FORM 10-Q
______________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X Quarterly Report PURSUANT TO Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended July 1, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to_________________
Commission file number 1-10606
CADENCE DESIGN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0148231
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
555 River Oaks Parkway, San Jose, California 95134
(Address of principal executive offices) (Zip Code)
(408) 943-1234
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes __X__ No _____
At August 4, 1995 there were 36,397,170 shares of the registrant's
Common Stock, $0.01 par value outstanding.
<PAGE> 2
CADENCE DESIGN SYSTEMS, INC.
INDEX
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PAGE NO.
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
July 1, 1995 and December 31, 1994 3
Condensed Consolidated Statements of Income:
Three and Six Months Ended July 1, 1995
and June 30, 1994 4
Condensed Consolidated Statements of Cash Flows:
Six Months Ended July 1, 1995 and June 30, 1994 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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July 1, December 31,
1995 1994
(Unaudited)
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ASSETS
Current Assets:
Cash and cash investments $ 63,004 $ 75,011
Short-term investments 13,467 21,865
Accounts receivable, net 59,076 78,629
Inventories 6,501 5,137
Prepaid expenses and other current assets 14,866 11,293
Total current assets 156,914 191,935
Property, plant and equipment, net 121,892 122,064
Software development costs, net 27,112 27,832
Purchased software and intangibles, net 11,614 10,557
Other assets 12,808 8,660
Total assets $ 330,340 $ 361,048
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of
long-term obligations $25,754 $ 26,412
Accounts payable 11,794 12,522
Accrued liabilities 58,049 56,359
Income taxes payable 9,705 7,944
Deferred revenue 74,552 61,205
Total current liabilities 179,854 164,442
Long-Term Liabilities:
Long-term obligations 1,781 2,098
Lease liabilities 7,387 9,040
Deferred income taxes 2,490 904
Other long-term liabilities 9,551 8,501
Total long-term liabilities 21,209 20,543
Stockholders' Equity:
Common stock 495 476
Additional paid-in capital 281,205 264,697
Treasury shares at cost (13,519,786 and
9,686,634 shares, respectively) (221,046) (133,728)
Retained earnings 62,530 43,377
Accumulated translation adjustment 6,093 1,241
Total stockholders' equity 129,277 176,063
Total liabilities and stockholders' equity $ 330,340 $ 361,048
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
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Three Months Ended Six Months Ended
July 1, June 30, July 1, June 30,
1995 1994 1995 1994
(Unaudited) (Unaudited)
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REVENUE:
Product $ 65,687 $ 56,633 $ 127,797 $113,040
Service 16,895 6,052 27,372 10,792
Maintenance 45,957 38,358 89,403 73,989
Total revenue 128,539 101,043 244,572 197,821
COSTS AND EXPENSES:
Cost of product 10,664 13,184 22,517 26,943
Cost of service 14,508 4,871 23,721 9,435
Cost of maintenance 4,279 3,540 8,176 7,533
Marketing and sales 42,612 39,418 84,832 78,442
Research and development 22,652 19,273 43,515 37,487
General and administrative 9,707 9,807 19,205 20,406
Unusual items - - - (2,050) - - - 10,054
Total costs and expenses 104,422 88,043 201,966 190,300
INCOME FROM OPERATIONS 24,117 13,000 42,606 7,521
Other income (expense), net 207 443 (216) 790
Income before provision for
income taxes 24,324 13,443 42,390 8,311
Provision for income taxes 7,353 3,361 11,869 2,078
NET INCOME $ 16,971 $10,082 $ 30,521 $ 6,233
NET INCOME PER SHARE $ .41 $ .23 $ .73 $ .14
Weighted average common and
common equivalent shares
outstanding 41,280 44,576 41,692 44,973
</TABLE>
The accompanying notes are an integral part of these statements.
<page 5>
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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Six Months Ended
July 1, June 30,
1995 1994
(Unaudited)
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CASH AND CASH INVESTMENTS AT
BEGINNING OF PERIOD $ 75,011 $ 61,382
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 30,521 6,233
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 22,856 23,967
Lease liabilities (1,701) (960)
Deferred income taxes, noncurrent 1,585 (41)
Write-offs of equipment and purchased
software and intangibles 419 807
Increase (decrease) in other long-term
liabilities 938 (196)
Net changes in current assets and
liabilities, net of business combinations
accounted for as purchases:
Decrease in accounts receivable 24,104 30,855
Decrease (increase) in inventories (1,364) 506
Decrease (increase) in prepaid expenses
and other current assets (4,263) 3,075
Increase (decrease) in accrued
liabilities and payables 6,109 (770)
Increase in deferred revenue 12,282 14,003
Net cash provided by operating
activities 91,486 77,479
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (17,431) (28,074)
Maturity of short-term investments 25,829 31,085
Purchase of property and equipment (12,091) (8,356)
Capitalization of software development
costs (5,895) (6,124)
Increase in other assets and purchased
software and intangibles (7,086) (229)
Payment for purchase of third-party
interests in partnerships, net of cash
acquired - - - - (8,729)
Sale of put warrants - - - - 5,801
Purchase of call options - - - - (5,801)
Net cash used for investing activities (16,674) (20,427)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable and
long-term obligations (1,957) (27,170)
Sale of common stock 16,221 3,373
Purchase of treasury stock (91,242) (25,040)
Purchase of warrant (12,125) - - - -
Net cash used for financing activities (89,103) (48,837)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2,284 (1,210)
INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS (12,007) 7,005
CASH AND CASH INVESTMENTS AT END OF PERIOD $ 63,004 $ 68,387
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements included herein
have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements
should be read in conjunction with the financial statements and the
notes thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 1994.
The unaudited condensed consolidated financial statements included
herein reflect all adjustments (which include only normal,
recurring adjustments) that are, in the opinion of management,
necessary to state fairly the results for the periods presented.
The results for such periods are not necessarily indicative of the
results to be expected for the full fiscal year.
Certain prior year balances have been reclassified to conform to
the current year presentation.
2. Change in Fiscal Year End
Effective December 31, 1994 the Company changed its fiscal year
from December 31 to the 52-53 week period ending on the Saturday
closest to December 31. Beginning in fiscal 1995, each quarter
will be 13 weeks in length. The effect of the change is not
material to the Company's current year financial statements.
3. Purchase of Redwood Design Automation, Inc.
In August 1994, the Company acquired all of the outstanding stock
of Redwood Design Automation, Inc. ("Redwood") for approximately
419,000 shares of the Company's common stock valued at $4.6
million. Prior to the acquisition of Redwood the Company made $1.8
million of net advances to Redwood which were not repaid. Redwood
was a development stage company formed to design, develop and
market software for use in electronic system design. The
acquisition was accounted for as a purchase, and the results of
Redwood from the date of acquisition forward have been recorded in
the Company's consolidated financial statements. In connection with
the acquisition, net intangibles of $6.8 million were acquired, of
which $4.7 million was reflected as a one-time charge to operations
in the third quarter of 1994, for the write-off of in-process
research and development that had not reached technological
feasibility and, in management's opinion, such research had no
probable alternative future use. The one-time charge was reflected
in the Company's statement of income for the quarter ended
September 30, 1994 as an unusual item within operating expenses.
The remaining intangibles of $2.1 million are included in purchased
software and intangibles in the accompanying balance sheet and are
being amortized over a useful life of two years.
4. Net Income Per Share
Net income per share for each period is calculated by dividing net
income by the weighted average number of common stock and common
stock equivalents outstanding during the period (calculated using
the modified treasury stock method). Common stock equivalents
consist of dilutive shares issuable upon the exercise of
outstanding common stock options and warrants. Fully diluted net
income per share is substantially the same as primary net income
per share.
<PAGE> 7
5. Inventories
Inventories, which consist primarily of testing equipment, are
stated at the lower of cost (first-in, first-out method) or market.
Cost includes labor, material and manufacturing overhead.
Inventories consisted of the following (in thousands):
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July 1, December 31,
1995 1994
(Unaudited)
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Raw materials and supplies $1,305 $ 1,268
Work-in-process 3,186 2,250
Finished goods 2,010 1,619
Total $6,501 $ 5,137
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6. Commitments and Contingencies
Certain security class action lawsuits filed against the Company
and certain of its officers and directors in the United States
District Court for the Northern District of California, San Jose
Division on April 8 and 9, 1991, ("April 1991 Action") and on March
23, 1993 ("March 1993 Action"), respectively, alleging the
violation of certain securities laws by maintaining artificially
high market prices for the Company's common stock through alleged
misrepresentations and nondisclosures regarding the Company's
financial condition were tentatively settled in April 1994. Under
the terms of such tentative settlement agreements both class action
lawsuits were settled for a combined amount of $16.5 million, of
which approximately $7.5 million was covered by the Company's
insurance carriers. Reflected in the Company's operating expenses
as an unusual item for the quarter ended March 31, 1994, was the
net settlement cost of $9.0 million, $1.0 million of legal fees and
$2.1 million of additional settlement and legal costs then expected
to be incurred as a result of a dispute then pending with one of
the Company's insurance carriers. Such insurance coverage dispute
was settled in May 1994 and accordingly, the results of operations
for the second quarter ended June 30, 1994 included a $2.1 million
credit to operating expenses for the additional insurance proceeds
received and the reduction of accruals for legal expenses relating
to the provision taken in the first quarter. The settlement amounts
have been remitted into escrow. In March 1995, the April 1991
Action settlement was approved by the court and the action was
dismissed. In a hearing held August 10, 1995 the court approved
the settlement of the March 1993 Action and dismissed the Action.
7. Put Warrants and Call Options
The Company has an authorized stock repurchase program. In total,
as of July 1, 1995, the Company had authorized the repurchase of
20.2 million shares and approximately 15.6 million shares had been
repurchased. The Company repurchases common stock, in part, to
satisfy estimated requirements for shares to be issued under its
employee stock option and stock purchase plans as well as in
connection with acquisitions or financings.
Throughout 1994 as part of its authorized stock repurchase program,
the Company sold 5.0 million put warrants through private
placement. During the second quarter of 1995, 3.0 million of these
warrants expired out of the money. The remaining outstanding 2.0
million warrants entitle the holder to sell one share of common
stock to the Company on a specified date at a specified price
ranging from $16.41 to $20.59 per share. Additionally, during
1994, the Company purchased approximately 3.8 million call options
that entitle the Company to buy on a specified date one share of
common stock, at a specified price. During the second quarter of
1995, the Company repurchased 2.3 million common shares pursuant to
the exercise of call options for aggregate consideration of $42.5
million. The remaining 1.5 million outstanding call options range
in price from $17.66 to $22.84 per share. The Company has the
right to settle the put warrants with stock or a cash or stock
settlement equal to the difference between the exercise price and
market value at the date of exercise. The put warrants and call
options outstanding at July 1, 1995 are exercisable on various
dates between September 1995 and November 1995.
At July 1, 1995 the Company has both the unconditional right and
the intent to settle these put warrants with stock, and therefore,
no amount has been classified out of stockholders' equity in the
accompanying balance sheet. Gains or losses from the exercise of
these put warrants and call options are reported in stockholders'
equity.
Settlement of the put warrants with stock could cause the Company
to issue a substantial number of shares, depending on the amounts
of the repurchase obligations and the per share value of the
<PAGE> 8
Company's common stock at the time of exercise. In addition,
settlement of put warrants in stock or cash could lead to the
disposition by put warrant holders of shares of the Company's
common stock that such holders may have accumulated in anticipation
of the exercise of the put warrants or call options.
8. Subsequent Event
Subsequent to July 1, 1995 approximately 3.0 million shares of
common stock of the Company's wholly-owned subsidiary, Integrated
Measurement Systems, Inc. ("IMS") were sold to the public at $11
per share in a registered initial public offering. Of these
shares, approximately .4 million were sold by IMS and approximately
2.6 million shares were sold by the Company as the sole selling
stockholder of IMS. The sale generated net proceeds to the Company
after underwriting discounts and commissions of approximately $26.8
million and a pre-tax gain of approximately $18 million, which will
be reflected in the quarter ended September 30, 1995. In addition,
IMS received net proceeds of approximately $3.8 million. As a
result of the offering and sale of shares by the Company, the
Company's ownership interest in IMS decreased to 55%.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Revenue for the second quarter ended July 1, 1995 was $128.5
million as compared to $101.0 million for the same period of the
prior year, an increase of 27%. For the six months ended July 1,
1995, revenue was $244.6 million, an increase of 24% from revenue
of $197.8 million recorded for the same period of 1994.
Product revenue increased $9.1 million from $56.6 million for the
quarter ended June 30, 1994 to $65.7 million for the quarter ended
July 1, 1995. For the six month period ended July 1, 1995, product
revenue was $127.8 million as compared to $113.0 million for the
comparable period in 1994. The increase in product revenue was
primarily the result of increased demand for the Company's IC, top-
down design (HDL) and automated test engineering (ATE) products.
Service revenue increased to $16.9 million for the second quarter
ended July 1, 1995 from $6.1 million for the second quarter ended
June 30, 1994, an increase of $10.8 million. For the six month
period ended July 1, 1995, service revenue was $27.4 million as
compared to $10.8 million for the comparable period in 1994. The
increase in service revenue was the result of increased demand for
the Company's Spectrum Services consulting business including the
outsourcing agreement with Unisys Corporation ("Unisys") discussed
below.
Maintenance revenue was $46.0 million for the quarter ended July 1,
1995, an increase of $7.6 million from the amount reported for the
quarter ended June 30, 1994. For the six month period ended July
1, 1995, maintenance revenue was $89.4 million as compared to $74.0
million for the comparable period in 1994. The increase in
maintenance revenue was attributable to an increase in the
Company's installed base of products as well as the Company's
continued effort toward obtaining customer renewals of maintenance.
Revenue from international sources was approximately $61.9 million
and $50.9 million or 48% and 50% of total revenue for the three
months ended July 1, 1995 and June 30, 1994, respectively. For the
six month period ended July 1, 1995, revenue from international
sources was $125.0 million, representing 51% of total revenue as
compared to $104.4 million, representing 53% of total revenue for
the comparable period in 1994. Internationally, sales volume
increased in Asia and Europe for the quarter ended July 1, 1995 as
compared to the same period in the prior year and increased
primarily in Japan and Asia for the six months ended July 1, 1995
as compared to the same period in 1994. In addition, the increase
in international source revenue for the three and six month periods
ended July 1, 1995 as compared to the quarter and six months ended
June 30, 1994 was due to the favorable impact on revenue of foreign
exchange rates as the result of the strengthening of certain
foreign currencies in relation to the U.S. dollar. It is
anticipated that international revenue will continue to constitute
a significant portion of total revenue. International revenues are
subject to certain additional risks normally associated with
international operations, including, among others, adoption and
expansion of government trade restrictions, volatile foreign
exchange rates, currency conversion risks, limitations on
repatriation of earnings and reduced protection of intellectual
property rights.
<PAGE> 9
Cost of product declined to $10.7 million for the three months
ended July 1, 1995 from $13.2 million for the quarter ended June
30, 1994. The decrease was due to decreased manufacturing costs,
software amortization costs, facility costs and distributor
commissions. For the six month period ended July 1, 1995, cost of
product was $22.5 million as compared to $26.9 million for the
comparable period in 1994. The decrease in cost of product was the
result of a $1.5 million decrease in the amortization of purchased
software and capitalized software development costs primarily due
to the write-off of purchased software in the first quarter of 1994
and a $.7 million decrease in product royalties.
Cost of service increased from $4.9 million for the quarter ended
June 30, 1994 to $14.5 million for the quarter ended July 1, 1995.
For the six months ended July 1, 1995, cost of service was $23.7
million as compared to $9.4 million for the comparable period ended
June 30, 1994. These increases were due primarily to the transfer
to the Company of former employees of Unisys pursuant to the
outsourcing agreement signed in the first quarter of 1995, as
discussed below. In addition, the increases were due to additional
employee-related costs attributable to increased headcount required
to meet the higher demand for the Spectrum Services consulting
business.
Cost of maintenance was $4.3 million and $3.5 million for the
quarters ended July 1, 1995 and June 30, 1994, respectively. For
the six month period ended July 1, 1995, cost of maintenance was
$8.2 million as compared to $7.5 million for the comparable period
in 1994.
Product gross margin increased from 77% and 76% in the three and
six month periods ended June 30, 1994, respectively, to 84% and 82%
for the same periods ended July 1, 1995. As more fully described
above, the improvement in gross margin was the result of increased
product revenue combined with lower product costs in the 1995
periods as compared to the 1994 periods.
Service gross margin decreased from 20% for the quarter ended June
30, 1994 to 14% for the quarter ended July 1, 1995 due to
additional costs in 1995 primarily associated with the Unisys
contract as discussed above. In March 1995 the Company signed a
five year $75 million outsourcing agreement with Unisys to assume
substantial portions of Unisys' internal silicon design operation.
As part of this agreement, the Company retained approximately 180
hardware and software designers and acquired fixed assets and
certain intangibles. While primarily focused on serving the needs
of Unisys, the design and service resources acquired by Cadence are
also intended to be used to support other customers' design needs.
Until these newly acquired design and service resources are more
fully utilized through additional revenue contracts or until
further operating efficiencies are obtained, service gross margins
are expected to be adversely affected. For the six month periods
ended June 30, 1994 and July 1, 1995, service gross margin remained
constant at 13%.
Maintenance gross margin was 91% for the three and six month
periods ended July 1, 1995 as compared to 91% and 90% for the three
and six month periods ended June 30, 1994, respectively.
Marketing and sales expenses increased to $42.6 million for the
quarter ended July 1, 1995 as compared to $39.4 million for the
same period in 1994, an increase of 8%. For the six months ended
July 1, 1995, marketing and sales expenses were $84.8 million as
compared to $78.4 million for the same period in the prior year.
The increase in marketing and sales expenses was the result of an
increase in employee-related expenses, of which approximately $2.1
million and $3.8 million was attributable to the effect of the
strengthening of certain foreign currencies in relation to the U.S.
dollar for the three and six months ended July 1, 1995, as
compared to the three and six months ended June 30, 1994,
respectively. The remaining increase in employee-related expenses
was due to an increase in compensation expenses that vary with
bookings. These increased costs were partially offset by lower
facilities related costs.
Research and development expenses for the quarter ended July 1,
1995 were $22.7 million as compared to $19.3 million for the same
period of the prior year, an increase of 18%. Capitalization of
software development costs for the quarters ended July 1, 1995 and
June 30, 1994 was $2.9 million and $2.8 million, which represented
11% and 13% of total research and development expenditures made in
each of those periods, respectively. For the six months ended
July 1, 1995, research and development expenses were $43.5 million
compared to $37.5 million for the same period in 1994, after
capitalization of $5.9 million and $6.1 million which represented
12% and 14% of total research and development expenditures made in
those periods, respectively. The amount of software development
costs capitalized in any given period may vary depending on the
exact nature of the development performed. Gross research and
development expenditures before capitalization increased from $22.0
million for the three months ended June 30, 1994 to $25.6 million
for the same period in the current year and increased to $49.4
million for the six months ended July 1, 1995 from $43.6 million
for the same period in the prior year. The increases in research
and development expenses during the 1995 periods were primarily due
to increased employee-related expenses primarily resulting from
<PAGE> 10
increased headcount. These increased costs were partially offset by
lower facilities related costs.
General and administrative expenses decreased to $9.7 million for
the quarter ended July 1, 1995 from $9.8 million for the same
period in 1994. For the six months ended July 1, 1995, general and
administrative expenses were $19.2 million as compared to $20.4
million for the same period in the prior year. The decrease for
the quarter was due to decreased bad debt expense of $.3 million.
The decrease for the six months ended July 1, 1995 was primarily
the result of decreased bad debt expense of $.8 million and
decreased legal fees of $.6 million due to the settlement of the
stockholder class action lawsuits at the end of the first quarter
of 1994.
In March 1994 the Company recorded a provision of $12.1 million for
settlement of the stockholder class action lawsuits filed against
the Company and certain of its officers and directors in 1991 and
1993. This provision was recorded as an unusual item within
operating expenses in the accompanying statement of income. The
provision was comprised of a net settlement amount of $9.0 million,
$1.0 million of legal fees and $2.1 million of additional
settlement and legal costs expected to be incurred as a result of a
dispute with one of the Company's insurance carriers. In May 1994,
after negotiation, the Company's secondary insurance carrier agreed
to provide coverage on the second lawsuit. Accordingly, the
results of operations for the second quarter ended June 30, 1994
included a $2.1 million credit to operating expenses for the
additional insurance proceeds received and a reduction of accruals
for legal expenses relating to the provision taken in the first
quarter of 1994.
Net other income for the quarter ended July 1, 1995 was $.2 million
of income compared with $.4 million of income for the same period
in 1994. For the six months ended July 1, 1995, net other income
was expense of $.2 million as compared to $.8 million of income for
the same period in 1994. The decrease in net other income for the
three month and six month periods ended July 1, 1995 was primarily
the result of a $.4 million and $.9 million increase, respectively,
in interest expense related to a secured loan obtained as part of
the Company's acquisition, in the fourth quarter of 1994, of all
third party interests in a real estate partnership which owns
certain of the Company's facilities.
The Company's estimated annual effective tax rate for fiscal 1995
is 28% as compared to 25% in 1994. The 1995 and 1994 tax rates
reflect the reduction in the valuation allowance primarily from the
utilization of net operating losses generated in prior years.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating expenses are partially based on its
expectations of future revenue. The Company's results of
operations may be adversely affected if revenue does not
materialize in a quarter as expected. Since expense levels are
usually committed in advance of revenues and because only a small
portion of expenses vary with revenue, the Company's operating
results may be impacted significantly by lower revenue. Based on
the Company's operating history and factors that may cause
fluctuations in the quarterly results, quarter to quarter
comparisons should not be relied upon as indicators of future
performance.
The Company's future operating results are dependent on the
Company's ability to successfully implement its strategy to help
its customers meet their business objectives through optimized
product design environments ("PDEs"). The Company provides these
PDEs through a combination of software products and services.
Inherent in implementing this strategy are a number of risks that
the Company must manage and which could affect its future operating
results.
The Company competes in the highly competitive EDA market which
continues to be characterized by aggressive pricing practices,
rapid technological change and new market entrants. The Company's
success is dependent on its ability to develop innovative, cost-
competitive EDA software products and to bring them to market in a
timely manner.
In order to more effectively work with customers to help them build
optimized PDEs, the Company has realigned its sales force along
industry lines. The Company expects this industry focus will allow
the sales force to better understand and prepare solutions to its
customers' business needs thereby increasing revenue. Should the
benefits of this realignment take longer to realize than expected,
the Company's revenues could be adversely affected.
Another important part of the Company's strategy is to help its
customers through an increased offering of services. While the
<PAGE> 11
Company has provided services to its customers for a number of
years, there are a number of risks the Company must successfully
address in order to develop this portion of its business. These
risks include the ability to successfully recruit, train and retain
a skilled consulting force and the ability to profitably deliver
consulting services that meet customer expectations. The Company's
profitability could be adversely affected if it is unable to
develop its consulting services business as expected.
Due to the foregoing, as well as other factors, past financial
performance should not be considered a reliable indicator of future
performance. In addition, the Company's participation in a highly
dynamic industry often results in significant volatility of the
Company's common stock price. Any difference in revenues or
operating results from levels expected by securities analysts for
the Company or its competitors, and the timing of the announcement
of any such shortfalls, could have an immediate and significant
adverse effect on the trading price of the Company's common stock
in any given period. In addition, the Company maintains a stock
repurchase program, which is dependent on the availability of
sufficient cash to fund the repurchases whether generated through
operations or debt financing. Should the Company reduce the level
of stock repurchases, the trading price of the Company's common
stock could decline.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended July 1, 1995 the Company's cash and
cash investments and short-term investments decreased $20.4 million
from $96.9 million to $76.5 million. This decrease was primarily
due to net cash used for investing (excluding purchases and
maturities of short-term investments) and financing activities
exceeding net cash generated by operating activities. Cash used
for financing activities included approximately $91.2 million of
treasury stock purchases and the purchase of a warrant related to
1.0 million shares of the Company's common stock for $12.1 million,
partially offset by $16.2 million of cash generated by the sale of
common stock through the exercise of stock options. Cash provided
by operating activities included a decrease of $24.1 million in
accounts receivable due to increased collections and improved days
sales outstanding. Also included in the cash generated by
operating activities was a $12.3 million increase in deferred
revenue attributable to increased deferred maintenance due to a
larger customer base and continued focus on customer renewals and
an increase in certain product deferrals.
The Company had a working capital deficit at July 1, 1995 of $22.9
million compared to positive working capital of $27.5 million at
December 31, 1994. The decrease is primarily the result of a
decrease of $19.6 million in accounts receivable, an increase of
$13.3 million in deferred revenue and a decrease in cash, cash
investments and short-term investments of $20.4 million.
The Company has an authorized stock repurchase program. Prior to
1993, the Company had authorized the repurchase of up to 2.8
million shares of common stock in the open market. In 1993 and
1994, the Company authorized the repurchase of an additional 4.0
million and 13.4 million shares, respectively, of common stock from
time to time. In addition, in August 1995, the Company authorized
the repurchase of an additional 2.5 million shares of common stock.
In total, as of July 1, 1995, approximately 15.6 million shares had
been repurchased. Some repurchases are necessary to satisfy
estimated requirements for shares to be issued under the Company's
employee stock option and stock purchase plans as well as in
connection with acquisitions. During 1994, as part of its
authorized stock repurchase program, the Company sold 5.0 million
put warrants and purchased 3.8 million call options through private
placement. During the second quarter of 1995, 3.0 million put
warrants expired out of the money and the Company repurchased
approximately 2.3 million shares of common stock pursuant to the
exercise of call options for approximately $42.5 million. The
Company had a maximum potential obligation related to the put
warrants at July 1, 1995 to buy back 2.0 million shares of its
common stock at an aggregate price of approximately $37.0 million.
The put warrants are exercisable on various dates between September
1995 and November 1995. Alternatively, the Company can elect to
settle the put warrants with stock which could cause the Company to
issue a substantial number of shares, depending on the amounts of
the repurchase obligations and the per share value of the Company's
common stock at the time of exercise. In addition, settlement of
put warrants in stock or cash could lead to the disposition by put
warrant holders of shares of the Company's common stock that such
holders may have accumulated in anticipation of the exercise of the
put warrants or call options.
In addition to the $76.5 million in cash and cash investments and
short-term investments at July 1, 1995, subsequent to July 1, the
Company received $30.6 million in proceeds related to the public
offering of the common stock of its IMS subsidiary. The Company
had available $10.0 million under a bank line of credit, which
expired in June 1995. The Company is currently in negotiations
with various lenders regarding a potential line of credit, but
there can be no assurance that mutually acceptable terms can be
reached or that the Company will have a bank line of credit
available in the short-term.
<PAGE> 12
Anticipated cash requirements for fiscal 1995 include the purchase
of treasury stock through the exercise of the Company's call
options and in the open market. The Company has the right to
purchase 1.5 million shares through the exercise of call options in
the third and fourth quarters at a cost of approximately $30.4
million. Other cash requirements for the remainder of fiscal 1995
include contemplated additions of capital equipment of
approximately $26 million and the repayment in August 1995, if not
refinanced, of a $23.4 million secured loan assumed as part of a
1994 purchase of corporate facilities.
The Company anticipates that current cash and short-term investment
balances, cash flows from operations and potential short and long-
term borrowing capabilities will be sufficient to meet its working
capital and capital expenditure requirements on a short and long-
term basis. To the extent the Company cannot arrange satisfactory
terms or does not utilize bank lines of credit or borrowings to
fund its operations on a short-term basis, the Company may continue
to reduce its current cash and may experience future working
capital deficits on a short-term basis.
PART II. OTHER INFORMATION
Item 2. Legal Proceedings
The securities class action lawsuits filed against the Company and
certain of its officers and directors in the United States District
Court for the Northern District of California, San Jose Division
on April 8 and 9, 1991, (April, 1991 Action) and on March 23,1993
(March, 1993 Action), respectively, alleging the violation of
certain securities laws by maintaining artificially high market
prices for the Company's common stock through alleged
misrepresentations and nondisclosures regarding the Company's
financial condition were tentatively settled in April 1994. Under
the terms of such tentative settlement agreements both of the
aforementioned class action lawsuits were settled for a combined
amount equal to $16.5 million, of which approximately $7.5 million
was covered by the Company's insurance carriers. The settlement
amounts have been remitted into escrow. In March 1995, the April
1991 Action settlement was approved by the District court and the
Action was dismissed. In a hearing held on August 10, 1995 the
court approved the settlement of the March 1993 Action and
dismissed the Action.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held May 11, 1995, the
stockholders of the Company approved the following matters.
1. A proposal to elect ten (10) directors of the Company to
serve for the ensuing year and until their successors
are elected or until such directors earlier resignation
or removal.
<TABLE>
<CAPTION>
NOMINEE IN FAVOR WITHHELD
<S> <C> <C>
Carol Bartz 32,973,798 186,521
Joseph B. Costello 32,969,227 191,092
Henry E. Johnston 32,973,627 186,692
Raymond J. Lane (1) 32,972,683 187,636
Leonard Y.W. Liu 32,969,083 191,236
Donald L. Lucas 32,972,518 187,801
Alberto Sangiovanni- 32,974,018 186,301
Vincentelli
George M. Scalise 32,973,716 186,603
John B. Shoven 32,973,608 186,711
James E. Solomon 32,974,318 186,001
</TABLE>
(1) Resigned effective July 25, 1995.
2. A proposal for the ratification of the selection of
Arthur Andersen LLP as independent public accountants was
approved by a vote of 32,901,713 for, 13,865 opposed and
244,741 withheld.
<PAGE> 13
Item 6. Exhibits and Reports on Form 8K
(a) The following exhibits are filed herewith:
Exhibit
Number Exhibit Title
10.29 Form of Underwriting Agreement in connection with
Integrated Measurement Systems, Inc. public offering.
27.1 Financial data schedule for the period ended July 1, 1995.
(b) No reports on Form 8-K have been filed during the quarter
ended July 1, 1995.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CADENCE DESIGN SYSTEMS, INC.
(Registrant)
DATE: August 14, 1995 By: /s/ Joseph B. Costello
JOSEPH B. COSTELLO
President and Chief Executive Officer
DATE: August 14, 1995 By: /s/ H. Raymond Bingham
H. RAYMOND BINGHAM
Executive Vice President
and Chief Financial Officer
<PAGE>
July 20, 1995
Morgan Stanley & Co. Incorporated
Cowen & Company
Soundview Financial Group, Inc.
c/o Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
Integrated Measurement Systems, Inc., an Oregon corporation
(the "Company"), proposes to issue and sell to the several
Underwriters named in Schedule I hereto (the "Underwriters"), and
Cadence Design Systems, Inc., a Delaware corporation and the sole
stockholder of the Company (the "Selling Stockholder"), severally
proposes to sell to the several Underwriters, an aggregate of
2,600,000 shares of the common stock, $.01 par value, of the
Company (the "Firm Shares"), of which 375,000 shares are to be
issued and sold by the Company and 2,225,000 shares are to be sold
by the Selling Stockholder.
The Selling Stockholder also proposes to issue and sell to the
several Underwriters not more than an additional 390,000 shares of
its common stock, $.01 par value (the "Additional Shares"), if and
to the extent that you, as Managers of the offering, shall have
determined to exercise, on behalf of the Underwriters, the right to
purchase such shares of common stock granted to the Underwriters in
Article III hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the Shares. The shares of
common stock, $.01 par value, of the Company to be outstanding
after giving effect to the sales contemplated hereby are
hereinafter referred to as the Common Stock. The Company and the
Selling Stockholder are hereinafter sometimes collectively referred
to as the Sellers.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including a
prospectus, relating to the Shares. The registration statement as
amended at the time it becomes effective, including the information
(if any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the Securities
Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the Registration Statement; the prospectus in the
form first used to confirm sales of Shares is hereinafter referred
to as the Prospectus.
I.
A. The Company and the Selling Stockholder, jointly and
severally, represent and warrant to each of the Underwriters that:
(i) The Registration Statement has become effective, no
stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for such purpose
are pending before or threatened by the Commission.
(ii) (I) Each part of the Registration Statement, when
such part became effective, did not contain and each such
part, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading,
(II) the Registration Statement and the Prospectus comply and,
as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder and
(III) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading, except that the representations and warranties set
forth in this paragraph I.A (ii) do not apply to statements or
omissions in the Registration Statement or the Prospectus
based upon information relating to any Underwriter furnished
to the Company in writing by such Underwriter through you
expressly for use therein.
(iii) The Company has been duly incorporated, and is
an active corporation under the laws of the State of Oregon,
has the corporate power and authority to own its property and
to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on
the Company.
(iv) The Company does not own or control, directly or
indirectly, any corporation, association or other entity.
(v) The authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in
the Prospectus.
(vi) The shares of Common Stock (including the Shares to
be sold by the Selling Stockholder) outstanding prior to the
issuance of the Shares to be sold by the Company have been
duly authorized and are validly issued, fully paid and
non-assessable.
(vii) The Shares to be sold by the Company have been
duly authorized, and, when issued and delivered in accordance
with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(viii) This Agreement has been duly authorized,
executed and delivered by the Company and is a valid and
binding agreement of the Company.
(ix) There has not occurred any material adverse change,
or any development involving a prospective material adverse
change, in the condition, financial or otherwise, or in the
earnings, business or operations of the Company from that set
forth in the Prospectus.
(x) There are no legal or governmental proceedings
pending or threatened to which the Company is a party or to
which any of the properties of the Company is subject that are
required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to
be described in the Registration Statement or the Prospectus
or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(xi) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the
Securities Act, complied when so filed in all material
respects with the Securities Act and the rules and regulations
of the Commission thereunder.
(xii) The Company is not an "investment company" or
an entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as
amended.
(xiii) There is no owner of any securities of the
Company who has any rights, not effectively satisfied or
waived, to require registration of any shares of capital stock
of the Company in connection with the filing of the
Registration Statement.
(xiv) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with
management's general or specific authorization; (2)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability;
(3) access to assets is permitted only in accordance with
management's general or specific authorization; and (4) the
recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xv) As of the date the Registration Statement becomes
effective, the Common Stock will be authorized for listing on
the Nasdaq National Market System upon official notice of
issuance.
(xvi) The Company has complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of
Florida), relating to issuers doing business with Cuba.
B. The Company represents and warrants to each of the
Underwriters that:
(i) The execution and delivery by the Company of, and
the performance by the Company of its obligations under, this
Agreement will not contravene any provision of applicable law
or the articles of incorporation or bylaws of the Company or
any agreement or other instrument binding upon the Company
that is material to the Company or any judgment, order or
decree of any governmental body, agency or court having
jurisdiction over the Company, and no consent, approval,
authorization or order of or qualification with any
governmental body or agency is required for the performance by
the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of
the Shares.
(ii) The Company has all necessary consents,
authorizations, approvals, orders, certificates and permits of
and from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other
tribunals, to own, lease, license and use its properties and
assets and to conduct its business in the manner described in
the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the
Company.
(iii) The Company (I) is in compliance with any and
all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants (collectively,
"Environmental Laws"), (II) has received all permits, licenses
or other approvals required of it under applicable
Environmental Laws to conduct its business and (III) is in
compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse
effect on the Company.
(iv) The costs and liabilities associated with
Environmental Laws (including, without limitation, any capital
or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on
operating activities and any potential liabilities to third
parties) would not, singly or in the aggregate, reasonably be
expected to have a material adverse effect on the Company.
(v) The Company owns or possesses adequate licenses
or other rights to use all patents, copyrights, trademarks,
service marks, trade names, maskwork rights, technology and
know-how necessary (in any material respect) to conduct its
business in the manner described in the Prospectus and, except
as disclosed in the Prospectus, the Company has not received
any notice of infringement or conflict with (and knows of no
infringement or conflict with) asserted rights of others with
respect to any patents, copyrights, trademarks, service marks,
trade names, maskwork rights, technology or know-how which
could result in any material adverse effect upon the Company;
and, except as disclosed in the Prospectus, the discoveries,
inventions, products or processes of the Company referred to
in the Prospectus do not, to the knowledge of the Company,
infringe or conflict with any right or patent of any third
party, or any discovery, invention, product or process which
is the subject of a patent application filed by any third
party, known to the Company which could have a material
adverse effect on the Company.
II.
The Selling Stockholder represents and warrants to each of the
Underwriters that:
(a) To the best of the Selling Stockholder's knowledge,
all the representations of the Company set forth in
Section I.B are true and correct.
(b) This Agreement has been duly authorized, executed
and delivered by the Selling Stockholder and constitutes a
valid and binding obligation upon the Selling Stockholder.
(c) The execution and delivery by the Selling
Stockholder of, and the performance by such Selling
Stockholder of its obligations under, this Agreement will not
contravene any provision of applicable law, or articles of
incorporation or by-laws of the Selling Stockholder, or any
agreement or other instrument binding upon the Selling
Stockholder or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
the Selling Stockholder, and no consent, approval,
authorization or order of or qualification with any
governmental body or agency is required for the performance by
the Selling Stockholder of its obligations under this
Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
(d) The Selling Stockholder has, and on the Closing Date
will have, good and valid marketable title to the Shares to be
sold by the Selling Stockholder and the legal right and power,
and all authorization and approval required by law, to enter
into this Agreement and to sell, transfer and deliver the
Shares to be sold by the Selling Stockholder.
(e) The Shares to be sold by the Selling Stockholder
pursuant to this Agreement have been duly authorized and are
validly issued, fully paid and non-assessable.
(f) Upon delivery of and payment for the Shares to be
sold by the Selling Stockholder pursuant to this Agreement,
the Underwriters will receive good and valid title to such
Shares free and clear of any security interests, claims, liens
and other encumbrances.
(g) All information furnished by or on behalf of the
Selling Stockholder for use in the Registration Statement and
Prospectus is, and on the Closing Date will be, true, correct,
and complete, and does not, and on the Closing Date will not,
contain any untrue statement of a material fact or omit to
state any material fact necessary to make such information not
misleading.
(h) The Selling Stockholder owns beneficially all the
outstanding shares of capital stock of the Company.
III.
Each Seller, severally and not jointly, hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis
of the representations and warranties herein contained, but subject
to the conditions hereinafter stated, agrees, severally and not
jointly, to purchase from such Seller at $10.23 a share the
purchase price the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine)
that bears the same proportion to the number of Firm Shares to be
sold by such Seller as the number of Firm Shares set forth in
Schedule I hereto opposite the name of such Underwriter bears to
the total number of Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the
Selling Stockholder agrees to sell to the Underwriters the
Additional Shares, and the Underwriters shall have a one-time right
to purchase, severally and not jointly, up to 390,000 Additional
Shares at the purchase price. Additional Shares may be purchased
as provided in Article V hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each
Underwriter agrees, severally and not jointly, to purchase the
number of Additional Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be
purchased as the number of Firm Shares set forth in Schedule I
hereto opposite the name of such Underwriter bears to the total
number of Firm Shares.
The Company hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 365 days after
the date of the Prospectus, (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 Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock,
or (2) enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the Common
Stock, 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, other than (i) the Shares
to be sold hereunder, (ii) any shares of such Common Stock sold by
the Company upon the exercise of an option under the Company's
stock option plan outstanding on the date hereof, and (iii) any
option to purchase Common Stock granted under the Company's stock
option plans and shares of the Common Stock sold by the Company
upon the exercise of any such option, provided that, the holder of
such option enters into a lock-up agreement similar to the
agreement set forth in this paragraph for the period from the date
of such grant until the date 365 days after the date of the
Prospectus. The Company hereby further agrees that during the
period ending 90 days after the date of the Prospectus, it will not
waive, amend or alter any lock up provision contained in any stock
option agreement between the Company and any person without the
prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the Underwriters.
The Selling Stockholder hereby agrees that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of
the Underwriters, it will not, during the period ending 365 days
after the date of the Prospectus, (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 Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock,
or (2) enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the Common
Stock, 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, provided that, beginning on the
date 180 days after the date of the Prospectus, the Selling
Stockholder may sell in one or more private transactions up to ten
percent (10%) of the shares of Common Stock (in the aggregate) held
by the Selling Stockholder immediately after the Closing Date as
long as the Selling Shareholder notifies Morgan Stanley & Co.
Incorporated of such transfer and the purchaser of such shares
agrees to be bound by an agreement with the Underwriters on the
same terms as set forth in this paragraph (except that the
purchaser shall not be entitled to transfer shares in a private
transaction) ending on the date 365 days after the date of the
Prospectus. In addition, the Selling Stockholder agrees that,
without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, it will not, during the
period ending 365 days after the date of the Prospectus, make any
demand for or exercise any right with respect to, the registration
of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
IV.
The Sellers are advised by you that the Underwriters propose
to make a public offering of their respective portions of the
Shares as soon after the Registration Statement and this Agreement
have become effective as in your judgment is advisable. The
Sellers are further advised by you that the Shares are to be
offered to the public initially at $11.00 a share (the public
offering price) and to certain dealers selected by you at a price
that represents a concession not in excess of $.46 a share under
the public offering price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $.10 a
share, to any Underwriter or to certain other dealers.
V.
Payment for the Firm Shares to be sold by the Company, shall
be made by certified or official bank check or checks payable to
the order of the Company, and payment for the Firm Shares to be
sold by the Selling Stockholder shall be by certified or official
bank check or checks payable to the order of the Selling
Stockholder, in each case in New York Clearing House funds, at the
office of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, California 94301, 7:00 A.M., local time, on July 26,
1995, or at such other time on the same or such other date, not
later than August 3, 1995, as shall be designated in writing by
you. The time and date of each such payment are hereinafter
referred to as the Closing Date.
Payment for any Additional Shares shall be made by certified
or official bank check or checks payable to the order of the
Selling Stockholder, in New York Clearing House funds at the office
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California 94301, 7:00 A.M., local time, on such date (which may be
the same as the Closing Date but shall in no event be earlier than
the Closing Date nor later than ten business days after the giving
of the notice hereinafter referred to) as shall be designated in a
written notice from you to the Company of your determination, on
behalf of the Underwriters, to purchase a number, specified in said
notice, of Additional Shares, or on such other date, in any event
not later than September 1, 1995 as shall be designated in writing
by you. The time and date of such payment are hereinafter referred
to as the Option Closing Date. The notice of the determination to
exercise the option to purchase Additional Shares and of the Option
Closing Date may be given at any time within 30 days after the date
of this Agreement.
Certificates for the Firm Shares and Additional Shares shall
be in definitive form and registered in such names and in such
denominations as you shall request in writing not later than two
full business days prior to the Closing Date or the Option Closing
Date, as the case may be. The certificates evidencing the Firm
Shares and Additional Shares shall be delivered to you on the
Closing Date or the Option Closing Date, as the case may be, for
the respective accounts of the several Underwriters, with any
transfer taxes payable in connection with the transfer of the
Shares to the Underwriters duly paid, against payment of the
purchase price therefor.
VI.
The obligations of the Sellers and the several obligations of
the Underwriters hereunder are subject to the condition that the
Registration Statement shall have become effective not later than
the date hereof.
The several obligations of the Underwriters hereunder are
subject to the following further conditions:
(a) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, there shall not have
occurred any change, or any development involving a
prospective change, in the condition, financial or otherwise,
or in the earnings, business or operations, of the Company
from that set forth in the Registration Statement, that, in
your judgment, is material and adverse and that makes it, in
your judgment, impracticable to market the Shares on the terms
and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing
Date a certificate, dated the Closing Date and signed by the
chief executive officer and the chief financial officer of the
Company, to the effect set forth in clause (a) above, and to
the effect that the representations and warranties of the
Company contained in this Agreement are true and correct as of
the Closing Date and that the Company has complied with all of
the agreements and satisfied all of the conditions on its part
to be performed or satisfied hereunder on or before the
Closing Date.
The officers signing and delivering such certificate may
rely upon the best of their knowledge as to proceedings
threatened.
(c) The Underwriters shall have received on the Closing
Date a certificate, dated the Closing Date and signed by the
chief executive officer and the chief financial officer of the
Selling Stockholder to the effect set forth in clause (a)
above, and to the effect that the representations and
warranties of the Selling Stockholder contained in this
Agreement are true and correct as of the Closing Date and that
the Selling Stockholder has complied with all of the
agreements and satisfied all of the conditions on its part to
be performed or satisfied hereunder on or before the Closing
Date.
The officers signing and delivering such certificate may
rely upon the best of their knowledge as to proceedings
threatened.
(d) You shall have received on the Closing Date an
opinion of Ater Wynne Hewitt Dodson & Skerritt, counsel for
the Company, dated the Closing Date, to the effect that
(i) the Company has been duly incorporated as an
active corporation under the laws of the State of Oregon,
has the corporate power and authority to own its property
and to conduct its business as described in the
Prospectus and is duly qualified to transact business and
is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of
property requires such qualification, except to the
extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the
Company;
(ii) to such counsel's knowledge, the Company does
not own or control, directly or indirectly, any
corporation, association or other entity;
(iii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;
(iv) the shares of Common Stock (including the
Shares to be sold by the Selling Stockholder) outstanding
prior to the issuance of the Shares to be sold by the
Company have been duly authorized and are validly issued,
fully paid and non-assessable;
(v) the Shares to be sold by the Company have been
duly authorized when issued and delivered in accordance
with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such
Shares will not be subject to any statutory preemptive
or, to such counsel's knowledge, similar rights;
(vi) this Agreement has been duly authorized,
executed and delivered by the Company;
(vii) the execution and delivery by the Company of,
and the performance by the Company of its obligations
under, this Agreement will not contravene any provision
of applicable law or the articles of incorporation or
bylaws of the Company or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon
the Company that is material to the Company or, to the
best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having
jurisdiction over the Company and no consent, approval,
authorization or order of or qualification with any
governmental body or agency is required for the
performance by the Company of its obligations under this
Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(viii) the statements (1) in the Prospectus under
the captions "Risk Factors -- Effect of Certain Anti-
Takeover Provisions", "Certain Transactions--Description
of Agreements with Cadence," "Description of Capital
Stock," and "Shares Eligible for Future Sale," and (2) in
the Registration Statement in Items 14 and 15, in each
case insofar as such statements constitute summaries of
the legal matters, documents or proceedings referred to
therein, fairly present the information called for with
respect to such legal matters, documents and proceedings
and fairly summarize the matters referred to therein;
(ix) after due inquiry, such counsel does not know
of any legal, regulatory or governmental proceeding
pending or threatened to which the Company is a party or
to which any of the properties of the Company is subject
that are required to be described in the Registration
Statement or the Prospectus and are not so described or
of any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement that are not
described or filed as required;
(x) the Company is not an "investment company" or
an entity "controlled" by an "investment company," as
such terms are defined in the Investment Company Act of
1940, as amended;
(xi) such counsel (1) is of the opinion that the
Registration Statement and Prospectus (except for
financial statements and schedules and other financial
data included therein as to which such counsel need not
express any opinion) comply as to form in all material
respects with the Securities Act and the rules and
regulations of the Commission thereunder, (2) believes
that (except for financial statements and schedules and
other financial data as to which such counsel need not
express any belief) the Registration Statement and the
prospectus included therein at the time the Registration
Statement became effective did not contain any untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
the statements therein not misleading and (3) believes
that (except for financial statements and schedules and
other financial data as to which such counsel need not
express any belief) the Prospectus does not contain any
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in light of the circumstances under which they
were made, not misleading.
(e) You shall have received on the Closing Date an
opinion of Fenwick & West, counsel for the Selling
Stockholder, dated the Closing Date, to the effect that
(i) the Selling Stockholder has been duly
incorporated and is validly existing as a corporation in
good standing under the laws of the State of Delaware.
(ii) this Agreement has been duly authorized,
executed and delivered by the Selling Stockholder;
(iii) the execution and delivery by the Selling
Stockholder of, and the performance by the Selling
Stockholder of its obligations under, this Agreement will
not contravene any provision of applicable law, or the
articles of incorporation or bylaws of the Selling
Stockholder or, to the best of such counsel's knowledge,
any agreement or other instrument binding upon the
Selling Stockholder that is material to the Selling
Stockholder or, to the best of such counsel's knowledge,
any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Selling
Stockholder, and no consent, approval, authorization or
order of or qualification with any governmental body or
agency is required for the performance by the Selling
Stockholder of its obligations under this Agreement,
except such as may be required by the securities or Blue
Sky laws of the various states in connection with offer
and sale of the Shares;
(iv) the Selling Stockholder has the legal right and
power, and all authorization and approval required by
law, to enter into this Agreement and to sell, transfer
and deliver the Shares to be sold by the Selling
Stockholder; and, to such counsel's knowledge, the
Selling Stockholder has valid marketable title to the
Shares to be sold by the Selling Stockholder and such
sale, transfer and delivery is not subject to any right
of first refusal or other contractual restriction; and
each of the certificates evidencing such Shares is in
proper legal form; and
(v) assuming the Underwriters purchase the Shares
to be sold by the Selling Stockholder for value, in good
faith and without notice of any adverse claim, upon
delivery of and payment for the Shares to be sold by the
Selling Stockholder pursuant to this Agreement, the
Underwriters will receive valid title to such Shares free
and clear of any security interests, claims, liens,
equities and other encumbrances.
(f) You shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Underwriters, dated the Closing
Date, covering the matters referred to in subparagraphs (v),
(vi), (x) and (xi) of paragraph (d) above and to the effect
that the statements in the Prospectus under "Underwriters,"
insofar as such statements constitute a summary of this
Agreement, fairly present the information called for with
respect to such Agreement.
With respect to subparagraph (xi) of paragraph (d) above, Ater
Wynne Hewitt Dodson & Skerritt and Wilson Sonsini Goodrich & Rosati
may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent
check or verification except as specified.
The opinions of Ater Wynne Hewitt Dodson & Skerritt and
Fenwick & West described in paragraphs (d) and (e) above shall be
rendered to you at the request of the Company or the Selling
Stockholder, as the case may be, and shall so state therein.
(g) You shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance
satisfactory to you, from Arthur Andersen L.L.P., independent
public accountants, containing statements and information of
the type ordinarily included in accountants' "comfort letters"
to underwriters with respect to the financial statements and
certain financial information contained in the Registration
Statement and the Prospectus.
(h) The "lock-up" agreements between you and certain
officers and directors of the Company relating to sales of
shares of Common Stock of the Company or any securities
convertible into or exercisable or exchangeable for such
Common Stock, delivered to you on or before the date hereof,
shall be in full force and effect on the Closing Date.
(i) The shares of Common Stock of the Company shall have
received approval for listing, upon official notice of
issuance, on the Nasdaq National Market System.
All the agreements, opinions, certificates and letters
mentioned above or elsewhere in this Agreement shall be deemed in
compliance with the provisions hereof only if Wilson Sonsini
Goodrich & Rosati, counsel for the Underwriters, shall be
reasonably satisfied that they comply in form and scope.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to you on
the Option Closing Date of such documents as you may reasonably
request with respect to the good standing of the Company, the due
authorization, issuance and sale of the Additional Shares and other
matters related to the issuance and sale of the Additional Shares.
VII.
In further consideration of the agreements of the Underwriters
herein contained, the Company covenants as follows:
(a) To furnish to you, without charge, four (4) signed
copies of the Registration Statement (including exhibits
thereto) and for delivery to each other Underwriter a
conformed copy of the Registration Statement (without exhibits
thereto) and, during the period mentioned in paragraph (c)
below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you
may reasonably request.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each
such proposed amendment or supplement and to file no such
proposed amendment or supplement to which you reasonably
object.
(c) If, during such period after the first date of the
public offering of the Shares as in the opinion of your
counsel the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event
shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to
make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not
misleading, or if, in the opinion of your counsel, it is
necessary to amend or supplement the Prospectus to comply with
law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the
dealers (whose names and addresses you will furnish to the
Company) to which Shares may have been sold by you on behalf
of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented
will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus, as amended or supplemented, will comply
with law.
(d) To endeavor to qualify the Shares for offer and sale
under the securities or Blue Sky laws of such jurisdictions as
you shall reasonably request and to pay all expenses
(including fees and disbursements of counsel) in connection
with such qualification and in connection with any review of
the offering of the Shares by the National Association of
Securities Dealers, Inc; provided, however, that the Company
shall not be required to qualify the Shares under the laws of
any jurisdiction where the Company is not otherwise subject to
suit if such qualification would constitute or require the
consent of the Company to suit in such jurisdiction.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earning statement
covering the twelve-month period ending September 30, 1996
that satisfies the provisions of Section 11(a) of the
Securities Act and the rules and regulations of the Commission
thereunder.
VIII.
The Selling Stockholder agrees to pay or cause to be paid all
taxes, if any, on the transfer and sale of the Shares being sold by
the Selling Stockholder and the fees and expenses of counsel
retained by the Selling Stockholder. The Company agrees to pay all
costs and expenses incident to the performance of the obligations
of the Selling Stockholder and the Company under this Agreement
(except as set forth above), including, but not limited to, all
expenses incident to (i) the preparation and filing of the
Registration Statement (including all exhibits thereto) and the
Prospectus and all amendments and supplements thereto, (ii) the
preparation, issuance and delivery of the Shares, including any
transfer taxes payable in connection with the transfer and sale of
the Shares to the Underwriters, (iii) the fees and disbursements of
the Company's counsel and accountants, (iv) the qualification of
the Shares under state securities or Blue Sky laws in accordance
with the provisions of paragraph (d) of Article VII hereof,
including filing fees and the fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the
preparation of any Blue Sky or Legal Investment Memoranda, (v) the
printing and delivery to the Underwriters, in quantities as
hereinabove stated, of copies of the Registration Statement
(including all exhibits thereto) and all amendments thereto and of
each preliminary prospectus and the Prospectus and any amendments
or supplements thereto, (vi) the printing and delivery to the
Underwriters of copies of any Blue Sky or Legal Investment
Memoranda, (vii) the filing fees and expenses, if any, incurred
with respect to any filing with the National Association of
Securities Dealers, Inc., made in connection with the offering of
the Shares, (viii) any expenses incurred by the Company in
connection with a "road show" presentation to potential investors,
(ix) the listing of the Common Stock on the Nasdaq National Market
and (x) all document production charges and expenses of counsel to
the Underwriters (but not including their fees for professional
services) in connection with the preparation of this Agreement;
provided, however, that the Selling Stockholder agrees to pay or
cause to be paid its pro rata share (based on the percentage which
the number of Shares sold by the Selling Stockholder bears to the
total number of Shares sold) of all underwriting discounts and
commissions.
IX.
The Company and the Selling Stockholder, jointly and
severally, agree to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or is under common control with, or is controlled by, any
Underwriter, from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused
by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein; provided, however, that the
foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting such losses, claims, damages or
liabilities purchased Shares, or any person controlling such
Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of
the shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss,
claim, damage or liability. The liability of the Selling
Stockholder under the indemnity agreement contained in this
paragraph or for breach of its representations and warranties under
Article I and Article II hereof shall be limited to an amount equal
to $60 million. Notwithstanding the foregoing, the Selling
Stockholder shall not be required to make any payment required by
the provisions of this paragraph unless the parties indemnified
under this paragraph have demanded payment from the Company and the
Company has refused to make such payment or failed to make such
payment in full within 30 days from the date of such demand.
Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Stockholder,
the directors of the Company, the officers of the Company who sign
the Registration Statement and each person, if any, who controls
the Company or any Selling Stockholder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act
from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only
with reference to information relating to such Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements
thereto.
In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect
of which indemnity may be sought pursuant to any of the two
preceding paragraphs, such person (the "Indemnified Party") shall
promptly notify the person against whom such indemnity may be
sought (the "Indemnifying Party") in writing and the Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any
such proceeding, any Indemnified Party shall have the right to
retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) the named parties
to any such proceeding (including any impleaded parties) include
both the Indemnifying Party and the Indemnified Party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests
between them. It is understood that the Indemnifying Party shall
not, in respect of the legal expenses of any Indemnified Party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than
one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control any Underwriter
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, (b) the fees and expenses of more
than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within
the meaning of either such Section and (c) the fees and expenses of
more than one separate firm (in addition to any local counsel) for
the Selling Stockholder and all persons, if any, who control the
Selling Stockholder within the meaning of either such Section, and
that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the
Underwriters and such control persons of Underwriters, such firm
shall be designated in writing by Morgan Stanley & Co.
Incorporated. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the Company.
In the case of any such separate firm for the Selling Stockholder
and such controlling persons of Selling Stockholder, such firm
shall be designated in writing by the Selling Stockholder. The
Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled
with such consent or if there be a final judgment for the
plaintiff, the Indemnifying Party agrees to indemnify the
Indemnified Party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an Indemnified Party shall have requested
an Indemnifying Party to reimburse the Indemnified Party for fees
and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the Indemnifying Party agrees that it
shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into
more than 30 days after receipt by such Indemnifying Party of the
aforesaid request and (ii) such Indemnifying Party shall not have
reimbursed the Indemnified Party in accordance with such request
prior to the date of such settlement. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect
any settlement of any pending or threatened proceeding in respect
of which any Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified
Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability on claims that are the
subject matter of such proceeding.
If the indemnification provided for in the first, second or
third paragraph of this Article IX is unavailable to an Indemnified
Party or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Party under
such paragraph, in lieu of indemnifying such Indemnified Party
thereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Indemnifying Party or parties on
the one hand and the Indemnified Party or parties on the other hand
from the offering of the Shares or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative
fault of the Indemnifying Party or parties on the one hand and of
the Indemnified Party or parties on the other hand in connection
with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in
the same respective proportions as the net proceeds from the
offering of the Shares (before deducting expenses) received by each
Seller and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate public
offering price of the Shares. The relative fault of the Sellers on
the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant to this
Article IX are several in proportion to the respective number of
Shares they have purchased hereunder, and not joint.
The Sellers and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Article IX were
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this Article IX, no Underwriter
shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. The Selling Stockholder
shall not be required to contribute any amount in excess of the
amount by which $60 million exceeds the amount of any damages which
the Selling Stockholder has otherwise been required to pay be
reason of such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to in the immediately
preceding paragraph and in no case shall the Selling Stockholder be
required to contribute any amounts under this paragraph or the
immediately preceding paragraph which in the aggregate when taken
together with any amounts paid by the Selling Stockholder under the
first paragraph of this Article IX exceeds $60 million. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Article IX
are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in
equity.
The indemnity and contribution provisions contained in this
Article IX and the representations and warranties of the Company
and the Selling Stockholder contained in this Agreement shall
remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any
Underwriter, the Selling Stockholder or any person controlling the
Selling Stockholder, or the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
X.
This Agreement shall be subject to termination, in your sole
discretion, by notice given by you to the Company, if (a) after the
execution and delivery of this Agreement and prior to the Closing
Date (i) trading generally shall have been suspended or materially
limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange or the Chicago Board of Trade,
(ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market,
(iii) a general moratorium on commercial banking activities in New
York shall have been declared by either Federal or New York State
authorities, or (iv) there shall have occurred any outbreak or
escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse
and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event singly or together with any
other such event makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in
the Prospectus.
XI.
This Agreement shall become effective upon the later of
(i) execution and delivery hereof by the parties hereto and
(ii) release of notification of the effectiveness of the
Registration Statement by the Commission.
If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or
refuse to purchase Shares that it or they have agreed to purchase
hereunder on such date, and the aggregate number of Shares which
such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate
number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that
the number of Firm Shares set forth opposite their respective names
in Schedule I bears to the aggregate number of Firm Shares set
forth opposite the names of all such non-defaulting Underwriters,
or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided, however, that
in no event shall the number of Shares that any Underwriter has
agreed to purchase pursuant to Article III be increased pursuant to
this Article XI by an amount in excess of one-ninth of such number
of Shares without the written consent of such Underwriter. If, on
the Closing Date or the Option Closing Date, as the case may be,
any Underwriter or Underwriters shall fail or refuse to purchase
Shares and the aggregate number of Shares with respect to which
such default occurs is more than one-tenth of the aggregate number
of Shares to be purchased on such date, and arrangements
satisfactory to you, the Company and the Selling Stockholder (or,
in the case of the Option Closing Date, you and the Selling
Stockholder) for the purchase of such Shares are not made within 36
hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter, the
Company or the Selling Stockholder. In any such case either you or
the relevant Sellers shall have the right to postpone the Closing
Date or the Option Closing Date, as the case may be, but in no
event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve
any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of any
Seller to comply with the terms or to fulfill any of the conditions
of this Agreement, or if for any reason any Seller shall be unable
to perform its obligations under this Agreement, the Sellers will
reimburse the Underwriters or such Underwriters as have so
terminated this Agreement with respect to themselves, severally,
for all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the offering
contemplated hereunder.
This Agreement may be signed in two or more counterparts, each
of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
Very truly yours,
INTEGRATED MEASUREMENT SYSTEMS,INC.
By: /s/ Keith L. Barnes
CADENCE DESIGN SYSTEMS, INC.
By: /s/ Douglas J. McCutcheon
Accepted, July 20, 1995
MORGAN STANLEY & CO. INCORPORATED
COWEN & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
Acting severally on behalf of
themselves and the several
Underwriters named herein.
By: MORGAN STANLEY & CO. INCORPORATED
By: /s/ William R. Salisbury
<PAGE>
SCHEDULE I
Underwriter Number of Firm
Shares to be
Purchased
Morgan Stanley & Co. Incorporated 533,334
Cowen & Company 533,333
SoundView Financial Group, Inc. 533,333
Adams, Harkness & Hill, Inc. 40,000
Black & Company, Inc. 40,000
Alex. Brown & Sons Incorporated 80,000
Goldman, Sachs & Co. 80,000
Hambrecht & Quist LLC 80,000
Jensen Securites Co. 40,000
Kemper Securities, Inc. 40,000
Laidlaw Equities, Inc. 40,000
Legg Mason Wood Walker, Incorporated 40,000
Lehman Brothers Inc. 80,000
Needham & Company, Inc. 80,000
Pacific Crest Securities 40,000
Preferred Technology, Inc. 40,000
Prudential Securities Incorporated 80,000
Ragen MacKenzie Incorporated 40,000
Raymond James & Associates, Inc. 40,000
Smith Barney Inc. 80,000
Wessels, Arnold & Henderson, L.L.C. 40,000
TOTAL 2,600,000
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 63,004
<SECURITIES> 13,467
<RECEIVABLES> 59,076
<ALLOWANCES> 0
<INVENTORY> 6,501
<CURRENT-ASSETS> 156,914
<PP&E> 224,880
<DEPRECIATION> 102,988
<TOTAL-ASSETS> 330,340
<CURRENT-LIABILITIES> 179,854
<BONDS> 0
<COMMON> 60,654
0
0
<OTHER-SE> 68,623
<TOTAL-LIABILITY-AND-EQUITY> 330,340
<SALES> 244,572
<TOTAL-REVENUES> 244,572
<CGS> 54,414
<TOTAL-COSTS> 54,414
<OTHER-EXPENSES> 147,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 42,390
<INCOME-TAX> 11,869
<INCOME-CONTINUING> 30,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,521
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
</TABLE>
