of Company Binding. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 10 shall be conclusive and binding on all persons.

11. Limitations on Shares. All Shares issued pursuant to the Plan shall be subject to the terms and conditions of the Company’s Non-qualified Plan Stock Restriction and Repurchase Agreement and the Company shall place legends on stock certificates representing that the Shares are subject to such Non-qualified Plan Stock Restriction and Repurchase Agreement.

12. Amendment of the Plan. The Board may, from time to time, terminate, suspend or discontinue the Plan, in whole or in part, or revise or amend it in any respect whatsoever including, but not limited to, the adoption of any amendment deemed necessary or advisable to qualify the Options under rules and regulations promulgated by the Securities and Exchange Commission with respect to Employees who are subject to the provisions of Section 16 of the Exchange Act, or to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option granted under the Plan, with or without approval of the shareholders of the Company, but if any such action is taken without the approval of the Company’s shareholders, no such revision or amendment shall:

(a) Increase the number of Shares subject to the Plan, other than any increase pursuant to Section 9;

(b) Change the designation of the class of persons eligible to receive Options;

(c) Increase the maximum duration of an Option;

 

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(d) Change the manner of determining the Exercise Price of an Option;

(e) Extend the term of the Plan; or

(f) Amend this Section to defeat its purpose. No amendment, termination or modification of the Plan shall, without the consent of the Participant, affect any Option previously granted.

13. Payment for Share Purchases.

(a) Payment. Payment of the Purchase Price for any Shares purchased pursuant to the Plan, together with an amount sufficient to satisfy any applicable federal, state, and local withholding tax requirements, may be made in cash (in U.S. dollars) or, where expressly approved for the Participant by the Board, in its sole and absolute discretion, and where permitted by law:

(i) By check;

(ii) By cancellation of indebtedness of the Company to the Participant;

(iii) By surrender of Shares that either: (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144; or (B) were obtained by Participant in the public market;

(iv) By waiver of compensation due or accrued to Participant for services rendered;

(v) With respect only to purchases upon exercise of an Option, and provided that a public market for the Company’s stock exists (A) through a “same day sale” commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD dealer”) whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company; or (B) through a “margin” commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company; or

(vi) By any combination of the foregoing.

(b) Loan Guarantees. The Board may help the Participant pay for Shares purchased under the Plan by authorizing a guarantee by the Company of a third-party loan to the Participant.

14. Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to the exercise of an Option shall be used for general corporate purposes.

15. Privileges of Stock Ownership. No Participant shall have any of the rights of a shareholder with respect to any Shares until the date a stock certificate for such Shares is issued to the Participant. After certificates are issued to the Participant, the Participant shall be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to receive all dividends or other distributions made or paid with respect to such Shares.

16. Transferability. Options granted under the Plan, and any interest therein, shall not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Option Agreement provisions relating thereto. During the lifetime of the Participant an Option may be exercisable only by the Participant, and any elections with respect to any Option may be made only by the Participant.

 

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17. Withholding of Taxes. Whenever Shares are to be issued under the Plan, the Company shall require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares.

18. Statement to Participants. Within a reasonable time after the last day of each Plan Year, the Board shall furnish to each Participant a statement setting forth the Participant’s total number of Shares subject to Options, the date such Options were granted, and such other information as the Board shall deem advisable to furnish.

19. Rights as an Employee. The Plan shall not be construed to give any individual the right to remain in the employ of the Company or to affect the right of the Company to terminate such individual’s employment at any time, with or without cause. The grant of an Option shall not entitle the Participant to, or disqualify the Participant from, participation in the grant of any other Option under the Plan or participation in any other plan maintained by the Company.

20. Non-Uniform Determinations. The Board’s determinations under the Plan (including without limitation determinations of the persons to receive Options, the form, amount and timing of such Options, the terms and provisions of such Options and the Option Agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made by the Board selectively among persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated.

21. Inspection of Records. Copies of the Plan, records reflecting each Participant’s Options and any other documents and records which a Participant is entitled by law to inspect shall be open to inspection by the Participant and his or her duly authorized representative at the office of the Company at any reasonable business hour upon reasonable advance notice from the Participant.

 

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Exhibit 10.6

ALTAIR ENGINEERING INC.

2001 NON-QUALIFIED STOCK OPTION PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

(AS AMENDED AS OF APRIL 3, 2017)

For the purpose of (a) encouraging and enabling selected management and other employees of the Company who currently have rights under the Company’s Phantom Stock Plan (the “Phantom Stock Plan”) to acquire a proprietary interest in the Common Stock of the Company, (b) retaining and motivating such Participants to attain exceptional levels of performance, (c) converting the Phantom Stock Plan to the NSO Plan and termination of the Phantom Stock Plan and (d) providing such Participants with an opportunity to participate in the increased value of the Company which their efforts, initiative, and skill have helped produce, the Company, pursuant to the terms and conditions of the Altair Engineering Inc. 2001 Non-qualified Stock Option Plan, will award Options to purchase Common Stock to such Participants.

This Agreement, entered into pursuant to the terms of the Plan, evidences that the Committee has designated «FName» «LName» (“Participant”) as a participant under the Plan, has awarded Non-qualified Stock Options to Participant to purchase «Options» Shares, has designated December 31, 2001 as the Award Date for such Options, has designated the sum of (i) the amount paid by the Participant to the Company to acquire his or her rights under the Phantom Stock Plan divided by the number of Shares which Participant is entitled to purchase under the Options granted herein and (ii) one ten-thousandths ($0.0001) Dollars as the Exercise Price, and, subject to the provisions of this Agreement, has designated the period from December 31, 2001 to December 31, 2036 as the Exercise Period applicable to such Options.

The grant, holding, and exercise of such Non-qualified Stock Options shall be subject to the terms and conditions of the Plan and the following:

1. Definitions.

(a) “Agreement” means this “Non-qualified Stock Option Agreement” between the Company and Participant.

(b) “Award” shall mean any grant of Non-qualified Stock Options made to Participant under the Plan and this Agreement.

(c) “Award Date” means the date designated by the Committee as of which Options are awarded to Participant under the Plan.

(d) “Board” shall mean the Board of Directors of the Company.

(e) “Common Stock” means the Class A common capital stock of the Company.

(f) “Company” shall mean Altair Engineering Inc., a Michigan corporation and any Subsidiary of the Company.

(g) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(h) “Exercise Period” means the period of time specified by the Board on the Award Date and set forth in the second paragraph of this Agreement within which a Participant may exercise an Option, which period has been determined by the Board pursuant to the Plan, subject however to the Board’s exercise of its discretion pursuant to the provisions hereof.

(i) “Exercise Price” means the price per Share specified by the Board and set forth in the second paragraph of this Agreement at which the Participant may exercise an Option during the Exercise Period, which price has been determined by the Board pursuant to the Plan.

(j) “Fair Market Value” shall mean the value of each Share determined as of any specified date as follows:

Altair Engineering Inc. - NSO Plan

Form of NSO Agreement

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(1) If the Shares are traded on any United States securities exchange, or if the Shares are not traded on any United States securities exchange but are traded on any formal over-the-counter quotation system in general use in the United States, the value per Share shall be the closing price on such exchange or quotation system on the business day immediately preceding such specified date; provided, however, that if no Shares are traded on the business day immediately preceding such specified date, the value per Share shall be the mean between the closing high bid and closing low asked quotations on the business day immediately preceding such specified date; or

(2) If Paragraph (1) does not apply, the value per Share shall be determined by the Board in accordance with Section 4 in good faith and based on uniform principles consistently applied. Such determination shall be conclusive and binding on all persons.

(k) “Non-qualified Stock Option” or “Option” shall mean a right granted under the Plan and this Agreement to purchase Share(s) at a specified Exercise Price within a specified Exercise Period, which Options are not intended to be qualified as incentive stock options under Section 422(b) of the Code.

(l) “Participant” shall have the meaning set forth in the second paragraph of this Agreement.

(m) “Plan” shall mean the Altair Engineering Inc. 2001 Non-qualified Stock Option Plan.

(n) “Plan Year” shall mean the 12 consecutive month period coinciding with the Company’s fiscal year.

(o) “Purchase Price” shall mean, at any specified time, the Exercise Price per Share multiplied by the number of Shares being purchased pursuant to the exercise of an Option.

(p) “Securities Act” shall mean the Securities Act of 1933,as amended.

(q) “Share” shall mean one authorized share of Common Stock.

(r) “Subsidiary” shall mean any corporation or other business entity (other than the Company) in an unbroken chain of corporations and/or other business entities beginning with the Company if, at the time of granting an Option, each of the corporations and/or other business entities (other than the last business entity in the unbroken chain) owns stock possessing at least 50% of the total combined voting power of all classes of ownership in one of the other corporations and/or other business entities in such chain.

(s) “Termination of Employment” means the termination of the Participant’s employment with the Company or a Subsidiary, but not the transfer of employment from the Company to a Subsidiary of the Company or vice versa or from one Subsidiary of the Company to another such Subsidiary. If the Board in its sole discretion so determines, employment shall not be considered as terminated for the purposes of Section 3.1 so long as Participant continues to perform services for the Company or a Subsidiary thereof on either a full or part time basis.

2. Terms and Conditions of Options.

(a) Person Eligible to Exercise. During Participant’s lifetime, only Participant or, in the event of disability, Participant’s conservator or legal representative may exercise an Option granted under the Plan and such Option shall not be transferable or assignable. After the death of Participant, any Options held by Participant prior to death that continue to be exercisable may be exercised by Participant’s personal representative or by any person empowered to do so by will or by the laws of descent and distribution. The terms of the Plan and this Agreement, as well as the interpretations and decisions of the Board, shall be binding upon any such conservator, legal representative, personal representative, or other person acting on behalf of or in lieu of the Participant.

(b) Manner of Exercise. Subject to the provisions of Paragraphs (c), (d) and (e) hereof, Participant may exercise an Option on any business day of the Company within the Exercise Period by delivery to the Company at the Company’s principal office, either by mail, facsimile, or in person, of a

 

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properly completed notice of exercise, on a form approved by the Board, together with full payment of the Purchase Price and the Federal, state and local tax withholding obligation as hereinafter provided for. The date such form is received by the Company shall be the date of exercise. Such form shall specify the Participant, Participant’s Social Security number, the Award Date, the number of Options being exercised, the Exercise Price, the Purchase Price and the manner in which the Participant intends to satisfy any applicable tax withholding obligation. The minimum number of Options that may be exercised at any one time shall be for 100 Shares or, if less, the aggregate number of Shares for which there are outstanding Options then credited to Participant and exercisable. In the event the Option is being exercised pursuant to Paragraph (a) hereof by any person other than Participant, such person shall also submit at the time of exercise satisfactory proof of the right of such person to exercise the Option.

(c) Exercise of Options. Participant may exercise an Option only on or before the date on which the Option expires, as provided in Subsection (e) below.

(d) Options Non-forfeitable. All Options granted pursuant to this Agreement and the Plan shall be 100% vested and non-forfeitable at all times.

(e) Term and Lapse of Options. An Option shall terminate immediately upon the first to occur of the following events:

(i) The date determined under Section 2(g) for a Participant who ceases to be an Employee by reason of the Participant’s Termination of Employment by the Company for Cause, unless the Board at its discretion extends such date before the applicable expiration date;

(ii) The date determined under Section 2(h) for a Participant who ceases to be an Employee by reason of the Participant’s voluntary Termination of Employment with the Company, unless the Board at its discretion extends such date before the applicable expiration date;

(iii) The expiration of the Exercise Period.

(f) Cause. For purposes of this Section 2, “Cause” shall be defined as the occurrence of any one or more of the following acts or events: (1) fraud, misappropriation, embezzlement, or other act of material dishonesty against the Company; (2) any act or acts by Participant with respect to Company which constitute a breach of Participant’s fiduciary duties or duties of honesty, good faith and loyalty (including derogatory statements regarding the Company, but excluding statements made in connection with any legal action filed against the Company); (3) any act by Participant which is intentionally damaging to the Company; (4) commission by Participant of a felony or misdemeanor involving moral turpitude; (5) a material breach by Participant of any provision of this Agreement within his control or failure of Participant to properly and diligently perform his duties as an employee, officer and/or director of the Company, which violation is not remedied within three (3) days after notice from Company specifying such violation; (6) alcohol or drug abuse affecting in any material respect the performance by the Participant of his duties and responsibilities as an employee, officer and/or director of the Company; (7) commission of any other act or acts which substantially impairs the reputation and standing of Company with its customers or the community at large; and (8) any act or circumstance constituting “cause” for termination under applicable statutory or common law.

(g) Termination for Cause. If a Participant ceases to be an Employee by reason of the Participant’s Termination of Employment by the Company for Cause, any Option granted to the Participant may be exercised at any time within three (3) months after the Participant’s Termination of Employment (but not beyond the otherwise applicable term of the Option) by the Participant.

(h) Voluntary Termination. If a Participant ceases to be an Employee by reason of the Participant’s voluntary Termination of Employment with the Company, any Option granted to the Participant may be exercised at any time within three (3) months after the Participant’s Termination of Employment (but not beyond the otherwise applicable term of the Option) by the Participant.

(i) Payment and Issuance. Shares acquired pursuant to the exercise of Options shall be paid for in full at the time of exercise, in cash (in U.S. dollars) as a condition of such exercise, unless the

 

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Board, in its sole and absolute discretion allows the Participant to pay the Purchase Price in any manner set forth below, so long as the sum of cash so paid and such other consideration equals the Purchase Price. A certificate for the net amount of Shares attributable to an exercise shall be issued to Participant as soon as practicable following payment of the aggregate Purchase Price and all applicable withholding taxes.

(i) Payment of the Purchase Price for any Shares purchased pursuant to the Plan, together with an amount sufficient to satisfy any applicable federal, state, and local withholding tax requirements, may be made, where expressly approved for the Participant by the Board, in its sole and absolute discretion, and where permitted by law:

(A) By check;

(B) By cancellation of indebtedness of the Company to the Participant;

(C) By surrender of Shares that either: (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144; or (B) were obtained by Participant in the public market;

(D) By waiver of compensation due or accrued to Participant for services rendered;

(E) With respect only to purchases upon exercise of an Option, and provided that a public market for the Company’s stock exists (A) through a “same day sale” commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD dealer”) whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company; or (B) through a “margin” commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company; or

(F) By any combination of the foregoing.

(ii) The Board may help the Participant pay for Shares purchased under this Option Agreement by authorizing a guarantee by the Company of a third-party loan to the Participant.

(j) Non-Registration. Regardless of whether the Shares to be issued hereunder upon the exercise of an Option have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law. If the Shares to be issued hereunder upon the exercise of an Option have not been registered under the Securities Act, or a registration is not then currently effective with respect to such Shares, and the Company determines that the registration requirements of the Securities Act apply but an exemption is available which requires an investment representation or other representation, the Participant shall be required, as a condition to acquiring such Shares, to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Securities Act, and to make such other representations as are deemed necessary or appropriate by the Company and its counsel, and that Participant or other person then entitled to exercise such Option will indemnify the Company against and hold it free and harmless from any loss, damages, expense or liability resulting to the Company if any sale or distribution of the Shares by such person is contrary to the representation and agreement referred to above. The Board may take whatever additional actions it reasonably deems appropriate to ensure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other Federal or state securities laws or regulations, including but not limited to Rule 144 promulgated under the Securities Act. Without limiting the generality

 

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of the foregoing, the Board may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of Shares acquired on an Option exercise does not violate the Securities Act, and may issue stop-transfer orders covering such Shares.

Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Securities Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”). THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER EITHER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT OR THE REGISTRATION PROVISIONS OF THE ACT DO NOT APPLY TO SUCH PROPOSED TRANSFER.

3. Limitations on Shares. All Shares issued hereunder upon the exercise of an Option shall be subject to the terms and conditions of the Company’s Non-qualified Plan Stock Restriction and Repurchase Agreement and the Company shall place legends on stock certificates representing that the Shares are subject to such Non-qualified Plan Stock Restriction and Repurchase Agreement.

4. Administration of Plan. The Board shall administer the Plan and this Agreement in accordance with their provisions and shall have full and final authority in its discretion to (a) interpret the provisions of the Plan and this Agreement and decide all questions of fact arising in their application, and its interpretation and decisions shall be in all respects final, conclusive and binding; and (b) make all other determinations, rules and regulations necessary or advisable for the administration of the Plan and this Agreement. Notwithstanding any provisions of this Agreement to the contrary, the Board shall have the power to permit, in its discretion, an acceleration of any previously determined Option exercise terms or to otherwise amend the terms of an Option, under such circumstances and upon such modified or different terms and conditions as it deems appropriate, subject, however, to the provisions of the Plan. No member of the Board shall be personally liable for any action or determination in respect to the administration of the Plan and this Agreement if made in good faith.

5. Restrictive Covenants. In order to induce the Company to Award the Options hereunder and in consideration therefor:

(a) Covenants Not to Compete or Solicit. The Participant will not directly or indirectly (whether as a principal, agent, independent contractor, employer, employee, investor, partner, shareholder, director or otherwise):

(i) During the Participant’s employment with the Company and for a period of two (2) years after Participant’s Termination of Employment, solicit business or provide products and/or services which are the same as or competitive with that solicited or provided by the Company from any company, enterprise or person which was a customer of the Company at any time during Participant’s employment with the Company;

(ii) During the Participant’s employment with the Company and for a period of two (2) years after Participant’s Termination of Employment, engage in any business or participate, invest or have any interest in, by way of example but without limitation, any person, firm, corporation, sole proprietorship or business, that engages in any business or activity anywhere in the world, which business or activity is the same as, similar to, or competitive with any business or activity now, heretofore or hereafter engaged in by the Company; or

(iii) During the Participant’s employment with the Company and for a period of two (2) years after Participant’s Termination of Employment, induce or attempt to persuade any employee, agent, supplier or customer of the Company to terminate any similar employment, agency, supplier or customer

 

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relationship with the Company in order to enter into any such relationship on behalf of any other company, enterprise or person.

Notwithstanding anything contained herein to the contrary, (A) Participant shall not be prohibited from owning any interest in or shares of mutual or similar funds which are nationally recognized and which own equity securities of any corporation, if such securities are publicly traded and listed on any national or regional stock exchange and (B) Participant shall not be prohibited from accepting a position of full-time employment with any such customer of the Company, provided that Participant shall not engage in any activities prohibited hereunder with respect to any other customer(s) of the Company.

(b) Covenant Regarding Confidential Information. The Participant acknowledges and agrees that all records and other information not released to the general public, all trade secrets, unpublished data or other information and all trade secrets and confidential or proprietary information, in each case relating to the services, business and operations of the Company or its subsidiaries and affiliates, whether reduced to writing or not, are confidential and the sole property of the Company and its subsidiaries and affiliates (all of the same being herein collectively called the “Confidential Information”). The Participant will not, at any time during his employment with the Company or thereafter, directly or indirectly, use any of the Confidential Information, except in the regular course of employment with the Company hereunder, or disclose any of the Confidential Information to any other person or entity, except to the extent that the Board may so authorize in writing, and that, upon Participant’s Termination of Employment, he or she will surrender to the Company all Confidential Information then in his or her possession or under his or her control. Participant acknowledges and agrees that the Confidential Information and other aspects of the Company’s business have been established and maintained at great expense, and kept and protected as confidential and secret information and are of great value to the Company and provide it with a substantial competitive advantage in conducting said business. Participant further acknowledges and agrees that as a result of his or her knowledge of the Confidential Information, Company would suffer great loss and irreparable injury if Participant were to disclose the Confidential Information or use the Confidential Information to compete with the Company.

(c) Rights and Remedies upon Breach. Participant expressly agrees that in the event of any violation by the Participant of the covenants and restrictions contained in paragraphs (a) and/or (b) hereof, Company and its successors or assigns shall have the following cumulative rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any and all other legal and equitable rights and remedies available to the Company:

(i) Require the Participant to account for and pay over to the Company, any amounts paid to Participant hereunder or under the Stock Restriction and Repurchase Agreement which are in excess of the greater of (A) the amount paid by the Participant to the Company to acquire his or her rights under the Phantom Stock Plan and (B) the Purchase Price paid by the Participant to the Company pursuant hereto;

(ii) Withhold any and all payments due hereunder or under the Stock Restriction and Repurchase Agreement which are in excess of the greater of (A) the amount paid by the Participant to the Company to acquire his or her rights under the Phantom Stock Plan and (B) the Purchase Price paid by the Participant to the Company pursuant hereto; and

(iii) Declare any and all rights of the Participant under this Option Agreement to be immediately terminated and of no further force nor effect.

(d) Covenants Reasonable and Necessary. Participant agrees that the terms and conditions of the covenants and restrictions set forth herein are reasonable and necessary for the protection of the Company, Company’s business and the Confidential Information and to prevent damage or loss to Company as a result of actions taken by the Participant. Participant acknowledges and agrees that the Company would suffer great loss and irreparable injury if Participant violates the covenants contained in subparagraphs (a) and/or (b) hereof. It is the intent and understanding of each party hereto that if, in any action before any court, agency or tribunal legally empowered to enforce the covenants contained in paragraphs (a) and/or (b) hereof, any term, restriction, covenant or promise contained therein is found to be invalid, illegal or unenforceable, then such term, restriction, covenant or promise shall be deemed

 

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modified to the extent necessary to make it valid, legal or enforceable by such court, agency or tribunal. The provisions contained in this Section 5 shall survive the termination of this Agreement and the Participant’s Termination of Employment for any reason.

6. Taxes.

(a) Withholding of Taxes. Whenever Shares are to be issued under the Plan or this Agreement, the Company shall require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan or this Agreement, payments in satisfaction of Options are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.

(b) Tax Consequences. Some of the federal and state tax consequences relating to this Option, as of the date of this Option, are set forth below. This summary is necessarily incomplete, and the tax laws and regulations are subject to change. The Participant should consult a tax adviser before exercising this Option or disposing of the Shares.

(i) The Participant may incur regular federal income tax and state income tax liability upon exercise of an Option. The Participant will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares issued pursuant to the exercise of an Option on the date of exercise over their aggregate Purchase Price. The Company will be required to withhold from the Participant’s compensation or collect from the Participant and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

(ii) If the Participant holds Shares for at least one year, any gain realized on disposition of the Shares should be treated as long-term capital gain for federal income tax purposes.

7. Rights as an Employee. Neither the Plan nor this Agreement shall not be construed to give any individual the right to remain in the employ of the Company or to continue in any position or at any level of remuneration, or to affect the right of the Company to terminate such individual’s employment at any time, with or without cause. The grant of an Option shall not entitle the Participant to, or disqualify the Participant from, participation in the grant of any other Option under the Plan or participation in any other plan maintained by the Company.

8. Non-Alienation of Benefits. Prior to its settlement in the form of Shares, no right or benefit under the Plan and this Agreement shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same whether voluntary, involuntary or by operation of law, shall be void except by will or by the laws of descent and distribution or by such other means as the Board may approve from time to time. No right or benefit under the Plan and this Agreement shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. If Participant should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under the Plan and this Agreement, then such right or benefit shall, in the sole discretion of the Board, cease and terminate, and in such event, the Company may hold or apply the same or any part thereof for the benefit of Participant, the Participant’s spouse, children or other dependents, or any of them, in such manner and in such proportion as the Board may determine. Any restrictions on transferability of the Shares either described above or otherwise provided for in this Agreement may be referred to in legends contained on the certificates evidencing such Shares.

9. Rights of a Shareholder. The recipient of any Award under the Plan and this Agreement, and any person claiming under or through such recipient or under the Plan or this Agreement, shall not be, nor have any of the rights of, a shareholder with respect thereto, nor shall they have any right or interest in any cash or other property, unless and until certificates for Shares are issued to such Participant after compliance with all the terms and conditions of the Plan and this Agreement.

 

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10. Non-Uniform Determinations. The Board’s determinations under the Plan (including without limitation determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made by the Board selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated.

11. Funding of the Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under the Plan or this Agreement, and payment of Awards shall be subordinate to the claims of the Company’s general creditors.

 

12.	Recapitalizations, Takeovers, and Liquidations.

(a) Reorganizations. Notwithstanding any other provision of the Plan to the contrary, but subject to any required action by the stockholders of the Company, the Board shall make any adjustments to the class and/or number of Shares covered by the Plan, the number of Shares for which each outstanding Option pertains, the Exercise Price of an Option, and/or any other aspect of the Plan to prevent the dilution or enlargement of the rights of Participants under the Plan in connection with any increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company resulting from the payment of a stock dividend, a stock split, a reverse stock split or any other event which results in an increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company effected without receipt of adequate consideration by the Company.

(b) Mergers and Consolidations. Subject to any required action by the stockholders of the Company:

(i) In the event the Company is a party to a merger or consolidation in which the Company is the surviving corporation, each outstanding Option shall pertain to the securities of the Company to which a holder of the number of Shares subject to the Option would be entitled; and

(ii) In the event the Company is a party to a merger or consolidation in which it is not the surviving corporation, unless the surviving corporation expressly assumes outstanding Options, each outstanding Option shall become 100% Vested and the Board shall exercise reasonable efforts to give the Participant as much advance notice as practicable before the effective date of such transaction to enable such Participant to exercise Vested Options.

(c) Determination by the Board. All adjustments described in this Section shall be made by the Board, whose determination shall be conclusive and binding on all persons.

(d) Limitation on Rights of Participants. Except as expressly provided in this Section, the Participant shall not have any rights by reason of any payment of any stock dividend, stock split, reverse stock split, or any other change in the number of shares of stock of any class, or by reason of any reorganization, consolidation, dissolution, liquidation, merger, exchange, split-up or reverse split-up, or spin-off of assets or stock of another corporation. Any issuance by the Company of Options shall not affect, and no adjustment by reason thereof shall be made with respect to, Options under the Plan.

(e) No Limitation on Rights of Company. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets.

13. Severability. If any provision of the Plan or this Agreement or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person, or Award, and the remainder of the Plan

 

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and this Agreement and any such Award shall remain in full force and effect. Each covenant, condition, term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

14. Gender and Number. As the context of any provision may require, nouns and pronouns of any gender and number shall be construed in any other gender and number.

15. Governing Law. This Agreement and the Plan shall be governed by and interpreted under the laws of the State of Michigan and applicable Federal law, irrespective of where this Agreement is made or to be performed, and irrespective of any applicable principles of conflict of laws.

16. Venue. The venue of any dispute, controversy, litigation or proceeding (formal or informal) arising out of or pertaining to the Plan or this Agreement or the subject hereof shall lie exclusively in the County of Oakland, State of Michigan. Provided, however, that if any such dispute, controversy, litigation or proceeding requires or permits jurisdiction in a federal court or agency of the United States, then venue shall lie in no federal court or agency other than those located in (or nearest to) the County of Wayne, State of Michigan. No term or provision of this Section is intended to establish a priority as between state court or federal court, for instances in which a choice of such venue is available to the parties or litigants. The parties hereto knowingly and expressly waive any rights they may have in existing venue statutes, either state or federal, to the extent that such statutes would require a different venue than otherwise provided for herein.

17. Captions. Captions used herein are inserted for reference purposes only and shall not affect the interpretation or construction of this Agreement.

18. Independent Legal Representation. Participant acknowledges that the parties’ interests hereunder are divergent and conflicting in many material respects. Accordingly, Participant acknowledges being advised to retain independent legal counsel before executing this Agreement.

19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and such counterparts together shall constitute but one and the same Agreement.

20. Termination of Phantom Stock Plan. In order to induce the Company to grant the Options to Participant pursuant to the terms of this Agreement, and in consideration thereof, Participant hereby acknowledges and agrees to the termination of the Phantom Stock Plan and that any and all rights of the Participant under such Phantom Stock Plan are hereby forfeited and terminated.

 

		ALTAIR ENGINEERING INC.
		A Michigan Corporation
Dated:		By:
				Tom M. Perring
				Its: Chief Financial Officer

Participant hereby acknowledges receipt of a copy of the Plan and this Agreement, accepts his or her designation as a Participant under and subject to all the terms and conditions set forth herein and in the Plan, and agrees to all such terms and conditions.

 

Dated:
		«FName» «LName»
		PARTICIPANT

 

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Exhibit 10.7

STOCK RESTRICTION AND REPURCHASE AGREEMENT -

2001 NON-QUALIFIED STOCK OPTION PLAN (AS AMENDED)

ARTICLE I

DEFINITIONS; SHARES SUBJECT TO AGREEMENT

Section 1.1 Definitions. As used in this Agreement, the following words and phrases shall have the meanings set forth below, unless the context clearly indicates that a different meaning is intended:

(a) “Code” shall mean the United States Internal Revenue Code of 1986, as amended.

(b) “Legal Representative” shall mean, with reference to any Person, a personal representative, executor, administrator or conservator of the Person’s estate, or a legal guardian or attorney-in-fact of the Person, or a successor trustee of such Person under his or her revocable living trust, or anyone else legally acting as the representative or successor in interest of the Person, as the context of any provision may require.

(c) “Non-qualified Stock Option Agreement” means a Non-qualified Stock Option Agreement entered into between the Company and Participant pursuant to the terms of the Plan.

(d) “Person” shall mean any natural individual or legal entity, or any association of natural individuals or legal entities.

(e) “Plan” shall mean the Altair Engineering Inc. 2001 Non-qualified Stock Option Plan.

(f) “Share” or “Shares” shall mean any and all shares of the common capital stock of the Company which are issued to a Participant pursuant to the Plan and a Non-qualified Stock Option Agreement(s) dated on or before December 31, 2001.

(g) “Transfer” shall mean any assignment, transfer, sale, exchange, conveyance, disposition, pledge, hypothecation, attachment, gift, testamentary bequest or other disposition or encumbrance of any nature or description whatsoever, whether occurring voluntarily or involuntarily, directly or indirectly, or by operation or process of law.

(h) “Triggering Event” shall mean an event in which, or circumstances under which, (1) Participant (or his Legal Representative) first becomes obligated to sell or offer for sale his Shares in the Company pursuant to this Agreement or (2) the Company first becomes obligated to purchase or first has the option to purchase the Shares of the Participant in the Company pursuant to this Agreement.

(i) “Year of Service” shall mean a calendar year in which a Participant was employed by the Company for at least one thousand (1,000) hours of service during such year.

Section 1.2 Non-Registration. Regardless of whether the Shares have been registered under the Securities Act of 1933, as amended (the “Securities Act”) or have been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law.

Section 1.3 Restrictive Legends.

(a) The certificates representing the Shares subject to the terms of this Agreement shall bear substantially the following legend:

THE TRANSFER, ASSIGNMENT, SALE, ENCUMBRANCE, PLEDGE OR OTHER DISPOSITION OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE IS RESTRICTED UNDER THE TERMS OF A STOCK RESTRICTION AND REPURCHASE

 

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AGREEMENT DATED AS OF             , 20            , BETWEEN THE COMPANY AND THE PARTICIPANT, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE COMPANY. BY ACCEPTING THIS CERTIFICATE, ANY TRANSFEREE AGREES TO BE BOUND BY THE TERMS OF SUCH AGREEMENT.

(b) Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Securities Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES LAWS OF ANY STATE OR COUNTRY. THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE UNLESS A REGISTRATION STATEMENT UNDER SUCH SECURITIES LAWS IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE COMPANY EITHER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH SUCH SECURITIES LAWS OR THE REGISTRATION PROVISIONS THEREOF DO NOT APPLY TO SUCH PROPOSED TRANSFER.

Section 1.4 Endorsement. Participant agrees to tender all stock certificates pertaining to Shares subject to this Agreement held by him to the secretary of the Company for endorsement in the manner set forth in Section 1.3 of this Article.

ARTICLE II

VESTING; TRANSFER AND PURCHASE OF SHARES

Section 2.1 Vesting of Shares. Participants shall be 100% vested in all Shares at all times hereunder.

Section 2.2 Lifetime Transfers. While this Agreement is in force, Participant shall not Transfer all or any portion of his Shares, except under the terms of this Agreement. In the event that there is any proposed, attempted or actual Transfer of any or all of Participant’s Shares, then prior to accomplishment of such Transfer, the Company shall have the right to purchase such Shares in accordance with the terms of this Section.

(a) Participant shall furnish the Company with written notice of the proposed Transfer, which notice shall identify the proposed transferee and fully describe the purchase price and other terms of the offer of sale from such proposed transferee.

(1) The Company shall have the right and option, exercisable by written notice furnished to Participant within sixty (60) days from the date as of which the Company has been furnished with written notice of the proposed Transfer, to acquire all but not less than all of Participant’s Shares upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(2) If the Company timely exercises its right of first refusal to purchase all of Participant’s Shares as provided above, the purchase and sale of Participant’s Shares shall be completed at a closing to be held within one hundred twenty (120) days from the date as of which the Company has been furnished with the written notice of the proposed Transfer.

(3) If the Company does not exercise its right of first refusal to purchase all of Participant’s Shares as provided above, then Participant may complete the Transfer for the purchase price and upon such other terms as are set forth in the Participant’s notice of the proposed Transfer; subject however to rights of first refusal on the part of the Company to purchase no less than all of the Participant’s Shares.

 

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(A) The purchase price and terms of any such sale to the Company shall be at the same price and upon the same terms (including timing of a closing) as the Participant deems acceptable in the offer of sale from the third person.

(B) The right of first refusal on the part of the Company shall be exercisable for a period of sixty (60) days from the date as of which the Company has been furnished with written notice of the proposed Transfer.

(C) If a sale of Participant’s Shares is not completed within forty five (45) days after the expiration of the Company’s option to purchase and rights of first refusal provided for herein, then the Transfer may not be consummated without Participant again complying with the terms of this Section 2.2(a) and the provisions and restrictions of this Agreement shall continue to apply to such Shares.

(D) If a sale of Participant’s Shares to the third person is completed, then the provisions and restrictions of this Agreement shall continue to apply to such Shares in the hands of the third person.

(E) If any Transfer subject to this Agreement involves a transaction other than a bona fide sale for a readily ascertainable sale price under fixed terms and conditions, then the rights of first refusal provided herein shall be administered and effectuated through the use of a price, terms and conditions which are fair and just under the circumstances, as reasonably determined by the Company.

(b) The rights and options provided in Subsection (a) above shall not apply with respect to any Transfer to a revocable living trust, to the extent provided in Article V hereof.

(c) The rights and options provided in Subsection (a) above shall terminate and be of no further force or effect upon the earlier to occur of (i) the date on which the Company consummates the sale of all or substantially all of the assets of the Company and/or the Shareholders consummate the sale of all or substantially all of the common capital stock of the Company, or (ii) the date on which the common capital stock of the Company is first traded on any United States securities exchange or on any formal over-the-counter quotation system in general use in the United States.

Section 2.3 [REDACTED]

Section 2.4 Termination of Employment by Company for Cause. In the event that the employment relationship of Participant with the Company is terminated by the Company for “Cause”:

(a) The Company shall purchase from the Participant and the Participant (or his Legal Representative) shall sell and transfer to the Company all Shares owned by Participant upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(b) The purchase and sale of Participant’s Shares shall be completed at a closing to be held within ninety (90) days from the effective date of Participant’s termination of employment with the Company.

(c) For purposes of this Article II, Cause shall be defined as the occurrence of any one or more of the following acts or events: (1) fraud, misappropriation, embezzlement, or other act of material dishonesty against the Company; (2) any act or acts by Participant with respect to Company which constitute a breach of Participant’s fiduciary duties or duties of honesty, good faith and loyalty (including derogatory statements regarding the Company, but excluding statements made in connection with any legal action filed against the Company); (3) any act by Participant which is intentionally damaging to the Company; (4) commission by Participant of a felony or misdemeanor involving moral turpitude; (5) a material breach by Participant of any provision of this Agreement within his control or failure of Participant to properly and diligently perform his duties as an employee, officer and/or director of the Company, which violation is not remedied within three (3) days after notice from Company specifying such violation; (6) alcohol or drug abuse affecting in any material respect the performance by the Participant of his duties and responsibilities as an employee, officer and/or director of the Company; (7) commission of any other

 

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act or acts which substantially impairs the reputation and standing of Company with its customers or the community at large; and (8) any act or circumstance constituting “cause” for termination under applicable statutory or common law.

Section 2.5 [REDACTED]

Section 2.6 Voluntary Termination of Employment by Participant. In the event that the employment relationship of Participant with the Company is voluntarily terminated by the Participant for any reason other than death, Disability or attainment of Retirement Age:

(a) The Company shall purchase from the Participant and the Participant (or his Legal Representative) shall sell and transfer to the Company all Shares owned by Participant upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(b) The purchase and sale of the Participant’s Shares shall be completed at a closing to be held on or before July 1 of the year immediately subsequent to the year in which the applicable Triggering Event occurred.

(c) The rights and obligations provided in this Section 2.6 shall terminate and be of no further force or effect upon the earlier to occur of (i) the date on which the Company consummates the sale of all or substantially all of the assets of the Company and/or the Shareholders consummate the sale of all or substantially all of the common capital stock of the Company, or (ii) the date on which the common capital stock of the Company is first traded on any United States securities exchange or on any formal over-the-counter quotation system in general use in the United States.

Section 2.7 Violation of Restrictive Covenants. In the event of any violation by Participant of the covenants and restrictions contained in Article VI hereof, in addition to, and not in lieu of, any and all other legal and equitable rights and remedies available to the Company:

(a) The Company shall purchase from the Participant and the Participant (or his Legal Representative) shall sell and transfer to the Company all Shares owned by Participant upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(b) The purchase and sale of Participant’s Shares shall be completed at a closing to be held within ninety (90) days from and after the date upon which the Company provides written notice to Participant of the violation by Participant of the covenants and restrictions contained in Article VI hereof.

Section 2.8 Employment Relationship with the Company. Notwithstanding the provisions of this Agreement, Participant understands that his employment relationship with the Company is controlled by such manuals, procedures or directives as are promulgated from time to time by the Company. Nothing in this Agreement shall be interpreted to change the terms of Participant’s employment with the Company to anything other than an “at-will” employment relationship and Participant hereby acknowledges and reaffirms that his employment with the Company may be terminated by the Company at the will of the Company, with or without cause.

Section 2.9 Discretionary Redemption. Participant may request that the Company redeem all, or any portion, of the Participant’s Shares under the Plan under the terms set forth herein. Any request by a Participant to the Company shall occur no earlier than 6 months and 1 day following the date that Participant acquired the Shares as a result of exercise of the Option (the “Minimum Holding Date”). After the Minimum Holding Date, a Participant may furnish the Company with a written notice requesting that the Company redeem Shares under this Section 2.9. The Company shall have the right, in its sole discretion, to accept Participant’s offer within 90 days after the date the Company receives the written notice. The purchase price per Share by the Company shall be equal to the Fair Market Value on the date the Company commits to redeem the Shares. If the redemption offer is accepted by the Company, then the redemption of the Participant’s Shares shall be completed at a closing to be held within 90 days after written notice of the redemption is delivered by the Company to Participant. If the redemption offer is rejected by the Company, then the Participant retains the Shares subject to the terms and conditions of the Plan, the Non-qualified Stock Option Agreement and this Agreement. Notwithstanding Article III, the redemption shall be paid in a lump-sum cash payment. The rights and obligations provided under this

 

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Section 2.9 shall terminate and be of no further force or effect upon the earlier to occur of (i) the date on which the Company consummates the sale of all or substantially all of the common capital stock of the Company, or (ii) the date on which the common capital stock of the Company is first traded on any United States securities exchange or on any formal over-the-counter quotation system in general use in the United States.”

ARTICLE III

PAYMENT TERMS

Section 3.1 Terms of Payment. The purchase price to be paid by the Company to Participant for all Shares purchased by the Company pursuant to the terms of this Agreement shall be paid in immediately available United States funds in five (5) equal monthly installments, without interest, commencing on the date of the closing of the sale of the Shares hereunder; provided, however, that there shall be credited against such purchase price (and against the initial installment(s)) the amount of any indebtedness then due and payable to the Company by Participant.

ARTICLE IV

PURCHASE PRICE

Section 4.1 Determination of Purchase Price - Termination for Cause/Violation of Restrictive Covenants. In the event that the Triggering Event under which the purchase price of Participant’s Shares is to be determined under this Article is the termination of the Participant’s employment by the Company for “Cause” and/or a violation by Participant of the covenants and restrictions contained in Article VI hereof, such purchase price shall be equal to the sum of (i) the amount paid by the Participant to the Company to acquire his or her rights under the Phantom Stock Plan and (ii) the amount paid by the Participant to the Company to acquire his or her Shares under the applicable Non-qualified Stock Option Agreement.

Section 4.2 Determination of Purchase Price. The purchase price of Participant’s Shares in each of the applicable circumstances shall be as follows:

(a) A Lifetime Transfer under Section 2.2 of this Agreement. The purchase price shall be the Fair Market Value on the date the Company exercises its right of first refusal under Section 2.2 of this Agreement. Notwithstanding Section 2.2, the Company may not exercise its right of first refusal until the Minimum Holding Date and, accordingly, the Company’s right of first refusal under Section 2.2 will continue through the Minimum Holding Date, subject to Section 2.2(c).

(b) A Voluntary Termination of Employment by Participant under Section 2.6 of this Agreement. The purchase price per share shall the Fair Market Value on the date of Participant’s termination of employment; provided, however, that if Participant’s termination of employment occurred prior to the Minimum Holding Date, then the purchase price per share shall be Fair Market Value on the Minimum Holding Date and the redemption shall occur effective as of the Minimum Holding Date.

Section 4.3 [REDACTED]

Section 4.4 Determination of Book Value of Participant’s Shares.

(a) For purposes of this Agreement, “Book Value of Participant’s Shares” shall mean the product of (i) the sum of (A) fifty seven cents ($0.57) plus (B) the Incremental Book Value of one share of the capital stock of the Company, multiplied by (ii) the number of Shares which are owned at that time by Participant (which valuation shall be binding upon and conclusive against the Persons (including the Company) subject to this Agreement).

(b) For purposes of this Agreement, the “Incremental Book Value of one share of the capital stock of the Company” shall mean the excess, if any, of (x) the fully-diluted net book value of one share of the issued and outstanding capital stock of the Company as of such applicable date over (y) the fully-diluted net book value of one share of the issued and outstanding capital stock of the Company as of December 31, 2005, as computed by the regular accountants for the Company (which determination shall be binding upon and conclusive against the Persons (including the Company) subject to this Agreement)

 

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determined using the accounting method that the Company uses for financial reporting purposes and in accordance with generally accepted accounting principles, consistently applied.

Section 4.5 Company’s Performance. In any situation in which the Company is or may be unable to fulfill any obligation to redeem or pay for any Shares due to the prohibitive provisions of any statute, or due to limitations contained in its articles of incorporation or bylaws, the Company shall use its best efforts to take such action as may be reasonably necessary to enable the Company, if possible, to fulfill such redemption or payment obligation. The actions to be taken shall include, but not be limited to, the reappraisal and revaluation of the total assets, properties and rights of the Company (including accounts receivable and goodwill, if applicable) at their then current fair market value.

ARTICLE V

GENERAL PROVISIONS

Section 5.1 Assignments to Revocable Living Trusts. Notwithstanding any term or provision of this Agreement to the contrary, the assignment of Shares, or any portion thereof, to a revocable living trust of which Participant is (during his lifetime) grantor, trustee or co-trustee and primary beneficiary, shall be subject to the following conditions:

(a) Participant must continue to remain liable for all of his obligations hereunder notwithstanding the assignment to such trust;

(b) All provisions of this Agreement which relate to Participant in his status as an individual shall apply to the Shares so assigned based upon the status of Participant, notwithstanding the assignment to such trust;

(c) The trust shall be completely bound by the terms and provisions of this Agreement, as a shareholder; and

(d) The occurrence of any Triggering Event with respect to such Shares shall be determined (1) by reference to Participant in his capacity as an individual (including but not limited to his death or disability), as well as (2) by reference to events affecting the trust alone (including but not limited to any Transfer of the Shares by such trust).

Section 5.2 Encumbrance. Participant shall not encumber his Shares in any way, and such Shares shall at all times be deemed security for all indebtedness due to the Company or the Company by Participant; such security interest arising as of the date such debt was incurred, and notice thereof is deemed given by the legend referred to in Article I of this Agreement. If no other provision has been made to adjust the applicable purchase price for Participant’s Shares upon the occurrence of a Triggering Event, there shall be credited against such purchase price the amount of any indebtedness then due and payable to the Company by Participant.

ARTICLE VI

RESTRICTIVE COVENANTS

Section 6.1 Covenant Not to Compete/Solicit. Participant will not directly or indirectly (whether as a principal, agent, independent contractor, employer, employee, investor, partner, shareholder, director or otherwise):

(a) During the Participant’s employment with the Company and for a period of two (2) years thereafter, solicit business or provide products and/or services which are the same as or competitive with that solicited or provided by the Company from any company, enterprise or person which was a customer of the Company at any time during Participant’s employment with the Company;

(b) During the Participant’s employment with the Company and for a period of two (2) years thereafter, engage in any business or participate, invest or have any interest in, by way of example but without limitation, any person, firm, corporation, sole proprietorship or business, that engages in any business or activity anywhere in the world, which business or activity is the same as, similar to, or competitive with any business or activity now, heretofore or hereafter engaged in by the Company; or

 

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(c) During the Participant’s employment with the Company and for a period of two (2) years thereafter, induce or attempt to persuade any employee, agent, supplier or customer of the Company to terminate any similar employment, agency, supplier or customer relationship with the Company in order to enter into any such relationship on behalf of any other company, enterprise or person.

Notwithstanding anything contained herein to the contrary, (A) Participant shall not be prohibited from owning any interest in or shares of mutual or similar funds which are nationally recognized and which own equity securities of any corporation, if such securities are publicly traded and listed on any national or regional stock exchange and (B) Participant shall not be prohibited from accepting a position of full-time employment with any such customer of the Company, provided that Participant shall not engage in any activities prohibited hereunder with respect to any other customer(s) of the Company.

Section 6.2 Covenant Regarding Confidential Information. Participant acknowledges and agrees that all records and other information not released to the general public, all trade secrets, unpublished data or other information and all trade secrets and confidential or proprietary information, in each case relating to the services, business and operations of the Company or its subsidiaries and affiliates, whether reduced to writing or not, are confidential and the sole property of the Company and its subsidiaries and affiliates (all of the same being herein collectively called the “Confidential Information”). The Participant will not, at any time during his employment with the Company or thereafter, directly or indirectly, use any of the Confidential Information, except in the regular course of employment with the Company hereunder, or disclose any of the Confidential Information to any other person or entity, except to the extent that the Board may so authorize in writing, and that, upon Participant’s Termination of Employment, he or she will surrender to the Company all Confidential Information then in his or her possession or under his or her control. Participant acknowledges and agrees that the Confidential Information and other aspects of the Company’s business have been established and maintained at great expense, and kept and protected as confidential and secret information and are of great value to the Company and provide it with a substantial competitive advantage in conducting said business. Participant further acknowledges and agrees that as a result of his or her knowledge of the Confidential Information, Company would suffer great loss and irreparable injury if Participant were to disclose the Confidential Information or use the Confidential Information to compete with the Company.

Section 6.3 Rights and Remedies upon Breach. Participant expressly agrees that in the event of any violation by Participant of the covenants and restrictions contained in this Article VI, Company and its successors or assigns shall have the following cumulative rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any and all other legal and equitable rights and remedies available to the Company:

(a) Require the Participant to account for and pay over to the Company, any amounts paid to Participant hereunder which are in excess of the aggregate purchase price paid by Participant to the Company for the Participant’s Shares pursuant to the applicable Non-qualified Stock Option Agreement(s);

(b) Withhold any and all payments due hereunder which are in excess of the aggregate purchase price paid by Participant to the Company for the Participant’s Shares pursuant to the applicable Non-qualified Stock Option Agreement(s); and

(c) Declare any and all rights of the Participant under any Option Agreement to be immediately terminated and of no further force or effect.

Section 6.4 Covenants & Restrictions Reasonable and Necessary. Participant agrees that the terms and conditions of the covenants and restrictions set forth herein are reasonable and necessary for the protection of the Company, Company’s business and the Confidential Information and to prevent damage or loss to Company as a result of actions taken by the Participant. Participant acknowledges and agrees that the Company would suffer great loss and irreparable injury if Participant violates the covenants contained in this Article VI. It is the intent and understanding of each party hereto that if, in any action before any court, agency or tribunal legally empowered to enforce the covenants

 

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contained in this Article VI, any term, restriction, covenant or promise contained therein is found to be invalid, illegal or unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it valid, legal or enforceable by such court, agency or tribunal. The provisions contained in this Article VI shall survive the termination of this Agreement and the Participant’s termination of employment with the Company for any reason.

ARTICLE VII

MISCELLANEOUS PROVISIONS

Section 7.1 Agreement Binding. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, administrators, executors, personal representatives, successor trustees, successors and assigns.

Section 7.2 Waiver of Breach. A waiver by any party of a breach of any provision of this Agreement by any other party shall not operate or be construed (a) as continuing, or (b) as a bar to, or a waiver or release of, any subsequent right, remedy, or recourse as to a subsequent event, or (c) as a waiver of any subsequent breach by that other party.

Section 7.3 Course of Conduct. No course of conduct between the parties hereto, nor any delay in exercising any rights or remedies hereunder or under any communication, report, notice or other document or instrument referred to herein, shall operate as a waiver of any of the rights or remedies of the parties hereto.

Section 7.4 Further Assurances. The parties hereto shall take such further steps and execute such further documents and instruments as may be necessary or appropriate to carry this Agreement into force and effect or to effectuate the intention hereof.

Section 7.5 Entire Agreement. This Agreement contains all the covenants, promises, agreements, conditions, representations and understandings between the parties hereto, and supersedes any prior agreements between the parties hereto, with respect to the subject matter hereof. There are no covenants, promises, agreements, conditions, representations or understandings, either oral or written, between the parties hereto, other than those set forth herein or provided for herein, with respect to the subject matter hereof. Participant hereby acknowledges that he is not relying on any statement, representation, or agreement of the Company as an inducement to enter into this Agreement, except as specifically provided herein and that neither the Company, nor anyone acting on behalf of the Company has made any representation, agreement, guaranty or warranty of any kind whatsoever, express or implied, written or oral, concerning or relating to the subject matter hereof, except as specifically set forth herein.

Section 7.6 Amendment. This Agreement shall not be changed orally, but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

Section 7.7 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Michigan, irrespective of where this Agreement is made or to be performed, and irrespective of any applicable principles of conflict of laws.

Section 7.8 Venue. The venue of any dispute, controversy, litigation or proceeding (formal or informal) arising out of or pertaining to this Agreement or the subject hereof shall lie exclusively in the County of Oakland, State of Michigan. Provided, however, that if any such dispute, controversy, litigation or proceeding requires or permits jurisdiction in a federal court or agency of the United States, then venue shall lie in no federal court or agency other than those located in (or nearest to) the County of Wayne, State of Michigan. No term or provision of this Section is intended to establish a priority as between state court or federal court, for instances in which a choice of such venue is available to the parties or litigants. The parties hereto knowingly and expressly waive any rights they may have in existing venue statutes, either state or federal, to the extent that such statutes would require a different venue than otherwise provided for herein.

 

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Section 7.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes hereof, provided receipt of copies of such counterparts is confirmed.

Section 7.10 Gender and Number. As the context of any provision may require, nouns and pronouns of any gender and number shall be construed in any other gender and number.

Section 7.11 Notices, Statements, Etc. All notices, statements or other communications which are required or contemplated by this Agreement shall be in writing (unless otherwise expressly provided herein) and shall be either personally served at or mailed to the last known mailing address of the person entitled thereto. In addition, a copy of each such notice, statement or communication intended for a party shall be furnished to such single additional addressee for that party as may be specified herein or specified in a like notice. All such notices, statements and other communications (or copies thereof) shall be deemed furnished to the person entitled thereto (a) on the date of service, if personally served at the last known mailing address of such person, or (b) on the date on which mailed, if mailed to such person in accordance with the terms of this Section. For purposes hereof, an item shall be considered mailed if the sender can establish that it was sent by means including, but not limited to, the following: (i) by United States Postal Service, postage prepaid; (ii) by air courier service (Federal Express or the like); or (iii) by telefax or other means of electronic communication.

Section 7.12 Severability. Should any covenant, condition, term or provision of this Agreement be deemed to be illegal, or if the application thereof to any person or in any circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such covenant, condition, term or provision to persons or in circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby; and each covenant, condition, term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

Section 7.13 Captions. Captions used herein are inserted for reference purposes only and shall not affect the interpretation or construction of this Agreement.

Section 7.14 Incorporation by Reference. All schedules, exhibits and other attachments which are affixed to and referred to in this Agreement are incorporated herein and made a part hereof by this reference.

Section 7.15 Survival. The parties acknowledge and agree that this Agreement contains substantial terms and provisions which are intended to govern the rights, duties and obligations of the parties following the closing on any purchase and sale of any Shares. Accordingly, this Agreement shall survive and shall not be deemed merged into, the execution or delivery of any documents, property, or payments pursuant to the terms hereof; and this Agreement shall remain in full force and effect following the closing on any such purchase and sale.

Section 7.16 Construction. Each party has participated fully in the negotiation and preparation of this Agreement with full benefit or availability of counsel. Accordingly, this Agreement shall not be more strictly construed against either party.

Section 7.17 Independent Legal Representation. Participant acknowledges that the parties’ interests hereunder are divergent and conflicting in many material respects. Accordingly, Participant acknowledges being advised to retain independent legal counsel before executing this Agreement.

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Section 7.18 Equitable Relief. The parties acknowledge that the stock in the Company which is the subject of this Agreement is unique and that the failure of any party to perform or fulfill such party’s obligations hereunder may result in irreparable harm to the other parties. Accordingly, the parties agree that specific performance of the terms hereof and/or other equitable relief may be obtained through a court of competent jurisdiction.

 

				ALTAIR ENGINEERING INC. A Michigan Corporation
Dated:				By:
						James R. Scapa
						Its: Chief Executive Officer

Participant hereby acknowledges receipt of a copy of this Agreement, accepts his or her designation as a Participant under and subject to all the terms and conditions set forth herein, and agrees to all such terms and conditions.

 

Dated:
						PARTICIPANT

 

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Exhibit 10.8

ALTAIR ENGINEERING INC.

2012 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

(AS AMENDED AS OF APRIL 3, 2017)

1. Purpose. The purpose of the Plan is to encourage and enable selected management, other employees, contractors and directors of the Company, to acquire a proprietary interest in the Company through the ownership of the Common Stock of the Company. The Company intends to use the Plan to attract, retain and motivate Participants to attain exceptional levels of performance and provide Participants with an opportunity to participate in the increased value of the Company which their efforts, initiative, and skill have helped produce. The Plan design enables the Company to grant to Participants Incentive Stock Options and/or Non-Qualified Stock Options to purchase shares of Common Stock of the Company. The Plan is effective as of December 20, 2012.

2. Definitions.

(a) “Board” shall mean the Board of Directors of the Company.

(b) “Change in Control” shall, unless in the case of a particular Option the applicable Option Agreement states otherwise or contains a different definition of “Change in Control,” be deemed to occur upon:

(1) the acquisition (whether by merger, consolidation, share exchange, tender offer or similar form of corporate transaction) (a “Business Combination”) by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”) unless immediately following such Business Combination, the holders of more than 50% of the total voting power of the Outstanding Company Voting Securities immediately prior to such Business Combination own more than 50% of the total voting power of (x) the entity resulting from such Business Combination (the “Surviving Company”) or (y) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the members of the board of directors (or the analogous governing body) of the Surviving Company; provided, however, that for purposes of this Plan, the following acquisitions shall not constitute a Change in Control: (I) any acquisition by the Company of its Outstanding Company Voting Securities, (II) any acquisition by any employee benefit plan sponsored or maintained by the Company, (III) any acquisition of Outstanding Company Voting Securities by investment entities affiliated with General Atlantic Partners, LLC or any group of which such investment entities affiliated with General Atlantic Partners, LLC are a member, or (IV) in respect of an Option held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant);

(2) the dissolution or liquidation of the Company; or

(3) the sale, transfer or other disposition of all or substantially all of the assets of the Company.

Consistent with the terms of this Section 2(b), the Board shall have full and final authority to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto.

(c) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder.

(d) “Common Stock” shall mean the Class A common capital stock of the Company.

(e) “Company” shall mean Altair Engineering Inc., a Michigan corporation and any Subsidiary of the Company.

 

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(f) “Employee” shall mean any individual who is employed, within the meaning of Section 3401 of the Code and the regulations promulgated thereunder, by the Company. The Board shall be responsible for determining when an Employee’s period of employment is deemed to be continued during an approved leave of absence.

(g) “Exchange Act” shall mean the Securities Exchange Act of 1934,as amended.

(h) “Exercise Price” shall mean the price per Share at which an Option may be exercised, as determined by the Board and as specified in the Participant’s Option Agreement.

(i) “Fair Market Value” shall mean the value of each Share determined as of any specified date as follows:

(1) If the Shares are traded on any United States securities exchange, or if the Shares are not traded on any United States securities exchange but are traded on any formal over-the-counter quotation system in general use in the United States, the value per Share shall be the closing price on such exchange or quotation system on the business day immediately preceding such specified date; provided, however, that if no Shares are traded on the business day immediately preceding such specified date, the value per Share shall be the mean between the closing high bid and closing low asked quotations on the business day immediately preceding such specified date; or

(2) If Paragraph (1) does not apply, the value per Share shall be determined by the Board in accordance with Section 4(e) in good faith and based on uniform principles consistently applied. Such determination shall be conclusive and binding on all persons.

(j) “Incentive Stock Option” shall mean an Option of the type which is described in Section 422(b) of the Code.

(k) “Non-qualified Stock Option” shall mean an Option which does not qualify as an Incentive Stock Option.

(l) “Option” shall mean an option which is granted pursuant to the Plan to purchase Shares of Common Stock, whether granted as an Incentive Stock Option or as a Non-qualified Stock Option.

(m) “Option Agreement” shall mean, with respect to each Option, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Option.

(n) “Participant” shall mean any individual to whom an Option has been granted or issued under the Plan.

(o) “Plan” shall mean this Altair Engineering Inc. 2012 Incentive and Non-qualified Stock Option Plan.

(p) “Plan Year” shall mean the 12 consecutive month period coinciding with the Company’s fiscal year.

(q) “Purchase Price” shall mean, at any specified time, the Exercise Price per Share multiplied by the number of Shares being purchased pursuant to the exercise of an Option.

(r) “Securities Act” shall mean the Securities Act of 1933, as amended.

(s) “Share” shall mean one authorized share of Common Stock.

(t) “Subsidiary” shall mean any corporation or other business entity (other than the Company) in an unbroken chain of corporations and/or other business entities beginning with the Company if, at the time of granting an Option, each of the corporations and/or other business entities (other than the last business entity in the unbroken chain) owns stock possessing at least 50% of the total combined voting power of all classes of ownership in one of the other corporations and/or other business entities in such chain.

 

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(u) “Vest” or “Vesting” shall mean the event or point in time at which an Option becomes exercisable for the first time.

3. Effective Date. The Plan was adopted by the Company effective as of December 20, 2012.

4. Administration.

(a) Administration by the Board or the Committee. The Board shall administer the Plan in accordance with the provisions hereof. The Board may appoint a committee (the “Committee”) to administer the Plan. If a Committee is appointed, the Committee shall have the powers and authority otherwise delegated to the Board in this Plan document. The Board may, from time to time, increase or decrease the size of the Committee, fill vacancies however caused, remove members with or without cause, and disband the Committee and thereafter directly administer the Plan. The Company may engage a third party to administer routine matters under the Plan, such as establishing and maintaining accounts for Participants and facilitating transactions by Participants pursuant to the Plan.

(b) Powers of the Board. On behalf of the Company and subject to the provisions of the Plan, the Board shall have the authority and discretion to: (i) Prescribe, amend and rescind rules and regulations relating to the Plan; (ii) Select Participants to receive Options; (iii) Determine the form and terms of Options; (iv) Determine the number of Shares or other consideration subject to Options; (v) Determine whether Options will be granted singly, in combination or in tandem with, in replacement of, or as alternatives to, other Options under the Plan or any other incentive or compensation plan of the Company; (vi) Construe and interpret the Plan, any Option Agreement and any other agreement or document executed pursuant to the Plan; (vii) Correct any defect or omission, or reconcile any inconsistency in the Plan, any Option or any Option Agreement; (viii) Determine whether an Option has been earned and/or Vested; (ix) Accelerate or defer, with the consent of the Participant, the Vesting of any Option; (x) Authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option as made by the Board; (xi) With the consent of any adversely affected Participant, effect (A) the reduction of the Exercise Price of any outstanding Option under the Plan; (B) the cancellation of any outstanding Option under the Plan and the grant in substitution therefor of (1) a new Option under the Plan or another equity plan of the Company covering the same or a different number of shares of Common Stock, (2) cash, and/or (3) other valuable consideration (as determined by the Board, in its sole discretion); or (C) any other action that is treated as a repricing under generally accepted accounting principles; (xii) With the consent of any adversely affected Participant, otherwise adjust the terms of an Option previously issued to the Participant; (xiii) Determine whether a transaction or event should be treated as a Change in Control and, if the Board determines that a transaction or event should be treated as a Change in Control, then the effect of that Change in Control; and (xiv) Make all other determinations deemed necessary or advisable for the administration of the Plan. The interpretations and decisions made by the Board with regard to any question arising under the Plan shall be final and conclusive on all persons participating or eligible to participate in the Plan.

(c) Conflicts of Interest. Members of the Board or the Committee who are either eligible for Options or have been granted an Option may vote on any matters affecting the administration of the Plan or the grant of any Option pursuant to the Plan. However, no such member shall act upon the granting of an Option to himself or herself (unless such grant is part of a plan under which Options are to be granted to a classification of Employees). In the event of cases such as those described in the preceding sentence, such member shall be counted in determining the existence of a quorum at a meeting of the Board or the Committee but shall be excluded in determining the number of members voting or taking written action with respect to an Option granted to such member.

(d) Board’s Interpretation of the Plan. The Board’s interpretation and construction of any provision of the Plan, of any Option granted under the Plan, or of any Option Agreement shall be final and binding on all parties claiming an interest in an Option granted or issued under the Plan. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan.

(e) Board’s Determination of Fair Market Value. Notwithstanding anything contained herein to the contrary, the Board shall have the sole and exclusive authority to determine, upon review of relevant information, the Fair Market Value of the Common Stock, subject to the provisions of the Plan and irrespective of whether the Board has appointed a Committee to administer the Plan.

 

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(f) Foreign Participants. Without amending the Plan, the Board may grant Options to eligible Participants who are foreign nationals on such terms and conditions not inconsistent with those specified in this Plan as may, in the judgment of the Board, be necessary or desirable to foster and promote achievement of the purposes of the Plan. In furtherance of such purposes, the Board may approve such modifications, amendments, procedures, sub-plans, and the like as may be necessary or advisable to comply with the provisions of the laws in other countries in which the Company operates or has eligible Participants.

5. Eligibility for Participation. Plan Participants shall be limited to such individuals as the Board may select. A Participant may be granted more than one type of Option under the Plan.

6. Shares of Stock of the Corporation.

(a) Shares Subject to This Plan. Stock with respect to which Options are granted or issued under this Plan shall be authorized but unissued or reacquired Shares of the Company’s Common Stock. The aggregate number of Shares which may be issued under this Plan shall not exceed 1,300,000 Shares, subject to adjustment under Section 9. If an Option expires, becomes unexercisable without having been exercised in full, or is surrendered pursuant to an exchange agreement, the unpurchased Shares which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan upon exercise of an Option shall not be returned to the Plan and shall not become available for future distribution under the Plan; provided, however, that if restricted Shares issued pursuant to the exercise of unvested Options are repurchased by the Company or are forfeited to the Company due to the failure to vest, such Shares will become available for future grant under the Plan. Shares used to pay the exercise price of an Option or to satisfy the tax withholding obligations related to an Option will become available for future grant or sale under the Plan. Notwithstanding the foregoing and, subject to adjustment as provided in Section 9, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in this Section 6(a), plus, to the extent allowable under Code Section 422 and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to this Section 6(a).

(b) Adjustment of Shares. In the event of an adjustment described in Section 9, then (i) the number of Shares reserved for issuance under the Plan, (ii) the Exercise Prices of and number of Shares subject to outstanding Options, and (iii) any other factor pertaining to outstanding Options shall be duly and proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share shall not be issued but shall either be paid in cash at Fair Market Value or shall be rounded up to the nearest Share, as determined by the Board.

(c) Options Not to Exceed Shares Available. The number of Shares subject to Options which have been granted under this Plan at any time during the Plan Term shall not exceed the number of Shares authorized for issuance under the Plan. The number of Shares subject to an Option which expires, is canceled, is forfeited or is terminated for any reason, shall again be available for issuance under the Plan.

7. Terms and Conditions of Options.

(a) Option Agreement. Each Option shall be evidenced by a written Option Agreement which shall set forth the terms and conditions pertaining to such Option, provided that all such terms shall be subject to and consistent with this Plan. An Option Agreement shall be in such form as the Board shall approve from time to time, which Option Agreements need not be identical.

(b) Number of Shares Covered by an Option. Each Option Agreement shall state the number of Shares for which the Option is exercisable and shall provide for the adjustment of such Shares in accordance with Section 9.

(c) Exercise of Options. A Participant may exercise an Option only on or after the date on which the Option Vests, as provided in Subsection (d) below, and only on or before the date on which the Option expires, as provided in Subsection (e) below.

 

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(d) Vesting of Options. A Participant may exercise an Option to purchase Shares only on or after the date the Option has Vested with respect to such Shares. Each Option Agreement shall include a Vesting schedule applicable to the Shares to which such Option pertains. The Vesting schedule shall not impose upon the Company any obligation to retain the Participant in its employ for any period. A Participant’s Option Agreement shall so specify if all or any non-Vested Options held by the Participant on the date of death or total and permanent disability shall become Vested.

(e) Term and Lapse of Options. A Participant may exercise an Option to purchase Shares only on or before the date on which the term of the Option expires. Each Option Agreement shall set forth the term of the Option and the events described in the immediately following sentence which will cause the Option to lapse or otherwise end, in whole or in part, as of an earlier date. An Option shall lapse on the first to occur of the following events:

(i) The tenth anniversary of the date that an Incentive Stock Option was granted; provided, however, that in the case of an Incentive Stock Option granted to a Participant owning, actually or constructively under Section 424(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the Company (a “10% Stockholder”), such option, by its terms, shall be exercisable only within five years from the date of grant.

(ii) The date determined under Section 7(i) for a Participant who ceases to be an Employee by reason of the Participant’s death or total and permanent disability, within the meaning of Section 22(e)(3) of the Code unless the Board at its discretion extends such date before the applicable expiration date (provided, that upon any such extension, in the event that a Participant fails to exercise any Incentive Stock Option on or before the date which is twelve months after the date the Participant ceases to be an Employee, such Incentive Stock Option shall thereupon become a Non-qualified Stock Option);

(iii) The date determined under Section 7(j) for a Participant who ceases to be an Employee for any reason, other than by reason of death or total and permanent disability, unless the Board at its discretion extends such date before the applicable expiration date (provided, that upon any such extension, in the event that a Participant fails to exercise any Incentive Stock Option on or before the date which is three months after the date the Participant ceases to be an Employee, such Incentive Stock Option shall thereupon become a Non-qualified Stock Option); or

(iv) The expiration date specified in the Participant’s Option Agreement.

(f) Exercise Price. The Exercise Price under each Incentive Stock Option shall be not less than 100% of the Fair Market Value of the Shares determined on the date the Incentive Stock Option is granted. In the case of an Incentive Stock Option granted to a 10% Stockholder, the Exercise Price shall not be less than 110% of the Fair Market Value of the Shares determined on the date the Incentive Stock Option is granted. The Exercise Price under each Non-qualified Stock Option shall be specified by the Board, but shall in no case be less than 100% of the Fair Market Value of the Shares determined on the date the Non-qualified Stock Option is granted.

(g) Medium and Time of Payment of Purchase Price. A Participant exercising an Option shall pay the Purchase Price of the Shares to which such exercise pertains in full in cash (in U.S. dollars) as a condition of such exercise, unless the Board at its discretion allows the Participant to pay the Purchase Price in any manner allowable under Section 14, so long as the sum of cash so paid and such other consideration equals the Purchase Price.

(h) Nontransferability of Options. An Option granted to a Participant shall, during the lifetime of the Participant, be exercisable only by the Participant or the Participant’s conservator or legal representative and shall not be assignable or transferable. In the event of the Participant’s death, the Option is transferable by the Participant only by will or the laws of descent and distribution.

(i) Death or Disability of Participant. If a Participant dies while an Employee or ceases to be an Employee as a consequence of becoming totally and permanently disabled (within the meaning of Section 22(e)(3) of the Code), any Option granted to the Participant may be exercised, to the extent it was Vested on the date of the Employee’s death or disability, at any time within 12 months after the

 

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Participant’s death or disability (but not beyond the otherwise applicable term of the Option) by the Participant’s conservator or legal representative, by the executors or administrators of the Participant’s estate or by any person who has acquired the Option directly from the Participant by will or the laws of descent and distribution, as the case may be.

(j) Termination Other than by Death or Disability.

(i) If a Participant ceases to be an Employee for any reason other than death or total and permanent disability (as defined in Section 7(i)), any non-Vested Option shall expire immediately upon such termination of employment and any unexercised Vested Option shall expire at 12:00 p.m. on the 90th day following the date the Participant’s employment with the Company terminates. In addition, the Board may, in its sole and absolute discretion, Vest any non-Vested Options within 30 days following such termination of employment.

(ii) For purposes of this Section 7(j), the employment relationship shall be treated as continuing intact while the Participant is an active employee of the Company or is on military leave, sick leave or other bona fide leave of absence, as determined by the Board in its discretion. The preceding sentence notwithstanding, in the case of an Incentive Stock Option, employment shall be deemed to terminate on the date the Participant ceases active employment with the Company unless the Participant’s reemployment rights are guaranteed by statute or contract.

(k) Rights as a Stockholder. A Participant, or an allowable transferee of a Participant, shall have no rights as a shareholder of the Company with respect to any Shares for which an Option is exercisable until the date a stock certificate for such Shares is issued. No adjustment shall be made for dividends (ordinary or extraordinary or whether in currency, securities, or other property), distributions, or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 9.

(l) Modification, Extension, and Renewal of Options. Within the limitations of the Plan, the Board may at its discretion modify, extend or renew any outstanding Option or accept the cancellation of an outstanding Option for the granting of a new Option in substitution. Notwithstanding the preceding sentence, no modification of an Option shall, without the consent of the Participant, alter or impair any rights or obligations under any Option previously granted.

(m) Other Provisions. An Option Agreement may contain such other provisions as the Board deems advisable which are not inconsistent with the terms of the Plan, including but not limited to:

(i) Restrictions on the exercise of the Option;

(ii) Submission by the Participant of such forms and documents as the Board may require; and/or

(iii) Procedures to facilitate the broker-assisted exercise of the Option.

(n) No Disqualification of Incentive Stock Options. Notwithstanding any other provision of the Plan, the Plan shall not be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Participant affected, disqualify any Incentive Stock Option under Section 422 of the Code.

(o) Limitations on Incentive Stock Options. The aggregate Fair Market Value (determined as of the date of grant) of Shares subject to grant(s) of Incentive Stock Options which will become Vested by a Participant during any calendar year (under the Plan or under any other incentive stock option plan of the Company) shall not exceed $100,000. If the Fair Market Value of the Shares described in the preceding sentence exceeds $100,000, the Options for the first $100,000 worth of Shares to become Vested shall be Incentive Stock Options and the Options for the amount in excess of $100,000 that become Vested shall be Non-qualified Stock Options. In the event the Code or the regulations promulgated thereunder are amended after the Effective Date of the Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to Incentive Stock Options, such different limit shall be automatically incorporated into this Section 7(o) and shall apply to any Options granted on or after the effective date of such amendment.

 

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8. Term of Plan. Options may be granted pursuant to the Plan through the period ending on December 19, 2022. All Options which are outstanding on such date shall remain in effect until they are exercised or expire by their terms.

9. Recapitalizations, Takeovers, and Liquidations.

(a) Reorganizations. Notwithstanding any other provision of the Plan to the contrary, but subject to any required action by the stockholders of the Company, the Board shall make any adjustments to the class and/or number of Shares covered by the Plan, the number of Shares for which each outstanding Option pertains, the Exercise Price of an Option, and/or any other aspect of this Plan to prevent the dilution or enlargement of the rights of Participants under this Plan in connection with any increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company resulting from the payment of a stock dividend, a stock split, a reverse stock split or any other event which results in an increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company effected without receipt of adequate consideration by the Company.

(b) Effect of Change in Control. Except to the extent provided in a particular Option Agreement:

(i) Notwithstanding any other provisions of the Plan to the contrary, if (A) a Change in Control occurs and (B) within one (1) month prior to the date of such Change in Control or twelve (12) months after the date of such Change in Control, a Participant’s employment with the successor corporation (or parent or Subsidiary of the successor corporation, if applicable) is involuntarily terminated for any reason other than Cause or voluntarily terminated by the Participant for Good Reason, then the vesting and exercisability of this option shall be accelerated in full.

(ii) In addition, in the event of a Change in Control, the Board may, in its discretion and upon at least 10 days’ advance notice to the affected Participants, cancel any outstanding Options and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such Options based upon the price per Share received or to be received by other shareholders of the Company in the event.

(iii) In addition, in the event of a Change in Control, the Board may, in its discretion provide that each outstanding Option shall be assumed or an equivalent Option substituted by the successor corporation or a parent or Subsidiary of the successor corporation. For the purposes of this subsection 9(b)(iii), an Option will be considered assumed if, following the Change in Control, the Option confers the right to purchase or receive, for each Share subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the successor corporation or its parent, the Board may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option, for each Share subject to such Option, to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.

(iv) The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.

(v) For the purposes hereof, “Cause” means the occurrence of any of the following (and only the following): (i) conviction of any felony or any crime involving moral turpitude or dishonesty, (ii) participation in a fraud or act of dishonesty against the Company, (iii) conduct that, based upon a good faith and reasonable factual investigation and determination by the Board, demonstrates Participant’s gross unfitness to serve, or (iv) intentional, material violation of any contract with the Company or any statutory duty to the Company that is not corrected within thirty (30) days after written notice thereof. Death, physical disability and mental disability shall not constitute “Cause.”

 

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(vi) For the purposes hereof, “Good Reason” means the occurrence of any of the following events or conditions: (i) (A) a change in the Participant’s status, title, position or responsibilities (including reporting responsibilities) which represents an adverse change from the Participant’s status, title, position or responsibilities as in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; (B) the assignment to the Participant of any duties or responsibilities which are inconsistent with the Participant’s status, title, position or responsibilities as in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; or (C) any removal of the Participant from or failure to reappoint or reelect the Participant to any of such offices or positions, except in connection with the termination of the Participant’s employment for Cause, as a result of the Participant’s disability or death or by the Participant other than as a result of a termination for Good Reason; (ii) a reduction in the Participant’s annual base compensation or following (1) written notice and (2) failure to cure the failure within thirty (30) days of receipt of the written notice, any failure to pay the Participant any compensation or benefits to which the Participant is entitled within five (5) days of the date due; (iii) the Company’s requiring the Participant to relocate to any place outside a ten (10) mile radius of the Participant’s current work site, except for reasonably required travel on the business of the Company or its Subsidiaries and affiliates which is not materially greater than such travel requirements prior to the Change in Control; (iv) the failure by the Company to (A) continue in effect (without reduction in benefit level and/or reward opportunities) any material compensation or employee benefit plan in which the Participant was participating at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter, unless such plan is replaced with a plan that provides substantially equivalent compensation or benefits to the Participant, or (B) provide the Participant with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other employee benefit plan, program and practice in which the Participant was participating at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; (v) any material breach by the Company of any provision of an agreement between the Company and the Participant, whether pursuant to this Plan or otherwise, other than a breach which is cured by the Company within fifteen (15) days following written notice by the Participant of such breach; or (vi) the failure of the Company to obtain an agreement from any successors and assigns to assume and agree to perform the obligations created under this Plan.

(c) Determination by the Board. All adjustments described in this Section 9 shall be made by the Board, whose determination shall be conclusive and binding on all persons.

(d) Limitation on Rights of Participants. Except as expressly provided in this Section 9, no Participant shall have any rights by reason of any payment of any stock dividend, stock split, reverse stock split, or any other change in the number of shares of stock of any class, or by reason of any reorganization, consolidation, dissolution, liquidation, merger, exchange, split-up or reverse split-up, or spin-off of assets or stock of another corporation. Any issuance by the Company of Options shall not affect, and no adjustment by reason thereof shall be made with respect to, Options under the Plan.

(e) No Limitation on Rights of Company. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets.

10. Securities Law Requirements.

(a) Legality of Issuance. No Share shall be issued upon the exercise of any Option unless and until the Board has determined that:

(i) The Company and the Participant have taken all actions required to register the Shares under the Securities Act, or to perfect an exemption from registration requirements of the Securities Act, or to determine that the registration requirements of the Securities Act do not apply to such exercise;

(ii) Any applicable listing requirement of any stock exchange on which the Share is listed has been satisfied; and

(iii) Any other applicable provision of state, federal or foreign law has been satisfied.

 

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(b) Restrictions on Transfer; Representations of Participant; Legends. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or has been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law. If the offering and/or sale of Shares under the Plan is not registered under the Securities Act and the Company determines that the registration requirements of the Securities Act apply but an exemption is available which requires an investment representation or other representation, the Participant shall be required, as a condition to acquiring such Shares, to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Securities Act, and to make such other representations as are deemed necessary or appropriate by the Company and its counsel. Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Securities Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION. THE SECURITIES MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

(c) Registration or Qualification of Securities. The Company may, but shall not be obligated to, register or qualify the offering or sale of Shares under the Securities Act or any other applicable law.

(d) Exchange of Certificates. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares issued pursuant to the Plan is no longer required, the Participant or the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but lacking such legend.

(e) Determination of Company Binding. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 10 shall be conclusive and binding on all persons.

11. Limitations on Shares. All Shares issued pursuant to the Plan shall be subject to the terms and conditions of the Company’s Stock Restriction and Repurchase Agreement and the Company shall place legends on stock certificates representing that the Shares are subject to such Stock Restriction and Repurchase Agreement.

12. Exercise of Unvested Options.

(a) Purpose of Section 12. This Section 12 is intended to apply for the benefit of a Participant prior to the time Shares held by the Participant are freely transferable under applicable federal and state securities laws without the Participant holding the Shares for a minimum period of time (e.g., the holding period requirement of Rule 144 adopted by the Securities and Exchange Commission under the Securities Act). More specifically, a Participant with an unvested Option may commence this holding period for the Shares subject to the Option by exercising the unvested Option and receiving Shares of restricted stock which will Vest on the same date as the Option would have Vested. In this way, the Participant is able to begin the holding period for the Shares prior to the date the Option would have Vested.

(b) Exercise of Unvested Options and Issuance of Restricted Stock. The Board, at its discretion, may grant any Participant the right to exercise any Option prior to the Vesting of such Option, provided that the Shares issued upon such exercise shall remain subject to Vesting, as restricted stock, at the same rate as under the Option so exercised and:

 

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(i) Shares issued pursuant to an Option which is Vested or which thereafter become Vested shall be subject to the terms and conditions of the Company’s Stock Restriction and Repurchase Agreement; and

(ii) Shares issued pursuant to an Option which is not Vested on or before the applicable date described in Section 7 for determining the forfeiture or lapsing of the Option pursuant to which such Shares were issued pursuant to this Section 12, shall be forfeited at the Exercise Price paid by the Participant to the Company to acquire such Shares.

13. Amendment of the Plan. The Board may, from time to time, terminate, suspend or discontinue the Plan, in whole or in part, or revise or amend it in any respect whatsoever including, but not limited to, the adoption of any amendment deemed necessary or advisable to qualify the Options under rules and regulations promulgated by the Securities and Exchange Commission with respect to Participants who are subject to the provisions of Section 16 of the Exchange Act, or to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option granted under the Plan, with or without approval of the shareholders of the Company, but if any such action is taken without the approval of the Company’s shareholders, no such revision or amendment shall:

(a) Increase the number of Shares subject to the Plan, other than any increase pursuant to Section 9;

(b) Change the designation of the class of persons eligible to receive Options;

(c) Increase the maximum duration of an Option;

(d) Change the manner of determining the Exercise Price of an Option;

(e) Extend the term of the Plan; or

(f) Amend this Section 13 to defeat its purpose. No amendment, termination or modification of the Plan shall, without the consent of the Participant, affect any Option previously granted.

14. Payment for Share Purchases.

(a) Payment. Payment of the Purchase Price for any Shares purchased pursuant to the Plan may be made in cash (in U.S. dollars) or, where expressly approved for the Participant by the Board, in its sole and absolute discretion, and where permitted by law:

(i) By check;

(ii) By cancellation of indebtedness of the Company to the Participant;

(iii) By surrender of Shares, provided that the Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is exercised and provided that accepting such Shares, in the sole discretion of the Board, shall not result in any adverse accounting consequences to the Company;

(iv) By waiver of compensation due or accrued to Participant for services rendered;

(v) With respect only to purchases upon exercise of an Option, and provided that a public market for the Company’s stock exists (A) through a “same day sale” commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD dealer”) whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company; or (B) through a “margin” commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company;

 

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(vi) In the event that no public market for the Company’s stock exists, by the issuance of Shares equal in value to the excess of (A) the then Fair Market Value of the Shares being purchased over (B) the Purchase Price for the Shares being purchased; or

(vii) By any combination of the foregoing.

(b) Loan Guarantees. The Board may help the Participant pay for Shares purchased under the Plan by authorizing a guarantee by the Company of a third-party loan to the Participant.

15. Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to the exercise of an Option shall be used for general corporate purposes.

16. Privileges of Stock Ownership. No Participant shall have any of the rights of a shareholder with respect to any Shares until the date a stock certificate for such Shares is issued to the Participant. After certificates are issued to the Participant, the Participant shall be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to receive all dividends or other distributions made or paid with respect to such Shares. The preceding sentence notwithstanding, a Participant who, pursuant to Section 12, (i) exercises an unvested Option and receives Shares of restricted stock and (ii) forfeits such Shares by terminating employment prior to the date such Shares Vest shall have no right to retain dividends or distributions received with respect to such Shares and shall return such dividends and distributions to the Company without consideration.

17. Transferability. Options granted under the Plan, and any interest therein, shall not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Option Agreement provisions relating thereto. During the lifetime of the Participant an Option may be exercisable only by the Participant, and any elections with respect to any Option may be made only by the Participant.

18. Withholding of Taxes. Whenever Shares are to be issued under the Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan, payments in satisfaction of Options are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.

19. Rights as an Employee. The Plan shall not be construed to give any individual the right to remain in the employ of the Company or to affect the right of the Company to terminate such individual’s employment at any time, with or without cause. The grant of an Option shall not entitle the Participant to, or disqualify the Participant from, participation in the grant of any other Option under the Plan or participation in any other plan maintained by the Company.

20. Section 409A. To the extent that the Board determines that any Option granted under the Plan is subject to Section 409A of the Code, the Plan and the Option Agreement evidencing such Option shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan and any Option Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date. Notwithstanding any provision of the Plan or an applicable Option Agreement to the contrary, in the event that following the Effective Date the Board determines that any Option may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Board may adopt such amendments to the Plan and any applicable Option Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Board determines are necessary or appropriate to (a) exempt the Option from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Option, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of any penalty taxes under such Section.

 

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21. Non-Uniform Determinations. The Board’s determinations under the Plan (including without limitation determinations of the persons to receive Options, the form, amount and timing of such Options, the terms and provisions of such Options and the Option Agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made by the Board selectively among persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated.

22. Inspection of Records. Copies of the Plan, records reflecting each Participant’s Options and any other documents and records which a Participant is entitled by law to inspect shall be open to inspection by the Participant and his or her duly authorized representative at the office of the Company at any reasonable business hour upon reasonable advance notice from the Participant.

 

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Exhibit 10.9

ALTAIR ENGINEERING INC.

2012 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

INCENTIVE STOCK OPTION AGREEMENT

(AS AMENDED AS OF APRIL 3, 2017)

For the purpose of (a) encouraging and enabling selected management, other employees, and directors of the Company to acquire a proprietary interest in the Common Stock of the Company, (b) attracting, retaining and motivating Participants to attain exceptional levels of performance and (c) providing Participants with an opportunity to participate in the increased value of the Company which their efforts, initiative, and skill have helped produce, the Company, pursuant to the terms and conditions of the Altair Engineering Inc. 2012 Incentive and Non-qualified Stock Option Plan, will award Options to purchase Common Stock to certain Participants.

This Agreement, entered into pursuant to the terms of the Plan, evidences that the Board has designated «FName» «LName» (“Participant”) as a participant under the Plan, has awarded Incentive Stock Options to Participant to purchase «Options» Shares, has designated «DATE» as the Award Date for such Options, has designated the sum of «PRICE» Dollars as the Exercise Price, and, subject to the provisions of this Agreement, has designated the period from «DATE» to «DATE» as the Exercise Period applicable to such Options.

The grant, holding, and exercise of such Incentive Stock Options shall be subject to the terms and conditions of the Plan and the following:

1. Definitions.

(a) “Agreement” means this “Incentive Stock Option Agreement” between the Company and Participant.

(b) “Award” shall mean any grant of Incentive Stock Options made to Participant under the Plan and this Agreement.

(c) “Award Date” means the date designated by the Board as of which Options are awarded to Participant under the Plan.

(d) “Board” shall mean the Board of Directors of the Company.

(e) “Change in Control” shall be deemed to occur upon:

(1) the acquisition (whether by merger, consolidation, share exchange, tender offer or similar form of corporate transaction) (a “Business Combination”) by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”), unless immediately following such Business Combination the holders of more than 50% of the total voting power of the Outstanding Company Voting Securities immediately prior to such Business Combination own more than 50% of the total voting power of (x) the entity resulting from such Business Combination (the “Surviving Company”) or (y) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the members of the board of directors (or the analogous governing body) of the Surviving Company; provided, however, that for purposes of this Plan, the following acquisitions shall not constitute a Change in Control: (I) any acquisition by the Company of its Outstanding Company Voting Securities, (II) any acquisition by any employee benefit plan sponsored or maintained by the Company, (III) any acquisition of Outstanding Company Voting Securities by investment entities affiliated with General Atlantic Partners, LLC or any group of which such investment entities affiliated with General Atlantic Partners, LLC are a member, or (IV) in respect of an Option held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant);

(2) the dissolution or liquidation of the Company; or

 

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(3) the sale, transfer or other disposition of all or substantially all of the assets of the Company.

Consistent with the terms of this Section 2(b), the Board shall have full and final authority to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto.

(f) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder.

(g) “Common Stock” means the Class A common capital stock of the Company.

(h) “Company” shall mean Altair Engineering Inc., a Michigan corporation and any Subsidiary of the Company.

(i) “Employee” shall mean any individual who is employed, within the meaning of Section 3401 of the Code and the regulations promulgated thereunder, by the Company. The Board shall be responsible for determining when an Employee’s period of employment is deemed to be continued during an approved leave of absence.

(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(k) “Exercise Period” means the period of time specified by the Board on the Award Date and set forth in the second paragraph of this Agreement within which a Participant may exercise an Option, which period has been determined by the Board pursuant to the Plan, subject however to the Board’s exercise of its discretion pursuant to the provisions hereof.

(l) “Exercise Price” means the price per Share specified by the Board and set forth in the second paragraph of this Agreement at which the Participant may exercise an Option during the Exercise Period, which price has been determined by the Board pursuant to the Plan.

(m) “Fair Market Value” shall mean the value of each Share determined as of any specified date as follows:

(1) If the Shares are traded on any United States securities exchange, or if the Shares are not traded on any United States securities exchange but are traded on any formal over-the-counter quotation system in general use in the United States, the value per Share shall be the closing price on such exchange or quotation system on the business day immediately preceding such specified date; provided, however, that if no Shares are traded on the business day immediately preceding such specified date, the value per Share shall be the mean between the closing high bid and closing low asked quotations on the business day immediately preceding such specified date; or

(2) If Paragraph (1) does not apply, the value per Share shall be determined by the Board in accordance with Section 4 in good faith and based on uniform principles consistently applied. Such determination shall be conclusive and binding on all persons.

(n) “Incentive Stock Option” or “Option” means a right granted under the Plan and this Agreement to purchase Share(s) at a specified Exercise Price within a specified Exercise Period, which right is intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986, or any successor provision thereto.

(o) “Non-qualified Stock Option” shall mean an Option granted under the Plan and this Agreement which does not qualify as an Incentive Stock Option.

(p) “Participant” shall have the meaning set forth in the second paragraph of this Agreement.

(q) “Plan” shall mean the Altair Engineering Inc. 2012 Incentive and Non-qualified Stock Option Plan.

 

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(r) “Purchase Price” shall mean, at any specified time, the Exercise Price per Share multiplied by the number of Shares being purchased pursuant to the exercise of an Option.

(s) “Securities Act” shall mean the Securities Act of 1933, as amended.

(t) “Share” shall mean one authorized share of Common Stock.

(u) “Subsidiary” shall mean any corporation or other business entity (other than the Company) in an unbroken chain of corporations and/or other business entities beginning with the Company if, at the time of granting an Option, each of the corporations and/or other business entities (other than the last business entity in the unbroken chain) owns stock possessing at least 50% of the total combined voting power of all classes of ownership in one of the other corporations and/or other business entities in such chain.

(v) “Termination of Employment” means the termination of the Participant’s employment with the Company or a Subsidiary, but not the transfer of employment from the Company to a Subsidiary of the Company or vice versa or from one Subsidiary of the Company to another such Subsidiary. If the Board in its sole discretion so determines, employment shall not be considered as terminated for the purposes of Section 2(g) so long as Participant continues to perform services for the Company or a Subsidiary thereof on either a full or part time basis.

(w) “Vest”, “Vesting” or “Vested” shall mean the event or point in time at which an Option becomes exercisable for the first time pursuant to the terms of this Agreement.

(x) “Vested Options” shall mean the Options as to which Participant has become one hundred (100%) percent vested pursuant to the provisions of Section 2(d) of this Agreement.

2. Terms and Conditions of Options.

(a) Person Eligible to Exercise. During Participant’s lifetime, only Participant or, in the event of disability, Participant’s conservator or legal representative may exercise an Option granted under the Plan and such Option shall not be transferable or assignable. After the death of Participant, any Options held by Participant prior to death that continue to be exercisable may be exercised by Participant’s personal representative or by any person empowered to do so by will or by the laws of descent and distribution. The terms of the Plan and this Agreement, as well as the interpretations and decisions of the Board, shall be binding upon any such conservator, legal representative, personal representative, or other person acting on behalf of or in lieu of the Participant.

(b) Manner of Exercise. Subject to the provisions of Paragraphs (c), (d) and (e) hereof, Participant may exercise an Option on any business day of the Company within the Exercise Period by delivery to the Company at the Company’s principal office, either by mail, facsimile, or in person, of a properly completed notice of exercise, on a form approved by the Board, together with full payment of the Purchase Price and the Federal, state and local tax withholding obligation as hereinafter provided for. The date such form is received by the Company shall be the date of exercise. Such form shall specify the Participant, Participant’s Social Security number, the Award Date, the number of Options being exercised, the Exercise Price, the Purchase Price and the manner in which the Participant intends to satisfy any applicable tax withholding obligation. The minimum number of Options that may be exercised at any one time shall be for 100 Shares or, if less, the aggregate number of Shares for which there are outstanding Options then credited to Participant and exercisable. In the event the Option is being exercised pursuant to Paragraph (a) hereof by any person other than Participant, such person shall also submit at the time of exercise satisfactory proof of the right of such person to exercise the Option.

(c) Exercise of Options. Participant may exercise an Option only on or after the date on which the Option Vests, as provided in Subsection (d) below, and only on or before the date on which the Option expires, as provided in Subsection (e) below.

(d) Vesting of Options. A Participant may exercise an Option to purchase Shares only on or after the date the Option has Vested with respect to such Shares.

(i) Subject to the exceptions set forth below, in the event that a Participant experiences a Termination of Employment for any reason, or for no reason, whether voluntarily or involuntarily, prior to

 

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the date which is four (4) years from and after the Award Date, Participant shall not have any Vested rights in the Options.

(ii) Participant shall immediately become 100% Vested in the Options upon the occurrence of any of the following:

(A) the death or Disability of the Participant;

(B) the Participant has not experienced a Termination of Employment prior to the date which is four (4) years from and after the Award Date; or

(C) the sale of all or substantially all of the assets or common capital stock of the Company.

(iii) In the event that a Participant experiences a Termination of Employment for any reason other than death, Disability or the sale of all or substantially all of the assets or common capital stock of the Company, prior to the date which is four (4) years from and after the Award Date, the Participant shall become vested in a portion of the Shares in accordance with the following vesting schedule:

 

Years of Employment after Award Date		Percentage of Shares as to which Participant Becomes 100% Vested
Less than 12 Months		0%
At least 12 Months but less than 24 Months		25%
At least 24 Months but less than 36 Months		50%
At least 36 Months but less than 48 Months		75%
At least 48 Months		100%

(iv) Upon the earlier to occur of (A) the expiration of the Exercise Period and (B) the termination of the Option pursuant to the provisions of Paragraph (e) hereof, any and all Options which are not Vested pursuant to the provisions of this Paragraph (d) shall forthwith be forfeited and surrendered to the Company without consideration, irrespective of the then current fair market value of any such Options.

(e) Term and Lapse of Options. An Option shall terminate immediately upon the first to occur of the following events:

(i) The tenth anniversary of the date that an Incentive Stock Option was granted; provided, however, that in the case of an Incentive Stock Option granted to a Participant owning, actually or constructively under Section 424(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the Company (a “10% Stockholder”), such Option, by its terms, shall be exercisable only within five years from the Award Date.

(ii) The date determined under Section 2(f) for a Participant who ceases to be an Employee by reason of the Participant’s death or total and permanent disability, within the meaning of Section 22(e)(3) of the Code unless the Board at its discretion extends such date before the applicable expiration date (provided, that upon any such extension, in the event that a Participant fails to exercise any Incentive Stock Option on or before the date which is twelve months after the date the Participant ceases to be an Employee, such Incentive Stock Option shall thereupon become a Non-qualified Stock Option);

(iii) The date determined under Section 2(g) for a Participant who ceases to be an Employee for any reason, other than by reason of death or total and permanent disability, unless the Board at its discretion extends such date before the applicable expiration date (provided, that upon any such extension, in the event that a Participant fails to exercise any Incentive Stock Option on or before the date which is three months after the date the Participant ceases to be an Employee, such Incentive Stock Option shall thereupon become a Non-qualified Stock Option); or

(iv) The expiration of the Exercise Period.

 

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(f) Death or Disability of Participant. In the event that Participant experiences a Termination of Employment by reason of the Participant’s death or total and permanent disability (within the meaning of Section 22(e)(3)of the Code), any Option granted to the Participant may be exercised, to the extent it was Vested on the effective date of Participant’s Termination of Employment, at any time within 12 months after the Participant’s death (but not beyond the otherwise applicable term of the Option) by the Participant’s conservator or legal representative, by the executors or administrators of the Participant’s estate or by any person who has acquired the Option directly from the Participant by will or the laws of descent and distribution.

(g) Termination Other than by Death or Disability.

(i) If Participant experiences a Termination of Employment for any reason other than death or total and permanent disability (as defined in Section 2(f)), any unexercised Option (whether Vested or not) shall expire at 12:00 p.m. on the 90th day following the effective date of the Participant’s Termination of Employment with the Company. In addition, the Board may, in its sole and absolute discretion, Vest any non-Vested Options within 30 days following such Termination of Employment.

(ii) For purposes of this Section 2(g), the employment relationship shall be treated as continuing intact while the Participant is an active Employee or is on military leave, sick leave or other bona fide leave of absence, as determined by the Board in its discretion. The preceding sentence notwithstanding, in the case of an Incentive Stock Option, employment shall be deemed to terminate on the date the Participant ceases to be an active Employee unless the Participant’s reemployment rights are guaranteed by statute or contract.

(h) Payment and Issuance. Shares acquired pursuant to the exercise of Options shall be paid for in full at the time of exercise, in cash (in U.S. dollars) as a condition of such exercise, unless the Board, in its sole and absolute discretion allows the Participant to pay the Purchase Price in any manner set forth below, so long as the sum of cash so paid and such other consideration equals the Purchase Price. A certificate for the net amount of Shares attributable to an exercise shall be issued to Participant as soon as practicable following payment of the aggregate Purchase Price and all applicable withholding taxes.

(i) Payment of the Purchase Price for any Shares purchased pursuant to the Plan may be made, where expressly approved for the Participant by the Board, in its sole and absolute discretion, and where permitted by law:

(A) By check;

(B) By cancellation of indebtedness of the Company to the Participant;

(C) By surrender of Shares, provided that the Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is exercised and provided that accepting such Shares, in the sole discretion of the Board, shall not result in any adverse accounting consequences to the Company;

(D) By waiver of compensation due or accrued to Participant for services rendered;

(E) With respect only to purchases upon exercise of an Option, and provided that a public market for the Company’s stock exists (A) through a “same day sale” commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD dealer”) whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company; or (B) through a “margin” commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Purchase Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Purchase Price directly to the Company;

 

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(F) In the event that no public market for the Company’s stock exists, by the issuance of Shares equal in value to the excess of (A) the then Fair Market Value of the Shares being purchased over (B) the Purchase Price for the Shares being purchased; or

(G) By any combination of the foregoing.

(ii) The Board may help the Participant pay for Shares purchased under this Option Agreement by authorizing a guarantee by the Company of a third-party loan to the Participant.

(i) Non-Registration. Regardless of whether the Shares to be issued hereunder upon the exercise of an Option have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law. If the Shares to be issued hereunder upon the exercise of an Option have not been registered under the Securities Act, or a registration is not then currently effective with respect to such Shares, and the Company determines that the registration requirements of the Securities Act apply but an exemption is available which requires an investment representation or other representation, the Participant shall be required, as a condition to acquiring such Shares, to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Securities Act, and to make such other representations as are deemed necessary or appropriate by the Company and its counsel, and that Participant or other person then entitled to exercise such Option will indemnify the Company against and hold it free and harmless from any loss, damages, expense or liability resulting to the Company if any sale or distribution of the Shares by such person is contrary to the representation and agreement referred to above. The Board may take whatever additional actions it reasonably deems appropriate to ensure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other Federal or state securities laws or regulations, including but not limited to Rule 144 promulgated under the Securities Act. Without limiting the generality of the foregoing, the Board may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of Shares acquired on an Option exercise does not violate the Securities Act, and may issue stop-transfer orders covering such Shares.

Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Securities Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”) OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION. THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

(j) Exercise of Unvested Options.

(i) Purpose of Section. This Section is intended to apply for the benefit of Participant prior to the time Shares held by the Participant are freely transferable under applicable federal and state securities laws without the Participant holding the Shares for a minimum period of time (e.g., the holding period requirement of Rule 144 adopted by the Securities and Exchange Commission under the Securities Act). More specifically, if the Participant holds an unvested Option, he or she may commence this holding period for the Shares subject to the Option by exercising the unvested Option and receiving Shares of restricted stock which will Vest on the same date as the Option would have Vested. In this way, the Participant is able to begin the holding period for the Shares prior to the date the Option would have Vested.

 

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(ii) Exercise of Unvested Options and Issuance of Restricted Stock. The Board, at its discretion, may grant Participant the right to exercise any Option prior to the Vesting of such Option, provided that the Shares issued upon such exercise shall remain subject to Vesting, as restricted stock, at the same rate as under the Option so exercised and (A) Shares issued pursuant to an Option which is Vested or which thereafter become Vested shall be subject to the terms and conditions of the Company’s Stock Restriction and Repurchase Agreement – 2012 Incentive and Non-Qualified Stock Option Plan (Key Employee) (the “Stock Restriction and Repurchase Agreement”) and (B) Shares issued pursuant to an Option which is not Vested on or before the applicable date described in Section 2 for determining the forfeiture or lapsing of the Option pursuant to which such Shares were issued pursuant to this Section, shall be forfeited at the Exercise Price paid by the Participant to the Company to acquire such Shares.

3. Limitations on Shares.

(a) Shares Subject to Stock Restriction and Repurchase Agreement. All Shares issued hereunder upon the exercise of an Option shall be subject to the terms and conditions of the Company’s Stock Restriction and Repurchase Agreement and the Company shall place legends on stock certificates representing that the Shares are subject to such Stock Restriction and Repurchase Agreement.

(b) Limitations on Incentive Stock Options. It is the intent of the Board that all options granted hereunder qualify as of the Award Date as Incentive Stock Options. Nevertheless, the aggregate Fair Market Value (determined as of the date of grant) of Shares subject to grant(s) of Incentive Stock Options which will become Vested by Participant during any calendar year (under the Plan or under any other incentive stock option plan of the Company) shall not exceed $100,000. If the Fair Market Value of the Shares described in the preceding sentence exceeds $100,000, the Options for the first $100,000 worth of Shares to become Vested shall be Incentive Stock Options and the Options for the amount in excess of $100,000 that become Vested shall be Non-qualified Stock Options.

(c) Premature Disposition of Shares. The Board may require Participant to give the Company prompt notice of any disposition of Shares acquired by exercise of an Incentive Stock Option if such disposition occurs within 2 years from the Award Date of such Option or 1 year from the date of transfer of such Shares to Participant. Such notice shall specify the date of such disposition or other transfer and the amount realized (whether in cash, other property, assumption of indebtedness or other consideration) by Participant in such transaction. These requirements to give prompt notice of disposition may be referred to in legends contained on the certificates evidencing such Shares.

(d) Lock-Up Period. Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock (or other securities) of the Company held by Participant (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred and eighty (180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).

Participant agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 3(d) shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future.

 

Altair Engineering Inc. – ISO Agreement (Key EE)		7

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The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred and eighty (180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall be bound by this Section 3(d).

4. Administration of Plan. The Board shall administer the Plan and this Agreement in accordance with their provisions and shall have full and final authority in its discretion to (a) interpret the provisions of the Plan and this Agreement and decide all questions of fact arising in their application, and its interpretation and decisions shall be in all respects final, conclusive and binding; and (b) make all other determinations, rules and regulations necessary or advisable for the administration of the Plan and this Agreement. Notwithstanding any provisions of this Agreement to the contrary, the Board shall have the power to permit, in its discretion, an acceleration of any previously determined Option exercise terms or to otherwise amend the terms of an Option, under such circumstances and upon such modified or different terms and conditions as it deems appropriate, subject, however, to the provisions of the Plan. No member of the Board shall be personally liable for any action or determination in respect to the administration of the Plan and this Agreement if made in good faith.

5. Restrictive Covenants. In order to induce the Company to Award the Options hereunder and in consideration therefor:

(a) Covenants Not to Compete or Solicit. The Participant will not directly or indirectly (whether as a principal, agent, independent contractor, employer, employee, investor, partner, shareholder, director or otherwise):

(i) During the Participant’s employment with the Company and for a period of two (2) years after Participant’s Termination of Employment, solicit business or provide products and/or services which are the same as or competitive with that solicited or provided by the Company from any company, enterprise or person which was a customer of the Company at any time during Participant’s employment with the Company;

(ii) During the Participant’s employment with the Company and for a period of two (2) years after Participant’s Termination of Employment, engage in any business or participate, invest or have any interest in, by way of example but without limitation, any person, firm, corporation, sole proprietorship or business, that engages in any business or activity anywhere in the world, which business or activity is the same as, similar to, or competitive with any business or activity now, heretofore or hereafter engaged in by the Company; or

(iii) During the Participant’s employment with the Company and for a period of two (2) years after Participant’s Termination of Employment, induce or attempt to persuade any employee, agent, supplier or customer of the Company to terminate any similar employment, agency, supplier or customer relationship with the Company in order to enter into any such relationship on behalf of any other company, enterprise or person.

Notwithstanding anything contained herein to the contrary, (A) Participant shall not be prohibited from owning any interest in or shares of mutual or similar funds which are nationally recognized and which own equity securities of any corporation, if such securities are publicly traded and listed on any national or regional stock exchange and (B) Participant shall not be prohibited from accepting a position of full-time employment with any such customer of the Company, provided that Participant shall not engage in any activities prohibited hereunder with respect to any other customer(s) of the Company.

(b) Covenant Regarding Confidential Information. The Participant acknowledges and agrees that all records and other information not released to the general public, all trade secrets, unpublished data or other information and all trade secrets and confidential or proprietary information, in each case relating to the services, business and operations of the Company or its subsidiaries and affiliates, whether reduced to writing or not, are confidential and the sole property of the Company and its subsidiaries and affiliates (all of the same being herein collectively called the “Confidential Information”). The Participant will not, at any time during his employment with the Company or thereafter, directly or indirectly, use any of the Confidential Information, except in the regular course of employment with the Company hereunder, or disclose any of the Confidential Information to any other person or entity, except to the extent that the Board may so authorize in writing, and that, upon Participant’s Termination of Employment, he or she will

 

Altair Engineering Inc. – ISO Agreement (Key EE)		8

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surrender to the Company all Confidential Information then in his or her possession or under his or her control. Participant acknowledges and agrees that the Confidential Information and other aspects of the Company’s business have been established and maintained at great expense, and kept and protected as confidential and secret information and are of great value to the Company and provide it with a substantial competitive advantage in conducting said business. Participant further acknowledges and agrees that as a result of his or her knowledge of the Confidential Information, Company would suffer great loss and irreparable injury if Participant were to disclose the Confidential Information or use the Confidential Information to compete with the Company.

(c) Rights and Remedies upon Breach. Participant expressly agrees that in the event of any violation by the Participant of the covenants and restrictions contained in paragraphs (a) and/or (b) hereof, Company and its successors or assigns shall have the following cumulative rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any and all other legal and equitable rights and remedies available to the Company:

(i) Institute proceedings in any court of competent jurisdiction against the Participant, or any other person, organization or entity acting with him, to enjoin and restrain him or her and/or them from a threatened or further and continuing breach of the covenants and restrictions set forth herein. Participant hereby expressly consents that an order, either temporary or permanent, may be entered in any suit, in equity or law, brought for the purposes of enjoining Participant, or any other person, organization or entity acting with him or her, from violating or threatening to violate the covenants and restrictions set forth herein. It is the intent and understanding of each party hereto that if, in any action before any court, agency or tribunal legally empowered to enforce the covenants contained in such paragraphs (a) and (b), any term, restriction, covenant or promise contained therein is found to be invalid, illegal or unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it valid, legal or enforceable by such court, agency or tribunal;

(ii) Require the Participant to account for and pay over to the Company, any amounts paid to Participant hereunder or under the Stock Restriction and Repurchase Agreement which are in excess of the Purchase Price paid by the Participant to the Company pursuant hereto;

(iii) Withhold any and all payments due hereunder or under the Stock Restriction and Repurchase Agreement which are in excess of the Purchase Price paid by the Participant to the Company pursuant hereto; and

(iv) Declare any and all rights of the Participant under this Option Agreement to be immediately terminated and of no further force or effect.

(d) Covenants Reasonable and Necessary. Participant agrees that the terms and conditions of the covenants and restrictions set forth herein are reasonable and necessary for the protection of the Company, Company’s business and the Confidential Information and to prevent damage or loss to Company as a result of actions taken by the Participant. Participant acknowledges and agrees that the Company would suffer great loss and irreparable injury if Participant violates the covenants contained in subparagraphs (a) and/or (b) hereof. The provisions contained in this Section 5 shall survive the termination of this Agreement and the Participant’s Termination of Employment for any reason.

6. Withholding of Taxes. Whenever Shares are to be issued under the Plan or this Agreement, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan or this Agreement, payments in satisfaction of Options are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.

7. Rights as an Employee. Neither the Plan nor this Agreement shall be construed to give any individual the right to remain in the employ of the Company or to continue in any position or at any level of remuneration, or to affect the right of the Company to terminate such individual’s employment at any time, with or without cause. The grant of an Option shall not entitle the Participant to, or disqualify the Participant from, participation in the grant of any other Option under the Plan or participation in any other plan maintained by the Company. In accepting these Options, Participant acknowledges and agrees that

 

Altair Engineering Inc. – ISO Agreement (Key EE)		9

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for labor law purposes outside the United States, (a) Options are an extraordinary item that do not constitute compensation of any kind for services of any kind rendered to the Company and the grant of this Option is outside the scope of Participant’s employment contract, if any; and (b) the grant of Options and the underlying Shares are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, holiday pay, long-service awards, pension or retirement benefits or similar payment and in no event shall be considered as compensation for, or relating in any way to, past services for the Company or any Subsidiary of affiliate of the Company.

8. Non-Alienation of Benefits. Prior to its settlement in the form of Shares, no right or benefit under the Plan and this Agreement shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same whether voluntary, involuntary or by operation of law, shall be void except by will or by the laws of descent and distribution or by such other means as the Board may approve from time to time. No right or benefit under the Plan and this Agreement shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. If Participant should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under the Plan and this Agreement, then such right or benefit shall, in the sole discretion of the Board, cease and terminate, and in such event, the Company may hold or apply the same or any part thereof for the benefit of Participant, the Participant’s spouse, children or other dependents, or any of them, in such manner and in such proportion as the Board may determine. Any restrictions on transferability of the Shares either described above or otherwise provided for in this Agreement may be referred to in legends contained on the certificates evidencing such Shares.

9. Rights of a Shareholder. The recipient of any Award under the Plan and this Agreement, and any person claiming under or through such recipient or under the Plan or this Agreement, shall not be, nor have any of the rights of, a shareholder with respect thereto, nor shall they have any right or interest in any cash or other property, unless and until certificates for Shares are issued to such Participant after compliance with all the terms and conditions of the Plan and this Agreement.

10. Non-Uniform Determinations. The Board’s determinations under the Plan (including without limitation determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made by the Board selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated.

11. Funding of the Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under the Plan or this Agreement, and payment of Awards shall be subordinate to the claims of the Company’s general creditors.

12. Recapitalizations, Takeovers, and Liquidations.

(a) Recapitalizations. Notwithstanding any other provision of the Plan to the contrary, but subject to any required action by the stockholders of the Company, the Board shall make any adjustments to the class and/or number of Shares covered by the Plan, the number of Shares for which each outstanding Option pertains, the Exercise Price of an Option, and/or any other aspect of the Plan to prevent the dilution or enlargement of the rights of Participants under the Plan in connection with any increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company resulting from the payment of a stock dividend, a stock split, a reverse stock split or any other event which results in an increase or decrease in the number of issued and outstanding shares of the common capital stock of the Company effected without receipt of adequate consideration by the Company.

(b) Effect of Change in Control.

(i) Notwithstanding any other provisions of the Plan to the contrary, if (A) a Change in Control occurs and (B) within one (1) month prior to the date of such Change in Control or twelve (12) months after the date of such Change in Control, Participant’s employment with the successor corporation (or parent or Subsidiary of the successor corporation, if applicable) is involuntarily terminated

 

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for any reason other than Cause or voluntarily terminated by the Participant for Good Reason, then the vesting and exercisability of this option shall be accelerated in full.

(ii) In addition, in the event of a Change in Control, the Board may, in its discretion and upon at least 10 days’ advance notice to the Participant, cancel any outstanding Options and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such Options based upon the price per Share received or to be received by other shareholders of the Company as part of the Change in Control transaction.

(iii) In addition, in the event of a Change in Control, the Board may, in its discretion provide that each outstanding Option shall be assumed or an equivalent Option substituted by the successor corporation or a parent or Subsidiary of the successor corporation. For the purposes of this subsection 12(b)(iii), an Option will be considered assumed if, following the Change in Control, the Option confers the right to purchase or receive, for each Share subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the successor corporation or its parent, the Board may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option, for each Share subject to such Option, to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.

(iv) The obligations of the Company under the Plan and this Agreement shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.

(v) For the purposes hereof, “Cause” means the occurrence of any of the following (and only the following): (i) conviction of any felony or any crime involving moral turpitude or dishonesty, (ii) participation in a fraud or act of dishonesty against the Company, (iii) conduct that, based upon a good faith and reasonable factual investigation and determination by the Board, demonstrates Participant’s gross unfitness to serve, or (iv) intentional, material violation of any contract with the Company or any statutory duty to the Company that is not corrected within thirty (30) days after written notice thereof. Death, physical disability and mental disability shall not constitute “Cause.”

(vi) For the purposes hereof, “Good Reason” means the occurrence of any of the following events or conditions: (i) (A) a change in the Participant’s status, title, position or responsibilities (including reporting responsibilities) which represents an adverse change from the Participant’s status, title, position or responsibilities as in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; (B) the assignment to the Participant of any duties or responsibilities which are inconsistent with the Participant’s status, title, position or responsibilities as in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; or (C) any removal of the Participant from or failure to reappoint or reelect the Participant to any of such offices or positions, except in connection with the termination of the Participant’s employment for Cause, as a result of the Participant’s disability or death or by the Participant other than as a result of a termination for Good Reason; (ii) a reduction in the Participant’s annual base compensation or following (1) written notice and (2) failure to cure the failure within thirty (30) days of receipt of the written notice, any failure to pay the Participant any compensation or benefits to which the Participant is entitled within five (5) days of the date due; (iii) the Company’s requiring the Participant to relocate to any place outside a ten (10) mile radius of the Participant’s current work site, except for reasonably required travel on the business of the Company or its Subsidiaries and affiliates which is not materially greater than such travel requirements prior to the Change in Control; (iv) the failure by the Company to (A) continue in effect (without reduction in benefit level and/or reward opportunities) any material compensation or employee benefit plan in which the Participant was participating at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter, unless such plan is replaced with a plan that provides substantially equivalent compensation or benefits to the Participant, or (B) provide the Participant with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other employee benefit plan, program and practice in which the Participant was

 

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participating at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; (v) any material breach by the Company of any provision of an agreement between the Company and the Participant, whether pursuant to this Plan or otherwise, other than a breach which is cured by the Company within fifteen (15) days following written notice by the Participant of such breach; or (vi) the failure of the Company to obtain an agreement from any successors and assigns to assume and agree to perform the obligations created under this Plan.

(c) Determination by the Board. All adjustments described in this Section shall be made by the Board, whose determination shall be conclusive and binding on all persons.

(d) Limitation on Rights of Participants. Except as expressly provided in this Section, the Participant shall not have any rights by reason of any payment of any stock dividend, stock split, reverse stock split, or any other change in the number of shares of stock of any class, or by reason of any reorganization, consolidation, dissolution, liquidation, merger, exchange, split-up or reverse split-up, or spin-off of assets or stock of another corporation. Any issuance by the Company of Options shall not affect, and no adjustment by reason thereof shall be made with respect to, Options under the Plan.

(e) No Limitation on Rights of Company. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets.

13. Personal Data. Participant hereby explicitly and unambiguously consents to the collection, use transfer and retention, in electronic or other form, of Participant’s personal data as described in this Option Agreement between and among, as applicable, the Company, and/or Subsidiaries and affiliates of the Company for the exclusive purpose of implementing, administering, managing and accounting for Participant’s participation in the Plan (“Data”). Participant understands that Data may be transferred to third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in Participant’s country or elsewhere and that the recipient’s country may have different data privacy laws and protections than Participant’s country. Participant may request a list with the names and addresses of any potential recipients of the Data by contacting Participant’s local human resources representative. Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing Participant’s local human resources representative. Participant understands that refusal or withdrawal of consent may affect Participant’s ability to participate in the Plan.

14. Severability. If any provision of the Plan or this Agreement or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person, or Award, and the remainder of the Plan and this Agreement and any such Award shall remain in full force and effect. Each covenant, condition, term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

15. Gender and Number. As the context of any provision may require, nouns and pronouns of any gender and number shall be construed in any other gender and number.

16. Governing Law. This Agreement and the Plan shall be governed by and interpreted under the laws of the State of Michigan and applicable Federal law, irrespective of where this Agreement is made or to be performed, and irrespective of any applicable principles of conflict of laws.

17. Venue. The venue of any dispute, controversy, litigation or proceeding (formal or informal) arising out of or pertaining to the Plan or this Agreement or the subject hereof shall lie exclusively in the County of Oakland, State of Michigan. Provided, however, that if any such dispute, controversy, litigation or proceeding requires or permits jurisdiction in a federal court or agency of the United States, then venue shall lie in no federal court or agency other than those located in (or nearest to) the County of Wayne, State of Michigan. No term or provision of this Section is

 

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intended to establish a priority as between state court or federal court, for instances in which a choice of such venue is available to the parties or litigants. The parties hereto knowingly and expressly waive any rights they may have in existing venue statutes, either state or federal, to the extent that such statutes would require a different venue than otherwise provided for herein.

18. Captions. Captions used herein are inserted for reference purposes only and shall not affect the interpretation or construction of this Agreement.

19. Independent Legal Representation . Participant acknowledges that the parties’ interests hereunder are divergent and conflicting in many material respects. Accordingly, Participant acknowledges being advised to retain independent legal counsel before executing this Agreement. Participant further acknowledges that the Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding participation in the Plan, or acquisition or sale of the underlying Shares. Participant is strongly encouraged to consult with Participant’s own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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20. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes hereof, provided receipt of copies of such counterparts is confirmed.

 

				ALTAIR ENGINEERING INC.
				A Michigan Corporation
Dated:				By:

Participant hereby acknowledges receipt of a copy of the Plan and this Agreement, accepts his or her designation as a Participant under and subject to all the terms and conditions set forth herein and in the Plan, and agrees to all such terms and conditions.

 

Dated:
				«FName» «LName»
				PARTICIPANT

 

Altair Engineering Inc. – ISO Agreement (Key EE)		14

Exhibit 10.10

ALTAIR ENGINEERING INC.

STOCK RESTRICTION AND REPURCHASE AGREEMENT -

2012 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

ARTICLE I

DEFINITIONS; SHARES SUBJECT TO AGREEMENT

Section 1.1 Definitions. As used in this Agreement, the following words and phrases shall have the meanings set forth below, unless the context clearly indicates that a different meaning is intended:

(a) “Code” shall mean the United States Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder.

(b) “Incentive Stock Option Agreement” means an Incentive Stock Option Agreement entered into between the Company and Participant pursuant to the terms of the Plan.

(c) “Legal Representative” shall mean, with reference to any Person, a personal representative, executor, administrator or conservator of the Person’s estate, or a legal guardian or attorney-in-fact of the Person, or a successor trustee of such Person under his or her revocable living trust, or anyone else legally acting as the representative or successor in interest of the Person, as the context of any provision may require.

(d) “Non-qualified Stock Option Agreement” means a Non-qualified Stock Option Agreement entered into between the Company and Participant pursuant to the terms of the Plan.

(e) “Person” shall mean any natural individual or legal entity, or any association of natural individuals or legal entities.

(f) “Plan” shall mean the Altair Engineering Inc. 2012 Incentive and Non-qualified Stock Option Plan.

(g) “Share” or “Shares” shall mean any and all shares of the common capital stock of the Company which are issued to a Participant pursuant to the Plan and an Incentive Stock Option Agreement(s) and/or a Non-qualified Stock Option Agreement(s).

(h) “Subsidiary” shall mean any corporation or other business entity (other than the Company) in an unbroken chain of corporations and/or other business entities beginning with the Company if each of the corporations and/or other business entities (other than the last business entity in the unbroken chain) owns stock possessing at least 50% of the total combined voting power of all classes of ownership in one of the other corporations and/or other business entities in such chain.

(i) “Transfer” shall mean any assignment, transfer, sale, exchange, conveyance, disposition, pledge, hypothecation, attachment, gift, testamentary bequest or other disposition or encumbrance of any nature or description whatsoever, whether occurring voluntarily or involuntarily, directly or indirectly, or by operation or process of law.

(j) “Triggering Event” shall mean an event in which, or circumstances under which, (1) Participant (or his Legal Representative) first becomes obligated to sell or offer for sale his Shares in the Company pursuant to this Agreement or (2) the Company first has the option to purchase the Shares of the Participant in the Company pursuant to this Agreement.

(k) “Vested Shares” shall mean the Shares as to which Participant has become one hundred (100%) percent vested pursuant to the provisions of Section 2.1 of this Agreement.

 

2012 ISO & NSO Plan Stock Restriction Agreement (Key EE)

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Section 1.2 Non-Registration. Regardless of whether the Shares have been registered under the Securities Act of 1933, as amended (the “Securities Act”) or have been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law.

Section 1.3 Restrictive Legends.

(a) The certificates representing the Shares subject to the terms of this Agreement shall bear substantially the following legend:

THE TRANSFER, ASSIGNMENT, SALE, ENCUMBRANCE, PLEDGE OR OTHER DISPOSITION OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE IS RESTRICTED UNDER THE TERMS OF A STOCK RESTRICTION AND REPURCHASE AGREEMENT – 2012 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN (KEY EMPLOYEE) DATED                     , 20        , A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE COMPANY. BY ACCEPTING THIS CERTIFICATE, ANY TRANSFEREE AGREES TO BE BOUND BY THE TERMS OF SUCH AGREEMENT.

(b) Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Securities Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”) OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION. THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

Section 1.4 Endorsement. Participant agrees to tender all stock certificates pertaining to Shares subject to this Agreement held by him to the secretary of the Company for endorsement in the manner set forth in Section 1.3 of this Article.

ARTICLE II

VESTING; TRANSFER AND PURCHASE OF SHARES

Section 2.1 Vesting of Shares. Participants shall be 100% vested in all Shares at all times hereunder. Notwithstanding the foregoing to the contrary, in the event that a Participant acquires Shares by exercising a non-Vested Option pursuant to the terms of an Incentive Stock Option Agreement and/or a Non-qualified Stock Option Agreement, such Shares shall remain subject to the vesting provisions contained in said Incentive Stock Option Agreement and/or Non-qualified Stock Option Agreement, as applicable.

Section 2.2 Lifetime Transfers. While this Agreement is in force, Participant shall not Transfer all or any portion of his Shares, except under the terms of this Agreement. In the event that there is any proposed, attempted or actual Transfer of any or all of Participant’s Vested Shares, then

 

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prior to accomplishment of such Transfer, the Company shall have the right to purchase such Vested Shares in accordance with the terms of this Section.

(a) Participant shall furnish the Company with written notice of the proposed Transfer, which notice shall identify the proposed transferee and fully describe the purchase price and other terms of the offer of sale from such proposed transferee.

(1) The Company shall have the right and option, exercisable by written notice furnished to Participant within sixty (60) days from the date as of which the Company has been furnished with written notice of the proposed Transfer, to acquire all but not less than all of Participant’s Vested Shares upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(2) If the Company timely exercises its option to purchase all of Participant’s Vested Shares as provided above, the purchase and sale of Participant’s Vested Shares shall be completed at a closing to be held within one hundred twenty (120) days from the date as of which the Company has been furnished with the written notice of the proposed Transfer.

(3) If the Company does not exercise its option to purchase all of Participant’s Vested Shares as provided above, then Participant may complete the Transfer for the purchase price and upon such other terms as are set forth in the Participant’s notice of the proposed Transfer; subject however to rights of first refusal on the part of the Company to purchase no less than all of the Participant’s Vested Shares.

(A) The purchase price and terms of any such sale to the Company shall be at the same price and upon the same terms (including timing of a closing) as the Participant deems acceptable in the offer of sale from the third person.

(B) The right of first refusal on the part of the Company shall be exercisable for sixty (60) days from the date as of which the Company has been furnished with written notice of the proposed Transfer.

(C) If a sale of Participant’s Vested Shares is not completed within forty five (45) days after the expiration of the Company’s option to purchase and rights of first refusal provided for herein, then the Transfer may not be consummated without Participant again complying with the terms of this Section 2.2(a) and the provisions and restrictions of this Agreement shall continue to apply to such Shares.

(D) If a sale of Participant’s Vested Shares to the third person is completed, then the provisions and restrictions of this Agreement shall continue to apply to such Shares in the hands of the third person.

(E) If any Transfer subject to this Agreement involves a transaction other than a bona fide sale for a readily ascertainable sale price under fixed terms and conditions, then the rights of first refusal provided herein shall be administered and effectuated through the use of a price, terms and conditions which are fair and just under the circumstances, as reasonably determined by the Company.

(b) The rights and options provided in Subsection (a) above shall not apply with respect to any Transfer to a revocable living trust, to the extent provided in Article V hereof.

(c) The rights and options provided in Subsection (a) above shall terminate and be of no further force or effect upon the earlier to occur of (i) the date on which the Company consummates the sale of all or substantially all of the assets of the Company and/or the Shareholders consummate the sale of all or substantially all of the common capital stock of the Company, or (ii) the date on which

 

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the common capital stock of the Company is first traded on any United States securities exchange or on any formal over-the-counter quotation system in general use in the United States.

Section 2.3 Termination of Employment other than for Cause. In the event that the employment relationship of Participant with the Company is terminated for any reason, whether voluntarily or involuntarily, other than by the Company for “Cause”:

(a) The Company shall have the option to purchase all, but not less than all, of the Participant’s Vested Shares upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof. The Company must exercise this option, if at all, in writing within ninety (90) days after the effective date of Participant’s termination of employment with the Company.

(b) The purchase and sale of the Participant’s Vested Shares shall be completed at a closing to be held within ninety (90) days from the effective date of Participant’s termination of employment with the Company.

(c) In the event that the Company does not timely exercise the right and option provided in Subsection (a) above, the Participant or his Legal Representative shall continue to own the Vested Shares and the provisions and restrictions of this Agreement shall continue to apply to such Vested Shares.

(d) The rights and obligations provided in this Section 2.3 shall terminate and be of no further force or effect upon the earlier to occur of (i) the date on which the Company consummates the sale of all or substantially all of the assets of the Company and/or the Shareholders consummate the sale of all or substantially all of the common capital stock of the Company, or (ii) the date on which the common capital stock of the Company is first traded on any United States securities exchange or on any formal over-the-counter quotation system in general use in the United States.

Section 2.4 Termination of Employment for Cause. In the event that the employment relationship of Participant with the Company is terminated by the Company for “Cause”:

(a) The Company shall have the right and option, exercisable by written notice furnished to Participant within sixty (60) days from the effective date of Participant’s termination, to acquire all but not less than all of Participant’s Vested Shares upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(b) If the Company timely exercises its option to purchase all of Participant’s Vested Shares as provided above, the purchase and sale of Participant’s Vested Shares shall be completed at a closing to be held within one hundred twenty (120) days from the effective date of Participant’s termination.

(c) If the Company does not exercise its option to purchase all of Participant’s Vested Shares as provided above, then Participant or his Legal Representative shall continue to own the Shares and the provisions and restrictions of this Agreement shall continue to apply to such Shares.

(d) For purposes of this Article II, Cause shall be defined as the occurrence of any one or more of the following acts or events: (1) fraud, misappropriation, embezzlement, or other act of material dishonesty against the Company; (2) any act or acts by Participant with respect to Company which constitute a breach of Participant’s fiduciary duties or duties of honesty, good faith and loyalty (including derogatory statements regarding the Company, but excluding statements made in connection with any legal action filed against the Company); (3) any act by Participant which is intentionally damaging to the Company; (4) commission by Participant of a felony or misdemeanor involving moral turpitude; (5) a material breach by Participant of any provision of this Agreement

 

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within his control or failure of Participant to properly and diligently perform his duties as an employee, officer and/or director of the Company, which violation is not remedied within three (3) days after notice from Company specifying such violation; (6) alcohol or drug abuse affecting in any material respect the performance by the Participant of his duties and responsibilities as an employee, officer and/or director of the Company; (7) commission of any other act or acts which substantially impairs the reputation and standing of Company with its customers or the community at large; and (8) any act or circumstance constituting “cause” for termination under applicable statutory or common law.

Section 2.5 Violation of Restrictive Covenants. In the event of any violation by Participant of the covenants and restrictions contained in Article VI hereof, in addition to, and not in lieu of, any and all other legal and equitable rights and remedies available to the Company:

(a) The Company shall purchase from the Participant and the Participant (or his Legal Representative) shall sell and transfer to the Company all Vested Shares owned by Participant upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(b) The purchase and sale of Participant’s Vested Shares shall be completed at a closing to be held within ninety (90) days from and after the date upon which the Company provides written notice to Participant of the violation by Participant of the covenants and restrictions contained in Article VI hereof.

Section 2.6 Purchase of Non-Vested Shares. Upon the occurrence of a Triggering Event, the Company shall purchase from the Participant and the Participant (or his Legal Representative) shall sell and transfer to the Company all non-Vested Shares owned by Participant upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof. The purchase and sale of Participant’s non-Vested Shares shall be completed at the closing of the purchase and sale of the Participant’s Vested Shares, or in default thereof, within ninety (90) days of the occurrence of the Triggering Event.

Section 2.7 Employment Relationship with the Company. Notwithstanding the provisions of this Agreement, Participant understands that his employment relationship with the Company is controlled by such manuals, procedures or directives as are promulgated from time to time by the Company. Nothing in this Agreement shall be interpreted to change the terms of Participant’s employment with the Company to anything other than an “at-will” employment relationship and Participant hereby acknowledges and reaffirms that his employment with the Company may be terminated by the Company at the will of the Company, with or without cause. In accepting the Shares, Participant acknowledges and agrees that for labor law purposes outside the United States, (a) the Shares and the options pursuant to which they were issued are extraordinary items that do not constitute compensation of any kind for services of any kind rendered to the Company and the grant of such options and issuance of the Shares is outside the scope of Participant’s employment contract, if any; and (b) the grant of such options and the underlying Shares are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, holiday pay, long-service awards, pension or retirement benefits or similar payment and in no event shall be considered as compensation for, or relating in any way to, past services for the Company or any Subsidiary of affiliate of the Company;

Section 2.8 Termination of Employment. A termination of the employment relationship of a Participant with the Company shall not include the transfer of employment from the Company to a Subsidiary of the Company or vice versa or from one Subsidiary of the Company to another such Subsidiary.

 

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ARTICLE III

PAYMENT TERMS

Section 3.1 Terms of Payment. The purchase price to be paid by the Company to Participant for all Vested and/or non-Vested Shares purchased by the Company pursuant to the terms of this Agreement shall be paid in full in immediately available United States funds at the closing of the sale of the Vested and/or non-Vested Shares hereunder; provided, however, that there shall be credited against such purchase price (and against such down payment) the amount of any indebtedness then due and payable to the Company by Participant.

ARTICLE IV

PURCHASE PRICE

Section 4.1 Determination of Purchase Price - Lifetime Sale/Termination Other Than For Cause. The purchase price of Participant’s Shares in each of the applicable circumstances shall be as follows:

(a) In the event that the Triggering Event under which the purchase price of Participant’s Vested Shares is to be determined under this Article is a lifetime Transfer pursuant to Section 2.2 hereof, the purchase price shall be the Fair Market Value determined as of the closing date of the purchase and sale of Participant’s Vested Shares as provided for under Section 2.2 hereof. Notwithstanding anything contained in Section 2.2 hereof, the Company may not exercise its right of first refusal and the closing date of the purchase and sale of Participant’s Vested Shares shall not occur until the date which is 6 months and 1 day following the date that Participant acquired the Shares as a result of exercise of the Option (the “Minimum Holding Date”) and, accordingly, the Company’s right of first refusal under Section 2.2 will continue through the Minimum Holding Date, subject to Section 2.2(c).

(b) In the event that the Triggering Event under which the purchase price of Participant’s Vested Shares is to be determined under this Article is the termination of the Participant’s employment with the Company for any reason, whether voluntarily or involuntarily, other than by the Company for “Cause”, the purchase price per share shall the Fair Market Value determined as of the closing date of the purchase and sale of Participant’s Vested Shares as provided for under Section 2.3 hereof; provided, however, that if such closing date would otherwise occur prior to the Minimum Holding Date, then the purchase price per share shall be the Fair Market Value on the Minimum Holding Date and the closing of the purchase and sale Participant’s Vested Shares shall occur effective as of the Minimum Holding Date.

(c) Except as provided in Section 4.2 hereof, no redemption of all, or any portion, of the Participant’s Vested Shares under the Plan or under the terms set forth herein shall occur earlier than the Minimum Holding Date.

(d) For purposes of this Agreement, Fair Market Value shall mean:

(i) The fair market value per Share determined by the Board of Directors of the Company as of the applicable valuation date in accordance with the terms of the Plan or any other stock option plan subsequently adopted by the Company; or

(ii) If Subparagraph (i) does not apply, the fair market value per Share shall be determined by the Board of Directors of the Company as of such valuation date. Such determination shall be made in good faith and shall be consistent with the principles applied with respect to any such determinations of the fair market value of the Shares previously thereto made by the Board of Directors of the Company in accordance with the terms of the Plan, or any other stock option plan subsequently adopted by the Company.

 

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(e) All determinations of Fair Market Value by the Board of Directors pursuant to the terms of this Agreement shall be conclusive and binding on all persons.

Section 4.2 Determination of Purchase Price—Termination for Cause/Non-Vested Shares. In the event that the Triggering Event under which the purchase price of Participant’s Vested Shares is to be determined under this Article is the termination of the Participant’s employment by the Company for “Cause” and/or a violation by Participant of the covenants and restrictions contained in Article VI hereof or where the purchase price of any non-Vested Shares is to be determined under this Article, such purchase price shall be equal to the lesser of (a) the aggregate purchase price paid by Participant for such Shares pursuant to the applicable Incentive Stock Option Agreement(s) and/or Non-qualified Stock Option Agreement(s) and (b) the Fair Market Value of such Shares as of the applicable Valuation Date.

Section 4.3 Company’s Performance. In any situation in which the Company is or may be unable to fulfill any obligation to redeem or pay for any Shares due to the prohibitive provisions of any statute, or due to limitations contained in its articles of incorporation or bylaws, the Company shall use its best efforts to take such action as may be reasonably necessary to enable the Company, if possible, to fulfill such redemption or payment obligation. The actions to be taken shall include, but not be limited to, the reappraisal and revaluation of the total assets, properties and rights of the Company (including accounts receivable and goodwill, if applicable) at their then current fair market value.

ARTICLE V

GENERAL PROVISIONS

Section 5.1 Assignments to Revocable Living Trusts. Notwithstanding any term or provision of this Agreement to the contrary, the assignment of Shares, or any portion thereof, to a revocable living trust of which Participant is (during his lifetime) grantor, trustee or co-trustee and primary beneficiary, shall be subject to the following conditions:

(a) Participant must continue to remain liable for all of his obligations hereunder notwithstanding the assignment to such trust;

(b) All provisions of this Agreement which relate to Participant in his status as an individual shall apply to the Shares so assigned based upon the status of Participant, notwithstanding the assignment to such trust;

(c) The trust shall be completely bound by the terms and provisions of this Agreement, as a shareholder; and

(d) The occurrence of any Triggering Event with respect to such Shares shall be determined (1) by reference to Participant in his capacity as an individual (including but not limited to his death or disability), as well as (2) by reference to events affecting the trust alone (including but not limited to any Transfer of the Shares by such trust).

Section 5.2 Encumbrance. Participant shall not encumber his Shares in any way, and such Shares shall at all times be deemed security for all indebtedness due to the Company or the Company by Participant; such security interest arising as of the date such debt was incurred, and notice thereof is deemed given by the legend referred to in Article I of this Agreement. If no other provision has been made to adjust the applicable purchase price for Participant’s Shares upon the occurrence of a Triggering Event, there shall be credited against such purchase price the amount of any indebtedness then due and payable to the Company by Participant.

ARTICLE VI

RESTRICTIVE COVENANTS

 

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Section 6.1 Covenant Not to Compete/Solicit. Participant will not directly or indirectly (whether as a principal, agent, independent contractor, employer, employee, investor, partner, shareholder, director or otherwise):

(a) During the Participant’s employment with the Company and for a period of two (2) years thereafter, solicit business or provide products and/or services which are the same as or competitive with that solicited or provided by the Company from any company, enterprise or person which was a customer of the Company at any time during Participant’s employment with the Company;

(b) During the Participant’s employment with the Company and for a period of two (2) years thereafter, engage in any business or participate, invest or have any interest in, by way of example but without limitation, any person, firm, corporation, sole proprietorship or business, that engages in any business or activity anywhere in the world, which business or activity is the same as, similar to, or competitive with any business or activity now, heretofore or hereafter engaged in by the Company; or

(c) During the Participant’s employment with the Company and for a period of two (2) years thereafter, induce or attempt to persuade any employee, agent, supplier or customer of the Company to terminate any similar employment, agency, supplier or customer relationship with the Company in order to enter into any such relationship on behalf of any other company, enterprise or person.

Notwithstanding anything contained herein to the contrary, (A) Participant shall not be prohibited from owning any interest in or shares of mutual or similar funds which are nationally recognized and which own equity securities of any corporation, if such securities are publicly traded and listed on any national or regional stock exchange and (B) Participant shall not be prohibited from accepting a position of full-time employment with any such customer of the Company, provided that Participant shall not engage in any activities prohibited hereunder with respect to any other customer(s) of the Company.

Section 6.2 Covenant Regarding Confidential Information. Participant acknowledges and agrees that all records and other information not released to the general public, all trade secrets, unpublished data or other information and all trade secrets and confidential or proprietary information, in each case relating to the services, business and operations of the Company or its subsidiaries and affiliates, whether reduced to writing or not, are confidential and the sole property of the Company and its subsidiaries and affiliates (all of the same being herein collectively called the “Confidential Information”). The Participant will not, at any time during his employment with the Company or thereafter, directly or indirectly, use any of the Confidential Information, except in the regular course of employment with the Company hereunder, or disclose any of the Confidential Information to any other person or entity, except to the extent that the Board may so authorize in writing, and that, upon Participant’s Termination of Employment, he or she will surrender to the Company all Confidential Information then in his or her possession or under his or her control. Participant acknowledges and agrees that the Confidential Information and other aspects of the Company’s business have been established and maintained at great expense, and kept and protected as confidential and secret information and are of great value to the Company and provide it with a substantial competitive advantage in conducting said business. Participant further acknowledges and agrees that as a result of his or her knowledge of the Confidential Information, Company would suffer great loss and irreparable injury if Participant were to disclose the Confidential Information or use the Confidential Information to compete with the Company.

Section 6.3 Rights and Remedies upon Breach. Participant expressly agrees that in the event of any violation by Participant of the covenants and restrictions contained in this Article VI, Company and its successors or assigns shall have the following cumulative rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and all of

 

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which rights and remedies shall be in addition to, and not in lieu of, any and all other legal and equitable rights and remedies available to the Company:

(a)Institute proceedings in any court of competent jurisdiction against the Participant, or any other person, organization or entity acting with him, to enjoin and restrain him or her and/or them from a threatened or further and continuing breach of the covenants and restrictions set forth herein. Participant hereby expressly consents that an order, either temporary or permanent, may be entered in any suit, in equity or law, brought for the purposes of enjoining Participant, or any other person, organization or entity acting with him or her, from violating or threatening to violate the covenants and restrictions set forth herein. It is the intent and understanding of each party hereto that if, in any action before any court, agency or tribunal legally empowered to enforce the covenants contained in such paragraphs (a) and (b), any term, restriction, covenant or promise contained therein is found to be invalid, illegal or unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it valid, legal or enforceable by such court, agency or tribunal;

(b)Require the Participant to account for and pay over to the Company, any amounts paid to Participant hereunder which are in excess of the aggregate purchase price paid by Participant to the Company for the Participant’s Shares pursuant to the applicable Incentive Stock Option Agreement(s) and/or Non-qualified Stock Option Agreement(s);

(c) Withhold any and all payments due hereunder which are in excess of the aggregate purchase price paid by Participant to the Company for the Participant’s Shares pursuant to the applicable Incentive Stock Option Agreement(s) and/or Non-qualified Stock Option Agreement(s); and

(d)Declare any and all rights of the Participant under any Option Agreement to be immediately terminated and of no further force nor effect.

Section 6.4 Covenants & Restrictions Reasonable and Necessary. Participant agrees that the terms and conditions of the covenants and restrictions set forth herein are reasonable and necessary for the protection of the Company, Company’s business and the Confidential Information and to prevent damage or loss to Company as a result of actions taken by the Participant. Participant acknowledges and agrees that the Company would suffer great loss and irreparable injury if Participant violates the covenants contained in this Article VI. The provisions contained in this Article VI shall survive the termination of this Agreement and the Participant’s termination of employment with the Company for any reason.

ARTICLE VII

MISCELLANEOUS PROVISIONS

Section 7.1 Agreement Binding. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, administrators, executors, personal representatives, successor trustees, successors and assigns.

Section 7.2 Waiver of Breach. A waiver by any party of a breach of any provision of this Agreement by any other party shall not operate or be construed (a) as continuing, or (b) as a bar to, or a waiver or release of, any subsequent right, remedy, or recourse as to a subsequent event, or (c) as a waiver of any subsequent breach by that other party.

Section 7.3 Course of Conduct. No course of conduct between the parties hereto, nor any delay in exercising any rights or remedies hereunder or under any communication, report, notice or other document or instrument referred to herein, shall operate as a waiver of any of the rights or remedies of the parties hereto.

 

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Section 7.4 Further Assurances. The parties hereto shall take such further steps and execute such further documents and instruments as may be necessary or appropriate to carry this Agreement into force and effect or to effectuate the intention hereof.

Section 7.5 Entire Agreement. This Agreement contains all the covenants, promises, agreements, conditions, representations and understandings between the parties hereto, and supersedes any prior agreements between the parties hereto, with respect to the subject matter hereof. There are no covenants, promises, agreements, conditions, representations or understandings, either oral or written, between the parties hereto, other than those set forth herein or provided for herein, with respect to the subject matter hereof. Participant hereby acknowledges that he is not relying on any statement, representation, or agreement of the Company as an inducement to enter into this Agreement, except as specifically provided herein and that neither the Company, nor anyone acting on behalf of the Company has made any representation, agreement, guaranty or warranty of any kind whatsoever, express or implied, written or oral, concerning or relating to the subject matter hereof, except as specifically set forth herein.

Section 7.6 Amendment. This Agreement shall not be changed orally, but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

Section 7.7 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Michigan, irrespective of where this Agreement is made or to be performed, and irrespective of any applicable principles of conflict of laws.

Section 7.8 Venue. The venue of any dispute, controversy, litigation or proceeding (formal or informal) arising out of or pertaining to this Agreement or the subject hereof shall lie exclusively in the County of Oakland, State of Michigan. Provided, however, that if any such dispute, controversy, litigation or proceeding requires or permits jurisdiction in a federal court or agency of the United States, then venue shall lie in no federal court or agency other than those located in (or nearest to) the County of Wayne, State of Michigan. No term or provision of this Section is intended to establish a priority as between state court or federal court, for instances in which a choice of such venue is available to the parties or litigants. The parties hereto knowingly and expressly waive any rights they may have in existing venue statutes, either state or federal, to the extent that such statutes would require a different venue than otherwise provided for herein.

Section 7.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes hereof, provided receipt of copies of such counterparts is confirmed.

Section 7.10 Gender and Number. As the context of any provision may require, nouns and pronouns of any gender and number shall be construed in any other gender and number.

Section 7.11 Notices, Statements, Etc. All notices, statements or other communications which are required or contemplated by this Agreement shall be in writing (unless otherwise expressly provided herein) and shall be either personally served at or mailed to the last known mailing address of the person entitled thereto. In addition, a copy of each such notice, statement or communication intended for a party shall be furnished to such single additional addressee for that party as may be specified herein or specified in a like notice. All such notices, statements and other communications (or copies thereof) shall be deemed furnished to the person entitled thereto (a) on the date of service, if personally served at the last known mailing address of such person, or (b) on the date on which mailed, if mailed to such person in accordance with the terms of this Section. For purposes hereof, an item shall be considered mailed if the sender can establish that it was sent by means including, but

 

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not limited to, the following: (i) by United States Postal Service, postage prepaid; (ii) by air courier service (Federal Express or the like); or (iii) by telefax or other means of electronic communication.

Section 7.12 Personal Data. Participant hereby explicitly and unambiguously consents to the collection, use transfer and retention, in electronic or other form, of Participant’s personal data as described in this Agreement between and among, as applicable, the Company, and/or Subsidiaries and affiliates of the Company for the exclusive purpose of implementing, administering, managing and accounting for Participant’s participation in the Plan (“Data”). Participant understands that Data may be transferred to third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in Participant’s country or elsewhere and that the recipient’s country may have different data privacy laws and protections than Participant’s country. Participant may request a list with the names and addresses of any potential recipients of the Data by contacting Participant’s local human resources representative. Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or, under certain circumstances and with certain consequences, refuse or withdraw the consents herein, in any case without cost, by contacting in writing Participant’s local human resources representative.

Section 7.13 Severability. Should any covenant, condition, term or provision of this Agreement be deemed to be illegal, or if the application thereof to any person or in any circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such covenant, condition, term or provision to persons or in circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby; and each covenant, condition, term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

Section 7.14 Captions. Captions used herein are inserted for reference purposes only and shall not affect the interpretation or construction of this Agreement.

Section 7.15 Incorporation by Reference. All schedules, exhibits and other attachments which are affixed to and referred to in this Agreement are incorporated herein and made a part hereof by this reference.

Section 7.16 Survival. The parties acknowledge and agree that this Agreement contains substantial terms and provisions which are intended to govern the rights, duties and obligations of the parties following the closing on any purchase and sale of any Shares. Accordingly, this Agreement shall survive and shall not be deemed merged into, the execution or delivery of any documents, property, or payments pursuant to the terms hereof; and this Agreement shall remain in full force and effect following the closing on any such purchase and sale.

Section 7.17 Construction. Each party has participated fully in the negotiation and preparation of this Agreement with full benefit or availability of counsel. Accordingly, this Agreement shall not be more strictly construed against either party.

Section 7.18 Independent Legal Representation. Participant acknowledges that the parties’ interests hereunder are divergent and conflicting in many material respects. Accordingly, Participant acknowledges being advised to retain independent legal counsel before executing this Agreement. Participant further acknowledges that the Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding participation in the Plan, or acquisition or sale of the underlying Shares. Participant is strongly encouraged to consult with Participant’s own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan.

Section 7.19 Equitable Relief. The parties acknowledge that the stock in the Company which is the subject of this Agreement is unique and that the failure of any party to perform or fulfill

 

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such party’s obligations hereunder may result in irreparable harm to the other parties. Accordingly, the parties agree that specific performance of the terms hereof and/or other equitable relief may be obtained through a court of competent jurisdiction.

 

				ALTAIR ENGINEERING INC.
				A Michigan Corporation
Dated:                                     , 20		By:
				Its:

Participant hereby acknowledges receipt of a copy of this Agreement, accepts his or her designation as a Participant under and subject to all the terms and conditions set forth herein, and agrees to all such terms and conditions.

 

Dated:                                     , 20
				[Signature of Participant]
				[Print Participant’s Name]

 

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Exhibit 10.11

ALTAIR ENGINEERING INC.

STOCK RESTRICTION AND REPURCHASE AGREEMENT -

2012 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN (DIRECTORS)

ARTICLE I

DEFINITIONS; SHARES SUBJECT TO AGREEMENT

Section 1.1 Definitions. As used in this Agreement, the following words and phrases shall have the meanings set forth below, unless the context clearly indicates that a different meaning is intended:

(a) “Code” shall mean the United States Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder.

(b) “Incentive Stock Option Agreement” means an Incentive Stock Option Agreement entered into between the Company and Participant pursuant to the terms of the Plan.

(c) “Legal Representative” shall mean, with reference to any Person, a personal representative, executor, administrator or conservator of the Person’s estate, or a legal guardian or attorney-in-fact of the Person, or a successor trustee of such Person under his or her revocable living trust, or anyone else legally acting as the representative or successor in interest of the Person, as the context of any provision may require.

(d) “Non-qualified Stock Option Agreement” means a Non-qualified Stock Option Agreement entered into between the Company and Participant pursuant to the terms of the Plan.

(e) “Person” shall mean any natural individual or legal entity, or any association of natural individuals or legal entities.

(f) “Plan” shall mean the Altair Engineering Inc. 2012 Incentive and Non-qualified Stock Option Plan.

(g) “Share” or “Shares” shall mean any and all shares of the common capital stock of the Company which are issued to a Participant pursuant to the Plan and an Incentive Stock Option Agreement(s) and/or a Non-qualified Stock Option Agreement(s).

(h) “Subsidiary” shall mean any corporation or other business entity (other than the Company) in an unbroken chain of corporations and/or other business entities beginning with the Company if each of the corporations and/or other business entities (other than the last business entity in the unbroken chain) owns stock possessing at least 50% of the total combined voting power of all classes of ownership in one of the other corporations and/or other business entities in such chain.

(i) “Transfer” shall mean any assignment, transfer, sale, exchange, conveyance, disposition, pledge, hypothecation, attachment, gift, testamentary bequest or other disposition or encumbrance of any nature or description whatsoever, whether occurring voluntarily or involuntarily, directly or indirectly, or by operation or process of law.

(j) “Triggering Event” shall mean an event in which, or circumstances under which, (1) Participant (or his Legal Representative) first becomes obligated to sell or offer for sale his Shares in the Company pursuant to this Agreement or (2) the Company first has the option to purchase the Shares of the Participant in the Company pursuant to this Agreement.

(k) “Vested Shares” shall mean the Shares as to which Participant has become one hundred (100%) percent vested pursuant to the provisions of Section 2.1 of this Agreement.

 

2012 ISO & NSO Plan Stock Restriction Agreement (Directors)

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Section 1.2 Non-Registration. Regardless of whether the Shares have been registered under the Securities Act of 1933, as amended (the “Securities Act”) or have been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law.

Section 1.3 Restrictive Legends.

(a) The certificates representing the Shares subject to the terms of this Agreement shall bear substantially the following legend:

THE TRANSFER, ASSIGNMENT, SALE, ENCUMBRANCE, PLEDGE OR OTHER DISPOSITION OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE IS RESTRICTED UNDER THE TERMS OF A STOCK RESTRICTION AND REPURCHASE AGREEMENT – 2012 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN (DIRECTORS) DATED                     , 20         , A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE COMPANY. BY ACCEPTING THIS CERTIFICATE, ANY TRANSFEREE AGREES TO BE BOUND BY THE TERMS OF SUCH AGREEMENT.

(b) Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Securities Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“ACT”) OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION. THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

Section 1.4 Endorsement. Participant agrees to tender all stock certificates pertaining to Shares subject to this Agreement held by him to the secretary of the Company for endorsement in the manner set forth in Section 1.3 of this Article.

ARTICLE II

VESTING; TRANSFER AND PURCHASE OF SHARES

Section 2.1 Vesting of Shares. Participants shall be 100% vested in all Shares at all times hereunder. Notwithstanding the foregoing to the contrary, in the event that a Participant acquires Shares by exercising a non-Vested Option pursuant to the terms of an Incentive Stock Option Agreement and/or a Non-qualified Stock Option Agreement, such Shares shall remain subject to the vesting provisions contained in said Incentive Stock Option Agreement and/or Non-qualified Stock Option Agreement, as applicable.

Section 2.2 Lifetime Transfers. While this Agreement is in force, Participant shall not Transfer all or any portion of his Shares, except under the terms of this Agreement. In the event that there is any proposed, attempted or actual Transfer of any or all of Participant’s Vested Shares, then

 

2012 ISO & NSO Plan Stock Restriction Agreement (Directors)		2

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prior to accomplishment of such Transfer, the Company shall have the right to purchase such Vested Shares in accordance with the terms of this Section.

(a) Participant shall furnish the Company with written notice of the proposed Transfer, which notice shall identify the proposed transferee and fully describe the purchase price and other terms of the offer of sale from such proposed transferee.

(1) The Company shall have the right and option, exercisable by written notice furnished to Participant within sixty (60) days from the date as of which the Company has been furnished with written notice of the proposed Transfer, to acquire all but not less than all of Participant’s Vested Shares upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(2) If the Company timely exercises its option to purchase all of Participant’s Vested Shares as provided above, the purchase and sale of Participant’s Vested Shares shall be completed at a closing to be held within one hundred twenty (120) days from the date as of which the Company has been furnished with the written notice of the proposed Transfer.

(3) If the Company does not exercise its option to purchase all of Participant’s Vested Shares as provided above, then Participant may complete the Transfer for the purchase price and upon such other terms as are set forth in the Participant’s notice of the proposed Transfer; subject however to rights of first refusal on the part of the Company to purchase no less than all of the Participant’s Vested Shares.

(A) The purchase price and terms of any such sale to the Company shall be at the same price and upon the same terms (including timing of a closing) as the Participant deems acceptable in the offer of sale from the third person.

(B) The right of first refusal on the part of the Company shall be exercisable for sixty (60) days from the date as of which the Company has been furnished with written notice of the proposed Transfer.

(C) If a sale of Participant’s Vested Shares is not completed within forty five (45) days after the expiration of the Company’s option to purchase and rights of first refusal provided for herein, then the Transfer may not be consummated without Participant again complying with the terms of this Section 2.2(a) and the provisions and restrictions of this Agreement shall continue to apply to such Shares.

(D) If a sale of Participant’s Vested Shares to the third person is completed, then the provisions and restrictions of this Agreement shall continue to apply to such Shares in the hands of the third person.

(E) If any Transfer subject to this Agreement involves a transaction other than a bona fide sale for a readily ascertainable sale price under fixed terms and conditions, then the rights of first refusal provided herein shall be administered and effectuated through the use of a price, terms and conditions which are fair and just under the circumstances, as reasonably determined by the Company.

(b) The rights and options provided in Subsection (a) above shall not apply with respect to any Transfer to a revocable living trust, to the extent provided in Article V hereof.

(c) The rights and options provided in Subsection (a) above shall terminate and be of no further force or effect upon the earlier to occur of (i) the date on which the Company consummates the sale of all or substantially all of the assets of the Company and/or the Shareholders consummate the sale of all or substantially all of the common capital stock of the Company, or (ii) the date on which

 

2012 ISO & NSO Plan Stock Restriction Agreement (Directors)		3

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the common capital stock of the Company is first traded on any United States securities exchange or on any formal over-the-counter quotation system in general use in the United States.

Section 2.3 Termination of Service other than for Cause. In the event that the Participant’s services as a member of the Board of Directors of the Company is terminated for any reason, whether voluntarily or involuntarily, other than by the Company for “Cause,” the Participant or his Legal Representative shall continue to own the Shares and the provisions and restrictions of this Agreement shall continue to apply to such Shares.

Section 2.4 Termination of Service for Cause. In the event that the Participant’s services as a member of the Board of Directors of the Company is terminated by the Company for “Cause”:

(a) The Company shall have the right and option, exercisable by written notice furnished to Participant within sixty (60) days from the effective date of Participant’s termination, to acquire all but not less than all of Participant’s Vested Shares upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof.

(b) If the Company timely exercises its option to purchase all of Participant’s Vested Shares as provided above, the purchase and sale of Participant’s Vested Shares shall be completed at a closing to be held within one hundred twenty (120) days from the effective date of Participant’s termination.

(c) If the Company does not exercise its option to purchase all of Participant’s Vested Shares as provided above, then Participant or his Legal Representative shall continue to own the Shares and the provisions and restrictions of this Agreement shall continue to apply to such Shares.

(d) For purposes of this Article II, Cause shall be defined as the occurrence of any one or more of the following acts or events: (1) fraud, misappropriation, embezzlement, or other act of material dishonesty against the Company; (2) any act or acts by Participant with respect to Company which constitute a breach of Participant’s fiduciary duties or duties of honesty, good faith and loyalty (including derogatory statements regarding the Company, but excluding statements made in connection with any legal action filed against the Company); (3) any act by Participant which is intentionally damaging to the Company; (4) commission by Participant of a felony or misdemeanor involving moral turpitude; (5) a material breach by Participant of any provision of this Agreement within his control or failure of Participant to properly and diligently perform his duties as a Director of the Company, which violation is not remedied within three (3) days after notice from Company specifying such violation; (6) any violation by Participant of the covenants contained in Article VI of this Agreement; (7) alcohol or drug abuse affecting in any material respect the performance by the Participant of his duties and responsibilities as a Director of the Company; and (8) commission of any other act or acts which substantially impairs the reputation and standing of Company with its customers or the community at large.

Section 2.5 Purchase of Non-Vested Shares. Upon the occurrence of a Triggering Event, the Company shall purchase from the Participant and the Participant (or his Legal Representative) shall sell and transfer to the Company all non-Vested Shares owned by Participant upon the terms set forth in Article III hereof at the purchase price determined pursuant to Article IV hereof. The purchase and sale of Participant’s non-Vested Shares shall be completed at the closing of the purchase and sale of the Participant’s Vested Shares, or in default thereof, within ninety (90) days of the occurrence of the Triggering Event.

Section 2.6 Relationship with the Company. Neither the Plan nor this Agreement shall be construed to give Participant the right to remain in the employ or service of the Company or to continue in any position or at any level of remuneration, or to affect the right of the Company and/or the Board to terminate such individual’s employment or services at any time, with or without cause.

 

2012 ISO & NSO Plan Stock Restriction Agreement (Directors)		4

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Participant acknowledges that he has agreed to serve as a director of the Company in accordance with the provisions of the Company’s Articles of Incorporation, Bylaws and applicable law.

ARTICLE III

PAYMENT TERMS

Section 3.1 Terms of Payment. The purchase price to be paid by the Company to Participant for all Vested and/or non-Vested Shares purchased by the Company pursuant to the terms of this Agreement shall be paid in full in immediately available United States funds at the closing of the sale of the Vested and/or non-Vested Shares hereunder; provided, however, that there shall be credited against such purchase price (and against such down payment) the amount of any indebtedness then due and payable to the Company by Participant.

ARTICLE IV

PURCHASE PRICE

Section 4.1 Determination of Purchase Price—Lifetime Sale.

(a) In the event that the Triggering Event under which the purchase price of Participant’s Vested Shares is to be determined under this Article is a lifetime Transfer pursuant to Section 2.2 hereof, the purchase price shall be the Fair Market Value determined as of the closing date of the purchase and sale of Participant’s Vested Shares as provided for under Section 2.2 hereof. Notwithstanding anything contained in Section 2.2 hereof, the Company may not exercise its right of first refusal and the closing date of the purchase and sale of Participant’s Vested Shares shall not occur until the date which is 6 months and 1 day following the date that Participant acquired the Shares as a result of exercise of the Option (the “Minimum Holding Date”) and, accordingly, the Company’s right of first refusal under Section 2.2 will continue through the Minimum Holding Date, subject to Section 2.2(c).

(b) Except as provided in Section 4.2 hereof, no redemption of all, or any portion, of the Participant’s Vested Shares under the Plan or under the terms set forth herein shall occur earlier than the Minimum Holding Date.

(c) For purposes of this Agreement, Fair Market Value shall mean:

(i) The fair market value per Share determined by the Board of Directors of the Company as of the applicable valuation date in accordance with the terms of the Plan or any other stock option plan subsequently adopted by the Company; or

(ii) If Subparagraph (i) does not apply, the fair market value per Share shall be determined by the Board of Directors of the Company as of such valuation date. Such determination shall be made in good faith and shall be consistent with the principles applied with respect to any such determinations of the fair market value of the Shares previously thereto made by the Board of Directors of the Company in accordance with the terms of the Plan, or any other stock option plan subsequently adopted by the Company.

(d) All determinations of Fair Market Value by the Board of Directors pursuant to the terms of this Agreement shall be conclusive and binding on all persons.

Section 4.2 Determination of Purchase Price—Termination for Cause/Non-Vested Shares. In the event that the Triggering Event under which the purchase price of Participant’s Vested Shares is to be determined under this Article is the termination of the Participant’s services by the Company for “Cause” or where the purchase price of any non-Vested Shares is to be determined under this Article, such purchase price shall be equal to the lesser of (a) the aggregate purchase price paid by Participant for such Shares pursuant to the applicable Incentive Stock Option Agreement(s) and/or Non-qualified Stock Option Agreement(s)

 

2012 ISO & NSO Plan Stock Restriction Agreement (Directors)		5

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and (b) the Fair Market Value of such Shares as of the applicable Valuation Date.

Section 4.3 Company’s Performance. In any situation in which the Company is or may be unable to fulfill any obligation to redeem or pay for any Shares due to the prohibitive provisions of any statute, or due to limitations contained in its articles of incorporation or bylaws, the Company shall use its best efforts to take such action as may be reasonably necessary to enable the Company, if possible, to fulfill such redemption or payment obligation. The actions to be taken shall include, but not be limited to, the reappraisal and revaluation of the total assets, properties and rights of the Company (including accounts receivable and goodwill, if applicable) at their then current fair market value.

ARTICLE V

GENERAL PROVISIONS

Section 5.1 Assignments to Revocable Living Trusts. Notwithstanding any term or provision of this Agreement to the contrary, the assignment of Shares, or any portion thereof, to a revocable living trust of which Participant is (during his lifetime) grantor, trustee or co-trustee and primary beneficiary, shall be subject to the following conditions:

(a) Participant must continue to remain liable for all of his obligations hereunder notwithstanding the assignment to such trust;

(b) All provisions of this Agreement which relate to Participant in his status as an individual shall apply to the Shares so assigned based upon the status of Participant, notwithstanding the assignment to such trust;

(c) The trust shall be completely bound by the terms and provisions of this Agreement, as a shareholder; and

(d) The occurrence of any Triggering Event with respect to such Shares shall be determined (1) by reference to Participant in his capacity as an individual (including but not limited to his death or disability), as well as (2) by reference to events affecting the trust alone (including but not limited to any Transfer of the Shares by such trust).

Section 5.2 Encumbrance. Participant shall not encumber his Shares in any way, and such Shares shall at all times be deemed security for all indebtedness due to the Company or the Company by Participant; such security interest arising as of the date such debt was incurred, and notice thereof is deemed given by the legend referred to in Article I of this Agreement. If no other provision has been made to adjust the applicable purchase price for Participant’s Shares upon the occurrence of a Triggering Event, there shall be credited against such purchase price the amount of any indebtedness then due and payable to the Company by Participant.

ARTICLE VI

RESTRICTIVE COVENANTS

Section 6.1 Covenant Regarding Confidential Information. Participant acknowledges and agrees that all records and other information not released to the general public, all trade secrets, unpublished data or other information and all trade secrets and confidential or proprietary information, in each case relating to the services, business and operations of the Company or its subsidiaries and affiliates, whether reduced to writing or not, are confidential and the sole property of the Company and its subsidiaries and affiliates (all of the same being herein collectively called the “Confidential Information”). The Participant will not, at any time during his service as a member of the Board or thereafter, directly or indirectly, use any of the Confidential Information, except in the regular course of his service as a member of the Board, or disclose any of the Confidential Information to any other person or entity, except to the extent that the Board may so authorize in writing, and that, upon

 

2012 ISO & NSO Plan Stock Restriction Agreement (Directors)		6

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Participant’s Termination of Service, he or she will surrender to the Company all Confidential Information then in his or her possession or under his or her control. Participant acknowledges and agrees that the Confidential Information and other aspects of the Company’s business have been established and maintained at great expense, and kept and protected as confidential and secret information and are of great value to the Company and provide it with a substantial competitive advantage in conducting said business. Participant further acknowledges and agrees that as a result of his or her knowledge of the Confidential Information, Company would suffer great loss and irreparable injury if Participant were to disclose the Confidential Information or use the Confidential Information to compete with the Company.

Section 6.2 Rights and Remedies upon Breach. Participant expressly agrees that in the event of any violation by Participant of the covenants and restrictions contained in this Article VI, Company and its successors or assigns shall have the following cumulative rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any and all other legal and equitable rights and remedies available to the Company:

(a) Institute proceedings in any court of competent jurisdiction against the Participant, or any other person, organization or entity acting with him, to enjoin and restrain him or her and/or them from a threatened or further and continuing breach of the covenants and restrictions set forth herein. Participant hereby expressly consents that an order, either temporary or permanent, may be entered in any suit, in equity or law, brought for the purposes of enjoining Participant, or any other person, organization or entity acting with him or her, from violating or threatening to violate the covenants and restrictions set forth herein. It is the intent and understanding of each party hereto that if, in any action before any court, agency or tribunal legally empowered to enforce the covenants contained in subparagraph (a), any term, restriction, covenant or promise contained therein is found to be invalid, illegal or unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it valid, legal or enforceable by such court, agency or tribunal. The covenants contained in subparagraph (a) shall survive termination of this Agreement and the Participant’s Termination of Service for any reason;

(b)Require the Participant to account for and pay over to the Company, any amounts paid to Participant hereunder which are in excess of the aggregate purchase price paid by Participant to the Company for the Participant’s Shares pursuant to the applicable Option Agreement(s);

(c) Withhold any and all payments due hereunder which are in excess of the aggregate purchase price paid by Participant to the Company for the Participant’s Shares pursuant to the applicable Option Agreement(s); and

(d)Declare any and all rights of the Participant under any Option Agreement to be immediately terminated and of no further force nor effect.

Section 6.3 Covenants & Restrictions Reasonable and Necessary. Participant agrees that the terms and conditions of the covenants and restrictions set forth herein are reasonable and necessary for the protection of the Company, Company’s business and the Confidential Information and to prevent damage or loss to Company as a result of actions taken by the Participant. Participant acknowledges and agrees that the Company would suffer great loss and irreparable injury if Participant violates the covenants contained in this Article VI. The provisions contained in this Article VI shall survive the termination of this Agreement and the Participant’s Termination of Service with the Company for any reason.

 

2012 ISO & NSO Plan Stock Restriction Agreement (Directors)		7

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ARTICLE VII

MISCELLANEOUS PROVISIONS

Section 7.1 Agreement Binding. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, administrators, executors, personal representatives, successor trustees, successors and assigns.

Section 7.2 Waiver of Breach. A waiver by any party of a breach of any provision of this Agreement by any other party shall not operate or be construed (a) as continuing, or (b) as a bar to, or a waiver or release of, any subsequent right, remedy, or recourse as to a subsequent event, or (c) as a waiver of any subsequent breach by that other party.

Section 7.3 Course of Conduct. No course of conduct between the parties hereto, nor any delay in exercising any rights or remedies hereunder or under any communication, report, notice or other document or instrument referred to herein, shall operate as a waiver of any of the rights or remedies of the parties hereto.

Section 7.4 Further Assurances. The parties hereto shall take such further steps and execute such further documents and instruments as may be necessary or appropriate to carry this Agreement into force and effect or to effectuate the intention hereof.

Section 7.5 Entire Agreement. This Agreement contains all the covenants, promises, agreements, conditions, representations and understandings between the parties hereto, and supersedes any prior agreements between the parties hereto, with respect to the subject matter hereof. There are no covenants, promises, agreements, conditions, representations or understandings, either oral or written, between the parties hereto, other than those set forth herein or provided for herein, with respect to the subject matter hereof. Participant hereby acknowledges that he is not relying on any statement, representation, or agreement of the Company as an inducement to enter into this Agreement, except as specifically provided herein and that neither the Company, nor anyone acting on behalf of the Company has made any representation, agreement, guaranty or warranty of any kind whatsoever, express or implied, written or oral, concerning or relating to the subject matter hereof, except as specifically set forth herein.

Section 7.6 Amendment. This Agreement shall not be changed orally, but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

Section 7.7 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Michigan, irrespective of where this Agreement is made or to be performed, and irrespective of any applicable principles of conflict of laws.

Section 7.8 Venue. The venue of any dispute, controversy, litigation or proceeding (formal or informal) arising out of or pertaining to this Agreement or the subject hereof shall lie exclusively in the County of Oakland, State of Michigan. Provided, however, that if any such dispute, controversy, litigation or proceeding requires or permits jurisdiction in a federal court or agency of the United States, then venue shall lie in no federal court or agency other than those located in (or nearest to) the County of Wayne, State of Michigan. No term or provision of this Section is intended to establish a priority as between state court or federal court, for instances in which a choice of such venue is available to the parties or litigants. The parties hereto knowingly and expressly waive any rights they may have in existing venue statutes, either state or federal, to the extent that such statutes would require a different venue than otherwise provided for herein.

Section 7.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same

 

2012 ISO & NSO Plan Stock Restriction Agreement (Directors)		8

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agreement. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes hereof, provided receipt of copies of such counterparts is confirmed.

Section 7.10 Gender and Number. As the context of any provision may require, nouns and pronouns of any gender and number shall be construed in any other gender and number.

Section 7.11 Notices, Statements, Etc. All notices, statements or other communications which are required or contemplated by this Agreement shall be in writing (unless otherwise expressly provided herein) and shall be either personally served at or mailed to the last known mailing address of the person entitled thereto. In addition, a copy of each such notice, statement or communication intended for a party shall be furnished to such single additional addressee for that party as may be specified herein or specified in a like notice. All such notices, statements and other communications (or copies thereof) shall be deemed furnished to the person entitled thereto (a) on the date of service, if personally served at the last known mailing address of such person, or (b) on the date on which mailed, if mailed to such person in accordance with the terms of this Section. For purposes hereof, an item shall be considered mailed if the sender can establish that it was sent by means including, but not limited to, the following: (i) by United States Postal Service, postage prepaid; (ii) by air courier service (Federal Express or the like); or (iii) by telefax or other means of electronic communication.

Section 7.12 Personal Data. Participant hereby explicitly and unambiguously consents to the collection, use transfer and retention, in electronic or other form, of Participant’s personal data as described in this Agreement between and among, as applicable, the Company, and/or Subsidiaries and affiliates of the Company for the exclusive purpose of implementing, administering, managing and accounting for Participant’s participation in the Plan (“Data”). Participant understands that Data may be transferred to third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in Participant’s country or elsewhere and that the recipient’s country may have different data privacy laws and protections than Participant’s country. Participant may request a list with the names and addresses of any potential recipients of the Data by contacting Participant’s local human resources representative. Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or, under certain circumstances and with certain consequences, refuse or withdraw the consents herein, in any case without cost, by contacting in writing Participant’s local human resources representative.

Section 7.13 Severability. Should any covenant, condition, term or provision of this Agreement be deemed to be illegal, or if the application thereof to any person or in any circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such covenant, condition, term or provision to persons or in circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby; and each covenant, condition, term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

Section 7.14 Captions. Captions used herein are inserted for reference purposes only and shall not affect the interpretation or construction of this Agreement.

Section 7.15 Incorporation by Reference. All schedules, exhibits and other attachments which are affixed to and referred to in this Agreement are incorporated herein and made a part hereof by this reference.

Section 7.16 Survival. The parties acknowledge and agree that this Agreement contains substantial terms and provisions which are intended to govern the rights, duties and obligations of the parties following the closing on any purchase and sale of any Shares. Accordingly, this Agreement shall survive and shall not be deemed merged into, the execution or delivery of any documents,

 

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property, or payments pursuant to the terms hereof; and this Agreement shall remain in full force and effect following the closing on any such purchase and sale.

Section 7.17 Construction. Each party has participated fully in the negotiation and preparation of this Agreement with full benefit or availability of counsel. Accordingly, this Agreement shall not be more strictly construed against either party.

Section 7.18 Independent Legal Representation. Participant acknowledges that the parties’ interests hereunder are divergent and conflicting in many material respects. Accordingly, Participant acknowledges being advised to retain independent legal counsel before executing this Agreement. Participant further acknowledges that the Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding participation in the Plan, or acquisition or sale of the underlying Shares. Participant is strongly encouraged to consult with Participant’s own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan.

Section 7.19 Equitable Relief. The parties acknowledge that the stock in the Company which is the subject of this Agreement is unique and that the failure of any party to perform or fulfill such party’s obligations hereunder may result in irreparable harm to the other parties. Accordingly, the parties agree that specific performance of the terms hereof and/or other equitable relief may be obtained through a court of competent jurisdiction.

 

				ALTAIR ENGINEERING INC. A Michigan Corporation
Dated:                             , 20				By:
						Its:

Participant hereby acknowledges receipt of a copy of this Agreement, accepts his or her designation as a Participant under and subject to all the terms and conditions set forth herein, and agrees to all such terms and conditions.

 

Dated:                             , 20
		[Signature of Participant]
		[Print Participant’s Name]

 

2012 ISO & NSO Plan Stock Restriction Agreement (Directors)		10

Exhibit 10.14

Execution Copy

 

 

 

 

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

dated as of

June 14, 2017

among

ALTAIR ENGINEERING, INC.,

THE FOREIGN SUBSIDIARY BORROWERS,

The Lenders party hereto,

and

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

 

 

JPMORGAN CHASE BANK, N.A.,

as Sole Bookrunner and Sole Lead Arranger

 

 

 

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TABLE OF CONTENTS

 

				Page
ARTICLE I Definitions
SECTION 1.01.		Defined Terms		1
SECTION 1.02.		Classification of Loans and Borrowings		26
SECTION 1.03.		Terms Generally		26
SECTION 1.04.		Accounting Terms; GAAP; Proforma Financial Covenant Calculation		26
ARTICLE II The Credits
SECTION 2.01.		Commitments and Loans		27
SECTION 2.02.		Loans and Borrowings		27
SECTION 2.03.		Requests for Borrowings		28
SECTION 2.04.		Evidence of Debt		28
SECTION 2.05.		Swingline Loans		29
SECTION 2.06.		Letters of Credit		30
SECTION 2.07.		Funding of Borrowings		34
SECTION 2.08.		Interest Elections		35
SECTION 2.09.		Termination and Reduction of Commitments		36
SECTION 2.10.		Repayment of Loans		36
SECTION 2.11.		Prepayment of Loans		37
SECTION 2.12.		Fees		38
SECTION 2.13.		Interest		38
SECTION 2.14.		Alternate Rate of Interest		39
SECTION 2.15.		Increased Costs		39
SECTION 2.16.		Break Funding Payments		41
SECTION 2.17.		Taxes		41
SECTION 2.18.		Payments Generally; Allocation of Proceeds; Sharing of Set-Offs		45
SECTION 2.19.		Mitigation Obligations; Replacement of Lenders		47
SECTION 2.20.		Defaulting Lenders		48
SECTION 2.21		Returned Payments		49
SECTION 2.22		Banking Services and Swap Agreements		50
SECTION 2.23		Foreign Subsidiary Borrowers		50
SECTION 2.24		Ancillary Facilities		50
SECTION 2.25		Increase in Commitments		51
ARTICLE III Representations and Warranties
SECTION 3.01.		Organization; Powers		53
SECTION 3.02.		Authorization; Enforceability		53
SECTION 3.03.		Governmental Approvals; No Conflicts		54
SECTION 3.04.		Financial Condition; No Material Adverse Change		54
SECTION 3.05.		Properties		54
SECTION 3.06.		Litigation and Environmental Matters		54

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SECTION 3.07.		Compliance with Laws and Agreements		55
SECTION 3.08.		Investment Company Status		55
SECTION 3.09.		Taxes		55
SECTION 3.10.		ERISA		55
SECTION 3.11.		Disclosure		55
SECTION 3.12.		Employee Matters		56
SECTION 3.13.		Subsidiaries		56
SECTION 3.14		Anti-Corruption Laws and Sanctions		56
SECTION 3.15		EEA Financial Institutions		56
ARTICLE IV Conditions
SECTION 4.01.		Effective Date		56
SECTION 4.02.		Each Credit Event		58
SECTION 4.03.		Credit Events Relating to Foreign Subsidiary Borrowers		58
ARTICLE V Affirmative Covenants
SECTION 5.01.		Financial Statements; and Other Information		58
SECTION 5.02.		Notices of Material Events		59
SECTION 5.03.		Existence; Conduct of Business		60
SECTION 5.04		Payment of Obligations		60
SECTION 5.05.		Maintenance of Properties; Insurance		60
SECTION 5.06.		Books and Records; Inspection Rights		60
SECTION 5.07.		Compliance with Laws		60
SECTION 5.08.		Use of Proceeds and Letters of Credit		61
SECTION 5.09		Collateral Security; Further Assurances		61
SECTION 5.10		Depository Bank		62
SECTION 5.11		Additional Covenants		62
ARTICLE VI Negative Covenants
SECTION 6.01.		Indebtedness		63
SECTION 6.02.		Liens		64
SECTION 6.03.		Fundamental Changes		65
SECTION 6.04.		Investments, Loans, Advances, Guarantees and Acquisitions		65
SECTION 6.05.		Swap Agreements		66
SECTION 6.06.		Restricted Payments		66
SECTION 6.07.		Transactions with Affiliates		67
SECTION 6.08.		Restrictive Agreements		67
SECTION 6.09		Change of Name or Location; Change of Fiscal Year		67
SECTION 6.10		Amendments to Agreements		67
SECTION 6.11		Prepayment of Indebtedness		67
SECTION 6.12		Debt Service Coverage Ratio		67
SECTION 6.13		Leverage Ratio		68
SECTION 6.14		Minimum Liquidity		68

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ARTICLE VII Events of Default
		Events of Default		68
ARTICLE VIII The Administrative Agent
SECTION 8.01.		Appointment		71
SECTION 8.02.		Rights as a Lender		71
SECTION 8.03.		Duties and Obligations		71
SECTION 8.04.		Reliance		72
SECTION 8.05.		Actions through Sub-Agents		72
SECTION 8.06.		Resignation		72
SECTION 8.07.		Non-Reliance		73
SECTION 8.08.		Not Partners or Co-Ventures; Administrative Agent as Representative of the Secured Parties		74
SECTION 8.09.		Credit Bidding		74
ARTICLE IX Miscellaneous
SECTION 9.01.		Notices		75
SECTION 9.02.		Waivers; Amendments		77
SECTION 9.03.		Expenses; Indemnity; Damage Waiver		79
SECTION 9.04.		Successors and Assigns		82
SECTION 9.05.		Survival		85
SECTION 9.06.		Counterparts; Integration; Effectiveness; Electronic Execution		86
SECTION 9.07.		Severability		86
SECTION 9.08.		Right of Setoff		86
SECTION 9.09.		Governing Law; Jurisdiction; Consent to Service of Process		87
SECTION 9.10.		WAIVER OF JURY TRIAL		87
SECTION 9.11.		Headings		87
SECTION 9.12.		Confidentiality		88
SECTION 9.13.		Several Obligations; Nonreliance; Violation of Law		88
SECTION 9.14.		Amendment and Restatement		88
SECTION 9.15.		USA Patriot Act		89
SECTION 9.16.		Disclosure		89
SECTION 9.17.		Appointment for Perfection		89
SECTION 9.18.		Interest Rate Limitation		89
SECTION 9.19.		No Advisory or Fiduciary Responsibility		89
SECTION 9.20.		Marketing Consent		90
SECTION 9.21.		Acknowledgement and Consent to Bail-In of EEA Financial Institutions		90

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SCHEDULES:

Commitment Schedule

Schedule 1.01(A) – Persons Owning Equity Interests

Schedule 1.01(B) – Competitors

Schedule 1.01(C) – Potential Settlement Matters

Schedule 3.05 – Real Property

Schedule 3.13 – Subsidiaries/Owners

Schedule 6.01 – Existing Indebtedness

Schedule 6.01(c) – Purchase Money Loans

Schedule 6.02 – Existing Liens

Schedule 6.04 – Existing Investments

EXHIBITS:

Exhibit A – Assignment and Assumption

Exhibit B-1 – U.S. Tax Compliance Certificate (For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)

Exhibit B-2 – U.S. Tax Compliance Certificate (For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)

Exhibit B-3 – U.S. Tax Compliance Certificate (For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)

Exhibit B-4 – U.S. Tax Compliance Certificate (For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)

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SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 14, 2017, among ALTAIR ENGINEERING, INC., THE FOREIGN SUBSIDIARY BORROWERS, the Lenders party hereto, and JPMORGAN CHASE BANK, N.A., as Administrative Agent.

RECITALS

A. Altair Engineering, Inc., the Foreign Subsidiary Borrowers party thereto, and JPMorgan Chase Bank, N.A. entered into that certain Amended and Restated Credit Agreement dated as of April 18, 2016, which amended and restated that certain Credit Agreement dated as of December 18, 2013 (as amended from time to time, the “Existing Credit Agreement”).

B. The parties hereto wish to amend and restate the Existing Credit Agreement in its entirety as set forth herein.

In consideration of the mutual agreements, provisions and covenants contained herein, the parties agree, subject to the fulfillment of the conditions precedent set forth in this Agreement, that the Existing Credit Agreement hereby is amended and restated in its entirety as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below:

“Account” shall mean any right of Altair Engineering to payment for goods sold or leased or for services rendered in the ordinary course of business, but shall not include interest or service charges.

“Acquisition” means any transaction, or any series of related transactions, consummated on or after the Effective Date, by which any Company (a) acquires any going business or all or substantially all of the assets of any Person, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the Equity Interests of a Person which has ordinary voting power for the election of directors or other similar management personnel of a Person (other than Equity Interests having such power only by reason of the happening of a contingency) or a majority of the outstanding Equity Interests of a Person.

“Acquisition Consideration” means the aggregate amount of all consideration paid or payable, including all direct payments, all Indebtedness assumed, all earnouts and other contingent payments (other than customary purchase price adjustments and indemnification obligations) and all other consideration paid or payable, by the Companies in respect of Acquisitions, but shall not include the value of (i) any Equity Interests (other than Disqualified Stock) in Altair Engineering or any of its Subsidiaries issued in connection with such Acquisitions, or (ii) any contribution to the Equity Interests (other than Disqualified Stock) in Altair Engineering the proceeds of which are used to fund the purchase price consideration.

“Adjusted LIBO Rate” means, with respect to any Eurodollar or CBFR Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the LIBO Rate for such Interest Period multiplied by the Statutory Reserve Rate.

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“Adjusted One Month LIBOR Rate” means, for any day, an interest rate per annum equal to the sum of (i) 2.50% plus (ii) the Adjusted LIBO Rate for a one-month interest period on such day (or if such day is not a Business Day, the immediately preceding Business Day); provided that, for the avoidance of doubt, the Adjusted LIBO Rate for any day shall be based on the LIBO Screen Rate at approximately 11:00 a.m. London time on such day; provided further, that, if the LIBO Screen Rate at such time shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

“Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders hereunder.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Aggregate Revolving Commitments” means, at any time, the aggregate Revolving Commitments of all the Lenders at such time.

“Aggregate Revolving Exposure” means, at any time, the aggregate Revolving Exposure of all the Lenders at such time.

“Agreement” means this Credit Agreement, as amended or modified from time to time.

“Altair Engineering” means Altair Engineering, Inc., a Michigan corporation.

“Ancillary Facility” means any facility made available for a Foreign Subsidiary Borrower by JPMCB pursuant to Section 2.24.

“Ancillary Facility Document” means, with respect to any Ancillary Facility, the agreements between the applicable Foreign Subsidiary Borrower and JPMCB providing such Ancillary Facility.

“Ancillary Facility Exposure” means, at any time, the Dollar Equivalent of the aggregate outstanding principal amount of the Ancillary Loans at such time.

“Ancillary Loan” means, at any time, a loan or other credit extension or accommodation of any kind under an Ancillary Facility in respect of which JPMCB has advanced funds or made such other credit extension or accommodation available to a Foreign Subsidiary Borrower thereunder.

“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to any of the Borrowers or their respective Subsidiaries from time to time concerning or relating to bribery or corruption.

 

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“Applicable Margin” means, for any day, (a) with respect to any Eurodollar Loan, and (b) with respect to fees for Letters of Credit under Section 2.12(b), as the case may be, the applicable rate per annum (stated in basis points) set forth below under the applicable caption, based upon the Leverage Ratio as of the most recent determination date:

 

Level		Leverage Ratio		Applicable Margin – Eurodollar Loan				Applicable Margin – Letter of Credit Fees
I		> 2.50:1.00			200 bps				200 bps
II		£ 2.50:1.00 but > 2.00:1.00			175 bps				175 bps
III		£ 2.00:1.00			150 bps				150 bps

The Applicable Margin shall be determined in accordance with the foregoing table based on the Leverage Ratio as of the end of each Fiscal Quarter. Adjustments, if any, to the Applicable Margin shall be effective five Business Days following the date that the Administrative Agent is scheduled to receive the applicable financial statements under Section 5.01(b) and certificate under Section 5.01(c); provided, that during any time after the Borrower has failed to deliver the financial statements required by Section 5.01, the Applicable Margin shall be automatically set at Level I until five days after such financial statements are so delivered. Notwithstanding anything herein to the contrary, the Applicable Margin shall be set at Level III as of the Effective Date and shall be adjusted for the first time based on the financial statements to be delivered under Section 5.01(b) for the Fiscal Quarter ending on or about June 30, 2017.

If at any time the Administrative Agent determines that the financial statements upon which the Applicable Rate was determined were incorrect (whether based on a restatement, fraud or otherwise), the Borrowers shall be required to retroactively pay any additional amount that the Borrowers would have been required to pay if such financial statements had been accurate at the time they were delivered.

“Applicable Percentage” means, at any time with respect to any Lender, a percentage equal to a fraction the numerator of which is such Lender’s Revolving Commitment at such time and the denominator of which is the aggregate Revolving Commitments at such time (provided that, if the Revolving Commitments have terminated or expired, the Applicable Percentages shall be determined based upon such Lender’s share of the Aggregate Revolving Exposure at such time); provided that, in accordance with Section 2.20, so long as any Lender shall be a Defaulting Lender, such Defaulting Lender’s Commitment shall be disregarded in the calculations above.

“Approved Fund” has the meaning assigned to the term in Section 9.04(b).

“Assignment and Assumption” means an assignment and assumption agreement entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.

“Available Cash” means, without duplication, the aggregate cash deposit balances and Permitted Investments of Altair Engineering and its Wholly-Owned Subsidiaries, in each case only to the extent that such balances and Permitted Investments are unrestricted and unencumbered.

“Availability Period” means the period from and including the Effective Date to but excluding the Termination Date.

 

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“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

“Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

“Banking Services” means each and any of the following bank services provided to any Company by any Lender or any of its Affiliates: (a) commercial credit cards, (b) stored value cards and (c) treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate and international depository network services).

“Banking Services Obligations” means any and all obligations of any Company, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with Banking Services.

“Bankruptcy Event” means, with respect to any Person, when such Person becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, unless such ownership interest results in or provides such Person with immunity from the jurisdiction of courts within the U.S. or from the enforcement of judgments or writs of attachment on its assets or permits such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.

“Beneficial Owner” means, with respect to any U.S. federal withholding Tax, the beneficial owner, for U.S. federal income tax purposes, to whom such Tax relates.

“Board” means the Board of Governors of the Federal Reserve System of the United States of America.

“Board of Directors” means: (1) with respect to a corporation, the board of directors of the corporation or such directors or committee serving a similar function; (2) with respect to a limited liability company, the board of managers of the company or such managers or committee serving a similar function; (3) with respect to a partnership, the Board of Directors of the general partner of the partnership; and (4) with respect to any other Person, the managers, directors, trustees, board or committee of such Person or its owners serving a similar function.

“Borrowers” means Altair Engineering and the Foreign Subsidiary Borrowers.

“Borrowing” means any (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, and (b) all or any portion of Term Loan A of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.

 

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“Borrowing Request” means a request by a Borrower for a Borrowing in accordance with Section 2.03.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in Chicago or New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for general business in London.

“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“CB Floating Rate” means the Prime Rate; provided that the CB Floating Rate shall never be less than the Adjusted One Month LIBOR Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day). Any change in the CB Floating Rate due to a change in the Prime Rate or the Adjusted One Month LIBOR Rate shall be effective from and including the effective date of such change in the Prime Rate or the Adjusted One Month LIBOR Rate, respectively.

“CBFR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the CB Floating Rate.

“Change in Control” means the occurrence of either of the following: (a) Permitted Holders cease to directly or indirectly own and control, free and clear of all Liens, at least 20% of the aggregate economic interests and 20% of the aggregate voting power represented by the issued and outstanding Equity Interests of each Domestic Borrower, or (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), other than Persons listed on Schedule 1.01(A) that own Equity Interests of the applicable Domestic Borrower as of the Effective Date, of Equity Interests representing 35% or more of the aggregate economic interests or voting power represented by the issued and outstanding Equity Interests of either Domestic Borrower.

“Change in Law” means the occurrence after the date of this Agreement (or, with respect to any Lender, such later date on which such Lender becomes a party to this Agreement) of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender’s or the Issuing Bank’s holding company, if any) with any request, guideline, requirement or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements or directives thereunder or issued in connection therewith or in the implementation thereof, and (y) all requests, rules, guidelines, requirements or directives promulgated by the Bank for International Settlements, the Basel Committee

 

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on Banking Supervision (or any successor or similar authority) or the U.S. or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted, issued or implemented.

“Charges” has the meaning assigned to such term in Section 9.18.

“Class”, when used in reference to (a) any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, a Term Loan A, or Swingline Loans, (b) any Commitment, refers to whether such Commitment is a Revolving Commitment or a Term Loan A Commitment, and (c) any Lender, refers to whether such Lender has a Loan or Commitment of a particular Class.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Collateral” means, collectively, the “Collateral” under and as defined in, and any other assets upon which a Lien has been granted by, any of the Collateral Documents.

“Collateral Documents” means, collectively, the Security Agreements, the Mortgages, the Secured Obligation Guaranties, any subordination agreements, and all other agreements or documents granting or perfecting a Lien in favor of the Administrative Agent or otherwise providing support for the Secured Obligations at any time, as any of the foregoing may be amended or modified from time to time.

“Commitment” means, with respect to each Lender, the sum of such Lender’s Revolving Commitment and Term Loan Commitment. The initial amount of each Lender’s Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Commitment, as applicable.

“Commitment Schedule” means the Schedule attached hereto identified as such.

“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.

“Communications” has the meaning assigned to such term in Section 9.01(d).

“Companies” means, collectively, all Loan Parties and all of their respective subsidiaries.

“Competitor” means any Person which is a direct competitor of the Companies in the same or substantially similar line of business as the Companies as of the Effective Date that is specifically identified on Schedule 1.01(B) hereto, as such Schedule 1.01(B) may be updated from time to time after the Effective Date upon the written request of Altair Engineering to the Administrative Agent and consented to in writing by the Administrative Agent, such consent not to be unreasonably withheld or delayed (such Schedule 1.01(B), as it may be updated from time to time, the “Competitor List”), provided that no Person that is already a Lender or Participant at the time of such identification by Altair Engineering to the Administrative Agent shall be deemed a Competitor; provided, further, that in connection with any assignment or participation, the assignee or participant with respect to such proposed assignment or participation that is an investment bank, a commercial bank, a finance company, a fund, or other Person which merely has an economic interest in any such direct competitor, and is not itself such a direct competitor of the Companies, shall not be deemed to be a direct competitor for the purposes of this definition.

 

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“Competitor List” is defined in the definition of the Competitor.

“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.

“Consolidated Capital Expenditures” means, with reference to any period and without duplication, any expenditure or commitment to expend money for any purchase or other acquisition of any asset which would be classified as a fixed or capital asset on a consolidated balance sheet of the Companies prepared in accordance with GAAP for such period, but shall not include any HyperWorks Unlimited Hardware Acquisitions to the extent the aggregate amount HyperWorks Unlimited Hardware Acquisitions does not exceed $2,000,000 for any period of four consecutive Fiscal Quarters.

“Consolidated Debt Service” means, for any period, the sum of (a) cash Consolidated Interest Expense, and (b) the scheduled and any other required principal payments paid or payable on Indebtedness, but excluding (i) any required principal payments on Indebtedness secured by an asset of the Companies to the extent such payment is required due to the sale of such asset and is made with the proceeds of such sale, and (ii) any principal payments required from receipt of funds by the Borrowers in connection with any offerings of Equity Interests or exercises of stock options, all as calculated for such period and for the Companies on a consolidated basis.

“Consolidated EBITDA” means, with respect to any period, Consolidated Net Income for such period plus, to the extent deducted from revenues in determining such Consolidated Net Income, without duplication, (a) Consolidated Interest Expense, (b) expense for income taxes, (c) depreciation, (d) amortization, (e) non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual or reserve for potential cash items in any future period or the amortization of a prepaid cash item that was paid in a prior period and any non-cash charge that relates to the write-down or write-off of inventory), (f) losses from the sale of assets incurred other than in the ordinary course of business, (g) severance and restructuring charges in an aggregate amount not exceeding $1,000,000 in any twelve (12) month period incurred in connection with Permitted Acquisitions, (h) extraordinary losses, (i) any litigation costs (including legal, expert and bonding fees) and any judgment or settlement amounts (whether such judgment or settlement is structured as a cash payment, past due royalty payment or otherwise) in connection with the matters set forth on Schedule 1.01(C) in an aggregate amount not exceeding $4,000,000 in any consecutive twelve (12) month period, and (j) any cash charges relating to any redemption of Equity Interests, minus, to the extent included in Consolidated Net Income for such period, extraordinary gains (as determined in accordance with GAAP), non-cash items of income and gains from the sale of assets realized other than in the ordinary course of business, plus the amount of any increase (or minus the amount of any decrease) in deferred revenue for such period, all calculated for the Companies on a consolidated basis.

“Consolidated Net Indebtedness” means at any time (a) the Indebtedness of the Companies calculated on a consolidated basis minus (b) Unrestricted Cash and Cash Equivalents in excess of $20,000,000.

“Consolidated Interest Expense” means, with reference to any period, the interest expense of the Companies calculated on a consolidated basis for such period.

“Consolidated Net Income” means, with reference to any period, the net income (or loss) of the Companies calculated on a consolidated basis for such period.

 

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“Consolidated Unfunded Capital Expenditures” means, with reference to any period, the Consolidated Capital Expenditures for such period to the extent that they are not specifically funded by purchase money or other financing (excluding Revolving Loans) or lease transactions permitted hereunder, provided that Consolidated Capital Expenditures of up to $4,000,000 in the aggregate for the purchase of the Supplemental Headquarters Property shall be excluded from Consolidated Unfunded Capital Expenditures. For clarity and the avoidance of doubt, the term “Consolidated Unfunded Capital Expenditures” shall exclude up to $2,000,000 in the aggregate for any period of four consecutive Fiscal Quarters of Consolidated Capital Expenditures for HyperWorks Unlimited Hardware Acquisitions.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Credit Exposure” means, as to any Lender at any time, the sum of (a) such Lender’s Revolving Exposure at such time, (b) such Lender’s Ancillary Facility Exposure at such time plus (c) an amount equal to the aggregate principal amount of its Term Loans outstanding at such time.

“Credit Party” means the Administrative Agent, the Issuing Bank, the Swingline Lender or any other Lender.

“Debt Service Coverage Ratio” means the ratio, determined as of the end of each of Fiscal Quarter of the Loan Parties, of (a) Consolidated EBITDA minus (i) all Restricted Payments (excluding any Restricted Payments to the extent paid in common Equity Interests of Altair Engineering and excluding Restricted Payments made in accordance with Section 6.06(c), (d) and (e)), (ii) cash income taxes expense for such period and (iii) Consolidated Unfunded Capital Expenditures for such period, to (b) Consolidated Debt Service, all as calculated for the four consecutive Fiscal Quarters then ending and for the Companies on a consolidated basis.

“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“Defaulting Lender” means any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or Swingline Loans or (iii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified any Borrower or any Credit Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a Loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after request by a Credit Party, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans and participations in then outstanding Letters of Credit and Swingline Loans under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and substance satisfactory to it and the Administrative Agent, or (d) has become the subject of a (i) Bankruptcy Event or (ii) a Bail-In Action

 

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“Disqualified Stock” means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part.

“Dollar Equivalent” of any currency at any date means (i) the amount of such currency if such currency is Dollars or (ii) the equivalent amount thereof in Dollars if such currency is a Foreign Currency, calculated on the basis of the Exchange Rate for such Foreign Currency as of such date.

“dollars” or “$” refers to lawful money of the United States of America.

“Domestic Borrowers” means Altair Engineering.

“Domestic Loan Parties” means all Loan Parties other than Loan Parties that are Foreign Subsidiaries.

“Domestic Subsidiary” means any Subsidiary that is not a Foreign Subsidiary.

“EEA Financial Institution” means (a) any institution established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

“Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02).

“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.

“Electronic System” means any electronic system, including e-mail, e-fax, Intralinks®, ClearPar®, Debt Domain, Syndrak and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the Administrative Agent and the Issuing Bank and any of its respective Related Parties or any other Person, providing for access to data protected by passcodes or other security system.

“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to public health and safety matters.

 

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“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any Company directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with any Loan Party, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by any Company or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by any Company or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by any Company or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by any Company or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from any Company or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.

“Event of Default” has the meaning assigned to such term in Article VII.

“Exchange Rate” means, on any day, with respect to any Foreign Currency, the rate at which such Foreign Currency may be exchanged into Dollars, as set forth at approximately 11:00 a.m., at the applicable local time for such currency, on such date on the Reuters World Currency Page for such Foreign Currency. In the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate with respect to such Foreign Currency shall be determined by reference to such other publicly available service for displaying exchange rates as may be reasonably selected by the Administrative Agent or, in the event no such service is selected, such Exchange Rate shall instead be

 

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calculated on the basis of the arithmetical mean of the buy and sell spot rates of exchange of the Administrative Agent for such Foreign Currency on the London market at 11:00 a.m., Local Time, on such date for the purchase of Dollars with such Foreign Currency, for delivery two Business Days later; provided, that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent may use any reasonable method it deems appropriate to determine such rate, and such determination shall be conclusive absent manifest error.

“Excluded Swap Obligation” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Secured Obligation Guaranty of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an ECP at the time the Guarantee of such Guarantor or the grant of such security interest becomes or would become effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Secured Obligation Guaranty or security interest is or becomes illegal.

“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan, Letter of Credit or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan, Letter of Credit or Commitment (other than pursuant to an assignment request by the Borrowers under Section 2.19(b)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.17, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender acquired the applicable interest in a Loan or Commitment or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.17(f) and (d) any U.S. federal withholding Taxes imposed under FATCA.

“Existing Credit Agreement” has the meaning ascribed thereto in the Recitals to this Agreement.

“FATCA” means Sections 1471 through 1474 of the Code as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of the Code.

“Federal Funds Effective Rate” means, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions (as determined in such manner as the NYFRB shall set forth on its public website from time to time) and published on the next succeeding Business Day by the NYFRB as the federal funds effective rate.

“Financial Officer” means the chief financial officer, senior vice president of finance, planning and analysis, principal accounting officer, treasurer or controller of Altair Engineering.

 

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“Fiscal Quarter” means any of the quarterly accounting periods of the Loan Parties, ending on or about December 31, March 31, June 30 and September 30, respectively, of each year.

“Fiscal Year” means any of the annual accounting periods of the Loan Parties ending on December 31 of each year. As an example, reference to the 2017 Fiscal Year shall mean the Fiscal Year ending on or about December 31, 2017.

“Foreign Currency” means any currency other than Dollars.

“Foreign Lender” means (a) if a Borrower is a U.S. Person, a Lender, with respect to such Borrower, that is not a U.S. Person, and (b) if a Borrower is not a U.S. Person, a Lender, with respect to such Borrower, that is resident or organized under the laws of a jurisdiction other than that in which such Borrower is resident for tax purposes.

“Foreign Subsidiary” shall mean any Subsidiary that is incorporated or organized under the laws of any jurisdiction other than the United States of America, any State thereof or the District of Columbia.

“Foreign Subsidiary Borrower” means, at any time, each Foreign Subsidiary that has been designated as a Foreign Subsidiary Borrower by Altair Engineering pursuant to Section 2.23, other than a Foreign Subsidiary Borrower that has ceased to be a Foreign Subsidiary Borrower as provided in Section 2.23.

“Foreign Subsidiary Borrower Agreement” means a Foreign Subsidiary Borrower Agreement in form and substance acceptable to JPMCB.

“Foreign Subsidiary Borrower Termination” means a Foreign Subsidiary Borrower Termination in form and substance acceptable to JPMCB.

“Foreign Subsidiary Holding Company” means any Domestic Subsidiary if substantially all of the assets of such Domestic Subsidiary consist of equity interests in one or more Foreign Subsidiaries and assets incidental thereto.

“GAAP” means generally accepted accounting principles in the United States of America.

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Governmental Authorization” means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority.

“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to

 

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purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

“Guarantors” means (a) with respect to Secured Obligations of Altair Engineering, all present and future Domestic Subsidiaries of Altair Engineering (other than any Foreign Subsidiary Holding Company), and (b) with respect to Secured Obligations of the Foreign Subsidiary Borrower, Altair Engineering and all present and future Domestic Subsidiaries of Altair Engineering (other than any Foreign Subsidiary Holding Company).

“Hazardous Materials” means: (a) any substance, material, or waste that is included within the definitions of “hazardous substances,” “hazardous materials,” “hazardous waste,” “toxic substances,” “toxic materials,” “toxic waste,” or words of similar import in any Environmental Law; (b) those substances listed as hazardous substances by the United States Department of Transportation (or any successor agency) (49 C.F.R. 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) (40 C.F.R. Part 302 and amendments thereto); and (c) any substance, material, or waste that is petroleum, petroleum-related, or a petroleum by-product, asbestos or asbestos-containing material, polychlorinated biphenyls, flammable, explosive, radioactive, freon gas, radon, or a pesticide, herbicide, or any other agricultural chemical.

“Hostile Acquisition” means (a) the acquisition of the Equity Interests of a Person through a tender offer or similar solicitation of the owners of such Equity Interests which has not been approved (prior to such acquisition) by the board of directors (or any other applicable governing body) of such Person or by similar action if such Person is not a corporation and (b) any such acquisition as to which such approval has been withdrawn.

“HyperWorks Unlimited Hardware Acquisitions” means the purchase by Altair Engineering or any of the Subsidiaries of hardware on which HPC workload management tools and Altair Engineering’s software applications are loaded and then leased to customers as a fully integrated and configured unit.

“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable or customary accrued expenses incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (h) all Off-Balance Sheet Liabilities of such Person, (i) all obligations under any Disqualified Stock of such Person, (j) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (k) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable

 

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therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. For the sake of greater clarity, (i) Indebtedness does not include deferred revenues shown on a balance sheet of a Person in accordance with GAAP and (ii) earnouts and similar payment obligations shall be included in Indebtedness only to the extent payable within the twelve (12) months after the date of such financial statements.

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in the foregoing clause (a), Other Taxes.

“Indemnitee” has the meaning assigned to such term in Section 9.03(b).

“Indemnity Agreement” means the General Indemnity Agreement of Altair Engineering in favor of OneBeacon Insurance Company, OneBeacon America Insurance Company, OneBeacon Specialty Insurance Company, Atlantic Specialty Insurance Company, any of their future direct or indirect affiliates or subsidiaries, in the form delivered to the Administrative Agent prior to the Effective Date.

“India Transaction” means the redemption by Altair Engineering India Private Limited of 602 of its equity shares for an amount not to exceed $4,500,000.

“Ineligible Institution” has the meaning assigned to such term in Section 9.04(b).

“Information” has the meaning assigned to such term in Section 9.12.

“Interest Election Request” means a request by a Borrower to convert or continue a Borrowing in accordance with Section 2.07.

“Interest Payment Date” means (a) with respect to any CBFR Loan, the last day of each month, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part, and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid and the Termination Date.

“Interest Period” means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one month thereafter; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

“Interpolated Rate” means, at any time, for any Interest Period, the rate per annum (rounded to the same number of decimal places as the LIBO Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be

 

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equal to the rate that results from interpolating on a linear basis between: (a) the LIBO Screen Rate for the longest period (for which the LIBO Screen Rate is available) that is shorter than the Impacted Interest Period and (b) the LIBO Screen Rate for the shortest period (for which the LIBO Screen Rate is available) that exceeds the Impacted Interest Period, in each case, at such time.

“Issuing Bank” means JPMCB, in its capacity as the issuer of Letters of Credit hereunder. The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by its Affiliates, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate (it being agreed that such Issuing Bank shall, or shall cause such Affiliate to, comply with the requirements of Section 2.06 with respect to such Letters of Credit).

“JPMCB” means JPMorgan Chase Bank, N.A., a national banking association, and, with respect to any Ancillary Loan and any Ancillary Facility Documents, the term JPMCB shall also include any office, branch or Affiliate of JPMCB selected by JPMCB to make such Ancillary Loan or be a party to any Ancillary Facility Document.

“LC Disbursement” means a payment made by the Issuing Bank pursuant to a Letter of Credit.

“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of Altair Engineering at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the aggregate LC Exposure at such time.

“Lenders” means JPMCB and the other Persons listed on the Commitment Schedule and any other Person that shall have become a Lender hereunder pursuant to Section 2.25 or an Assignment and Assumption, other than any such Person that ceases to be a Lender hereunder pursuant to an Assignment and Assumption. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lender and the Issuing Bank.

“Letter of Credit” means any letter of credit issued pursuant to this Agreement.

“Leverage Ratio” means, at any time, the ratio of (a) Consolidated Net Indebtedness at such time to (b) Consolidated EBITDA as calculated for the four consecutive Fiscal Quarters of the Loan Parties most recently ended.

“LIBO Rate” means, with respect to any Eurodollar Borrowing for any applicable Interest Period or for any CBFR Borrowing, the London interbank offered rate administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate for Dollars) for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as shall be selected by the Administrative Agent in its reasonable discretion (in each case, the “LIBO Screen Rate”) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period; provided that, (x) if any LIBO Screen Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement and (y) if the LIBO Screen Rate shall not be available at such time for a period equal in length to such Interest Period (an “Impacted Interest Period”), then the LIBO Rate shall be the Interpolated Rate at such time, subject to Section 2.14 in the event that the Administrative Agent shall conclude that it shall not be possible to determine such Interpolated Rate

 

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(which conclusion shall be conclusive and binding absent manifest error); provided, further, that, if any Interpolated Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement. Notwithstanding the above, to the extent that “LIBO Rate” or “Adjusted LIBO Rate” is used in connection with a CBFR Borrowing, such rate shall be determined as modified by the definition of Adjusted One Month LIBOR Rate.

“LIBO Screen Rate” has the meaning assigned to such term in the definition of “LIBO Rate”.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities (but excluding any right of first refusal).

“Liquidity” means, at any time the same is to be determined, the sum of (i) the Dollar Equivalent of the Available Cash at such time, plus (ii) the aggregate unused amount of the Revolving Commitments available to be drawn at such time.

“Loan Documents” means this Agreement, any promissory note, any Ancillary Facility Documents, the Collateral Documents, and any other agreement, instrument or other document executed in connection therewith.

“Loan Parties” means the Borrowers and the Guarantors.

“Loans” means all Revolving Loans, Term Loan A and Ancillary Loans.

“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Companies taken as a whole, (b) the ability of any Loan Party to perform any of its obligations under any Loan Document or (c) the rights of or benefits available to the Administrative Agent or the Lenders under any Loan Document.

“Material Indebtedness” means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of the Companies in an aggregate principal amount exceeding $1,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of any Company in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Company would be required to pay if such Swap Agreement were terminated at such time.

“Maturity Date A” means the earlier of (a) April 18, 2019 and (b) the date Term Loan A is accelerated.

“Moody’s” means Moody’s Investors Service, Inc.

“Mortgages” means any mortgage, deed of trust or other agreement which conveys or evidences a Lien granted by a Loan Party in favor of the Administrative Agent, each in form and substance acceptable to the Administrative Agent, for the benefit of the Secured Parties, on real property of a Loan Party, entered into by any Loan Party at any time for the benefit of the Administrative Agent pursuant to this Agreement, as amended or modified from time to time.

 

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“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“NYFRB” means the Federal Reserve Bank of New York.

“NYFRB Rate” means, for any day, the greater of (a) the Federal Funds Effective Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day(or for any day that is not a Banking Day, for the immediately preceding Banking Day); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for a federal funds transaction quoted at 11:00 a.m. on such day received to the Administrative Agent from a Federal funds broker of recognized standing selected by it; provided, further, that if any of the aforesaid rates shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

“Non-Consenting Lender” has the meaning assigned to such term in Section 9.02(d).

“Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all LC Exposure, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations and indebtedness (including interest and fees accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), obligations and liabilities of any of the Borrowers and their Subsidiaries to any of the Lenders, the Administrative Agent, the Issuing Bank or any indemnified party, individually or collectively, existing on the Effective Date or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Agreement or any of the other Loan Documents or in respect of any of the Loans made or reimbursement or other obligations incurred or any of the Letters of Credit or other instruments at any time evidencing any thereof.

“OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury.

“Off-Balance Sheet Liability” of a Person means (i) any obligation under a sale and leaseback transaction which is not a Capital Lease Obligation, (ii) any so-called “synthetic lease” or “tax ownership operating lease” transaction entered into by such Person, (iii) the amount of obligations outstanding under the legal documents entered into as part of any asset securitization or similar transaction on any date of determination that would be characterized as principal if such asset securitization or similar transaction were structured as a secured lending transaction rather than as a purchase or (iv) any other transaction (excluding operating leases for purposes of this clause (iv)) which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person; in all of the foregoing cases, calculated based on the aggregate outstanding amount of obligations outstanding under the legal documents entered into as part of any such transaction on any date of determination that would be characterized as principal if such transaction were structured as a secured lending transaction, whether or not shown as a liability on a consolidated balance sheet of such Person, in a manner reasonably satisfactory to the Administrative Agent.

“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Taxes (other than a connection arising solely from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or enforced, any Loan Document), or sold or assigned an interest in any Loan, Letter of Credit, or any Loan Document.

 

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“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.19).

“Overnight Bank Funding Rate” means, for any day, the rate comprised of both overnight federal funds and overnight Eurodollar borrowings by U.S.-managed banking offices of depository institutions (as such composite rate shall be determined by the NYFRB as set forth on its public website from time to time) and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate (from and after such date as the NYFRB shall commence to publish such composite rate).

“Parent” means, with respect to any Lender, any Person as to which such Lender is, directly or indirectly, a subsidiary.

“Participant” has the meaning assigned to such term in Section 9.04(c).

“Participant Register” has the meaning assigned to such term in Section 9.04(c).

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

“Permitted Acquisition” means an Acquisition by Altair Engineering or any Subsidiary of Altair Engineering in a transaction that satisfies each of the following requirements:

(a) such Acquisition is not a Hostile Acquisition;

(b) the business acquired in connection with such Acquisition is not engaged, directly or indirectly, in any line of business other than the businesses in which Altair Engineering and its Domestic Subsidiaries are engaged on the Effective Date and any business activities that are substantially similar, related or incidental thereto;

(c) both before and after giving effect to such Acquisition and the Loans (if any) requested to be made in connection therewith, each of the representations and warranties in the Loan Documents is true and correct in all material respects and no Default or Event of Default exists or would be caused thereby and the Borrowers shall be in pro forma compliance with all covenants in this Agreement;

(d) if after giving effect to such Acquisition and the Loans (if any) requested to be made in connection therewith, on a pro forma basis acceptable to the Administrative Agent, the Leverage Ratio is equal to or greater than 2.00:1.00, then the aggregate amount of the Acquisition Consideration for all Permitted Acquisitions shall not exceed $15,000,000 in any Fiscal Year;

(e) Other than Permitted Acquisitions funded solely with the proceeds from the issuance of new common Equity Interests of Altair Engineering, both before and after giving effect to

 

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such Acquisition on a pro forma basis (i) the Leverage Ratio is at least 0.25 below the level then required under Section 6.13 and (ii) the sum of (x) the unrestricted, unencumbered (other than Liens in favor of the Administrative Agent) cash on hand of the Loan Parties, plus (y) the amount by which the Revolving Commitment exceeds the sum of the Revolving Credit Exposure plus the Ancillary Facility Exposure is at least $15,000,000.

(f) not less than 30 days prior to the closing of any such Acquisition, Altair Engineering shall provide such pro forma financial statements and certificates and copies of such documents being executed or delivered in connection with such Acquisition as may be requested by the Administrative Agent;

(g) if such Acquisition is an acquisition of Equity Interests, such Acquisition will not result in any violation of Regulation U; and

(h) the Borrowers shall have satisfied the requirements of, without limitation, Section 5.09(b) in connection with such Acquisition.

“Permitted Encumbrances” means:

(a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04;

(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04;

(c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;

(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and

(e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of any Company;

provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.

“Permitted Holders” means (i) James R. Scapa, (ii) James R. Scapa’s spouse, (iii) members of their immediate family and their respective spouses and issue, (iv) the respective heirs and estates of each of the foregoing and any trusts created solely for the benefit of any one or more of the foregoing, and (v) any Person owned and controlled, free and clear of all Liens, by any of the foregoing.

“Permitted Investments” means:

(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America or, in the case of investments by Foreign Subsidiaries, any member state of the European Union, India or any other sovereign

 

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nation acceptable to the Administrative Agent (or by any agency thereof to the extent such obligations are backed by the full faith and credit of such applicable nation), in each case maturing within one year from the date of acquisition thereof;

(b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody’s or, in the case of such investments by Foreign Subsidiaries, which has the equivalent rating from comparable foreign rating agencies;

(c) investments in certificates of deposit, banker’s acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000 or, in the case of such investments by Foreign Subsidiaries, any foreign commercial bank which is of comparable financial standing;

(d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and

(e) money market funds that (i) comply with the criteria set forth in Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000.

“Permitted Liens” means Liens permitted by Section 6.02.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which any Loan Party or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Platform” means Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system.

“Prime Rate” means the rate of interest per annum publicly announced from time to time by JPMCB as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.

“Qualified ECP Guarantor” means, in respect of any Swap Obligation, each Loan Party that has total assets exceeding $10,000,000 at the time the relevant Loan Guaranty or grant of the relevant security interest becomes or would become effective with respect to such Swap Obligation or such other person as constitutes an “eligible contract participant” under the Commodity Exchange Act or any regulations promulgated thereunder and can cause another person to qualify as an “eligible contract participant” at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

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“Recipient” means, as applicable, (a) the Administrative Agent, (b) any Lender and (c) any Issuing Bank, or any combination thereof (as the context requires).

“Register” has the meaning assigned to such term in Section 9.04.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System.

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

“Release” means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, migrating, disposing, or dumping of any substance into the environment.

“Report” means reports prepared by the Administrative Agent or another Person showing the results of appraisals, field examinations or audits pertaining to the assets of the Companies from information furnished by or on behalf of the Borrowers, after the Administrative Agent has exercised its rights of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the Administrative Agent.

“Required Lenders” means, at any time, Lenders (other than Defaulting Lenders) having Credit Exposure and unused Commitments representing more than 50% of the sum of the aggregate Credit Exposure and unused Commitments of all Lenders at such time; provided that (i) if there are only two Lenders, Required Lenders shall mean both Lenders, and (ii) if there are only three Lenders, Required Lenders shall also require at least two Lenders. For purposes of this definition, a Lender and any of its Affiliates that are Lenders shall be considered one Lender.

“Reports” is defined in Section 9.03.

“Requirements of Law” means, as to any Person, the operating agreement, certificate of incorporation, by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property to which such Person or any of its property is subject.

“Restricted Payment” means (i) any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests of any Company, and (ii) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in any Company or any option, warrant or other right to acquire any such Equity Interests in any Company.

“Revolving Commitment” means, with respect to each Lender, the commitment, if any, of such Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum aggregate permitted amount of such Lender’s Revolving Exposure hereunder, as such commitment may be reduced or increased from time to

 

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time pursuant to (a) Section 2.09 or 2.25 of this Agreement or the Second Amendment and (b) assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender’s Revolving Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. The aggregate amount of the Lenders’ Revolving Commitments as of the Second Amendment Effective Date is $60,000,000.

“Revolving Credit Exposure” means, with respect to any Lender, at any time, the sum of the aggregate outstanding principal amount of such Lender’s Revolving Loans and its LC Exposure and Swingline Exposure at such time.

“Revolving Loan” means a Loan made pursuant to Section 2.01(a).

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business.

“Sanctioned Country” means, at any time, a country, region or territory which is itself the subject or target of any Sanctions (at the time of this Agreement, Crimea, Cuba, Iran, North Korea, Sudan and Syria).

“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State or by the United Nations Security Council, the European Union or any European Union member state, Her Majesty’s Treasury of the United Kingdom or other relevant sanctions authority, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b).

“Sanctions” means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union, any European Union member state or Her Majesty’s Treasury of the United Kingdom or other relevant sanctions authority.

“SEC” means the Securities and Exchange Commission of the U.S.

“Second Amendment” means the Second Amendment to this Agreement.

“Second Amendment Effective Date” means the date the Second Amendment is effective.

“Secured Obligation Guaranty” means each guaranty executed by a Guarantor, each in form and substance acceptable to the Administrative Agent, entered into by any Guarantor at any time for the benefit of the Administrative Agent and the Lenders pursuant to this Agreement, as amended or modified from time to time.

“Secured Obligations” means, collectively, (i) the Obligations, (ii) the Banking Services Obligations and (iii) the Swap Agreement Obligations owing to any Lender or its Affiliates, in all cases whether now existing or later arising.

 

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“Secured Parties” means (a) the Administrative Agent, (b) the Lenders, (c) the Issuing Bank, (d) each provider of Banking Services, to the extent the Banking Services Obligations in respect thereof constitute Secured Obligations, (e) each counterparty to any Swap Agreement, to the extent the obligations thereunder constitute Secured Obligations, (f) the beneficiaries of each indemnification obligation undertaken by any Loan Party under any Loan Document, and (g) the successors and assigns of each of the foregoing.

“Security Agreement” means each security agreement, pledge agreement, pledge and security agreement and similar agreement and any other agreement from any Loan Party granting a Lien on any of its personal property (including without limitation any Equity Interests owned by such Loan Party), each in form and substance acceptable to the Administrative Agent, entered into by any Loan Party at any time for the benefit of the Administrative Agent and the other Secured Parties pursuant to this Agreement, as amended or modified from time to time.

“Specified Default” means the occurrence of any Event of Default specified in clause (a) (but only if due to an acceleration of the Obligations or the failure to pay principal at the final maturity of the Loans), (h), (i) or (j) of Article VII hereof.

“Statement” has the meaning assigned to such term in Section 2.18(g).

“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) established by the Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D of the Board. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D of the Board or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

“Subsidiary” means any subsidiary of Altair Engineering.

“Supplemental Headquarters Property” means the real property described on Exhibit A to the First Amendment to this Agreement.

“Swap Agreement” means any agreement with respect to any swap, forward, spot, future, credit default or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.

 

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“Swap Agreement Obligations” means any and all obligations of any Company, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) owing to any Lender or any of its Affiliates under any and all Swap Agreements, provided, however, that the definition of ‘Swap Agreement Obligations’ shall not create any Guarantee by any Guarantor of (or grant of security interest by any Guarantor to support, as applicable) any Excluded Swap Obligations of such Guarantor for purposes of determining any obligations of any Guarantor under any Collateral Document.

“Swap Obligation” means, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.

“Swingline Exposure” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Revolving Lender at any time shall be the sum of (a) its Applicable Percentage of the total Swingline Exposure at such time other than with respect to any Swingline Loans made by such Revolving Lender in its capacity as the Swingline Lender and (b) the principal amount of all Swingline Loans made by such Revolving Lender in its capacity as the Swingline Lender outstanding at such time (less the amount of participations funded by the other Lenders in such Swingline Loans).

“Swingline Lender” means JPMCB, in its capacity as lender of Swingline Loans hereunder. Any consent required of the Administrative Agent or the Issuing Bank shall be deemed to be required of the Swingline Lender and any consent given by JPMCB in its capacity as Administrative Agent or Issuing Bank shall be deemed given by JPMCB in its capacity as Swingline Lender as well.

“Swingline Loan” means a Loan made pursuant to Section 2.05.

“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Term Loan A” means the term loan extended by the Lenders to Altair Engineering pursuant to Section 2.01(b) hereof.

“Term Loan A Commitment” means, with respect to each Lender, the commitment, if any, of such Lender to make Term Loan A, expressed as an amount representing the maximum principal amount of the Term Loan A to be made by such Lender, as such commitment may be reduced or increased from time to time pursuant to (a) Section 2.25 and (b) assignments by or to such Lenders pursuant to Section 9.04. The initial amount of each Lender’s Term Loan A Commitment is set forth on the Commitment Schedule or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Term Loan A Commitment, as applicable. The aggregate amount of the Lenders’ Term Loan A Commitment on the Effective Date is $55,000,000.

“Term Loans” means Term Loan A and any term loan, if any, made in connection with a New Credit Facility.

“Termination Date” means the earlier of (a) April 18, 2019 and (b) the date of the termination of the Revolving Commitment.

 

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“Transactions” means the execution, delivery and performance by the Borrowers of this Agreement and the other Loan Documents, the borrowing of Loans and other credit extensions, the use of the proceeds thereof and the issuance of Letters of Credit hereunder.

“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the CB Floating Rate.

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of Michigan.

“Unliquidated Obligations” means, at any time, any Secured Obligations (or portion thereof) that are contingent in nature or unliquidated at such time, including any Secured Obligation that is: (i) an obligation to reimburse a bank for drawings not yet made under a letter of credit issued by it; (ii) any other obligation (including any guarantee or indemnification obligation) that is contingent in nature at such time; or (iii) an obligation to provide collateral to secure any of the foregoing types of obligations.

“U.S.” means the United States of America.

“U.S. Person” means a “United States person” within the meaning of Section 7701(a)(30) of the Code.

“U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 2.17(f)(ii)(B)(3).

“Unrestricted Cash and Cash Equivalents” shall mean, on any date of determination, all Cash owned by the Domestic Loan Parties and held in any demand or deposit account in the United States of America (excluding, for purposes of clarity, any amounts available to be drawn or funded under lines of credit or other debt facilities, including, without, limitation, revolving loans) and all cash equivalents owned by the Domestic Loan Parties, in each case, on the date of determination; provided however, that amounts calculated under this definition shall exclude any amounts that would not be considered “cash” or “cash equivalents” under GAAP or “cash” or “cash equivalents” as recorded on the books of the Domestic Loan Parties; provided, further, that amounts and cash equivalents included under this definition shall (i) be included only to the extent such amounts or cash equivalents are (A) not subject to any Lien or other restriction or encumbrance of any kind (other than Liens (x) arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights so long as such liens and rights are not being enforced or otherwise exercised and (y) in favor of Administrative Agent) and (B) subject to a perfected Lien in favor of the Administrative Agent and (ii) exclude any amounts held by the Domestic Loan Parties in escrow, trust or other fiduciary capacity for or on behalf of a client of any Borrower, any Subsidiary or any of their respective Affiliates.

“Wholly-Owned Subsidiary” of a Person means, any Subsidiary all of the outstanding Equity Interests of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person.

“USA PATRIOT Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.

 

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“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

“Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan”) or by Type (e.g., a “Eurodollar Loan”) or by Class and Type (e.g., a “Eurodollar Revolving Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Revolving Borrowing”) or by Type (e.g., a “Eurodollar Borrowing”) or by Class and Type (e.g., a “Eurodollar Revolving Borrowing”).

SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.04. Accounting Terms; GAAP; Pro Forma Financial Covenant Calculation. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrowers notify the Administrative Agent that the Borrowers request an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent or Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding anything herein, in any financial statements of the Loan Parties or in GAAP to the contrary, for purposes of calculating and determining compliance with the financial covenants in Article VI, including defined terms used therein, Acquisitions shall be deemed to have occurred on the first day of the relevant period for which such financial covenants are calculated, all as calculated on a pro forma basis acceptable to the Administrative Agent. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (i) without giving effect to any election under Financial

 

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Accounting Standards Board Accounting Standards Codification 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Company at “fair value”, as defined therein and (ii) without giving effect to any treatment of Indebtedness in respect of convertible debt instruments under Financial Accounting Standards Board Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof.

ARTICLE II

THE CREDITS

SECTION 2.01. Commitments and Loans.

(a) Revolving Commitment. Subject to the terms and conditions set forth herein, each Lender severally (and not jointly) agrees to make Revolving Loans to Altair Engineering from time to time during the Availability Period in an aggregate principal amount that will not result in the sum of the Aggregate Revolving Credit Exposure plus the Ancillary Facility Exposure exceeding the Aggregate Revolving Commitment. Within the foregoing limit and subject to the terms and conditions set forth herein, Altair Engineering may borrow, prepay and reborrow Revolving Loans.

(b) Term Loan A. Under the Existing Credit Agreement, JPMCB made a term loan to Altair Engineering which was identified as “Term Loan A” under the Existing Credit Agreement (the “Existing Term Loan A”). The outstanding principal amount of such Existing Term Loan A as of the Effective Date is $62,971,883.47. Subject to the terms and conditions set forth herein, such Existing Term Loan A shall be refinanced and replaced with Term Loan A hereunder and each Lender severally (and not jointly) agrees to make a Term Loan A in dollars to Altair Engineering in a principal amount not to exceed such Lender’s Term Loan A Commitment to refinance and replace such Existing Term Loan A. Amounts repaid in respect of Term Loan A may not be reborrowed.

SECTION 2.02. Loans and Borrowings.

(a) Each Loan (other than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Lenders ratably in accordance with their respective Commitments of the applicable Class. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required. Any Swingline Loan shall be made in accordance with the procedures set forth in Section 2.05.

(b) Subject to Section 2.14, each Revolving Borrowing and Term Loan Borrowing shall be comprised entirely of CBFR Loans or Eurodollar Loans as the applicable Borrower may request in accordance herewith. All Revolving Borrowings and Term Loan Borrowings made under the Existing Credit Agreement and existing as of the Effective Date shall continue as the same Type of Loan with the same Interest Period, if applicable, existing as of the Effective Date. Each Swingline Loan shall be a CBFR Loan. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan (and in the case of an Affiliate, the provisions of Sections 2.14, 2.15, 2.16 and 2.17 shall apply to such Affiliate to the same extent as to such Lender); provided that any exercise of such option shall not affect the obligation of the Borrowers to repay such Loan in accordance with the terms of this Agreement.

 

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(c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 and not less than $500,000. CBFR Borrowings may be in any amount. Each Swingline Loan shall be in an amount agreed to by the Swingline Lender and Altair Engineering. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of five Eurodollar Borrowings outstanding.

(d) Notwithstanding any other provision of this Agreement, the Borrowers shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Termination Date or Maturity Date A, as applicable.

SECTION 2.03. Requests for Borrowings. To request a Borrowing, the applicable Borrower shall notify the Administrative Agent of such request either in writing (delivered by hand or telecopy) in a form approved by the Administrative Agent and signed by the applicable Borrower (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., eastern time, three Business Days before the date of the proposed Borrowing or (b) in the case of a CBFR Borrowing, not later than 2:00 p.m., eastern time, on the date of the proposed Borrowing; provided that any such notice of a CBFR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e) may be given not later than noon, eastern time, on the date of the proposed Borrowing. Each such Borrowing Request shall be irrevocable and shall be in writing in a form approved by the Administrative Agent and signed by the applicable Borrower. Each such written Borrowing Request shall specify the following information in compliance with Section 2.01:

 

(i)

the Class of Borrowing, the aggregate amount of the requested Borrowing;

 

(ii)

the date of such Borrowing, which shall be a Business Day;

 

(iii)

whether such Borrowing is to be a CBFR Borrowing or a Eurodollar Borrowing; and

 

(iv)

in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period.”

If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be a CBFR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the applicable Borrower(s) shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.

SECTION 2.04. Evidence of Debt. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Obligations of the Borrowers to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

 

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(b) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, if any, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

(c) The entries made in the accounts maintained pursuant to paragraph (a) and (b) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrowers to repay the Loans in accordance with the terms of this Agreement.

(d) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrowers shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

SECTION 2.05. Swingline Loans.

(a) Subject to the terms and conditions set forth herein, the Swingline Lender may, in its sole discretion and without any obligation, make Swingline Loans to Altair Engineering, from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $5,000,000 or (ii) (x) the sum of Aggregate Revolving Exposures plus the Ancillary Facility Exposure exceeding (y) the Aggregate Revolving Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, Altair Engineering may borrow, prepay and reborrow Swingline Loans. To request a Swingline Loan, the applicable Borrower shall notify the Administrative Agent of such request in writing in a form acceptable to the Administrative Agent, not later than such time agreed to by the Administrative Agent on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the applicable Borrower. If the Swingline Lender decides in its sole discretion to make a Swingline Loan, the Swingline Lender will make each Swingline Loan available to Altair Engineering by means of a credit to the Funding Account(s) (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e), by remittance to the Issuing Bank, and in the case of repayment of another Loan or fees or expenses as provided by Section 2.18(c), by remittance to the Administrative Agent to be distributed to the Lenders) by 2:00 p.m., eastern time, on the requested date of such Swingline Loan.

(b) The Swingline Lender may by written notice given to the Administrative Agent not later than 11:00 a.m., eastern time, on any Business Day require the Revolving Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which the Revolving Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Revolving Lender, specifying in such notice such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender

 

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acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Revolving Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Revolving Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Revolving Lenders. The Administrative Agent shall notify the applicable Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from Altair Engineering (or other party on behalf of Altair Engineering) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Revolving Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear; provided that any such payment so remitted shall be repaid to the Swingline Lender or to the Administrative Agent, as applicable, if and to the extent such payment is required to be refunded to Altair Engineering for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve Altair Engineering of any default in the payment thereof.

SECTION 2.06. Letters of Credit.

(a) General. Subject to the terms and conditions set forth herein, Altair Engineering may request the issuance of Letters of Credit denominated in dollars as the applicant thereof for the support of the obligations of Altair Engineering or any Subsidiary thereof, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by Altair Engineering to, or entered into by Altair Engineering with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. Altair Engineering unconditionally and irrevocably agrees that, in connection with any Letter of Credit issued for the support of any Subsidiary’s obligations as provided in the first sentence of this paragraph, Altair Engineering will be fully responsible for the reimbursement of LC Disbursements in accordance with the terms hereof, the payment of interest thereon and the payment of fees due under Section 2.12(b) to the same extent as if it were the sole account party in respect of such Letter of Credit (Altair Engineering hereby irrevocably waiving any defenses that might otherwise be available to it as a guarantor or surety of the obligations of such Subsidiary that is an account party in respect of any such Letter of Credit). Notwithstanding anything herein to the contrary, the Issuing Bank shall have no obligation hereunder to issue, and shall not issue, any Letter of Credit (i) the proceeds of which would be made available to any Person (A) to fund any activity or business of or with any Sanctioned Person, or in any country or territory that, at the time of such funding, is the subject of any Sanctions or (B) in any manner that would result in a violation of any Sanctions by any party to this Agreement, (ii) if any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from issuing such Letter of Credit, or any Requirement of Law relating to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for

 

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which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Effective Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Effective Date and which the Issuing Bank in good faith deems material to it, or (iii) if the issuance of such Letter of Credit would violate one or more policies of the Issuing Bank applicable to letters of credit generally; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements or directives thereunder or issued in connection therewith or in the implementation thereof, and (y) all requests, rules, guidelines, requirements or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed not to be in effect on the Effective Date for purposes of clause (ii) above, regardless of the date enacted, adopted, issued or implemented.

(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), Altair Engineering shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof, and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the applicable Borrower also shall submit a letter of credit application on the Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit Altair Engineering shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $2,000,000, and (ii) the Aggregate Revolving Credit Exposure plus the Ancillary Facility Exposure shall not exceed the Aggregate Revolving Commitment.

(c) Expiration Date. Each Letter of Credit shall expire (or be subject to termination or non-renewal by notice from the Issuing Bank to the beneficiary thereof) at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, including, without limitation, any automatic renewal provision, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Termination Date.

(d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Revolving Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by Altair Engineering on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to Altair Engineering for any reason. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in

 

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respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, Altair Engineering shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 11:00 a.m., eastern time, on (i) the Business Day that Altair Engineering receives notice of such LC Disbursement, if such notice is received prior to 10:00 a.m., eastern time, on the day of receipt, or (ii) the Business Day immediately following the day that Altair Engineering receives such notice, if such notice is received after 10:00 a.m., eastern time, on the day of receipt; provided that Altair Engineering may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.05 that such payment be financed with a CBFR Revolving Borrowing or Swingline Loan in an equivalent amount and, to the extent so financed, Altair Engineering’s obligation to make such payment shall be discharged and replaced by the resulting CBFR Revolving Borrowing or Swingline Loan. If Altair Engineering fails to make such payment when due, the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement, the payment then due from Altair Engineering in respect thereof, and such Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from Altair Engineering, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from Altair Engineering pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Revolving Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank, as their interests may appear. Any payment made by a Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of CBFR Revolving Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve Altair Engineering of its obligation to reimburse such LC Disbursement.

(f) Obligations Absolute. Altair Engineering’s obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein or herein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) any payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, Altair Engineering’s obligations hereunder. None of the Administrative Agent, the Revolving Lenders or the Issuing Bank, or any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit, or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided

 

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that the foregoing shall not be construed to excuse the Issuing Bank from liability to Altair Engineering to the extent of any direct damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by Altair Engineering to the extent permitted by applicable law) suffered by any Borrower that are caused by the Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and Altair Engineering in writing of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve Altair Engineering of its obligation to reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement.

(h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless Altair Engineering shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that Altair Engineering reimburses such LC Disbursement, at the rate per annum then applicable to CBFR Revolving Loans and such interest shall be due and payable on the date when such reimbursement is due; provided that, if Altair Engineering fail to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.14 (c) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment.

(i) Replacement of the Issuing Bank. (i) The Issuing Bank may be replaced at any time by written agreement among Altair Engineering, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Revolving Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, Altair Engineering shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit then outstanding and issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.

 

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(ii) Subject to the appointment and acceptance of a successor Issuing Bank, the Issuing Bank may resign as an Issuing Bank at any time upon thirty days’ prior written notice to the Administrative Agent, the Borrower Representative and the Lenders, in which case, such Issuing Bank shall be replaced in accordance with Section 2.06(i) above.

(j) Cash Collateralization. If any Event of Default under clauses (a) or (b) of Article VII shall occur and be continuing, on the Business Day that Altair Engineering receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Lenders with LC Exposure representing greater than 50% of the aggregate LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, Altair Engineering shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Revolving Lenders (the “LC Collateral Account”), an amount in cash equal to 105% of the amount of the LC Exposure as of such date plus accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to any Borrower described in clause (h) or (i) of Article VII. The Borrowers also shall deposit cash collateral in accordance with this paragraph as and to the extent required by Section 2.10(b) or 2.20. Each such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the Secured Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over the LC Collateral Account and Altair Engineering hereby grant the Administrative Agent a security interest in the LC Collateral Account and all moneys or other assets on deposit therein or credited thereto. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at Altair Engineering’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of Altair Engineering for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Lenders with LC Exposure representing greater than 50% of the aggregate LC Exposure), be applied to satisfy other Secured Obligations. If Altair Engineering is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to Altair Engineering within three Business Days after all such Events of Default have been cured or waived as confirmed in writing by the Administrative Agent.

(k) LC Exposure Determination. For all purposes of this Agreement, the amount of a Letter of Credit that, by its terms or the terms of any document related thereto, provides for one or more automatic increases in the stated amount thereof shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at the time of determination.

SECTION 2.07. Funding of Borrowings.

(a) Each Lender shall make each Loan to be made by such Lender hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., eastern time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders in an amount equal to such Lender’s Applicable Percentage; provided that Term Loans shall be made as provided in Sections 2.01(b), (c) and 2.02(b) and Swingline Loans shall be made as provided in Section 2.05. The Administrative Agent will make such Loans available to Altair Engineering by promptly crediting the amounts so received, in like funds, to the Funding Account(s); provided that CBFR Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Administrative Agent to the Issuing Bank.

 

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(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the applicable Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the applicable Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrowers, the interest rate applicable to CBFR Revolving Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing. Ancillary Loans shall be made available to the applicable Foreign Subsidiary Borrower in accordance with the applicable Ancillary Facility Documents, and all loans and other credit to any Foreign Subsidiary Borrower shall be provided under the applicable Ancillary Facility Documents.

SECTION 2.08. Interest Elections. (a) Each Borrowing (other than with respect to an Ancillary Loan) initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the applicable Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing. The applicable Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued.

(b) To make an election pursuant to this Section, the Borrower Representative shall notify the Administrative Agent of such election by telephone or through Electronic System, if arrangements for doing so have been approved by the Administrative Agent, by the time that a Borrowing Request would be required under Section 2.03 if the Borrowers were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery, Electronic System or fax to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower Representative.

(c) Each telephonic and written Interest Election Request (including requests submitted through Electronic System) shall specify the following information in compliance with Section 2.02:

(i) the name of the applicable Borrower and the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

 

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(iii) whether the resulting Borrowing is to be an CBFR Borrowing or a Eurodollar Borrowing; and

(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrowers shall be deemed to have selected an Interest Period of one month’s duration.

(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the applicable Class of the details thereof and of such Lender’s portion of each resulting Borrowing.

(e) If a Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to a CBFR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to a CBFR Borrowing at the end of the Interest Period applicable thereto.

(f) Notwithstanding the above, all matters with respect to interest rate elections with respect to any Ancillary Loan shall be governed by the applicable Ancillary Facility Document.

(g) Notwithstanding the above or anything else in this Agreement to the contrary, prior to an Event of Default Term Loan A shall be a Eurodollar Loan in its entirety, with the first Interest Period commencing on the Effective Date and each successive Interest Period automatically commencing at the end of each Interest Period and being for a period of one month.

SECTION 2.09. Termination and Reduction of Commitments. (a) Unless previously terminated, the Revolving Commitment shall terminate on the Termination Date. Term Loan A may be made only on the Effective Date, and the Term Loan A Commitment shall terminate at the end of the Effective Date.

(b) Altair Engineering may at any time terminate, or from time to time reduce, any Commitment; provided that (i) each reduction of a Commitment shall be in an amount that is an integral multiple of $100,000 and not less than $500,000, and (ii) Altair Engineering shall not terminate or reduce the Revolving Commitment if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.10, the Aggregate Revolving Credit Exposure plus the Ancillary Facility Exposure would exceed the Aggregate Revolving Commitment Revolving Credit Exposures.

SECTION 2.10. Repayment of Loans. (a) Altair Engineering hereby unconditionally promises to pay to the Lenders the then unpaid principal amount of each Revolving Loan on the Termination Date. Each Foreign Subsidiary Borrower, in addition to all obligations under any Ancillary Facility Document, hereby unconditionally promises to pay to JPMCB the then unpaid principal amount of the Ancillary Loans owed by it on the Termination A Date.

 

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(b) The applicable Borrower shall immediately repay the Aggregate Revolving Credit Exposure or the Ancillary Facility Exposure if the Aggregate Revolving Credit Exposure plus the Ancillary Facility Exposure exceeding the Aggregate Revolving Commitment exceeds the Aggregate Revolving Commitment at any time, to the extent required to eliminate such excess. If any such excess remains after repayment in full of all outstanding Revolving Loans and Ancillary Loans, Altair Engineering shall provide cash collateral for the LC Exposure in the manner set forth herein to the extent required to eliminate such excess.

(c) Altair Engineering hereby unconditionally promises to pay to the Lenders the principal amount of Term Loan A in consecutive quarterly installments, each in the amount of $2,500,000 and payable on the last day of each March, June, September and December, commencing with the last day of June, 2017, until Maturity Date A, and to the extent not previously paid, the unpaid principal of Term Loan A shall be paid in full by Altair Engineering on Maturity Date A.

SECTION 2.11. Prepayment of Loans. (a) The Borrowers shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (e) of this Section.

(b) In addition to all other payments of Term Loan A required hereunder, Altair Engineering shall prepay the principal balance of Term Loan A with all proceeds from the issuance of any Equity Interests by Altair Engineering, payable promptly upon receipt of such proceeds; provided that this Section 2.11(b) shall not apply to any amounts received by Altair Engineering (i) pursuant to the exercise of stock options by any employees of Altair Engineering to the extent the aggregate amounts received by Altair Engineering pursuant thereto does not exceed $1,000,000 in any period of four consecutive Fiscal Quarters, and (ii) in connection with Equity Interests issued pursuant to or in connection with a Permitted Acquisition.

(c) All amounts prepaid on any Term Loan pursuant to (i) Section 2.11(a) shall be applied pro rata to the remaining principal payments due on such Term Loan or (ii) Section 2.11(b) shall be applied to the remaining principal payments due on such Term Loan in the inverse order of maturity. Within the parameters of the applications set forth above, prepayments shall be applied first to CBFR Loans and then to Eurodollar Loans (in the case of Eurodollar Loans, in direct order of Interest Period maturities).

(d) The Borrowers shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by fax) or through Electronic System, if arrangements for doing so have been approved by the Administrative Agent, of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., eastern time, three Business Days before the date of prepayment, (ii) in the case of prepayment of a CBFR Borrowing, not later than 11:00 a.m., eastern time, one Business Day before the date of prepayment, or (iii) in the case of prepayment of a Swingline Loan, not later than 11:00 a.m., eastern time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.08, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.08. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02, provided that prepayments of CBFR Loans may be in any amount. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13.

 

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(e) Notwithstanding the foregoing, all prepayments with respect to any Ancillary Loans shall be governed by the applicable Ancillary Facility Document.

SECTION 2.12. Fees. (a) Altair Engineering agrees to pay to Administrative Agent a commitment fee for the account of each Revolving Lender, which shall accrue at a per annum rate equal to 0.25% on the average daily unused amount of the Revolving Commitments during the period from and including the Effective Date to but excluding the date on which the Revolving Commitments terminate. Accrued commitment fees shall be payable in arrears on the last day of each calendar quarter and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(b) Altair Engineering agrees to pay (i) to the Administrative Agent for the account of each Revolving Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the Applicable Margin on the average daily amount of each Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the date on which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at the rate of 0.25% per annum on the daily amount of all LC Exposure of the Lenders (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank’s standard fees and commissions with respect to the issuance, amendment, cancellation, negotiation, transfer, presentment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the Termination Date and any such fees accruing after the Termination Date shall be payable on demand and, upon and during the continuance of any Event of Default, the fee under this Section 2.12(b) shall be increased by 2.00% per annum. Any other fees payable pursuant to this paragraph shall be payable within 5 days after demand. All such fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(c) The Borrowers agree to pay to the Administrative Agent such other fees payable in the amounts and at the times separately agreed upon between the Borrowers and the Administrative Agent.

(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds. Fees paid shall not be refundable under any circumstances.

SECTION 2.13. Interest. (a) The Loans comprising each CBFR Borrowing shall bear interest at the CB Floating Rate.

(b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.

(c) Notwithstanding the foregoing, upon and during the continuance of any Event of Default, all Loans and other amounts due hereunder (other than interest) shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to CBFR Loans as provided in paragraph (a) of this Section.

 

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(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Revolving Commitment; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of a CBFR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(e) All interest hereunder shall be computed on the basis of a year of 360 days. The applicable CB Floating Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.

(f) Notwithstanding the above, Ancillary Loans shall bear interest and be payable as set forth in the applicable Ancillary Facility Documents.

SECTION 2.14. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing:

(a) the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that adequate and reasonable means do not exist for ascertaining (including, without limitation, by means of an Interpolated Rate) the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or

(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for the applicable Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans included in such Borrowing for such Interest Period;

then the Administrative Agent shall give notice thereof to Altair Engineering and the Lenders through Electronic System as provided in Section 9.01 as promptly as practicable thereafter and, until the Administrative Agent notifies Altair Engineering and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and any such Eurodollar Borrowing shall be repaid on the last day of the then current Interest Period applicable thereto, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as a CBFR Borrowing.

SECTION 2.15. Increased Costs. (a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or

 

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(ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein; or

(iii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;

and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, continuing, converting into or maintaining any Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender, the Issuing Bank or such other Recipient of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender, the Issuing Bank or such other Recipient hereunder (whether of principal, interest or otherwise), then the Borrowers will pay to such Lender, the Issuing Bank or such other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender, the Issuing Bank or such other Recipient, as the case may be, for such additional costs incurred or reduction suffered.

(b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Bank’s capital or on the capital of such Lender’s or the Issuing Bank’s holding company, if any, as a consequence of this Agreement, the Commitments of or the Loans made by, or participations in Letters of Credit or Swingline Loans held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Bank’s policies and the policies of such Lender’s or the Issuing Bank’s holding company with respect to capital adequacy and liquidity), then from time to time the Borrowers will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding company for any such reduction suffered.

(c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to Altair Engineering and shall be conclusive absent manifest error. The Borrowers shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.

(d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation; provided that the Borrowers shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies Altair Engineering of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the Issuing Bank’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.

 

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SECTION 2.16. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default or as a result of any prepayment pursuant to Section 2.11), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.09 and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by Altair Engineering pursuant to Section 2.19 or 9.02(d), then, in any such event, the Borrowers shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Eurodollar Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Eurodollar Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Eurodollar Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to Altair Engineering and shall be conclusive absent manifest error. The Borrowers shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.

SECTION 2.17. Taxes.

(a) Withholding Taxes; Gross-Up; Payments Free of Taxes. Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable withholding agent) requires the deduction or withholding of any Tax from any such payment by a withholding agent, then the applicable withholding agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Loan Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 2.17), the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.

(b) Payment of Other Taxes by Loan Parties. The Loan Parties shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for, Other Taxes.

(c) Evidence of Payment. As soon as practicable after any payment of Taxes by the any Loan Party to a Governmental Authority pursuant to this Section 2.17, such Loan Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment, or other evidence of such payment reasonably satisfactory to the Administrative Agent.

 

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(d) Indemnification by the Borrowers. The Loan Parties shall jointly and severally indemnify each Recipient, within ten (10) days after written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Loan Party by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(e) Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Loan Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 9.04(c) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to such Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).

(f) Status of Lenders.

(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to Altair Engineering and the Administrative Agent, at the time or times reasonably requested by Altair Engineering or the Administrative Agent, such properly completed and executed documentation reasonably requested by Altair Engineering or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by Altair Engineering or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by Altair Engineering or the Administrative Agent as will enable Altair Engineering or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.17(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(ii) Without limiting the generality of the foregoing, in the event that any Borrower is a U.S. Person,

(A) any Lender that is a U.S. Person shall deliver to Altair Engineering and the Administrative Agent on or prior to the date on which such Lender becomes a Lender

 

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under this Agreement (and from time to time thereafter upon the reasonable request of Altair Engineering or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to Altair Engineering and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Altair Engineering or the Administrative Agent), whichever of the following is applicable:

(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the U.S. is a party (x) with respect to payments of interest under any Loan Document, an executed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

(2) in the case of a Foreign Lender claiming that its extension of credit will generate U.S. effectively connected income, executed originals of IRS Form W-8ECI;

(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit B-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of a Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) an executed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable; or

(4) to the extent a Foreign Lender is not the Beneficial Owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable,, a U.S. Tax Compliance Certificate substantially in the form of Exhibit B-2 or Exhibit B-3, IRS Form W-9, and/or other certification documents from each Beneficial Owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit B-4 on behalf of each such direct and indirect partner;

(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to Altair Engineering and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes

 

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a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Altair Engineering or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit Altair Engineering or the Administrative Agent to determine the withholding or deduction required to be made;

(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to Altair Engineering and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by Altair Engineering or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Altair Engineering or the Administrative Agent as may be necessary for Altair Engineering and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement; and

(E) Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify Altair Engineering and the Administrative Agent in writing of its legal inability to do so.

(g) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.17 (including by the payment of additional amounts pursuant to this Section 2.17), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.17 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph (g) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

 

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(h) Survival. Each party’s obligations under this Section 2.17 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.

(i) Defined Terms. For purposes of this Section 2.17, the term “Lender” includes any Issuing Bank and the term “applicable law” includes FATCA.

SECTION 2.18. Payments Generally; Allocation of Proceeds; Sharing of Set-offs.

(a) The Borrowers shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Sections 2.15, 2.16 or 2.17, or otherwise) prior to 2:00 p.m., eastern time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices as specified by the Administrative Agent from time to time, except payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. Unless otherwise provided herein, if any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars.

(b) Any proceeds of Collateral received by the Administrative Agent (i) not constituting either (A) a specific payment of principal, interest, fees or other sum payable under the Loan Documents (which shall be applied as specified by the Borrowers), or (B) a mandatory prepayment (which shall be applied in accordance with Section 2.11) or (ii) after an Event of Default has occurred and is continuing and the Administrative Agent so elects or the Required Lenders so direct, shall be applied ratably first, to pay any fees, indemnities, or expense reimbursements including amounts then due to the Administrative Agent, the Swingline Lender and the Issuing Bank from the Borrowers (other than in connection with Banking Services Obligations or Swap Agreement Obligations), second, to pay any fees or expense reimbursements then due to the Lenders from the Borrowers (other than in connection with Banking Services Obligations or Swap Agreement Obligations), third, to pay interest then due and payable on the Loans ratably, fourth, to prepay principal on the Loans and unreimbursed LC Disbursements, to pay any amounts owing with respect to Swap Agreement Obligations up to and including the amount most recently provided to the Administrative Agent pursuant to Section 2.23, ratably (with amounts allocated to the Term Loans of any Class applied to reduce the subsequent scheduled repayments of the Term Loans of such Class to be made pursuant to Section 2.10 in inverse order of maturity), to pay an amount to the Administrative Agent equal to one hundred five percent (105%) of the aggregate LC Exposure (to be held as cash collateral for such Obligations), and to the payment of any amounts owing in respect of Banking Services Obligations up to and including the amount most recently provided to the Administrative Agent pursuant to Section 2.23, all on a pro rata basis, and fifth, to the payment of any other Secured Obligation due to the Administrative Agent or any Lender from the Borrowers or any other Loan Party. Notwithstanding anything to the contrary contained in this Agreement, unless so directed by Altair Engineering, or unless a Default is in existence, neither the Administrative Agent nor any Lender shall apply any payment which it receives to any Eurodollar Loan of a Class, except (i) on the expiration date of the Interest Period applicable thereto, or (ii) in the

 

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event, and only to the extent, that there are no outstanding CBFR Loans of the same Class and, in any such event, the Borrowers shall pay the break funding payment required in accordance with Section 2.16. The Administrative Agent and the Lenders shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Secured Obligations.

Notwithstanding the foregoing, Secured Obligations arising under Banking Services Obligations or Swap Agreement Obligations shall be excluded from the application described above and paid in clause fifth if the Administrative Agent has not received written notice thereof, together with such supporting documentation as the Administrative Agent may have reasonably requested from the applicable provider of such Banking Services or Swap Agreements.

(c) At the election of the Administrative Agent, all payments of principal, interest, LC Disbursements, fees, premiums, reimbursable expenses (including, without limitation, all reimbursement for fees, costs and expenses pursuant to Section 9.03), and other sums payable under the Loan Documents, may be paid from the proceeds of Borrowings made hereunder, whether made following a request by Altair Engineering pursuant to Section 2.03 or 2.05 or a deemed request as provided in this Section or may be deducted from any deposit account of the Borrowers maintained with the Administrative Agent. The Borrowers hereby irrevocably authorize (i) the Administrative Agent to make a Borrowing for the purpose of paying each payment of principal, interest and fees as it becomes due hereunder or any other amount due under the Loan Documents and agree that all such amounts charged shall constitute Loans (including Swingline Loans), and that all such Borrowings shall be deemed to have been requested pursuant to Sections 2.03 or 2.05, as applicable, and (ii) the Administrative Agent to charge any deposit account of any Borrower maintained with the Administrative Agent for each payment of principal, interest and fees as it becomes due hereunder or any other amount due under the Loan Documents.

(d) If, except as otherwise expressly provided herein, any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other similarly situated Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by all such Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements and Swingline Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrowers pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment or sale of a participation in any of its Loans or participations in LC Disbursements and Swingline Loans to any assignee or participant, other than to the Borrowers or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Altair Engineering consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Borrower in the amount of such participation.

 

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(e) Unless the Administrative Agent shall have received notice from Altair Engineering prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrowers have not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

(f) If any Lender shall fail to make any payment required to be made by it hereunder, then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), (i) apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations hereunder until all such unsatisfied obligations are fully paid and/or (ii) hold any such amounts in a segregated account as cash collateral for, and application to, any future funding obligations of such Lender hereunder. Application of amounts pursuant to (i) and (ii) above shall be made in such order as may be determined by the Administrative Agent in its discretion.

(g) The Administrative Agent may from time to time provide the Borrowers with account statements or invoices with respect to any of the Secured Obligations (the “Statements”). The Administrative Agent is under no duty or obligation to provide Statements, which, if provided, will be solely for the Borrowers’ convenience. Statements may contain estimates of the amounts owed during the relevant billing period, whether of principal, interest, fees or other Secured Obligations. If the Borrowers pay the full amount indicated on a Statement on or before the due date indicated on such Statement, the Borrowers shall not be in default of payment with respect to the billing period indicated on such Statement; provided, that acceptance by the Administrative Agent, on behalf of the Lenders, of any payment that is less than the total amount actually due at that time (including but not limited to any past due amounts) shall not constitute a waiver of the Administrative Agent’s or the Lenders’ right to receive payment in full at another time.

SECTION 2.19. Mitigation Obligations; Replacement of Lenders.

(a) If any Lender requests compensation under Section 2.15, or if the Borrowers are required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Sections 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b) If any Lender requests compensation under Section 2.15, or if the Borrowers are required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender becomes a Defaulting Lender, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the

 

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Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights (other than its existing rights to payments pursuant to Sections 2.15 or 2.17) and obligations under this Agreement and other Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrowers shall have received the prior written consent of the Administrative Agent (and in circumstances where its consent would be required under Section 9.04, the Issuing Bank and the Swingline Lender), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and funded participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply.

SECTION 2.20. Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:

(a) fees shall cease to accrue on the unfunded portion of the Revolving Commitment of such Defaulting Lender pursuant to Section 2.12(a);

(b) such Defaulting Lender shall not have the right to vote on any issue on which voting is required (other than to the extent expressly provided in Section 9.02(b)) and the Commitments and Credit Exposure of such Defaulting Lender shall not be included in determining whether the Required Lenders have taken or may take any action hereunder or under any other Loan Document; provided that, except as otherwise provided in Section 9.02, this clause (b) shall not apply to the vote of a Defaulting Lender in the case of an amendment, waiver or other modification requiring the consent of such Lender or each Lender directly affected thereby;

(c) if any Swingline Exposure or LC Exposure exists at the time such Lender becomes a Defaulting Lender then:

(i) all or any part of the Swingline Exposure and LC Exposure of such Defaulting Lender (other than the portion of such Swingline Exposure referred to in clause (b) of the definition of such term) shall be reallocated among the non-Defaulting Lenders in accordance with their respective Applicable Percentages but only to the extent that (x) the conditions set forth in Section 4.02 are satisfied at the time of such reallocation (and, unless the Borrowers shall have otherwise notified the Administrative Agent at such time, the Borrowers shall be deemed to have represented and warranted that such conditions are satisfied at such time) and (y) to the extent that such reallocation does not, as to any non-Defaulting Lender, cause such non-Defaulting Lender’s Revolving Exposure to exceed its Revolving Commitment;

(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrowers shall within one (1) Business Day following notice by the Administrative Agent (x) first, prepay such Swingline Exposure and (y) second, cash collateralize, for the benefit of the Issuing Bank, the Borrowers’ obligations corresponding to such Defaulting Lender’s LC Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.06(j) for so long as such LC Exposure is outstanding;

 

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(iii) if the Borrowers cash collateralize any portion of such Defaulting Lender’s LC Exposure pursuant to clause (ii) above, the Borrowers shall not be required to pay any fees to such Defaulting Lender pursuant to Section 2.12(b) with respect to such Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure is cash collateralized;

(iv) if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the fees payable to the Lenders pursuant to Sections 2.12(a) and 2.12(b) shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages; and

(v) if all or any portion of such Defaulting Lender’s LC Exposure is neither reallocated nor cash collateralized pursuant to clause (i) or (ii) above, then, without prejudice to any rights or remedies of the Issuing Bank or any other Lender hereunder, all letter of credit fees payable under Section 2.12(b) with respect to such Defaulting Lender’s LC Exposure shall be payable to the Issuing Bank until and to the extent that such LC Exposure is reallocated and/or cash collateralized; and

(d) so long as such Lender is a Defaulting Lender, the Issuing Bank shall not be required to issue, amend, renew, extend or increase any Letter of Credit, unless it is satisfied that the related exposure and such Defaulting Lender’s then outstanding LC Exposure will be 100% covered by the Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrowers in accordance with Section 2.20(c), and participating interests in any such newly made Swingline Loan or LC Exposure with respect to any newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders in a manner consistent with Section 2.20(c)(i) (and such Defaulting Lender shall not participate therein).

If (i) a Bankruptcy Event or Bail-In Action with respect to the Parent of any Lender shall occur following the date hereof and for so long as such event shall continue or (ii) the Swingline Lender or the Issuing Bank has a good faith belief that any Lender has defaulted in fulfilling its obligations under one or more other agreements in which such Lender commits to extend credit, the Swingline Lender shall not be required to fund any Swingline Loan and the Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless the Swingline Lender or the Issuing Bank, as the case may be, shall have entered into arrangements with the Borrowers or such Lender, satisfactory to the Swingline Lender or the Issuing Bank, as the case may be, to defease any risk to it in respect of such Lender hereunder.

In the event that each of the Administrative Agent, the Borrowers, the Swingline Lender and the Issuing Bank agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the Swingline Exposure and LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Revolving Commitment and on the date of such readjustment such Lender shall purchase at par such of the Loans of the other Lenders (other than Swingline Loans) as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage.

SECTION 2.21. Returned Payments. If, after receipt of any payment which is applied to the payment of all or any part of the Obligations (including a payment effected through exercise of a right of setoff), the Administrative Agent or any Lender is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared

 

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fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion), then the Obligations or part thereof intended to be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment or proceeds had not been received by the Administrative Agent or such Lender. The provisions of this Section 2.21 shall be and remain effective notwithstanding any contrary action which may have been taken by the Administrative Agent or any Lender in reliance upon such payment or application of proceeds. The provisions of this Section 2.21 shall survive the termination of this Agreement.

SECTION 2.22. Banking Services and Swap Agreements. Each Lender or Affiliate thereof providing Banking Services for, or having Swap Agreements with, any Loan Party or any Subsidiary or Affiliate of a Loan Party shall deliver to the Administrative Agent, promptly after entering into such Banking Services or Swap Agreements, written notice setting forth the aggregate amount of all Banking Services Obligations and Swap Agreement Obligations of such Loan Party or Subsidiary or Affiliate thereof to such Lender or Affiliate (whether matured or unmatured, absolute or contingent). In furtherance of that requirement, each such Lender or Affiliate thereof shall furnish the Administrative Agent, from time to time upon a request therefor, a summary of the amounts due or to become due in respect of such Banking Services Obligations and Swap Agreement Obligations. The most recent information provided to the Administrative Agent shall be used in determining which tier of the waterfall, contained in Section 2.18(b), in which such Banking Services Obligations and/or Swap Agreement Obligations will be placed.

SECTION 2.23. Foreign Subsidiary Borrowers. On the Effective Date, Altair Engineering India Pvt., Ltd., a company organized under the laws of India, is designated as a Foreign Subsidiary Borrower. After the Effective Date, Altair Engineering may designate any other Foreign Subsidiary, provided that Altair Engineering owns at least 85% of the Equity Interests of such Foreign Subsidiary, as a Foreign Subsidiary Borrower by delivery to JPMCB of a Foreign Subsidiary Borrower Agreement executed by such Foreign Subsidiary and the Domestic Borrowers. Each such designation shall be subject to the consent of the Required Lenders. Upon the execution by Altair Engineering and delivery to JPMCB of a Foreign Subsidiary Borrower Termination with respect to any Foreign Subsidiary Borrower, such Foreign Subsidiary shall cease to be a Foreign Subsidiary Borrower and a party to this Agreement; provided that no Foreign Subsidiary Borrower Termination will become effective as to any Foreign Subsidiary Borrower (other than to terminate such Foreign Subsidiary Borrower’s right to make further Borrowings under this Agreement) at a time when any principal of or interest on any Ancillary Loans to such Foreign Subsidiary Borrower shall be outstanding hereunder or any Ancillary Facility under which Ancillary Loans may be made available to such Foreign Subsidiary Borrower has not been previously terminated.

SECTION 2.24. Ancillary Facilities. (a) General. If a Foreign Subsidiary Borrower and JPMCB agree, subject to (i) compliance with the requirements set forth in this Section 2.24 and (ii) such Foreign Subsidiary Borrower having complied with Sections 2.24 and 4.03, JPMCB may, but shall not be obligated, to provide an Ancillary Facility to such Foreign Subsidiary Borrower. No Lender (other than JPMCB) shall be a party to any Ancillary Facility or otherwise lend to any Foreign Subsidiary Borrower. The aggregate amount of all Ancillary Facilities shall not at any time exceed $4,000,000.

(b) Creation of Ancillary Facilities. To request the creation of an Ancillary Facility, a Foreign Subsidiary Borrower shall deliver to JPMCB not later than 10 Business Days (or such shorter period agreed to by JPMCB) prior to the first date on which such Ancillary Facility is proposed to be made available a notice in writing specifying: (i) the Foreign Subsidiary Borrower to which extensions of credit will be made available thereunder; (ii) the first date on which such Ancillary Facility shall be made

 

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available and the expiration date of such Ancillary Facility (which shall be no later than the Termination Date); (iii) the type of Ancillary Facility being provided; (iv) the amount of the Ancillary Facility (which shall be expressed in Dollars and shall not exceed, when combined with all Ancillary Facilities, $4,000,000) and the Foreign Currencies in which such Ancillary Facilities shall be made available; and (v) such other information that JPMCB may reasonably request in connection with such Ancillary Facility.

(c) Terms of Ancillary Facility. Each Ancillary Facility shall be on terms and conditions, and subject to Ancillary Facility Documents, acceptable to JPMCB and the applicable Foreign Subsidiary Borrower thereunder.

(d) Conflict with Loan Documents. In the event of any conflict between the terms of an Ancillary Facility Document and any other Loan Document (other than an Ancillary Facility Document), the terms of such other Loan Document shall govern.

SECTION 2.25. Increase in Commitments.

(a) Subject to the conditions set forth below, Altair Engineering may, upon at least ten (10) days (or such other period of time agreed to between the Administrative Agent and Altair Engineering) prior written notice to the Administrative Agent, increase the Aggregate Revolving Commitments from time to time, either by designating a lender not theretofore a Lender to become a Lender (such designation to be effective only with the prior written consent of the Administrative Agent which shall not be unreasonably withheld) or by agreeing with an existing Lender that such Lender’s Revolving Commitment shall be increased (thus increasing the Aggregate Revolving Commitments); provided that:

(i) both before and after giving effect to such increase on a pro forma basis, no Default or Unmatured Default shall have occurred and be continuing hereunder and the Leverage Ratio is at least 0.25 below the level then required under Section 6.13;

(ii) The representations and warranties contained in Article VII are true and correct as of the effective date of such increase in all material respects except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date;

(iii) the amount of each such increase in the Aggregate Revolving Commitments shall not be less than $5,000,000 (or such other minimum amount agreed to between the Administrative Agent and Altair Engineering), and aggregate amount of all increases to the Aggregate Revolving Commitments plus all New Credit Facilities shall not exceed $25,000,000;

(iv) Altair Engineering and any applicable Lender or lender not theretofore a Lender, shall execute and deliver to the Administrative Agent, a lender addition and acknowledgement Agreement in form and substance satisfactory to the Administrative Agent (each such agreement, a “Lender Addition and Acknowledgment Agreement”) and acknowledged by the Administrative Agent and Altair Engineering;

(v) no existing Lender shall be obligated in any way to increase any of its Commitments;

 

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(vi) the Administrative Agent shall consent to such increase, which consent shall not be unreasonably withheld; and

(vii) the Administrative Agent shall have received such supplemental opinions, resolutions, certificates and other documents as the Administrative Agent may reasonably request.

Upon the execution, delivery, acceptance and recording of the Lender Addition and Acknowledgement Agreement, from and after the effective date specified in a Lender Addition and Acknowledgement Agreement, such existing Lender shall have a Revolving Commitment as therein set forth or such other Lender shall become a Lender with a Revolving Commitment as therein set forth and all the rights and obligations of a Lender with such a Revolving Commitment hereunder. Upon its receipt of a Lender Addition and Acknowledgement Agreement together with any note or notes, if requested, subject to such addition and assumption and the written consent to such addition and assumption, the Administrative Agent shall, if such Lender Addition and Acknowledgement Agreement has been completed and the other conditions described in this Section 2.25(a) have been satisfied: (x) accept such Lender Addition and Acknowledgement Agreement; (y) record the information contained therein in the Register; and (z) give prompt notice thereof to the Lenders and Altair Engineering and deliver to the Lenders a schedule reflecting the new Commitments. The Lenders (new or existing) shall accept an assignment from the existing Lenders, and the existing Lenders shall make an assignment to the new or existing Lender accepting a new or increased Revolving Commitment, of a direct or participation interest in each then outstanding Loans and Letter of Credit such that, after giving effect thereto, all outstanding Credit Exposure (other than Ancillary Facility Exposure) hereunder is held ratably by the Lenders in proportion to their respective Revolving Commitments. Assignments pursuant to the preceding sentence shall be made in exchange for the principal amount assigned plus accrued and unpaid interest and facility and letter of credit fees. Altair Engineering shall make any payments under Section 2.17 resulting from such assignments.

(b) Subject to the conditions set forth below, Altair Engineering may, upon at least ten (10) days (or such other period of time agreed to between the Administrative Agent and Altair Engineering) prior written notice to the Administrative Agent, request a new credit facility which is a revolving credit facility, a term loan or other credit facility (a “New Credit Facility”); provided that:

(i) both before and after giving effect to such New Credit Facility on a pro forma basis, no Default or Unmatured Default shall have occurred and be continuing hereunder and the Leverage Ratio is at least 0.25 below the level then required under Section 6.13;

(ii) the representations and warranties contained in Article VII are true and correct as of the effective date of such New Credit Facility in all material respects except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date;

(iii) the amount of each such New Credit Facility shall not be less than $5,000,000 (or such other minimum amount agreed to between the Administrative Agent and Altair Engineering), and the aggregate amount of all increases to the Aggregate Revolving Commitments under Section 2.25(a) plus all New Credit Facilities shall not exceed $25,000,000;

(iv) Altair Engineering and any applicable Lender or lender not theretofore a Lender, shall execute and deliver to the Administrative Agent, a Lender Addition and Acknowledgement Agreement, in form and substance satisfactory to the Administrative Agent and acknowledged by the Administrative Agent and Altair Engineering;

 

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(v) no existing Lender shall be obligated in any way to make or participate in any New Credit Facility;

(vi) the Administrative Agent shall consent to such increase, which consent shall not be unreasonably withheld;

(vii) the Administrative Agent shall have received such supplemental opinions, resolutions, certificates and other documents as the Administrative Agent may reasonably request;

(viii) the interest rates and fees and other terms applicable to the New Credit Facility shall be determined by the Administrative Agent, Altair Engineering, and the lenders thereunder;

(ix) the loans and other advances under such New Credit Facilities shall constitute Loans and credit extensions hereunder for all purposes of the Loan Documents;

(x) this Agreement and the other Loan Documents may be amended in a writing executed and delivered by Altair Engineering and the Administrative Agent to reflect any changes necessary to give effect to such New Credit Facility in accordance with its terms as set forth herein, which may include the addition of such New Credit Facility as a separate facility; and

(xi) such New Credit Facility is on the same terms and conditions as Term Loan A, except as set forth in clause (vii), (viii) and (x) above or to the extent satisfactory to the Administrative Agent and Altair Engineering.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

In order to induce the Administrative Agent and the Lenders to enter into this Agreement, the Loan Parties represent and warrant to the Administrative Agent and the Lenders that the following statements are true, correct and complete (it being understood and agreed that the representations and warranties made on the Effective Date are deemed to be made concurrently with, and giving effect to, the consummation of the Transactions):

SECTION 3.01. Organization; Powers. Each of the Companies is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.

SECTION 3.02. Authorization; Enforceability. The Transactions are within each Loan Party’s corporate or company, as the case may be, powers and have been duly authorized by all necessary corporate or company and, if required, stockholder or member action. All Loan Documents have been duly executed and delivered by each Loan Party party thereto, and constitutes a legal, valid and binding

 

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obligation of each such Loan Party, enforceable against each such Loan Party in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws, operating agreement or other organizational documents of any Loan Party or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Loan Party or its assets, or give rise to a right thereunder to require any payment to be made by any Loan Party, and (d) will not result in the creation or imposition of any Lien on any asset of any Loan Party, except as created under the Collateral Documents in favor of Administrative Agent and Permitted Encumbrances.

SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The balance sheets and statements of income, stockholders equity and cash flows as of and for the fiscal year ended December 31, 2016 and for the Fiscal Quarter ended March 31, 2017 for the Companies heretofore furnished to Administrative Agent and the Lenders present fairly, in all material respects, the financial position and results of operations and cash flows of the Companies as of such dates and for such periods in accordance with GAAP, subject, in the case of the statements for the Fiscal Quarter ended March 31, 2017, to year-end audit adjustments and the absence of footnotes and with respect to revenue recognition and tax provision disclosed to the Administrative Agent. The projections delivered to Administrative Agent and the Lenders prior to the Effective Date contain reasonable assumptions and give appropriate effect to those assumptions, and are based on estimates and assumptions considered reasonable by the Borrowers and the best information available to the Borrowers at the time made, and use information consistent with the plans of the Borrowers, it being recognized by Administrative Agent and the Lenders, however, that projections as to future events are not to be viewed as facts, and that the actual results during the period or periods covered by said projections probably will differ from the projected results and that such differences may be material, but no Borrower knows of any material differences.

(b) Since December 31, 2016, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of the Companies.

SECTION 3.05. Properties. (a) Each of the Companies has good title to, or valid leasehold interests in, all its real and personal property material to its business (including without limitation, as of the Effective Date, all assets reflected in the balance sheets of the Companies), except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes.

(b) Each of the Companies owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Companies does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

(c) As of the Effective Date, Schedule 3.05 sets forth the address and legal description of all real property that is owned or leased by any Loan Party.

SECTION 3.06. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge

 

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of the Loan Parties, threatened against or affecting any Company (i) as to which there is a reasonable probability of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve this Agreement or the Transactions.

(b) Except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, no Company (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.

SECTION 3.07. Compliance with Laws and Agreements. Each of the Companies is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

SECTION 3.08. Investment Company Status. No Company is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

SECTION 3.09. Taxes. Each of the Companies has timely filed or caused to be filed all tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Companies have set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. At any time that a Company is organized as a limited liability company, it will qualify for partnership tax treatment under United States federal tax law, except where an election has been made to treat such Company as a disregarded entity for U.S. tax purposes.

SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $1,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $1,000,000 the fair market value of the assets of all such underfunded Plans.

SECTION 3.11. Disclosure. The Loan Parties have disclosed to Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Companies to Administrative Agent and the Lenders in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Loan Parties represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

 

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SECTION 3.12 Employee Matters. No Company is engaged in any unfair labor practice that could reasonably be expected to have a Material Adverse Effect. There is (a) no unfair labor practice complaint pending against any Company, or to the knowledge of any Loan Party, threatened against any of them and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement that is so pending against any Company or to the knowledge of any Loan Party, threatened against any of them, (b) no strike, work stoppage or other labor controversy in existence or threatened involving any Company, and (c) no violation of any laws or regulations, foreign or domestic, with respect to any employee, union or related matters by any Company, except (with respect to any matter specified in clause (a), (b) or (c) above, either individually or in the aggregate) such as is not reasonably likely to have a Material Adverse Effect. The Companies are in substantial compliance in all material respects with the Fair Labor Standards Act, as amended, and have paid all minimum and overtime wages required by law to be paid to their employees.

SECTION 3.13 Subsidiaries. Schedule 3.13 contains an accurate list of (a) all Subsidiaries of Altair Engineering as of the Effective Date, setting forth their respective jurisdictions of organization and the percentage of their respective Equity Interests owned by Altair Engineering or other Subsidiaries and (b) all owners of the Equity Interests of each Domestic Borrower, setting forth the percentage of the Equity Interests of each Domestic Borrower owned by each of them. None of the Equity Interests of any Domestic Borrower constitutes Disqualified Stock and no payment of any kind required in connection with the Equity Interests of any Domestic Borrower is required to the extent prohibited by this Agreement.

SECTION 3.14. Anti-Corruption Laws and Sanctions. The Borrowers have implemented and maintain in effect policies and procedures designed to ensure compliance by each Borrower, its respective Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and the Borrowers, their respective Subsidiaries and their respective officers and employees and to the knowledge of the Borrowers their respective directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Borrowers, any Subsidiary of any of the Borrowers or any of their respective directors, officers or employees, or (b) to the knowledge of the Borrowers, any agent of any of the Borrowers or any of their respective Subsidiaries that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Loan, Borrowing or Letter of Credit, use of proceeds, the Transaction or other transactions contemplated by this Agreement or the other Loan Documents will violate Anti-Corruption Laws or applicable Sanctions.

SECTION 3.15. EEA Financial Institutions. No Loan Party is an EEA Financial Institution.

ARTICLE IV

CONDITIONS

SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans and to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):

(a) The Lender (or its counsel) shall have received from each party thereto either (i) a counterpart of each Loan Document signed on behalf of each party thereto or (ii) written evidence satisfactory to Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that each party thereto has signed a counterpart of this Agreement.

 

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(b) The Administrative Agent shall have received such written opinions of counsel for the Loan Parties as requested by the Administrative Agent, in form and substance acceptable to the Administrative Agent, and covering such other matters relating to the Loan Parties, this Agreement or the Transactions as the Administrative Agent shall reasonably request. The Loan Parties hereby request such counsel to deliver such opinion.

(c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Loan Parties, the authorization of the Transactions and any other legal matters relating to the Companies, the Loan Documents, or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel.

(d) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, and, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder.

(e) All legal (including tax implications) and regulatory matters, including, but not limited to compliance with applicable requirements of Regulations U, T and X of the Board shall be satisfactory to the Administrative Agent.

(f) The Loan Parties shall have delivered evidence of insurance coverage in form, scope, and substance reasonably satisfactory to the Administrative Agent.

(g) The Loan Parties shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary in connection with the Transactions, and each of the foregoing shall be in full force and effect.

(h) The execution of a consent and amendment of all existing Collateral Documents (and the Lenders hereby consent to the execution thereof by the Administrative Agent) and the completion of any other actions, if any, required by the Administrative Agent to grant to, and/or reaffirm the grant to, the Administrative Agent of a valid first priority, perfected security interest in and lien on all Collateral and all guarantees of the Secured Obligations.

(i) All legal (including tax implications) and regulatory matters shall be satisfactory to the Administrative Agent and all due diligence reviews of all litigation of the Companies.

(j) The Administrative Agent and Lenders shall have received all documentation and other information required by bank regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including USA PATRIOT Act, and a properly completed and signed IRS Form W-8 or W-9, as applicable, for each Loan Party

(k) The Loan Parties shall have delivered or caused to be delivered such other documents as the Administrative Agent or its counsel may have reasonably requested.

Notwithstanding the foregoing, the obligations of the Lenders to make Loans and to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 1:00 p.m., eastern time, on June 15, 2017 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

 

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SECTION 4.02. Each Credit Event. The obligation of the Lenders to make a Loan on the occasion of any Borrowing and to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:

(a) The representations and warranties of each Loan Party set forth in this Agreement or in any other Loan Document shall be true and correct in all material respects on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date, and that any representation or warranty which is subject to any materiality qualifier shall be required to be true and correct in all respects).

(b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing.

Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrowers on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.

SECTION 4.03. Credit Events Relating to Foreign Subsidiary Borrowers. The obligation, if any, of JPMCB to make any Ancillary Loan under any Ancillary Facility to any Foreign Subsidiary Borrower is also subject, in addition to all conditions under the applicable Ancillary Facility Documents, are subject to the satisfaction of the following conditions (which are in addition to the conditions contained in Sections 4.01 and 4.02):

(a) JPMCB shall have received a Foreign Subsidiary Borrower Agreement with respect to such Foreign Subsidiary Borrower duly executed by all parties thereto; and

(b) JPMCB shall have received such documents (including legal opinions) and certificates as JPMCB or its counsel may reasonably request relating to the formation, existence and good standing of such Foreign Subsidiary Borrower, the authorization of Borrowings as they relate to such Foreign Subsidiary Borrower and any other legal matters relating to such Foreign Subsidiary Borrower or its Foreign Subsidiary Borrower Agreement, all in form and substance reasonably satisfactory to JPMCB and its counsel.

ARTICLE V

AFFIRMATIVE COVENANTS

Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, each Borrower covenants and agrees with the Administrative Agent and the Lenders that:

SECTION 5.01. Financial Statements and Other Information. The Borrowers will furnish to the Administrative Agent:

(a) within 150 days after the end of each Fiscal Year of Altair Engineering, commencing

 

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with the Fiscal Year ending December 31, 2017, the audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all reported on by Ernst & Young, LLP or other independent public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Companies on a consolidated basis in accordance with GAAP consistently applied;

(b) within 45 days after the end of each of the Fiscal Quarters, including the last Fiscal Quarter of each Fiscal Year commencing with the Fiscal Quarter ending June 30, 2017, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such Fiscal Quarter and the then elapsed portion of the Fiscal Year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous Fiscal Year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Companies on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;

(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of Altair Engineering (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 6.12 and 6.13 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;

(d) within 60 days after the beginning of each Fiscal Year of Altair Engineering, commencing with the Fiscal Year ending December 31, 2017, projections for Altair Engineering and its consolidated Subsidiaries for such Fiscal Year in form and detail satisfactory to the Administrative Agent;

(e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by any Company with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by any Borrower to its shareholders generally, as the case may be; and

(f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of any Company or Affiliate, or compliance with the terms of this Agreement, as any Lender may reasonably request.

SECTION 5.02. Notices of Material Events. The Borrowers will furnish to the Administrative Agent prompt written notice of the following:

(a) the occurrence of any Default;

 

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(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting any Company or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;

(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Companies in an aggregate amount exceeding $1,000,000; and

(d) any other development that resulted in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer of Altair Engineering setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

SECTION 5.03. Existence; Conduct of Business. Each Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03.

SECTION 5.04. Payment of Obligations. Each Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) such Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP or (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.

SECTION 5.05. Maintenance of Properties; Insurance. Each Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations.

SECTION 5.06. Books and Records; Inspection Rights. Each Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Each Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. Each Borrower shall take such action as may be reasonably requested by the Administrative Agent to allow the Lenders to rely on the annual audit of the Companies.

SECTION 5.07. Compliance with Laws. Each Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrowers will maintain in effect

 

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and enforce policies and procedures designed to ensure compliance by the Borrowers, their respective Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.

SECTION 5.08. Use of Proceeds and Letters of Credit. The proceeds of the Loans and Letters of Credit will be used only for working capital needs and general corporate purposes, including, without limitation, Permitted Acquisitions of the Borrowers and Subsidiaries. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X. The Borrowers (i) will not request any Borrowing, Loan or Letter of Credit, and shall not use, (ii) shall procure that (1) their respective Subsidiaries, and (2) their respective Subsidiaries’ respective directors, officers, employees and agents shall not use, the proceeds of any Borrowing, Loan or Letter of Credit (A) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (B) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country to the extent that such activities, businesses or transaction would be prohibited by Sanctions if conducted by a corporation incorporated in the United States or the European Union, or (C) in any manner that would result in the violation of any Sanctions applicable to any party hereto.

SECTION 5.09. Collateral Security; Further Assurances. (a) To guarantee or secure the payment when due of the Secured Obligations, the Borrowers shall execute and deliver, or cause to be executed and delivered, to the Administrative Agent Collateral Documents granting or providing for the following:

(i) Secured Obligation Guaranties of each Guarantor.

(ii) Security Agreements granting a first priority, enforceable Lien and security interest, subject only to Permitted Liens, on all present and future accounts, chattel paper, commercial tort claims, deposit accounts, documents, farm products, fixtures, chattel paper, equipment, general intangibles, goods, instruments, inventory, investment property, letter-of-credit rights (as those terms are defined in the UCC) and all other personal property of Altair Engineering and each other Guarantor, but excluding any patents, copyrights, patent applications or copyright applications or any trade secrets or software products; and, provided that the pledge of any Equity Interests in any Foreign Subsidiaries or Foreign Subsidiary Holding Companies shall (x) be limited to material Foreign Subsidiary Holding Companies and material first-tier Foreign Subsidiaries directly owned by a Loan Party (in each case as reasonably determined by the Administrative Agent), and (y) not exceed 66% of the voting Equity Interests of any such Foreign Subsidiary Holding Company or Foreign Subsidiary described in the foregoing clause (x) if pledging a greater percentage would cause an adverse tax consequence for Altair Engineering. Altair Engineering shall promptly take, and promptly cause its Subsidiaries to take, any additional actions, if any, requested by the Administrative Agent to further document the required pledge of the Equity Interests in any Foreign Subsidiaries.

(iii) Collateral Documents and other documents and conditions required by the Administrative Agent with respect to any present and future real property owned by Altair Engineering or any other Guarantor granting a first priority, enforceable Lien and security interest, subject only to Permitted Liens, on all such present and future owned real property. As of the date of the First Amendment to this Agreement, the Administrative Agent will not be taking a mortgage on the Supplemental Headquarters Property and requesting the other requirements under this Section 5.09(a)(iii) with respect to the Supplemental Headquarters Property, and the Borrowers acknowledge and agree that the Administrative Agent reserves the right to do so hereunder at any time with respect to the Supplemental Headquarters Property and any other present and future real property owned by Altair Engineering or any other Guarantor.

(iv) All other security and collateral described in the Collateral Documents.

 

 

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(b) Each Domestic Borrower agrees that it will promptly notify the Administrative Agent of the formation or acquisition of any Subsidiary or other Subsidiary or the acquisition of any assets on which a Lien is required to be granted and that is not covered by existing Collateral Documents. Each Domestic Borrower agrees that it will promptly execute and deliver, and cause each Domestic Subsidiary to execute and deliver, promptly upon the request of the Administrative Agent, such additional Collateral Documents and other agreements, documents and instruments, each in form and substance satisfactory to the Administrative Agent, sufficient to grant to the Administrative Agent the Guaranties and Liens contemplated by this Agreement and the Collateral Documents. Each Domestic Borrower shall deliver, and cause each Guarantor to deliver, to the Administrative Agent all original instruments payable to it with any endorsements thereto required by the Administrative Agent and all original certificated securities and other certificates with respect to any Equity Interests owned by any Domestic Borrower or any Domestic Subsidiary with any blank stock or other powers required by the Administrative Agent. Additionally, each Domestic Borrower shall execute and deliver, and cause each Guarantor to execute and deliver, promptly upon the request of the Administrative Agent, such certificates, legal opinions, title work and insurance, surveys, lien searches, environmental reports, organizational and other charter documents, resolutions and other documents and agreements as the Administrative Agent may request in connection therewith. Each Domestic Borrower shall execute and deliver, and cause each Guarantor to execute and deliver, promptly upon the request of the Administrative Agent, such agreements and instruments evidencing any intercompany loans or other advances among the Companies, or any of them, and all such intercompany loans or other advances owing by any Borrower shall be, and are hereby made, subordinate and junior to the Secured Obligations and no payments may be made on such intercompany loans or other advances upon and during the continuance of a Default unless otherwise agreed to by the Administrative Agent. Altair Engineering will take such additional actions, and deliver such additional agreements and documents, as requested by the Administrative Agent to obtain a perfected security interest in 66% of the voting Equity Interests of each material first-tier Foreign Subsidiary (in each case as reasonably determined by the Administrative Agent) requested by the Administrative Agent.

(c) The Loan Parties agree to deliver officer certificates and resolutions ratifying the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel, on or before June 30, 2017.

SECTION 5.10. Depository Bank. Each Borrower shall, and shall cause each Domestic Subsidiary to, maintain JPMCB as such Loan Party’s principal depository bank, including for the maintenance of operating, administrative, cash management, collection activity, and other deposit accounts and Banking Services for the conduct of its business.

SECTION 5.11. Additional Covenants. If at any time any of the Borrowers or Domestic Subsidiaries shall enter into or be a party to any instrument or agreement for Indebtedness with a principal amount in excess of $5,000,000, including all such instruments or agreements for Indebtedness in existence as of the date hereof and all such instruments or agreements for Indebtedness entered into after the date hereof, relating to or amending any provisions applicable to any of its Indebtedness, which includes any covenants, defaults or similar terms (other than covenants in any purchase money financing relating solely to the use and sale of the specific asset financed) not substantially provided for in this Agreement or more favorable to the lender or lenders thereunder than those provided for in this Agreement, then the Borrowers shall promptly so advise the Administrative Agent. Thereupon, if the Administrative Agent or the Lenders

 

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shall request, upon notice to the Borrowers, the Lenders and the Borrowers shall enter into an amendment to this Agreement or an additional agreement (as the Administrative Agent may request), providing for substantially the same material covenants, defaults and similar terms as those provided for in such instrument or agreement for Indebtedness to the extent required and as may be selected by the Administrative Agent and the Required Lenders.

ARTICLE VI

NEGATIVE COVENANTS

Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, each Borrower covenants and agrees with the Administrative Agent and the Lenders that:

SECTION 6.01. Indebtedness. No Borrower will, nor will any Borrower permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except:

(a) Indebtedness created hereunder;

(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01 and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof;

(c) Indebtedness of any Company incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided that (i) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (c) shall not exceed $3,000,000 (exclusive of the Indebtedness described on Schedule 6.01(c) hereto, provided that the Indebtedness described on Schedule 6.01(c) may not be increased (as reduced from time to time) or extended) at any time outstanding;

(d) Unsecured Indebtedness not to exceed $1,000,000 in aggregate principal amount at any time outstanding owing by any Foreign Subsidiary to Altair Engineering;

(e) Indebtedness not to exceed $7,000,000 in aggregate principal amount at any time outstanding owing by any Foreign Subsidiary;

(f) Indebtedness in connection with Swap Agreements and Swap Agreement Obligations permitted under Section 6.05;

(g) Indebtedness in connection with the investments permitted under Section 6.04;

(h) Indebtedness in connection with the redemptions by Altair Engineering of its Equity Interests pursuant to Sections 6.06(e);

(i) Intercompany Indebtedness among Altair Engineering and its Domestic Subsidiaries, provided that any such Indebtedness owing by Altair Engineering is subordinated to the Secured Obligations on terms acceptable to the Administrative Agent; and

 

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(j) Matured and contingent obligations under the Indemnity Agreement in an aggregate amount not to exceed $5,000,000; and

(k) Other Indebtedness not to exceed $2,000,000 in aggregate principal amount at any time outstanding.

SECTION 6.02. Liens. No Borrower will, nor will any Borrower permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:

(a) Permitted Encumbrances;

(b) any Lien on any property or asset of any Company existing on the date hereof and set forth in Schedule 6.02; provided that (i) such Lien shall not apply to any other property or asset of any Company and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;

(c) Liens on fixed or capital assets acquired, constructed or improved by any Company; provided that (i) such security interests secure Indebtedness permitted by clause (c) of Section 6.01, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of any Company;

(d) any Lien on any property or asset of any Foreign Subsidiary pursuant to clause (e) of Section 6.01;

(e) Liens created under the Collateral Documents securing the Secured Obligations and other Liens in favor of the Administrative Agent; and

(f) any Lien existing on any property or asset prior to the acquisition thereof by Altair Engineering or any Subsidiary or existing on any property or asset of any Person that becomes a Loan Party after the date hereof prior to the time such Person becomes a Loan Party; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Loan Party, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Loan Party (other than the proceeds or products thereof and after-acquired property subject to a Lien pursuant to terms existing at the time of such acquisition, it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition), (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Loan Party, as the case may be, and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof, and (iv) the aggregate amount of Indebtedness secured by all such Liens shall not exceed $50,000, excluding such an existing Lien granted by a company that may be acquired in a potential Permitted Acquisition that factored its tax refund in the original amount of €771,699, which Lien may secure the amount of such tax refund as reduced from time to time and to be reduced to zero upon receipt of such tax refund.

 

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SECTION 6.03. Fundamental Changes. (a) No Borrower will, nor will any Borrower permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) any of its assets (in each case, whether now owned or hereafter acquired, but excluding the sale or lease of its products in the ordinary course of its business, the sale of inventory in the ordinary course of its business and the sale of obsolete equipment that is not material in amount), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) the Companies may sell assets in which the sales price is at least the fair market value of the assets sold and the aggregate amount of such asset sales is less than $500,000 in any Fiscal Year and the consideration received is cash or cash equivalents, (ii) the Companies may sell the Equity Interests and/or assets of Ilumisys, Inc., d/b/a Toggled, provided that neither the Borrower nor any of its Subsidiaries has transferred any assets to Ilumisys, Inc. nor made any investments, loans or other advances to Ilumisys, Inc. since the date of, and as reflected in, the most recent consolidated financial statements delivered to the Administrative Agent with respect to Ilumisys, Inc. prior to the Effective Date, other than investments of cash to the extent needed to fund working capital needs in the ordinary course of business and consistent with past practice, (iii) any Subsidiary may merge into a Domestic Borrower in a transaction in which such Domestic Borrower is the surviving entity, (iv) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, provided that, if any such Subsidiary involved in such merger is a Domestic Loan Party, the surviving entity must be a Domestic Loan Party, (v) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to a Domestic Borrower or Guarantor, and any Foreign Subsidiary that is not a Loan Party may sell, transfer, lease or otherwise dispose of its assets to any Loan Party or another Foreign Subsidiary, and (vi) any Subsidiary may liquidate or dissolve if Altair Engineering determines in good faith that such liquidation or dissolution is in the best interests of Altair Engineering and is not materially disadvantageous to the Administrative Agent and the Lenders; provided that any such merger involving a Person that is not a Wholly-Owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.04.

(b) Each of the Borrowers will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Companies on the date of execution of this Agreement and businesses reasonably related or incidental thereto.

SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. No Borrower will, nor will any Borrower permit any Subsidiary to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a Wholly-Owned Subsidiary prior to such merger) any Equity Interests, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or make any Acquisition, except:

(a) Permitted Investments;

(b) investments existing on the date hereof and set forth in Schedule 6.04, without any increase in the outstanding amount thereof (without giving effect to any write down or decrease in the value thereof);

(c) Guarantees constituting Indebtedness permitted by Section 6.01;

 

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(d) the redemption by Altair Engineering of its Equity Interests pursuant to Restricted Payments permitted under Sections 6.06(d);

(e) investments in Foreign Subsidiaries (excluding Permitted Acquisitions), provided that (i) the aggregate amount paid or payable for all such acquisitions shall not exceed $2,000,000 in the aggregate (based on the amount when made, and without giving effect to any write down or decrease in the value thereof) during the term of this Agreement, and (ii) no Event of Default or Default exists or would be caused thereby;

(f) investments in Domestic Subsidiaries, including, without limitation, the acquisition of Equity Interests;

(g) Indebtedness permitted under Section 6.01(d) or (i);

(h) Permitted Acquisitions; and

(i) other investments not to exceed $5,000,000 in the aggregate (based on the amount when made, and without giving effect to any write down or decrease in the value thereof) during the term of this Agreement, provided that if on a pro forma basis for the investment, the Leverage Ratio would be equal to or greater than 2.00:1.00, then such investments shall be limited to $2,000,000 in the aggregate, provided in either case no Event of Default or Default exists or would be caused thereby.

SECTION 6.05. Swap Agreements. No Borrower will, nor will any Borrower permit any Subsidiary to, enter into any Swap Agreement, except (a) Swap Agreements entered into to hedge or mitigate risks to which any Company has actual exposure (other than those in respect of Equity Interests of any Company), and (b) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of any Company. If required by the Administrative Agent, the Borrowers will maintain one or more Swap Agreements with one or more financial institutions acceptable to the Administrative Agent in its reasonable discretion, providing for a fixed rate of interest on a notional amount acceptable to the Administrative Agent and an average weighted maturity reasonably acceptable to the Administrative Agent.

SECTION 6.06. Restricted Payments. No Borrower will, nor will any Borrower permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (a) each Domestic Borrower may declare and pay dividends with respect to its Equity Interests payable solely in additional shares of its common Equity Interests, (b) Subsidiaries may declare and pay dividends ratably with respect to their Equity Interests, (c) if no Event of Default or Default exists or would be caused thereby (both before and after giving effect to any of the following redemptions, including without limitation each installment thereon), Altair Engineering may make the following redemptions of its Equity Interests: (i) the purchase by Altair Engineering of up to 87,600 shares of Class B Voting Common Stock of Altair Engineering owned by Mark E. Kistner after the Effective Date, and (ii) the purchase by Altair Engineering of up to 59,293 shares of Class B Voting Common Stock of Altair Engineering owned by George J. Christ after the Effective Date, and (d) if no Event of Default or Default exists or would be caused thereby (both before and after giving effect to any such Restricted Payment), other Restricted Payments in an aggregate amount not to exceed $2,000,000 in any Fiscal Year.

 

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SECTION 6.07. Transactions with Affiliates. No Borrower will, nor will any Borrower permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to such Company than could be obtained on an arm’s-length basis from unrelated third parties and (b) any Restricted Payment permitted by Section 6.06.

SECTION 6.08. Restrictive Agreements. No Borrower will, nor will any Borrower permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of any Company to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to any Domestic Borrower or Guarantor or to Guarantee Indebtedness of any Domestic Borrower or Guarantor; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (ii) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (iii) clause (a) of the foregoing shall not apply to customary provisions in leases restricting the assignment thereof.

SECTION 6.09. Change of Name or Location; Change of Fiscal Year. No Borrower will, nor will any Borrower permit any Guarantor to, (a) change its name as it appears in official filings in the state of its incorporation or organization, (b) change its chief executive office, principal place of business, mailing address, corporate offices or warehouses or locations at which Collateral is held or stored, or the location of its records concerning the Collateral as set forth in the Security Agreements, (c) change the type of entity that it is, (d) change its organization identification number, if any, issued by its state of incorporation or other organization, or (e) change its state of incorporation or organization, in each case, unless the Administrative Agent shall have received at least thirty days prior written notice of such change and the Administrative Agent shall have acknowledged in writing that either (1) such change will not adversely affect the validity, perfection or priority of the Administrative Agent’s security interest in the Collateral, or (2) any reasonable action requested by the Administrative Agent in connection therewith has been completed or taken (including any action to continue the perfection of any Liens in favor of the Administrative Agent in any Collateral), provided that, any new location shall be in the continental U.S. No Loan Party shall change its Fiscal Year.

SECTION 6.10. Amendments to Agreements. No Borrower will, nor will any Borrower permit any Subsidiary to, amend, terminate, supplement or otherwise modify its articles of incorporation, charter, certificate of formation, operating agreement, by-laws or other organizational document in any manner materially adverse to the Lenders.

SECTION 6.11. Prepayment of Indebtedness. No Borrower will, nor will any Borrower permit any Domestic Subsidiary to, directly or indirectly, voluntarily purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any Indebtedness prior to its scheduled maturity, other than (a) the Obligations; (b) Indebtedness secured by a Permitted Lien if the asset securing such Indebtedness has been sold or otherwise disposed of in accordance herewith; and (c) Indebtedness permitted hereunder upon any permitted refinancing thereof in accordance therewith.

SECTION 6.12. Debt Service Coverage Ratio. The Borrowers will not permit the Debt Service Coverage Ratio to be less than 1.3 to 1.0 as of the end of any Fiscal Quarter.

 

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SECTION 6.13. Leverage Ratio. The Borrowers will not permit the Leverage Ratio to be greater than 3.00 to 1.0 as of the end of any Fiscal Quarter.

SECTION 6.14. Minimum Liquidity. The Borrowers will not permit Liquidity to be less than $20,000,000 at the end of any Fiscal Quarter.

ARTICLE VII

EVENTS OF DEFAULT

If any of the following events (“Events of Default”) shall occur:

(a) the Borrowers shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;

(b) the Borrowers shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days;

(c) any representation or warranty made or deemed made by or on behalf of any Company in or in connection with this Agreement or any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been materially and adversely incorrect when made or deemed made;

(d) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in Article V or VI, and in the case of any such failure with respect to Section 5.03, 5.05 or 5.07, such failure shall continue unremedied for a period of 30 days after the earlier of any Loan Party’s knowledge of such breach or notice thereof from the Administrative Agent; subject, in the case of any failure to observe or perform any covenant in Section 6.12 or 6.13, to the last paragraph of this Article VII;

(e) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those which constitute a default under another Section of this Article), and such failure shall continue unremedied for a period of 30 days after the earlier of any Loan Party’s knowledge of such breach or notice thereof from the Administrative Agent if such breach relates to terms or provisions of any other Section of this Agreement;

(f) any Company shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable beyond the period of grace, if any, provided in the instrument or agreement under which such Material Indebtedness was created;

(g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase,

 

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redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness;

(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Company or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Company of any Loan Party or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;

(i) any Company shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Company or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

(j) any Company shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;

(k) one or more judgments for the payment of money in an aggregate amount in excess of $1,000,000 (to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged and accepted coverage) shall be rendered against any Company or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Company to enforce any such judgment or any Company shall fail within 30 days to discharge one or more non-monetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgments or orders, in any such case, are not stayed on appeal or otherwise being appropriately contested in good faith by proper proceedings diligently pursued;

(l) an ERISA Event shall have occurred that, in the opinion of the Administrative Agent, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Companies in an aggregate amount exceeding (i) $1,000,000 in any year or (ii) $2,000,000 for all periods;

(m) a Change in Control shall occur;

(n) the occurrence of any “Event of Default” or “default” as defined in any Loan Document (other than this Agreement) or the breach of any of the terms or provisions of any Loan Document (other than this Agreement), which default or breach continues beyond any period of grace therein provided;

(o) the Secured Obligation Guaranty shall fail to remain in full force or effect or any action shall be taken by any Loan Party or any of its Affiliates to discontinue or to assert the invalidity or

 

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unenforceability of the Secured Obligation Guaranty, or any Guarantor shall fail to comply with any of the terms or provisions of the Secured Obligation Guaranty to which it is a party, or any Guarantor shall deny that it has any further liability under the Secured Obligation Guaranty to which it is a party, or shall give notice to such effect;

(p) any Collateral Document shall for any reason fail to create a valid and perfected first priority security interest in any Collateral purported to be covered thereby, except as permitted by the terms of any Collateral Document, or any Collateral Document shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Collateral Document, or any Loan Party shall fail to comply with any of the terms or provisions of any Collateral Document beyond any grace period provided with respect thereto; or

(q) any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in accordance with its terms (or any Loan Party shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms);

then, and in every such event (other than an event with respect to any Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrowers, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers; and in case of any event with respect to any Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of each Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower.

Notwithstanding anything to the contrary contained in this Article VII, in the event that the Borrowers fail to observe or perform any covenant set forth in Section 6.12 or 6.13 as of the end of any Fiscal Quarter, until the date 30 days after the date the related certificate of a Financial Officer of Altair Engineering is required to be delivered under Section 5.01(c) for such Fiscal Quarter (which shall be for the Fiscal Year in the case of the fourth Fiscal Quarter of each Fiscal Year), Altair Engineering shall have the right to issue common equity (or other equity acceptable to the Administrative Agent) for cash and apply the amount of the proceeds thereof to increase Consolidated EBITDA with respect to such applicable Fiscal Quarter (the “Cure Right”); provided that (i) such proceeds are actually received by Altair Engineering no later than 30 days after the date on which the certificate of a Financial Officer is required to be delivered under Section 5.01(c) for such Fiscal Quarter, (ii) such proceeds do not exceed the aggregate amount necessary to cure (by addition to EBITDA) (the “Cure Amount”) such Event of Default under Section 6.12 or 6.13 for such Fiscal Quarter, (iii) in each period of four consecutive Fiscal Quarters, there shall be at least two Fiscal Quarters during which the Cure Right is not exercised, and (iv) such proceeds shall be applied to all Term Loans on a pro rata basis, and shall be applied to principal payments due on the Term Loans in the inverse order of maturity. If, after giving effect to the foregoing pro forma adjustment (but not, for the avoidance of doubt, giving pro forma effect to any repayment of

 

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Indebtedness in connection therewith), the Borrowers are in compliance with the financial covenants set forth in Sections 6.12 and 6.13, the Borrowers shall be deemed to have satisfied the requirements of such Sections as of the relevant date of determination with the same effect as though there had been no failure to comply on such date, and the applicable breach or default of such Sections 6.12 and 6.13 that had occurred shall be deemed cured for purposes of this Agreement. The parties hereby acknowledge that this Section may not be relied on for purposes of calculating any financial ratios other than as applicable to Sections 6.12 or 6.13 and shall not result in any adjustment to any amounts other than the amount of the Consolidated EBITDA referred to in the immediately preceding sentence. Notwithstanding any other provision in this Agreement to the contrary, the Cure Amount received pursuant to any exercise of the Cure Right shall be disregarded for purposes of determining the Leverage Ratio as used in determining the Applicable Margin.

ARTICLE VIII

The Administrative Agent

SECTION 8.01. Appointment. Each of the Lenders, on behalf of itself and any of its Affiliates that are Secured Parties and the Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to the Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. In addition, to the extent required under the laws of any jurisdiction other than the U.S., each of the Lenders and the Issuing Bank hereby grants to the Administrative Agent any required powers of attorney to execute any Collateral Document governed by the laws of such jurisdiction on such Lender’s or Issuing Bank’s behalf. The provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders (including the Swingline Lender and the Issuing Bank), and the Loan Parties shall not have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” as used herein or in any other Loan Documents (or any similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

SECTION 8.02. Rights as a Lender. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with any Loan Party or any Subsidiary or any Affiliate thereof as if it were not the Administrative Agent hereunder.

SECTION 8.03. Duties and Obligations. The Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and, (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any Subsidiary that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be

 

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liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful misconduct as determined by a final nonappealable judgment of a court of competent jurisdiction. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by Altair Engineering or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection with any Loan Document, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

SECTION 8.04. Reliance. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

SECTION 8.05. Actions through Sub-Agents. The Administrative Agent may perform any and all of its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as the Administrative Agent.

SECTION 8.06. Resignation. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and Altair Engineering. Upon any such resignation, the Required Lenders shall have the right to appoint a successor, with the prior written consent (not to be unreasonably withheld or delayed) of the Borrower prior to such appointment. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by its successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor, unless otherwise agreed by the Borrowers and such successor. Notwithstanding the foregoing, in the event no successor Administrative Agent shall have been so appointed and shall have accepted such appointment within

 

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thirty (30) days after the retiring Administrative Agent gives notice of its intent to resign, the retiring Administrative Agent may give notice of the effectiveness of its resignation to the Lenders, the Issuing Bank and the Borrowers, whereupon, on the date of effectiveness of such resignation stated in such notice, (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents, provided that, solely for purposes of maintaining any security interest granted to the Administrative Agent under any Collateral Document for the benefit of the Secured Parties, the retiring Administrative Agent shall continue to be vested with such security interest as collateral agent for the benefit of the Secured Parties and, in the case of any Collateral in the possession of the Administrative Agent, shall continue to hold such Collateral, in each case until such time as a successor Administrative Agent is appointed and accepts such appointment in accordance with this paragraph (it being understood and agreed that the retiring Administrative Agent shall have no duly or obligation to take any further action under any Collateral Document, including any action required to maintain the perfection of any such security interest), and (b) the Required Lenders shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, provided that (i) all payments required to be made hereunder or under any other Loan Document to the Administrative Agent for the account of any Person other than the Administrative Agent shall be made directly to such Person and (ii) all notices and other communications required or contemplated to be given or made to the Administrative Agent shall also directly be given or made to each Lender and the Issuing Bank. Following the effectiveness of the Administrative Agent’s resignation from its capacity as such, the provisions of this Article, Section 2.18(d) and Section 9.03, as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent and in respect of the matters referred to in the proviso under clause (a) above.

SECTION 8.07. Non-Reliance.

(a) Each Lender acknowledges and agrees that the extensions of credit made hereunder are commercial loans and letters of credit and not investments in a business enterprise or securities. Each Lender further represents that it is engaged in making, acquiring or holding commercial loans in the ordinary course of its business and has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder. Each Lender shall, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information (which may contain material, non-public information within the meaning of the U.S. securities laws concerning the Borrowers and their Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder and in deciding whether or to the extent to which it will continue as a Lender or assign or otherwise transfer its rights, interests and obligations hereunder.

(b) Each Lender hereby agrees that (i) it has requested a copy of each Report prepared by or on behalf of the Administrative Agent; (ii) the Administrative Agent (A) makes no representation or warranty, express or implied, as to the completeness or accuracy of any Report or any of the information contained therein or any inaccuracy or omission contained in or relating to a Report and (B) shall not be liable for any information contained in any Report; (iii) the Reports are not comprehensive audits or examinations, and that any Person performing any field examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties’ books and

 

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records, as well as on representations of the Loan Parties’ personnel and that the Administrative Agent undertakes no obligation to update, correct or supplement the Reports; (iv) it will keep all Reports confidential and strictly for its internal use, not share the Report with any Loan Party or any other Person except as otherwise permitted pursuant to this Agreement; and (v) without limiting the generality of any other indemnification provision contained in this Agreement, (A) it will hold the Administrative Agent and any such other Person preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any extension of credit that the indemnifying Lender has made or may make to the Borrower, or the indemnifying Lender’s participation in, or the indemnifying Lender’s purchase of, a Loan or Loans; and (B) it will pay and protect, and indemnify, defend, and hold the Administrative Agent and any such other Person preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including reasonable attorneys’ fees) incurred by the Administrative Agent or any such other Person as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.

SECTION 8.08. Not Partners or Co-Venturers; Administrative Agent as Representative of the Secured Parties. (a) The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act for, any other Lender. The Administrative Agent shall have the exclusive right on behalf of the Lenders to enforce the payment of the principal of and interest on any Loan after the date such principal or interest has become due and payable pursuant to the terms of this Agreement.

(a) In its capacity, the Administrative Agent is a “representative” of the Secured Parties within the meaning of the term “secured party” as defined in the UCC. Each Lender authorizes the Administrative Agent to enter into each of the Collateral Documents to which it is a party and to take all action contemplated by such documents. Each Lender agrees that no Secured Party (other than the Administrative Agent) shall have the right individually to seek to realize upon the security granted by any Collateral Document, it being understood and agreed that such rights and remedies may be exercised solely by the Administrative Agent for the benefit of the Secured Parties upon the terms of the Collateral Documents. In the event that any Collateral is hereafter pledged by any Person as collateral security for the Secured Obligations, the Administrative Agent is hereby authorized, and hereby granted a power of attorney, to execute and deliver on behalf of the Secured Parties any Loan Documents necessary or appropriate to grant and perfect a Lien on such Collateral in favor of the Administrative Agent on behalf of the Secured Parties.

SECTION 8.09. Credit Bidding. The Secured Parties hereby irrevocably authorize the Administrative Agent, at the direction of the Required Lenders, to credit bid all or any portion of the Obligations (including by accepting some or all of the Collateral in satisfaction of some or all of the Obligations pursuant to a deed in lieu of foreclosure or otherwise) and in such manner purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral (a) at any sale thereof conducted under the provisions of the Bankruptcy Code, including under Sections 363, 1123 or 1129 of the Bankruptcy Code, or any similar laws in any other jurisdictions to which a Credit Party is subject, or (b) at any other sale, foreclosure or acceptance of collateral in lieu of debt conducted by (or with the consent or at the direction of) the Administrative Agent (whether by judicial action or otherwise) in accordance with any applicable law. In connection with any such credit bid and purchase, the Obligations owed to the Secured Parties shall be entitled to be, and shall be, credit bid by the Administrative Agent at the direction of the Required Lenders on a ratable basis (with Obligations with respect to contingent or unliquidated claims receiving contingent interests in the acquired assets on a ratable basis that shall vest upon the liquidation of such claims in an amount proportional to the liquidated portion of the contingent claim amount used in allocating the contingent interests) for the

 

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asset or assets so purchased (or for the equity interests or debt instruments of the acquisition vehicle or vehicles that are issued in connection with such purchase). In connection with any such bid (i) the Administrative Agent shall be authorized to form one or more acquisition vehicles and to assign any successful credit bid to such acquisition vehicle or vehicles (ii) each of the Secured Parties’ ratable interests in the Obligations which were credit bid shall be deemed without any further action under this Agreement to be assigned to such vehicle or vehicles for the purpose of closing such sale, (iii) the Administrative shall be authorized to adopt documents providing for the governance of the acquisition vehicle or vehicles (provided that any actions by the Administrative Agent with respect to such acquisition vehicle or vehicles, including any disposition of the assets or equity interests thereof, shall be governed, directly or indirectly, by, and the governing documents shall provide for, control by the vote of the Required Lenders or their permitted assignees under the terms of this Agreement or the governing documents of the applicable acquisition vehicle or vehicles, as the case may be, irrespective of the termination of this Agreement and without giving effect to the limitations on actions by the Required Lenders contained in Section 9.02 of this Agreement), (iv) the Administrative Agent on behalf of such acquisition vehicle or vehicles shall be authorized to issue to each of the Secured Parties, ratably on account of the relevant Obligations which were credit bid, interests, whether as equity, partnership, limited partnership interests or membership interests, in any such acquisition vehicle and/or debt instruments issued by such acquisition vehicle, all without the need for any Secured Party or acquisition vehicle to take any further action, and (v) to the extent that Obligations that are assigned to an acquisition vehicle are not used to acquire Collateral for any reason (as a result of another bid being higher or better, because the amount of Obligations assigned to the acquisition vehicle exceeds the amount of Obligations credit bid by the acquisition vehicle or otherwise), such Obligations shall automatically be reassigned to the Secured Parties pro rata and the equity interests and/or debt instruments issued by any acquisition vehicle on account of such Obligations shall automatically be cancelled, without the need for any Secured Party or any acquisition vehicle to take any further action. Notwithstanding that the ratable portion of the Obligations of each Secured Party are deemed assigned to the acquisition vehicle or vehicles as set forth in clause (ii) above, each Secured Party shall execute such documents and provide such information regarding the Secured Party (and/or any designee of the Secured Party which will receive interests in or debt instruments issued by such acquisition vehicle) as the Administrative Agent may reasonably request in connection with the formation of any acquisition vehicle, the formulation or submission of any credit bid or the consummation of the transactions contemplated by such credit bid.

SECTION 8.10. Other Agency Titles. The Syndication Agent shall not have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as a Lender. Without limiting the foregoing, any such Lender designated as a Syndication Agent shall not have or be deemed to have a fiduciary relationship with any Lender. Each Lender hereby makes the same acknowledgments with respect to the relevant Lender in its capacity as Syndication Agent as it makes with respect to the Administrative Agent in Section 8.07.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01. Notices.

(a) Except in the case of notices and other communications expressly permitted to be given by telephone or Electronic Systems (and subject in each case to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

 

(i)

if to any Loan Party, to it in care of Altair Engineering at:

1820 E. Big Beaver Road

Troy, MI 48083

Attention: James R. Scapa

Howard N. Morof

Steve Rivkin

Telephone: 248-614-2400

Telecopy: 248-614-6197

email: jrs@altair.com

hmorof@altair.com

srivkin@altair.com

 

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(ii)

if to the Administrative Agent, the Swingline Lender, or the Issuing Bank, to JPMorgan Chase Bank, N.A. at:

JPMorgan Chase Bank, N.A.

28660 Northwestern Highway, 1st Floor

Southfield, Michigan 48034

Attention: William Goodhue

Facsimile No. (248) 799-5826

With a copy to:

JPMorgan Chase Bank, N.A.

270 Park Ave, 43rd Floor

New York, NY 10017

Attention: Will Horstman

Fax No: 703-665-0278

 

(iii)

if to any other Lender, to it at its address or telecopy number set forth in its Administrative Questionnaire.

All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered mail shall be deemed to have been given when received, (ii) sent by telecopy shall be deemed to have been given when sent, provided that if not given during normal business hours for the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day of the recipient, or (iii) delivered through Electronic Systems to the extent provided in paragraph (b) below shall be effective as provided in such paragraph.

(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by Electronic Systems pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II or to compliance and no Default certificates delivered pursuant to Section 5.01(c) unless otherwise agreed by the Administrative Agent and the applicable Lender. Each of the Administrative Agent and the Borrowers may, in its discretion, agree to accept notices and other communications to it hereunder by Electronic Systems pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise proscribes, all such notices and other communications (i) sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as

 

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available, return e-mail or other written acknowledgement), provided that if not given during the normal business hours of the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient, and (ii) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, e-mail or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day of the recipient.

(c) Any party hereto may change its address, telecopy number or e-mail address for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

(d) Electronic Systems.

(i) Each Loan Party agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Issuing Bank and the other Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar Electronic System.

(ii) Any Electronic System used by the Administrative Agent is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of such Electronic Systems and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or any Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to any Borrower or the other Loan Parties, any Lender, the Issuing Bank or any other Person or entity for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of any Borrower’s, any Loan Party’s or the Administrative Agent’s transmission of communications through an Electronic System. “Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Loan Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or the Issuing Bank by means of electronic communications pursuant to this Section, including through an Electronic System.

SECTION 9.02. Waivers; Amendments.

(a) No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder and under any other Loan Document are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall

 

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be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time.

(b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (i) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders or (ii) in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Loan Party or Loan Parties that are parties thereto, with the consent of the Required Lenders; provided that no such agreement shall (A) increase the Commitment of any Lender without the written consent of such Lender (including any such Lender that is a Defaulting Lender), (B) reduce or forgive the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce or forgive any interest or fees payable hereunder, without the written consent of each Lender (including any such Lender that is a Defaulting Lender) directly affected thereby, (C) postpone any scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any date for the payment of any interest, fees or other Obligations payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender (including any such Lender that is a Defaulting Lender) directly affected thereby, (D) change Section 2.18(b) or (d) in a manner that would alter the manner in which payments are shared, without the written consent of each Lender (other than any Defaulting Lender), (E) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision of any Loan Document specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender (other than any Defaulting Lender) directly affected thereby, (F) change Section 2.20, without the consent of each Lender (other than any Defaulting Lender), (G) release all or substantially all of the Guarantors from their obligation under its Secured Obligation Guaranties (except as otherwise permitted herein or in the other Loan Documents), without the written consent of each Lender (other than any Defaulting Lender), or (H) except as provided in clause (c) of this Section or in any Collateral Document, release all or substantially all of the Collateral without the written consent of each Lender (other than any Defaulting Lender); provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Swingline Lender or the Issuing Bank hereunder without the prior written consent of the Administrative Agent, the Swingline Lender or the Issuing Bank, as the case may be (it being understood that any amendment to Section 2.20 shall require the consent of the Administrative Agent, the Swingline Lender and the Issuing Bank). The Administrative Agent may also amend the Commitment Schedule to reflect assignments entered into pursuant to Section 9.04. Any amendment, waiver or other modification of this Agreement or any other Loan Document that by its terms affects the rights or duties under this Agreement of the Lenders of one or more Classes (but not the Lenders of any other Class), may be effected by an agreement or agreements in writing entered into by the Borrowers and the requisite number or percentage in interest of each affected Class of Lenders that would be required to consent thereto under this Section if such Class of Lenders were the only Class of Lenders hereunder at the time.

(c) The Lenders and the Issuing Bank hereby irrevocably authorize the Administrative Agent, at its option and in its sole discretion, to release any Liens granted to the Administrative Agent by the Loan Parties on any Collateral (i) upon the termination of all of the Commitments, payment and satisfaction in full in cash of all Secured Obligations (other than Unliquidated Obligations), and the cash collateralization of all Unliquidated Obligations in a manner satisfactory to each affected Lender, (ii) constituting property being sold or disposed of if the Loan Party

 

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disposing of such property certifies to the Administrative Agent that the sale or disposition is made in compliance with the terms of this Agreement (and the Administrative Agent may rely conclusively on any such certificate, without further inquiry), and to the extent that the property being sold or disposed of constitutes 100% of the Equity Interests of a Subsidiary, the Administrative Agent is authorized to release any Secured Obligation Guaranty provided by such Subsidiary, (iii) constituting property leased to a Loan Party under a lease which has expired or been terminated in a transaction permitted under this Agreement, or (iv) as required to effect any sale or other disposition of such Collateral in connection with any exercise of remedies of the Administrative Agent and the Lenders pursuant to Article VII. Except as provided in the preceding sentence, the Administrative Agent will not release any Liens on Collateral without the prior written authorization of the Required Lenders; provided that the Administrative Agent may, in its discretion, release its Liens on Collateral valued in the aggregate not in excess of $1,000,000 during any calendar year without the prior written authorization of the Required Lenders (it being agreed that the Administrative Agent may rely conclusively on one or more certificates of Altair Engineering as to the value of any Collateral to be so released, without further inquiry). Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by the Loan Parties, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral. Any execution and delivery by the Administrative Agent of documents in connection with any such release shall be without recourse to or warranty by the Administrative Agent.

(d) If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “each Lender affected thereby,” the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is not obtained (any such Lender whose consent is necessary but has not been obtained being referred to herein as a “Non-Consenting Lender”), then the Borrowers may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Borrowers, the Administrative Agent and the Issuing Bank shall agree, as of such date, to purchase for cash the Loans and other Obligations due to the Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 9.04, and (ii) the Borrowers shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrowers hereunder to and including the date of termination, including without limitation payments due to such Non-Consenting Lender under Sections 2.15 and 2.17 and (2) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 2.15 had the Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Lender.

(e) Notwithstanding anything to the contrary herein the Administrative Agent may, with the consent of Altair Engineering only, amend, modify or supplement this Agreement or any of the other Loan Documents to cure any ambiguity, omission, mistake, defect or inconsistency.

SECTION 9.03. Expenses; Indemnity; Damage Waiver.

(a) The Borrowers shall pay all (i) reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication and distribution (including, without limitation, via the internet or through an Electronic System) of the credit facilities provided for herein, the preparation and administration of the Loan Documents and any amendments, modifications or waivers of the provisions of the Loan Documents (whether or not the transactions contemplated hereby

 

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or thereby shall be consummated), (ii) reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) out-of-pocket expenses incurred by the Administrative Agent, the Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, the Issuing Bank or any Lender, in connection with the enforcement, collection or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. Expenses being reimbursed by the Borrowers under this Section include, without limitation, costs and expenses incurred in connection with:

(i) appraisals of all or any portion of the Collateral, including each parcel of real property or interest in real property described in any Collateral Document, which appraisals shall be in conformity with the applicable requirements of any law or any governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, including, without limitation, the provisions of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, reformed or otherwise modified from time to time, and any rules promulgated to implement such provisions (including travel, lodging, meals and other out of pocket expenses);

(ii) field examinations and audits and the preparation of other audit reports (all of the foregoing, the “Reports”) at the Administrative Agent’s then customary charge for each Person retained or employed by the Administrative Agent with respect to each field examination or audit, plus travel, lodging, meals and other out of pocket expenses;

(iii) any amendment, modification, supplement, consent, waiver or other documents prepared with respect to any Loan Document and the transactions contemplated thereby;

(iv) lien and title searches and title insurance;

(v) fees and other charges for recording the Mortgages, filing financing statements and continuations, and other actions to perfect, protect, and continue the Administrative Agent’s Liens (including costs and expenses paid or incurred by the Administrative Agent in connection with the consummation of the Agreement);

(vi) sums paid or incurred to take any action required of any Loan Party under the Loan Documents that such Loan Party fails to pay or take;

(vii) any litigation, contest, dispute, proceeding or action (whether instituted by the Administrative Agent, any Lender, any Loan Party or any other Person and whether as to party, witness or otherwise) in any way relating to the Collateral, the Loan Documents or the transactions contemplated thereby;

(viii) background checks regarding senior management and/or key investors, as deemed necessary or appropriate in the sole discretion of the Administrative Agent; and

(ix) costs and expenses of forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining any funding accounts and lock boxes, and costs and expenses of preserving and protecting the Collateral.

 

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The foregoing shall not be construed to limit any other provisions of the Loan Documents regarding costs and expenses to be paid by any Loan Party.

(b) The Borrowers shall indemnify the Administrative Agent, the Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, penalties, incremental taxes, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by a Loan Party or a Subsidiary, or any Environmental Liability related in any way to a Loan Party or a Subsidiary, (iv) the failure of a Loan Party to deliver to the Administrative Agent the required receipts or other required documentary evidence with respect to a payment made by such Loan Party for Taxes pursuant to Section 2.17, or (v) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not such claim, litigation, investigation or proceeding is brought by any Loan Party or their respective equity holders, Affiliates, creditors or any other third Person and whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. This Section 9.03(b) shall not apply with respect to Taxes other than any Taxes that represent losses or damages arising from any non-Tax claim.

(c) To the extent that any Loan Party fails to pay any amount required to be paid by it to the Administrative Agent (or any sub-agent thereof), the Swingline Lender or the Issuing Bank (or any Related Party of any of the foregoing) under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Swingline Lender or the Issuing Bank (or any Related Party of any of the foregoing), as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (it being understood that the Borrowers’ failure to pay any such amount shall not relieve the Borrowers of any default in the payment thereof); provided that the unreimbursed expense or indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Swingline Lender or the Issuing Bank in its capacity as such.

(d) To the extent permitted by applicable law, no Loan Party shall assert, and each Loan Party hereby waives, any claim against any Indemnitee, (i) for any damages arising from the use by others of information or other materials obtained through telecommunications, electronic or other information transmission systems (including the Internet), or (ii) on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document, or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof; provided that, nothing in this paragraph (d) shall relieve any Loan Party of any obligation it may have to indemnify an Indemnitee against special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party.

 

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(e) All amounts due under this Section shall be payable promptly after written demand therefor, subject to receipt of a written undertaking by the Indemnitee in favor of the Borrowers to return such amount if it is ultimately determined by a court of competent jurisdiction by a final and nonappealable judgment that such Indemnitee was not entitled to such indemnification under this Section 9.03.

(f) All obligations of the Borrowers hereunder shall be joint and several, provided the Foreign Subsidiary Borrowers shall not be liable for any obligations of any other Borrowers.

SECTION 9.04. Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that (i) no Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by a Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)(i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more Persons (other than an Ineligible Institution) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:

(A) Altair Engineering, provided that Altair Engineering shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received written notice thereof, and provided further that no consent of Altair Engineering shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee;

(B) the Administrative Agent; and

(C) the Issuing Bank, provided that no consent of the Issuing Bank shall be required for an assignment of all or any portion of a Term Loan; and

(D) the Swingline Lender, provided that no consent of the Swingline Lender shall be required for an assignment of all or any portion of a Term Loan.

(ii) Assignments shall be subject to the following additional conditions:

(A) except in the case of an assignment to a Lender, an Affiliate of a Lender, or an Approved Fund, or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans of any Class, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and

 

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Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 or, in the case of a Term Loan, $1,000,000 unless each of Altair Engineering and the Administrative Agent otherwise consent, provided that no such consent of Altair Engineering shall be required if an Event of Default has occurred and is continuing;

(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement, provided that this clause shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender’s rights and obligations in respect of one Class of Commitments or Loans;

(C) the parties to each assignment shall execute and deliver to the Administrative Agent (x) an Assignment and Assumption or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to a Platform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants, together with a processing and recordation fee of $3,500; and

(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Company, the other Loan Parties and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including federal and state securities laws.

For the purposes of this Section 9.04(b), the terms “Approved Fund” and “Ineligible Institution” have the following meanings:

“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Ineligible Institution” means a (a) natural person, (b) a Defaulting Lender, (c) company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof; provided that, such company, investment vehicle or trust shall not constitute an Ineligible Institution if it (i) has not been established for the primary purpose of acquiring any Loans or Commitments, (ii) is managed by a professional advisor, who is not such natural person or a relative thereof, having significant experience in the business of making or purchasing commercial loans, and (iii) has assets greater than $25,000,000 and a significant part of its activities consist of making or purchasing commercial loans and similar extensions of credit in the ordinary course of its business, (d) a Loan Party or a Subsidiary or other Affiliate of a Loan Party or (e) unless a Specified Default shall have occurred and be continuing, any Competitor.

(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a

 

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party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

(iv) The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrowers, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrowers, the Administrative Agent, the Issuing Bank and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrowers, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(v) Upon its receipt of (x) a duly completed Assignment and Assumption executed by an assigning Lender and an assignee or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to a Platform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.05, 2.06(d) or (e), 2.07(b), 2.18(d) or 9.03(c), the Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(c) Any Lender may, without the consent of the Borrowers (but with written notice to the Borrowers), the Administrative Agent, the Swingline Lender or the Issuing Bank, sell participations to one or more banks or other entities (a “Participant”) other than an Ineligible Institution in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged; (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; and (iii) the Borrowers, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. The Borrowers agree that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 (subject to the requirements and limitations therein, including the requirements under Sections 2.17(f) and (g) (it being understood that the documentation required under Section 2.17(f) shall be delivered to the participating Lender and the information and documentation required under Section 2.17(f)(ii)(D) will be delivered to Altair Engineering and the Administrative Agent)) to the same extent as if it were a Lender and had

 

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acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Sections 2.18 and 2.18 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Sections 2.15 or 2.17 with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation.

Each Lender that sells a participation agrees, at the Borrowers’ request and expense, to use reasonable efforts to cooperate with the Borrowers to effectuate the provisions of Section 2.19(b) with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18(d) as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrowers, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under this Agreement or any other Loan Document (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans, Letters of Credit or its other obligations under this Agreement or any other Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Commitment, Loan, Letter of Credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement, notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(e) The Borrowers acknowledge and agree that the Competitor List may be provided to the Lenders by the Administrative Agent, and the Administrative Agent shall promptly provide the Competitor List to each Lender upon the request of such Lender. Notwithstanding anything herein to the contrary, (i) the Administrative Agent shall not have any responsibility or liability for determining whether any assignee or Participant is a Competitor or otherwise monitoring the Competitor List or enforcing provisions relating to Competitors, and (ii) each Lender that is an assignor under an Assignment and Assumption or selling a Participation shall be solely responsible for determining that the assignee under such Assignment and Assumption or applicable Participant satisfies the requirements relating to Ineligible Institutions.

SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect

 

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representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.16, 2.17, 2.18 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any other Loan Document or any provision hereof or thereof.

SECTION 9.06. Counterparts; Integration; Effectiveness. (a) This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

(b) Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed pdf. or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby or thereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the Michigan Uniform Electronic Transactions Act, or any other similar state laws based on the Uniform Electronic Transactions Act; provided that nothing herein shall require the Administrative Agent to accept electronic signatures in any form or format without its prior written consent.

SECTION 9.07. Severability. Any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Loan Party against any of and all the Secured Obligations held by such Lender, irrespective of whether or not such Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured. The applicable Lender shall notify Altair Engineering and the Administrative Agent of such set-off or application, provided that any failure to give or any delay in giving such notice shall not affect the validity of any such set-off or application under this Section. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.

 

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SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process.

(a) The Loan Documents (other than those containing a contrary express choice of law provision) shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Michigan, but giving effect to federal laws applicable to national banks.

(b) Each Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the State of Michigan and of the United States District Court of the Eastern District of Michigan, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Michigan or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against any Borrower or its properties in the courts of any jurisdiction.

(c) Each Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE OR OTHER AGENT (INCLUDING ANY ATTORNEY) OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

 

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SECTION 9.12. Confidentiality. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by any Requirement of Law or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (x) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (y) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Loan Parties and their obligations, (g) with the consent of Altair Engineering, (h) to holders of Equity Interests in any Borrower, (i) to any Person providing a Guarantee of all or any portion of the Secured Obligations, or (j) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a non-confidential basis from a source other than the Borrowers. For the purposes of this Section, “Information” means all information received from the Borrowers relating to the Borrowers or their business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a non-confidential basis prior to disclosure by the Borrowers and other than information pertaining to this Agreement provided by arrangers to data service providers, including league table providers, that serve the lending industry. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

SECTION 9.13. Several Obligations; Nonreliance; Violation of Law. The respective obligations of the Lenders hereunder are several and not joint and the failure of any Lender to make any Loan or perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board) for the repayment of the Borrowings provided for herein. Anything contained in this Agreement to the contrary notwithstanding, neither the Issuing Bank nor any Lender shall be obligated to extend credit to the Borrowers in violation of any Requirement of Law.

SECTION 9.14. Amendment and Restatement. This Agreement amends and restates the Existing Credit Agreement in its entirety as of the date hereof. As of the Effective Date, (a) all Revolving Loans (as such terms are defined in the Existing Credit Agreement) outstanding under the Existing Credit Agreement shall constitute Revolving Loans outstanding under, and subject to the terms of, this Agreement, (b) all existing letters of credit issued under the Existing Credit Agreement shall constitute Letters of Credit issued and in existence under, and subject to the terms of, this Agreement, (c) the outstanding principal amount of the Term Loans (as defined in the Existing Credit Agreement) shall be deemed outstanding as Term Loans hereunder, and (d) all other amounts owing under the Existing Credit Agreement shall be deemed outstanding hereunder. Accordingly, the Loans, Letters of Credit and other obligations pursuant hereto are issued in exchange and replacement for the loans, letters of credit and other obligations under the Existing Credit Agreement, shall not be a novation or satisfaction thereof and shall be entitled to and secured by the same collateral with the same priority.

 

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SECTION 9.15. USA PATRIOT Act. Each Lender that is subject to the requirements of the USA PATRIOT Act hereby notifies each Loan Party that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies such Loan Party, which information includes the name and address of such Loan Party and other information that will allow such Lender to identify such Loan Party in accordance with the USA PATRIOT Act.

SECTION 9.16. Disclosure. Each Loan Party, each Lender and the Issuing Bank hereby acknowledges and agrees that the Administrative Agent and/or its Affiliates from time to time may hold investments in, make other loans to or have other relationships with, any of the Loan Parties and their respective Affiliates.

SECTION 9.17. Appointment for Perfection. Each Lender hereby appoints each other Lender as its agent for the purpose of perfecting Liens, for the benefit of the Administrative Agent and the Secured Parties, in assets which, in accordance with Article 9 of the UCC or any other applicable law can be perfected only by possession or control. Should any Lender (other than the Administrative Agent) obtain possession or control of any such Collateral, such Lender shall notify the Administrative Agent thereof, and, promptly upon the Administrative Agent’s request therefor shall deliver such Collateral to the Administrative Agent or otherwise deal with such Collateral in accordance with the Administrative Agent’s instructions.

SECTION 9.18. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.

SECTION 9.19. No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrowers acknowledge and agree that: (i) (A) the arranging and other services regarding this Agreement provided by the Lenders are arm’s-length commercial transactions between each Borrower and its Affiliates, on the one hand, and the Lenders and their Affiliates, on the other hand, (B) each Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) each Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each of the Lenders and their Affiliates is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrowers or any of their Affiliates, or any other Person and (B) no Lender or any of its Affiliates has any obligation to the Borrowers or any of their Affiliates with respect to the transactions contemplated hereby except, in the case of a Lender, those obligations expressly set forth herein and in the other Loan Documents; and (iii) each of the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrowers and their Affiliates, and no Lender or any of its Affiliates has any obligation to disclose any of such interests to the Borrowers or their Affiliates. To

 

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the fullest extent permitted by law, the Borrowers hereby waive and release any claims that they may have against each of the Lenders and their Affiliates with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

SECTION 9.20. Marketing Consent. The Borrowers hereby authorize JPMCB and its affiliates (collectively, the “JPMCB Parties”), at their respective sole expense, after prior written approval (not to be unreasonably withheld or delayed) by Altair Engineering, to include the Borrowers’ name and logo in advertising slicks posted on its internet site, in pitchbooks or sent in mailings to prospective customers and to give such other publicity to this Agreement as the JPMCB Parties may from time to time request. The JPMCB Parties shall not publish the Borrowers’ name in a newspaper or magazine without obtaining the Borrowers’ prior written approval (not to be unreasonably withheld or delayed).

SECTION 9.21. Acknowledgement and Consent to Bail-In of EEA Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and

(b) the effects of any Bail-In Action on any such liability, including, if applicable:

(i) a reduction in full or in part or cancellation of any such liability;

(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or

(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

 

Signature Page to Altair Second Amended and Restated Credit Agreement

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Signature Page to Altair Second Amended and Restated Credit Agreement

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Signature Page to Altair Second Amended and Restated Credit Agreement

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Commitment Schedule

 

Lender		Title		Revolving Commitment				Term Loan Commitment (Outstanding principal balance as of the Effective Date)
JPMorgan Chase Bank, N.A.		Sole Lead Arranger and Administrative Agent		$	47,500,000.00			$	43,541,666.66
Royal Bank of Canada		Syndication Agent		$	12,500,000.00			$	11,458,333.34
		Total		$	60,000,000.00			$	55,000,000.00

 

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Schedule 1.01(A) – Persons Owning Equity Interests

James R. Scapa and other Permitted Holders (as defined in the Credit Agreement)

JRS Investments LLC

George J. Christ

GC Investments LLC

Mark E. Kistner

 

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Schedule 1.01(B) – Competitors

 

1)

Autodesk, Inc.

 

2)

PTC Inc.

 

3)

Dassault Systemes SE

 

4)

Siemens AG

 

5)

Exa Corporation

 

6)

Hexagon AB

 

7)

Ansys, Inc.

 

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Schedule 1.01(C) – Potential Settlement Matters

 

1.

MSC.Software Corporation, Plaintiff vs. Altair Engineering Inc., Marc Klinger, Andrea Pertosa, Stephan Koerner, Tom Riedeman, Rajiv Rampalli, Mark Krueger and Michael Hoffman, Defendants (United States District Court, Eastern District of Michigan, Southern Division, Case No. 2:07-cv-12807).

On July 5, 2007, MSC Software Corporation, or MSC, filed a lawsuit against us and certain of our named employees in the United States District Court for the Eastern District of Michigan, asserting, among other things, that we and certain of our employees misappropriated alleged trade secrets that certain of our employees breached contractual non-solicitation and confidentiality obligations owed to MSC and that we tortuously interfered with MSC’s contractual relations with these employees. In April 2014, a jury returned a $26.1 million verdict against us on three trade secrets claims and a tortious interference claim as well as against certain of our employees for breach of contractual obligations to MSC. In November 2014, this verdict was partially vacated except for damages of $425,000 related to the employment matters, and the Court ordered a new trial on damages for the trade secrets claims.

 

2.

SGI Matter

In a letter dated June 4, 2015, Silicon Graphics International Corp. (SGI) advised the Company that it received letters from International Patent Licensing Co. accusing certain SGI products of infringing patents owned by Raytheon Company. SGI stated that it was still engaging in an internal investigation, but that it believed products purchased by SGI from the Company may be implicated by the infringement allegations. SGI requested that the Company defend and indemnify SGI for claims brought by IPLC and/or Raytheon concerning products supplied by the Company. The Company has responded to SGI via letter that the Company would aid/support SGI’s investigation, but does not believe the Company has any obligation to defend or indemnify SGI under the terms of the agreement between the Company and SGI.

 

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Schedule 3.05 – Real Property

List of all owned or leased real property:

 

Address		Owned/Leased
1820 E. Big Beaver Rd, Troy, MI 48083		Owned
164 Indusco Court, Troy, MI 48083		Owned
7501 S. Memorial Pkwy., Suite 214 Huntsville, AL 35802		Leased
7800 Shoal Creek Blvd., Suite 200 N, Austin, TX 78757		Leased
5150 N. Port Washington Rd., Suite 101, Milwaukee, WI 53217		Leased
3303 Monte Villa Farms Pkwy., Suite 320, Bothell, WA 98021		Leased
4285 Hwy. 24/27, Suite C, Room 5, Midland, NC 28107		Leased
38 Executive Park, Suite 200, Irvine, CA 92614		Leased
1001 West Loop South, Suite 635, Houston, TX 77027		Leased
2715 Route 9, Suite 102, Malta, NY 12020		Leased
70 Blanchard Road, Suite 208, Burlington, MA 01803		Leased
59 Lowes Way, Ste 403, Lowell, MA 01851		Leased
100 Exploration Way, Suite 310-B, Hampton, VA 23666		Leased
100 Mathilda Place, 6th Floor, Ste 650, Sunnyvale, CA 94086		Leased
1 Fairchild Square, Clifton Park, NY 12065		Leased
2550 W. Union Hills Drive, Suite 350, Phoenix, AZ 85027		Leased
Vacant Land at John R Road and Big Beaver Road, Troy, MI 48083		Owned

 

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Annex I to Schedule 3.13

 

 

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Annex II to Schedule 3.13

ANNEX II

Altair Engineering Inc. - Cap Table - June 12, 2017

Class A Voting Common Stock (19,000,000 shares authorized) - Class B Voting Common Stock (11,000,000 shares authorized)

 

Shareholder		Common Shares				% of Shares Outstanding				Total Super Majority Class B Voting				Total Class A Voting				Weighted % Voting
James R. Scapa			3,162,854				25.0	%			3,162,854				0				30.0	%
JRS Investments LLC			1,856,001				14.7	%			1,856,001				0				17.6	%
George J. Christ			2,336,682				18.5	%			2,336,682				0				22.2	%
GC Investments LLC			1,606,001				12.7	%			1,606,001				0				15.2	%
Mark E. Kistner			715,381				5.66	%			715,381				0				6.8	%
Farzin Shakib (Acusim)			185,000				1.5	%			185,000				0				1.8	%
EMSS Shareholders			200,000				1.6	%			200,000				0				1.9	%
VSI Shareholders			40,000				0.3	%			40,000				0				0.4	%
Jacob Fish			50,000				0.4	%			50,000				0				0.5	%
Minority Interests - Purchases from MEK & GJC			85,125				0.7	%			85,125				0				0.8	%
Minority Interests - Purchase of Subsidiary Stock			63,813				0.5	%			63,813				0				0.6	%
ISO & NSO Exercises - Class A Voting Stock			2,276,878				18.0	%			—				2,276,878				2.2	%
Allo World S.L.			6,667				0.1	%			—				6,667				0.0	%
Miguel Castillo Holgado			13,333				0.1	%			—				13,333				0.0	%
EASii IC SAS			50,000				0.4	%			—				50,000				0.0	%
Common Subtotal			12,647,735				100.0	%			10,300,857				2,346,879				100.0	%

 

1

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Schedule 6.01 – Existing Indebtedness

 

Total Indebtedness		$	85,915,674

 

		Outstanding at 6/5/2017
Debt
TERM LOAN A #904284432/904355703 under the Second Amended and Restated Credit Agreement		$	55,000,000
Capital Lease
Steelcase Lease			103,504
Shareholders
George Christ – retired shareholder			240,005
Jim Brancheau – retired shareholder			156,260
Upali Fonseka – retired shareholder			238,363
Subtotal			634,628
Notes – Acquisition related
Jacob Fish (MDS)			500,000
Angelika Woelfle (AWE)         (108k Euros @ $1.12798 rate)			121,822
Cedrat SA                                 (1,245K Euros @ $1.12798  rate)			1,404,335
Carriots                                      (2,388K Euros @$1.12798 rate)			2,693,052
Subtotal			4,719,209
Other Indebtedness – License Agreements
Waterloo Maple Inc. (Maplesoft)			1,400,000
eFatigue LLC			58,333
Subtotal			1,458,333
Revolving Credit under the Second Amended and Restated Credit Agreement			24,000,000
Total Indebtedness		$	85,915,674

 

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Schedule 6.01 – Existing Indebtedness – Lines of Credit

 

Lender		Amount and Due Date				Description of Credit		Description of any Collateral
KSK Boblingen			0			Line of Credit for Altair GmbH with maximum line of € 500,000		Accounts Receivable of Altair GmbH
Credit Alba Bank			0			Line of Credit for Altair Italy with maximum line of € 180,000		Specific Invoices
Intesa SANPAOLO Bank			0			Line of Credit for Altair Italy with maximum line of € 15,000		Specific Invoices
CREDEM Bank			0			Line of Credit for Altair Italy with maximum line of € 350,000		Specific Invoices
Mizuho Bank			0			Line of Credit for Altair Japan with maximum line of JPY 200,000,000		No Security
SE-Banken			0			Line of Credit for Altair Sweden with maximum line of SEK 1,500,000		No Security
JP Morgan Chase			0			Line of Credit for Altair India with maximum line of INR 50,000,000		Corporate Altair Inc. Guarantee

 

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Schedule 6.01 – Existing Indebtedness – Letters of Credit

 

Lender		Amount and Due Date				Description of Lien
JPMCB (issued under the Second Amended and Restated Credit Agreement)		$	5,000.00 USD			City of Madison Heights

 

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Schedule 6.01(c) – Purchase Money Loans (as disclosed on Schedule 6.01 – Existing Indebtedness)

Steelcase Financial Services, Inc.

 

5

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Schedule 6.02 – Existing Liens

 

Entity		Lender		Amount Secured		Due Date		Description of any Collateral
solidThinking, Inc.
		JPMCB, as Administrative Agent		Secured Obligations		Maturity Date A and Termination Date		All present and future assets.
Ilumisys, Inc.
		JPMCB, as Administrative Agent		Secured Obligations		Maturity Date A and Termination Date		All present and future assets.
Altair Product Design, Inc.
		JPMCB, as Administrative Agent		Secured Obligations		Maturity Date A and Termination Date		All present and future assets.
Altair Engineering
		JPMCB, as Administrative Agent		Secured Obligations		Maturity Date A and Termination Date		All present and future assets.
		Steelcase Financial Services, Inc.		-		-		Equipment

 

1

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Schedule 6.04 – Investments

Investments existing on the Effective Date in the following entities:

 

•

FluiDyna GmbH

 

•

Groupknit, Inc.

 

1

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EXHIBIT A

ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (this “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any letters of credit and guarantees and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and other rights of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

 

1.		Assignor:
2.		Assignee:
				[and is an Affiliate/Approved Fund of [identify Lender]]
3.		Borrowers:
4.		Administrative Agent:		, as the administrative agent under the Credit Agreement
5.		Credit Agreement:		Second Amended and Restated Credit Agreement dated as of June 14, 2017 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Altair Engineering, Inc., the Foreign Subsidiary Borrowers, the Lenders party hereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.

 

1

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6.		Assigned Interest:

 

Facility Assigned

Aggregate Amount of Commitment/Loans for all Lenders

Amount of Commitment/Loans Assigned

Percentage Assigned of Commitment/Loans

$

$

%

$

$

%

$

$

%

Effective Date:                  , 20     [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The Assignee agrees to deliver to the Administrative Agent a completed Administrative Questionnaire in which the Assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Company, the Loan Parties and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the Assignee’s compliance procedures and applicable laws, including federal and state securities laws.

The terms set forth in this Assignment and Assumption are hereby agreed to:

 

 

2

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Consented to and Accepted:
JPMORGAN CHASE BANK, N.A., as Administrative Agent, Swingline Lender and Issuing Bank

By:
Name:
Title:

[if required: Consented to:]
ALTAIR ENGINEERING, INC.

By:
Name:
Title:

 

3

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ANNEX 1 to ASSIGNMENT AND ASSUMPTION

ALTAIR ENGINEERING, INC.

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of any Borrower, any Subsidiary or Affiliate or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by any Borrower, any Subsidiary or Affiliate, or any other Person of any of their respective obligations under any Loan Document.

1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section          thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument.

 

1

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Acceptance and adoption of the terms of this Assignment and Assumption by the Assignee and the Assignor by Electronic Signature (as defined in the Credit Agreement) or delivery of an executed counterpart of a signature page of this Assignment and Assumption by any Electronic System (as defined in the Credit Agreement) shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of Michigan.

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EXHIBIT B-1

[FORM OF]

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Second Amended and Restated Credit Agreement dated as of June 14, 2017 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Altair Engineering, Inc., the Foreign Subsidiary Borrowers, the Lenders party hereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.

Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and Beneficial Owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of any Borrower within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to any Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished the Administrative Agent and the Borrower Representative with a certificate of its non-U.S. Person status on IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower Representative and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower Representative and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

[NAME OF LENDER]

By:
Name:
Title:

Date:                  , 20[    ]

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EXHIBIT B-2

[FORM OF]

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Second Amended and Restated Credit Agreement dated as of June 14, 2017 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Altair Engineering, Inc., the Foreign Subsidiary Borrowers, the Lenders party hereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.

Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and Beneficial Owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of any Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation related to any Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

[NAME OF PARTICIPANT]

By:
Name:
Title:

Date:                  , 20[    ]

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EXHIBIT B-3

[FORM OF]

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Second Amended and Restated Credit Agreement dated as of June 14, 2017 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Altair Engineering, Inc., the Foreign Subsidiary Borrowers, the Lenders party hereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.

Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole Beneficial Owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of any Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to any Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, from each of such partner’s/member’s Beneficial Owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

[NAME OF PARTICIPANT]

By:
Name:
Title:

Date:                  , 20[    ]

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EXHIBIT B-4

[FORM OF]

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Second Amended and Restated Credit Agreement dated as of June 14, 2017 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Altair Engineering, Inc., the Foreign Subsidiary Borrowers, the Lenders party hereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.

Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole Beneficial Owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of any Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to any Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished the Administrative Agent and the Borrower Representative with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, from each of such partner’s/member’s Beneficial Owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower Representative and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower Representative and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

[NAME OF LENDER]

By:
Name:
Title:

Date:                  , 20[    ]

 

1

Exhibit 21.1

LIST OF SUBSIDIARIES

 

Subsidiary		Jurisdiction of Organization
Altair Product Design, Inc.		Michigan, United States
Altair Engineering IndiaPvt.		India
Altair Engineering Ltd.		Japan
Altair Engineering GmbH		Germany
Altair Engineering France, Sarl		France
Altair Engineering Software Co., Ltd		China
Altair Engineering Ltd.		United Kingdom