CADENCE DESIGN SYSTEMS INC, 424B1, 1996-11-22

CADENCE DESIGN SYSTEMS INC
424B1, 1996-11-22
PREPACKAGED SOFTWARE

Previous: PROFFITTS INC, 8-K, 1996-11-22

Next: NEUROCORP LTD, 10QSB, 1996-11-22

<PAGE>
5,000,000 SHARES

[LOGO]
CADENCE DESIGN SYSTEMS, INC.

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

-------------------

All of the 5,000,000 shares of Common Stock offered hereby are being sold by
the Company. The last reported sale price of the Common Stock, which is quoted
under the symbol "CDN", on the New York Stock Exchange on November 21, 1996 was
$36.625 per share. See "Price Range of Common Stock".

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT (1) COMPANY (2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share..................... $36.625 $1.38 $35.245
Total (3)..................... $183,125,000 $6,900,000 $176,225,000
</TABLE>

- --------------

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

(2) Before deducting estimated expenses of $600,000 payable by the Company.

(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 750,000 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments, if
any. If such option is exercised in full, the total initial public offering
price, underwriting discount and proceeds to Company will be $210,593,750,
$7,935,000 and $202,658,750, respectively. See "Underwriting".

-------------------

The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the
certificates for the shares will be ready for delivery in New York, New York, on
or about November 27, 1996, against payment therefor in immediately available
funds.

GOLDMAN, SACHS & CO. MORGAN STANLEY & CO.
INCORPORATED
------------------------

The date of this Prospectus is November 21, 1996.

<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NYSE, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------

AVAILABLE INFORMATION

Cadence Design Systems, Inc. ("Cadence" or the "Company") is subject to the
informational reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and New York Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. The Company's common stock (the "Common Stock")
is listed on the New York Stock Exchange (the "NYSE"), and such reports, proxy
statements and other information can also be inspected at the offices of the
NYSE at 20 Broad Street, New York, New York 10005.

The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement. The
Registration Statement and the exhibits thereto may be inspected, without
charge, at the offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies may be obtained from the Commission at prescribed rates.

The Commission maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.

-------------------

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission (Commission
File Number 1-10606) pursuant to the Exchange Act are by this reference
incorporated in and made a part of this Prospectus:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995;

2. The Company's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 30, 1996, June 29, 1996 and September 28, 1996;

3. The Company's Current Report on Form 8-K filed with the Commission on
February 9, 1996;

4. The Company's Current Report on Form 8-K filed with the Commission on
November 7, 1996;

5. The description of the Company's Preferred Share Purchase Rights
contained in the Registration Statement on Form 8-A filed with the
Commission on February 16, 1996; and

2
<PAGE>
6. The description of the Company's Common Stock contained in the
Registration Statement on Form 8-A filed with the Commission on August
29, 1990.

The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to Investor
Relations, Cadence Design Systems, Inc., 2655 Seely Road, Building 5, San Jose,
California 95134; telephone number (408) 943-1234.
-------------------

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and to be a part of this Prospectus from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
-------------------

Verilog-Registered Trademark-, VHDL-Registered Trademark-,
Dracula-Registered Trademark-, Diva-Registered Trademark- and
Vampire-Registered Trademark- are registered trademarks of the Company, and
Virtuoso, Verilog XL, Leapfrog, Synergy, Ensemble, Cell Ensemble, Cell3
Ensemble, Silicon Ensemble, Allegro, BoardQuest, Analog Artist, Spectre and
Analog Workbench are trademarks of the Company. SPECCTRA-Registered Trademark-
AND IC Craftsman-Registered Trademark- are registered trademarks of Cooper &
Chyan Technology, Inc. ("CCT") and ShapeBased is a trademark of CCT. This
Prospectus also contains trademarks of other companies.

3
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE
IN THIS PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED.

EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS PROSPECTUS CONTAINS
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW IN "RISK FACTORS", AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE.

THE COMPANY

Cadence Design Systems, Inc. ("Cadence" or the "Company") develops, markets
and supports electronic design automation ("EDA") software tools that automate,
enhance and accelerate the design and verification of integrated circuits
("ICs") and electronic systems. The Company combines its technology with
services to help optimize its customers' product development processes. The
Company's products and services are used by companies throughout the world to
design and develop electronic circuits and systems, including semiconductors,
computer systems and peripherals, telecommunications and networking equipment,
mobile and wireless devices, automotive components, consumer products and other
advanced electronics.

The Company's EDA tools are used by customers to analyze, simulate,
implement and verify electronic designs. In addition, the Company's tools let
design architects and engineers build abstract models of chips, simulate their
behavior, and analyze their physical attributes for acceptable performance. The
resulting productivity and accuracy improvements over earlier generation
approaches to IC design enable customers to develop increasingly complex, high
quality electronic products with accelerated time to market schedules.

Cadence offers services ranging from advanced tools training and methodology
assessment to joint design work with customers or even complete outsourcing of
its customer's design work. In addition, the Company believes that customer
support is a key factor in successfully marketing EDA products and generating
repeat orders. The Company's product maintenance contracts entitle the customers
to product updates, documentation and ongoing support.

The Company is pursuing a strategy of combining a broad suite of design
tools with world-class support, design and process services to enable its
customers to accelerate their product development efforts, improve their design
productivity and successfully cope with the increasing complexity of IC and
electronic system design. The design process is becoming more complicated, as
customers are seeking to create higher performance products, lower development
costs, improve time to market and migrate their design and manufacturing efforts
to utilize deep submicron technologies. As a consequence, the Company believes
that its solutions-oriented approach to providing both EDA tools and services
will enable customers to more effectively respond to demanding market
requirements.

The Company was formed as a result of the merger of SDA Systems, Inc. into
ECAD, Inc. in May 1988. The principal executive offices of the Company are
located at 2655 Seely Road, Building 5, San Jose, California 95134. The
Company's telephone number is (408) 943-1234.

4
<PAGE>
RECENT DEVELOPMENTS

THE CCT MERGER

On October 28, 1996, the Company entered into an Agreement and Plan of
Merger and Reorganization with Cooper & Chyan Technology, Inc., a Delaware
corporation ("CCT"), pursuant to which, upon fulfillment or waiver of certain
conditions, CCT will become a wholly owned subsidiary of the Company (the "CCT
Merger") in a stock-for-stock merger that is expected to be tax free and
accounted for as a pooling of interests. CCT develops, markets and supports
software tools that help designers route the interconnections among electronic
devices on high performance printed circuit boards ("PCBs") and ICs. Based upon
the number of shares of Common Stock issued and outstanding as of November 5,
1996, and after giving effect to the Common Stock that is proposed to be issued
in the CCT Merger as described herein (but without regard to any shares which
may be issued in connection with the HLDS Merger described herein and assuming
no exercise of options and warrants to purchase Common Stock), the former
holders of CCT capital stock would have voting power with respect to
approximately 12.4% of the Company's issued and outstanding shares (14.2%
assuming exercise of all outstanding options to purchase CCT capital stock). The
CCT Merger, which is subject to certain conditions, is expected to be completed
as early as February 1997. There can be no assurance that the CCT Merger will be
consummated. CCT, founded in 1989, is headquartered in Cupertino, California,
and has operations in North America, Europe and Japan.

THE HLDS MERGER

On October 3, 1996, the Company entered into an Agreement and Plan of Merger
and Reorganization with High Level Design Systems, Inc., a Delaware corporation
("HLDS"), pursuant to which, upon fulfillment or waiver of certain conditions,
HLDS will become a wholly owned subsidiary of the Company (the "HLDS Merger") in
a stock-for-stock merger that is expected to be tax free and accounted for as a
purchase. HLDS develops, markets and supports EDA software for the design of
high density, high performance ICs. HLDS' products are designed to solve the
problems inherent in deep submicron (less than 0.5 micron) IC design and to
offer improved time to market, enhanced IC performance and reduced development
and manufacturing costs when compared to previous generations of EDA software.
Based upon the number of shares of Common Stock issued and outstanding as of
November 5, 1996, and after giving effect to the Common Stock that is proposed
to be issued in the HLDS Merger as described herein (but without regard to any
shares which may be issued in connection with the CCT Merger described herein
and assuming no exercise of options and warrants to purchase Common Stock), the
former holders of HLDS capital stock would have voting power with respect to
approximately 3.2% of the Company's issued and outstanding shares (3.9% assuming
exercise of all outstanding options to purchase HLDS capital stock). The HLDS
Merger, which is subject to certain conditions, is expected to be completed as
early as December 1996. There can be no assurance that the HLDS Merger will be
consummated. HLDS, founded in 1991, is headquartered in Santa Clara, California
and has operations in North America and Europe.

REASONS FOR MERGERS AND PUBLIC OFFERING

The Company believes that the CCT Merger and the HLDS Merger (collectively,
the "mergers") will allow the Company to obtain new technologies and expand and
enhance its product lines and research and development programs. The Company
intends to combine the operations and technologies of the Company, CCT and HLDS
as soon as practicable following the mergers. In order to qualify the CCT Merger
for pooling of interests accounting treatment, the Company needs to cure the
taint on certain treasury shares by issuing them in one or more transactions.
The issuance of the 5,000,000 shares of Common Stock offered hereby, together
with the proposed issuance of approximately 2,561,936 shares of Common Stock in
connection with the HLDS Merger and certain additional shares of Common Stock
upon exercise of outstanding Company stock options, will cure an equal number of
tainted shares. In the

5
<PAGE>
event the HLDS Merger is delayed substantially or not completed, the Company
will need to issue shares of Common Stock in one or more alternate transactions
if it is to qualify the CCT Merger for pooling of interests accounting
treatment. The Company has the right to waive the condition that the CCT Merger
be qualified for pooling of interests accounting treatment. If the CCT Merger is
consummated but fails to qualify for pooling of interests accounting treatment,
then the transaction would be accounted for as a purchase. Accounting for the
CCT Merger as a purchase could result in a significant intangible asset or a
significant charge against results of operations or both, which could materially
and adversely affect future results of operations.

Certain statements concerning the mergers, including descriptions of the
mergers and pro forma financial information, are forward looking statements that
are subject to risks and uncertainties. There can be no assurance that the CCT
Merger or the HLDS Merger will be completed as planned, that they will have the
desired benefits or that they will not have an adverse effect on the Company's
business, financial condition or results of operations. See "Risk Factors" for a
description of risks and uncertainties associated with the CCT Merger and the
HLDS Merger.

RISK FACTORS

For a discussion of considerations relevant to an investment in the Common
Stock, see "Risk Factors".

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered......................... 5,000,000 shares
Common Stock outstanding after the 82,530,338 shares (1)
offering....................................
NYSE symbol.................................. CDN
Use of Proceeds.............................. For general corporate purposes,
including working capital. See "Use
of Proceeds".
</TABLE>

- --------------

(1) Based upon shares outstanding as of September 28, 1996. Excludes 28,704,006
shares of Common Stock reserved for issuance under the Company's Employee
Stock Option Plan, Non-Statutory Stock Option Plan, Directors' Stock Option
Plans and Acquired Option Plans (the "Stock Option Plans"), the Employee
Stock Purchase Plan, warrants and put options. Options to purchase
19,660,922 shares of Common Stock under the Stock Option Plans and warrants
to purchase 120,000 shares of Common Stock were outstanding at September 28,
1996. Also excludes Common Stock to be issued in connection with the CCT
Merger and the HLDS Merger. Based on shares outstanding as of November 5,
1996, an additional 11,038,148 shares of Common Stock would be issued upon
completion of the CCT Merger (12,883,813 shares assuming exercise of options
to purchase capital stock of CCT outstanding as of November 5, 1996) and
2,561,936 shares of Common Stock would be issued upon completion of the HLDS
Merger (3,161,436 shares assuming exercise of options to purchase capital
stock of HLDS outstanding as of November 5, 1996).

6
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Fiscal Years Ended Nine Months Ended
December 30, ------------------------------
------------------------------- September 30, September 28,
1993 1994 1995 1995 1996
--------- --------- --------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue.............................................. $ 368,623 $ 429,072 $ 548,418 $ 384,662 $ 529,197
Unusual items (1).................................... 19,650 14,707 -- -- --
Income (loss) from operations........................ (8,415) 44,047 117,860 75,272 131,988
Net income (loss) (2)................................ (12,779) 36,648 97,270 66,430 86,854
Net income (loss) per share (2)...................... $ (0.13) $ 0.37 $ 1.05 $ 0.71 $ 0.95
Common and common equivalent shares used in computing
per share amounts (3).............................. 96,885 98,805 92,948 93,170 91,095
</TABLE>

<TABLE>
<CAPTION>
September 28, 1996
--------------------------
Actual As
Actual Adjusted (5)
--------- ---------------
(Unaudited)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash investments............................................................ $ 83,211 $ 258,836
Working capital...................................................................... 11,427 187,052
Total assets......................................................................... 419,015 594,640
Long-term obligations................................................................ 19,878 19,878
Stockholders' equity................................................................. 160,407 336,032
</TABLE>

SUMMARY PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Fiscal Years Ended Nine Months Ended
December 30, ------------------------------
------------------------------- September 30, September 28,
1993 1994 1995 1995 1996
--------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
DATA (4):
Revenue.............................................. $ 375,917 $ 444,617 $ 581,987 $ 408,156 $ 564,306
Unusual items (1).................................... 19,650 15,141 -- -- --
Income (loss) from operations........................ (6,749) 45,150 114,709 72,167 133,181
Net income (loss) (2)................................ (11,737) 37,292 94,297 63,578 87,076
Net income (loss) per share (2)...................... $ (0.11) $ 0.34 $ 0.89 $ 0.60 $ 0.82
Common and common equivalent shares used in computing
per share amounts.................................. 102,287 108,146 106,098 106,019 106,070
</TABLE>

<TABLE>
<CAPTION>
September 28, 1996
----------------------------
Pro Forma
Pro Forma As Adjusted (5)
----------- ---------------
<S> <C> <C>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA (4):
Cash and cash investments........................................................... $ 89,410 $ 265,035
Working capital..................................................................... 32,232 207,857
Total assets........................................................................ 476,429 652,054
Long-term obligations............................................................... 20,161 20,161
Stockholders' equity................................................................ 193,191 368,816
</TABLE>

- ------------------------------

(1) See Note 7 of Notes to Consolidated Financial Statements, included elsewhere
in this Prospectus, for further discussion.

(2) Net income (loss) and net income (loss) per share included a $3.1 million
after tax gain on the sale of an equity investment in the year ended
December 30, 1994 and a $13.6 million after tax gain on the sale of stock of
a subsidiary in the periods ended December 30, 1995 and September 30,1995.

(3) See Note 2 of Notes to Consolidated Financial Statements, included elsewhere
in this Prospectus, for an explanation of the determination of the number of
shares used in computing the per share amounts.

(4) The unaudited pro forma combined statement of operations data for the years
ended December 31, 1993 and 1994 give effect to the CCT Merger as if the
merger was completed at the beginning of the periods presented. The
unaudited pro forma combined statement of operations data for the year ended
December 30, 1995 and for the nine months ended September 30, 1995 and
September 28, 1996 give effect to the CCT Merger and the HLDS Merger as if
both mergers were completed at the beginning of the periods presented. The
unaudited pro forma combined balance sheet data as of September 28, 1996
give effect to the CCT Merger and the HLDS Merger as if both mergers were
consummated as of September 28, 1996.

(5) Adjusted to give effect to the net proceeds of the offering, based upon the
public offering price of $36.625 per share (after deducting the underwriting
discount and estimated offering expenses).

7
<PAGE>
RISK FACTORS

EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS PROSPECTUS CONTAINS
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER MATERIALLY. FACTORS THAT CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE.

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN ADDITION
TO THE OTHER INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY SHARES
OF THE COMMON STOCK OFFERED HEREBY.

TECHNOLOGICAL CHANGE AND DEVELOPMENT OF NEW PRODUCTS AND SERVICES

Because of rapid technological changes in the EDA industry, the Company's
future revenues will depend on its ability to develop or acquire new products
and enhance its existing products on a timely basis to keep pace with
innovations in IC technology and to support a range of changing computer
software and hardware platforms and customer preferences.

The Company's EDA software tools have a limited life cycle, requiring the
Company to make periodic product enhancements and new product introductions.
There can be no assurance that the Company's products will not become obsolete,
or that any new or enhanced products it develops or markets will be competitive
or achieve market acceptance. The Company believes that the mergers will enhance
the Company's ability to help customers design chips with feature sizes of 0.5
micron and below. If the Company fails to obtain new or developed technology
through the mergers or the mergers are substantially delayed or not consummated,
new product introductions could be substantially delayed, and the Company would
be required to devote significant additional management and technical resources
to develop such technology internally. Failures of or significant delays in
product development could result in a loss of competitiveness of the Company's
products and could have a material adverse effect on the Company's business,
financial condition and results of operations.

In addition, many of the Company's products operate only on certain versions
of the UNIX operating system. The Company has only recently begun the
development work necessary to port its software to Windows NT. Failure of the
Company's products to keep pace with changes in manufacturing technology or
processes, software and hardware platforms and customer preferences could render
one or more of the Company's software tools obsolete, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

PROPOSED ACQUISITIONS; FAILURE TO CONSUMMATE PROPOSED ACQUISITIONS; UNCERTAINTY
RELATING TO INTEGRATION

Part of the Company's strategy is to grow and improve its product offerings
through acquisitions. This strategy involves a number of risks, including risks
related to the integration of the acquired businesses, the substantial
management time devoted to such activities, undisclosed liabilities, the failure
to achieve anticipated benefits, such as cost savings and synergies, and
distribution, engineering, customer support and other issues related to product
transition.

On October 28, 1996, the Company entered into a merger agreement with CCT
pursuant to which, upon fulfillment or waiver of certain conditions, CCT will
become a wholly owned subsidiary of the Company in a stock-for-stock merger that
is expected to be tax free and accounted for as a pooling of interests. Based
upon the number of shares of the Common Stock issued and outstanding as of
November 5, 1996, and after giving effect to the Common Stock that is proposed
to be issued in the CCT Merger as described herein (but without regard to any
shares which may be issued in connection with the HLDS Merger described herein
and assuming no exercise of options and warrants to purchase Common Stock), the
former holders of CCT capital stock would hold and have voting power with
respect to approximately 12.4% of the Company's issued and outstanding shares
(14.2% assuming exercise of all outstanding options to purchase CCT capital
stock). The CCT Merger, which is subject to certain conditions, is expected to
be completed as early as February 1997. There can be no assurance that the CCT
Merger will be consummated.

8
<PAGE>
On October 3, 1996, the Company entered into a merger agreement with HLDS
pursuant to which HLDS will become a wholly owned subsidiary of the Company in a
stock-for-stock merger that is expected to be tax free and accounted for as a
purchase. Based upon the number of shares of the Common Stock issued and
outstanding as of November 5, 1996, and after giving effect to the Common Stock
that is proposed to be issued in the HLDS Merger as described herein (but
without regard to any shares which may be issued in connection with the CCT
Merger described herein and assuming no exercise of options and warrants to
purchase Common Stock), the former holders of HLDS capital stock would hold and
have voting power with respect to approximately 3.2% of the Company's issued and
outstanding shares (3.9% assuming exercise of all outstanding options to
purchase HLDS capital stock). The Registration Statement on Form S-4 filed with
the Commission related to the HLDS Merger was declared effective on November 13,
1996. The transaction, which is subject to certain conditions, is expected to be
completed as early as December 1996. There can be no assurance that the HLDS
Merger will be consummated.

Among the conditions that must be fulfilled in order to consummate these
mergers are the affirmative vote of a majority of the outstanding voting stock
of each of CCT and HLDS, and, for the CCT Merger, the expiration or termination
of the waiting period applicable to the CCT Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The consummation
of the CCT Merger is also conditioned upon the receipt of a letter from the
Company's independent public accountants concerning the qualification of the CCT
Merger for accounting treatment as a pooling of interests in accordance with
generally accepted accounting principles. In order to qualify the CCT Merger for
pooling of interests accounting treatment, the Company needs to cure the taint
on certain treasury shares by issuing them in one or more transactions. The
issuance of the 5,000,000 shares of Common Stock offered hereby, together with
the proposed issuance of approximately 2,561,936 shares of the Common Stock in
connection with the HLDS Merger and certain additional shares of Common Stock
upon exercise of outstanding Company stock options, will cure an equal number of
tainted shares. In the event the HLDS Merger is delayed substantially or not
completed, the Company will need to issue shares of Common Stock in one or more
alternate transactions if it is to qualify the CCT Merger for pooling of
interests accounting. The Company has the right to waive the condition that the
CCT Merger be qualified for pooling of interests accounting treatment. If the
CCT Merger is consummated but fails to qualify for pooling of interests
accounting treatment, then the transaction would be accounted for as a purchase.
Accounting for the CCT Merger as a purchase could result in a significant
intangible asset or a significant charge against results of operations or both,
which could materially and adversely affect future results of operations. There
can be no assurance that these and all such other conditions will be satisfied
or waived, and therefore, there can be no assurance that the mergers will be
consummated. In addition, the review of the mergers pursuant to the HSR Act may
substantially delay the Company's ability to consummate the mergers. There can
be no assurance that a challenge to the mergers on antitrust grounds will not be
made, or if such a challenge is made, the Company will prevail or would not be
required to terminate either or both of the merger agreements, divest certain
assets, license certain proprietary technology or accept certain conditions in
order to consummate the mergers.

During the pendency of the mergers, customers or potential customers may
delay or cancel orders as a result of uncertainty about product evolution,
integration and support, and competitors may increase their efforts to solicit
the Company's, CCT's or HLDS' employees in light of uncertainty associated with
the mergers. Significant delays in or cancellations of orders or loss of
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. In the event the mergers are not
consummated, the descriptions of events contained in this Prospectus, including
those described by the pro forma financial statements contained herein, may
differ materially from those which actually transpire. Failure to consummate the
mergers may result in employee uncertainty, potentially resulting in loss of
employees or reduction in their productivity, uncertainty in the marketplace or
delays or cancellations of orders by customers or potential customers. In
addition, new product introductions and enhancements of existing products could
be substantially delayed if the mergers are not consummated. Any of the
foregoing could have a material adverse effect on the Company's business,
financial condition and results of operations.

9
<PAGE>
The Company intends to combine the operations and technologies of the
Company, CCT and HLDS as soon as practicable. Following the mergers, in order to
maintain and increase profitability, the Company, CCT and HLDS will need to
integrate and streamline overlapping functions successfully. Costs generally
associated with this type of integration that may be incurred by the Company
include the write off of capitalized software, severance payments, closing of
excess facilities and disposition of excess equipment. While these costs have
not been currently identified, any such costs will have an adverse effect on the
Company's operating results in the periods in which they are incurred. In
addition, the Company currently estimates that approximately $91.7 million of
the purchase price paid for HLDS will be allocated to in process research and
development and will be charged to expense in the period the acquisition is
consummated. The Company has the right to waive the condition that the CCT
Merger be qualified for pooling of interests accounting treatment. If the CCT
Merger is consummated but fails to qualify for pooling of interests accounting
treatment, then the transaction would be accounted for as a purchase. Accounting
for the CCT Merger as a purchase could result in a significant intangible asset
or a significant charge against results of operations or both, which could
materially and adversely affect future results of operations. Each of the
Company, CCT and HLDS has different systems and procedures in many operational
areas that must be rationalized and integrated. Among other things, the Company
must integrate product offerings, and coordinate research and development and
sales and marketing efforts. There may be substantial difficulties associated
with integrating three separate companies, and there can be no assurance that
such integration will be accomplished expeditiously or successfully. The
integration of certain operations following each acquisition will require the
dedication of management resources that may temporarily distract attention from
the day-to-day business of the Company. The business of the Company may also be
disrupted by employee uncertainty and lack of focus during such integration.
There can be no assurance that the Company will be able to retain key technical,
managerial and other employees. Failure to accomplish the integration of the
operations of the Company, CCT and HLDS could have a material adverse effect on
the Company's business, financial condition and results of operations. Moreover,
uncertainty in the marketplace or customer hesitation relating to the
acquisitions could have a material adverse effect on the Company's business,
financial condition and results of operations.

POTENTIAL FLUCTUATIONS IN OPERATING RESULTS

The Company's operating expenses are partially based on its expectations
regarding future revenue. The Company's business, financial condition and
results of operations could be materially adversely affected if revenue in a
quarter does not materialize as anticipated. Since expenses are usually
committed in advance of revenues and because only a small portion of expenses
vary with revenue, the Company's business, financial condition and results of
operations may be affected significantly by lower revenue. The Company's focus
on providing services is relatively recent. The percentage revenue growth from
this source from 1995 to 1996 may not be indicative of future growth. In
addition, a substantial portion of the Company's revenues from services are
earned pursuant to fixed price contracts. Variances in costs associated with
those contracts could have a material adverse effect on the Company's business,
financial condition and results of operations. Although the Company's revenues
are not generally seasonal in nature, the Company has experienced, and may
continue to experience, decreases in first quarter revenue compared with the
preceding fourth quarter, which is believed to result primarily from the capital
purchase cycle of the Company's customers.

The Company's business, financial condition and results of operations are
affected by the business cycles of its customers, including its customers in the
semiconductor industry, and the business cycles of the semiconductor industry as
a whole. In particular, during the past 12 months, conditions in the
semiconductor industry have been generally weak and a number of the Company's
customers have reduced their capital spending plans. There can be no assurance
that such conditions will improve in the near future, if at all, or that the
Company's customers will increase their rate of spending in the future. Changes
in the financial condition of the Company's customers could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the quarterly operating results of the Company may vary
substantially from period to period depending on factors such as

10
<PAGE>
increased competition; the size, timing and structure of significant licenses;
the timing of revenue recognition under license agreements; the timing of new or
enhanced product announcements, introductions, or delays in the introductions,
of new or enhanced versions of the Company's products; changes in pricing
policies by the Company or its competitors; market acceptance of new and
enhanced versions of the Company's products; the cancellation of licenses or
maintenance agreements; the mix of direct and indirect sales; changes in
operating expenses; changes in the Company's strategy; seasonal factors;
personnel changes; foreign currency exchange rates and general economic factors.
Based on the Company's operating history and due to the foregoing factors,
quarter to quarter comparisons should not be relied upon as indicators of future
performance. In addition, certain costs are generally associated with
transactions such as the mergers, including the write off of capitalized
software, severance payments, closing of excess facilities, and disposition of
excess equipment. While these costs have not been currently identified, any such
costs will have an adverse effect on the Company's operating results in the
periods in which they are incurred. In addition, the Company currently estimates
that approximately $91.7 million of the purchase price paid for HLDS will be
allocated to in process research and development and will be charged to expense
in the period the acquisition is consummated. The Company has the right to waive
the condition that the CCT Merger be qualified for pooling of interests
accounting treatment. If the CCT Merger is consummated but fails to qualify for
pooling of interests accounting treatment, then the transaction would be
accounted for as a purchase. Accounting for the CCT Merger as a purchase could
result in a significant intangible asset or a significant charge against results
of operations or both, which could materially and adversely affect future
results of operations.

COMPETITION

The Company operates in the highly competitive EDA industry, which continues
to be characterized by falling prices, rapid technological change and new market
entrants. The Company's success is dependent upon its ability to develop
innovative, cost-competitive EDA software products and services, and to bring
them to market in a timely manner. The Company competes with other companies,
including Avant! Corporation, EPIC Design Technology, Inc., Mentor Graphics
Corp., Synopsys, Inc., Viewlogic Systems, Inc. and Zuken-Redac, that sell one or
more competing EDA products, and with actual and potential customers' internal
EDA software development and design services groups as well. Some of the
Company's competitors may have substantially greater financial, marketing and
technological resources than the Company. There can be no assurance that the
Company will be able to compete successfully.

Because the EDA industry is labor-intensive rather than capital-intensive,
the number of the Company's actual and potential competitors is significant. A
potential competitor who possesses the necessary knowledge of electronic circuit
and systems design, production and operation could develop competitive EDA tools
using a moderately priced computer workstation and bring such tools to market
quickly. There can be no assurance that development of competitive products will
not result in a shift of customer preferences away from the Company's products,
resulting in a significant decrease in the sales of the Company's comparable
products which could materially adversely affect the Company's business,
financial condition and results of operations. If the Company is unable to
compete successfully against current and future competitors, the Company's
business, financial condition and results of operations will be materially
adversely affected.

Intense competition in the EDA industry has lowered prices and there can be
no assurance that the Company will not be required to further discount EDA
product prices in the future. Any such discount could have a negative effect on
the profit margins of the discounted product and could have a material adverse
effect on the Company's business, financial condition and results of operation.

MANAGEMENT OF GROWTH

The Company has experienced rapid growth that has placed a significant
strain upon its management, operational and financial resources. Upon
consummation of the proposed CCT Merger and HLDS Merger, the Company will need
to integrate a large number of new personnel, as well as operational,

11
<PAGE>
financial, management control, accounting and reporting systems and procedures.
The Company's ability to manage its growth effectively will require it to
continue to expand its operational, financial and management controls,
accounting and reporting systems and procedures and other internal processes.
There can be no assurance that such factors will not have a material adverse
effect on the Company's business, financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL AND ABILITY TO ATTRACT AND RETAIN PROFESSIONAL STAFF

The Company is dependent upon the efforts and abilities of its senior
management, its research and development staff and a number of other key
management, sales, services, support and technical personnel. The success of the
Company will depend to a large extent upon its ability to retain and continue to
attract qualified technical and other employees. Competition for qualified
personnel in the software industry is intense, and the loss of key employees
could have a material adverse effect on the Company's business, financial
condition and results of operations, particularly if key personnel are
subsequently employed by a competitor. The Company carries key man life
insurance in the amount of $10 million with respect to its President and Chief
Executive Officer, Joseph B. Costello.

In addition, the Company has recently increased its focus on offering
professional services to its customers. The Company's success in its services
business is particularly dependent upon its ability to attract, retain, train
and motivate highly skilled employees, particularly project managers and other
senior technical personnel. There is significant competition for employees with
the skills required to perform the services the Company offers. There can be no
assurance that the Company will be successful in attracting a sufficient number
of highly skilled employees in the future, or that it will be successful in
retaining, training and motivating the employees it is able to attract. Any
inability to do so could impair the Company's ability to adequately manage and
complete its existing projects and to bid for or obtain new projects. If the
Company's employees are unable to achieve expected performance levels, or if the
Company is unable to attract qualified personnel, the Company's business,
financial condition and results of operations could be materially adversely
affected.

RISK WITH REGARD TO INTELLECTUAL PROPERTY RIGHTS

The Company relies principally upon trade secrets and copyright laws to
protect its intellectual property rights. In general, the Company seeks to
preserve its trade secrets by licensing (rather than selling) its products, by
using nondisclosure agreements, by limiting access to confidential information
and through other security measures. Despite these precautions, it may be
possible for third parties to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. The Company
is currently engaged in litigation before the United States District Court for
the Northern District of California with Avant! Corporation ("Avant!") and
certain of its employees, wherein the Company alleges misappropriation of the
Company's trade secrets, copyright infringement, conspiracy and other
illegalities. Avant! has filed counterclaims alleging, INTER ALIA, federal and
state antitrust violations. The court has not yet issued a ruling on the
Company's request for a preliminary injunction or on the defendant's
counterclaims against the Company. The Company has a limited number of patents,
and existing copyright laws afford only limited protection. There has been an
increase in the number of patents issued in the United States relating to EDA
software and, accordingly, the risk of patent infringement in the industry can
be expected to increase. In addition, the proprietary rights and laws and
enforcement procedures of certain foreign countries do not protect the Company's
products and intellectual property rights to the same extent as do the laws of
the United States. There can be no assurance that the Company will be able to
protect its proprietary technology, and any failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations.

POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS; TRANSACTION EXPENSES AND WRITEOFFS

There can be no assurance that combining the business of the Company with
the businesses of CCT and HLDS, even if achieved in an efficient and effective
manner, will result in combined results of

12
<PAGE>
operations and financial condition superior to what would have been achieved by
the Company independently. The issuance of the Common Stock in connection with
the mergers is likely to have a dilutive effect on the Company's earnings per
share. There can be no assurance that stockholders of the Company would not
achieve greater returns on investment if the mergers were not consummated. In
addition, certain costs are generally associated with transactions such as the
mergers, including the write off of capitalized software, severance payments,
closing of excess facilities and disposition of excess equipment. The Company
currently estimates that approximately $91.7 million of the HLDS purchase price
will be allocated to in process research and development and will be charged to
expense in the period the HLDS Merger is consummated. Such charge will adversely
affect operating results of the Company in the period in which it is recorded.
The Company has the right to waive the condition that the CCT Merger be
qualified for pooling of interests accounting treatment. If the CCT Merger is
consummated but fails to qualify for pooling of interests accounting treatment,
then the transaction would be accounted for as a purchase. Accounting for the
CCT Merger as a purchase could result in a significant intangible asset or a
significant charge against results of operations or both, which could materially
and adversely affect future results of operations.

VOLATILITY OF STOCK PRICES

The market price of the Common Stock has been and may continue to be
volatile. This volatility may result from a number of factors, including
fluctuations in the Company's quarterly revenues and net income, announcements
of technical innovations or new commercial products by the Company or its
competitors, and market conditions in the EDA, semiconductor,
telecommunications, computer hardware and computer software industries. In
addition, in the event that either the CCT Merger or HLDS Merger is not
consummated, the Company's stock price may be adversely affected. Also, the
stock market has experienced and continues to experience extreme price and
volume fluctuations which have affected the market prices of securities,
particularly those of technology companies, and which have often been unrelated
to the operating performance of the companies. These broad market fluctuations,
as well as general economic and political conditions, may adversely affect the
market price of the Company's Common Stock in future periods.

RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS OPERATIONS

Revenues from international operations accounted for approximately one half
of the Company's total revenues for the four fiscal years ended December 30,
1995 and the nine months ended September 28, 1996. The Company expects that
international revenues will continue to account for a significant portion of its
total revenues. The Company's international operations involve a number of risks
normally associated with such operations, including, among others, adoption and
expansion of government trade restrictions, volatile foreign exchange rates,
currency conversion risks, limitations on repatriation of earnings, reduced
protection of intellectual property rights, the impact of possible recessionary
environments in economies outside the United States, longer receivables
collection periods and greater difficulty in accounts receivable collection,
difficulties in managing foreign operations, political and economic instability,
unexpected changes in regulatory requirements and tariffs and other trade
barriers. Currency exchange fluctuations in countries in which the Company
conducts business could also materially adversely affect the Company's business
financial condition and results of operations. The Company enters into foreign
currency forward contracts to hedge the impact of foreign currency fluctuations.
Although the Company attempts to reduce the impact of foreign currency
fluctuations, significant exchange rate movements may have a material adverse
effect on the Company's business, financial condition and results of operations.
Furthermore, there can be no assurance that in the future the Company will be
able to continue to price its products and services internationally in United
States dollars because of changing sovereign restrictions on importation and
exportation of foreign currencies as well as other practical considerations. In
addition, the laws of certain countries do not protect the Company's products
and intellectual property rights to the same extent as do the laws of the United
States. The Company may be required to have United States Department of Commerce
export licenses for shipment of certain of its products outside the United
States. Any failure, delays or other difficulties in obtaining necessary
licenses could have a material adverse effect on business, financial condition
and

13
<PAGE>
results of operations. There can be no assurance that the Company will be able
to sustain or increase international revenues or that the foregoing factors will
not have a material adverse effect on the Company's future international
revenues and, consequently, on the Company's overall business, financial
condition and results of operations.

ANTITAKEOVER PROVISIONS

The Company has adopted a number of provisions that could have antitakeover
effects. In February 1996, the Company's Board of Directors adopted a Share
Purchase Rights Plan, commonly referred to as a "poison pill". In addition, The
Company's Board of Directors has the authority, without further action by the
stockholders, to fix the rights and preferences of, and issue shares of,
authorized but undesignated shares of preferred stock. This provision and other
provisions of the Company's Restated Certificate of Incorporation and Bylaws and
the Delaware General Corporation Law may have the effect of deterring hostile
takeovers or delaying or preventing changes in control or management of the
Company, including transactions in which the stockholders of the Company might
otherwise receive a premium for their shares over then current market prices.

POTENTIAL FUTURE SALES OF SHARES

Sales of a substantial number of shares of Common Stock in the public
market, whether by purchasers in this offering, other stockholders of the
Company, including affiliates of the Company, or former stockholders of CCT and
HLDS following the mergers, could adversely affect the prevailing market price
of the Common Stock, and could impair the Company's future ability to raise
capital through an offering of its equity securities. Assuming no exercise of
options and warrants after November 5, 1996, immediately after the completion of
this offering (assuming no exercise of the Underwriters' over-allotment option)
there will be 82,833,083 shares of Common Stock outstanding, all of which will
be freely tradeable in the public markets, subject in certain cases to the
volume and other limitations set forth in Rule 144 or 145 promulgated under the
Securities Act. The Company and directors and executive officers of the Company
will be subject to lockup restrictions ("Lockup"), unless released by Goldman,
Sachs & Co. See "Underwriting". Subject to certain exceptions, the Lockup
prohibits the disposition of any shares of Common Stock by the Company or held
by directors and executive officers of the Company until the date 90 days after
the date of this Prospectus ("Effective Date"). Any shares subject to the Lockup
may be released at any time with or without notice to the public. In this
regard, the Company and Goldman, Sachs & Co. have agreed that directors and
executive officers of the Company may sell up to an aggregate of 325,000 shares
of Common Stock. A substantial number of these shares may be sold prior to
December 18, 1996, in accordance with the Company's normal policies respecting
sales by such persons during a fiscal quarter. In addition, in the event the
HLDS Merger is not completed, the Company will need to issue up to 2,600,000
shares of Common Stock in one or more alternate transactions if it is to qualify
the CCT Merger for pooling of interests accounting treatment. Based upon CCT
capital stock outstanding on November 5, 1996, the Company will issue
approximately 11,038,148 shares of Common Stock in the CCT Merger (12,883,813
shares assuming exercise of all options and warrants to acquire CCT capital
stock outstanding as of such date), all of which will be freely tradeable,
subject in certain cases to the volume and other limitations set forth in Rule
145 promulgated under the Securities Act and to restrictions in connection with
pooling of interests accounting treatment of the CCT Merger. Based upon HLDS
capital stock outstanding on November 5, 1996, the Company will issue
approximately 2,561,936 shares of Common Stock in the HLDS Merger (3,161,436
shares assuming exercise of all options and warrants to purchase HLDS capital
stock outstanding as of such date), which will be freely tradeable, subject in
certain cases to the volume and other limitations set forth in Rule 145
promulgated under the Securities Act. In addition, during the Lockup the Company
may issue shares of Common Stock which are not expected to be valued in the
aggregate of more than $3 million in connection with other acquisitions.

14
<PAGE>
RECENT DEVELOPMENTS

THE DESCRIPTIONS OF THE CCT MERGER AND THE HLDS MERGER BELOW CONTAIN FORWARD
LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THERE CAN BE NO
ASSURANCE THAT THE CCT MERGER OR THE HLDS MERGER WILL BE COMPLETED AS PLANNED,
THAT THEY WILL HAVE THE DESIRED BENEFITS, OR THAT THEY WILL NOT HAVE AN ADVERSE
EFFECT ON THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED ABOVE IN "RISK FACTORS", AS WELL AS THOSE DISCUSSED ELSEWHERE IN
THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE.

On October 28, 1996 the Company entered into an Agreement and Plan of Merger
and Reorganization by and among the Company, CCT and Wyoming Acquisition Sub,
Inc. (the "CCT Merger Sub") pursuant to which, upon fulfillment or waiver of
certain conditions, CCT Merger Sub will merge with and into CCT, the separate
existence of CCT Merger Sub will cease and CCT will become a wholly owned
subsidiary of the Company in a stock-for-stock merger that is expected to be tax
free and accounted as a pooling of interests. The Company has the right to waive
the condition that the CCT Merger be qualified for pooling of interests
accounting treatment. If the CCT Merger is consummated but fails to qualify for
pooling of interests accounting treatment, then the transaction would be
accounted for as a purchase. Accounting for the CCT Merger as a purchase could
result in a significant intangible asset or a significant charge against results
of operations or both, which could materially and adversely affect future
results of operations. CCT develops, markets and supports software tools that
help designers route the interconnection among electronic devices on high
performance PCBs and ICs. In the CCT Merger, each outstanding share of capital
stock of CCT will be exchanged for eighty-five hundredths (0.85) of a share of
Common Stock. Based upon the 12,986,056 shares of CCT capital stock outstanding
on November 5, 1996, the Company will issue approximately 11,038,148 shares of
Common Stock in the CCT Merger (12,883,813 shares assuming exercise of all
outstanding options to acquire CCT capital stock). Based upon the number of
shares of Common Stock issued and outstanding as of November 5, 1996, and after
giving effect to the issuance of Common Stock that is proposed to be issued in
the CCT Merger as described herein (but without regard to any shares which may
be issued in connection with the HLDS Merger described herein and assuming no
exercise of the options and warrants to purchase Common Stock), the former
holders of CCT Capital Stock would hold and have voting power with respect to
approximately 12.4% of the Company's issued and outstanding shares (14.2%
assuming exercise of all outstanding CCT options). The CCT Merger, which is
subject to certain conditions, is expected to be completed as early as February
1997. There can be no assurance that the CCT Merger will be consummated. The
Company intends to combine the operations and technologies of the Company, CCT
and HLDS as soon as practicable following the merger. A filing will be made with
the FTC under the HSR Act in November 1996.

CCT's common stock is quoted on the Nasdaq National Market under the symbol
"CCTI". On November 6, 1996, the closing price for the stock was $27.56 and the
number of shares of common stock outstanding was 12,986,056. There were
approximately 99 holders of record of CCT's common stock as of November 6, 1996.

On October 3, 1996 the Company entered into an Agreement and Plan of Merger
and Reorganization by and among the Company, HLDS and Harbor Acquisition Sub,
Inc. (the "HLDS Merger Sub") pursuant to which, upon the fulfillment or waiver
of certain conditions, HLDS Merger Sub will merge with and into HLDS, the
separate existence of HLDS Merger Sub will cease and HLDS will become a wholly
owned subsidiary of the Company in a stock-for-stock merger that is expected to
be tax free and accounted for as a purchase. HLDS develops, markets and supports
EDA software for the design of high density, high performance ICs. HLDS'
products are designed to solve the problems inherent in deep submicron (less
than 0.5 micron) IC design and to offer improved time to market, enhanced IC
performance and reduced development and manufacturing costs when compared to
previous generations of EDA software. In the HLDS Merger, each outstanding share
of capital stock of HLDS will be exchanged

15
<PAGE>
for twenty-two hundredths (0.22) of a share of Common Stock. Based upon the
11,645,164 shares of HLDS capital stock outstanding on November 5, 1996, the
Company will issue approximately 2,561,936 shares of Common Stock in the HLDS
Merger (3,161,436 shares assuming exercise of all outstanding options to acquire
HLDS capital stock). Based upon the number of shares of the Company's capital
stock issued and outstanding as of November 5, 1996, and after giving effect to
the issuance of the Common Stock that is proposed to be issued in the HLDS
Merger as described herein (but without regard to any shares which may be issued
in connection with the CCT Merger described herein and assuming no exercise of
any options and warrants to purchase Common Stock), the former holders of HLDS
capital stock would hold and have voting power with respect to approximately
3.2% of the Company's issued and outstanding shares (3.9% assuming exercise of
all outstanding options to purchase capital stock of HLDS). The HLDS Merger,
which is subject to certain conditions, is expected to close as early as
December 1996. There can be no assurance that the HLDS Merger will be
consummated. The Company intends to combine the operations and technologies of
the Company and HLDS as soon as practicable following the HLDS Merger. The
Registration Statement on Form S-4 filed with the Commission related to the HLDS
Merger was declared effective on November 13, 1996.

HLDS' common stock is quoted on the Vancouver Stock Exchange under the
symbol "HLD.U". On November 6, 1996, the closing price for the stock was $6.00
and the number of shares of common stock outstanding was 11,645,164. There were
approximately 94 holders of record of HLDS' common stock as of November 6, 1996.

The Company believes that the CCT and HLDS mergers will allow the Company to
obtain new technologies and expand and enhance its product lines and research
and development programs. Following the mergers, the Company intends to combine
the operations and technologies of the Company, CCT and HLDS as soon as
practicable. For a discussion of the risks associated with the mergers, see
"Risk Factors" (including "Proposed Acquisitions; Failure to Consummate Proposed
Acquisitions; Uncertainty Relating to Integration").

16
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 5,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $175.6 million at
the public offering price of $36.625 per share ($202.1 million if the
Underwriters' over-allotment option is exercised in full), after deducting the
estimated underwriting discount and offering expenses payable by the Company.
The issuance of shares of Common Stock offered hereby, among other things, will
be required in order to qualify the CCT Merger for pooling of interests
accounting treatment in accordance with generally accepted accounting
principles. The Company expects to use the net proceeds of the offering for
working capital and other general corporate purposes. In addition, the Company
may make one or more acquisitions of complementary technologies, products or
businesses in order to broaden or enhance the Company's current product
offerings. Other than the CCT Merger and the HLDS Merger, the Company has no
agreements or commitments for any such acquisitions, and is not currently
engaged in any negotiations with respect to any material acquisitions.

While the Company presently intends to use the proceeds of this offering as
described in this section, management of the Company has broad discretion to
adjust the application and allocation of the net proceeds of this offering in
order to address circumstances and opportunities. Pending use of such proceeds,
the net proceeds of this offering will be invested by the Company in short-term,
interest-bearing, investment-grade marketable securities.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on the Common Stock.
The Company currently intends to retain all cash for use in the operation and
expansion of its business and does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future. The Company's bank line of credit
contains certain restrictions on the payment of dividends.

17
<PAGE>
PRICE RANGE OF COMMON STOCK

The Common Stock trades publicly on the NYSE under the symbol "CDN". The
following table sets forth, for the calendar periods indicated, the range of
high and low sales prices for the Common Stock on the NYSE since January 1,
1994.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
First Quarter.................................................................... $ 6.95 $ 4.55
Second Quarter................................................................... 7.50 5.61
Third Quarter.................................................................... 8.11 5.89
Fourth Quarter................................................................... 9.67 7.50
1995
First Quarter.................................................................... $12.39 $ 8.55
Second Quarter................................................................... 15.50 11.28
Third Quarter.................................................................... 18.55 13.78
Fourth Quarter................................................................... 28.25 16.05
1996
First Quarter.................................................................... $30.33 $23.00
Second Quarter................................................................... 43.75 29.67
Third Quarter.................................................................... 37.88 23.00
Fourth Quarter (through November 21, 1996)....................................... 41.38 32.63
</TABLE>

On November 21, 1996, the last reported sale price of the Common Stock was
$36.625 per share. As of November 6, 1996, there were approximately 1,686
holders of record of the Common Stock.

18
<PAGE>
CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of September 28, 1996, and as adjusted to reflect the sale of 5,000,000 shares
of Common Stock offered hereby at the public offering price of $36.625 per share
and the receipt of the estimated net proceeds therefrom. See "Use of Proceeds".

<TABLE>
<CAPTION>
SEPTEMBER 28, 1996
------------------------
AS
ACTUAL ADJUSTED(2)
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:

Preferred stock, par value $0.01 per share, 2,000,000 shares authorized;
no shares issued and outstanding....................................... $ -- $ --

Common stock and capital in excess of $0.01 par value, 150,000,000 shares
authorized; 117,014,643 shares issued actual, 77,530,338 shares
outstanding actual, 82,530,338 shares outstanding as adjusted (1)...... 351,035 476,110
Treasury stock, 39,484,305 shares actual, 34,484,305 shares as
adjusted............................................................... (399,263) (348,713)

Retained earnings........................................................ 209,412 209,412

Accumulated translation adjustment....................................... (777) (777)
--------- -----------
Total stockholders' equity........................................... 160,407 336,032
--------- -----------
Total capitalization................................................. $ 160,407 $ 336,032
--------- -----------
--------- -----------
</TABLE>

- --------------

(1) Based upon shares outstanding as of September 28, 1996. Excludes 28,704,006
shares of Common Stock reserved for issuance under the Company's Employee
Stock Option Plan, Non-Statutory Stock Option Plan, Directors' Stock Option
Plans and Acquired Option Plans (the "Stock Option Plans"), the Employee
Stock Purchase Plan, warrants, and put options. Options to purchase
19,660,922 shares of Common Stock under the Stock Option Plans and warrants
to purchase 120,000 shares of Common Stock were outstanding at September 28,
1996. Also excludes Common Stock to be issued in connection with the HLDS
Merger and the CCT Merger. Based on shares outstanding as of November 5,
1996, an additional 2,561,936 shares of Common Stock would be issued upon
completion of the HLDS Merger (3,161,436 shares assuming exercise of options
to purchase capital stock of HLDS outstanding as of November 5, 1996) and
11,038,148 shares of Common Stock would be issued upon completion of the CCT
Merger (12,883,813 shares assuming exercise of options to purchase capital
stock of CCT outstanding as of November 5, 1996).

(2) Adjusted to give effect to the net proceeds of the offering based upon the
public offering price of $36.625 per share of Common Stock (after deduction
of the underwriting discount and estimated offering expenses).

19
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

SELECTED COMPANY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The selected historical financial data as of December 31, 1991, 1992 and
1993 and for the years ended December 31, 1991 and 1992 are derived from audited
financial statements not included or incorporated by reference herein. The
selected historical financial data as of December 31, 1994 and December 30, 1995
and for each of the three years in the period ended December 30, 1995 are
derived from the audited consolidated financial statements of the Company
included in this Prospectus. The unaudited selected historical financial data as
of September 28, 1996 and for the nine month periods ended September 30, 1995
and September 28, 1996 are derived from unaudited consolidated financial
statements of the Company and, in the opinion of the Company, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair representation of the financial information. Operating results for the
interim period are not necessarily indicative of the results of the Company that
may be expected for the entire year. The following selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," found in the consolidated
financial statements and related notes and other financial information contained
in the Company's Form 10-K for the fiscal year ended December 30, 1995 and Form
10-Q for the quarterly period ended September 28, 1996.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 30, ---------------------------
------------------------------------------------ SEPTEMBER SEPTEMBER
1991 1992 1993 1994 1995 30, 1995 28, 1996
-------- -------- -------- -------- -------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue............................ $379,476 $418,724 $368,623 $429,072 $548,418 $ 384,662 $ 529,197
Costs and expenses:
Cost of revenue.................. 87,582 93,954 83,972 89,800 116,530 84,763 110,666
Marketing and sales.............. 147,180 159,009 160,212 163,408 185,025 130,351 160,952
Research and development......... 68,157 66,432 74,467 77,381 88,566 65,210 85,147
General and administrative....... 36,065 33,872 38,737 39,729 40,437 29,066 40,444
Unusual items (1)................ 55,236 (253) 19,650 14,707 -- -- --
-------- -------- -------- -------- -------- ------------ ------------
Total costs and expenses..... 394,220 353,014 377,038 385,025 430,558 309,390 397,209
-------- -------- -------- -------- -------- ------------ ------------
Income (loss) from operations...... (14,744) 65,710 (8,415) 44,047 117,860 75,272 131,988
Other income (expense)............. 2,541 2,636 (4,364) 4,816 17,237 16,992 (2,355)
-------- -------- -------- -------- -------- ------------ ------------
Income (loss) before provision for
income taxes..................... (12,203) 68,346 (12,779) 48,863 135,097 92,264 129,633
Provision for income taxes......... 10,200 12,986 -- 12,215 37,827 25,834 42,779
-------- -------- -------- -------- -------- ------------ ------------
Net income (loss) (2).............. $(22,403) $ 55,360 $(12,779) $ 36,648 $ 97,270 $ 66,430 $ 86,854
-------- -------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- -------- ------------ ------------
Net Income (loss) per common share
(2).............................. $ (0.25) $ 0.53 $ (0.13) $ 0.37 $ 1.05 $ 0.71 $ 0.95
Common and common equivalent shares
used in computing per share
amounts (3)...................... 89,612 103,800 96,885 98,805 92,948 93,170 91,095
</TABLE>

<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 30, SEPTEMBER
------------------------------------------------ 28,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE
SHEET DATA:
Working capital.................... $118,955 $153,266 $104,996 $ 27,493 $ 6,496 $ 11,427
Total assets....................... 347,074 367,243 339,301 361,048 374,035 419,015
Long-term obligations and
redeemable convertible preferred
stock............................ 14,811 5,722 4,001 2,098 1,619 19,878
Stockholders' equity............... 185,117 249,148 206,122 176,063 134,081 160,407
</TABLE>

- ------------------

(1) See Note 7 of Notes to Consolidated Financial Statements, included elsewhere
in this Prospectus, for further discussion.

(2) Net income (loss) and net income (loss) per share included a $3.1 million
after tax gain on the sale of an equity investment in the year ended
December 31, 1994 and a $13.6 million after tax gain on the sale of stock of
a subsidiary in the periods ended December 30, 1995 and September 30, 1995.

20
<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION

The following table sets forth the unaudited selected pro forma combined
financial data of the Company, CCT and HLDS. The unaudited pro forma combined
balance sheet data has been prepared as if both the CCT Merger, which is
expected to be accounted for as a pooling of interests by the Company, and the
HLDS Merger, which will be accounted for as a purchase by the Company, were
consummated as of September 28, 1996. The unaudited pro forma combined statement
of operations data for the years ended December 31, 1993 and 1994, give effect
to the CCT Merger as if the CCT Merger were completed at the beginning of the
periods presented. The unaudited pro forma combined statement of operations data
for the year ended December 30, 1995, and for the nine months ended September
30, 1995 and September 28, 1996, give effect to both the CCT Merger and HLDS
Merger as if both mergers were completed at the beginning of the periods
presented.

The unaudited selected pro forma combined financial data is provided for
illustrative puposes only and is not necessarily indicative of the combined
financial position or combined results of operations that would have been
reported had the CCT Merger and HLDS Merger occurred on the dates indicated, nor
do they represent a forecast of the combined financial position or results of
operations for any future period. No pro forma adjustments have been included
herein which reflect potential effects of (i) the efficiencies which may be
obtained by combining the Company, CCT and HLDS operations or (ii) the costs of
restructuring, integrating or consolidating their operations. Certain statements
concerning the mergers, including descriptions of the mergers and pro forma
financial information, are forward looking statements that are subject to risks
and uncertainties. There can be no assurance that the CCT Merger or the HLDS
Merger will be completed as planned, that they will have the desired benefits or
that they will not have an adverse effect on the Company's business, financial
condition or results of operations. See "Risk Factors" for a description of
risks and uncertainties associated with the CCT Merger and the HLDS Merger.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
DECEMBER 30, ---------------------------
---------------------------- SEPTEMBER SEPTEMBER
1993 1994 1995 30, 1995 28, 1996
-------- -------- -------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF
OPERATIONS DATA:
Revenue............................ $375,917 $444,617 $581,987 $ 408,156 $ 564,306
Costs and expenses:
Cost of revenue.................. 84,324 91,426 121,841 88,505 115,374
Marketing and sales.............. 161,702 168,307 198,705 139,944 175,156
Research and development......... 77,765 82,956 98,107 72,153 94,667
General and administrative....... 39,225 41,637 48,625 35,387 45,928
Unusual items (1)................ 19,650 15,141 -- -- --
-------- -------- -------- ------------ ------------
Total costs and expenses..... 382,666 399,467 467,278 335,989 431,125
-------- -------- -------- ------------ ------------
Income (loss) from operations...... (6,749) 45,150 114,709 72,167 133,181
Other income (expense)............. (4,385) 4,716 17,431 17,041 (2,165)
-------- -------- -------- ------------ ------------
Income (loss) before provision for
income taxes..................... (11,134) 49,866 132,140 89,208 131,016
Provision for income taxes......... 603 12,574 37,843 25,630 43,940
-------- -------- -------- ------------ ------------
Net income (loss) (2).............. $(11,737) $ 37,292 $ 94,297 $ 63,578 $ 87,076
-------- -------- -------- ------------ ------------
-------- -------- -------- ------------ ------------
Net income (loss) per common share
(2).............................. $ (0.11) $ 0.34 $ 0.89 $ 0.60 $ 0.82
Common and common equivalent shares
used in computing per share
amounts.......................... 102,287 108,146 106,098 106,019 106,070

AS OF
SEPTEMBER
28, 1996
------------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED BALANCE SHEET
DATA:
Cash and cash investments.......... $ 89,410
Working capital.................... 32,232
Total assets....................... 476,429
Long-term obligations and
redeemable convertible preferred
stock............................ 20,161
Stockholders' equity............... 193,191
</TABLE>

- ------------------
(1) See Note 7 of Notes to Consolidated Financial Statements for the Company,
included elsewhere in this Prospectus, for further discussion.

21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1996 AS
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED ABOVE IN "RISK FACTORS", AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY
REFERENCE.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 28, %
1995 1996 CHANGE
-------------- -------------- -------
<S> <C> <C> <C>
REVENUE (IN MILLIONS)
Product........................................... $ 202.1 $ 291.2 44%
Service........................................... 44.4 80.4 81%
Maintenance....................................... 138.2 157.6 14%
------- -------
Total revenue................................. $ 384.7 $ 529.2 38%
------- -------
------- -------
SOURCES OF REVENUE AS A PERCENT OF TOTAL REVENUE
Product........................................... 53% 55%
Service........................................... 11% 15%
Maintenance....................................... 36% 30%
</TABLE>

Total revenue increased 38% from $384.7 million in 1995 to $529.2 million in
1996, primarily due to an increase in product and service revenue.

The increase in product revenue for the nine months ended September 28, 1996
as compared with the same period of the prior year was primarily the result of
increased demand for the Company's products which enable customers to meet
complex design challenges, including deep submicron IC design. This was
exemplified by increased sales volume of its automatic place and route, physical
layout and verification and timing-driven design process tools.

Service revenue increased for the nine months ended September 28, 1996 as
compared with the same period of the prior year. The increase in service revenue
in total dollars and as a percentage of total revenue was the result of
increased demand for the Company's Spectrum Services offerings. Additionally,
revenue for the nine months ended September 28, 1996 included a full nine months
of revenue related to the March 1995 outsourcing agreement with Unisys
Corporation ("Unisys") to assume substantial portions of Unisys' internal
silicon design operation.

The increase in maintenance revenue in total dollars for the nine month
period ended September 28, 1996 as compared to the nine month period ended
September 30, 1995 was attributable to an increase in the Company's installed
base of products.

Revenue from international sources grew 36% from 1995 to 1996 and was $262.0
million and $193.3 million for the nine month periods ended September 28, 1996
and September 30, 1995, respectively, representing 50% of total revenue in each
of those periods. The increase in revenue from

22
<PAGE>
international sources was primarily attributable to product revenue growth and
new Spectrum Services contracts in all regions.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 28, %
1995 1996 CHANGE
-------------- -------------- -------
<S> <C> <C> <C>
COST OF REVENUE (IN MILLIONS)
Product........................................... $ 34.2 $ 35.5 4%
Service........................................... 38.2 57.4 50%
Maintenance....................................... 12.4 17.7 43%

COST OF REVENUE AS A PERCENT OF RELATED REVENUE
Product........................................... 17% 12%
Service........................................... 86% 71%
Maintenance....................................... 9% 11%
</TABLE>

Cost of product revenue includes costs of production personnel, packaging
and documentation, amortization of capitalized software development costs and
purchased software costs and costs of the Company's automated test equipment
hardware business. Cost of product revenue increased in the nine month period
ended September 28, 1996 as compared to the same period in the prior year as a
result of the write off of approximately $1.6 million of capitalized software
development costs related to products at the end of their life cycle. The
decrease in cost of product revenue as a percentage of product revenue for the
nine months ended September 28, 1996 as compared to the nine months ended
September 30, 1995 was primarily due to revenues growing at a faster rate than
costs.

Cost of service revenue includes personnel and related costs associated with
providing services to customers and the infrastructure to manage a service
organization, as well as costs to recruit, develop and retain service
professionals. Cost of service revenue increased in total dollars due to
increased service revenue and the continued development of this line of
business. In addition, as the Company utilized more of its design and service
resources to generate revenue, cost of service revenue as a percentage of
service revenue decreased as compared to the prior year. The costs for the nine
months ended September 28, 1996 included a full nine months of expenses related
to the March 1995 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 the Company are also intended to be used to support other customers'
design needs. Continued investment in developing new service offerings and the
cost of integrating new services professionals performing a growing number of
service offerings will continue to put pressure on service gross margins until
operating efficiencies are obtained.

Cost of maintenance revenue includes the cost of customer services such as
hot-line and on-site support and the production cost of the maintenance renewal
process. Cost of maintenance increased in total dollars and as a percentage of
maintenance revenue due to additional on-site support costs necessary to support
a larger installed base.

23
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 28, %
1995 1996 CHANGE
-------------- -------------- -------
<S> <C> <C> <C>
OPERATING EXPENSES (IN MILLIONS)
Marketing and sales............................... $ 130.4 $ 161.0 23%
Research and development, net..................... 65.2 85.1 31%
General and administrative........................ 29.1 40.4 39%

EXPENSES AS A PERCENT OF TOTAL REVENUE
Marketing and sales............................... 34% 30%
Research and development.......................... 17% 16%
General and administrative........................ 8% 8%
</TABLE>

The increase in marketing and sales expenses for the nine months ended
September 28, 1996, as compared to the same period in the prior year, was
primarily the result of increases in employee related expenses attributable to
increased headcount. Weakening of certain foreign currencies in relation to the
United States dollar favorably impacted marketing and sales expenses by
approximately $4.3 million for the nine month period ended September 28, 1996 as
compared to the prior year.

For the nine months ended September 28, 1996, gross research and development
expenses were $95.3 million compared to $74.0 million for the same period in
1995. The Company capitalized approximately $10.2 million and $8.8 million of
software development costs which represented 11% and 12% of total research and
development expenditures made in those periods, respectively. The expense
increases for the nine month period of 1996 as compared to 1995 were primarily
attributable to increases in salary-related costs due to increased headcount
($11.3 million) and higher consulting and other outside service costs ($4.8
million). In any given period, the amount of capitalized software development
costs may vary depending on the exact nature of the development performed.

General and administrative expenses increased in the nine month period ended
September 28, 1996 as compared to the same period of the prior year primarily as
a result of higher legal costs of $5.8 million and higher consulting and outside
service costs of $3.3 million.

For the nine months ended September 28, 1996, net other expense was $2.4
million of expense compared with $17.0 million of income for the same period in
1995. The decrease in net other income for the nine months ended September 28,
1996, as compared to the same period in the prior year, was primarily the result
of an $18.9 million pre-tax gain from the sale of shares of common stock of the
Company's subsidiary, Integrated Measurement Systems, Inc. in a registered
public offering in the prior year.

The Company's estimated annual effective tax rate for fiscal 1996 is 33% as
compared to an annual effective tax rate of 28% for fiscal 1995. This estimated
increase in the tax rate is based on the limited availability of net operating
losses and tax credits and the potential effect of earnings generated in
countries which have a tax rate greater than the U.S. tax rate.

LIQUIDITY AND CAPITAL RESOURCES

At September 28, 1996, the Company's principal sources of liquidity
consisted of $85.2 million of cash and short-term investments and a three-year,
$120 million secured revolving line of credit agreement. As of September 28,
1996, the Company had no borrowings under the revolving line of credit.

Cash generated from operating activities increased $9.0 million to $143.9
million for the nine months ended September 28, 1996, as compared to the nine
months ended September 30, 1995. The increase was primarily due to higher net
income and an increase in accrued liabilities and payables, partially offset by
an increase in accounts receivable.

24
<PAGE>
At September 28, 1996, the Company had net working capital of $11.4 million
compared with $6.5 million at December 30, 1995. The primary reasons for the
increase were increases in accounts receivable of $10.5 million and increases in
prepaid expenses and other current assets of $12.2 million, partly offset by an
increase in deferred revenue of $8.7 million and a decrease in short-term
investments of $9.8 million. The increase in accounts receivable was
attributable to increased billing activity. The increase in deferred revenue was
attributable to increased maintenance renewals and an increase in deferred
product revenue in accordance with the American Institute of Certified Public
Accountants Statement of Position 91-1 entitled "Software Revenue Recognition."

In addition to its short-term investments, the Company's primary investing
activities were purchases of property and equipment, purchases of software and
intangibles and the capitalization of software development costs, which combined
represented $70.2 million and $35.4 million of cash used for investing
activities in the nine months ended September 28, 1996 and September 30, 1995,
respectively.

Since 1994, as part of its authorized stock repurchase program, the Company
has sold put warrants and purchased call options through private placements. The
Company had a maximum potential obligation related to the put warrants at
September 28, 1996 to buy back 2.4 million shares of its Common Stock at an
aggregate price of approximately $85.8 million. The put warrants will expire in
December 1996 through September 1997. The Company has both the unconditional
right and the intent to settle these put warrants with stock.

In connection with and prior to the consummation of the CCT Merger, the
Company will rescind its stock repurchase program, with the exception of
continued systematic stock repurchases under its seasoned stock repurchase
program for the Company's Employee Stock Purchase Plan (the "ESPP"). Such
repurchases are intended to cover the Company's expected reissuances under the
ESPP for the next 12 months. In addition, in order to qualify the CCT Merger for
pooling of interests accounting treatment, the Company is engaging in this
offering to cure its tainted shares from stock repurchases made for purposes
other than the ESPP.

Anticipated cash requirements for the remainder of fiscal 1996 include the
purchase of treasury stock through the exercise of call options for the
Company's systematic stock repurchase program and the contemplated additions of
property, plant and equipment of approximately $15 million.

As part of its overall investment strategy, the Company has committed to
participating in a venture capital partnership as a limited partner. The
Company's total committed investment of at least $25.0 million will be made over
the next three to four years. As of September 28, 1996, the Company had
contributed approximately $5.9 million, which is reflected in other assets in
the Company's balance sheet.

The Company anticipates that current cash and short-term investment
balances, cash flows from operations, and the $120 million revolving line of
credit should be sufficient to meet its working capital and capital expenditure
requirements on a short and long-term basis.

25
<PAGE>
BUSINESS

EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION
CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED ABOVE IN "RISK FACTORS", AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE.

GENERAL

Cadence develops, markets and supports electronic design automation ("EDA")
software tools that automate, enhance and accelerate the design and verification
of ICs and electronic systems. The Company combines its technology with services
to help optimize its customers' product development processes. The Company's
products and services are used by companies throughout the world to design and
develop electronic circuits and systems, including semiconductors, computer
systems and peripherals, telecommunications and networking equipment, mobile and
wireless devices, automotive components, consumer products and other advanced
electronics.

THE INTEGRATED CIRCUIT AND ELECTRONIC SYSTEM DESIGN PROCESS

The electrical design process involves describing the behavioral, functional
and structural attributes of an IC or electronic system. This process involves
creating a design description, simulating the design to identify electrical
defects and refining the description to meet predetermined design
specifications. The first step in the electrical design process is creation of
the design description. To handle the complexity of large designs, design
engineers use a variety of techniques, including block diagrams, equations or
special design description languages referred to as Hardware Description
Language ("HDL").

Before an IC or PCB can be manufactured, high level design descriptions must
be detailed into a structural design, in which the engineer specifically defines
components, their interconnections and associated physical properties.
Structural designs may be created manually or generated using an automated
process called logic synthesis. In structural design, critical design time can
be saved by selecting components from an electronic library and including them
in the design, rather than recreating symbols and data for each design. A
database containing the design's electrical characteristics, interconnections
and specific design rules is automatically created and used as the foundation
for subsequent design steps.

Electronics designers use simulation throughout the electrical design
process to identify design errors before the design is manufactured. In
addition, simulation enables electronics designers to quickly explore design
alternatives, and can be performed at different levels of design abstraction and
with mixed levels of abstraction. This enables a designer to verify the
conceptual, structural and performance aspects of the design. A key element in
the simulation process is the use of component libraries containing software
models of commonly used parts.

When the design is determined to be functionally correct, the designer
generates a non-graphical description called a netlist that details the design
components and interconnections. This netlist becomes the blueprint for physical
design. Next, the physical design team determines the layout and associated
interconnection of the components on the target substrate that will yield the
optimum combination of performance, area and cost. Once this process is
completed, physical verification tools are used to provide a final check of the
design implementation before products are released to manufacturing. Accuracy in
this process is essential to avoiding costly production runs of faulty parts.

26
<PAGE>
THE CADENCE SOLUTION

The Company's EDA tools are used by customers to analyze, simulate,
implement and verify electronic designs. In addition, the Company's tools let
design architects and engineers build abstract models of chips, simulate their
behavior, and analyze their physical attributes for acceptable performance. The
resulting productivity and accuracy improvements over earlier generation
approaches to IC design enable customers to develop increasingly complex,
high-quality electronic products with accelerated time to market schedules.

The Company is pursuing a strategy of combining a broad suite of design
tools with world-class support, design and process services to enable its
customers to accelerate their product development efforts, improve their design
productivity and successfully cope with the increasing complexity of IC and
electronic system design. The design process is becoming more complicated as
customers are seeking to create higher performance products, lower development
costs, improve time to market and migrate their design and manufacturing efforts
to utilize deep submicron technologies. As a consequence, the Company believes
that its solutions-oriented approach to providing both EDA tools and services
will enable customers to more effectively respond to demanding market
requirements.

CADENCE PRODUCTS

CAE PRODUCTS

Cadence is a leader in the computer aided engineering ("CAE") market
primarily based on its strong market presence in logic simulation. The Company's
Verilog HDL logic simulator, Verilog XL, is used by numerous ASIC vendors and
supports over 185 ASIC libraries.

The Company offers a broad suite of tools for logic synthesis. The Synergy
product line provides designers the ability to easily target their design for
implementation into an ASIC, Field Programmable Gate Array ("FPGA") or
Programmable Logic Device ("PLD") design. Synergy enables designers to make
critical tradeoffs between area, power and performance to optimize their design
based on specific design requirements. With the advent of deep submicron
technology, successful completion of complex designs will require companies to
adopt new methodologies and utilize innovative design automation tools. Success
will be predicated on introducing physical design knowledge into the logic
design process to ensure that the resultant silicon will meet required
specifications. The adoption of design planning tools will become increasingly
important for electronics designers because such tools provide the necessary
bridge between the logic and physical domains. An advanced high level design
planning environment allows engineers to accurately predict physical effects
that are used to provide guidelines for logic optimization and final
implementation. Cadence has developed a broad portfolio of design planning
tools, including Preview and Silicon Quest.

IC DESIGN PRODUCTS

Cadence's custom layout portfolio is anchored by the Virtuoso product
family. This suite consists of tools for basic layout editing, design
compaction, layout synthesis and device-level editing. In 1995, the Company
introduced Virtuoso FastChip, which provides the ability to rapidly create cells
and blocks for applications including random logic, standard cell blocks and
library elements, reducing overall design time. In addition, FastChip allows
them to perform extensive "what-if" analysis with design variables like
placement and aspect ratios that have significant bearing on performance.

27
<PAGE>
The Ensemble product family provides advanced place and route ("P&R")
solutions for gate, cell, block and mixed designs. The Company offers two
products for cell based routing, Cell Ensemble, which is finely tuned for two
layer metal designs, and Cell3, which is based on advanced routing algorithms
for three layer and above metal designs. Silicon Ensemble, which is based on
Cadence's proprietary area-based architecture and was introduced in early 1996,
provides a broad solution for routing up designs that consist of a mix of cell
and gate-based approaches. In addition, Silicon Ensemble includes several
specialized routing engines to deal with specific design challenges like
datapath, complex clock trees, crosstalk and low power.

Cadence's product lines for automated and interactive physical verification
are anchored by the Dracula and Diva products, respectively. In 1995, the
Company introduced Vampire, which provides advanced hierarchical design
capability necessary to verify large scale chips.

SYSTEM DESIGN PRODUCTS

The Allegro product line offers broad solutions for layout of standard PCB,
hybrid, multi-chip modules ("MCM") and advanced component packaging. In
addition, the Company offers thermal, signal integrity, reliability and
electromagnetic analysis tools for detecting potential manufacturing problems.
In 1995, the Company introduced BoardQuest, which is specifically tailored for
the needs of high-speed system designers, offering an advanced system planning
environment to accurately predict thermal, interconnect and electromagnetic
effects early in the design process.

The Analog Artist series provides a broad set of simulation, layout and
verification tools for chip design. This product family features the Spectre
high speed circuit simulation family of products. In 1994, the Company
introduced SpectreHDL, the industry's first analog behavioral simulation system
for analog and mixed-signal applications. In 1995, the Company further expanded
the product offering with the introduction of SpectreRF, simulation technology
utilized specifically for the design of radio frequency applications. For analog
system and board level design, the Company's Analog Workbench offers tools from
top-down design through board design.

ELECTRONIC SYSTEMS DESIGN AUTOMATION PRODUCTS

The Company offers a class of software for top-down design known as
Electronic Systems Design Automation ("ESDA"). The Company's ESDA products are
designed to allow customers to include product concepts in the EDA environment,
accelerating and enhancing the early phases of system development. The Signal
Processing Workbench tool set provides customers with a higher level of design
automation for a number of application areas including wireless communications,
networking and multi-media. The Signal Processing Workbench includes a large
applications library of design blocks, a complete technology base and a
visualization and analysis environment. Once the design is conceptualized, the
Signal Processing Workbench provides links to implementation which include
multiple capabilities that allow the design to be passed downstream to ASIC and
IC engineers.

CADENCE'S SPECTRUM SERVICES

Cadence offers a range of design development and support services to its
customers, from assistance with specific designs to a complete re-engineering of
the product design process, and even a complete outsourcing of a particular
design operation. The Company works with the customer's executive management and
engineering team to assess a customer's design goals and objectives and
translate those goals into design solutions.

The Company's services offerings include product design, library design,
design process and software services. Cadence offers product design services to
facilitate complex IC design targeted to on-time completion with reliability.
The Company offers on-site design assistance and full service chip designs.
Library design services assist in the optimization of libraries for performance,
density, quality,

28
<PAGE>
reliability and testability and the targeting of existing libraries to multiple
foundry sources and product applications. The Company also offers design process
services to assist its customers management and engineering teams to optimize
their internal design process by providing a product development environment
blueprint and implementation management.

In addition, Cadence offers application and education services that
facilitate the implementation and assimilation of the Company tools and
technology, aimed at maximizing customers' productivity with the Company's
software applications.

RECENT DEVELOPMENTS

The Company believes that the CCT Merger and the HLDS Merger will allow
Cadence to obtain new technologies and expand and enhance its product lines and
research and development programs. Following the mergers, the Company intends to
combine the operations and technologies of the Company, CCT and HLDS as soon as
practicable. For a discussion of the risks associated with a failure to
consummate the mergers, see "Risk Factors" (including "Proposed Acquisitions;
Failure to Consummate Proposed Acquisitions; Uncertainty Relating to
Integration").

CCT

CCT develops, markets and supports software tools that help designers route
the wires that interconnect the electronic devices on high performance PCBs and
ICs. CCT's products are differentiated by CCT's proprietary ShapeBased
technology, which CCT believes offers significant advantages over traditional
grid-based routing tools for complex PCB and IC design applications. CCT
initially developed ShapeBased routing products for the PCB market and
introduced its first product, SPECCTRA, in December 1989. In early 1995, CCT
entered the IC layout market by leveraging its ShapeBased routing technology to
develop its IC Craftsman product line. IC Craftsman is designed to solve the
interconnect problems inherent in deep submicron IC design.

In addition, CCT's ShapeBased technology models the physical components on
the circuit layers as a set of exact shapes (e.g., circles, rectangles, paths
and polygons). Unlike grid-based systems, each shape retains the key electrical
characteristics of the component it represents. Because electrical properties of
the components are known, this allows CCT's autorouter to more effectively obey
design and space constraints while completing a correct interconnect design.

At the core of CCT's products are proprietary autorouting algorithms built
upon CCT's ShapeBased architecture. CCT initially developed ShapeBased products
for the PCB market, where interconnect problems were not adequately addressed by
traditional grid-based systems. As IC manufacturing technology has progressed to
the deep submicron level, interconnect has emerged as a critical factor
affecting cost and performance of ICs. In early 1995 CCT entered the IC layout
market by leveraging its ShapeBased autorouting technology to develop products
that solve the interconnect problems inherent in deep submicron IC design.

HLDS

HLDS develops, markets and supports EDA software for the design of
high-density, high performance ICs. HLDS' products are designed to solve the
problems inherent in deep submicron (less than 0.5 micron) IC design and to
offer improved time to market, enhanced IC performance and reduced development
and manufacturing costs when compared to previous generations of EDA software.

HLDS offers three principal design planning products that have application
at several stages of the design process. These design planning products include
Top-Down DP, which has been released for limited customer use, for application
by hardware description language designers in the functional

29
<PAGE>
design phase; Logic DP, for application by gate level designers in the logic
implementation phase; and Physical DP, for application by layout engineers in
the physical implementation and verification phase.

HLDS also offers an EDA infrastructure product on which newly defined deep
submicron design methodologies can be implemented. HLDS' infrastructure product,
called Pillar, provides computer aided design ("CAD") developers who are
responsible for implementing deep submicron methodologies with a database,
graphical user interface, applications programming interfaces and a software
development environment. Pillar allows "best of breed" deep submicron tools to
be integrated quickly and cost effectively and facilitates internal development
of other tools.

HLDS also offers two other standalone EDA tools to solve specific deep
submicron design problems: HyperExtract and Fasnet Delay Calculator. These tools
complement HLDS' design planning products and may be integrated with HLDS'
Pillar infrastructure product. HyperExtract is a deep submicron interconnect
extraction tool that allows distributed resistance and capacitance (including
interlayer and coupling capacitance) to be extracted from design databases.
Fasnet Delay Calculator is a standalone deep submicron delay calculator that
allows gate and interconnect delays to be accurately calculated based on a set
of gate models and interconnect resistance and capacitance characteristics.

30
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Information below with respect to the executive officers and directors of
the Company as of November 5, 1996 is set forth below:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- --------------------------------------------------
<S> <C> <C>
Joseph B. Costello 42 President, Chief Executive Officer and Director

H. Raymond Bingham 51 Executive Vice President and Chief Financial
Officer

M. Robert Leach 48 Senior Vice President, Spectrum Services

Darrel A. Mank 48 Senior Vice President, Design Services

K.C. Murphy 42 Senior Vice President, Corporate Strategy

John F. Olsen 45 Senior Vice President, Worldwide Sales

Shane Robison 42 Senior Vice President, Engineering

Timothy Q. Unger 42 Senior Vice President, Human Resources

Anthony Zingale 41 Senior Vice President, Worldwide Marketing

R.L. Smith McKeithen 52 Vice President, General Counsel and Secretary

Carol Bartz 48 Director

Henry E. Johnston 53 Director

Dr. Leonard Y.W. Liu 55 Director

Donald L. Lucas 66 Director

Dr. Alberto Sangiovanni-Vincentelli 49 Director

George M. Scalise 62 Director

Dr. John B. Shoven 49 Director

James E. Solomon 60 Director
</TABLE>

JOSEPH B. COSTELLO has served as President and a director of the Company
since May 1988. In addition, Mr. Costello has served as Chief Executive Officer
of the Company since June 1988. Previously he served as a director of SDA
Systems, Inc. ("SDA"), from May 1987 to May 1988. From March 1986 to March 1987,
he served as SDA's President and Chief Operating Officer.

H. RAYMOND BINGHAM joined the Company in June 1993 as Executive Vice
President and Chief Financial Officer. Prior to joining the Company, he was
Executive Vice President and Chief Financial Officer of Red Lion Hotels and Inns
for eight years. Mr. Bingham is a director of Sunstone Hotel Investors, Inc. and
Integrated Measurement Systems, Inc.

M. ROBERT LEACH joined the Company in June 1993 as Senior Vice President of
Spectrum Services. Prior to joining the Company, Mr. Leach was partner-in-charge
of the worldwide electronics industry consulting practice for Andersen
Consulting for more than 10 years.

DARREL A. MANK joined the Company in June 1996 as Senior Vice President,
Design Services. From 1991 through 1996, Mr. Mank served as Vice President and
General Manager of the portable products division of Cirrus Logic, Inc.

31
<PAGE>
K.C. MURPHY joined the Company in April 1996 as Senior Vice President,
Corporate Strategy. Prior to joining the Company, Mr. Murphy worked for 17 years
at Advanced Micro Devices where he held various positions, most recently Vice
President of Strategic Marketing.

JOHN F. OLSEN joined the Company in May 1994 as Senior Vice President, Field
Operations and has served as Senior Vice President, Worldwide Sales, since April
1996. Prior to joining the Company, Mr. Olsen served as a partner for KPMG Peat
Marwick for five years.

SHANE V. ROBISON joined the Company in July 1995 as Senior Vice President,
Engineering. Prior to joining the Company, Mr. Robison served as Vice President
and General Manager of Apple Computer's Personal Interactive Electronics
Division for more than seven years.

TIMOTHY Q. UNGER joined the Company in September 1994 as Vice President,
Human Resources, and became Senior Vice President, Human Resources in January
1996. From 1988 through 1995, Mr. Unger was Group Director of Human Resources
for Unisys Corporation.

ANTHONY ZINGALE joined the Company in April 1989 and currently holds the
position of Senior Vice President, Worldwide Marketing. He previously served the
Company as Vice President and General Manager of the HDL Design Group, Vice
President of Corporate Marketing and Vice President of Marketing for the Systems
Division. Prior to joining the Company, Mr. Zingale was Vice President of
Marketing at EDA Systems, Inc., which was acquired by Digital Equipment
Corporation.

R.L. SMITH MCKEITHEN joined the Company in June 1996 as Vice President,
General Counsel and Secretary. From 1994 to 1996, he served as Vice President,
General Counsel and Secretary of Strategic Mapping, Inc. From 1988 to 1994, he
served as Vice President, General Counsel and Secretary of Silicon Graphics,
Inc.

CAROL BARTZ has served as a director of the Company since February 1994. Ms.
Bartz has been the Chairman and Chief Executive Officer of Autodesk, Inc. since
April 1992. From 1983 to April 1992, Ms. Bartz served in various positions with
Sun Microsystems, Inc., most recently as Vice President of Worldwide Field
Operations. Ms. Bartz is also a director of AirTouch Communications, Inc. and
Network Appliance, Inc.

HENRY E. JOHNSTON has served as a director of the Company since July 1994.
From 1983 to January 1994, Mr. Johnston was Corporate Vice President and from
1989 was also Division President of the Manufacturing and Distribution Business
Unit of Electronic Data Systems Corporation. Since January 1994, Mr. Johnston
has been a private individual investor.

DR. LEONARD Y.W. LIU has served as a director of the Company since June
1989. Dr. Liu has served as the Chairman, President and Chief Executive Officer
of Walker Interactive Systems, Inc. since June 1995. Dr. Liu also served as
Chief Operating Officer of the Company from January 1993 until March 1995.
Before joining the Company, Dr. Liu was Chairman and Chief Executive Officer of
Acer America Corporation and President of Acer, Inc., personal computer
suppliers, from 1989 until March 1992. From 1969 until April 1989, Dr. Liu held
various technical and general management positions at IBM Corporation, including
as Manager of its Santa Teresa Laboratory. Dr. Liu is also a director of Trident
Microsystems.

DONALD L. LUCAS has served as Chairman of the Board of the Company since May
1988. Prior to that date, Mr. Lucas served as Chairman of the Board and director
of SDA from its inception in July 1983 to March 1987. Mr. Lucas has been a
private venture capital investor since 1960. He is a director of Amati
Communications Corporation, formerly ICOT Corporation, Macromedia, Inc., Oracle
Corporation, Racotek, Inc., Transcend Services, Inc. and Tricord Systems,
Incorporated.

DR. ALBERTO SANGIOVANNI-VINCENTELLI has served as a director of the Company
since December 1992. Dr. Sangiovanni-Vincentelli has been Professor of
Electrical Engineering and Computer Sciences at the University of California at
Berkeley since 1976.

32
<PAGE>
GEORGE M. SCALISE has served as a director since June 1989. Mr. Scalise
became Senior Vice President of Planning and Development and Chief
Administrative Officer of Apple Computer Inc. in March 1996. Mr. Scalise served
as Senior Vice President of Planning and Development and Chief Administrative
Officer of National Semiconductor Corporation from August 1991 to March 1996.
From July 1987 to January 1991, Mr. Scalise was President and Chief Executive
Officer of Maxtor Corporation, a disk drive manufacturer. He is also a director
of Tower Semiconductor, Ltd.

DR. JOHN B. SHOVEN has served as a director of the Company since April 1992.
Dr. Shoven has been Dean of Humanities and Sciences at Stanford University since
September 1993. From 1979 to August 1993, he served as Professor of Economics at
Stanford University. He also served as Director for the Center for Economics
Policy Research at Stanford University from 1988 to 1993.

JAMES E. SOLOMON has served as director of the Company since May 1988. Mr.
Solomon, who currently is a part-time employee of the Company, is President and
Chief Executive Officer of XULU Entertainment, Inc. Mr. Solomon was a founder of
SDA in 1983 and served in a variety of executive and technical positions of SDA
and the Company from that date until May 1996, including Chairman and President
of SDA, Co-Chairman of the Company's Board of Directors, President of the
Company's Analog Division and Senior Vice President and Principal Technologist
of the Company. Mr. Solomon is a Director of Integrated Measurement Systems,
Inc.

33
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co. and Morgan Stanley & Co.
Incorporated are acting as representatives, has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ------------------------------------------------------------ ------------
<S> <C>
Goldman, Sachs & Co......................................... 1,740,000
Morgan Stanley & Co. Incorporated........................... 1,740,000
Advest, Inc................................................. 120,000
Alex. Brown & Sons Incorporated............................. 170,000
Cowen & Company............................................. 120,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 170,000
Hambrecht & Quist LLC....................................... 170,000
Edward D. Jones & Co., L.P.................................. 120,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................... 170,000
Needham & Company, Inc...................................... 120,000
SoundView Financial Group, Inc.............................. 120,000
Sutro & Co. Incorporated.................................... 120,000
Wessels, Arnold & Henderson, L.L.C.......................... 120,000
------------
Total................................................... 5,000,000
------------
------------
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers at such price less
a concession of $.82 per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $.10 per share to certain brokers and
dealers. After the shares of Common Stock are released for sale to the public,
the offering price and other selling terms may from time to time be varied by
the representatives.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 750,000
additional shares of Common Stock solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 5,000,000 shares of Common
Stock offered.

The Company and certain executive officers and directors of the Company have
agreed that, subject to certain exceptions, during the period beginning from the
date of this Prospectus and continuing to and including the date 90 days after
the date of this Prospectus, they will not offer, pledge, sell, contract to sell
or otherwise transfer or dispose of any Common Stock (other than pursuant to
existing employee stock option or stock purchase plans, or on the conversion or
exchange of outstanding convertible or exchangeable securities, on the date of
this Prospectus) without the prior written consent of the representatives,
except for: the shares of Common Stock offered in connection with the offering;
325,000 shares of Common Stock held by such executive officers and directors;
shares of Common Stock issued in connection with the CCT Merger and HLDS Merger
(or in the event the HLDS Merger

34
<PAGE>
cannot be consummated prior to the CCT Merger, up to 2,600,000 shares of Common
Stock in an underwritten public offering or a managed private placement if
necessary to permit the CCT Merger to qualify for pooling of interests
accounting treatment); shares of Common Stock valued in the aggregate at less
than $3,000,000 to be issued in connection with acquisitions; and warrants to
purchase in the aggregate not more than 100,000 shares of Common Stock.

The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.

The Company retained Goldman, Sachs & Co. to act as its financial advisor in
connection with the CCT Merger and the HLDS Merger. The Company has agreed to
pay Goldman, Sachs & Co. customary fees for its financial advisory services in
connection with each merger, including rendering to the Company an opinion as to
the fairness from a financial point of view of the consideration to be paid for
each of CCT and HLDS. Such fees will be paid in the form of a combination of
cash or warrants as may be agreed to between the Company and Goldman, Sachs &
Co.

LEGAL MATTERS

The validity of the shares of Common Stock to be offered hereby will be
passed upon for the Company by Cooley Godward LLP, Palo Alto, California.
Certain attorneys at Cooley Godward LLP who have performed services for the
Company own an aggregate of 1,883 shares of Common Stock. In addition, a partner
of Cooley Godward LLP served as Acting General Counsel to the Company from
November 1995 to June 1996. Certain legal matters relating to the offering will
be passed upon for the Underwriters by Venture Law Group, A Professional
Corporation, Menlo Park, California.

EXPERTS

The audited consolidated financial statements of Cadence Design Systems,
Inc. included in and incorporated by reference in this Prospectus and
Registration Statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in reliance upon the authority of said firm as experts in giving said
reports.

35
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................................. F-2

Consolidated Balance Sheets as of December 31, 1994, December 30, 1995 and September 28,
1996.................................................................................... F-3

Consolidated Statements of Income for the years ended December 31, 1993 and 1994 and
December 30, 1995 and for the nine months ended September 30, 1995 and September 28,
1996.................................................................................... F-4

Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993 and
1994 and December 30, 1995 and for the nine months ended September 28, 1996............. F-5

Consolidated Statements of Cash Flows for the years ended December 31, 1993 and 1994 and
December 30, 1995 and for the nine months ended September 30, 1995 and September 28,
1996.................................................................................... F-6

Notes to Consolidated Financial Statements................................................ F-8
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF

CADENCE DESIGN SYSTEMS, INC:

We have audited the accompanying consolidated balance sheets of Cadence
Design Systems, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1994 and December 30, 1995, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cadence Design Systems, Inc.
and subsidiaries as of December 31, 1994 and December 30, 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 30, 1995, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

San Jose, California
January 19, 1996 (except for the
matters discussed in Note 15,
as to which the date is
November 7, 1996)

F-2
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, SEPTEMBER
1994 1995 28, 1996
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash investments................................. $ 75,011 $ 84,867 $ 83,211
Short-term investments.................................... 21,865 11,774 2,023
Accounts receivable, less allowances of $4,905 in 1994,
$7,420 in 1995 and $6,651 in 1996....................... 78,629 88,503 99,030
Inventories............................................... 5,137 8,203 7,830
Prepaid expenses and other................................ 11,293 13,576 25,761
------------ ------------ ------------
Total current assets.................................... 191,935 206,923 217,855
PROPERTY, PLANT AND EQUIPMENT, net.......................... 122,064 124,103 149,685
SOFTWARE DEVELOPMENT COSTS, net............................. 27,832 25,793 24,019
PURCHASED SOFTWARE AND INTANGIBLES, net..................... 10,557 8,268 9,415
OTHER ASSETS................................................ 8,660 8,948 18,041
------------ ------------ ------------
Total assets............................................ $ 361,048 $ 374,035 $ 419,015
------------ ------------ ------------
------------ ------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt....... $ 26,412 $ 1,497 $ 3,422
Accounts payable.......................................... 12,522 17,592 17,396
Accrued liabilities....................................... 56,359 74,407 77,578
Income taxes payable...................................... 7,944 14,524 6,960
Deferred revenue.......................................... 61,205 92,407 101,072
------------ ------------ ------------
Total current liabilities............................... 164,442 200,427 206,428
------------ ------------ ------------
LONG-TERM LIABILITIES:
Long-term debt............................................ 2,098 1,619 19,878
Deferred income taxes..................................... 904 7,307 2,590
Minority interest liability............................... 883 12,167 15,246
Other long-term liabilities............................... 16,658 18,434 14,466
------------ ------------ ------------
Total long-term liabilities............................. 20,543 39,527 52,180
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; authorized 2,000 shares,
none issued............................................. -- -- --
Common stock and capital in excess of $.01 par value:
Authorized: 150,000 shares
Issued: 107,086 shares in 1994, 113,794 shares in 1995
and
117,015 shares in 1996
Outstanding: 85,291 shares in 1994, 78,564 shares in
1995
and 77,530 shares in 1996............................. 265,173 299,544 351,035
Treasury stock at cost (21,795 shares in 1994, 35,230
shares in 1995 and 39,484 shares in 1996)............... (133,728) (290,884) (399,263)
Retained earnings......................................... 43,377 124,471 209,412
Accumulated translation adjustment........................ 1,241 950 (777)
------------ ------------ ------------
Total stockholders' equity.............................. 176,063 134,081 160,407
------------ ------------ ------------
Total liabilities and stockholders' equity.............. $ 361,048 $ 374,035 $ 419,015
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
------------------------------------------ -----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Product......................................... $ 224,139 $ 241,545 $ 292,198 $ 202,104 $ 291,214
Service......................................... 16,872 28,365 65,860 44,335 80,405
Maintenance..................................... 127,612 159,162 190,360 138,223 157,578
------------ ------------ ------------ ------------- -------------
Total revenue................................. 368,623 429,072 548,418 384,662 529,197
------------ ------------ ------------ ------------- -------------
COSTS AND EXPENSES:
Cost of product................................. 53,677 52,897 44,793 34,163 35,539
Cost of service................................. 15,431 22,590 54,988 38,184 57,420
Cost of maintenance............................. 14,864 14,313 16,749 12,416 17,707
Marketing and sales............................. 160,212 163,408 185,025 130,351 160,952
Research and development........................ 74,467 77,381 88,566 65,210 85,147
General and administrative...................... 38,737 39,729 40,437 29,066 40,444
Unusual items................................... 19,650 14,707 -- -- --
------------ ------------ ------------ ------------- -------------
Total costs and expenses...................... 377,038 385,025 430,558 309,390 397,209
------------ ------------ ------------ ------------- -------------
Income (loss) from operations..................... (8,415) 44,047 117,860 75,272 131,988
Other income (expense)............................ (4,364) 4,816 17,237 16,992 (2,355)
------------ ------------ ------------ ------------- -------------
Income (loss) before provision for income taxes... (12,779) 48,863 135,097 92,264 129,633
Provision for income taxes........................ -- 12,215 37,827 25,834 42,779
------------ ------------ ------------ ------------- -------------
Net income (loss)................................. $ (12,779) $ 36,648 $ 97,270 $ 66,430 $ 86,854
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
Net income (loss) per share....................... $ (0.13) $ 0.37 $ 1.05 $ 0.71 $ 0.95
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
Weighted average common and common equivalent
shares outstanding.............................. 96,885 98,805 92,948 93,170 91,095
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
PAR VALUE AND TREASURY STOCK ACCUMULATED
CAPITAL IN -------------------- RETAINED TRANSLATION
SHARES EXCESS OF PAR SHARES AMOUNT EARNINGS ADJUSTMENT
-------- ------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992...................... 98,797 $ 228,411 -- $ -- $ 21,306 $ (569)
Purchase of treasury stock...................... -- -- (10,929) (52,178) -- --
Issuance of common stock........................ 2,429 10,805 -- -- -- --
Tax benefits from employee stock transactions... -- 842 -- -- -- --
Common stock issued in connection with
acquisition................................... 2,362 9,056 -- -- -- --
Issuance of warrant in connection with
acquisition................................... -- 1,847 -- -- -- --
Translation adjustment.......................... -- -- -- -- -- (619)
Net loss........................................ -- -- -- -- (12,779) --
-------- ------------- -------- ---------- --------- -----------
BALANCE, DECEMBER 31, 1993...................... 103,588 250,961 (10,929) (52,178) 8,527 (1,188)
Purchase of treasury stock...................... -- -- (13,441) (95,119) -- --
Issuance of common stock........................ 3,498 13,516 1,444 7,231 (1,165) --
Tax benefits from employee stock transactions... -- 626 -- -- -- --
Treasury stock issued in connection with
acquisitions.................................. -- 70 1,131 6,338 (633) --
Translation adjustment.......................... -- -- -- -- -- 2,429
Net income...................................... -- -- -- -- 36,648 --
-------- ------------- -------- ---------- --------- -----------
BALANCE, DECEMBER 31, 1994...................... 107,086 265,173 (21,795) (133,728) 43,377 1,241
Purchase of treasury stock...................... -- -- (14,430) (163,928) -- --
Issuance of common stock........................ 6,708 26,984 995 6,772 (734) --
Tax benefits from employee stock transactions... -- 8,463 -- -- -- --
Purchase of warrant............................. -- (1,746) -- -- (15,442) --
Unrealized gain on investment in subsidiary..... -- 670 -- -- -- --
Translation adjustment.......................... -- -- -- -- -- (291)
Net income...................................... -- -- -- -- 97,270 --
-------- ------------- -------- ---------- --------- -----------
BALANCE, DECEMBER 30, 1995...................... 113,794 299,544 (35,230) (290,884) 124,471 950
Purchase of treasury stock...................... -- -- (4,755) (113,780) -- --
Issuance of common stock........................ 3,221 22,661 501 5,401 -- --
Purchase of warrant............................. -- (2,437) -- -- (1,913) --
Tax benefits from employee stock transactions... -- 31,267 -- -- -- --
Translation adjustment.......................... -- -- -- -- -- (1,727)
Net income...................................... -- -- -- -- 86,854 --
-------- ------------- -------- ---------- --------- -----------
BALANCE, SEPTEMBER 28, 1996 (Unaudited)......... 117,015 $ 351,035 (39,484) $ (399,263) $ 209,412 $ (777)
-------- ------------- -------- ---------- --------- -----------
-------- ------------- -------- ---------- --------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------ -----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH AND CASH INVESTMENTS AT BEGINNING OF PERIOD....... $ 78,976 $ 61,382 $ 75,011 $ 75,011 $ 84,867
------------ ------------ ------------ ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... (12,779) 36,648 97,270 66,430 86,854
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization...................... 43,966 44,257 46,019 35,287 39,755
Gain on sale of stock of subsidiary................ -- -- (18,873) (18,873) --
Deferred income taxes.............................. (9,849) (2,105) 5,693 5,443 (4,718)
Write-off of in-process research and development... -- 4,653 -- -- --
Accruals and write-down and reserve of assets
related to restructure........................... 10,710 -- -- -- --
Increase in other long-term liabilities and
minority interest expense........................ 1,856 3,985 3,135 316 1,957
Write-offs of equipment and other long-term
assets........................................... 3,140 1,229 2,281 2,747 75
Provisions for doubtful accounts and inventory
write-offs....................................... 3,029 3,334 5,821 3,232 --
Changes in current assets and liabilities, net of
effect of acquired businesses:
Accounts receivable.............................. 28,724 22,413 (13,760) 11,479 (11,890)
Inventories...................................... (32) (592) (4,059) (3,060) (1,480)
Prepaid expenses and other....................... 1,347 7,871 (2,132) (3,492) (12,145)
Accrued liabilities and payables................. 16,013 10,612 44,439 19,356 35,834
Deferred revenue................................. 11,134 22,133 31,262 16,078 9,679
------------ ------------ ------------ ------------- -------------
Net cash provided by operating activities...... 97,259 154,438 197,096 134,943 143,921
------------ ------------ ------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of short-term investments............... 63,273 69,796 43,296 39,296 17,610
Purchases of short-term investments................ (83,753) (60,238) (33,205) (33,069) (7,859)
Purchases of property, plant and equipment......... (18,500) (15,196) (28,338) (18,585) (42,873)
Capitalization of software development costs....... (15,207) (10,790) (11,845) (8,778) (10,210)
Change in purchased software and intangibles and
other assets..................................... (4,228) 1,129 (5,454) (8,065) (17,166)
Net proceeds from sale of subsidiary stock......... -- -- 29,920 29,920 --
Payment for purchase of third-party interests in
partnerships, net of cash acquired............... -- (14,624) -- -- --
Cash advanced to a company prior to acquisition.... -- (1,855) -- -- --
Sale of put warrants............................... -- 10,321 1,304 1,057 13,870
Purchase of call options........................... -- (10,321) (1,304) (1,057) (13,870)
------------ ------------ ------------ ------------- -------------
Net cash provided by (used for) investing
activities................................... (58,415) (31,778) (5,626) 719 (60,498)
------------ ------------ ------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable and long-term
debt............................................. (8,117) (29,209) (26,542) (2,773) (1,872)
Net procceds from issuance of long-term debt....... -- -- -- -- 19,763
Sale of common stock............................... 4,283 13,516 26,500 21,568 16,659
Purchases of treasury stock........................ (52,178) (95,119) (163,928) (107,498) (113,582)
Purchase of warrant................................ -- -- (17,188) (17,188) (4,347)
------------ ------------ ------------ ------------- -------------
Net cash used for financing activities......... (56,012) (110,812) (181,158) (105,891) (83,379)
------------ ------------ ------------ ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................ (426) 1,781 (456) 4,787 (1,700)
------------ ------------ ------------ ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS....... (17,594) 13,629 9,856 34,558 (1,656)
------------ ------------ ------------ ------------- -------------
CASH AND CASH INVESTMENTS AT END OF PERIOD............. $ 61,382 $ 75,011 $ 84,867 $ 109,569 $ 83,211
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
</TABLE>

F-6
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 30,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest......................................... $ 541 $ 915 $ 2,423
Income taxes (including foreign withholding
tax)............................................ 3,884 6,885 12,968
Non-cash investing and financing activities:
Capital lease obligations incurred for
equipment....................................... 4,441 1,466 1,149
Common and treasury stock issued under the
Employee Stock Purchase Plan.................... 6,522 6,066 6,522
Tax benefits from employee stock transactions.... 842 626 8,463
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

1. THE COMPANY

Cadence Design Systems, Inc. (the "Company") develops, markets and supports
electronic design automation software products and services that automate,
enhance and accelerate the design and verification of integrated circuits and
electronic systems. The Company combines its technology with services to help
optimize its customers' product development processes. The Company's customers
and target markets include computer manufacturers, consumer electronics
companies, industrial electronics companies, semiconductor manufacturers, ASIC
foundries and telecommunications companies throughout the world.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries after elimination of intercompany accounts
and transactions. The functional currency of all of the Company's foreign
subsidiaries is the local currency. Gains and losses resulting from the
translation of the subsidiaries' financial statements are reported as a separate
component of stockholders' equity. Effective December 31, 1994, the Company's
fiscal year end is the Saturday closest to December 31.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Certain prior year financial statement balances have been reclassified to
conform to the 1995 presentation.

UNAUDITED INTERIM FINANCIAL DATA

The unaudited interim financial statements as of September 28, 1996 and for
the nine months ended September 30, 1995 and September 28, 1996 have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial information set
forth therein, in accordance with generally accepted accounting principles. The
Company believes the results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future period.

REVENUE RECOGNITION

Product revenue consists principally of revenue earned under software
license agreements and is generally recognized when the software has been
shipped and there are no significant obligations remaining. Revenue from
subscription license agreements which include software and maintenance is
deferred and recognized ratably over the term of the subscription period. Test
equipment revenue is recognized upon shipment of the test equipment.

F-8
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

Service revenue consists primarily of revenues received for performing
product design development and process improvement, and education and
assimilation of software products into the customers' product development
process. Service revenue is generally recognized as the services are performed
or on the percentage of completion method of accounting, depending upon the
nature of the project. Under the percentage of completion method, revenue
recognized is that portion of the total contract price that costs expended to
date bears to the anticipated final total costs based on current estimates of
the costs to complete the project. If the total estimated costs to complete a
project exceed the total contract amount, indicating a loss, the entire
anticipated loss would be recognized currently.

Maintenance revenue consists of fees for providing system updates, user
documentation and technical support for software products. Maintenance revenue
is recognized ratably over the term of the agreement.

In 1993, 1994 and 1995, one customer (a distributor), which also holds a
minority interest in a subsidiary of the Company, accounted for 13%, 10% and 15%
of total revenue, respectively.

Outstanding trade accounts receivable from this related party were
approximately $3.7 million and $5.4 million at December 31, 1994 and December
30, 1995, respectively.

SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE AND INTANGIBLES

The Company capitalizes software development costs in compliance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Capitalization of software development costs begins upon the establishment of
technological feasibility of the product. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
requires considerable judgment by management with respect to certain external
factors, but not limited to, anticipated future gross product revenue, estimated
economic life and changes in software and hardware technology. Amortization of
capitalized software development costs begins when the products are available
for general release to customers and is generally computed on a straight-line
basis over three years or, if less, the remaining estimated economic life of the
product. Purchased software and intangibles are amortized on a straight-line
basis over the remaining estimated economic life of the underlying product (two
to seven years). It is reasonably possible that the estimates of anticipated
future gross revenues, the remaining estimated economic life of the products, or
both could differ from those used to assess the recoverability of these costs
and result in a write-down of the carrying amount or a shortened life of the
costs in the near term.

In the accompanying statements of income, amortization is included in cost
of product for capitalized software development costs and in either cost of
product or cost of service for purchased software costs, as determined by the
nature of the underlying transaction. In total, amortization of capitalized and
purchased software and intangibles amounted to approximately $17.1 million,
$20.2 million and $19.7 million for 1993, 1994 and 1995, respectively. The
Company wrote off $1.5 million of capitalized software in 1993 and $0.8 million
of purchased software in 1995 for projects discontinued during the year.

NET INCOME (LOSS) PER SHARE

Net income per share for each period is calculated by dividing net income by
the weighted average shares of common stock and common stock equivalents
outstanding during the period (calculated

F-9
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

using the modified treasury stock method). Common stock equivalents consist of
dilutive shares issuable upon the exercise of outstanding common stock options
and warrants. Net loss per share is calculated by dividing net loss by the
weighted average number of common shares outstanding. Fully diluted net income
(loss) per share is substantially the same as primary net income (loss) per
share.

CASH, CASH INVESTMENTS AND SHORT-TERM INVESTMENTS

The Company considers all highly liquid debt instruments and certificates of
deposit with an original maturity of ninety days or less to be cash investments.
The Company classifies its investments in debt securities as "held-to-maturity".
Accordingly, these investments, which mature at various dates through August
1996, are valued using the amortized cost method. The fair value of the
investments approximates amortized cost, and as such, the gross unrealized
holding gains and losses at December 31, 1994 and December 30, 1995 are not
material. Short-term investments consisted of the following:

<TABLE>
<CAPTION>
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Commercial paper.......................................... $ 10,795 $ --
Certificates of deposit................................... 6,031 --
Corporate debt securities................................. -- 8,774
European certificates of deposit.......................... 4,004 --
U.S. Government notes..................................... -- 3,000
Other debt securities..................................... 1,035 --
------------ ------------
Total short-term investments.......................... $ 21,865 $ 11,774
------------ ------------
------------ ------------
</TABLE>

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or
market. Cost includes labor, material and manufacturing overhead. Inventories
are composed of test equipment.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost. Depreciation and
amortization are provided over the following estimated useful lives, by the
straight-line method.

<TABLE>
<S> <C>
Buildings................................................. 31 years
Leasehold and building improvements....................... Shorter of
the lease
term
or the
estimated
useful life
Equipment................................................. 3 - 6 years
Furniture and fixtures.................................... 3 - 5 years
</TABLE>

FINANCIAL INSTRUMENTS

The Company has an authorized stock repurchase program. In total, as of
December 30, 1995, the Company had authorized the repurchase of 51.1 million
shares of which approximately 40.2 million shares had been repurchased. The
Company repurchases common stock in part to satisfy estimated

F-10
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

requirements for shares to be issued under the Company's employee stock option
and stock purchase plans as well as in connection with acquisitions.

Since 1994, as part of its authorized repurchase program, the Company sold
15.1 million put warrants through private placement. As of December 30, 1995,
11.2 million of these warrants had expired out of the money. The remaining
outstanding 3.9 million warrants entitle the holder to sell one share of common
stock to the Company on a specified date and at a specified price ranging from
$16.06 to $22.02 per share. Additionally, during this same period, the Company
purchased approximately 11.4 million call options that entitle the Company to
buy on a specified date one share of common stock at a specified price. As of
December 30, 1995, the Company had repurchased 8.4 million common shares
pursuant to the exercise of call options for $72.8 million. The remaining 3.0
million outstanding call options range in price from $16.11 to $22.25 per share.

The Company has the right to settle the put warrants with stock, cash or a
combination of stock and cash equal to the difference between the exercise price
and the fair value at the date of exercise. 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 fair 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, which may
impact the price of the Company's common stock.

At December 30, 1995, the fair value of these call options was approximately
$31.2 million and the fair value of the put warrants was approximately $0.9
million. The put warrants and call options outstanding at December 30, 1995 are
exercisable on various dates through April 1996. Fair value of put warrants and
call options was estimated by the Company's investment bankers.

At December 30, 1995, the Company had both the unconditional right and the
intent to settle these put warrants with stock, and therefore, no amount was
classified out of stockholders' equity in the accompanying balance sheet. The
effect of the exercise of these put warrants and call options is reported in
stockholders' equity.

The Company enters into foreign currency forward exchange contracts
("forward contracts") to hedge the impact of foreign currency fluctuations. Due
to the short-term nature of these forward contracts, the unrealized gains and
losses were not material at December 30, 1995 and will be recorded when
realized. The estimated fair value for foreign exchange contracts is primarily
based on quoted market prices for the same or similar instruments, adjusted
where necessary for maturity differences. The estimated fair value at December
31, 1994 and December 30, 1995 was negligible. The notional amount of the
forward contracts was approximately $30.0 million at December 30, 1995. These
contracts expired on January 31, 1996.

For certain of the Company's financial instruments, including cash and cash
investments, short-term investments and debt, the carrying amounts approximate
fair value due to their short-term nature.

The estimated fair values discussed above may not be representative of
actual values that could have been realized as of year-end or that will be
realized in the future.

F-11
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

CONCENTRATION OF CREDIT RISK

Financial instruments which may potentially subject the Company to
concentrations of credit risk consist principally of cash investments,
short-term investments, accounts receivable, foreign exchange forward contracts,
and call options purchased in conjunction with its stock repurchase program. The
Company's investment policy limits investments to short-term, low-risk
instruments. Concentration of credit risk related to accounts receivable is
limited due to the varied customers comprising the Company's customer base and
their dispersion across geographies. Credit exposure related to the forward
contracts is limited to the unrealized gains and losses on these contracts.
Credit exposure on call options is limited to the unrealized gains and losses on
the option contracts. All financial instruments are executed with financial
institutions with strong credit ratings which minimizes risk of loss due to
nonpayment. The Company has not experienced any losses due to credit impairment
related to its financial instruments.

NEW ACCOUNTING STANDARD

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation" which will be effective for the
Company's 1996 fiscal year. SFAS No. 123 allows companies which have stock-based
compensation arrangements with employees to adopt a new fair-value basis of
accounting for stock options and other equity instruments, or to continue to
apply the existing accounting rules under Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" but with additional
financial statement disclosure. The Company plans to continue to account for
stock-based compensation arrangements under APB Opinion No. 25, and therefore
does not anticipate SFAS No. 123 will have a material impact on its financial
position, results of operations or cash flows.

3. OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income........................................... $ 3,159 $ 3,262 $ 4,854
Interest expense.......................................... (723) (1,045) (2,222)
Gain on sale of IMS stock................................. -- -- 18,873
Gain on sale of investment................................ -- 4,196 --
Loss on disposal of division (see Unusual Items).......... (5,972) -- --
Minority interest income (expense)........................ 134 (485) (1,341)
Loss on foreign exchange.................................. (281) (204) (117)
Other expense, net........................................ (681) (908) (2,810)
------------ ------------ ------------
Total other income (expense).......................... $ (4,364) $ 4,816 $ 17,237
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-12
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

4. BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, SEPTEMBER
1994 1995 28, 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Inventories
Raw materials and supplies.............................. $ 1,268 $ 2,335 $ 3,963
Work-in-process......................................... 2,250 3,825 2,514
Finished goods.......................................... 1,619 2,043 1,353
------------ ------------ ------------
Total inventories..................................... $ 5,137 $ 8,203 $ 7,830
------------ ------------ ------------
------------ ------------ ------------
Property, Plant and Equipment
Land.................................................... $ 38,848 $ 38,848
Buildings............................................... 38,612 38,612
Leasehold and building improvements..................... 22,442 23,349
Equipment............................................... 101,087 108,911
Furniture and fixtures.................................. 19,762 19,834
------------ ------------
Total cost............................................ 220,751 229,554
Less: Accumulated depreciation and amortization......... 98,687 105,451
------------ ------------
Property, plant and equipment, net.................... $ 122,064 $ 124,103
------------ ------------
------------ ------------
Software Development Costs
Cost.................................................... $ 57,921 $ 47,944
Less: Accumulated amortization.......................... 30,089 22,151
------------ ------------
Software development costs, net....................... $ 27,832 $ 25,793
------------ ------------
------------ ------------
Purchased Software and Intangibles
Cost.................................................... $ 28,242 $ 23,086
Less: Accumulated amortization.......................... 17,685 14,818
------------ ------------
Purchased software and intangibles, net............... $ 10,557 $ 8,268
------------ ------------
------------ ------------
Accrued Liabilities
Payroll and payroll related accruals.................... $ 35,452 $ 48,668
Other accrued liabilities............................... 20,907 25,739
------------ ------------
Total accrued liabilities............................. $ 56,359 $ 74,407
------------ ------------
------------ ------------
</TABLE>

5. INTEGRATED MEASUREMENT SYSTEMS, INC. INITIAL PUBLIC OFFERING

In July 1995, the Company and its wholly owned subsidiary, Integrated
Measurement Systems, Inc. ("IMS") sold to the public approximately 3.0 million
shares of common stock at $11 per share in a registered initial public offering.
Of these shares, approximately 0.4 million were sold by IMS and approximately
2.6 million were sold by the Company as the sole selling stockholder of IMS. The
sale generated net proceeds to the Company, after underwriting expenses,
discounts, commissions and other expenses, of approximately $26.6 million and a
pre-tax gain of approximately $18.9 million, which is reflected as other income
in the accompanying statement of income. The Company also recognized a $0.7
million unrealized gain, net of taxes, which was recorded in stockholders'
equity. IMS received net

F-13
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

proceeds of approximately $3.3 million. As a result of the offering and sale of
shares by the Company, the Company's ownership interest in IMS decreased to
approximately 55%. The minority interest liability of $10.6 million related to
IMS is recorded in minority interest liability in the accompanying December 30,
1995 balance sheet.

6. ACQUISITIONS

REDWOOD DESIGN AUTOMATION

In August 1994, the Company acquired the business and certain assets of
Redwood Design Automation, Inc. ("Redwood") for approximately 0.9 million shares
of the Company's common stock valued at $4.6 million. Prior to the acquisition
of Redwood, the Company advanced $1.8 million to Redwood which was not repaid.
Redwood was a development stage company formed to design, develop and market
software for use in electronic systems design. The acquisition was accounted for
as a purchase and accordingly, 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 for the write-off of in-process research and development that had not
reached technological feasibility and, in management's opinion, had no probable
alternative future use. This one-time charge was reflected in the Company's 1994
statement of income 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 sheets and are being amortized over their useful
life of two years.

In connection with the acquisition, net assets acquired were as follows (in
thousands):

<TABLE>
<S> <C>
Trade accounts receivable and other current assets........ $ 562
Intangibles, including in-process research and
development............................................. 6,756
Property, equipment and other long-term assets............ 541
Current liabilities assumed............................... (1,162)
Long-term liabilities assumed............................. (292)
------------
Net assets acquired................................... $ 6,405
------------
------------
</TABLE>

The following unaudited pro forma information shows the results of
operations for the twelve months ended December 31, 1994 and 1993 as if the
Redwood acquisition had occurred at the beginning of each period presented and
at the purchase price established in August 1994. The results are not
necessarily indicative of what would have occurred had the acquisition actually
been made at the beginning of each of the respective periods presented or of
future operations of the combined companies. The pro forma results for 1993
combine the Company's results for the twelve month period ended December 31,
1993 with Redwood's twelve month fiscal period from February 1, 1993 through
January 31, 1994. The pro forma results for 1994 combine the Company's results
for the twelve month period ended December 31, 1994 with the results of Redwood
for the period from January 1, 1994 through the

F-14
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

date of acquisition. The following unaudited pro forma results include the
straight-line amortization of intangibles over a period of two years.

<TABLE>
<CAPTION>
1993 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Revenue................................................... $ 368,935 $ 429,658
Net income (loss)......................................... $ (19,051) $ 33,531
Net income (loss) per share............................... $ (0.19) $ 0.34
Weighted average common and common equivalent shares
outstanding............................................. 97,828 99,471
</TABLE>

REAL ESTATE PARTNERSHIPS

In March 1994, the Company acquired all third-party interests in two real
estate partnerships in which it was a 46.5% and 80% limited partner,
respectively, for approximately $8.7 million in cash and the assumption of a
secured construction loan of approximately $23.5 million. The Company leased
buildings from one of the limited partnerships, and the second limited
partnership owned unencumbered land adjacent to the leased property. The Company
repaid the secured construction loan in May 1994.

In October 1994, the Company acquired all third-party interests in a third
real estate partnership in which it was a 49% limited partner for approximately
$5.9 million in cash. The partnership owns land and buildings which are leased
to the Company and were subject to a secured note in the amount of approximately
$23.7 million which the Company repaid in October 1995.

In connection with the acquisition of the partnerships, net assets acquired
were as follows (in thousands):

<TABLE>
<S> <C>
Property and other assets................................. $ 66,030
Liabilities assumed....................................... (47,423)
Less: Cash acquired....................................... (3,983)
------------
Net cash paid......................................... $ 14,624
------------
------------
</TABLE>

COMDISCO SYSTEMS, INC.

In June 1993, the Company acquired the business and certain assets of
Comdisco Systems, Inc. ("Comdisco"), a subsidiary of Comdisco, Inc., in exchange
for approximately 2.4 million shares of the Company's common stock and a warrant
to purchase approximately 2.9 million shares of the Company's common stock
valued in total at $10.9 million. The acquisition was accounted for as a
purchase. Accordingly, the results of Comdisco from the date of acquisition
forward have been recorded in the Company's consolidated financial statements.
Comparative pro forma information has not been presented as the results of
operations of Comdisco are not material to the Company's consolidated financial
statements. The acquisition costs include amounts paid for the net tangible
assets of Comdisco and purchased software and other intangibles. The cost in
excess of net assets acquired was $6.5 million which is being amortized over
seven years and is included in purchased software and intangibles in the
accompanying balance sheets.

F-15
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

In connection with the acquisition, net assets acquired were as follows (in
thousands):

<TABLE>
<S> <C>
Trade accounts receivable and other current assets........ $ 4,381
Purchased software and other intangibles.................. 6,500
Property, equipment and other long-term assets............ 1,909
Liabilities assumed....................................... (1,887)
------------
Net assets acquired in exchange for capital stock..... $ 10,903
------------
------------
</TABLE>

7. UNUSUAL ITEMS

Unusual items included within operating expenses are described below. No
unusual items were recorded during 1995.

<TABLE>
<CAPTION>
1991 1992 1993 1994
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Write-off of in-process research and development.......... $ -- $ -- $ -- $ 4,653
Provision for settlement of litigation.................... -- -- -- 10,054
Loss (income) from operations of disposed division........ 5,335 (253) 6,200 --
Restructuring costs....................................... 49,901 -- 13,450 --
------------ ------ ------------ ------------
Total unusual items................................... $ 55,236 $ (253) $ 19,650 $ 14,707
------------ ------ ------------ ------------
------------ ------ ------------ ------------
</TABLE>

PROVISION FOR SETTLEMENT OF LITIGATION

In April 1994, the Company entered into agreements to settle two class
action lawsuits for a combined settlement 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 is the net settlement cost of
approximately $9.0 million plus approximately $1.0 million for related legal
costs.

LOSS (INCOME) FROM OPERATIONS OF DISPOSED DIVISION

In December 1993, the Company sold its Automated Systems ("ASI") division.
ASI was sold for a nominal amount of cash and future royalties. During 1994, ASI
filed for Chapter 11 bankruptcy and in 1995, the royalty terms were
renegotiated. However, it is unknown if the Company will ultimately receive any
such royalties.

In light of the nominal proceeds received, the sale of ASI resulted in a
loss on disposal of approximately $6.0 million. The loss was due principally to
the loss on the sale of the net operating assets, as well as amounts accrued for
estimated costs to be incurred in connection with the disposal. As of December
31, 1994 and December 30, 1995, respectively, the Company had recorded
approximately $.9 million and $.9 million in accrued liabilities and
approximately $1.1 million and $1.0 million in other long-term liabilities for
liabilities associated with the disposed division.

The Company had previously reported the operating results of ASI as a
discontinued operation in the statement of income. In connection with the filing
of a registration statement on Form S-3 to register common stock issued to the
stockholders of Comdisco and Redwood, the Securities and Exchange Commission
reviewed the Company's 1993 financial statements and requested that the results
of

F-16
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

operations and the loss on disposal of ASI be reclassified as components of
continuing operations since ASI was not deemed a major line of business. As a
result, the Company has classified the respective income and loss from
operations of the disposed division as unusual items within operations in the
accompanying statements of income. The loss of $6.0 million on disposal of the
division is classified in other income (expense) in the accompanying 1993
statement of income. Revenue from this division was approximately $11.2 million
for the year ending December 31, 1993.

RESTRUCTURING COSTS

In March 1993, the Company recorded restructuring costs of approximately
$13.5 million associated with a planned restructure of certain areas of sales,
operations and administration due to business conditions. The restructuring
charge included approximately $4.5 million for employee terminations. The
Company terminated approximately 270 employees at an actual total cost of
approximately $4.6 million. In addition, the restructuring charge included
approximately $3.5 million for excess facilities and approximately $2.1 million
for the write-off of purchased software and intangibles arising from required
adjustments to the Company's cost structure necessitated by lower revenue
levels. Substantially all of the excess facilities accrual was utilized by
December 31, 1993. The restructuring charge also included an additional
provision for doubtful accounts of approximately $3.0 million, which was
utilized by December 31, 1993 and write-off of certain software development
costs of $0.4 million resulting from changes in the systems product strategy.

8. NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt consisted of the following:

<TABLE>
<CAPTION>
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations................................. $ 4,840 $ 3,116
Secured mortgage (Paid in full in October 1995)........... 23,670 --
------------ ------------
Total................................................. 28,510 3,116
Less: Current portion..................................... 26,412 1,497
------------ ------------
Long-term debt............................................ $ 2,098 $ 1,619
------------ ------------
------------ ------------
</TABLE>

9. LEASES

Equipment and facilities are leased under various capital and operating
leases expiring on different dates through the year 2008. Certain of these
leases contain renewal options. Rental expense was approximately $20.0 million,
$19.0 million and $10.7 million for 1993, 1994 and 1995, respectively.

In connection with a previous merger, the Company has closed certain
facilities and, accordingly, has accrued for estimated future minimum rent and
maintenance costs related to these facilities. Total costs accrued at December
30, 1995 were $7.9 million of which $2.4 million was included in accrued
liabilities and approximately $5.5 million was included in other long-term
liabilities in the accompanying balance sheet.

F-17
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

At December 30, 1995, future minimum lease payments under capital and
operating leases and the present value of the capital lease payments were as
follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
For the years:
1996.................................................... $ 1,802 $ 13,235
1997.................................................... 1,040 12,758
1998.................................................... 476 7,634
1999.................................................... 298 3,982
2000.................................................... 192 2,980
Thereafter.............................................. -- 4,026
------------ ------------
Total lease payments.................................. 3,808 $ 44,615
------------
------------
Less: Amount representing interest (Average rate of 8.7%) 692
------------
Present value of lease payments........................... 3,116
Less: Current portion..................................... 1,497
------------
Long-term portion......................................... $ 1,619
------------
------------
</TABLE>

The cost of equipment under capital leases included in the balance sheet as
property, plant and equipment at December 31, 1994 and December 30, 1995 was
approximately $17.9 million and $12.6 million, respectively. Accumulated
amortization of the leased equipment at December 31, 1994 and December 30, 1995
was approximately $13.9 million and $10.1 million, respectively.

10. LINE OF CREDIT

The Company's majority-owned subsidiary, IMS, has a revolving line of credit
with a bank allowing for maximum borrowings of $10.0 million with interest at
the bank's prime rate, interbank offering rates plus 1.25%, or banker's
acceptance plus 1.25%, at the borrower's option. There were no outstanding
borrowings at December 30, 1995 under this agreement. At December 30, 1995, IMS
was in full compliance with all covenants and conditions in the agreement. The
line of credit expires April 30, 1997.

11. COMMITMENTS AND CONTINGENCIES

The Company is involved in various disputes and litigation matters which
have arisen in the ordinary course of business. These include disputes and
lawsuits related to intellectual property, contract law and employee relations
matters.

F-18
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

The Company filed a complaint in the United States District Court for the
Northern District of California on December 6, 1995 against Avant! Corporation
(formerly known as ArcSys, Inc., "Avant!") and certain of its employees for
misappropriation of trade secrets, copyright infringement, conspiracy and other
illegalities.

On January 16, 1996, Avant! filed various counterclaims against the Company
and the Company's President and CEO, alleging, INTER ALIA, that the Company and
its President and CEO had cooperated with the Santa Clara County District
Attorney and initiated and pursued its complaint against Avant! for anti
competitive reasons, engaged in wrongful activity in an attempt to manipulate
Avant!'s stock price and utilized certain pricing policies and other acts to
unfairly compete against Avant! in the marketplace. The counterclaim also
alleges that certain unspecified Company insiders engaged in illegal insider
trading with respect to Avant!'s stock. The Company and its President and CEO
believe that each has meritorious defenses to Avant!'s claims, and each intends
to defend such action vigorously.

Management believes that the ultimate resolution of the disputes and
litigation matters discussed above will not have a material adverse impact on
the Company's financial position or results of operations.

12. STOCKHOLDERS' EQUITY

STOCK SPLIT

In October 1995, the Company's Board of Directors effected a three-for-two
stock split payable in the form of a dividend of one additional share of the
Company's common stock for every two shares owned by stockholders. Par value
remained at $0.01 per share. The stock split resulted in the issuance of
approximately 37.8 million additional shares of common stock from authorized but
unissued shares. Accordingly, all share and per share data have been adjusted to
retroactively reflect the stock split.

EMPLOYEE STOCK OPTION PLANS

The Company's Employee Stock Option Plan (the "Plan") provides for the
issuance of either incentive or nonqualified options at an exercise price not
less than fair market value of the stock on the date of grant. Options granted
under the Plan become exercisable over periods of one to four years and expire
five to ten years from the date of grant. During 1993 holders of the Company's
options were given the opportunity to exchange previously granted stock options
for new common stock options exercisable at $3.91 per share, the fair market
value of the common stock on the date of exchange. Under the terms of the new
options, one-third of the shares vest one year from the date of grant and the
remaining shares vest in 24 equal monthly installments. Options to purchase
10,926,058 shares were exchanged.

During 1993, the Company adopted a Non-Statutory Stock Option Plan (the
"Non-Statutory Plan"). Options granted under the Non-Statutory Plan become
exercisable over a four year period, with one-fourth of the shares vesting one
year from the vesting commencement date and the remaining shares vesting in 36
equal monthly installments. The options granted under the Non-Statutory Plan
generally expire ten years from the date of grant.

In 1995, the Company's Board of Directors' authorized an additional 6.75
million shares to be issued under the 1993 Non-Statutory Plan. Since directors
and officers of the Company are not eligible to receive options under the
Non-Statutory Plan, stockholder approval is not required nor will it be sought.

F-19
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

The Company has assumed certain options granted to former employees of
acquired companies ("Acquired Options"). The Acquired Options were assumed by
the Company outside of the Plan, but all are administered as if assumed under
the Plan. All of the Acquired Options have been adjusted to effectuate the
conversion under the terms of the Agreements and Plans of Reorganization between
the Company and the companies acquired. The Acquired Options generally become
exercisable over a four year period and generally expire either five or ten
years from the date of grant. No additional options will be granted under any of
the acquired companies' plans.

Combined activity with respect to all employee stock option plans was as
follows:

<TABLE>
<CAPTION>
1993 1994 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Options outstanding at beginning of the year............. 17,628,640 24,444,724 22,254,786
Granted.................................................. 21,276,363 4,514,715 6,247,455
Exercised ($0.19 per share to $11.69 per share).......... (1,237,616) (3,430,002) (6,575,700)
Canceled................................................. (13,222,663) (3,274,651) (1,986,201)
----------------- ----------------- -----------------
Options outstanding at end of the year................... 24,444,724 22,254,786 19,940,340
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Range of exercise price of outstanding options at end of
the year............................................... $ 0.19 - $12.78 $ 0.19 - $12.19 $ 0.19 - $25.96
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Options exercisable at end of the year................... 5,504,404 10,021,036 8,792,750
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Options available for future grant....................... 5,747,938 4,541,828 6,997,861
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>

OPTION AGREEMENTS

The Company occasionally has issued options outside of the Plan. As of
December 30, 1995, options to purchase 90,705 shares were outstanding under
these agreements, of which 77,461 were exercisable at prices ranging from $4.14
to $5.22 per share.

DIRECTORS STOCK PLANS

The Company's Board of Directors has adopted the 1988, 1993 and 1995
Directors Stock Option Plans (the "Directors Plans") in the indicated years. The
1995 Directors Plan is subject to stockholder approval, which will be sought at
the 1996 stockholders' meeting. The Company has reserved 1,676,250 shares of
common stock for issuance under these plans. The Directors Plans provide for the
issuance of nonqualified stock options to nonemployee directors of the Company
with an exercise price equal to the fair market value of the common stock on the
date of grant. Options granted under the Directors Plans have a term of up to
ten years. Certain of the option grants vest one year from the date of grant and
certain other option grants vest one-third one year from the date of grant and
two-thirds ratably over the subsequent two years. As of December 30, 1995,
options to purchase 543,750 shares of common stock at $4.14 to $24.29 per share
were outstanding under the Directors Plans, of which options for 249,828 shares
were exercisable at prices ranging from $4.14 to $9.61 per share. Options to
purchase 568,335 shares are available for future grant under the Directors
Plans. Options to purchase 350,415 shares of common stock have been exercised
and 213,750 have expired as of December 30, 1995 under the Directors Plans. No
additional options will be granted under the 1988 Directors Plan.

F-20
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

EMPLOYEE STOCK PURCHASE PLANS

The Company has reserved 6,750,000 shares of common stock for issuance under
the 1990 Employee Stock Purchase Plan (the "ESPP"). Under the ESPP the Company's
employees may purchase shares of common stock at a price per share that is 85%
of the lesser of the fair market value as of the beginning or the end of the
semiannual option periods. For 1993, 1994 and 1995, shares issued under the plan
were 1,097,868, 1,444,473 and 994,728, respectively.

WARRANT

In connection with the purchase of the business and certain assets of
Comdisco, the Company issued a warrant to purchase 2,925,000 shares of the
Company's common stock at $6.45 per share. During 1995, the Company repurchased
portions of the warrant applicable to 2,655,000 shares for approximately $17.2
million. The warrant for the remaining 270,000 shares expires in June 2003 and
can be exercised at any time in increments of not less than 75,000 shares. The
warrant was valued at the time of issuance at approximately $1.8 million and was
included as part of the total purchase price of Comdisco.

RESERVED FOR FUTURE ISSUANCE

As of December 30, 1995, the Company has reserved the following shares of
authorized but unissued common stock for future issuance:

<TABLE>
<S> <C>
Employee stock option plans.................................................... 26,938,201
Other option agreements........................................................ 90,705
Directors stock option plans................................................... 1,112,085
Employee stock purchase plan................................................... 1,950,343
Put warrants................................................................... 3,912,189
Comdisco warrant............................................................... 270,000
----------
Total.................................................................. 34,273,523
----------
----------
</TABLE>

STOCKHOLDER RIGHTS PLAN

On February 9, 1996, the Company adopted a new Stockholder Rights Plan (the
"Preferred Rights Plan") to protect stockholders' rights in the event of a
proposed or actual acquisition of 15% or more of the outstanding shares of the
Company's common stock. As part of this plan, each share of the Company's common
stock carries a right to purchase one one-thousandth (1/1000) of a share of
Series A Junior Participating Preferred Stock (the "Right"), par value $0.01 per
share of the Company at a price of $240 per one one-thousandth of a share
subject to adjustment. The Rights are subject to redemption at the option of the
Board of Directors at a price of $0.01 per Right until the occurrence of certain
events. The Rights expire on February 20, 2006.

Concurrent with the adoption of the Preferred Rights Plan, the Board of
Directors amended the Company's 1989 Stockholder Rights Plan to provide for the
expiration of the rights thereunder effective February 9, 1996.

F-21
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

13. INCOME TAXES

The provision for income taxes consisted of the following components:

<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal...................................................................... $ 730 $ 4,624 $ 11,954
State........................................................................ 180 881 4,095
Foreign...................................................................... 8,939 8,815 16,085
--------- --------- ---------
Total current.................................................................. 9,849 14,320 32,134
--------- --------- ---------
Deferred (prepaid)
Federal...................................................................... (1,749) (1,103) 4,989
State........................................................................ (1,220) (384) 201
Foreign...................................................................... (6,880) (618) 503
--------- --------- ---------
Total deferred (prepaid)....................................................... (9,849) (2,105) 5,693
--------- --------- ---------
Total provision for income taxes......................................... $ -- $ 12,215 $ 37,827
--------- --------- ---------
--------- --------- ---------
</TABLE>

Income (loss) before income taxes for 1993, 1994 and 1995 included income of
approximately $9.2 million, $19.2 million and $34.2 million, respectively, from
the Company's foreign subsidiaries.

The provision for income taxes is net of the benefit of operating loss
carryforwards totaling $2.8 million, $20.8 million and $9.7 million, for 1993,
1994 and 1995, respectively.

The provision for income taxes differs from the amount estimated by applying
the statutory federal income tax rate to income (loss) before income taxes as
follows:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision (benefit) computed at federal statutory rate................... $ (4,473) $ 17,074 $ 47,284
State income tax, net of federal tax effect.............................. 117 572 2,662
Change in valuation allowance............................................ 7,172 (10,457) (19,999)
Research and development tax credit...................................... (1,270) (379) (494)
Foreign income tax at a higher rate...................................... -- -- 2,129
Foreign tax credit....................................................... (6,958) (446) (769)
Foreign withholding taxes................................................ 6,958 3,446 3,414
Amortization of goodwill................................................. 372 2,398 390
Other.................................................................... (1,918) 7 3,210
---------- ------------ ------------
Provision for income taxes............................................... $ -- $ 12,215 $ 37,827
---------- ------------ ------------
---------- ------------ ------------
Effective tax rate....................................................... -- 25% 28%
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

F-22
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

The components of deferred tax assets and liabilities consisted of the
following:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Merger reserves........................................................................ $ 3,829 $ 3,394
Net operating losses................................................................... 19,146 6,202
Tax credits............................................................................ 33,910 32,845
Other.................................................................................. 14,650 20,125
---------- ----------
Total deferred tax assets................................................................ 71,535 62,566
Valuation allowance-provision for income taxes......................................... (33,548) (13,549)
Valuation allowance-equity and intangibles............................................. (19,713) (34,223)
---------- ----------
Net assets............................................................................... 18,274 14,794
---------- ----------
Deferred tax liabilities:
Capitalized software................................................................... (11,233) (10,091)
Other.................................................................................. (3,970) (7,273)
---------- ----------
Total deferred tax liabilities........................................................... (15,203) (17,364)
---------- ----------
Total net deferred tax (liabilities) assets.............................................. $ 3,071 $ (2,570)
---------- ----------
---------- ----------
</TABLE>

The Company has recorded deferred tax assets of $62.6 million offset by a
valuation allowance of $47.8 million. Certain of these deferred tax assets will
affect equity and intangibles and will not be available to offset future
provisions for income taxes and are identified in the above table as "valuation
allowance-equity and intangibles". Realization of the net deferred tax assets of
$14.8 million is dependent on generating sufficient taxable income prior to the
expiration of the loss and tax credit carryforwards. Although realization is not
assured, management believes it is more likely than not that the net deferred
tax assets of $14.8 million will be realized. The amount of the net deferred tax
assets considered realizable, however, could be reduced or increased in the near
term if actual facts, including the estimate of future taxable income, differ
from those estimated.

The net valuation allowance decreased by $5.5 million in 1995. The increase
in valuation allowance-equity and intangibles of $14.5 million is due to an
increase in the tax benefits related to stock option exercises which are
required to be credited to equity in future periods. This increase in the
valuation allowance-equity and intangibles was offset by a decrease in the
valuation allowance-provision for income taxes of $20.0 million due to the
realization of net operating losses and tax credits generated in prior years.

The remaining net operating loss carryforwards will expire at various dates
from 1997 through 2008 and tax credit carryforwards will expire at various dates
from 1996 through 2010.

The Company's federal income tax returns for 1989 through 1991 have been
examined by the Internal Revenue Service ("IRS"). Tax credits of $15.6 million
have been disallowed by the IRS. The Company is contesting these adjustments and
is pursuing administrative remedies. Management believes that adequate provision
has been made for any deficiency that may result from this examination

F-23
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

and that the resolution of this matter will not have a material adverse impact
on the Company's financial position or results of operations.

14. OPERATIONS BY GEOGRAPHIC AREA

The Company operates primarily in one industry segment; the development and
marketing of computer-aided design software and related services. The Company's
products have been marketed internationally through distributors and through the
Company's subsidiaries in Europe and Asia/Pacific. Intercompany revenue results
from licenses that are based on a percentage of the subsidiaries' revenue from
unaffiliated customers. The following table presents a summary of operations by
geographic area.

<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue
Domestic operations(1)................................................ $ 298,366 $ 344,696 $ 440,618
European operations................................................... 73,181 79,404 97,596
Asia/Pacific operations............................................... 69,320 86,022 107,556
Eliminations.......................................................... (72,244) (81,050) (97,352)
------------ ------------ ------------
Consolidated............................................................ $ 368,623 $ 429,072 $ 548,418
------------ ------------ ------------
------------ ------------ ------------
Intercompany revenue (eliminated in consolidation)
Domestic operations................................................... $ 54,224 $ 58,837 $ 58,719
European operations................................................... 9,494 9,495 15,893
Asia/Pacific operations............................................... 8,526 12,718 22,740
------------ ------------ ------------
Consolidated............................................................ $ 72,244 $ 81,050 $ 97,352
------------ ------------ ------------
------------ ------------ ------------
Income (loss) from operations
Domestic operations................................................... $ (15,124) $ 25,763 $ 85,308
European operations................................................... 4,107 7,412 9,705
Asia/Pacific operations............................................... 2,602 10,872 22,847
------------ ------------ ------------
Consolidated............................................................ $ (8,415) $ 44,047 $ 117,860
------------ ------------ ------------
------------ ------------ ------------
Identifiable assets
Domestic operations................................................... $ 339,897 $ 368,226 $ 396,676
European operations................................................... 50,186 56,343 50,303
Asia/Pacific operations............................................... 52,401 42,095 63,680
Eliminations.......................................................... (103,183) (105,616) (136,624)
------------ ------------ ------------
Consolidated............................................................ $ 339,301 $ 361,048 $ 374,035
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

- ------------------------

(1) Domestic operations revenue includes export revenue of approximately $10.1
million, $12.9 million and $14.7 million to Europe for 1993, 1994 and 1995,
respectively, and approximately $49.0 million, $65.4 million and $90.6
million to Asia/Pacific for 1993, 1994 and 1995, respectively.

F-24
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

15. SUBSEQUENT EVENTS

STOCK SPLIT

In May 1996, the Company's Board of Directors effected a three-for-two stock
split payable in the form of a dividend of one additional share of the Company's
common stock for every two shares owned by stockholders. Par value remained at
$0.01 per share. Accordingly, all share and per share data have been adjusted to
retroactively reflect the stock split.

NOTE PAYABLE

In May 1996, the Company's wholly owned real estate partnership, River Oaks
Place Associates L.P. (the Partnership), entered into a $20 million long-term
financing arrangement (the "ROPA Loan") with a bank. The financing agreement
expires on December 31, 2005, and requires quarterly principal payments
beginning on September 30, 1996 in amounts ranging from $0.4 million to $0.7
million. The Partnership has the option to pay interest at the London Interbank
Offered Rate (LIBOR) plus 1.5% or the higher of the bank's prime rate plus 0.5%
or the Federal Funds rate plus 1.5%. The ROPA Loan is secured by the real and
personal properties of the Partnership. In connection with the ROPA Loan
agreement, the Company extended its lease agreements with the Partnership until
December 31, 2005 and minimum lease payments under the agreements have been
assigned as security under the ROPA Loan agreement.

LINE OF CREDIT

In April 1996, the Company entered into a senior secured revolving credit
facility (the "Facility") which allows the Company to borrow up to $120.0
million through April 1999. The security for the Facility includes the majority
of the Company's property, plant and equipment, cash, investments, intangibles,
and certain other assets. The Company has the option to pay interest based upon
LIBOR plus 1.5%, or the higher of the federal funds effective rate plus 0.5% or
prime. The Company must comply with certain financial covenants and conditions
as defined in the Facility with which the Company was in compliance at September
28, 1996. As of September 28, 1996, the Company had no outstanding borrowings
under the Facility.

LITIGATION

On April 12, 1996, Avant! filed a First Amended Counterclaim against the
Company. The amended counterclaim alleges, INTER ALIA, that the Company and its
President and CEO had cooperated with the Santa Clara County District Attorney
and initiated and pursued its complaint against Avant! for anticompetitive
reasons, engaged in wrongful activity in an attempt to manipulate Avant!'s stock
price and utilized certain pricing policies and other acts to unfairly compete
against Avant! in the marketplace. The amended counterclaim also alleges that
certain Company insiders engaged in illegal insider trading with respect to
Avant!'s stock. The Company and its President and CEO continue to believe that
each has meritorious defenses to Avant!'s amended counterclaims, and each
intends to defend such action vigorously. By an order dated July 13, 1996, the
court bifurcated Avant!'s counterclaim from the Company's complaint.

On April 19, 1996, the Company filed a motion seeking a preliminary
injuction to prevent Avant! from continuing to market ArcCell and ArcCell XO,
two software lines which the Company alleges were

F-25
<PAGE>
CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)

misappropriated. A hearing on the motion was held on September 10, 1996. The
court has not yet issued a ruling.

ACQUISITIONS

In October 1996, the Company announced a definitive agreement to merge with
High Level Design Systems, Inc. ("HLDS") which will entail a tax-free,
stock-for-stock exchange at a fixed ratio of 0.22 shares of Cadence common stock
for each share of HLDS stock. As consideration for the merger, the Company
expects to issue approximately 2.6 million shares of its common stock and will
assume all of HLDS's outstanding stock options. The total purchase price,
including acquisition costs, is approximately $99.5 million. The Company intends
to account for the merger as a purchase. The Company estimates, based on an
outside appraisal, that approximately $91.7 million of the purchase price will
be allocated to in process research and development. Because there can be no
assurance that the Company will be able to successfully complete the development
and integration of the HLDS products or that the acquired technology has any
alternative future use, the acquired in process product development will be
charged to expense by the Company in the period in which the acquisition is
consummated. The merger has been approved by the boards of directors of both
companies and is subject to regulatory and HLDS shareholder approval.

Also in October 1996, the Company announced a definitive agreement to merge
with Cooper & Chyan Technology, Inc. ("CCT"), which will entail a tax-free,
stock-for-stock exchange at a fixed ratio of 0.85 shares of Cadence common stock
for each share of CCT stock. Based on CCT's 12.9 million shares outstanding on
September 30, 1996, Cadence will issue approximately 11.0 million shares in the
merger. In addition, the Company will assume all outstanding stock options of
CCT based upon the exchange ratio of 0.85. The merger has been approved by the
boards of directors of both companies and is subject to regulatory and CCT
shareholder approval. The merger is expected to be accounted for as a pooling of
interests.

In connection with and prior to the consummation of the CCT merger, the
Company will rescind its stock repurchase program, with the exception of
continued systematic stock repurchases under its seasoned stock repurchase
program for the Company's Employee Stock Purchase Plan (the "ESPP"). Such
repurchases are intended to cover the Company's expected reissuances under the
ESPP for the next 12 months. In addition, as a condition to closing the CCT
merger, the Company will effect a secondary offering of common stock in the open
market to cure tainted shares from stock repurchases made for purposes other
than the ESPP.

F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

-------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
Recent Developments....................................................... 15
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Price Range of Common Stock............................................... 18
Capitalization............................................................ 19
Selected Historical and Pro Forma Financial Information................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 22
Business.................................................................. 26
Management................................................................ 31
Underwriting.............................................................. 34
Legal Matters............................................................. 35
Experts................................................................... 35
</TABLE>

5,000,000 SHARES

CADENCE DESIGN
SYSTEMS, INC.

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

-------------------

[LOGO]
-------------------

GOLDMAN, SACHS & CO.

MORGANSTANLEY & CO.
INCORPORATED

REPRESENTATIVES OF THE UNDERWRITERS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------