<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CADENCE DESIGN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0148231
State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
</TABLE>
CADENCE DESIGN SYSTEMS, INC.
2655 SEELY ROAD
BUILDING 5
SAN JOSE, CA 95134
TELEPHONE: (408) 943-1234
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
R.L. SMITH MCKEITHEN, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
2655 SEELY ROAD
BUILDING 5
SAN JOSE, CA 95134
TELEPHONE: (408) 943-1234
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
Alan C. Mendelson, Esq. Douglas H. Collom, Esq.
Richard E. Climan, Esq. Martin W. Korman, Esq.
Cooley Godward LLP Rosemary G. Reilly, Esq.
Five Palo Alto Square Wilson Sonsini Goodrich & Rosati, P.C.
3000 El Camino Real 650 Page Mill Road
Palo Alto, CA 94306-2155 Palo Alto, CA 94304-1050
(415) 843-5000 (415) 493-9300
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following the effectiveness of this Registration
Statement and the effective time of the proposed merger of Harbor Acquisition
Sub, Inc. with and into High Level Design Systems, Inc., as described in the
Agreement and Plan of Merger and Reorganization, dated as of October 3, 1996,
attached as APPENDIX A to the Proxy Statement/Prospectus forming a part of this
Registration Statement.
------------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.............. 3,161,436 $30.45 $96,280,098 $29,176
</TABLE>
(1) The number of shares of common stock, par value $0.01 per share (the
"Cadence Common Stock"), of Cadence Design Systems, Inc. ("Cadence") to be
registered has been determined based upon (a) up to 13,770,164 shares of
common stock, par value $0.001 per share (the "HLDS Common Stock")
outstanding or subject to options as of November 4, 1996 , and 600,000
shares of Series A Preferred Stock, par value $0.001 per share (the "HLDS
Preferred Stock" and together with the HLDS Common Stock, the "HLDS Capital
Stock"), of High Level Design Systems, Inc. ("HLDS"), which HLDS Preferred
Stock is convertible into 600,000 shares of HLDS Common Stock and (b) an
exchange ratio of 0.22 of a share of Cadence Common Stock per share of HLDS
Capital Stock (the "Exchange Ratio") as provided for in the Agreement and
Plan of Merger and Reorganization, dated as of October 3, 1996, by and among
Cadence, Harbor Acquisition Sub, Inc. and HLDS (the "Reorganization
Agreement").
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(f)(1) of the Securities Act of 1933, as amended (the "Act").
Pursuant to Rule 457(f)(1), the maximum aggregate offering price is the
product of (a) $6.70, representing the average of the high and low sales
price of HLDS Common Stock as reported on the Vancouver Stock Exchange on
November 4, 1996 (in U.S. dollars), and (b) up to 14,370,164 shares of HLDS
Capital Stock to be acquired by Cadence in connection with the acquisition
of HLDS pursuant to the Reorganization Agreement.
(3) Calculated in accordance with Section 6(b) of the Securities Act of 1933, as
amended, and Rule 457(f) promulgated thereunder.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC.
3945 FREEDOM CIRCLE
FOURTH FLOOR
SANTA CLARA, CALIFORNIA 95054
Dear Stockholder:
You are cordially invited to attend the Special Meeting of stockholders (the
"HLDS Special Meeting") of High Level Design Systems, Inc. ("HLDS") to be held
at the principal executive offices of HLDS located at 3945 Freedom Circle,
Fourth Floor, Santa Clara, California 95054 , on
, , 199 , at .m., local time.
At this meeting you will be asked to consider and vote upon the approval of
a proposed acquisition transaction (the "Merger") involving Cadence Design
Systems, Inc. ("Cadence") and HLDS. Upon consummation of the Merger, HLDS will
become a wholly owned subsidiary of Cadence and each outstanding share of common
stock of HLDS and each outstanding share of Series A Preferred Stock of HLDS
will be converted into the right to receive twenty-two hundredths (0.22) of a
share of Cadence Common Stock.
The proposed Merger is contingent upon, among other things, the approval of
the stockholders of HLDS. The proposed Merger would be consummated shortly after
such approval is obtained and the other conditions to the Merger are satisfied
or waived. It is currently expected that the effective date of the Merger will
be , 199 .
The HLDS Board of Directors believes that the Merger is in the best
interests of HLDS and its stockholders. By a vote taken at a meeting held on
October 3, 1996, the Board of Directors has unanimously approved the Merger and
recommends that you vote FOR the Merger at the HLDS Special Meeting.
The accompanying Proxy Statement/Prospectus provides a detailed description
of the HLDS Special Meeting, the terms of the Merger, certain business and
financial information of HLDS and Cadence and other important information which
you are encouraged to read carefully.
Whether or not you plan to attend the HLDS Special Meeting, please complete,
sign and date the accompanying proxy card and return it in the enclosed
envelope, which requires no postage. If you attend the HLDS Special Meeting, you
may, of course, vote your shares in person, even though you have previously
returned your proxy card. Your prompt cooperation is greatly appreciated.
Very truly yours,
J. George Janac
President and Chief Executive Officer
, 1996
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC.
3945 FREEDOM CIRCLE, FOURTH FLOOR
SANTA CLARA, CALIFORNIA 95054
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
TO THE STOCKHOLDERS OF HIGH LEVEL DESIGN SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "HLDS
Special Meeting") of High Level Design Systems, Inc., a Delaware corporation
("HLDS"), will be held at the principal executive offices of HLDS located at
3945 Freedom Circle, Fourth Floor, Santa Clara, California 95054, on
, 199 , at , local time, for the purpose of considering and
voting upon the following matters:
1. A proposal to approve and adopt the Agreement and Plan of Merger and
Reorganization, dated as of October 3, 1996 (the "Reorganization Agreement"), by
and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence"),
Harbor Acquisition Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of Cadence ("Cadence Merger Sub"), and HLDS, a copy of which is set
forth as Appendix A to the attached Proxy Statement/Prospectus. The
Reorganization Agreement provides, among other things, for the merger of Cadence
Merger Sub with and into HLDS (the "Merger"). Upon completion of the Merger,
HLDS will be a wholly owned subsidiary of Cadence.
2. Such other business as may properly come before the HLDS Special
Meeting, which may include a proposal to adjourn or postpone the HLDS Special
Meeting for any reason (whether for the solicitation of additional proxies or
otherwise) if HLDS determines that such an adjournment or postponement would be
desirable. HLDS has no reason to believe that an adjournment or postponement of
the HLDS Special Meeting will be required.
Only stockholders of record at the close of business on ,
199 are entitled to notice of and to vote at the HLDS Special Meeting or any
adjournment or postponement thereof. Your attention is directed to the
accompanying Proxy Statement/Prospectus for more detailed information concerning
the Merger and the Reorganization Agreement.
All stockholders are cordially invited to attend the HLDS Special Meeting in
person. However, to ensure your representation at the HLDS Special Meeting, you
are urged to sign and return the enclosed proxy card as promptly as possible in
the postage-prepaid, self-addressed envelope enclosed for that purpose. Any
stockholder attending the HLDS Special Meeting may vote in person even if the
stockholder has returned a proxy card.
THE BOARD OF DIRECTORS OF HLDS HAS UNANIMOUSLY APPROVED THE REORGANIZATION
AGREEMENT AND THE MERGER, AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE
REORGANIZATION AGREEMENT AND APPROVAL OF THE MERGER BY THE STOCKHOLDERS OF HLDS.
BY ORDER OF THE BOARD OF DIRECTORS
DENNIS DECOSTE
CHAIRMAN OF THE BOARD
Santa Clara, California
, 1996
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY
WHETHER OR NOT YOU PLAN TO ATTEND THE HLDS SPECIAL MEETING.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC.
---------------
PROXY STATEMENT
------------------
CADENCE DESIGN SYSTEMS, INC.
---------------
PROSPECTUS
------------------
This Proxy Statement/Prospectus is being furnished to holders of Common
Stock, $0.001 par value per share ("HLDS Common Stock"), of High Level Design
Systems, Inc., a Delaware corporation ("HLDS"), and holders of Series A
Preferred Stock, $0.001 par value per share, of HLDS ("HLDS Preferred Stock"
and, together with HLDS Common Stock, "HLDS Capital Stock") in connection with
the solicitation of proxies by the HLDS Board of Directors for use at HLDS'
Special Meeting of Stockholders or any adjournment or postponement thereof (the
"HLDS Special Meeting"). The HLDS Special Meeting is being called to consider
and vote upon a proposal to approve and adopt the Agreement and Plan of Merger
and Reorganization, dated as of October 3, 1996, among Cadence Design Systems,
Inc. ("Cadence"), Harbor Acquisition Sub, Inc., a wholly owned subsidiary of
Cadence ("Cadence Merger Sub"), and HLDS (the "Reorganization Agreement").
The Reorganization Agreement provides for, among other things, an
acquisition transaction involving Cadence and HLDS by means of the merger of
Cadence Merger Sub with and into HLDS (the "Merger"). As a result, the
stockholders of HLDS will become stockholders of Cadence. Upon consummation of
the Merger, each outstanding share of HLDS Capital Stock will be converted into
the right to receive twenty-two hundredths (0.22) of a share of common stock,
$0.01 par value per share, of Cadence ("Cadence Common Stock").
The proposed Merger is contingent upon, among other things, the approval of
the holders of HLDS Capital Stock. The proposed Merger will be consummated
shortly after such approval is obtained and the other conditions to the Merger
are satisfied or waived. It is currently anticipated that the date upon which
the Merger becomes effective will be on or about , 199 .
This Proxy Statement/Prospectus also constitutes the prospectus of Cadence
with respect to shares of Cadence Common Stock to be issued in the Merger in
exchange for outstanding shares of HLDS Capital Stock.
All information contained or incorporated by reference herein concerning
Cadence has been furnished by Cadence, and all information contained herein
concerning HLDS has been furnished by HLDS.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of HLDS on or about , 1996.
------------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS OF HLDS ARE STRONGLY URGED TO READ AND
CONSIDER CAREFULLY THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY
THE MATTERS REFERRED TO UNDER "RISK FACTORS" BEGINNING AT PAGE 15.
---------------------
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER 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 PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
Cadence is subject to the informational 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"). The reports, proxy
statements and other information filed by Cadence with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the Commission's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material may also be obtained from the Commission at
prescribed rates by writing to the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549. The Cadence Common Stock is
listed on the New York Stock Exchange and reports and other information
concerning Cadence may be inspected at the offices of the New York Stock
Exchange ("NYSE") at 20 Broad Street, New York, New York 10005.
Cadence has filed with the Commission a Registration Statement on Form S-4
(herein, together with all amendments and exhibits thereto, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"). This Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission and to which
portions reference is hereby made. For further information with respect to
Cadence, HLDS, the Merger, the securities offered hereby and related matters,
reference is 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 previously filed with the Commission (Commission
File Number 1-10606) by Cadence pursuant to the Exchange Act are incorporated by
reference into this Proxy Statement/ Prospectus:
1. Cadence's Annual Report on Form 10-K for the fiscal year ended December
30, 1995;
2. Cadence's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 30, 1996, June 29, 1996 and September 28, 1996;
3. Cadence's Current Report on Form 8-K filed with the Commission on
February 9, 1996;
4. Cadence's Current Report on Form 8-K filed with the Commission on
November 7, 1996;
5. The description of Cadence's Preferred Share Purchase Rights contained
in the Registration Statement on Form 8-A filed with the Commission on
February 16, 1996; and
6. The description of Cadence Common Stock contained in the Registration
Statement on Form 8-A filed with the Commission on August 29, 1990.
The information relating to Cadence contained in this Proxy
Statement/Prospectus does not purport to be comprehensive and should be read
together with the information in the documents incorporated by reference herein.
All documents filed by Cadence pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Proxy Statement/Prospectus and prior
to the date of the HLDS Special Meeting shall be deemed to be incorporated by
reference into this Proxy Statement/Prospectus and to be a part hereof from the
dates of filing such documents or reports. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained
<PAGE>
herein or in any other subsequently filed document which is also incorporated or
is deemed to be incorporated 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 Proxy Statement/
Prospectus.
------------------------
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
CERTAIN EXHIBITS TO DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM A COPY OF THIS
PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED UPON WRITTEN OR ORAL REQUEST, TO
CADENCE DESIGN SYSTEMS, INC., 2655 SEELY ROAD, BUILDING 5, SAN JOSE, CA 95134
ATTENTION: INVESTOR RELATIONS, TELEPHONE NUMBER (408) 943-1234. IN ORDER TO
ENSURE DELIVERY PRIOR TO THE MEETINGS, REQUESTS SHOULD BE RECEIVED BY
, 199 .
------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING AND THE SOLICITATIONS MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY CADENCE, CADENCE MERGER SUB OR HLDS.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE THAT THERE HAS NOT BEEN ANY CHANGE
IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF EITHER CADENCE OR HLDS
SINCE THE DATE HEREOF.
------------------------
This Proxy Statement/Prospectus contains trademarks of Cadence and HLDS as
well as trademarks of other companies.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
The Companies........................................................... 1
The Merger.............................................................. 2
The HLDS Special Meeting................................................ 9
Markets and Market Prices............................................... 9
Selected Historical and Pro Forma Financial Information................. 10
Comparative Per Share Data.............................................. 14
RISK FACTORS.............................................................. 15
Technological Change and Development of New Products and Services....... 15
Proposed Acquisitions; Failure to Consummate Proposed Acquisitions;
Uncertainty Relating to Integration................................... 15
Potential Fluctuations in Operating Results............................. 17
Competition............................................................. 17
Management of Growth.................................................... 18
Dependence on Ability to Attract and Retain Professional Staff.......... 18
Risk with Regard to Intellectual Property Rights........................ 18
Dependence Upon Key Personnel........................................... 19
Potential Dilutive Effect to Stockholders; Transaction Expenses and
Writeoffs............................................................. 19
Volatility of Stock Prices.............................................. 19
Risks Associated with International Business Operations................. 19
Antitakeover Provisions................................................. 20
Potential Future Sales of Shares........................................ 20
Rights of Holders of HLDS Capital Stock Following the Merger............ 21
INTRODUCTION.............................................................. 22
THE HLDS SPECIAL MEETING.................................................. 22
Purpose of the HLDS Special Meeting..................................... 22
Date, Time and Place of Meeting......................................... 22
Record Date and Outstanding Shares...................................... 22
Voting of Proxies....................................................... 22
Vote Required........................................................... 23
Board Recommendation.................................................... 23
Quorum; Abstentions..................................................... 23
Solicitation of Proxies; Expenses....................................... 24
Appraisal Rights........................................................ 24
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS........................... 24
Background of the Merger................................................ 24
HLDS Reasons for the Merger............................................. 26
Cadence Reasons for the Merger.......................................... 28
Opinion of Deutsche Morgan Grenfell Inc................................. 28
Merger Consideration.................................................... 32
Conversion of Shares; Procedures for Exchange of Certificates; No
Fractional Shares..................................................... 32
Effect on Certificates.................................................. 32
Regulatory Matters...................................................... 33
Stock Options; Benefit Plans............................................ 33
Voting Agreements....................................................... 34
Option Agreement........................................................ 35
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Indemnity and Escrow Agreement.......................................... 35
Affiliate Agreements.................................................... 36
Employment Agreements................................................... 36
Non-Competition Covenants............................................... 37
Interests of Certain Persons in the Merger.............................. 37
Listing of Cadence Common Stock on New York Stock Exchange.............. 38
Merger Expenses and Fees and Other Costs................................ 38
Accounting Treatment.................................................... 38
Appraisal Rights........................................................ 39
Certain Income Tax Consequences......................................... 40
THE REORGANIZATION AGREEMENT.............................................. 44
General................................................................. 44
Merger Consideration.................................................... 44
Corporate Matters....................................................... 44
Conditions to the Merger................................................ 44
Representations and Warranties.......................................... 47
Certain Covenants....................................................... 48
Non-Solicitation........................................................ 50
Indemnification and Insurance........................................... 51
Termination............................................................. 51
Expenses and Termination Fees........................................... 52
No Survival of Representations and Warranties........................... 52
Amendment; Waiver....................................................... 52
CADENCE AND HLDS UNAUDITED PRO FORMA FINANCIAL INFORMATION................ 53
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF
CADENCE AND HLDS........................................................ 57
COMPARATIVE PER SHARE MARKET PRICE DATA................................... 58
HLDS.................................................................... 58
Cadence................................................................. 59
HLDS BUSINESS............................................................. 60
Introduction............................................................ 60
Technologies and Products............................................... 61
Sales and Marketing..................................................... 63
Customer Service and Support............................................ 63
Product Development..................................................... 64
Competition............................................................. 64
Intellectual Property and Other Proprietary Rights...................... 64
Employees............................................................... 64
Facilities.............................................................. 65
HLDS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 66
Overview................................................................ 66
Results of Operations................................................... 66
Revenues................................................................ 68
Costs and Expenses...................................................... 69
Quarterly Results....................................................... 71
Liquidity and Capital Resources......................................... 72
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HLDS MANAGEMENT AND EXECUTIVE COMPENSATION................................ 74
HLDS Management......................................................... 74
Executive Compensation.................................................. 75
Option Grants........................................................... 76
Option Exercises and Holdings and Fiscal Year-End Option Values......... 76
Certain Transactions.................................................... 76
HLDS PRINCIPAL STOCKHOLDERS............................................... 78
CADENCE BUSINESS.......................................................... 79
General................................................................. 79
The Integrated Circuit and Electronic System Design Process............. 79
The Cadence Solution.................................................... 80
Cadence Products........................................................ 80
Recent Developments..................................................... 82
COMPARISON OF CAPITAL STOCK............................................... 83
Description of Cadence Capital Stock.................................... 83
Description of HLDS Capital Stock....................................... 83
COMPARISON OF RIGHTS OF HOLDERS OF CADENCE COMMON STOCK AND HOLDERS OF
HLDS CAPITAL STOCK...................................................... 85
EXPERTS................................................................... 86
LEGAL MATTERS............................................................. 86
INDEX TO HLDS FINANCIAL STATEMENTS........................................ F-1
APPENDICES:
APPENDIX A--Agreement and Plan of Merger and Reorganization
APPENDIX B--Fairness Opinion of Deutsche Morgan Grenfell Inc.
APPENDIX C--Delaware Statute Regarding Appraisal Rights
</TABLE>
iii
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS. THIS SUMMARY IS NOT, AND IS NOT INTENDED TO BE,
COMPLETE BY ITSELF. THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. CADENCE'S AND HLDS' ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, THE APPENDICES ATTACHED
HERETO AND THE DOCUMENTS REFERRED TO OR INCORPORATED BY REFERENCE HEREIN.
STOCKHOLDERS OF HLDS ARE URGED TO REVIEW CAREFULLY ALL OF THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, THE REORGANIZATION AGREEMENT
ATTACHED AS APPENDIX A AND THE OTHER APPENDICES ATTACHED HERETO. UNLESS
OTHERWISE INDICATED, ALL DOLLAR AMOUNTS IN THIS PROXY STATEMENT/PROSPECTUS ARE
IN UNITED STATES DOLLARS.
THE COMPANIES
CADENCE DESIGN SYSTEMS, INC.
Cadence 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. Cadence combines its
technology with services to help optimize its customers' product development
processes. Cadence'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/wireless devices, automotive components, consumer
products and other advanced electronics.
Cadence was formed as a result of the merger of SDA Systems, Inc. into ECAD,
Inc. in May 1988. The principal executive offices of Cadence are located at 2655
Seely Road, Building 5, San Jose, California 95134. Cadence's telephone number
is (408) 943-1234.
HIGH LEVEL DESIGN SYSTEMS, INC.
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.
The principal executive offices of HLDS are located at 3945 Freedom Circle,
Fourth Floor, Santa Clara, California 95054. HLDS' telephone number is (408)
748-3456.
HARBOR ACQUISITION SUB, INC.
Cadence Merger Sub is a corporation recently organized for the purpose of
effecting the Merger. Cadence Merger Sub has no material assets and has not
engaged in any activities except in connection with the Merger.
The principal executive offices of Cadence Merger Sub are located at 2655
Seely Road, Building 5, San Jose, California 95134. Cadence Merger Sub's
telephone number is (408) 943-1234.
RECENT DEVELOPMENTS CONCERNING CADENCE
On October 28, 1996, Cadence entered into an Agreement and Plan of Merger
and Reorganization with Cooper & Chyan Technology, Inc., a Delaware corporation
("CCT"), pursuant to which CCT would become a wholly owned subsidiary of Cadence
(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
1
<PAGE>
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 Cadence Common Stock issued and outstanding as of
September 30, 1996, and after giving effect to the Cadence Common Stock that is
proposed to be issued in the CCT Merger (but without regard to any shares which
may be issued in connection with the Merger with HLDS and assuming no exercise
of outstanding options and warrants to purchase Cadence Common Stock), the
former holders of CCT capital stock would have voting power with respect to
approximately 12.5% of Cadence's issued and outstanding shares (14.3% 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. CCT,
founded in 1989, is headquartered in Cupertino, California, and has operations
in North America, Europe and Japan.
It is a condition to the obligation of Cadence to consummate the CCT Merger
that the CCT Merger qualify as a pooling of interests for accounting purposes.
In order to qualify the CCT Merger for pooling of interests treatment, Cadence
expects to issue approximately five million shares of Cadence Common Stock (plus
up to an additional 750,000 shares pursuant to an over-allotment option expected
to be offered to the underwriters of such shares) through a public offering to
be completed prior to the closing of the CCT Merger (the "Public Offering"). The
Public Offering will be made only by means of a prospectus. In order to qualify
the CCT Merger for pooling of interests accounting, Cadence needs to cure the
taint on certain treasury shares by issuing them in one or more transactions.
The proposed issuance of approximately five million shares of Cadence Common
Stock in the Public Offering or another offering of shares of Cadence Common
Stock and the proposed issuance of approximately 2,559,470 shares of Cadence
Common Stock in connection with the Merger with HLDS will cure an equal number
of tainted shares. In the event the HLDS Merger is not completed, Cadence will
need to issue shares of Cadence Common Stock in one or more alternate
transactions if it is to qualify the CCT Merger for pooling of interests
accounting. See "Cadence Business--Recent Developments;" "Risk Factors--Proposed
Acquisitions; Failure to Consummate Proposed Acquisitions; Uncertainty Relating
to Integration" and "Risk Factors--Potential Dilutive Effect to Stockholders;
Transaction Expenses and Writeoffs."
THE MERGER
GENERAL
At the Effective Time (as defined below), Cadence Merger Sub will merge with
and into HLDS, the separate existence of Cadence Merger Sub will cease and HLDS
will become a wholly owned subsidiary of Cadence. Each stockholder of HLDS will
receive twenty-two hundredths (0.22) of a share of Cadence Common Stock (the
"Exchange Ratio") in exchange for each share of such stockholder's HLDS Capital
Stock. Cadence intends to combine the operations and technologies of Cadence and
HLDS as soon as practicable following the Merger. It is currently anticipated
that the Effective Time will occur on , 199 .
Subject to the terms and conditions of the Reorganization Agreement, as of
the Effective Time, by virtue of the Merger and without any action on the part
of Cadence, Cadence Merger Sub, HLDS or any holder of shares of HLDS Capital
Stock, the following will occur:
CONVERSION OF HLDS CAPITAL STOCK. At the Effective Time, each share of
HLDS Capital Stock then outstanding (except for any such shares held by HLDS as
treasury stock, any such shares held by Cadence, HLDS or any subsidiary of
Cadence or HLDS and any such shares for which appraisal rights have been
properly exercised and perfected in accordance with the Delaware General
Corporation Law (the "DGCL")) will be converted into the right to receive
Cadence Common Stock based on the Exchange Ratio upon surrender of the
certificate representing such share of HLDS Capital Stock in the manner provided
in a letter of transmittal to be sent by Harris Trust and Savings Bank, Chicago,
Illinois (the "Exchange Agent") to each record holder of HLDS Capital Stock
promptly following the Effective Time (a "Letter of Transmittal"), including,
with respect to each whole share of Cadence Common Stock to be
2
<PAGE>
received, the right to receive one preferred share purchase right under
Cadence's Rights Agreement dated as of February 9, 1996 (the "Rights Plan").
STOCK OPTIONS. At the Effective Time, at the election of Cadence,
either (i) all rights with respect to HLDS Common Stock under each HLDS Option
(as defined below) then outstanding shall be converted into and become rights
with respect to Cadence Common Stock, and Cadence shall assume each such HLDS
Option in accordance with the terms (as in effect as of October 3, 1996) of the
stock option plan under which it was issued and the stock option agreement by
which it is evidenced, or (ii) Cadence and HLDS shall replace each such
outstanding HLDS Option by issuing a reasonably equivalent replacement stock
option in substitution therefor. Cadence has agreed to file with the Commission
a Registration Statement on Form S-8 relating to the shares of Cadence Common
Stock issuable with respect to the assumed or substituted HLDS Options no later
than ten business days after the Closing Date (as defined below). See "Approval
of the Merger and Related Transactions--Stock Options; Benefit Plans."
Cadence agreed to allow HLDS to cause each outstanding option under HLDS'
1993 Stock Option Plan and 1995 Special Nonstatutory Stock Option Plan (each
such outstanding option an "HLDS Option") with a per share exercise price
exceeding $7.315 to be modified by reducing such exercise price prior to the
Effective Time to an amount equal to $7.315. In connection with such repricing,
the holders of the repriced HLDS Options have agreed not to sell the HLDS Common
Stock issuable upon exercise of such HLDS Options prior to May 1, 1997. As of
the Record Date (as defined below), there were outstanding HLDS Options to
purchase 2,725,000 shares of HLDS Common Stock held by an aggregate of 77
optionees. HLDS Options to purchase 870,500 shares had an exercise price
exceeding $7.315.
NON-SOLICITATION
Pursuant to the Reorganization Agreement, subject to certain exceptions,
HLDS has agreed that it will not, and has agreed that it will instruct its
subsidiaries, officers, directors, employees, agents, attorneys, accountants,
advisors and representatives not to, take certain actions that may encourage or
facilitate an Acquisition Proposal (as defined herein). See "The Reorganization
Agreement--Non-Solicitation."
CONDUCT OF BUSINESS
Pursuant to the Reorganization Agreement, from the date of the execution of
the Reorganization Agreement until the Effective Time, HLDS has made certain
covenants regarding the conduct of HLDS' business, including, without
limitation, covenants to: (i) conduct its business and operations (a) in the
ordinary course and in accordance with prudent business practices and (b) in
compliance with legal requirements and material contracts; (ii) preserve its
business organization and the services of its current officers and employees and
maintain its relations and goodwill with suppliers, customers, landlords,
creditors, licensors, licensees, employees and other persons; (iii) maintain
insurance policies; (iv) provide all notices, assurances and support required by
any material contract; and (v) cause its officers to report regularly to Cadence
concerning the status of the business of HLDS. In addition, HLDS has agreed not
to take certain actions relating to (i) dividends or distributions; (ii) the
sale or issuance of securities; (iii) the amendment of stock option plans; (iv)
the amendment or adoption of charter documents; (v) the formation of
subsidiaries or acquisition of equity interests; (vi) capital expenditures;
(vii) material contracts; (viii) the acquisition, lease or license of or sale or
disposal of assets; (ix) the loaning of money; (x) the establishment or adoption
of employee benefit plans; (xi) the hiring of new employees; (xii) changes in
accounting; (xiii) tax elections; (xiv) commencement of legal proceedings; and
(xv) material transactions. See "The Reorganization Agreement--Certain
Covenants."
TERMINATION
The Reorganization Agreement may be terminated prior to the Effective Time,
whether before or after approval of the Merger by the stockholders of HLDS: (i)
by mutual written consent of Cadence and
3
<PAGE>
HLDS; (ii) in certain circumstances and subject to certain exceptions, by either
Cadence or HLDS if the Merger shall not have been consummated by April 30, 1997;
(iii) by either Cadence or HLDS in connection with certain legal actions; (iv)
by Cadence upon the occurrence of a Material Adverse Effect on HLDS (as defined
herein); (v) by HLDS upon the occurrence of a Material Adverse Effect on Cadence
(as defined herein); (vi) by either Cadence or HLDS if (a) the HLDS Special
Meeting shall have been held and (b) the Reorganization Agreement and the Merger
shall not have been adopted and approved at such meeting; (vii) by Cadence (at
any time prior to the adoption and approval of the Reorganization Agreement and
the Merger) if a Triggering Event (as defined herein) shall have occurred;
(viii) subject to certain limitations, by Cadence following the breach of any
representation, warranty or covenant of HLDS contained in the Reorganization
Agreement; or (ix) subject to certain limitations, by HLDS following the breach
of any representation, warranty or covenant of Cadence contained in the
Reorganization Agreement. See "The Reorganization Agreement--Termination."
EXPENSES AND TERMINATION FEES
Pursuant to the Reorganization Agreement, all fees and expenses incurred in
connection with the Reorganization Agreement and the transactions contemplated
by the Reorganization Agreement shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; PROVIDED, HOWEVER, that
Cadence and HLDS shall share equally all fees and expenses, other than
attorneys' and accountants' fees, incurred in connection with the printing and
filing of this Proxy Statement/Prospectus and the Registration Statement on Form
S-4 of which this Proxy Statement/Prospectus is a part (the "Registration
Statement"). HLDS will be required to pay to Cadence a nonrefundable fee in the
amount of $2.5 million if the Reorganization Agreement is terminated under
certain circumstances. See "The Reorganization Agreement-- Expenses and
Termination Fees."
CONDITIONS TO THE MERGER
The obligations of Cadence and Cadence Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by the Reorganization
Agreement are subject to the satisfaction of certain conditions relating to (i)
the accuracy of the representations and warranties of HLDS contained in the
Reorganization Agreement; (ii) the performance by HLDS of covenants and
obligations contained in the Reorganization Agreement; (iii) the Registration
Statement becoming effective in accordance with the provisions of the Act; (iv)
the adoption of the Reorganization Agreement and approval of the Merger by the
HLDS stockholders; (v) receipt of legal opinions; (vi) no termination of
employment by certain employees; (vii) subject to certain exceptions, the
absence of any material adverse change in HLDS' business; (viii) the absence of
restraining orders, injunctions and other legal impediments to the Merger; and
(ix) absence of certain litigation or administrative actions or proceedings.
The obligation of HLDS to effect the Merger and otherwise consummate the
transactions contemplated by the Reorganization Agreement is subject to the
satisfaction of certain conditions relating to (i) the accuracy of the
representations and warranties of Cadence contained in the Reorganization
Agreement; (ii) the performance by Cadence of covenants and obligations
contained in the Reorganization Agreement; (iii) this Registration Statement
becoming effective in accordance with the provisions of the Act; (iv) the
receipt of legal opinions; (v) the listing of the Cadence Common Stock to be
issued in the Merger on the NYSE; (vi) subject to certain exceptions, the
absence of any material adverse change in Cadence's business; and (vii) the
absence of restraining orders, injunctions and other legal impediments to the
Merger. See "The Reorganization Agreement--Conditions to the Merger."
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware (the "Effective Time").
Assuming that all of the conditions to the Merger are met
4
<PAGE>
or waived prior thereto, it is anticipated that the date upon which the Merger
becomes effective (the "Closing Date") will be on or about ,
199 .
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the number of shares of HLDS Capital Stock outstanding as of
September 30, 1996, and assuming that no holder of HLDS Capital Stock exercises
appraisal rights, an aggregate of 2,559,470 shares of Cadence Common Stock will
be issued to holders of HLDS Capital Stock. Based upon the number of shares of
Cadence Common Stock issued and outstanding as of September 30, 1996, and after
giving effect to the 2,559,470 shares of Cadence Common Stock which may be
issued in the Merger as described above, but not giving effect to the
consummation of the CCT Merger or the Public Offering and assuming no exercise
of Cadence's outstanding options and warrants to purchase Cadence Common Stock,
the former holders of HLDS Capital Stock would hold and have voting power with
respect to approximately 3.2% of Cadence's total issued and outstanding shares,
and holders of HLDS Options would hold options for approximately 0.8% of
Cadence's total issued and outstanding shares (assuming the exercise of only
such options). Based upon the number of shares of Cadence Common Stock issued
and outstanding as of September 30, 1996, and after giving effect to the
2,559,470 shares of Cadence Common Stock which may be issued in the Merger, the
approximately 11 million shares of Cadence Common Stock which may be issued in
the CCT Merger and the five million shares of Cadence Common Stock expected to
be issued in the Public Offering (assuming no exercise of the over-allotment
option expected to be granted to the underwriters of the Public Offering or
outstanding options and warrants to purchase Cadence Common Stock), the former
holders of HLDS Capital Stock would hold and have voting power with respect to
approximately 2.7% of Cadence's total issued and outstanding shares.
HLDS REASONS FOR THE MERGER
The HLDS Board of Directors believes that the Merger may result in a number
of benefits to HLDS and its stockholders, including, among other benefits, the
following: (i) Cadence's products and technologies, and the markets they serve,
are complementary to the EDA software tools and infrastructures offered by HLDS,
and will enable the combined companies to offer an integrated methodology and
process that will enable the successful creation, verification and integration
of complex functional blocks into system-level chips; (ii) Cadence's strategy of
developing more predictive and integrated methods and software tools for linking
the logical and physical aspects of IC design in a deep submicron environment
closely matches the established technology and product development strategies of
HLDS; (iii) the combination of technology, financial and management resources
and access to Cadence's distribution channels and broader markets resulting from
the Merger represents a significant growth opportunity for HLDS and may enhance
HLDS' financial performance; (iv) access to the technologies and the product
development resources of Cadence in the Merger will enable HLDS to respond more
effectively to the rapid technological change and continuing emergence of
competing products that characterize the EDA industry; and (v) because the
market value of the Cadence Common Stock to be received in the Merger by the
holders of HLDS Capital Stock, based on the Exchange Ratio, represented a
significant premium to the market value of the HLDS Capital Stock in the
relevant periods prior to the public announcement of the Merger, the HLDS Board
of Directors also believes that the Merger is fair and in the best interests of
the stockholders of HLDS. See "Approval of the Merger and Related
Transactions--HLDS Reasons for the Merger and Recommendation of HLDS Board of
Directors."
RECOMMENDATION OF HLDS BOARD OF DIRECTORS
The Board of Directors of HLDS has unanimously approved the Reorganization
Agreement and the Merger, and recommends a vote FOR approval and adoption of the
Reorganization Agreement and approval of the Merger by the stockholders of HLDS.
See "Approval of the Merger and Related Transactions--Background of the Merger."
5
<PAGE>
FAIRNESS OPINION
Deutsche Morgan Grenfell Inc. ("DMG") has delivered to the HLDS Board of
Directors its written opinion, dated as of October 3, 1996, stating that, as of
such date, the Exchange Ratio pursuant to the Reorganization Agreement was fair
from a financial point of view to the holders of HLDS Capital Stock. The full
text of DMG's opinion (the "Opinion"), which sets forth the assumptions made and
matters considered, is attached as Appendix B to this Proxy Statement/Prospectus
and is incorporated herein by reference. HLDS stockholders are urged to read the
Opinion in its entirety. See "Approval of the Merger and Related
Transactions--Opinion of Deutsche Morgan Grenfell Inc." and Appendix B to this
Proxy Statement/Prospectus.
CADENCE REASONS FOR THE MERGER
Cadence believes that the combined technological strength and common vision
of Cadence and HLDS will enable the combined companies to accelerate the
delivery of an efficient solution for the design of ICs implemented in .35
submicron technology. Cadence believes that the companies have excellent
synergies in both technology and sales and marketing with minimal overlap. In
particular, Cadence believes that the technical and market strengths of HLDS in
advanced IC design planning coupled with Cadence's traditional strength in
custom layout, automated place and route and verification will offer customers a
superior solution for advanced IC design. Cadence believes that anticipated near
term advances in semiconductor technology will create a strong demand for design
automation tools and services. As a result of these factors, Cadence believes
that the Merger will position the combined companies to benefit from growing
market demand.
CONDUCT OF THE COMBINED COMPANIES FOLLOWING THE MERGER
Cadence intends to combine the operations and technologies of Cadence and
HLDS as soon as practicable following the closing of the Merger.
APPRAISAL RIGHTS
Stockholders of HLDS who do not vote in favor of the Merger may, under
certain circumstances and by following procedures prescribed by Section 262 of
the DGCL, exercise appraisal rights and receive cash for their shares of HLDS
Capital Stock. See "Approval of the Merger and Related Transactions-- Appraisal
Rights."
EXCHANGE OF HLDS STOCK CERTIFICATES
As soon as practicable after the Effective Time, the Exchange Agent will
mail to the holders of HLDS Capital Stock (i) a Letter of Transmittal and (ii)
instructions for use in effecting the surrender of valid certificates
representing shares of HLDS Capital Stock ("HLDS Stock Certificates") in
exchange for certificates representing Cadence Common Stock. HLDS STOCKHOLDERS
SHOULD NOT SURRENDER THEIR HLDS STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY
RECEIVE A LETTER OF TRANSMITTAL. See "Approval of the Merger and Related
Transactions--Conversions of Shares; Procedures for Exchange of Certificates; No
Fractional Shares."
REGULATORY MATTERS
The Federal Trade Commission ("FTC") and the Antitrust Division of the
Justice Department ("Antitrust Division") frequently scrutinize the legality
under the antitrust laws of transactions such as the Merger. At any time before
or after consummation of the Merger, the FTC or the Antitrust Division could
take such action under the federal antitrust laws as it deems appropriate in the
public interest, or other persons could take action under the antitrust laws,
including seeking to enjoin consummation of the Merger or the divestiture of
significant assets of Cadence or HLDS or their subsidiaries. HLDS and
6
<PAGE>
Cadence do not believe that the consummation of the Merger will result in the
violation of any antitrust laws. However, there can be no assurance that a
challenge to the Merger on antitrust grounds will not be made, or, if such a
challenge is made, of what the result would be. See "Approval of the Merger and
Related Transactions--Regulatory Matters."
VOTING AGREEMENTS
Pursuant to Voting Agreements executed concurrently with the execution of
the Reorganization Agreement (the "Cadence Voting Agreements"), J. George Janac,
Dennis DeCoste, Robert P. Wiederhold and Peter S. Teshima, directors and/or
officers of HLDS who hold in the aggregate approximately 29% of the outstanding
HLDS Capital Stock, have agreed that, prior to the earlier of the valid
termination of the Reorganization Agreement or the Effective Time, they will
vote their shares in favor of the adoption and approval of the Reorganization
Agreement and against (i) any actions that would result in a breach of any
covenant, representation or warranty under the Reorganization Agreement, and
(ii) certain transactions which could reasonably be expected to impede,
interfere with, delay or adversely affect the economic benefits to Cadence under
the Reorganization Agreement. The Cadence Voting Agreements also include
agreements with respect to the voting of shares of HLDS Common Stock for 180
days after the valid termination of the Reorganization Agreement in certain
circumstances. Such HLDS stockholders have also delivered to Cadence an
irrevocable proxy with respect to the matters covered by the Cadence Voting
Agreements. See "Approval of the Merger and Related Transactions--Voting
Agreements."
NON-COMPETITION COVENANTS
J. George Janac, President, Chief Executive Officer, Chief Technical Officer
and Vice President, Research and Development of HLDS, has entered into a
Non-Competition Agreement with Cadence and HLDS, dated as of October 3, 1996 and
effective as of the Closing Date, that contains provisions restricting Mr. Janac
from engaging in certain activities that are competitive with Cadence or HLDS
for a period of two years following the Closing Date. Certain other HLDS
employees have entered into employment agreements with Cadence and HLDS which
contain similar non-competition covenants. See "Approval of the Merger and
Related Transactions--Non-Competition Covenants."
EMPLOYMENT AGREEMENTS
Cadence has entered into employment agreements, each dated on or prior to
October 3, 1996, with J. George Janac, Robert P. Wiederhold, Executive Vice
President and Chief Operating Officer of HLDS, and certain other key employees
of HLDS. All such employment agreements become effective upon (and are effective
contingent upon), the effectiveness of the Merger and provide for the employment
of such persons for a period of one year (with the exception of J. George Janac
whose employment agreement provides for employment for a period of two years).
In certain instances, such employment agreements provide for salary continuation
for specified periods if any of such employees are terminated during the term of
their respective employment agreement. In addition, the employment agreement
with Mr. Wiederhold contains certain other agreements. See "Approval of the
Merger and Related Transactions-- Employment Agreements."
INDEMNITY AND ESCROW AGREEMENT
Pursuant to an Indemnity and Escrow Agreement (the "Indemnity Agreement")
entered into as of October 3, 1996, J. George Janac and Robert P. Wiederhold
(the "Indemnifying Stockholders") have made representations and warranties to
Cadence and are required to deliver a certificate to Cadence on the Closing Date
with respect to the capitalization and proprietary assets of HLDS. The Indemnity
Agreement also provides that ten percent of the Cadence Common Stock to be
received by the Indemnifying Stockholders will be held in an escrow account as
security for the indemnification obligations in the Indemnity Agreement.
Pursuant to the terms of the Indemnity Agreement, claims for indemnity under the
7
<PAGE>
Indemnity Agreement must be made within ten days following the release of the
audit report for Cadence's 1997 audited financial statements. See "Approval of
the Merger and Related Transactions--Indemnity and Escrow Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
OFFICERS AND DIRECTORS OF HLDS. Certain members of HLDS' management and
Board of Directors may be deemed to have certain interests in the Merger that
are in addition to their interests as stockholders of HLDS generally. As
described above, Cadence has entered into employment agreements with J. George
Janac, Robert P. Wiederhold and certain other key employees of HLDS. Upon
effectiveness of the Merger, each such HLDS employee will be entitled to receive
benefits under such employment agreements. HLDS Options held by certain officers
and directors of HLDS which have an exercise price in excess of $7.315 and which
will be assumed or replaced by Cadence upon consummation of the Merger have had
their exercise price lowered by HLDS to $7.315. In addition, Cadence has agreed
to indemnify officers and directors of HLDS for liabilities in connection with
the transactions contemplated by the Reorganization Agreement if the Merger is
consummated. See "Approval of the Merger and Related Transactions-- Interests of
Certain Persons in the Merger."
AFFILIATE AGREEMENTS. Certain stockholders of HLDS who may be deemed to be
affiliates, for purposes of Rule 145 of the Act, have executed agreements that
prohibit the sale, transfer or other disposition of Cadence Common Stock
received by such stockholders in the Merger, except under certain circumstances,
in order to comply with the requirements of certain federal securities laws. See
"Approval of the Merger and Related Transactions--Affiliate Agreements."
CONTINUITY OF INTEREST CERTIFICATES. Certain stockholders of HLDS have
delivered to Cadence certificates certifying that such stockholders have no
present intention to dispose of certain of the shares of Cadence Common Stock to
be received by such stockholders of HLDS in the Merger in order to comply with
the requirements of certain U.S. federal tax laws. See "Approval of the Merger
and Related Transactions-- Certain Income Tax Consequences--United States."
LISTING OF CADENCE COMMON STOCK ON NEW YORK STOCK EXCHANGE
It is a condition to HLDS' obligation to consummate the Merger that the
shares of Cadence Common Stock to be issued pursuant to the Reorganization
Agreement be approved for listing on the NYSE. An application has been filed for
listing such shares of Cadence Common Stock on the NYSE.
ACCOUNTING TREATMENT
The Merger will be accounted for by Cadence under the "purchase" method of
accounting in accordance with generally accepted accounting principles. Under
the purchase method of accounting, the purchase price of the HLDS Capital Stock,
including direct and incremental costs of the Merger, will be allocated to the
assets acquired and liabilities assumed based upon their estimated fair value,
with the excess purchase consideration allocated to intangible assets and
goodwill. Cadence currently estimates that approximately $91.7 million of the
purchase price will be allocated to in-process research and development and will
be charged to expense in the period the Merger is consummated. Such charge will
adversely affect the operating results of Cadence in the period in which it is
incurred. The remaining intangible assets and goodwill will be amortized over an
estimated life of three years.
CERTAIN INCOME TAX CONSEQUENCES
UNITED STATES. The Merger is expected to be a tax-free reorganization for
U.S. federal income tax purposes, so that no gain or loss will be recognized by
the HLDS stockholders on the exchange of HLDS Capital Stock for Cadence Common
Stock, except to the extent that HLDS stockholders receive cash in lieu of
fractional shares or upon exercise of appraisal rights. The Reorganization
Agreement does not
8
<PAGE>
require the parties to obtain a ruling from the Internal Revenue Service as to
the tax consequences of the Merger. As a condition to HLDS' and Cadence's
obligations to consummate the Merger, HLDS and Cadence are to receive opinions
at the Closing Date from their respective legal counsel that, based on certain
assumptions and certifications, the Merger will be treated as a tax-free
reorganization for U.S. federal income tax purposes. HLDS stockholders are urged
to consult their own tax advisors regarding such tax consequences. See "Approval
of the Merger and Related Transactions--Certain Income Tax Consequences--United
States."
CANADA. See "Approval of the Merger and Related Transactions--Certain
Income Tax Consequences--Canada" for a discussion of certain Canadian federal
income tax consequences of the Merger.
THE HLDS SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The HLDS Special Meeting will be held at HLDS' offices located at 3945
Freedom Circle, Fourth Floor, Santa Clara, California 95054 on ,
199 at , local time. The purpose of the HLDS Special Meeting is to
approve and adopt the Reorganization Agreement and approve the Merger.
RECORD DATE AND VOTE REQUIRED
Only HLDS stockholders of record at the close of business on ,
1996 (the "Record Date") are entitled to vote at the HLDS Special Meeting. Under
the DGCL and the charter documents of HLDS, approval and adoption of the
Reorganization Agreement and approval of the Merger requires the affirmative
vote of the holders of a majority of the outstanding shares of HLDS Common Stock
and HLDS Preferred Stock, voting together as a single class (the "Required
Vote").
This Proxy Statement/Prospectus was mailed to all HLDS stockholders of
record as of the Record Date and constitutes notice of the HLDS Special Meeting
in conformity with the requirements of the DGCL.
MARKETS AND MARKET PRICES
Cadence Common Stock is traded on the NYSE under the symbol "CDN." On
October 2, 1996, the last trading day before the announcement by Cadence and
HLDS that they had signed the Reorganization Agreement, the closing price of
Cadence Common Stock as reported on the NYSE was $36.875 per share. Following
the Merger, Cadence Common Stock will continue to be traded on the NYSE under
the symbol "CDN." On November 6, 1996, the closing price of Cadence Common Stock
as reported on the NYSE was $34.50. There can be no assurance as to the actual
price of Cadence Common Stock prior to, at or at any time following the
Effective Time.
HLDS Common Stock is traded in U.S. dollars on the Vancouver Stock Exchange
(the "VSE") under the symbol "HLD.U." On October 2, 1996, the last trading day
before the announcement by Cadence and HLDS that they had signed the
Reorganization Agreement, the closing price of HLDS Common Stock as reported on
the VSE was $7.25 per share. Following the Merger, HLDS Common Stock will cease
to be traded on the VSE. On November 6, 1996, the closing price of HLDS Common
Stock as reported on the VSE was $6.00. There can be no assurance as to the
actual price of HLDS Common Stock prior to or at the Effective Time. See "Risk
Factors--Volatility of Stock Prices" and "Comparative Per Share Market Price
Data."
9
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
CADENCE SELECTED 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 of Cadence not included or incorporated by reference
herein. The statement of income data for each of the three years in the period
ended December 30, 1995 and the selected historical balance sheet data at
December 30, 1994 and 1995 are derived from the audited consolidated financial
statements of Cadence incorporated by reference in this Proxy
Statement/Prospectus. The unaudited selected historical financial information 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 Cadence and, in the opinion of Cadence, 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 Cadence that may be
expected for the entire year. The following summary 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
Cadence'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>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 30, ----------------------------
----------------------------------------------------- SEPTEMBER 30, SEPTEMBER 28,
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF INCOME DATA:
Revenue........................ $ 379,476 $ 418,724 $ 368,623 $ 429,072 $ 548,418 $ 384,662 $ 529,197
Unusual items(1)............... 55,236 (253) 19,650 14,707 -- -- --
Income (loss) from
operations................... (14,744) 65,710 (8,415) 44,047 117,860 75,272 131,988
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................ 89,612 103,800 96,885 98,805 92,948 93,170 91,095
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 30, AS OF
----------------------------------------------------- SEPTEMBER 28,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -------------
<S> <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) Unusual items:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 30,
------------------------------------------
1991 1992 1993 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Writeoff 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>
In December 1991, Cadence recorded restructuring costs of $49.9 million
associated with the merger of Valid Logic Systems Incorporated with Cadence.
In March 1993, Cadence recorded restructuring costs of approximately $13.5
million associated with a restructure of certain areas of sales, operations
and administration due to business conditions.
In December 1993, Cadence sold its Automated Systems division. Cadence has
classified the respective income and loss from operations of the disposed
division as unusual items within operations. The loss of $6.0 million on
disposal of the division is included in other income (expense) in the fiscal
year ended December 30, 1993.
In April 1994, Cadence 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 Cadence's insurance carriers. Reflected in
Cadence's operating expenses is the net settlement cost of approximately
$9.0 million plus approximately $1.0 million for related legal costs.
(2) In addition to the unusual items discussed above, net income (loss) and net
income (loss) per common 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.
10
<PAGE>
HLDS SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected financial data as of and for the year ended December 31, 1991
is derived from the unaudited financial statements of HLDS' predecessor, AfCAD
Corporation ("AfCAD"), which are not included in this Proxy
Statement/Prospectus. The selected financial data as of December 31, 1992 and
1993 and for the year ended December 31, 1992 are derived from audited financial
statements of HLDS which are not included in this Proxy Statement/Prospectus.
The selected financial data as of December 31, 1994 and 1995, and for the three
years ended December 31, 1995 are derived from audited financial statements of
HLDS included elsewhere in this Proxy Statement/Prospectus. The unaudited
selected financial data of HLDS as of September 30, 1996 and for the nine month
periods ended September 30, 1995 and 1996 are derived from the unaudited
financial statements of HLDS included elsewhere in this Proxy Statement/
Prospectus. The results for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 1996. The unaudited financial statements of AfCAD and those of HLDS
have been prepared on the same basis as the audited financial statements and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
therein. The following information should be read in conjunction with the
Consolidated Financial Statements of HLDS and the related notes thereto and
"HLDS Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR HLDS
------------- ----------------------------------------------------------------
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF
INCOME DATA:
Revenue............................. $ 480 $ 1,247 $ 3,096 $ 3,560 $ 10,127 $ 7,474 $ 9,429
Income (loss) from operations(1).... 15 150 297 (3,844) (2,341) (2,384) (996)
Net income (loss)(1)................ 14 104 249 (3,778) (2,428) (2,438) (1,709)
Net income (loss) per common
share............................. $ 0.01 $ 0.03 $ 0.03 $ (0.34) $ (0.22) $ (0.22) $ (0.16)
Common and common equivalent shares
used in computing per share
amounts........................... 2,100 3,886 7,834 11,169 10,983 11,037 10,880
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR HLDS
------------- ---------------------------------------------------------
AS OF DECEMBER 31, AS OF
--------------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)................ $ (16) $ (37) $ 3,487 $ 1,873 $ 2,097 $ 1,313
Total assets............................. 120 517 5,297 4,753 6,289 5,668
Long term obligations.................... -- 23 3 104 183 283
Stockholders' equity..................... 52 146 4,539 3,132 3,141 2,136
</TABLE>
- ------------------------------
(1) In September 1995, HLDS granted options to purchase 300,000 shares of HLDS
Common Stock under its 1995 Special Nonstatutory Stock Option Plan. Because
these option grants were fully vested and substantially discounted from the
fair market value of the HLDS Common Stock as of the date of grant, HLDS
incurred a non-recurring, non-cash compensation charge of $3.0 million for
the nine months ended September 30, 1995 and the year ended December 31,
1995. See Note 6 of Notes to Consolidated Financial Statements.
11
<PAGE>
CADENCE AND HLDS UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth the unaudited selected pro forma combined
financial data of Cadence and HLDS which is derived from the Unaudited Pro Forma
Condensed Combined Financial Statements (the "Pro Forma Financial Statements").
The unaudited pro forma combined balance sheet has been prepared as if the
Merger, which will be accounted for as a purchase of HLDS by Cadence, was
consummated as of September 28, 1996. The unaudited pro forma combined
statements of income give effect to the Merger as if the Merger were completed
at the beginning of the periods presented.
The unaudited selected pro forma combined financial data is provided for
illustrative purposes only and is not necessarily indicative of the combined
financial position or combined results of operations that would have been
reported had the 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
operations of Cadence and HLDS or (ii) the costs of restructuring, integrating
or consolidating their operations. The unaudited selected pro forma combined
financial data should be read in conjunction with the Pro Forma Financial
Statements and related notes, and the historical financial statements and
related notes of Cadence and HLDS which are incorporated by reference or
included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 30, 1995 SEPTEMBER 28, 1996
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA COMBINED STATEMENT OF INCOME DATA:
Revenue.................................................................... $ 558,545 $ 538,626
Income from operations..................................................... 112,889 129,019
Net income................................................................. 92,968 83,813
Net income per common share................................................ 0.97 0.89
Common and common equivalent shares used in computing per share amounts.... 95,667 93,814
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 28, 1996
------------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital........................................................................... $ 9,740
Total assets.............................................................................. 432,573
Long-term obligations and redeemable convertible preferred stock.......................... 20,161
Stockholders' equity...................................................................... 167,433
</TABLE>
12
<PAGE>
CADENCE, HLDS AND CCT UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth the unaudited selected pro forma combined
financial data of Cadence, HLDS and CCT. The unaudited pro forma combined
balance sheet has been prepared as if the Merger with HLDS, which will be
accounted for as a purchase of HLDS by Cadence, and the CCT Merger, which will
be accounted for as a pooling of interests by Cadence, were both consummated as
of September 28, 1996. The unaudited pro forma combined statements of income
give effect to the Merger with HLDS and the CCT 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 purposes only and is not necessarily indicative of the combined
financial position or combined results of operations that would have been
reported had the mergers 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
operations of Cadence, HLDS and CCT or (ii) the costs of restructuring,
integrating or consolidating their operations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 30, 1995 SEPTEMBER 28, 1996
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA COMBINED STATEMENT OF INCOME DATA:
Revenue.................................................................... $ 581,987 $ 564,306
Income from operations..................................................... 114,712 133,182
Net income................................................................. 94,307 87,077
Net income per common share................................................ $ 0.89 $ 0.82
Common and common equivalent shares used in computing per share amounts.... 106,117 106,070
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 28, 1996
------------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital........................................................................... $ 32,232
Total assets.............................................................................. 476,430
Long-term obligations and redeemable convertible preferred stock.......................... 20,161
Stockholders' equity...................................................................... 193,192
</TABLE>
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Cadence
and HLDS and combined per share data on an unaudited pro forma combined basis
after giving effect to the Merger on a purchase basis as if the Merger were
completed at the beginning of the respective periods for net income per common
share data. The exchange ratios and the pro forma book value per common share
assume that the transaction was consummated on September 28, 1996. The following
data should be read in conjunction with the Cadence and HLDS Unaudited Pro Forma
Financial Information and the separate historical financial statements of
Cadence and HLDS incorporated by reference or included elsewhere herein. The
unaudited pro forma combined per common share data is provided for illustrative
purposes only and is not necessarily indicative of the combined financial
position or combined results of operations that would have been reported had the
Merger occurred on the dates indicated, nor does it 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 Cadence and HLDS
operations or (ii) the costs of restructuring, integrating or consolidating
their operations. The unaudited pro forma combined per common share data should
be read in conjunction with the Pro Forma Financial Statements and related
notes, and the historical financial statements and related notes of Cadence and
HLDS which are incorporated by reference or included elsewhere herein.
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 30, 1995 SEPTEMBER 28, 1996
------------------- -------------------
<S> <C> <C>
HISTORICAL - CADENCE:
Net income per common share.............................................. $ 1.05 $ 0.95
Book value per common share(1)........................................... 1.71 2.07
HISTORICAL - HLDS:
Net loss per common share................................................ (0.22) (0.16)
Book value per common share(1)........................................... 0.29 0.19
PRO FORMA COMBINED PER CADENCE SHARE:
Net income per common share.............................................. 0.97 0.89
Book value per common share(1)........................................... -- 2.09
EQUIVALENT PRO FORMA COMBINED PER HLDS SHARE(2):
Net income per common share.............................................. 0.21 0.20
Book value per common share(1)........................................... -- 0.46
</TABLE>
- ------------------------------
(1) The historical book value per common share is computed by dividing total
stockholders' equity by the number of shares of common stock outstanding at
the end of the period. The pro forma book value per share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares of
common stock as of September 28, 1996.
(2) The equivalent HLDS pro forma per share amounts are calculated by
multiplying the Cadence combined pro forma per share amounts by the Exchange
Ratio.
14
<PAGE>
RISK FACTORS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS PROXY
STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. CADENCE'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 PROXY
STATEMENT/PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. IN
ADDITION TO THE OTHER INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY BY HLDS STOCKHOLDERS IN
DETERMINING WHETHER OR NOT TO VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE
REORGANIZATION AGREEMENT AND APPROVAL OF THE MERGER.
TECHNOLOGICAL CHANGE AND DEVELOPMENT OF NEW PRODUCTS AND SERVICES
Because of rapid technological changes in the EDA industry, Cadence'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. Cadence's products operate on certain
versions of the UNIX operating system. Cadence intends to port its software to
the Windows NT operating system from Microsoft Corporation ("Microsoft") in the
future due to increasing adoption of Windows NT by Cadence's potential
customers. Cadence has only recently begun the development work necessary to
port its software to Windows NT. There can be no assurance that Cadence will be
successful in developing and marketing, on a timely basis, products ported to
the Windows NT operating system or any other operating system. As a result, any
shift by customers toward products running on operating systems other than UNIX,
including Windows NT, before Cadence offers versions of its software running on
such operating systems, could have a material adverse effect on Cadence's
business, financial condition and results of operations. In addition, changes in
manufacturing technology or processes could render one or more of Cadence's
software tools obsolete.
Cadence's EDA software tools have a limited life cycle, requiring Cadence to
make periodic product enhancements and new product introductions. There can be
no assurance that Cadence's products will not become obsolete, or that any new
or enhanced products it develops or markets will be competitive or achieve
market acceptance. Cadence believes that the Merger with HLDS and the CCT Merger
will enhance the ability of customers to design chips with feature sizes of 0.5
micron and below. If Cadence fails to obtain new or developed technology through
the mergers, new product introductions could be substantially delayed, and
Cadence 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 Cadence's products and could have a material adverse effect
on the Cadence's business, financial condition and results of operations.
PROPOSED ACQUISITIONS; UNCERTAINTY RELATING TO INTEGRATION
Part of Cadence's strategy is to grow and improve its product offerings
through merger and acquisition transactions. Growth through acquisition has
several identifiable 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.
In addition to the Merger with HLDS, on October 28, 1996, Cadence entered
into a merger agreement with CCT pursuant to which CCT will become a wholly
owned subsidiary of Cadence 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 Cadence Common Stock issued and outstanding as of September 30, 1996,
and after giving effect to the issuance of Cadence Common Stock in the CCT
Merger (but without regard to any shares which may be issued in connection with
the Merger with HLDS and assuming no exercise of outstanding options and
warrants to purchase Cadence Common Stock), the former holders of CCT
15
<PAGE>
capital stock would hold and have voting power with respect to approximately
12.5% of Cadence's issued and outstanding shares (14.3% 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.
Based upon the number of shares of Cadence Common Stock issued and
outstanding as of September 30, 1996, and after giving effect to the 2,559,470
shares of Cadence Common Stock which may be issued in the Merger (but not giving
effect to the consummation of the proposed CCT Merger or the proposed Public
Offering and assuming no exercise of outstanding options and warrants to
purchase Cadence Common Stock), the former holders of HLDS Capital Stock would
hold and have voting power with respect to approximately 3.2% of Cadence's total
issued and outstanding shares, and holders of HLDS Options would hold options
for approximately 0.8% of Cadence's total issued and outstanding shares
(assuming the exercise of only such options). Based upon the number of shares of
Cadence Common Stock issued and outstanding as of September 30, 1996, and after
giving effect to the 2,559,470 shares of Cadence Common Stock which may be
issued in the Merger, the approximately 11 million shares of Cadence Common
Stock which may be issued in the CCT Merger and the five million shares of
Cadence Common Stock expected to be issued in the Public Offering (assuming no
exercise of the over-allotment option expected to be granted to the underwriters
of the Public Offering), the former holders of HLDS Capital Stock would hold and
have voting power with respect to approximately 2.7% of Cadence's total issued
and outstanding shares.
Cadence intends to combine the operations and technologies of Cadence, CCT
and HLDS as soon as practicable. Following the mergers, in order to maintain and
increase profitability, Cadence, 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 Cadence include the write off
of capitalized software, severance payments, closing of excess facilities, and
disposition of excess equipment. Each of Cadence, CCT and HLDS has different
systems and procedures in many operational areas that must be rationalized and
integrated. Among other things, Cadence 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 smoothly, 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 Cadence. The business of Cadence may also be disrupted by employee
uncertainty and lack of focus during such integration. There can be no assurance
that Cadence will be able to retain key technical, managerial and other
employees. Failure to accomplish the integration of the operations of Cadence,
CCT and HLDS could have a material adverse effect on Cadence'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 Cadence's business, financial condition and results
of operations.
FAILURE TO CONSUMMATE CCT MERGER
Among the conditions that must be fulfilled in order to consummate the CCT
Merger are the affirmative vote of a majority of the outstanding voting stock of
CCT, the effectiveness of a Registration Statement on Form S-4 for the
transaction and 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 Cadence's independent auditors
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, Cadence needs to cure the taint on certain treasury shares by
issuing them in one or more transactions. The shares of Cadence Common Stock
which may be issued in the Public Offering, together with the proposed issuance
of shares of Cadence Common Stock in connection with the Merger with HLDS, will
cure an equal number of tainted shares. In
16
<PAGE>
the event the Merger with HLDS is not completed, Cadence will need to issue
shares of Cadence Common Stock in one or more alternate transactions if it is to
qualify the CCT Merger for pooling of interests accounting. 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 CCT Mergers will be
consummated. There can be no assurance that a challenge to the CCT Merger on
antitrust grounds will not be made, or if such a challenge is made, Cadence will
prevail or would not be required to divest certain assets, license certain
proprietary technology or to accept certain conditions in order to consummate
the CCT Merger.
During the pendency of the CCT Merger, 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
Cadence's employees in light of uncertainty associated with the CCT Merger.
Significant delays in or cancellations of orders or loss of employees could have
a material adverse effect on Cadence's business, financial condition and results
of operations. In the event the CCT Merger is not consummated, the descriptions
of events contained in this Proxy Statement/Prospectus, including those
described in the Cadence, HLDS and CCT pro forma financial information contained
herein, will differ materially from those which actually transpire. Failure to
consummate the CCT Merger 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 CCT Merger is not
consummated. Any of the foregoing could have a material adverse effect on
Cadence's business, financial condition and results of operations.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
Cadence's operating expenses are partially based on its expectations
regarding future revenue. Cadence'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,
Cadence's business, financial condition and results of operations may be
affected significantly by lower revenue. In addition, a substantial portion of
Cadence'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 Cadence's operating results. Although Cadence's revenues are not
generally seasonal in nature, Cadence has experienced decreases in first quarter
revenue compared with the preceding fourth quarter, which is believed to result
primarily from the capital purchase cycle of Cadence's customers.
Cadence'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. Changes in the financial condition of Cadence's customers could have a
material adverse effect on Cadence's business, financial condition and results
of operations. In addition, the quarterly operating results of Cadence may vary
substantially from period to period depending on factors such as 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 Cadence's products; changes in pricing policies by Cadence
or its competitors; market acceptance of new and enhanced versions of Cadence's
products; the cancellation of licenses or maintenance agreements; the mix of
direct and indirect sales; changes in operating expenses; changes in Cadence's
strategy; seasonal factors; personnel changes;
foreign currency exchange rates; and general economic factors. Based on
Cadence's operating history and due to the foregoing factors, quarter to quarter
comparisons should not be relied upon as indicators of future performance.
17
<PAGE>
COMPETITION
Cadence competes in the highly competitive EDA industry, which continues to
be characterized by falling prices, rapid technological change and new market
entrants. Cadence'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. Cadence not only 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, but with actual and potential customers' internal EDA
software development and design services groups as well. Some of Cadence's
competitors may have substantially greater financial, marketing and
technological resources than Cadence. There can be no assurance that Cadence
will be able to compete successfully.
Because the EDA industry is labor-intensive rather than capital-intensive,
the number of Cadence'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 Cadence's products,
resulting in a significant decrease in the sales of Cadence's comparable product
which could materially adversely affect Cadence's business, financial condition
and results of operations.
Cadence has in the past discounted EDA product prices up to 60% off the list
prices. There can be no assurance that Cadence will not be required to discount
EDA product prices in the future, with a negative effect on profit margins of
the discounted product. If Cadence is unable to compete successfully against
current and future competitors, Cadence's business, financial condition and
results of operations will be materially and adversely affected.
MANAGEMENT OF GROWTH
Cadence has experienced rapid growth that has placed a significant strain
upon its management, operational and financial resources. Upon consummation of
the proposed Merger with HLDS and the CCT Merger, Cadence will need to integrate
a large number of new personnel, as well as operational, financial, management
control, accounting and reporting systems and procedures. Cadence'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 Cadence's business, financial
condition and results of operations.
DEPENDENCE ON ABILITY TO ATTRACT AND RETAIN PROFESSIONAL STAFF
Cadence has recently increased its focus on offering professional services
to its customers. Cadence's success will depend 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 Cadence offers.
Qualified project managers and senior technical staff are in great demand and
are likely to remain a limited resource for the foreseeable future. There can be
no assurance that Cadence 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, and any
inability to do so could impair Cadence's ability to adequately manage and
complete its existing projects and to bid for or obtain new projects. If
Cadence's employees are unable to achieve expected performance levels, Cadence's
business, financial condition and results of operations could be materially
adversely affected.
18
<PAGE>
RISK WITH REGARD TO INTELLECTUAL PROPERTY RIGHTS
Cadence relies principally upon trade secrets and copyright laws to protect
its intellectual property rights. In general, Cadence 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 Cadence's products or to obtain and use
information that Cadence regards as proprietary. Cadence 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 Cadence alleges misappropriation of Cadence's trade secrets, copyright
infringement, conspiracy and other illegalities, and Avant! has filed
counterclaims alleging federal and state antitrust violations. The court has not
yet issued a ruling on Cadence's request for a preliminary injunction or on the
defendant's counterclaims against Cadence. Cadence 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
Cadence's products and intellectual property rights to the same extent as do the
laws of the United States.
DEPENDENCE UPON KEY PERSONNEL
Cadence 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
Cadence 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 Cadence's business, financial condition
and results of operations, particularly if key personnel are subsequently
employed by a competitor. Cadence carries key man life insurance in the amount
of $10 million with respect to its President and Chief Executive Officer, Joseph
B. Costello.
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS; TRANSACTION EXPENSES AND WRITEOFFS
There can be no assurance that combining the business of Cadence with the
businesses of CCT and HLDS, even if achieved in an efficient and effective
manner, will result in combined results of operations and financial condition
superior to what would have been achieved by each company independently. The
issuance of the Cadence Common Stock in connection with the mergers is likely to
have a dilutive effect on Cadence's earnings per share. See "Summary--Selected
Historical and Pro Forma Financial Information--Cadence and HLDS Unaudited
Selected Pro Forma Combined Financial Data" and "--Cadence, HLDS and CCT
Unaudited Selected Pro Forma Combined Financial Data." Certain costs are
generally associated with transactions such as the mergers and may be incurred
by Cadence in connection with the mergers, including the writeoff of capitalized
software, severance payments, closing of excess facilities and disposition of
excess equipment. In addition, Cadence currently estimates that approximately
$91.7 million of the purchase price will be allocated to in-process research and
development and will be charged to expense in the period the Merger is
consummated. Such charge will adversely affect operating results of Cadence in
the period in which it is incurred.
VOLATILITY OF STOCK PRICES
The market price of the Cadence Common Stock has been and may continue to be
volatile. This volatility may result from a number of factors, including
fluctuations in Cadence's quarterly revenues and net income, announcements of
technical innovations or new commercial products by Cadence or its competitors,
and market conditions in the EDA, semiconductor, telecommunications, computer
hardware and computer software industries. In addition, the stock market has
experienced and continues to
19
<PAGE>
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 Cadence Common Stock in future periods.
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS OPERATIONS
Revenues from international operations accounted for approximately one-half
of Cadence's total revenues for the four fiscal years ended December 30, 1995
and the nine months ended September 28, 1996. Cadence expects that international
revenues will continue to account for a significant portion of its total
revenues. Cadence'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 Cadence conducts business
could also materially adversely affect Cadence's business and operating results.
Cadence enters into foreign currency forward contracts to hedge the impact of
foreign currency fluctuations. Although Cadence attempts to reduce the impact of
foreign currency fluctuations, significant exchange rate movements may have a
material adverse effect on Cadence's business, financial condition and results
of operations. Furthermore, there can be no assurance that in the future Cadence
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 Cadence's products and
intellectual property rights to the same extent as do the laws of the United
States. Cadence is required to have United States Department of Commerce export
licenses for shipment 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 results of
operations. There can be no assurance that Cadence will be able to sustain or
increase international revenues or that the foregoing factors will not have a
material adverse effect on Cadence's future international revenues and,
consequently, on Cadence's overall business, financial condition and results of
operations.
ANTITAKEOVER PROVISIONS
Cadence has adopted a number of provisions that could have antitakeover
effects. In February 1996, Cadence's Board of Directors adopted a Share Purchase
Rights Plan, commonly referred to as a "poison pill". In addition, the 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 Cadence's
Restated Certificate of Incorporation (the "Restated Certificate") and Bylaws
and the DGCL may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of Cadence, including transactions
in which the stockholders of Cadence might otherwise receive a premium for their
shares over then current market prices.
RIGHTS OF HOLDERS OF HLDS CAPITAL STOCK FOLLOWING THE MERGER
Following the Merger, holders of HLDS Capital Stock outstanding as of the
Effective Date will become holders of Cadence Common Stock. Certain material
differences exist between the rights of stockholders of HLDS under HLDS'
Restated Certificate of Incorporation and HLDS' Bylaws and the rights of
stockholders of Cadence under the Restated Certificate and Cadence's Bylaws. As
a result of these material differences, the rights of holders of Cadence Common
Stock may be generally more limited
20
<PAGE>
than those of holders of HLDS Capital Stock. See "Comparison of the Rights of
Holders of Cadence Common Stock and Holders of HLDS Capital Stock."
21
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to HLDS' stockholders in
connection with the solicitation of proxies by the HLDS Board of Directors for
use at the HLDS Special Meeting. Each copy of this Proxy Statement/Prospectus
mailed to the HLDS stockholders is accompanied by a form of proxy for use at the
HLDS Special Meeting. This Proxy Statement/Prospectus is also being furnished by
Cadence to holders of HLDS Capital Stock as a prospectus in connection with the
shares of the Cadence Common Stock to be issued upon consummation of the Merger.
THE HLDS SPECIAL MEETING
PURPOSE OF THE HLDS SPECIAL MEETING
The purpose of the HLDS Special Meeting is to approve and adopt the
Reorganization Agreement and approve the Merger and to transact such other
business as may properly come before the HLDS Special Meeting or any adjournment
or postponement thereof.
DATE, TIME AND PLACE OF MEETING
The HLDS Special Meeting will be held at HLDS' principal executive offices
located at 3945 Freedom Circle, Fourth Floor, Santa Clara, California on
, 199 at , local time.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of HLDS Capital Stock at the close of business on
, 1996 (the "Record Date") are entitled to notice of, and to vote at,
the HLDS Special Meeting. As of the Record Date, there were 94 stockholders of
record holding an aggregate of approximately 11,045,164 shares of HLDS Common
Stock and one stockholder holding 600,000 shares of HLDS Preferred Stock. See
"HLDS Principal Stockholders." Except for the stockholders identified herein
under "HLDS Principal Stockholders," as of the Record Date, to the knowledge of
HLDS, no other person beneficially owns more than 5% of the outstanding HLDS
Common Stock.
This Proxy Statement/Prospectus was mailed to all HLDS stockholders of
record as of the Record Date and constitutes notice of the HLDS Special Meeting
in conformity with the requirements of the DGCL.
VOTING OF PROXIES
All properly executed proxies that are not revoked will be voted at the HLDS
Special Meeting in accordance with the instructions contained therein. If a
proxy is signed and returned without indicating any voting instructions, the
shares of HLDS Capital Stock represented by the proxy will be voted FOR the
proposal to approve and adopt the Reorganization Agreement and approve the
Merger in accordance with the recommendation of the Board of Directors of HLDS
and FOR adjournment or postponement of the HLDS Special Meeting if an
adjournment or postponement, in the discretion of the proxy holders, is
determined to be necessary or desirable for purposes of soliciting additional
proxies. A stockholder who has executed and returned a proxy may revoke it at
any time before it is voted at the HLDS Special Meeting by (i) executing and
returning a proxy bearing a later date, (ii) filing written notice of such
revocation with the Corporate Secretary of HLDS stating that the proxy is being
revoked or (iii) attending the HLDS Special Meeting and voting in person. All
written notices of revocation and other communications with respect to
revocation of HLDS proxies should be addressed to: High Level Design Systems,
Inc., 3945 Freedom Circle, Fourth Floor, Santa Clara, CA 95054, Attention:
Corporate Secretary. Attendance at the HLDS Special Meeting, in and of itself,
will not constitute a revocation of a proxy.
22
<PAGE>
VOTE REQUIRED
Approval and adoption of the Reorganization Agreement and approval of the
Merger requires the affirmative vote of holders of a majority of the outstanding
HLDS Common Stock and HLDS Preferred Stock, voting together as a single class.
Each stockholder of record of HLDS Capital Stock on the Record Date is entitled
to cast one vote per share, exercisable in person or by properly executed proxy,
on each matter properly submitted for the vote of the stockholders of HLDS at
the HLDS Special Meeting.
Pursuant to the Cadence Voting Agreements, J. George Janac, President, Chief
Executive Officer, Chief Technical Officer and Vice President, Research and
Development of HLDS, Dennis DeCoste, Chairman of the Board of HLDS, Robert P.
Wiederhold, Executive Vice President and Chief Operating Officer of HLDS, and
Peter S. Teshima, Vice President, Finance and Administration, and Chief
Financial Officer of HLDS, who hold in the aggregate approximately 29% of the
outstanding HLDS Capital Stock, have agreed that, prior to the earlier of the
valid termination of the Reorganization Agreement or the Effective Time, they
will vote their shares in favor of the adoption and approval of the
Reorganization Agreement and approval of the Merger and against (i) any actions
that would result in a breach of any covenant, representation or warranty under
the Reorganization Agreement and (ii) certain transactions which could
reasonably be expected to impede, interfere with, delay or adversely affect the
economic benefits to Cadence under the Reorganization Agreement. The Cadence
Voting Agreements also include agreements with respect to the voting of shares
of HLDS Common Stock for 180 days after the valid termination of the
Reorganization Agreement in certain circumstances. Such HLDS stockholders have
also delivered to Cadence an irrevocable proxy with respect to the matters
covered by the Cadence Voting Agreements. In addition, subject to certain
exceptions, such persons have agreed not to sell, transfer, dispose of, encumber
or otherwise reduce beneficial ownership of, or risk relating to, their shares
of HLDS Common Stock beneficially owned or subsequently acquired by them until
the Effective Time or the valid termination of the Reorganization Agreement. See
"Approval of the Merger and Related Transactions-- Voting Agreements."
Pursuant to a Voting Agreement dated as of June 24, 1994 between Sumitomo
Corporation ("Sumitomo") and HLDS (the "Sumitomo Voting Agreement"), Sumitomo
has agreed to vote its 600,000 shares of HLDS Preferred Stock (representing
approximately 5.2% of the outstanding HLDS Capital Stock as of September 30,
1996) in accordance with the recommendations of the Board of Directors of HLDS
in not less than the same proportion as the votes cast by the other holders of
HLDS Capital Stock. In addition, in connection with the Sumitomo Voting
Agreement, Sumitomo has granted to HLDS an irrevocable proxy to vote all of the
HLDS Preferred Stock held by Sumitomo as HLDS in its sole discretion deems
proper in respect of any meeting or written consent. Accordingly, it is expected
that Sumitomo will vote its HLDS Preferred Stock for the approval and adoption
of the Reorganization Agreement and approval of the Merger in at least the same
proportion as the votes cast by the holders of HLDS Common Stock. SC Hightech
Corporation, a division of Sumitomo, is HLDS' Japanese distributor.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF HLDS HAS UNANIMOUSLY APPROVED THE REORGANIZATION
AGREEMENT AND THE MERGER, AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE
REORGANIZATION AGREEMENT AND APPROVAL OF THE MERGER BY THE STOCKHOLDERS OF HLDS.
QUORUM; ABSTENTIONS
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of HLDS Capital Stock entitled to vote at the
HLDS Special Meeting is necessary to constitute a quorum. Abstentions will be
counted for purposes of determining a quorum, but will have the effect of a vote
against approval of the matters being voted upon.
23
<PAGE>
SOLICITATION OF PROXIES; EXPENSES
Regardless of whether the Merger is consummated, each of HLDS and Cadence
will pay its own costs and expenses incurred in connection with the
Reorganization Agreement, the other agreements contemplated thereby and the
transactions contemplated by the Reorganization Agreement, except that fees and
expenses (other than attorneys' and accountants' fees) incurred in connection
with printing and filing of the Registration Statement and this Proxy
Statement/Prospectus will be shared equally by HLDS and Cadence.
Subject to the foregoing, the cost of the solicitation of proxies and all
related costs will be borne by HLDS. In addition, HLDS may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
facsimile or personal solicitation, without payment of additional compensation,
by certain directors, officers or regular employees of HLDS.
APPRAISAL RIGHTS
Stockholders of HLDS who do not vote in favor of the Merger may, under
certain circumstances and by following procedures prescribed by Section 262 of
the DGCL, exercise appraisal rights and receive cash for their shares of HLDS
Capital Stock. A stockholder of HLDS who wishes to exercise appraisal rights
must follow the appropriate procedures under the DGCL or suffer the termination
or waiver of such rights. See "Approval of the Merger and Related
Transactions--Appraisal Rights."
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
BACKGROUND OF THE MERGER
As the design feature sizes of IC process technologies have moved to
submicron and deep submicron levels, the EDA industry in general has focused on
the development of enabling technologies that will address the complexity of IC
design in this environment. The technologies that have been developed by EDA
companies to date are diverse and reflect different technological and analytical
approaches to the difficulties in solving the need for cost efficient design
planning tools and interface environments for the design of deep submicron ICs.
This diversity has created an opportunity for the development of an EDA
infrastructure that can effectively integrate "best of breed" deep submicron
tools and technologies in solving the problems of deep submicron ICs. HLDS has
structured its fundamental technology and product development strategies to take
advantage of this opportunity.
In August 1996, the HLDS Board of Directors and senior management commenced
a strategic reevaluation of HLDS' business plan with principal focus on
technology and competitive trends in the EDA software industry, HLDS' financial
performance on both a historical and projected basis, its technology and product
development strategies in EDA design tools and infrastructures, and the
financial and management resources that would be required to realize these
strategies. As a result of this reevaluation, the Board directed HLDS'
management to begin exploring funding alternatives to enable HLDS to secure the
additional working capital that would be required to execute the strategies
contained in its business plan. At the same time, the HLDS Board of Directors
instructed J. George Janac, and Robert P. Wiederhold to initiate contacts with a
number of other EDA companies to determine their possible interest in a joint
technology arrangement, minority investment, merger or other strategic
relationship consistent with HLDS' technology and product development
strategies.
In early September 1996, Messrs. Janac and Wiederhold reported to the HLDS
Board of Directors the status of their preliminary contacts with a number of EDA
companies, which included Avant! Corporation ("Avant!"), Cadence, CCT, EPIC
Design Technology ("EPIC"), Mentor Graphics ("Mentor Graphics") and Synopsys
Corporation ("Synopsys"). These contacts were undertaken in the context of
determining the suitability of a strategic relationship that would enable HLDS
to continue pursuit of its
24
<PAGE>
technology and product development strategies consistent with continuing trends
in the EDA marketplace. The HLDS Board of Directors at this time also considered
the benefits and challenges to HLDS of continuing on an independent path without
seeking to establish a strategic relationship with another EDA company. In this
regard, the HLDS Board of Directors reviewed HLDS' anticipated financial
performance for the foreseeable term, the limited working capital levels of HLDS
and the funding alternatives available to HLDS. To assist HLDS in its continuing
discussions and analyses concerning a strategic relationship with another EDA
company, on September 7, 1996, HLDS engaged DMG as its financial advisor.
During the month of September 1996, Messrs. Janac and Wiederhold, with the
assistance of representatives of DMG, continued their discussions with
management representatives of other EDA companies, with increasing focus on
Avant!, Cadence and EPIC. These discussions generally concentrated on the
technology and product development strategies of the respective companies and
the objectives that might be realized through a strategic relationship. As these
discussions progressed, they increasingly focused on a strategic relationship in
the form of a merger. HLDS and each of Avant!, Cadence and EPIC entered into
non-disclosure agreements which generally required each company to maintain in
confidence any proprietary information of the other that was received in the
course of contacts between the companies.
In early September 1996, Avant! communicated to HLDS and its financial
advisors the outlines of a general merger proposal. Cadence provided a term
sheet to HLDS and representatives of DMG on September 23, 1996, setting forth
the suggested terms of a possible merger with HLDS. On September 25, 1996, HLDS
also received a term sheet from EPIC with respect to a possible merger
transaction. Each proposal was given only to determine the utility of continuing
discussions concerning a strategic transaction and was subject to a number of
conditions, including satisfactory completion of a diligence review of HLDS'
business. During the entire period of its contacts with Avant!, Cadence, EPIC
and other EDA companies, HLDS, through its management representatives and its
financial and legal advisors, was careful to maintain the confidentiality of the
transaction terms discussed with or proposed by any company, and to ensure that
all EDA companies contacted by HLDS which had expressed interest in a possible
strategic relationship with HLDS were given a fair opportunity to develop a
proposal for consideration by the HLDS Board of Directors.
The HLDS Board of Directors met with its financial and legal advisors on
September 26, 1996 to consider all proposals and other expressions of interest
that had been made to date. The HLDS Board of Directors' deliberation included a
review of the terms of each of the proposals, the strategic benefits and
synergies that might be realized through a merger combination with each of the
three interested parties, and a financial presentation from the representatives
of DMG concerning the attributes of a combination with each of the three
parties. Although the valuation of HLDS that was contained in the proposal from
Cadence was substantially in excess of the proposals from the other companies,
the HLDS Board of Directors instructed the management of HLDS and HLDS'
financial advisors to continue discussions with all interested parties and to
ensure that all interested parties were given the opportunity to submit a fully
developed proposal.
Beginning on September 27, 1996, and continuing for several days thereafter,
management teams from Cadence and HLDS and their respective financial and legal
advisors conducted a series of meetings to continue the exchange of
technological, operational and financial information and to negotiate the terms
of a merger of HLDS with Cadence, including the valuation of HLDS.
The HLDS Board of Directors met in the late evening of October 2 and again
in the early morning of October 3, 1996 to consider the proposed merger
agreements in draft form and the negotiated terms of the merger transaction with
Cadence. At those meetings, it was noted that HLDS had not received any further
substantive communication from any other interested EDA company.
The Cadence Board of Directors unanimously approved the Reorganization
Agreement on October 2, 1996, and the Reorganization Agreement was unanimously
approved by the HLDS Board of Directors at
25
<PAGE>
its meeting on October 3, 1996. The Reorganization Agreement in definitive form
was executed and jointly announced by HLDS and Cadence in the morning on October
3, 1996.
HLDS REASONS FOR MERGER
The HLDS Board of Directors considered a wide variety of information and a
number of factors in connection with its evaluation of the Merger and the
Reorganization Agreement, and has unanimously approved the Reorganization
Agreement as being fair and in the best interests of HLDS and its stockholders.
Accordingly, the HLDS Board of Directors unanimously recommends a vote for
approval and adoption of the Reorganization Agreement and approval of the Merger
by the stockholders of HLDS.
The HLDS Board of Directors believes that the Merger may result in a number
of benefits to HLDS and its stockholders, including the following:
(i) Cadence develops, markets and supports a broad range of technologies and
products focused on the design of complex deep submicron gate array and
cell-based IC designs. The HLDS Board of Directors believes that
Cadence's products and technologies, and the markets they serve, are
complementary to the EDA software tools and infrastructures offered by
HLDS, and will enable the combined companies to offer an integrated
methodology and process that will enable the successful creation,
verification and integration of complex functional blocks into
system-level chips. The HLDS Board of Directors also believes that
Cadence's strategy of developing more predictive and integrated methods
and software tools for linking the logical and physical aspects of IC
design in a deep submicron environment closely matches the established
technology and product development strategies of HLDS.
(ii) The combination of technology, financial and management resources and
access to Cadence's distribution channels and broader markets resulting
from the Merger, in the opinion of the HLDS Board of Directors,
represent a significant growth opportunity for HLDS and may enhance
HLDS' financial performance.
(iii) In the opinion of the HLDS Board of Directors, access to the
technologies and the product development resources of Cadence in the
Merger will enable HLDS to respond more effectively to the rapid
technological change and continuing emergence of competing products
that characterize the EDA industry.
In addition, because the market value of the Cadence Common Stock to be
received in the Merger by the holders of HLDS Capital Stock, based on the
Exchange Ratio, represented a significant premium to the market value of the
HLDS Capital Stock in the relevant periods prior to the public announcement of
the proposed Merger, the HLDS Board of Directors also believes that the Merger
is fair and in the best interests of the stockholders of HLDS.
The HLDS Board of Directors considered a wide variety of information and a
number of factors in connection with its evaluation of the Reorganization
Agreement, and determined that the proposed Merger provides an opportunity that
serves the best interests of HLDS and its stockholders. The principal reasons in
support of the HLDS Board of Directors' unanimous decision to approve the
Reorganization Agreement and the proposed Merger are the following:
(i) The HLDS Board of Directors evaluated the likelihood of realizing
superior benefits through alternative business strategies, including the
business and financial prospects of HLDS if it were to continue as an
independent company or if it were to enter into a joint technology
arrangement, minority equity investment, merger or other strategic
relationship with other companies in the EDA software industry. In
evaluating the prospects of HLDS as an independent entity, the HLDS
Board of Directors considered a number of factors, including market
growth, dynamics of change in the EDA software industry and the
anticipated emergence of competing products and
26
<PAGE>
technologies, HLDS' historical and anticipated financial performance,
the financial and management resources available to HLDS, HLDS' internal
technology and product development strategies and HLDS' ability to
license or otherwise acquire relevant technology from outside parties.
In evaluating the prospects of a merger with other EDA companies, the
HLDS Board of Directors deliberated the potential merits and
disadvantages of a combination with each of a number of such companies,
including Avant!, Cadence, EPIC, Mentor Graphics and Synopsys. This
deliberation was based on technology, marketing, financial and other
data available to HLDS either publicly or through contacts with such
companies initiated by HLDS or its financial advisors to determine
levels of interest in a potential strategic transaction with HLDS.
(ii) In respect of the various alternatives considered, including the
possibility of a combination with Cadence, the HLDS Board of Directors
reviewed a variety of information furnished by HLDS' management and
advisors and, in respect of certain information concerning a possible
combination with Cadence, by Cadence. This information addressed
business operations and prospects, financial information, technology
objectives and position in the EDA software industry generally, market
focus, management strength, operating philosophies, recent market
prices and trading information of the stock of Cadence and of HLDS, and
potential synergies which might be realized in a combination. The HLDS
Board of Directors believes that the fundamental technology and product
development strategies of Cadence are consistent with HLDS' strategies
and that the combination of the two companies should support and
enhance HLDS' business plan as a result of technology and product
development synergies, combined financial, management and marketing
resources, a stronger business base and other factors. For these
reasons and in view of the other benefits to be realized in the Merger,
the HLDS Board of Directors was persuaded that the combination with
Cadence would give the stockholders of HLDS the opportunity to realize
a short-term as well as long-term benefit based on the potential
success of the combined companies.
(iii) The HLDS Board of Directors believes that the consideration to be
received by the stockholders of HLDS in the Merger, consisting of
Cadence Common Stock based on the Exchange Ratio, resulted in
transaction statistics that compared favorably with other acquisition
transactions in the EDA software industry, and concluded that the
premium represented by the Cadence Common Stock to be received in the
Merger was favorable to the HLDS stockholders. In its evaluation of
premium data, the HLDS Board of Directors also considered the
comparative premiums of a merger transaction with Avant! and EPIC based
on preliminary valuations of HLDS that had been communicated by these
companies to HLDS in the course of their discussions with HLDS'
management concerning a possible merger transaction. These comparative
premiums were substantially less than the premium inherent in the
Cadence Common Stock based on the Exchange Ratio at the signing date of
the Reorganization Agreement.
(iv) Because the Merger consideration consists of Cadence Common Stock and
not cash or other non-equity consideration (except in the case of
fractional shares which shall be exchanged for cash), the Merger will
offer the stockholders of HLDS the opportunity to continue to
participate in the growth and appreciation of the business conducted by
the combined companies.
(v) The HLDS Board of Directors considered the oral opinion of DMG,
subsequently confirmed in writing, that the Exchange Ratio in the Merger
was fair from a financial point of view to the holders of HLDS Capital
Stock.
(vi) As a result of the Merger, the stockholders of HLDS will hold Cadence
Common Stock which will provide the stockholders of HLDS with increased
investment liquidity.
The HLDS Board of Directors believes that the Merger is in the best
interests of HLDS and its stockholders, notwithstanding the following
potentially negative factors: (i) the potential disruption of HLDS' business
that might result from employee uncertainty and lack of focus following
announcement of
27
<PAGE>
the Merger in connection with integrating the operations of HLDS and Cadence;
(ii) the possibility that the Merger might not be consummated, and the effects
of the public announcement of the Merger on HLDS' sales and operating results,
its ability to attract and retain key management, marketing and technical
personnel and the progress of certain of its development projects; (iii) the
risk that despite the intentions and the efforts of the parties to support their
respective products, the announcement of the Merger could result in decisions by
customers to defer purchases of products of HLDS or Cadence; and (iv) the risk
that the other benefits sought to be achieved by the Merger will not be
achieved.
In view of the complexity and variety of factors considered by the HLDS
Board of Directors in connection with its evaluation of the Reorganization
Agreement and the proposed Merger, the HLDS Board of Directors did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching this determination.
CADENCE REASONS FOR THE MERGER
Cadence believes that the combined technological strength and common vision
of Cadence and HLDS will enable the combined companies to accelerate the
delivery of an efficient solution for the design of ICs implemented in .35
submicron technology. Cadence believes that the companies have excellent
synergies in both technology and sales and marketing with minimal overlap. In
particular, Cadence believes that the technical and market strengths of HLDS in
advanced IC design planning coupled with Cadence's traditional strength in
custom layout, automated place and route and verification will offer customers a
superior solution for advanced IC design. Cadence believes that anticipated near
term advances in semiconductor technology will create a strong demand for design
automation tools and services. As a result of these factors, Cadence believes
that the Merger will position the combined companies to benefit from growing
market demand.
OPINION OF DEUTSCHE MORGAN GRENFELL INC.
HLDS retained DMG to act as its financial advisor in connection with the
Merger. DMG was selected by the HLDS Board of Directors based on DMG's
qualifications, expertise and reputation.
At the meeting of the HLDS Board of Directors on October 3, 1996, DMG
rendered its oral opinion, subsequently confirmed in writing (the "Opinion"),
that, as of such date, based upon and subject to the various considerations set
forth in the Opinion, the Exchange Ratio was fair from a financial point of view
to the holders of HLDS Capital Stock.
The full text of the written Opinion of DMG, dated October 3, 1996, which
sets forth, among other things, assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken by DMG in
rendering the Opinion, is attached as Appendix B to this Proxy Statement/
Prospectus. HLDS stockholders are urged to read the Opinion carefully and in its
entirety. DMG did not recommend to HLDS that any specific exchange ratio
constituted the only appropriate exchange ratio for the Merger. The Opinion
addresses only the fairness of the Exchange Ratio from a financial point of view
to the holders of HLDS Capital Stock as of the date of the Opinion, and does not
constitute a recommendation to any stockholder of HLDS as to how such
stockholder should vote at the HLDS Special Meeting. The summary of the Opinion
set forth in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of the Opinion.
In rendering the Opinion, DMG, among other things: (i) analyzed certain
publicly available financial statements and other information of HLDS and
Cadence, respectively; (ii) analyzed certain internal financial statements and
other financial and operating data concerning HLDS prepared by the management of
HLDS; (iii) analyzed certain financial projections relating to HLDS prepared by
the management of HLDS; (iv) discussed the past and current operations and
financial condition and the prospects of HLDS with senior executives of HLDS;
(v) discussed the past and current operations and financial condition and the
prospects of Cadence with senior executives of Cadence; (vi) analyzed the pro
forma
28
<PAGE>
impact of the Merger on the earnings per share, consolidated capitalization and
other financial ratios of Cadence; (vii) reviewed the reported prices and
trading activity for the HLDS Common Stock and the Cadence Common Stock,
respectively; (viii) compared the financial performance of HLDS and Cadence and
the prices and trading activity of the HLDS Common Stock and the Cadence Common
Stock with that of certain other comparable publicly-traded companies and their
securities; (ix) reviewed the financial terms, to the extent publicly available,
of certain comparable merger and acquisition transactions; (x) participated in
discussions and negotiations among representatives of HLDS and Cadence and their
respective financial and legal advisors; (xi) participated in discussions with
third parties other than Cadence regarding a potential strategic combination
with HLDS; (xii) reviewed the Reorganization Agreement and certain related
agreements; and (xiii) performed such other analyses and considered such other
factors as DMG deemed appropriate.
In rendering the Opinion, DMG assumed and relied upon, without independent
verification, the accuracy and completeness of the information reviewed by it
for the purposes of the Opinion. DMG assumed that the financial projections were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of HLDS. DMG did not make any
independent valuation or appraisal of the assets, liabilities or technology of
HLDS or Cadence, respectively, and was not furnished with any such appraisals.
The Opinion states that it is necessarily based on economic, market and other
conditions in effect on, and the information made available to DMG as of, the
date of the Opinion.
The following is a summary of the analysis performed by DMG in preparation
of the Opinion and reviewed with the HLDS Board of Directors at meetings held on
September 26, 1996 and October 3, 1996.
COMPARATIVE STOCK PRICE PERFORMANCE. As part of its analysis, DMG reviewed
the recent stock price performance of the HLDS Common Stock and the Cadence
Common Stock and compared such performance with that of other companies involved
in the EDA software sector, including Avant!, EPIC, Mentor Graphics and Synopsys
(collectively, the "EDA Companies"). DMG observed that over the period from June
7, 1995, the date of the initial public offering of Avant!, to September 23,
1996, the market price of the HLDS Common Stock increased 64%, compared with
increases of 175% for Cadence, 61% for Synopsys, 65% for EPIC, 5% for Avant! and
a decrease of 30% for Mentor Graphics. DMG noted that over such period, the HLDS
Common Stock underperformed relative to the Cadence Common Stock and the common
stock of EPIC, and outperformed relative to the common stock of Avant!, Mentor
Graphics and Synopsys. This analysis was provided to the HLDS Board of Directors
for background information only and was one of the many factors considered by
DMG in rendering the Opinion. No conclusions can be independently drawn from
such analysis.
EXCHANGE RATIO ANALYSIS. DMG reviewed the ratios of the closing prices of
HLDS Common Stock to Cadence Common Stock for each day over various periods
ending September 25, 1996 and computed the premium represented by various
exchange ratios over the average of these daily ratios over the various periods.
The average of the daily ratios of the closing prices of HLDS Common Stock to
Cadence Common Stock for the various periods ending on September 25, 1996 were
0.185 for the previous 60 days; 0.176 for the previous 45 days; 0.179 for the
previous 30 days; 0.184 for the previous 20 days; 0.195 for the previous 10
days; and 0.189 for September 25, 1996. The Exchange Ratio (0.22) represented a
premium of 19.0%, 24.9%, 23.0%, 19.5%, 12.5% and 16.6%, respectively, over the
aforementioned ratios of the HLDS Common Stock and Cadence Common Stock prices.
DMG observed that the Exchange Ratio was greater than the ratios of HLDS Common
Stock to Cadence Common Stock prices over various periods during the previous 60
days. This analysis was provided to the HLDS Board of Directors for background
information only and was one of the many factors considered by DMG in rendering
the Opinion. No conclusions can be independently drawn from such analysis.
PEER GROUP COMPARISON. DMG compared certain financial information of HLDS
and Cadence with a group of companies involved in the EDA software sector
including, among others, the EDA Companies.
29
<PAGE>
Such financial information included, among other things, market valuation, stock
price as a multiple of earnings per share and aggregate market capitalization as
a multiple of revenues. The multiples are based on a compilation of publicly
available information and earnings forecasts by securities research analysts for
the EDA Companies and HLDS management forecasts for HLDS. In particular, such
analysis showed that as of September 25, 1996, HLDS and Cadence traded at 44.1
and 23.5 times calendar year 1997 forecasted earnings, respectively, and HLDS
and Cadence traded at 6.4 and 4.4 times latest twelve months revenue,
respectively. DMG also observed that Avant! traded at 25.3 times calendar year
1997 forecasted earnings and 6.4 times latest twelve months revenue, EPIC traded
at 27.8 times calendar year 1997 forecasted earnings and 7.2 times latest twelve
months revenue and Synopsys traded at 28.2 times calendar year 1997 forecasted
earnings and 5.2 times latest twelve months revenue. This analysis was provided
to the HLDS Board of Directors for background information only and was one of
the many factors considered by DMG in rendering the Opinion. No conclusions can
be independently drawn from such analysis.
SELECTED PRECEDENT TRANSACTIONS. DMG reviewed 16 acquisition transactions
involving EDA and other software companies since 1994, none of which were deemed
directly comparable to the Merger. DMG compared some of the financial statistics
for these transactions with those for the Merger. The analysis showed a median
multiple of latest twelve months revenue of 4.9 times, a median multiple of
projected next twelve months earnings of 26.5 times and a median premium paid by
the acquiring company over the market price of the target company one day prior
to announcement of 28.0%. These statistics were compared with corresponding
multiples calculated based on the Exchange Ratio and the closing price of the
Cadence Common Stock of $36.875 on October 2, 1996. Such analyses resulted in
multiples of 8.7 times latest twelve months revenue, 58.3 times next twelve
months earnings, based on HLDS management estimates, and a premium of 62.6% to
the unaffected stock price for HLDS of $4.99 on September 6, 1996, the date
prior to a rise in the HLDS Common Stock. This analysis was provided to the HLDS
Board of Directors for background information only and was one of the many
factors considered by DMG in rendering the Opinion. No conclusions can be
independently drawn from such analysis.
INITIAL PUBLIC OFFERING VALUATION. DMG performed a preliminary analysis,
assuming that HLDS did not enter into a strategic combination transaction with
Cadence or any other third party, of the hypothetical trading value of the HLDS
Common Stock in the context of an initial public offering by HLDS in the United
States. Based on HLDS management estimates and assuming a range of multiples of
next twelve months earnings of 22.0 to 25.0 times, the analysis resulted in a
present value to the existing holders of HLDS Common Stock of between $4.39 and
$7.10. This analysis was provided to the HLDS Board of Directors for background
information only and was one of the many factors considered by DMG in rendering
the Opinion. No conclusions can be independently drawn from such analysis.
PRO FORMA ANALYSIS OF THE MERGER. DMG analyzed the pro forma effects of the
Merger on the earnings and capitalization of Cadence. Such analysis was based on
earnings estimates for Cadence based on securities research analyst forecasts
and HLDS management forecasts for HLDS. Based on such analysis, DMG observed
that, based on the Exchange Ratio and assuming that the Merger was treated as a
purchase for accounting purposes and assuming an annual goodwill amortization
expense of approximately $5 million, before taking into account any one-time
charges or any synergies resulting from the combination, the Merger would result
in a decrease in Cadence's earnings per share. This analysis did not take into
account the pro forma effects of the CCT Merger. This analysis was provided to
the HLDS Board of Directors for background information only and was one of the
many factors considered by DMG in rendering the Opinion. No conclusions can be
independently drawn from such analysis.
COMPARISON WITH OTHER PROPOSALS. DMG also compared the value of the
consideration to be received by the stockholders of HLDS pursuant to the Merger
to other proposals received by HLDS from third parties other than Cadence. DMG
observed that the price per share of HLDS Common Stock corresponding to the
Exchange Ratio was more favorable to the holders of HLDS Common Stock than the
price implied by such other proposals.
30
<PAGE>
In connection with the review of the Merger by the HLDS Board of Directors,
DMG performed a variety of financial and comparative analyses for purposes of
the Opinion. While the foregoing summary describes all material analyses and
factors reviewed by DMG with the HLDS Board of Directors, it does not purport to
be a complete description of the presentations by DMG to the HLDS Board of
Directors or the analyses performed by DMG in arriving at the Opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. DMG believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create a misleading view of the processes underlying the
Opinion. In addition, DMG may have given various analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuation resulting from
any particular analysis described above should not be taken to be DMG's view of
the actual value of HLDS or Cadence. In performing its analyses, DMG made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
HLDS or Cadence. The analyses performed by DMG are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to the
value of businesses or assets do not purport to be appraisals or to necessarily
reflect the prices at which businesses or assets may actually be sold. The
analyses performed were prepared solely as part of DMG's analysis of the
fairness of the Exchange Ratio, from a financial point of view, to the holders
of HLDS Common Stock and were provided to the HLDS Board of Directors in
connection with the delivery of the Opinion.
The HLDS Board of Directors retained DMG to act as HLDS' financial advisor
in connection with the Merger. DMG was selected by the HLDS Board of Directors
based on DMG's qualifications, expertise and reputation. DMG is an
internationally recognized investment banking and advisory firm. DMG, as part of
its investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. In the ordinary course of DMG's trading and brokerage
activities, DMG or its affiliates may at any time hold long or short positions,
may trade or otherwise effect transactions, for its own account or for the
account of customers, in debt or equity securities of HLDS or Cadence.
HLDS has agreed to pay DMG a fee for its financial advisory services in
connection with the Merger, including, among other things, rendering its Opinion
and making the presentation referred to above. Pursuant to a letter agreement
between HLDS and DMG dated September 7, 1996, HLDS has agreed to pay DMG an
advisory fee estimated to be between $50,000 and $100,000 if the Merger is not
consummated. In the event the Merger is consummated, the amount of the fee will
depend on the closing share price of the Cadence Common Stock over the ten
trading days up to and including the Closing Date. Based on the average per
share closing price of the Cadence Common Stock over the ten day period ended
November 4, 1996, DMG's fee would be approximately $2.1 million. In addition to
the foregoing compensation, HLDS has agreed to reimburse DMG for its
out-of-pocket expenses, and to indemnify DMG against certain liabilities and
expenses, including certain liabilities under the federal securities laws,
related to DMG's engagement. The terms of the fee arrangement with HLDS, which
HLDS and DMG believe are customary in transactions of this nature, were
negotiated at arm's length between HLDS and DMG, and the HLDS Board of Directors
was aware of such arrangement, including the fact that a significant portion of
the aggregate fee payable to DMG is contingent upon consummation of the Merger.
31
<PAGE>
MERGER CONSIDERATION
HLDS CAPITAL STOCK. At the Effective Time, each share of HLDS Capital Stock
then outstanding (except for any such shares held by HLDS as treasury stock, any
such shares held by Cadence, HLDS or any subsidiary of Cadence or HLDS and any
such shares for which appraisal rights have been properly exercised and
perfected in accordance with the DGCL) will be converted into the right to
receive Cadence Common Stock based on the Exchange Ratio.
FRACTIONAL SHARES. No fractional shares of Cadence Common Stock shall be
issued in connection with the Merger, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional shares, any holder
of HLDS Capital Stock who would otherwise be entitled to receive a fraction of a
share of Cadence Common Stock (after aggregating all fractional shares of
Cadence Common Stock issuable to such holder) shall, upon surrender of such
holder's stock certificate(s) representing HLDS Capital Stock to the Exchange
Agent, be paid, from the Exchange Agent, in cash the dollar amount (rounded to
the nearest whole cent), without interest, determined by multiplying such
fraction by the closing price of a share of Cadence Common Stock on the NYSE on
the Closing Date.
APPRAISAL RIGHTS. Stockholders of HLDS who do not vote in favor of the
Merger may, under certain circumstances and by following procedures prescribed
by Section 262 of the DGCL, exercise appraisal rights and receive cash for their
shares of HLDS Capital Stock.
STOCK SUBJECT TO CONDITIONS. If any shares of HLDS Capital Stock
outstanding immediately prior to the Effective Time are unvested or are subject
to a repurchase option, risk of forfeiture or other condition under any
applicable restricted stock purchase agreement or other agreement with HLDS,
then the shares of Cadence Common Stock issued in exchange for such shares of
HLDS Capital Stock will also be unvested and subject to the same repurchase
option, risk of forfeiture or other condition, and the certificates representing
such shares of Cadence Common Stock may accordingly be marked with appropriate
legends.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; NO FRACTIONAL
SHARES.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to the holders of HLDS Capital Stock (i) the Letter of Transmittal and (ii)
instructions for use in effecting the surrender of HLDS Stock Certificates in
exchange for certificates representing Cadence Common Stock. Upon surrender of
an HLDS Stock Certificate to the Exchange Agent for exchange, together with a
duly executed Letter of Transmittal and such other documents as may be
reasonably required by the Exchange Agent or Cadence, the holder of such HLDS
Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the whole number of shares of Cadence Common Stock that
such holder has the right to receive. No fractional shares of Cadence Common
Stock shall be issued in connection with the Merger, and no certificates for any
such fractional shares shall be issued. See "Merger Consideration--Fractional
Shares."
If any HLDS Stock Certificate has been lost, stolen or destroyed, Cadence
may require the owner of such lost, stolen or destroyed HLDS Stock Certificate
to provide an appropriate affidavit and to deliver a bond as indemnity against
any claim that may be made against the Exchange Agent, Cadence or HLDS with
respect to such HLDS Stock Certificate.
HLDS STOCKHOLDERS SHOULD NOT SURRENDER THEIR SHARE CERTIFICATES FOR EXCHANGE
UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
EFFECT ON CERTIFICATES
At the Effective Time, (i) all shares of HLDS Capital Stock outstanding
immediately prior to the Effective Time will automatically be canceled and
retired and shall cease to exist, and all holders of
32
<PAGE>
certificates representing shares of HLDS Capital Stock that were outstanding
immediately prior to the Effective Time shall cease to have any rights as
stockholders of HLDS, and (ii) the stock transfer books of the HLDS shall be
closed with respect to all shares of HLDS Capital Stock outstanding immediately
prior to the Effective Time. No further transfer of any such shares of HLDS
Capital Stock shall be made on such stock transfer books after the Effective
Time. If, after the Effective Time, an HLDS Stock Certificate is presented to
the Exchange Agent (or to HLDS or Cadence), such HLDS Stock Certificate shall be
canceled and shall be exchanged as provided above under the caption "Approval of
The Merger and Related Transactions--Conversion of Shares; Procedure for
Conversion of Shares; No Fractional Shares."
REGULATORY MATTERS
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after consummation of the Merger, the FTC or the Antitrust Division could take
such action under the federal antitrust laws as it deems appropriate in the
public interest, or other persons could take action under the antitrust laws,
including seeking to enjoin consummation of the Merger or the divestiture of
significant assets of Cadence or HLDS or their subsidiaries. HLDS and Cadence do
not believe that the consummation of the Merger will result in the violation of
any antitrust laws. However, there can be no assurance that a challenge to the
Merger on antitrust grounds will not be made, or, if such a challenge is made,
of what the result will be. Cadence does not have any obligation under the
Reorganization Agreement to (i) dispose or cause any of its subsidiaries to
dispose of any assets, (ii) discontinue offering any product or make any other
change to its operations or proposed operations or to the operations or proposed
operations of any of its subsidiaries, or (iii) make any commitment (to any
governmental body or otherwise) regarding its future operations, or the future
operations of its subsidiaries, or the future operations of HLDS or its
subsidiary (even though the disposition of such assets or the making of such
change or commitment might facilitate the obtaining of a required governmental
authorization or might otherwise facilitate the consummation of the Merger).
STOCK OPTIONS; BENEFIT PLANS
At the Effective Time, at the election of Cadence, either (i) all rights
with respect to HLDS Common Stock under each HLDS Option then outstanding shall
be converted into and become rights with respect to Cadence Common Stock, and
Cadence shall assume each such HLDS Option in accordance with the terms (as in
effect as of October 3, 1996) of the stock option plan under which it was issued
and the stock option agreement by which it is evidenced, or (ii) Cadence and
HLDS shall replace each such outstanding HLDS Option by issuing a reasonably
equivalent replacement stock option in substitution therefor. If Cadence assumes
the HLDS Options in accordance with clause "(i)" of the preceding sentence,
then, from and after the Effective Time, (A) each HLDS Option assumed by Cadence
may be exercised solely for shares of Cadence Common Stock, (B) the number of
shares of Cadence Common Stock subject to each such HLDS Option shall be equal
to the number of shares of HLDS Common Stock subject to such HLDS Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounding down to the nearest whole share (with cash, less the applicable
exercise price (as adjusted as set forth in clause "(C)" of this sentence),
being payable for any fraction of a share), (C) the per share exercise price
under each such HLDS Option shall be adjusted by dividing the per share exercise
price under such HLDS Option by the Exchange Ratio and rounding up to the
nearest cent, and (D) any restriction on the exercise of any such HLDS Option
shall continue in full force and effect and the term, exercisability, vesting
schedule and other provisions of such HLDS Option shall otherwise remain
unchanged; subject, however, in each case, to adjustment as appropriate to
reflect any stock split, stock dividend, reverse stock split, reclassification,
recapitalization or other similar transaction subsequent to the Effective Time.
Cadence has agreed to file with the Commission a Registration Statement on Form
S-8 relating to the shares of Cadence Common Stock issuable with respect to the
assumed or substituted HLDS Options no later than ten business days after the
Closing Date.
33
<PAGE>
Cadence agreed to allow HLDS to cause each HLDS Option with a per share
exercise price exceeding $7.315 to be modified by reducing such exercise price
prior to the Effective Time to an amount equal to $7.315. In connection with
such repricing, the holders of the repriced HLDS Options have agreed not to sell
the HLDS Common Stock issuable upon exercise of such HLDS Options prior to May
1, 1997. As of the Record Date, there were outstanding HLDS Options to purchase
2,725,000 shares of HLDS Common Stock held by an aggregate of 77 optionees. HLDS
Options to purchase 870,500 shares had an exercise price exceeding $7.315.
After the Effective Time, Cadence has agreed to make available to each
employee of the HLDS who continues as an employee of Cadence following the
Merger, employee benefit plans and policies of Cadence that are at least as
favorable as the plans and policies of Cadence in effect immediately prior to
the Effective Time, and has agreed to provide each such employee with credit
(for purposes of participation in Cadence's employee benefit plans and policies)
for service as an employee of HLDS prior to the Effective Time.
VOTING AGREEMENTS
Pursuant to the Cadence Voting Agreements, J. George Janac (who holds
approximately 1,800,000 shares of HLDS Common Stock and is the President, Chief
Executive Officer, Chief Technical Officer and Vice President, Research and
Development of HLDS); Dennis DeCoste (who holds approximately 963,042 shares of
HLDS Common Stock and is the Chairman of the Board of HLDS); Robert P.
Wiederhold (who holds approximately 545,000 shares of HLDS Common Stock and is
the Executive Vice President and Chief Operating Officer of HLDS); and Peter S.
Teshima (who holds approximately 50,000 shares of HLDS Common Stock and is the
Vice President, Finance and Administration of HLDS) (collectively, such HLDS
stockholders referred to as the "Subject Stockholders" and the 3,358,042 shares
of HLDS Common Stock held by the Subject Stockholders in the aggregate referred
to as the "Subject Shares"), who hold in the aggregate approximately 29% of the
outstanding HLDS Capital Stock, have agreed that, prior to the earlier of the
valid termination of the Reorganization Agreement or the Effective Time, they
will vote the Subject Shares in favor of the adoption and approval of the
Reorganization Agreement and against (i) any actions that would result in a
breach of any covenant, representation or warranty under the Reorganization
Agreement and (ii) certain transactions which could reasonably be expected to
impede, interfere with, delay or adversely affect the economic benefits to
Cadence under the Reorganization Agreement. The Cadence Voting Agreements also
provide that, if (a) an "Acquisition Proposal" (as defined below) is made and
publicly announced at any time prior to the HLDS Special Meeting and is not
"publicly withdrawn" prior to the HLDS Special Meeting, and (b) the
Reorganization Agreement and the Merger are not approved at such meeting by the
Required Vote, then, at any meeting of the stockholders of HLDS held, or
pursuant to any written consent of the stockholders of HLDS taken, within 180
days after the valid termination of the Reorganization Agreement, the Subject
Stockholders will vote the Subject Shares (1) against any Acquisition Proposal
and any related transaction or agreement; and (2) against any action which is
intended, or is likely, to facilitate the consummation of any transaction
contemplated by any Acquisition Proposal. An Acquisition Proposal shall be
deemed to have been "publicly withdrawn" only if (A) acting in good faith, the
party who made such Acquisition Proposal publicly announces the withdrawal of
such Acquisition Proposal; and (B) it is not reasonably expected that such
Acquisition Proposal will be resubmitted or that such party will make, submit or
announce any other Acquisition Proposal. The Cadence Voting Agreements expire
180 days following the valid termination of the Reorganization Agreement. See
"HLDS Management and Executive Compensation."
The Subject Stockholders have also delivered to Cadence an irrevocable proxy
with respect to matters covered by the Cadence Voting Agreements. In addition,
such persons have agreed not to sell, transfer, dispose of, encumber or
otherwise reduce beneficial ownership of or risk relating to the Subject Shares
or any HLDS Capital Stock subsequently acquired by them until the Effective Time
or the valid termination of the Reorganization Agreement.
34
<PAGE>
OPTION AGREEMENT
Pursuant to an Option Agreement dated as of October 3, 1996 between Cadence
and J. George Janac, Mr. Janac has granted to Cadence an option (the "Janac
Option") to purchase all (but not less than all) of Mr. Janac's 1,800,000 shares
of HLDS Common Stock at a price of $8.15 per share. The Janac Option is
exercisable at any time prior to its termination upon the occurrence of either
of the following events (each a "Purchase Event") (i) a "Triggering Event" (as
defined below) or (ii) the date of the HLDS Special Meeting if an Acquisition
Proposal has been publicly announced and not withdrawn prior to the HLDS Special
Meeting and the Reorganization Agreement is not adopted and approved by the
stockholders of HLDS at the HLDS Special Meeting; provided in each case that the
Reorganization Agreement is terminated. Pursuant to the Option Agreement, the
Janac Option terminates upon the earlier of (a) the Effective Date, (b) 180 days
after Cadence receives notice of a Purchase Event, or (c) the date upon which
the Reorganization Agreement is validly terminated in accordance with its terms
if a Purchase Event has not occurred on or prior to such date.
A "Triggering Event" is deemed to have occurred if: (i) the HLDS Board of
Directors withdraws or amends or modifies in a manner adverse to Cadence its
recommendation in favor of the Merger or approval or adoption of the
Reorganization Agreement following the making, submission or announcement of an
Acquisition Proposal; (ii) the HLDS Board of Directors approves, endorses or
recommends any Acquisition Proposal; (iii) HLDS enters into any letter of intent
or contract relating to any Acquisition Proposal; (iv) HLDS willfully fails to
hold the HLDS Special Meeting as promptly as practicable after this Registration
Statement is declared effective; or (v) a tender or exchange offer constituting
an Acquisition Proposal relating to securities of HLDS shall have been commenced
and HLDS shall not have sent to its securityholders, within ten business days
after the commencement of such tender or exchange offer, a statement disclosing
that HLDS recommends rejection of such tender or exchange offer.
An "Acquisition Proposal" is any offer or proposal (other than an offer or
proposal by Cadence) regarding: (i) any merger, consolidation, share exchange,
business combination or other similar transaction or series of related
transactions involving HLDS or any subsidiary of HLDS; (ii) any sale, lease,
exchange, transfer, license or disposition of a substantial portion of the
assets of HLDS or any subsidiary of HLDS in any one transaction or in a series
of related transactions; or (iii) any acquisition (by tender offer or
otherwise), in any one transaction or in a series of related transactions, of
record or beneficial ownership of more than 30% of the HLDS Capital Stock.
INDEMNITY AND ESCROW AGREEMENT
Pursuant to the Indemnity Agreement, the Indemnifying Stockholders have made
representations and warranties to Cadence and are required to deliver a
certificate to Cadence on the Closing Date with respect to the capitalization
and proprietary assets of HLDS. The Indemnity Agreement also provides that ten
percent of the Cadence Common Stock to be received by the Indemnifying
Stockholders in the Merger (the "Escrow Shares") will be held in an escrow
account (the "Escrow Account") as security for the indemnification obligations
in the Indemnity Agreement (as described below). In the event that Cadence
suffers any damages in connection with any breach of such representations and
warranties or of the certificate (each a "Specified Breach"), the Indemnifying
Stockholders have agreed, severally in proportion to the amount of their Cadence
Common Stock in the Escrow Account, to hold harmless and indemnify Cadence and
certain related persons for any damages suffered as a result of any such
Specified Breach. The Escrow Agreement provides that the Escrow Shares are the
sole and exclusive remedy for Cadence in the event of any Specified Breach and
that the Indemnifying Stockholders shall not be required to indemnify Cadence
except to the extent that damages from all Specified Breaches exceed $250,000.
Pursuant to the terms of the Indemnity Agreement, claims for indemnity under the
Indemnity Agreement must be made within ten days following the release of the
audit report for Cadence's 1997 audited financial statements.
35
<PAGE>
AFFILIATE AGREEMENTS
It is a condition to consummation of the Merger that each stockholder of
HLDS who may be deemed to be an affiliate, as such term is defined in Rule 145
of the Act, execute an agreement that prohibits the sale, transfer or other
disposition of Cadence Common Stock received by such stockholder of HLDS unless
at such time: (i) such sale, transfer or other disposition is effected pursuant
to an effective registration statement under the Act; (ii) such sale, transfer
or other disposition is made in conformity with the requirements of Rule 145
promulgated under the Act, as evidenced by a broker's letter and a
representation letter executed by such stockholder (satisfactory in form and
content to Cadence) stating that such requirements have been met; (iii) counsel
reasonably satisfactory to Cadence shall have advised Cadence in a written
opinion letter (satisfactory in form and content to Cadence), upon which Cadence
may rely, that such sale, transfer or other disposition will be exempt from
registration under the Act; or (iv) an authorized representative of the
Commission shall have rendered written advice to such stockholder to the effect
that the Commission would take no action, or that the staff of the Commission
would not recommend that the Commission take action, with respect to such sale,
transfer or other disposition, and a copy of such written advice and other
related communications with the Commission are delivered to Cadence.
EMPLOYMENT AGREEMENTS
Cadence has entered into employment agreements, each dated on or before
October 3, 1996, with J. George Janac and the following other key employees of
HLDS: Kevin Moynihan, Subra Nathan, Dave Murphy, Mark Bales, Steven Bernsen,
Clark Lau and Dane Collins (such other HLDS employees referred to as the "HLDS
Employees"). All such employment agreements become effective upon (and are
effective contingent upon) the effectiveness of the Merger and provide for the
employment of such persons for a period (the "Employment Period") of one year
(with the exception of Mr. Janac whose employment agreement provides for
employment for a period of two years).
If Cadence terminates an employment agreement with the HLDS Employees or Mr.
Janac without Cause (as defined below) during the Employment Period, then the
affected employee shall be entitled to continue to receive his salary from
Cadence (as specified in such employment agreement) for the greater of six
months (twelve months in the case of Mr. Janac) or the remaining period of such
employee's Employment Period. If an employee is terminated by Cadence for Cause,
Cadence shall have no further obligations to pay any salary or other
compensation to such employee. The employment agreements with the HLDS Employees
also contain certain non-competition covenants described below.
Cadence has also entered into an employment agreement dated as of October 2,
1996 with Robert P. Wiederhold which becomes effective upon (and is effective
contingent upon) the effectiveness of the Merger, and provides for an employment
period of one year. Subject to certain conditions, if Mr. Wiederhold voluntarily
terminates his employment during the one-year period following the employment
period, or if Cadence terminates Mr. Wiederhold's employment without Cause
during the two-year period following the Closing Date, Mr. Wiederhold shall be
entitled to continue to receive his salary from Cadence (as specified in his
employment agreement) until the earlier to occur of (i) Mr. Wiederhold becoming
an employee or consultant of another company, (ii) two years from the Closing
Date or (iii) only in the case of Mr. Wiederhold's voluntary termination after
the employment period, a violation of the non-competition covenant contained in
his employment agreement and described below. Subject to certain conditions, in
the case of either Mr. Wiederhold's voluntary termination after the employment
period or Cadence's termination without Cause during the employment period, Mr.
Wiederhold may continue his association with Cadence until October 1999. During
this period, Mr. Wiederhold's stock options shall remain outstanding and
continue to vest as scheduled. If Mr. Wiederhold is terminated for Cause,
Cadence shall have no further obligations to pay salary or other compensation to
Mr. Wiederhold. In addition, Mr. Wiederhold's employment agreement contains a
non-competition covenant as described below.
36
<PAGE>
Pursuant to the employment agreements, an employee's employment with Cadence
will be deemed to have been terminated for "Cause" if such employment is
terminated following: (i) any gross misconduct, fraud or bad faith on the part
of such employee in the performance of his employment; (ii) the conviction of
such employee of, or the entry by such employee of a guilty plea with respect
to, any felony; (iii) the material breach by such employee of his employment
agreement; or (iv) the repeated failure of such employee to perform reasonable
duties assigned to such employee by Cadence despite the delivery to such
employee of written notice of such failure.
NON-COMPETITION COVENANTS
J. George Janac has entered into a Non-Competition Agreement with Cadence
and HLDS, dated as of October 3, 1996 and effective as of the Closing Date. The
Non-Competition Agreement contains provisions restricting Mr. Janac, for a
period of two years following the Closing Date, from engaging in, or owning a
substantial interest of a business involving, "floorplanning" (including
analyzing physical placement or topological routing decisions) or "design
planning" in the semiconductor electronic design automation market and other
similar activities. In addition, the Non-Competition Agreement restricts Mr.
Janac from: (i) soliciting employees of HLDS, Cadence or any subsidiary of HLDS
or Cadence to leave his or her employment with such companies; (ii) employing
any person who shall have terminated his or her employment with HLDS, Cadence or
any subsidiary of HLDS or Cadence; or (iii) interfering with any commercial
relationship or prospective commercial relationship of HLDS, Cadence or any
subsidiary of HLDS or Cadence.
In addition, pursuant to the employment agreements described above between
Cadence and the HLDS Employees, the HLDS Employees have agreed that, for a
period of two years after the Closing Date, they will not work for any
electronic design automation company that competes with Cadence, when the work
performed by such HLDS Employee is in a software development or application
engineering capacity focused primarily on integrated circuit floorplanning or
design planning.
Robert Wiederhold, pursuant to his employment agreement described above, has
agreed that, subject to certain conditions, for a period of two years after the
Closing Date, he will not own (except solely as a holder of less than 5% of the
outstanding stock of a publicly traded company), manage, join, control, be
employed by, or provide services to an EDA company that competes with Cadence.
The non-competition restrictions for Messrs. Janac and Wiederhold and the
HLDS Employees shall be void in the event that any such employee's employment
with Cadence is terminated, at any time, by Cadence without Cause.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
OFFICERS AND DIRECTORS OF HLDS. Certain members of HLDS' management and
Board of Directors may be deemed to have certain interests in the Merger that
are in addition to their interests as stockholders of HLDS generally. As
described above under the caption "Employment Agreements", Cadence has entered
into employment agreements with J. George Janac and Robert P. Wiederhold and
certain other key employees of HLDS. The HLDS Board of Directors was aware of
these interests and considered them, among other matters, in approving the
Reorganization Agreement and the transactions contemplated thereby. Upon
effectiveness of the Merger, each such HLDS employee will be entitled to receive
the benefits under his respective employment agreement. Of the HLDS Options to
purchase 870,500 shares of HLDS Common Stock which will be repriced prior to the
Effective Time and which will be assumed or substituted for options to purchase
Cadence Common Stock at the Effective Time, HLDS Options to purchase 390,000
shares of HLDS Common Stock are held by six officers and/or directors of HLDS.
In addition, Cadence has agreed to indemnify officers and directors of HLDS from
and after the Effective Time for liabilities in connection with the transactions
contemplated by the Reorganization Agreement. See "The Reorganization
Agreement--Indemnification and Insurance."
37
<PAGE>
OFFICERS AND DIRECTORS OF CADENCE. No officer or director of Cadence has
any interest in the Merger that is in addition to his or her interest as a
stockholder of Cadence generally.
LISTING OF CADENCE COMMON STOCK ON NEW YORK STOCK EXCHANGE
It is a condition to HLDS' obligation to consummate the Merger that the
shares of Cadence Common Stock to be issued pursuant to the Reorganization
Agreement be approved for listing on the NYSE. An application has been filed for
listing such shares of Cadence Common Stock on the NYSE.
MERGER EXPENSES AND FEES AND OTHER COSTS
Cadence and HLDS estimate that they will incur direct transaction costs of
approximately $5.0 million associated with the Merger. See "Cadence and HLDS
Unaudited Pro Forma Financial Information."
Cadence and HLDS have agreed that, whether or not the Merger is consummated,
(i) all fees and expenses incurred in connection with the Reorganization
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such expenses (with the exception of the Termination Amount (as
defined below) and the fees set forth in clause "(ii)" of this sentence) and
(ii) Cadence and HLDS shall share equally all fees and expenses, other than
attorneys' and accountants' fees, incurred in connection with the printing and
filing of the Registration Statement of which this Proxy Statement/Prospectus is
a part and any amendments or supplements hereto. HLDS will be required to pay to
Cadence a nonrefundable fee in the amount of $2.5 million if the Reorganization
Agreement is terminated under certain circumstances. See "The Reorganization
Agreement--Expenses and Termination Fees."
HLDS has agreed to pay DMG a fee for its financial advisory services in
connection with the Merger, including, among other things, rendering its Opinion
and making the presentation referred to above. Pursuant to a letter agreement
between HLDS and DMG dated September 7, 1996, HLDS has agreed to pay DMG an
advisory fee estimated to be between $50,000 and $100,000 if the Merger is not
consummated. In the event the Merger is consummated, the amount of the fee will
depend on the closing share price of Cadence Common Stock over the ten trading
days up to and including the Closing Date. Based on the average per share
closing price of the Cadence Common Stock over the ten day period ending
November 4, 1996, DMG's fee would be approximately $2.1 million. In addition to
the foregoing compensation, HLDS has agreed to reimburse DMG for its
out-of-pocket expenses, and to indemnify DMG against certain liabilities and
expenses, including certain liabilities under the federal securities laws,
related to DMG's engagement. The terms of the fee arrangement with HLDS, which
HLDS and DMG believe are customary in transactions of this nature, were
negotiated at arm's length between HLDS and DMG, and the HLDS Board was aware of
such arrangement, including the fact that a significant portion of the aggregate
fee payable to DMG is contingent upon consummation of the Merger. See "Approval
of the Merger and Related Transactions--Opinion of Deutsche Morgan Grenfell
Inc."
ACCOUNTING TREATMENT
The Merger will be accounted for by Cadence under the "purchase" method of
accounting in accordance with generally accepted accounting principles. Under
the purchase method of accounting, the purchase price of the HLDS Capital Stock,
including direct and incremental costs of the Merger, will be allocated to the
assets acquired and liabilities assumed based upon their estimated fair value,
with the excess purchase consideration allocated to intangible assets and
goodwill. Cadence currently estimates that approximately $91.7 million of the
purchase price will be allocated to in-process research and development and will
be charged to expense in the period the Merger is consummated. Such charge will
adversely affect operating results of Cadence in the period in which it is
incurred. The remaining intangible assets and goodwill will be amortized over an
estimated life of three years.
38
<PAGE>
APPRAISAL RIGHTS
Stockholders of HLDS who do not vote in favor of the Merger may, under
certain circumstances and by following the procedure prescribed by Section 262
of the DGCL, exercise appraisal rights and receive cash for their shares of HLDS
Capital Stock. Stockholders of Cadence will not have appraisal rights under the
DGCL in connection with the Merger.
If a holder of HLDS Capital Stock exercises appraisal rights in connection
with the Merger under Section 262 of the DGCL ("Section 262"), any shares of
HLDS Capital Stock in respect of which such rights have been exercised and
perfected will not be converted into the applicable consideration as determined
by the Reorganization Agreement but instead will be converted into the right to
receive such consideration as may be determined by the Delaware Court of
Chancery (the "Court") to be due with respect to such shares pursuant to the
laws of the State of Delaware. This Registration Statement is being sent by
personal delivery or by mail to all holders of record of shares of HLDS Capital
Stock on the HLDS Record Date and constitutes notice of the appraisal rights
available to such holders under Section 262.
The following summary of the provisions of Section 262 is not intended to be
a complete statement of such provisions and is qualified in its entirety by
reference to the full text of Section 262, a copy of which is attached to this
Registration Statement as Appendix C and incorporated herein by reference.
Holders of shares of HLDS Capital Stock who object to the Merger and who
follow the procedures in Section 262 will be entitled to have their shares of
HLDS Capital Stock appraised by the Court and to receive payment of the "fair
value" of such shares as of the Effective Time.
A stockholder of HLDS electing to exercise appraisal rights must, prior to
the vote concerning the Merger at the HLDS Special Meeting, perfect such
stockholder's appraisal rights by demanding in writing from HLDS the appraisal
of such stockholder's shares of HLDS Capital Stock. A vote against the Merger
will not constitute a demand for appraisal. A stockholder electing to take such
action must do so by a separate written demand as provided in Section 262. A
holder of HLDS Capital Stock who elects to exercise appraisal rights should mail
or deliver such stockholder's written demand to HLDS at 3945 Freedom Circle,
Fourth Floor, Santa Clara, CA 95054: Attention Chief Financial Officer. The
demand should specify the holder's name and mailing address, the number of
shares of HLDS Capital Stock owned by such holder, and that such holder is
demanding appraisal of such stockholder's shares. Within ten days after the
Effective Time, HLDS must provide notice of the Effective Time to all
stockholders who have complied with Section 262 and have not voted in favor of
the Merger. Only a holder of record of shares of HLDS Capital Stock (or such
stockholder's duly appointed representative) is entitled to assert appraisal
rights for the shares registered in that holder's name.
Within 120 days after the Effective Time, any stockholder who has made a
valid written demand and who has not voted in favor of the Merger may (i) file a
petition in the Court demanding a determination of the value of shares of HLDS
Capital Stock, and (ii) upon written request, receive from HLDS a statement
setting forth the aggregate number of shares of HLDS Capital Stock not voted in
favor of the Merger and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such statement must
be mailed within ten days after the written request therefor has been received
by HLDS.
If a petition for an appraisal is timely filed, at a hearing on such
petition, the Court is required to determine the holders of dissenting shares
entitled to appraisal rights ("Dissenting Shares") and to determine the "fair
value" of the Dissenting Shares exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the value of the Dissenting Shares. In
determining such "fair value", the Court is required to take into account all
relevant factors, including the market value of HLDS Capital Stock, and the net
asset and earnings value of HLDS, and in determining the fair rate of interest,
the Court may consider the rate of interest which HLDS, would have had to pay to
borrow money during the pendency of the proceeding.
39
<PAGE>
Upon application by a stockholder, the Court may also order that all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys fees
and the fees and expenses of experts utilized in the appraisal proceeding, be
charged pro rata against the value of all the shares of HLDS Capital Stock
entitled to appraisal.
Any holder of Dissenting Shares who has duly demanded an appraisal under
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on such Dissenting Shares (except dividends or
other distributions payable to stockholders of record as of a date prior to the
Effective Time).
If any holder of shares of HLDS Capital Stock who demands appraisal under
Section 262 effectively withdraws or loses such stockholder's right to
appraisal, the shares of such holder will be converted into a right to receive
the Merger consideration for such holder's shares of HLDS Capital Stock as is
determined in accordance with the Reorganization Agreement. A holder will
effectively lose the right to appraisal if such holder votes in favor of the
Merger or if no petition for appraisal is filed within 120 days after the
Effective Time, or if the holder delivers to HLDS a written withdrawal of such
holder's demand for an appraisal and an acceptance of the Merger, except that
any such attempt to withdraw made more than 60 days after the Effective Time
requires the written approval of HLDS. A holder of stock represented by
certificates may also lose such stockholder's right to appraisal if he, she or
it fails to comply with the Court's direction to submit such certificates of
stock to the Register in Chancery for notation thereon of the pendency of the
appraisal proceedings.
IN VIEW OF THE COMPLEXITIES OF THE FOREGOING PROVISIONS OF THE DGCL, HLDS
STOCKHOLDERS WHO ARE CONSIDERING PURSUING APPRAISAL RIGHTS MAY WISH TO CONSULT
LEGAL COUNSEL.
CERTAIN INCOME TAX CONSEQUENCES
UNITED STATES. The following discussion summarizes the material U.S.
federal income tax considerations of the Merger that are generally applicable to
holders of HLDS Capital Stock. This discussion is based on currently existing
provisions of the Internal Revenue Code of 1980, as amended (the "Code"),
existing and proposed Treasury Regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences to
Cadence, HLDS or HLDS' stockholders as described herein.
HLDS stockholders should be aware that this discussion does not deal with
all U.S. federal income tax considerations that may be relevant to particular
HLDS stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Code, who are foreign persons, or who acquired
their shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the Merger under foreign, state or local tax
laws or the tax consequences of transactions effectuated prior to or after the
Merger (whether or not such transactions are in connection with the Merger).
Accordingly, HLDS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER IN THEIR
PARTICULAR CIRCUMSTANCES.
Neither Cadence nor HLDS has requested a ruling from the Internal Revenue
Service (the "IRS") with regard to any of the U.S. federal income tax
consequences of the Merger. Wilson Sonsini Goodrich & Rosati, P.C., counsel to
HLDS, and Cooley Godward LLP, counsel to Cadence, have each rendered an opinion
(collectively, the "Tax Opinions") that the Merger will constitute a
reorganization under Section 368(a) of the Code (a "Reorganization"). Such
opinions are based on certain assumptions as well as representations received
from Cadence and HLDS (including an assumption, based on representations,
concerning the "continuity of interest" requirement discussed below) and are
subject to the limitations
40
<PAGE>
discussed below. Moreover, such opinions will not be binding on the IRS nor
preclude the IRS from adopting a contrary position. The discussion below assumes
that the Merger will qualify as a Reorganization, based upon such opinions.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger's qualifying as a Reorganization, the following U.S.
federal income tax consequences should result:
(i) No gain or loss will be recognized by the holders of HLDS Capital Stock
upon the receipt of Cadence Common Stock solely in exchange for such
HLDS Capital Stock in the Merger (except to the extent of cash received
in lieu of fractional shares);
(ii) The aggregate tax basis of the Cadence Common Stock so received by HLDS
stockholders in the Merger (including any fractional share of Cadence
Common Stock not actually received) will be the same as the aggregate
tax basis of HLDS Capital Stock surrendered in exchange therefor;
(iii) The holding period of the Cadence Common Stock so received by each HLDS
stockholder in the Merger will include the period for which the HLDS
Capital Stock surrendered in exchange therefor was considered to be
held, provided that the HLDS Capital Stock so surrendered is held as a
capital asset at the effective time of the Merger;
(iv) Cash payments received by holders of HLDS Capital Stock in lieu of a
fractional share will be treated as if such fractional share of Cadence
Common Stock had been issued in the Merger and then redeemed by
Cadence. A HLDS stockholder receiving such cash will recognize gain or
loss upon such payment, measured by the difference (if any) between the
amount of cash received and the basis in such fractional share. The
gain or loss should be capital gain or loss provided that such share of
HLDS Capital Stock was held as a capital asset at the Effective Time;
(v) A stockholder of HLDS who exercises appraisal rights under the DGCL with
respect to a share of HLDS Capital Stock and receives payments for such
stock in cash will recognize capital gain or loss (if such stock was
held as a capital asset at the Effective Time) measured by the
difference between the amount of cash received and the stockholder's
basis in such share, provided such payment is neither essentially
equivalent to a dividend within the meaning of Section 302 of the Code
nor has the effect of a distribution of a dividend within the meaning of
Section 356(a)(2) of the Code (collectively, a "Dividend Equivalent
Transaction"). A sale of HLDS shares incident to an exercise of
appraisal rights will generally not be a Dividend Equivalent Transaction
if, as a result of such exercise, the dissenting stockholder owns no
shares of Cadence Common Stock (either actually or constructively within
the meaning of Section 318 of the Code); and
(vi) Neither Cadence nor HLDS will recognize gain solely as a result of the
Merger.
The Tax Opinions are subject to certain assumptions and qualifications and
are based on the truth and accuracy of certain representations of Cadence, HLDS
and certain stockholders of HLDS, including representations in certain
certificates delivered to counsel by the respective managements of Cadence and
HLDS and certain stockholders of HLDS. Of particular importance are the
assumptions and representations relating to the "continuity of interest"
requirement.
To satisfy the "continuity of interest" requirement, HLDS stockholders must
not, pursuant to a plan or intent existing at or prior to the effective time of
the Merger, dispose of or transfer so much of either (i) their HLDS Capital
Stock in anticipation of the Merger or (ii) the Cadence Common Stock to be
received in the Merger (collectively, "Planned Dispositions"), such that the
HLDS stockholders, as a group, would no longer have a significant equity
interest in the HLDS business being conducted by Cadence after the Merger. HLDS
stockholders will generally be regarded as having a significant equity interest
as long as the Cadence Common Stock received in the Merger (after taking into
account Planned Dispositions), in the aggregate, represents a substantial
portion of the entire consideration received by the
41
<PAGE>
HLDS stockholders in the Merger. No assurance can be made that the "continuity
of interest" requirement will be satisfied, and if such requirement is not
satisfied, the Merger would not be treated as a Reorganization.
A successful IRS challenge to the Reorganization status of the Merger (as a
result of a failure of the "continuity of interest" requirement or otherwise)
would result in significant adverse tax consequences to the HLDS stockholders. A
HLDS stockholder would recognize gain or loss with respect to each share of HLDS
Capital Stock surrendered equal to the difference between the stockholder's
basis in such share and the fair market value, as of the Effective Time, of the
Cadence Common Stock received in exchange therefor. In such event, a
stockholder's aggregate basis in the Cadence Common Stock so received would
equal its fair market value, and the stockholder's holding period for such stock
would begin the day after the Closing Date.
CANADA. The following discussion summarizes the material Canadian federal
income tax considerations of the Merger that are generally applicable to holders
of HLDS Capital Stock who deal at arm's length with Cadence and HLDS, hold their
HLDS Capital Stock as capital property and, in the case of holders who are not
resident in Canada within the meaning of the Canadian federal Income Tax Act
(the "ITA"), do not hold or use and are not deemed to hold or use their HLDS
Capital Stock in connection with a business carried on in Canada.
HLDS Capital Stock will generally be considered to be held as capital
property by a holder unless the holder holds such shares for resale in the
course of carrying on a business or acquired them in a transaction or
transactions considered to be an adventure in the nature of trade. Certain
holders resident in Canada whose HLDS Capital Stock might not otherwise qualify
as capital property may be able to qualify them as such by making an irrevocable
election permitted by subsection 39(4) of the ITA. HLDS Capital Stock held by
certain financial institutions, including a bank, a trust company, a credit
union, an insurance corporation, a registered securities dealer or a corporation
controlled by one or more of the foregoing, will generally not be held as
capital property and will be subject to special "mark-to-market" rules.
This summary is based upon the current provisions of the ITA, the
regulations thereunder and Cadence's Canadian counsel's understanding of the
current published administrative practices and policies of Revenue Canada. The
summary also takes into account all specific proposals to amend the ITA publicly
announced prior to the date hereof (the "Proposed Amendments"), and assumes that
the Proposed Amendments will be enacted substantially as proposed. This summary
does not otherwise take into account or anticipate any changes in law, whether
by way of legislative, judicial or governmental action or interpretation, nor
does it address any provincial or foreign income tax considerations.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND DOES NOT CONSTITUTE, IS NOT
INTENDED TO BE AND SHOULD NOT BE CONSTRUED TO BE LEGAL OR TAX ADVICE TO ANY
PARTICULAR HLDS STOCKHOLDERS CONCERNING THE CONSEQUENCES TO THEM OF THE MERGER.
HLDS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
INCOME TAX CONSEQUENCES TO THEM OF THE MERGER. IN PARTICULAR, HLDS STOCKHOLDERS
WHO DO NOT HOLD HLDS CAPITAL STOCK AS CAPITAL PROPERTY, AS WELL AS HOLDERS WHO
ARE "FINANCIAL INSTITUTIONS" SUBJECT TO SPECIAL PROVISIONS OF THE ITA APPLICABLE
TO INCOME, GAIN OR LOSS ARISING FROM MARK-TO-MARKET PROPERTIES, SHOULD CONSULT
THEIR OWN TAX ADVISORS, AS THE FOLLOWING SUMMARY DOES NOT APPLY TO SUCH HOLDERS.
HLDS STOCKHOLDERS RESIDENT IN CANADA. At the Effective Time, HLDS
stockholders will dispose of their HLDS Capital Stock for proceeds of
disposition equal to the fair market value of the Cadence Common Stock issued to
them consequent thereto, and will acquire Cadence Common Stock for a cost equal
to the fair market value of their HLDS Capital Stock. Accordingly, HLDS
stockholders may realize a capital gain or capital loss as a result of the
Merger. The taxable portion of any capital gain (or the deductible portion of
any capital loss) will be 75%. As a result of the minimum tax provisions
contained in
42
<PAGE>
the ITA, any such capital gain realized by an individual (including certain
trusts) may be subject to the alternative minimum federal tax. An allowable
capital loss realized by a HLDS stockholder may normally be deducted for
purposes of the ITA in the year of disposition or in the three immediately
preceding or any future years, in accordance with the provisions of the ITA, to
the extent of taxable capital gains.
HLDS STOCKHOLDERS NOT RESIDENT IN CANADA. HLDS stockholders who, for
purposes of the ITA, have not been and will not be resident in Canada at any
time while they have held HLDS Capital Stock will not be subject to tax under
the ITA as a result of the Merger.
CERTAIN INFORMATION REGARDING CADENCE COMMON STOCK. Dividends on Cadence
Common Stock will be included in the recipient's income for purposes of ITA and
will not be eligible for the dividend tax credit or the inter-corporate dividend
deduction under Section 112 of the ITA. So long as they are listed on a
prescribed stock exchange (which presently includes the NYSE), the Cadence
Common Stock will be qualified investments under the ITA for trusts governed by
registered retirement savings plans, registered retirement income funds and
deferred profit sharing plans. The Cadence Common Stock will be foreign property
under the ITA for trusts governed by registered pension plans, registered
retirement savings plans, registered retirement income funds and deferred profit
sharing plans and for certain other tax-exempt persons.
43
<PAGE>
THE REORGANIZATION AGREEMENT
GENERAL
THE FOLLOWING DESCRIPTION OF THE REORGANIZATION AGREEMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE REORGANIZATION AGREEMENT,
WHICH IS INCORPORATED BY REFERENCE HEREIN AND A COPY OF WHICH IS ANNEXED TO THIS
PROXY STATEMENT/PROSPECTUS AS APPENDIX A.
The Reorganization Agreement provides for the merger of Cadence Merger Sub
with and into HLDS. As a result of the Merger, Cadence Merger Sub shall cease to
exist, HLDS will become a wholly owned subsidiary of Cadence, and the former
stockholders of HLDS will become stockholders of Cadence. HLDS will continue as
the surviving corporation of the Merger (the "Surviving Corporation") and will
retain all of its separate corporate existence, with all its purposes, objects,
rights, privileges, powers and franchises unaffected by the Merger. Cadence
Merger Sub has been formed solely for the purpose of effecting the Merger, and
there will be no other activity in Cadence Merger Sub. The Merger will become
effective upon the filing of a Certificate of Merger with the Delaware Secretary
of State. Such filing is anticipated to take place as soon as practicable after
the adoption and approval of the Reorganization Agreement and Merger by HLDS
stockholders, subject to the satisfaction or waiver of the other conditions to
the Merger. It is currently anticipated that the Effective Time will occur on
, 199 . There can be no assurance, however, that the other
conditions to the Merger will be satisfied by such date, or at all or that the
Reorganization Agreement will not be terminated. See "The Reorganization
Agreement--Conditions to the Merger" and "Approval of the Merger and Related
Transactions--Regulatory Approvals."
MERGER CONSIDERATION
CONSIDERATION FOR CAPITAL STOCK. For a description of the consideration to
be received in the Merger by the holders of HLDS Capital Stock, see "Approval of
the Merger and Related Transactions--Merger Consideration."
STOCK OPTIONS AND BENEFIT PLANS. For a description of the treatment of the
HLDS Options and employee benefit plans, see "Approval of the Merger and Related
Transactions--Stock Options; Benefit Plans."
APPRAISAL RIGHTS. Holders of HLDS Capital Stock are entitled to exercise
appraisal rights in connection with the Merger. See "Approval of the Merger and
Related Transactions--Appraisal Rights."
EXCHANGE OF SHARES. For a description of exchange procedures, see "Approval
of the Merger and Related Transactions--Conversion of Shares, Procedures for
Exchange of Certificates; No Fractional Shares."
CORPORATE MATTERS
As of the Effective Time, the Certificate of Incorporation of the Surviving
Corporation will be amended and restated to conform to the form of certificate
of incorporation attached to the Reorganization Agreement as Exhibit B and the
Bylaws of the Surviving Corporation will be amended and restated to conform to
the Bylaws of Cadence Merger Sub as in effect immediately prior to the Effective
Time. Concurrently with the Effective Time, the directors of HLDS will resign
and the directors and officers of the Surviving Corporation immediately after
the Effective Time shall be the respective individuals who are directors and
officers of Cadence Merger Sub immediately prior to the Effective Time.
CONDITIONS TO THE MERGER
CADENCE AND CADENCE MERGER SUB. The obligations of Cadence and Cadence
Merger Sub to effect the Merger and otherwise consummate the transactions
contemplated by the Reorganization Agreement are
44
<PAGE>
subject to the satisfaction, at or prior to the consummation of the transactions
contemplated by the Reorganization Agreement (the "Closing"), of each of the
following conditions:
(i) the representations and warranties of HLDS contained in the
Reorganization Agreement shall have been accurate in all respects as of the
date of the Reorganization Agreement and shall be accurate in all respects
as of the Closing Date as if made on and as of the Closing Date, except that
any inaccuracies in such representations and warranties will be disregarded
if the circumstances giving rise to all such inaccuracies (considered
collectively) do not constitute, and could not reasonably be expected to
result in, a Material Adverse Effect (as defined below) on HLDS and High
Level Design Systems, Limited ("HLDS Limited," a wholly owned subsidiary of
HLDS, and, collectively with HLDS, the "Acquired Corporations") (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, (a) all Material Adverse Effect
qualifications and other materiality qualifications contained in such
representations and warranties shall be disregarded and (b) any update of or
modification to the disclosure schedule provided by HLDS made or purported
to have been made after the date of the Reorganization Agreement shall be
disregarded);
(ii) each covenant or obligation that HLDS is required to comply with or
to perform at or prior to the Closing shall have been complied with and
performed in all material respects;
(iii) this Registration Statement shall have become effective in
accordance with the provisions of the Act, and no stop order shall have been
issued by the Commission with respect to the Registration Statement;
(iv) the Reorganization Agreement shall have been duly adopted and the
Merger shall have been duly approved by the Required Vote. See " The HLDS
Special Meeting--Vote Required";
(v) Cadence and HLDS shall have received the following documents (each
of which shall be in full force and effect) (a) a legal opinion of Wilson,
Sonsini, Goodrich & Rosati, P.C., dated as of the Closing Date, in a form
reasonably satisfactory to Cadence, (b) subject to the receipt by Cooley
Godward LLP of certain tax representation letters, a legal opinion of Cooley
Godward LLP, dated as of the Closing Date, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368 of the
Code, (c) a certificate executed on behalf of HLDS by its Chief Executive
Officer confirming that the conditions set forth in clause "(i)", clause
"(ii)", clause "(iv)", clause "(vi)", clause "(vii)", clause "(viii)", and
clause "(ix)" of this sentence have been duly satisfied, and (d) the written
resignations of all officers and directors of HLDS, effective as of the
Effective Time;
(vi) (a) none of certain specified employees shall have ceased to be
employed by HLDS, or shall have expressed a bona fide intention to terminate
his employment with HLDS or (provided that Cadence has offered to employ
such individual on terms substantially similar to, or at least as favorable
on an overall basis as, the terms set forth in an employment letter executed
by Cadence and such individual) a bona fide intention to decline to accept
employment with Cadence, and (b) not more than one of certain specified
employees shall have ceased to be employed by HLDS, or shall have expressed
a bona fide intention to terminate his employment with HLDS or (provided
that Cadence has offered to employ such individual on terms substantially
similar to, or at least as favorable on an overall basis as, the terms set
forth in an employment letter executed by Cadence and such individual) a
bona fide intention to decline to accept employment with Cadence;
(vii) except for adverse changes that result directly from the public
announcement of the Merger or from general economic conditions or conditions
affecting HLDS' industry generally, there shall have been no material
adverse change in HLDS' business since the date of the execution of the
Reorganization Agreement (it being understood that a downturn in HLDS'
financial performance shall not, in and of itself, constitute a "material
adverse change" in HLDS' business);
(viii) no temporary restraining order, preliminary or permanent injunction
or other order preventing the consummation of the Merger shall have been
issued by any court of competent jurisdiction and
45
<PAGE>
remain in effect, and there shall not be any U.S. or Canadian federal, state
or provincial law or regulation enacted or deemed applicable to the Merger
that makes consummation of the Merger illegal; and
(ix) there shall not be pending any litigation or administrative action
or proceeding in which a U.S. or Canadian federal, state or provincial
governmental body is a party: (a) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by the Reorganization Agreement; (b) relating to the Merger and
seeking to obtain from Cadence or any of its subsidiaries any damages that
may be material to Cadence; (c) seeking to prohibit or limit in any material
respect Cadence's ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of the
Surviving Corporation; or (d) which would materially and adversely affect
the right of Cadence, HLDS or any subsidiary of Cadence to own the assets or
operate the business of HLDS.
For purposes of the Reorganization Agreement an event, violation,
inaccuracy, circumstance or other matter (or group of matters) will be deemed to
have a "Material Adverse Effect" on the Acquired Corporations if such event,
violation, inaccuracy, circumstance or other matter (or group of matters) would
have a material adverse effect on the business, condition, assets, liabilities,
operations or financial performance of the Acquired Corporations taken as a
whole; PROVIDED, HOWEVER, that (i) any event, violation, inaccuracy,
circumstance or other matter occurring after the date of the Reorganization
Agreement that results directly from the public announcement of the Merger or
from general economic conditions or conditions affecting HLDS' industry
generally does not, in and of itself, constitute a "Material Adverse Effect" on
the Acquired Corporations, and (ii) a downturn in HLDS' financial performance
following the date of the Reorganization Agreement does not, in and of itself,
constitute a "Material Adverse Effect" on the Acquired Corporations (it being
understood that a downturn in HLDS' financial performance resulting from
circumstances that would otherwise cause any representation or warranty of HLDS
to be inacccurate may nevertheless constitute a "Material Adverse Effect" on the
Acquired Corporations).
HLDS. The obligation of HLDS to effect the Merger and otherwise consummate
the transactions contemplated by the Reorganization Agreement is subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(i) the representations and warranties of Cadence and Cadence Merger Sub
contained in the Reorganization Agreement shall have been accurate in all
respects as of the date of the execution of the Reorganization Agreement and
shall be accurate in all respects as of the Closing Date as if made on and
as of the Closing Date, except that any inaccuracies in such representations
and warranties will be disregarded if the circumstances giving rise to all
such inaccuracies (considered collectively) do not constitute, and could not
reasonably be expected to result in, a Material Adverse Effect on Cadence
(as defined below) (it being understood that, for purposes of determining
the accuracy of such representations and warranties, all Material Adverse
Effect and other materiality qualifications contained in such
representations and warranties shall be disregarded);
(ii) all of the covenants and obligations that Cadence and Cadence
Merger Sub are required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all material
respects;
(iii) the Registration Statement shall have become effective in
accordance with the provisions of the Act, and no stop order shall have been
issued by the Commission with respect to the Registration Statement;
(iv) HLDS shall have received the following documents (each of which
shall be in full force and effect) (a) a legal opinion of Cooley Godward
LLP, dated as of the Closing Date, in a form reasonably satisfactory to
HLDS, (b) subject to the receipt by Wilson Sonsini Goodrich & Rosati, P.C.
of certain tax representation letters, a legal opinion of Wilson Sonsini
Goodrich & Rosati, P.C., dated as of the
46
<PAGE>
Closing Date, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code, and (c) a certificate
executed on behalf of Cadence by an executive officer of Cadence confirming
that the conditions set forth in under clause "(i)", clause "(ii)", clause
"(v)", clause "(vi)" and clause "(vii)" of this paragraph have been duly
satisfied;
(v) the shares of Cadence Common Stock to be issued in the Merger shall
have been approved for listing (subject to notice of issuance) on the NYSE;
(vi) no temporary restraining order, preliminary or permanent injunction
or other order preventing the consummation of the Merger by HLDS shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any U.S. or Canadian federal, state or provincial law or
regulation enacted or deemed applicable to the Merger that makes
consummation of the Merger by HLDS illegal; and
(vii) except for adverse changes that result directly from the public
announcement of the Merger or from general economic conditions or conditions
affecting Cadence's industry generally, there shall have been no material
adverse change in Cadence's business since the date of the execution of the
Reorganization Agreement (it being understood that a decline in Cadence's
stock price shall not, in and of itself, constitute a "material adverse
change" in Cadence's business).
For purposes of the Reorganization Agreement an event, violation,
inaccuracy, circumstance or other matter (or group of matters) will be deemed to
have a "Material Adverse Effect" on Cadence if such event, violation,
inaccuracy, circumstance or other matter (or group of matters) would have a
material adverse effect on the business, condition, assets, liabilities,
operations or financial performance of Cadence and its subsidiaries taken as a
whole; PROVIDED, HOWEVER, that (i) any event, violation, inaccuracy,
circumstance or other matter occurring after the date of the Reorganization
Agreement that results directly from the public announcement of the Merger or
from general economic conditions or conditions affecting HLDS' industry
generally does not, in and of itself, constitute a "Material Adverse Effect" on
Cadence and (ii) a decline in Cadence's stock price at any time after the date
of the Reorganization Agreement does not, in and of itself, constitute a
"Material Adverse Effect" on Cadence.
All the conditions to the Merger must either be satisfied or waived prior to
the consummation of the Merger.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains certain representations and
warranties, including without limitation, representations and warranties by HLDS
as to: (i) due organization and subsidiaries; (ii) charter documents and
records; (iii) capitalization; (iv) filings with certain securities exchanges
and commissions and financial statements; (v) absence of certain changes; (vi)
title to assets; (vii) receivables, loans and advances; (viii) equipment and
leaseholds; (ix) proprietary assets; (x) contracts; (xi) liabilities; (xii)
compliance with legal requirements; (xiii) unlawful payments and unlawful
expenses; (xiv) governmental authorizations; (xv) tax matters; (xvi) employee
benefit plans; (xvii) environmental matters; (xviii) insurance; (xix) related
party transactions; (xx) legal proceedings and orders; (xxi) authority,
inapplicability of anti-takeover statutes and binding nature of the
Reorganization Agreement; (xxii) inapplicability of certain antitrust filing and
approval requirements; (xxiii) vote required; (xxiv) non-contravention and
consents; (xxv) fairness opinion; (xxvi) brokers, finders, bankers or other fees
or commissions; and (xxvii) full disclosure.
The Reorganization Agreement contains further representations and warranties
by Cadence and Cadence Merger Sub as to: (i) organization, standing and power;
(ii) filings with the Commission and financial statements; (iii) disclosure;
(iv) absence of certain changes or events; (v) legal proceedings; (vi) authority
and binding nature of the Reorganization Agreement; and (vii) valid issuance of
Cadence Common Stock.
47
<PAGE>
CERTAIN COVENANTS
The Reorganization Agreement requires that, from the date of the execution
of the Reorganization Agreement until the Effective Time:
(i) HLDS shall provide Cadence with access to its representatives,
personnel, books, records, tax returns and other documents and information
and such copies of the existing books, records, tax returns and other
documents as Cadence may reasonably request;
(ii) (a) HLDS shall ensure that each of the Acquired Corporations
conducts its business and operations (1) in the ordinary course and in
accordance with prudent business practices and (2) in compliance with all
applicable legal requirements and the requirements of all material
contracts; (b) HLDS shall use reasonable efforts to ensure that each of the
Acquired Corporations preserves intact its current business organization,
keeps available the services of its current officers and employees and
maintains its relations and goodwill with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other persons or
entities having business relationships with the respective Acquired
Corporations; (c) HLDS shall keep in full force all of its insurance
policies; (d) HLDS shall provide all notices, assurances and support
required by any material contract to which either Acquired Corporation is a
party relating to any proprietary asset of the Acquired Corporations; and
(e) HLDS shall (to the extent requested by Cadence) cause its officers to
report regularly to Cadence concerning the status of the business of HLDS;
(iii) HLDS shall not (without the prior written consent of Cadence), and
shall not permit HLDS Limited to:
(a) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities (except pursuant to rights of repurchase of any such shares
under any employee or consultant stock plan or arrangement);
(b) sell, issue, grant or authorize the issuance or grant of (1) any
capital stock or other security, (2) any option, call, warrant or right
to acquire, or relating to, any capital stock or other security, or (3)
any instrument convertible into or exchangeable for any capital stock or
other security (except that HLDS may (A) issue up to 600,000 shares of
HLDS Common Stock upon the valid conversion of shares of outstanding HLDS
Preferred Stock and (B) issue HLDS Common Stock upon the valid exercise
of HLDS Options outstanding as of October 3, 1996);
(c) amend or waive any of its rights under, or accelerate the vesting
under, any provision of any of HLDS' stock option plans, any provision of
any agreement evidencing any outstanding stock option or any restricted
stock purchase agreement, or otherwise modify any of the terms of any
outstanding option, warrant or other security or any related contract;
(d) amend or permit the adoption of any amendment to its Restated
Certificate of Incorporation or Bylaws or other charter or organizational
documents, or effect or become a party to any merger, consolidation,
share exchange, business combination, recapitalization, reclassification
of shares, stock split, reverse stock split or similar transaction;
(e) form any subsidiary or acquire any equity interest or other
interest in any other entity;
(f) make any capital expenditure (except that the Acquired
Corporations may make capital expenditures that, when added to all other
capital expenditures made on behalf of the Acquired Corporations during
the period between the date of the Reorganization Agreement and the
Closing Date, do not exceed $100,000 in the aggregate);
(g) enter into or become bound by, or permit any of the assets owned
or used by it to become bound by, any material contract, or amend or
prematurely terminate, or waive any material right or remedy under any
material contract;
48
<PAGE>
(h) acquire, lease or license any right or other asset from any other
person or entity or sell or otherwise dispose of, or lease or license,
any right or other asset to any other person or entity (except in each
case for assets acquired, leased, licensed or disposed of by HLDS in the
ordinary course of business and consistent with prudent business
practices), or waive or relinquish any material right;
(i) lend money to any person or entity, or incur or guarantee any
indebtedness (except that HLDS may make routine borrowings in the
ordinary course of business and in accordance with prudent business
practices under its line of credit with Coast Commercial Bank);
(j) establish, adopt or amend any employee benefit plan, pay any
bonus or make any profit-sharing or similar payment (except pursuant to
existing plans or programs consistent with past practices) to, or
increase by more than 5% the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of
its directors, officers or employees;
(k) hire any new employees, or engage any consultant or independent
contractor for a period exceeding 30 days;
(l) change any of its methods of accounting or accounting practices
in any respect;
(m) make any material tax election;
(n) commence any legal proceeding, or enter into any settlement of
any legal proceeding involving payments in excess of $10,000 or involving
any material asset of either of the Acquired Corporations;
(o) enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with
prudent business practices; or
(p) agree or commit to take any of the actions described in clauses
"(a)" through "(o)" of this sentence; and
(iv) HLDS shall promptly notify Cadence in writing of: (a) the discovery
by HLDS of any event, condition, fact or circumstance that occurred or
existed on or prior to the date of the Reorganization Agreement and that
caused or constitutes an inaccuracy in or breach of any representation or
warranty made by HLDS in the Reorganization Agreement, which inaccuracy or
breach, considered together with all other such inaccuracies and breaches,
would have a Material Adverse Effect on the Acquired Corporations; (b) any
event, condition, fact or circumstance that occurs, arises or exists after
the date of the Reorganization Agreement, that (together with all other such
events, conditions, facts and circumstances) would have a Material Adverse
Effect on the Acquired Corporations and that would cause or constitute an
inaccuracy in or breach of any representation or warranty made by HLDS in
the Reorganization Agreement if (1) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (2) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of the
execution of the Reorganization Agreement; (C) any material breach of any
covenant or obligation of HLDS; and (D) any event, condition, fact or
circumstance that would make the timely satisfaction of any of the
"Conditions to the Merger" impossible or unlikely or that has had or could
reasonably be expected to have a Material Adverse Effect on the Acquired
Corporations.
The Reorganization Agreement also contains certain covenants of the parties
including covenants relating to: (i) the preparation and filing of the
Registration Statement; (ii) HLDS' obligations with respect to the HLDS Special
Meeting; (iii) regulatory approvals; (iv) HLDS Options; (v) indemnification of
directors and officers; (vi) subject to certain limitations, the preparation and
filing of notices, obtaining consents, removal of restraints, injunctions and
other impediments to the Merger and filings with governmental bodies, agencies,
officials or authorities and other third parties; (vii) press releases, public
49
<PAGE>
statements and other disclosures regarding the Reorganization Agreement and the
transactions contemplated thereby; (viii) affiliate agreements; (ix) tax opinion
back-up certificates; (x) resignation of HLDS officers and directors; (xi)
employee benefits; and (xii) compliance with United States Treasury Regulations.
HLDS has agreed (i) to take all action necessary in accordance with all
applicable law to call, give notice of, convene and hold the HLDS Special
Meeting, and (ii) not to withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify, in a manner adverse to Cadence the recommendation of
the HLDS Board of Directors that the HLDS stockholders vote in favor of and
adopt and approve the Reorganization Agreement; PROVIDED, HOWEVER, that nothing
in the Reorganization Agreement will prevent the HLDS Board of Directors from
withdrawing, amending or modifying its recommendation in favor of the Merger if
(A) HLDS has not violated its covenant not to solicit, initiate, encourage or
induce any proposals for an Acquisition Proposal, and (B) the HLDS Board of
Directors concludes in good faith, based upon the advice of its outside counsel,
that the withdrawal, amendment or modification of such recommendation is
required in order for it to comply with its fiduciary obligations to its
stockholders under applicable law.
Pursuant to the Reorganization Agreement, Cadence and HLDS have agreed to
use all reasonable efforts to take, or cause to be taken, all actions necessary
to consummate the Merger and make effective the other transactions contemplated
by the Reorganization Agreement; HOWEVER, Cadence does not have any obligation
under the Reorganization Agreement to (i) dispose or cause any of its
subsidiaries to dispose of any assets, (ii) discontinue offering any product or
make any other change to its operations or proposed operations or to the
operations or proposed operations of any of its subsidiaries, or (iii) make any
commitment (to any governmental body or otherwise) regarding its future
operations, or the future operations of any of its subsidiaries, or the future
operations of HLDS or HLDS Limited (even though the disposition of such assets
or the making of such change or commitment might facilitate the obtaining of a
required governmental authorization or might otherwise facilitate the
consummation of the Merger).
NON-SOLICITATION
Pursuant to the Reorganization Agreement, HLDS has agreed that it will not,
directly or indirectly, and has agreed that it will instruct its
representatives, subsidiaries, officers, directors, employees, agents,
attorneys, accountants, advisors and representatives not to, directly or
indirectly, (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal or take any action that could
reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any
information regarding HLDS or HLDS Limited to any third party in connection with
or in response to an Acquisition Proposal, (iii) negotiate or engage in
discussions with any third party with respect to any Acquisition Proposal, (iv)
approve, endorse or recommend any Acquisition Proposal, or (v) enter into any
letter of intent or contract or other agreement contemplating or otherwise
relating to any Acquisition Proposal; PROVIDED, HOWEVER, HLDS and the HLDS Board
of Directors are not precluded from furnishing nonpublic information regarding
the Acquired Corporations to, or entering into discussions with, any third party
in response to an unsolicited bona fide written Acquisition Proposal submitted
by such third party if (a) the HLDS Board of Directors concludes in good faith,
based upon the advice of its financial advisor, that such Acquisition Proposal
could result in a transaction that is more favorable to the stockholders of HLDS
from a financial point of view than the Merger, (b) the HLDS Board of Directors
concludes in good faith, based upon the advice of its outside legal counsel,
that such action is required in order for the HLDS Board of Directors to comply
with its fiduciary obligations to its stockholders under applicable law, and (c)
prior to furnishing such nonpublic information to, or entering into discussions
with, such third party, the HLDS Board of Directors receives from such third
party an executed confidentiality agreement containing customary limitations on
the use and disclosure of all written and oral information furnished to such
third party on behalf of HLDS.
50
<PAGE>
INDEMNIFICATION AND INSURANCE
Pursuant to the Reorganization Agreement, all rights to indemnification
existing in favor of the present directors and officers of HLDS for acts and
omissions occurring prior to the Effective Time, as provided in HLDS' Restated
Certificate of Incorporation (as in effect on October 3, 1996) and HLDS' Bylaws
(as in effect on October 3, 1996), shall survive the Merger and shall be
observed by the Surviving Corporation for a period of not less than six years
from the Effective Time.
In addition, pursuant to the Reorganization Agreement, for a period of six
years from the Effective Time, Cadence will, and will cause HLDS to, to the
fullest extent permitted under applicable law, indemnify and hold harmless each
of the present directors and officers of HLDS (collectively, the "Indemnified
Parties") against any costs or expenses (including reasonable attorneys' fees,
judgments, fines, losses, damages, liabilities and amounts paid in settlement)
incurred by him in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative (a
"Third Party Action"), to the extent such Third Party Action arises out of or
pertains to any action or omission in his capacity as a director or officer of
HLDS arising out of or pertaining to the transactions contemplated by the
Reorganization Agreement. In the event of any such Third Party Action (whether
commenced before or after the Effective Time), Cadence shall, and shall cause
HLDS to, pay the reasonable fees and expenses of counsel for the Indemnified
Parties (which counsel shall be reasonably satisfactory to Cadence and HLDS)
related to the defense of such Third Party Action.
TERMINATION
The Reorganization Agreement may be terminated prior to the Effective Time,
whether before or after approval of the Merger by the stockholders of HLDS:
(i) by mutual written consent of Cadence and HLDS;
(ii) by either Cadence or HLDS if the Merger shall not have been
consummated by April 30, 1997 (unless the failure to consummate the Merger
is attributable to a failure on the part of the party seeking to terminate
the Reorganization Agreement to perform any material obligation required to
be performed by such party at or prior to the Effective Time);
(iii) by either Cadence or HLDS if a court of competent jurisdiction or
other governmental body shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger;
(iv) by Cadence upon the occurrence of a Material Adverse Effect on the
Acquired Corporations;
(v) by HLDS upon the occurrence of a Material Adverse Effect on Cadence;
(vi) by either Cadence or HLDS if (a) the HLDS Special Meeting shall
have been held and (b) the Reorganization Agreement and the Merger shall not
have been adopted and approved at such meeting by the Required Vote;
(vii) by Cadence (at any time prior to the adoption and approval of the
Reorganization Agreement and the Merger by the Required Vote) if a
Triggering Event shall have occurred;
(viii) by Cadence, following a breach of any representation, warranty or
covenant of HLDS set forth in the Reorganization Agreement, or if any
representation or warranty of HLDS shall have become inaccurate, in either
case such that the condition described in clause (i) or (ii) under
"Conditions to the Merger--Cadence and Cadence Merger Sub" above would not
be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become inaccurate, PROVIDED, that if
such breach or the inaccuracy in such representation or warranty is curable
by HLDS through the exercise of reasonable efforts within 45 days after the
time or such
51
<PAGE>
breach or the time such representation or warranty shall have become
inaccurate, then Cadence may not terminate the Reorganization Agreement
under this provision during such 45-day period provided HLDS continues to
exercise such reasonable efforts; or
(ix) by HLDS, following a breach of any representation, warranty or
covenant of Cadence set forth in the Reorganization Agreement, or if any
representation or warranty of Cadence shall have become inaccurate, in
either case such that the condition described clause (i) or (ii) under
"Conditions to the Merger--HLDS" above would not be satisfied as of the time
of such breach or as of the time such representation or warranty shall have
become inaccurate, PROVIDED that if such breach or the inaccuracy in such
representation or warranty is curable by Cadence through the exercise of
reasonable efforts within 45 days after the time of such breach or the time
such representation or warranty shall have become inaccurate, then HLDS may
not terminate the Reorganization Agreement under this provision during such
45-day period provided Cadence continues to exercise such reasonable
efforts.
EXPENSES AND TERMINATION FEES
Pursuant to the Reorganization Agreement, all fees and expenses incurred in
connection with the Reorganization Agreement and the transactions contemplated
by the Reorganization Agreement shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; PROVIDED, HOWEVER, that
Cadence and HLDS shall share equally all fees and expenses, other than
attorneys' and accountants' fees, incurred in connection with the printing and
filing of this Proxy Statement/Prospectus and the Registration Statement of
which this Proxy Statement/Prospectus is a part.
HLDS will pay to Cadence a nonrefundable fee in the amount of $2.5 million
(the "Termination Amount") if either: (i) an Acquisition Proposal is publicly
announced (and not publicly withdrawn) prior to the HLDS Special Meeting and the
Reorganization Agreement is terminated by Cadence or HLDS pursuant to the
provision described in clause (vi) under "Termination" above; or (ii) the
Reorganization Agreement is terminated by Cadence pursuant to the provision
described in clause (vii) under "Termination" above. For purposes of payment of
the Termination Amount, an Acquisition Proposal shall be deemed to have been
"publicly withdrawn" only if: (1) acting in good faith, the person or entity who
made such Acquisition Proposal publicly announces the withdrawal of such
Acquisition Proposal and (2) it is not reasonably expected that such Acquisition
Proposal will be resubmitted or that such person or entity will make, submit or
announce any other Acquisition Proposal.
NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
None of the representations and warranties of HLDS, HLDS Limited, Cadence or
Cadence Merger Sub contained in the Reorganization Agreement or in any
certificate delivered pursuant to the Reorganization Agreement shall survive the
Merger. However, Messrs. Janac and Wiederhold have made certain representations
and warranties in the Indemnity Agreement which will survive the Merger. See
"Approval of the Merger and Related Transactions--Indemnity and Escrow
Agreement."
AMENDMENT; WAIVER
The Reorganization Agreement may be amended with the approval of the
respective Boards of Directors of HLDS and Cadence at any time before or after
approval of the Reorganization Agreement by the stockholders of HLDS; PROVIDED,
HOWEVER, that after any such stockholder approval, no amendment shall be made
which by law requires further approval of the stockholders of HLDS without the
further approval of such stockholders. The Reorganization Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties. No waiver under the Reorganization Agreement be effective unless it is
expressly set forth in a written instrument duly executed and delivered on
behalf of such party.
52
<PAGE>
CADENCE AND HLDS UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the proposed Merger and should be read in conjunction with the
historical financial statements and accompanying notes for Cadence and HLDS,
incorporated by reference or included elsewhere herein. The Merger is subject to
approval by HLDS' stockholders and other conditions.
The unaudited pro forma condensed combined statement of income for the
fiscal year ended December 30, 1995 gives effect to the proposed Merger, which
will be accounted for as a purchase of HLDS by Cadence, as if the acquisition
was completed at the beginning of the period. The unaudited pro forma condensed
combined statement of income for the nine-month period ended September 28, 1996
gives effect to the proposed Merger as if the acquisition was completed at the
beginning of the nine-month period. The unaudited pro forma condensed combined
balance sheet has been prepared as if the acquisition was consummated as of
September 28, 1996. Such statements of income do not include the effect of the
approximately $91.7 million nonrecurring charge for in-process research and
development. It is anticipated that such amount will be charged to the
operations of Cadence in the first fiscal quarter in which the Closing occurs.
The purchase price allocation reflected in the accompanying pro forma
condensed combined financial statements has been prepared on an estimated basis.
The effects resulting from any adjustments in the final allocation of the
purchase price are not expected to be material and are therefore not expected to
have a material effect on Cadence's financial statements.
This method of combining historical financial statements for the preparation
of the pro forma condensed combined financial statements is for presentation
only. Actual statements of income of the companies will be combined from the
Closing Date with no retroactive restatements. The unaudited pro forma condensed
combined financial statements are provided for illustrative purposes only and
are not necessarily indicative of the combined financial position or combined
results of operations that would have been reported had the 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.
53
<PAGE>
CADENCE AND HLDS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CADENCE HLDS ADJUSTMENTS BALANCES
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Product................................................... $292,198 $ 7,821 $300,019
Service................................................... 65,860 915 66,775
Maintenance............................................... 190,360 1,391 191,751
-------- ------- ---------
TOTAL REVENUE........................................... 548,418 10,127 558,545
-------- ------- ---------
COSTS AND EXPENSES:
Cost of product........................................... 44,793 -- $ 2,630(1) 47,423
Cost of service........................................... 54,988 678 55,666
Cost of maintenance....................................... 16,749 -- 16,749
Marketing and sales....................................... 185,025 3,480 188,505
Research and development.................................. 88,566 3,648 92,214
General and administrative................................ 40,437 1,654 42,091
Compensation charge related to stock options.............. -- 3,008 3,008
-------- ------- ---------
TOTAL COSTS AND EXPENSES................................ 430,558 12,468 445,656
-------- ------- ---------
Income (loss) from operations............................... 117,860 (2,341) 112,889
Other income, net........................................... 17,237 19 17,256
-------- ------- ---------
Income (loss) before provision for income taxes............. 135,097 (2,322) 130,145
Provision (benefit) for income taxes........................ 37,827 106 (756)(2) 37,177
-------- ------- ---------
NET INCOME (LOSS)....................................... $ 97,270 $(2,428) $ 92,968
-------- ------- ---------
-------- ------- ---------
NET INCOME (LOSS) PER SHARE............................. $ 1.05 $ (0.22) $ 0.97
-------- ------- ---------
-------- ------- ---------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING........................................... 92,948 10,983 2,719(3) 95,667
-------- ------- ---------
-------- ------- ---------
</TABLE>
- ------------------------------
(1) Reflects twelve months of amortization of capitalized purchased intangibles
based upon an estimated three-year life.
(2) Adjusts the income tax provision due to HLDS' losses based upon a 28%
effective tax rate.
(3) Reflects the issuance of approximately 2,559,470 shares of Cadence Common
Stock in exchange for all of the outstanding shares of HLDS Capital Stock
and includes HLDS' common equivalent shares.
54
<PAGE>
CADENCE AND HLDS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CADENCE HLDS ADJUSTMENTS BALANCES
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Product................................................... $291,214 $ 6,636 $297,850
Service................................................... 80,405 1,135 81,540
Maintenance............................................... 157,578 1,658 159,236
-------- ------- ---------
TOTAL REVENUE........................................... 529,197 9,429 538,626
-------- ------- ---------
COSTS AND EXPENSES:
Cost of product........................................... 35,539 -- $ 1,973(1) 37,512
Cost of service........................................... 57,420 846 58,266
Cost of maintenance....................................... 17,707 -- 17,707
Marketing and sales....................................... 160,952 4,138 165,090
Research and development.................................. 85,147 3,963 89,110
General and administrative................................ 40,444 1,478 41,922
-------- ------- ---------
TOTAL COSTS AND EXPENSES................................ 397,209 10,425 409,607
-------- ------- ---------
Income (loss) from operations............................... 131,988 (996) 129,019
Other income (expense), net................................. (2,355) (598) (2,953)
-------- ------- ---------
Income (loss) before provision for income taxes............. 129,633 (1,594) 126,066
Provision (benefit) for income taxes........................ 42,779 115 (641)(2) 42,253
-------- ------- ---------
NET INCOME (LOSS)....................................... $ 86,854 $(1,709) $ 83,813
-------- ------- ---------
-------- ------- ---------
NET INCOME (LOSS) PER SHARE............................. $ 0.95 $ (0.16) $ 0.89
-------- ------- ---------
-------- ------- ---------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING........................................... 91,095 10,880 2,719(3) 93,814
-------- ------- ---------
-------- ------- ---------
</TABLE>
- ------------------------------
(1) Reflects nine months of amortization of capitalized purchased intangibles
based upon an estimated three-year life.
(2) Adjusts the income tax provision due to HLDS' losses based upon a 33%
effective tax rate.
(3) Reflects the issuance of approximately 2,559,470 shares of Cadence Common
Stock in exchange for all of the outstanding shares of HLDS Capital Stock
and includes HLDS' common equivalent shares.
55
<PAGE>
CADENCE AND HLDS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
CADENCE HLDS ADJUSTMENTS BALANCES
--------- ------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash investments............................... $ 83,211 $ 1,509 $ 84,720
Short-term investments.................................. 2,023 68 2,091
Accounts receivable, net................................ 99,030 2,568 101,598
Inventories............................................. 7,830 -- 7,830
Prepaid expenses and other.............................. 25,761 400 26,161
--------- ------- -----------
TOTAL CURRENT ASSETS.............................. 217,855 4,545 222,400
PROPERTY, PLANT AND EQUIPMENT, NET........................ 149,685 1,026 150,711
SOFTWARE DEVELOPMENT COSTS, NET........................... 24,019 -- 24,019
PURCHASED SOFTWARE AND INTANGIBLES, NET................... 9,415 -- $ 7,890(1,2,3) 17,305
OTHER ASSETS.............................................. 18,041 97 18,138
--------- ------- -----------
TOTAL ASSETS...................................... $ 419,015 $ 5,668 $ 432,573
--------- ------- -----------
--------- ------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit......................... $ -- $ 500 $ 500
Current portion of long-term debt....................... 3,422 276 3,698
Accounts payable and accrued liabilities................ 94,974 1,651 3,000(3) 99,625
Income taxes payable.................................... 6,960 -- 6,960
Deferred revenue........................................ 101,072 805 101,877
--------- ------- -----------
TOTAL CURRENT LIABILITIES......................... 206,428 3,232 212,660
--------- ------- -----------
LONG-TERM LIABILITIES:
Long-term debt.......................................... 19,878 283 20,161
Deferred income taxes................................... 2,590 17 2,607
Minority interest liability............................. 15,246 -- 15,246
Other long-term liabilities............................. 14,466 -- 14,466
--------- ------- -----------
TOTAL LONG-TERM LIABILITIES....................... 52,180 300 52,480
--------- ------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock......................................... -- 1 (1)(1) --
Common stock and capital in excess of par value......... 351,035 14,484 85,016(1) 450,535
Notes receivable from sale of stock..................... -- (774) (774)
Treasury stock at cost.................................. (399,263) (4,013) 4,013(1) (399,263)
Retained earnings (deficit)............................. 209,412 (7,562) (84,138)(1,2) 117,712
Accumulated translation adjustment...................... (777) -- (777)
--------- ------- -----------
TOTAL STOCKHOLDERS' EQUITY........................ 160,407 2,136 167,433
--------- ------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 419,015 $ 5,668 $ 432,573
--------- ------- -----------
--------- ------- -----------
</TABLE>
- ------------------------------
(1) Reflects the issuance of approximately 2,559,470 shares of Cadence Common
Stock in exchange for all outstanding shares of HLDS Capital Stock, the
assumption of all outstanding HLDS options and the elimination of the HLDS
Preferred Stock, common stock and capital in excess of par value, treasury
stock at cost and retained earnings (deficit).
(2) Reflects the writeoff of in-process product research and development as it
had not reached technological feasibility, resulting in a decrease in
retained earnings (deficit) and purchased software and intangibles of $91.7
million.
(3) Records transaction expenses of HLDS, resulting in an increase to purchased
software and intangibles and accounts payable and accrued liabilities of
$3.0 million.
56
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF CADENCE AND HLDS
NOTE 1. PURCHASE PRICE
The purchase price for the Merger of HLDS is computed as follows (in
thousands):
<TABLE>
<S> <C>
Cadence Common Stock to be issued.................................. $ 89,500
Employee stock options............................................. 8,000
Direct transaction costs........................................... 2,000
---------
TOTAL.......................................................... $ 99,500
---------
---------
</TABLE>
In connection with the Merger, Cadence will issue 2,559,470 shares of
Cadence Common Stock valued at the representative value of the Cadence Common
Stock at the time the proposed transaction was announced, in exchange for all of
the outstanding shares of HLDS Capital Stock.
The value of the options was determined using the Black Scholes valuation
method.
NOTE 2. IN-PROCESS PRODUCT DEVELOPMENT
In connection with the Merger, which will be accounted for as a purchase,
Cadence will allocate the purchase price based upon the estimated fair value of
the assets acquired and the liabilities assumed. Intangible assets acquired
aggregated $99.6 million. Cadence received an appraisal of the intangible assets
which indicates that approximately $91.7 million of the acquired intangible
assets consists of in-process product development. Because there can be no
assurance that Cadence 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 Cadence in the quarter in which the Merger is consummated.
The remaining intangible assets of $7.9 million were assigned to acquired
software and goodwill and will be amortized on a straight-line basis over their
estimated useful lives of three years. Management believes that the unamortized
balance is recoverable through future operating results.
57
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE DATA
HLDS
HLDS Common Stock is listed and traded on the VSE under the symbol "HLD.U."
The HLDS Preferred Stock is not listed or traded on any securities exchange.
The table below sets forth, for the quarters indicated, the reported high
and low sale prices of HLDS Common Stock as reported on the VSE.
<TABLE>
<CAPTION>
HIGH LOW
------------------- -------------------
<S> <C> <C>
1994
First Quarter................................... Canadian$ 4.75 Canadian$ 2.45
Second Quarter.................................. $ 3.30 $ 2.30
Third Quarter................................... $ 2.30 $ 1.45
Fourth Quarter.................................. $ 1.95 $ 1.35
1995*
First Quarter................................... U.S.$ 2.20 U.S.$ 1.05
Second Quarter.................................. $ 9.00 $ 2.20
Third Quarter................................... $15.125 $ 7.00
Fourth Quarter.................................. $15.50 $10.50
1996*
First Quarter................................... U.S.$13.125 U.S.$ 7.125
Second Quarter.................................. $10.00 $ 6.25
Third Quarter................................... $ 7.50 $ 3.85
Fourth Quarter (through November 6, 1996)....... $ 8.10 $ 5.50
</TABLE>
- ------------------------
* In February 1995, pursuant to a request made by HLDS, the VSE adopted the
practice of trading HLDS Common Stock on the VSE in U.S. dollars.
As of the Record Date, there were approximately 94 record holders of HLDS
Common Stock and one record holder of HLDS Preferred Stock.
HLDS has never paid cash dividends on the HLDS Capital Stock and does not
plan to pay any cash dividends in the future.
58
<PAGE>
CADENCE
Cadence Common Stock is listed and traded on the NYSE under the symbol
"CDN."
The table below sets forth, for the quarters indicated, the reported high
and low sale prices of Cadence Common Stock as reported on the NYSE.
<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 6, 1996).............................. 41.38 32.63
</TABLE>
As of the Record Date, there were approximately 1,686 record holders of
Cadence Common Stock.
Cadence has never paid cash dividends on Cadence Common Stock and does not
plan to pay any cash dividends in the future.
The following table sets forth the closing price per share of Cadence Common
Stock as reported on the NYSE and the equivalent per share price (as explained
below) of HLDS Common Stock on October 2, 1996, the business day preceding
public announcement of the Merger, and on November 6, 1996:
<TABLE>
<CAPTION>
CADENCE COMMON EQUIVALENT HLDS
STOCK PER SHARE PRICE
---------------- -----------------
<S> <C> <C>
October 2, 1996.......................................... $ 36.875 $ 8.11
November 6, 1996......................................... $ 34.50 $ 7.59
</TABLE>
The equivalent per share price of a share of HLDS Common Stock represents
twenty-two hundredths (0.22) of the price of one share of Cadence Common Stock.
HLDS STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
CADENCE COMMON STOCK.
59
<PAGE>
HLDS BUSINESS
THE DISCUSSION IN THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. HLDS' ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, WITHOUT
LIMITATION, THOSE DISCUSSED IN THE SECTIONS ENTITLED "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS,"
AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS.
INTRODUCTION
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 currently offers products in three areas: (i) design planning tools,
TOP-DOWN DP (which has been released for limited customer use), LOGIC DP and
PHYSICAL DP, that enable IC designers to consider physical design issues at the
functional design, logic implementation and physical implementation stages of
the design process; (ii) an EDA infrastructure product, PILLAR, that provides an
integration, customization and development platform for implementing new deep
submicron design methodologies; and (iii) other standalone tools, including
HYPEREXTRACT and FASNET DELAY CALCULATOR, that solve specific deep submicron
design problems.
DESIGN PLANNING
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 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' design planning products offer significant improvements over currently
available products in the accurate estimation of delay, routability and chip
size in the early stages of the design process. The more accurate estimation
capabilities of HLDS' products allow performance and cost problems to be
identified and rectified earlier in the design process, resulting in a smaller
number of iterations between each phase of the design process and reduced design
cycle times.
HLDS' design planning products include a number of features that enable
designers to control and improve the timing of a design, thereby improving IC
performance. The more efficient logical partitioning, physical partitioning and
physical floorplanning achieved with HLDS' advanced design planning tools can
result in reduced IC die size. Smaller die size results in more chips per
silicon wafer, reducing semiconductor fabrication costs.
HLDS' design planning products enable large, highly complex ICs to be
implemented using hierarchical, team oriented design methodologies that break
down large, complex designs into component blocks, which component blocks can be
worked on in parallel by different members of the design team. HLDS' products
enable designers to more effectively track and manage the interaction between
component blocks of a complex IC.
EDA INFRASTRUCTURE
HLDS also offers an EDA infrastructure product on which newly defined deep
submicron design methodologies can be implemented. HLDS' infrastructure product,
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
60
<PAGE>
environment. PILLAR allows "best of breed" deep submicron tools to be integrated
quickly and cost effectively and facilitates internal development of other
tools.
PILLAR allows the complex tasks involved in the deep submicron design
process to be completed more quickly by providing a common data repository and
applications programming interfaces, which allow fast access to design data and
provide a powerful technology for tightly integrating "best of breed" deep
submicron tools. In addition, PILLAR provides a high productivity software
development environment, which allows CAD support teams to rapidly develop
interfaces between "best of breed" tools, develop their own application tools
and customize the overall deep submicron design environment. Further, the
availability of interfaces to EDA tools commonly integrated into deep submicron
methodologies reduces the number of interfaces a CAD support team needs to
develop to implement a new deep submicron methodology.
OTHER STANDALONE EDA 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.
TECHNOLOGIES AND PRODUCTS
HLDS focuses its development activities in three primary areas: (i) design
planning technologies and products that allow physical design realities to be
accurately considered during all stages of the design process; (ii) EDA
infrastructure technology that allows IC design teams to quickly implement a
high productivity, deep submicron design methodology using "best of breed" tools
provided by EDA suppliers and internal CAD development teams; and (iii) other
standalone EDA tools that solve specific deep submicron design problems, are
complementary to its design planning products and integrate with its EDA
infrastructure.
TECHNOLOGIES
HLDS' products are based on the following internally developed proprietary
technologies.
LOGIC AND PHYSICAL PARTITIONING. HLDS has developed proprietary methods and
algorithms for partitioning an IC design in a way that enables efficient
physical implementation and minimizes change to the logical hierarchy used to
create the design.
FINAL QUALITY PLACEMENT. HLDS has developed innovative cell and block
placement technology using a high speed, proprietary algorithmic approach that
allows fast, final quality placement of gate arrays and standard cell designs.
ACCURATE RESISTANCE AND CAPACITANCE ESTIMATION AND EXTRACTION. HLDS has
developed proprietary algorithms and techniques for accurately determining
distributed interconnect resistance and capacitance prior to physical
implementation based on a floorplan. Proprietary deep submicron extraction
technology has been developed and can be used to correlate against estimated
results.
ACCURATE DEEP SUBMICRON DELAY CALCULATION. HLDS has developed proprietary
algorithms and techniques for accurately calculating gate and interconnect
delays based on a cell library containing gate timing models and distributed
resistance and capacitance information for each net in a design.
PLACE AND ROUTE BACKPLANE. HLDS has developed a proprietary, unified place
and route backplane that allows cell library data to be input and output to and
from each supported third party place and route
61
<PAGE>
tool, allows floorplans to be transferred to each place and route tool and
allows the final physical layout to be transferred to the design planner for
analysis.
FAST, MEMORY-EFFICIENT DATABASE. HLDS has developed a proprietary database
and database schema that has been optimized for deep submicron IC design.
COMPREHENSIVE APPLICATIONS PROGRAMMING INTERFACES. HLDS has developed
proprietary programming interfaces to the PILLAR database that allow fast and
easy access to the database, graphical user interface and applications operating
within the PILLAR environment.
PRODUCTS
HLDS offers the following design planning, EDA infrastructure and standalone
EDA products.
DESIGN PLANNING PRODUCTS
HLDS offers three design planning products: TOP-DOWN DP, LOGIC DP and
PHYSICAL DP. Each of these products supports gate array, standard cell and
structured custom design styles. The design planning products are written in C
and C++, run on UNIX workstations from Sun and Hewlett Packard and support
industry standards and de facto industry standards such as Physical Design
Exchange Format ("PDEF"), Standard Delay Format ("SDF"), Standard Parasitic
Format ("SPF"), Electronic Design Interchange Format ("EDIF"), Verilog HDL and
GDSII Stream Format.
TOP-DOWN DP. TOP-DOWN DP, which has been released for limited customer use,
is a design planning tool used in the functional design phase of the design
process. TOP-DOWN DP estimates the number of gates and size of each module and
process in the source design description and then creates a block-level
floorplan and determines the global timing of a design. TOP-DOWN DP permits
resolution of major design problems at the functional design stage, thus
facilitating logic implementation in which boundary constraints for each of the
blocks in the floorplan are passed to a synthesis tool along with estimated
delay information. With TOP-DOWN DP, designers can identify and repair design
problems earlier in the design process and significantly reduce design cycle
times.
LOGIC DP. LOGIC DP, commercially released in 1994, is a design planning
tool used in the logic implementation phase of the design process. LOGIC DP
provides a logic designer with the ability to identify delays during the logic
implementation phase. LOGIC DP operates from a hierarchical gate level
description of a design to determine interconnect topologies and accurately
predict routability and delay. With interfaces and methodologies developed in
conjunction with another EDA vendor, LOGIC DP is able to identify and resolve
performance and routability issues to improve the existing logic implementation.
PHYSICAL DP. PHYSICAL DP, commercially released in 1993, is a design
planning tool used in the physical implementation and verification phase of
design. PHYSICAL DP supports hierarchical, team-oriented design methodologies
that break down large complex designs into component pieces, which can be worked
on in parallel by different team members. PHYSICAL DP acts as the central tool
of the hierarchical physical implementation and analysis process. It manages all
the design data across hierarchical design boundaries and between numerous
customer developed and commercial physical implementation tools. As a result,
PHYSICAL DP is crucial to complex "Systems-On-Silicon" IC designs which employ
hierarchical physical implementation methods. Using interfaces developed by
HLDS, PHYSICAL DP can be used with most commercially available place and route
products.
EDA INFRASTRUCTURE PRODUCTS
PILLAR DEVELOPMENT. PILLAR DEVELOPMENT, commercially released in 1994,
provides a software development environment for the implementation of deep
submicron methodologies. Pillar Development provides a C, C++ and Common Lisp
applications programming interface debug environment, graphical user
62
<PAGE>
interface, database schema and database for use by CAD development teams.
Interfaces developed by HLDS to a number of schematic capture, simulation,
timing analysis, synthesis and placement and routing products from EDA vendors,
such as Synopsys, EPIC Design Technology, Integrated Silicon Systems, Cadence,
Mentor Graphics and VIEWlogic Systems, are available through PILLAR DEVELOPMENT
to facilitate the methodology implementation process.
PILLAR RUN TIME. PILLAR RUN TIME, commercially released in 1994, is the
same product as PILLAR DEVELOPMENT, but does not include software development
capabilities. PILLAR RUN TIME is used by customers that employ PILLAR
DEVELOPMENT and by other customers that use products that HLDS has developed to
operate in the PILLAR environment including TOP-DOWN DP, LOGIC DP, PHYSICAL DP,
FASNET and HYPEREXTRACT.
OTHER STANDALONE EDA PRODUCTS
HYPEREXTRACT. HYPEREXTRACT, commercially released in 1995, is a product
used in the physical implementation and verification stage of IC design. It
allows distributed resistance and capacitance to be extracted from a design
database. Interlayer, coupling and sliding conductor capacitance extraction are
supported, as are de facto industry standards, such as SPF, DSPF, LEF and DEF.
FASNET DELAY CALCULATOR. FASNET DELAY CALCULATOR, commercially released in
1995, is a product that can be used at any stage of the design process. It
allows gate and interconnect delays to be accurately calculated based on gate
models and information describing the distributed resistance and capacitance
profile for interconnect. De facto industry standards, such as table models,
SPF, DSPF and SDF, are supported.
SALES AND MARKETING
HLDS markets its products in North America and Europe through a direct sales
organization. HLDS uses a team of sales personnel and field applications
engineers working together from HLDS' sales and support offices to provide
commercial and technical solutions for each customer. Additionally, HLDS has a
team of research and development engineers based at HLDS' headquarters to assist
the applications engineers in certain situations where an advanced level of
product expertise is required. In addition to the sales and marketing
organization at HLDS' headquarters in Santa Clara, California, HLDS has sales
and support offices in Austin, Texas; Mesa, Arizona; Great Falls, Virginia;
Flint, Michigan; Londonderry, New Hampshire; Kraiburg, Germany; and Reading,
England.
HLDS markets its products in Asia through distribution relationships with
companies in each of Japan, Korea and Taiwan. In Japan, HLDS had distributed its
products through Sumisho Electronics Devices ("SED") in 1994 and 1995. In 1996,
SED reorganized its high technology distributions under a new company, SC
Hightech Corporation ("SCH"), which is currently HLDS' Japanese distributor.
HLDS has also entered into a distribution relationship with a company in Israel.
HLDS licenses its products primarily through non-exclusive license
agreements that provide for single-user access either on a host machine or on a
designated network. List prices for HLDS' principal products typically range
from approximately $30,000 to $90,000 depending on the type of license, level of
usage, product mix and other factors. HLDS' license agreements with its
customers typically contain provisions designed to limit HLDS' exposure to
potential product liability claims. Although HLDS has not experienced any
product liability claims to date, the sale and support of products by HLDS may
entail the risk of such claims which could have a material adverse effect upon
HLDS' business, operating results or financial condition.
CUSTOMER SERVICE AND SUPPORT
HLDS provides its customers with a wide range of support services, including
on-site product support, on-site and in-house training and deep submicron design
consulting. HLDS' customer service and support
63
<PAGE>
is provided by applications engineers who understand the design methodologies of
HLDS' customers and generally have IC design backgrounds. Pre-sales support
consists of product benchmarking, product training and integration analysis as
needed. Post-sales support is provided pursuant to renewable annual maintenance
contracts. In addition, customers with maintenance contracts have access to
periodic incremental product enhancement releases at no additional cost. Major
enhancements to products are, however, either offered as an option to existing
products or are subject to upgrade fees. Customers are charged separately for
training including specialist or on-site training.
PRODUCT DEVELOPMENT
HLDS' future success is dependent, in part, upon its ability to enhance its
current products and to develop and introduce new products on a timely and a
cost-effective basis that keep pace with technological developments and evolving
industry standards, as well as address the increasingly sophisticated needs of
its customers. HLDS' research and development staff is divided into groups, each
of which focuses on the development, enhancement and support of a particular
product. These groups also focus on releasing improved versions of HLDS'
existing products and developing new products and product options.
COMPETITION
The market in which HLDS sells its products is highly competitive and HLDS
expects that competition in this market will increase significantly in the
future. HLDS' ability to compete in the EDA product market depends on a number
of factors both within and outside its control, including price, quality,
availability, and performance of its products, timing of new product
introductions by HLDS and its customers and competitors, and customer service
and technical support. Certain competing EDA companies have longer operating
histories, significantly greater financial, technological, management and
marketing resources, greater name recognition and larger installed bases than
HLDS. In addition, these competing EDA companies can devote greater resources to
developing, marketing and selling their products than HLDS and may be able to
respond more quickly to new or emerging technologies and changes in customer
needs. Furthermore, other EDA companies may have competing products or may
develop and bring new products to the market that could compete with HLDS'
products or that offer complete IC design solutions. HLDS also competes with the
internal design groups of its existing and potential customers, many of whom
design and develop customized tools for their particular needs and therefore may
be reluctant to purchase products offered by independent vendors. Some of these
design groups have collaborated with other EDA companies to develop tools with
broader applications in the EDA market and which potentially may compete with
HLDS' products.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
HLDS' success is heavily dependent on its proprietary software technology.
HLDS currently does not have any patents and relies primarily on a combination
of copyright and trademark laws, trade secrets, confidentiality procedures,
contractual provisions and technical measures to protect its proprietary rights
in its products. There can be no assurance that protective measures taken by
HLDS will prevent misappropriation of its proprietary technology, and such
measures may not preclude competitors from developing products with features
similar to those of HLDS' products. Furthermore, effective copyright and trade
secret protection may be limited or unavailable under the laws of certain
foreign jurisdictions.
EMPLOYEES
As of September 30, 1996, HLDS had a total of 78 employees, including 31 in
research and development, 36 in sales and marketing and 11 in administration and
finance. Of these employees, 75 were located in the United States, and one in
each of Japan, England and Germany. None of HLDS' employees is represented by a
labor union. HLDS has not experienced work stoppages and considers its relations
with its employees to be good.
64
<PAGE>
FACILITIES
HLDS' principal administrative, sales, marketing and research and
development facility occupies approximately 27,000 square feet in Santa Clara,
California. HLDS has entered into a lease arrangement allowing it to expand to
approximately 35,000 square feet pursuant to a lease which expires in January,
1999. In addition, HLDS leases sales or support offices in Austin, Texas; Mesa,
Arizona; Great Falls, Virginia; Flint, Michigan; Londonderry, New Hampshire;
Kraiburg, Germany; and Reading, England. HLDS believes that its existing
facilities are adequate for its current needs.
65
<PAGE>
HLDS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF HLDS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO INCLUDED HEREIN. THE DISCUSSION IN THIS
PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. HLDS' ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, WITHOUT LIMITATION, THOSE DISCUSSED IN
THE SECTIONS ENTITLED "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS.
OVERVIEW
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 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 currently provides
products in three areas: (i) design planning tools, which allow physical design
issues to be considered earlier in the design process; (ii) an EDA
infrastructure product, which provides a software development environment used
to integrate, customize and develop EDA tools for new deep submicron design
methodologies; and (iii) other standalone tools designed to solve specific deep
submicron design problems. HLDS markets its products to major domestic and
international customers through its direct sales force and through distributors,
and offers comprehensive customer service, training and support.
HLDS was incorporated in April 1991 and commenced operations effective
January 1992. HLDS' initial technology was based upon research and development
originally performed by AfCAD, HLDS' predecessor, which was primarily a
consulting firm that created HLDS' design planner technology. Effective January
1, 1992, AfCAD transferred substantially all of its EDA technology, contracts
and rights to HLDS. During 1992, HLDS operated primarily as a consulting
services business with sales of products through original equipment manufacturer
("OEM") relationships and its consulting efforts. In 1993, HLDS embarked on a
planned transition from a consulting services business to a products-based
business.
HLDS' operating results have fluctuated in the past and are likely to
continue to fluctuate in the future due to many factors, including, among
others, the timing and market acceptance of new products by HLDS, new product
introductions by HLDS' competitors, competitive conditions in the EDA industry,
rapid technological advances, personnel changes, the development and conduct of
HLDS' international business, fluctuations in quarterly results and HLDS'
dependence on distributors.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as well
as such data expressed as a percentage of HLDS' revenues for the four years
ended December 31, 1995 and for the nine-month periods ended September 30, 1995
and 1996. The annual statement of operations data was derived from the audited
financial statements of HLDS. The statement of operations data presented below
for the nine-month periods ended September 30, 1995 and 1996 are derived from
HLDS' unaudited financial statements that, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
the fair presentation of such information when read in conjunction with HLDS'
annual audited financial statements and notes thereto. Operating results for the
nine-month period ended
66
<PAGE>
September 30, 1996 are not necessarily indicative of results to be expected for
the year ending December 31, 1996 or any other future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------------------------ --------------------
1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
License............................... $ 758 $ 2,804 $ 3,119 $ 7,821 $ 6,048 $ 6,636
Service............................... 489 292 441 2,306 1,426 2,793
--------- --------- --------- --------- --------- ---------
TOTAL REVENUES...................... 1,247 3,096 3,560 10,127 7,474 9,429
COSTS AND EXPENSES:
Cost of service....................... 93 106 144 678 419 846
Research and development.............. 585 1,030 2,910 3,648 2,680 3,963
Sales & marketing..................... 102 1,130 2,888 3,480 2,605 4,138
General & administrative.............. 318 533 1,462 1,654 1,146 1,478
Compensation charge................... -- -- -- 3,008 3,008 --
--------- --------- --------- --------- --------- ---------
TOTAL COSTS AND EXPENSES............ 1,097 2,799 7,404 12,468 9,858 10,425
INCOME (LOSS) FROM OPERATIONS....... 150 297 (3,844) (2,341) (2,384) (996)
Other income (expense).................. (7) (10) 89 19 4 29
Expensed offering costs................. -- -- -- -- -- (627)
--------- --------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE TAX............ 143 287 (3,755) (2,322) (2,380) (1,594)
(Benefit) provision for income taxes.... (39) (38) (23) (106) (58) (115)
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS)................... $ 104 $ 249 $ (3,778) $ (2,428) $ (2,438) $ (1,709)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) PER SHARE......... $ 0.03 $ 0.03 $ (0.34) $ (0.22) $ (0.22) $ (0.16)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING... 3,886 7,834 11,169 10,983 11,037 10,880
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED DECEMBER 31 ENDED
SEPTEMBER 30
----------------------------------- ---------------
1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
License............................... 60.8% 90.6% 87.6% 77.2% 80.9% 70.4%
Service............................... 39.2 9.4 12.4 22.8 19.1 29.6
----- ----- ----- ----- ----- -----
TOTAL REVENUES...................... 100.0 100.0 100.0 100.0 100.0 100.0
COSTS AND EXPENSES:
Cost of service....................... 7.4 3.4 4.1 6.7 5.6 9.0
Research and development.............. 46.9 33.3 81.7 36.0 35.9 42.0
Sales & marketing..................... 8.2 36.5 81.1 34.4 34.9 43.9
General & administrative.............. 25.5 17.2 41.1 16.3 15.3 15.7
Compensation charge................... -- -- -- 29.7 40.2 --
----- ----- ----- ----- ----- -----
TOTAL COSTS AND EXPENSES............ 88.0 90.4 208.0 123.1 131.9 110.6
INCOME (LOSS) FROM OPERATIONS....... 12.0 9.6 (108.0) (23.1) (31.9) (10.6)
Other income (expense).................. (0.6) (0.3) 2.5 0.2 0.1 0.3
Expensed offering costs................. -- -- -- -- -- (6.6)
INCOME (LOSS) BEFORE TAX.............. 11.4 9.3 (105.5) (22.9) (31.8) (16.9)
(Benefit) provision for income taxes.... (3.1) (1.2) (0.6) (1.0) (0.8) (1.2)
----- ----- ----- ----- ----- -----
NET INCOME (LOSS)..................... 8.3% 8.1% (106.1)% (24.0)% (32.6)% (18.1)%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
67
<PAGE>
REVENUES
Revenues increased by 148% from $1.2 million in 1992 to $3.1 million in
1993, and increased by 15% to $3.6 million from 1993 to 1994. Revenues increased
by 184% from $3.6 million in 1994 to $10.1 million in 1995, and increased by 26%
from $7.5 million for the first nine months of 1995 to $9.4 million for the
first nine months of 1996.
LICENSE REVENUES. License revenues increased by 270% from $758,000 in 1992
to $2.8 million in 1993, and increased by 11% to $3.1 million from 1993 to 1994.
License revenues increased by 151% from $3.1 million in 1994 to $7.8 million in
1995, and increased by 10% from $6.0 million for the first nine months of 1995
to $6.6 million for the first nine months of 1996. The growth in license
revenues from 1992 to the present was the result of the growth in the number of
design planning licenses sold, the movement in the EDA industry towards deep
submicron process technologies, new product introductions and investments made
by HLDS to increase its available resources in both research and development and
sales and marketing. License revenues as a percentage of revenues were 60.8%,
90.6%, 87.6% and 77.2% in 1992, 1993, 1994 and 1995 respectively, and 80.9% and
70.4% for the first nine months of 1995 and 1996, respectively. The growth in
license revenues as a percentage of revenues from 1992 to 1994 reflects HLDS'
planned transition from a consulting services business to a products-based
business. The decline in license revenues as a percentage of revenues from 1994
to 1995 as well as for the first nine months of 1995 as compared to the first
nine months of 1996 was due primarily to an increase in service revenues
relative to total revenues. To date, price increases have not been a significant
factor in HLDS' revenue growth.
SERVICE REVENUES. Service revenues declined by 40% from $489,000 in 1992 to
$292,000 in 1993, and increased by 51% to $441,000 from 1993 to 1994. Service
revenues increased by 423% from $441,000 in 1994 to $2.3 million in 1995, and
increased by 96% from $1.4 million for the first nine months of 1995 to $2.8
million for the first nine months of 1996. Service revenues as a percentage of
revenues were 39.2%, 9.4%, 12.4% and 22.8% in 1992, 1993, 1994 and 1995
respectively, and 19.1% and 29.6% for the first nine months of 1995 and 1996,
respectively. Service revenues consist of revenues generated from the sales of
support maintenance contracts, consulting services and implementation services
related to the installation of HLDS' software products and related training.
Such services do not include customization or modification of the underlying
software code. The decrease in service revenues from 1992 to 1993 reflects HLDS'
planned transition from a consulting services business to a products-based
business. The increase in service revenues from 1993 to 1995 was due primarily
to higher levels of maintenance revenues generated from increased product sales
and from HLDS' growing installed base. The increase in service revenues as a
percentage of revenues from the first nine months of 1995 to the first nine
months of 1996 was due primarily to a combination of higher levels of
maintenance revenues, and consulting service revenues generated from consulting
projects.
HLDS has adopted a business strategy that requires HLDS to commit a
substantial amount of management and financial resources to establish a
significant market presence overseas, particularly in Japan, Korea and Taiwan,
which HLDS believes collectively represent a significant part of the world
market for EDA products. International revenues accounted for approximately 23%,
18%, 10% and 23% of revenues in 1993, 1994, 1995 and the first nine months of
1996, respectively. The decrease in international revenues from 1993 to 1994 was
due primarily to substantial initial purchases of HLDS' products in 1993 by SED,
HLDS' Japanese distributor at such time, which were resold by SED to end users
in subsequent periods. The termination or non-renewal of HLDS' distribution
agreement with SCH, HLDS' current Japanese distributor, could have a material
adverse effect on the ability of HLDS to maintain a presence in the Japanese EDA
market. Risks inherent in HLDS' international business may generally include
longer receivable collection periods, greater difficulty in accounts receivable
collection, unexpected changes in regulatory requirements, reduced protection
for intellectual property rights in some countries, tariffs and other trade
barriers, the impact of possible recessionary environments in economies outside
the United States and other factors. There can be no assurance that these
factors will not have a material adverse effect on HLDS' business, operating
results and financial condition.
68
<PAGE>
During 1995 and for the first nine months of 1996, Advanced Micro Devices,
an end user customer of HLDS, accounted for approximately 37% and 22% of HLDS'
revenues, respectively.
HLDS has recognized revenues, for all periods presented, in accordance with
Statement of Position 91-1 entitled "Software Revenue Recognition," dated
December 12, 1991, issued by the American Institute of Certified Public
Accountants. HLDS typically ships orders as received and, as a result, has
little or no backlog. Revenues from software license agreements with end users
and resellers are recognized upon shipment of the software if there are no
significant post-delivery obligations, payment is due within one year and
collection is probable. Revenues for maintenance are recognized ratably over the
term of the support period. If maintenance is included free in a license
agreement, such amount is unbundled from the license fee at its fair market
value based on the value established by independent sale of such maintenance to
customers. Consulting revenues are primarily related to implementation services
performed under separate service arrangements related to the installation of
HLDS' software products. Such services do not include customization or
modification of the underlying software code. If included free in a license
agreement, such services are unbundled at their fair market value based on the
value established by the independent sale of such services to customers.
Revenues from such consulting services and training services are recognized as
the services are performed.
COSTS AND EXPENSES
COST OF LICENSES. Cost of licenses consists primarily of product packaging,
documentation, production costs and royalties to development partners. Cost of
licenses was immaterial for all periods and is included in sales and marketing
expenses.
COST OF SERVICES. Cost of services includes personnel and related operating
expenses allocated to maintenance, consulting and training services. Cost of
services increased by 14% from $93,000 in 1992 to $106,000 in 1993, and
increased by 36% to $144,000 in 1994. Cost of services increased 371% from
$144,000 in 1994 to $678,000 in 1995 and increased by 102% from $419,000 for the
first nine months of 1995 to $846,000 for the first nine months of 1996. Cost of
services as a percentage of revenues was 7.4%, 3.4%, 4.1% and 6.7% in 1992,
1993, 1994 and 1995, respectively, and 5.6% and 9.0% for the first nine months
of 1995 and 1996, respectively. The increase in cost of services was due
primarily to increases in the number of employees and related expenses to
provide customer support.
RESEARCH AND DEVELOPMENT. Research and development expenses include all
costs associated with the development of new products and enhancements to
existing products. Research and development expenses increased by 76% from
$585,000 in 1992 to $1.0 million in 1993, and increased by 183% to $2.9 million
in 1994. Research and development expenses increased by 25% from $2.9 million in
1994 to $3.6 million in 1995 and increased by 48% from $2.7 million for the
first nine months of 1995 to $4.0 million for the first nine months of 1996.
Research and development expenses as a percentage of revenues were 46.9%, 33.3%,
81.7% and 36.0% in 1992, 1993, 1994 and 1995 respectively, and 35.9% and 42.0%
for the first nine months of 1995 and 1996, respectively. The increase in
research and development expenses was due primarily to increases in the number
of employees and related expenses to support the continued enhancement, design
and development of HLDS' products. HLDS believes that significant investment in
research and development activities is essential to HLDS' future success.
Accordingly, HLDS anticipates that it will continue to invest resources to
further enhance and develop its products and believes that research and
development expenses will increase in dollar amount in future periods.
Under the provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," software development costs are capitalized upon the establishment of
technological feasibility, which HLDS defines as establishment of a working
model and further defines as a beta version of the software. The period of time
commencing when a product achieves beta version status and ending when a product
is offered for sale is typically very short. Accordingly, amounts which could
have been capitalized under this statement were immaterial to HLDS'
69
<PAGE>
results of operations and financial condition. Therefore, HLDS has to date
expensed all software development costs as incurred.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
costs associated with the sales process, including salaries, commissions,
travel, advertising and trade shows. These expenses increased from $102,000 in
1992 to $1.1 million in 1993, and increased by 156% to $2.9 million in 1994.
Sales and marketing expenses increased 21% from $2.9 million in 1994 to $3.5
million in 1995, while increasing by 59% from $2.6 million for the first nine
months of 1995 to $4.1 million for the first nine months of 1996. Sales and
marketing expenses as a percentage of revenues were 8.2%, 36.5%, 81.1% and 34.4%
in 1992, 1993, 1994 and 1995, respectively, and 34.9% and 43.9% for the first
nine months of 1995 and 1996, respectively. The increase in sales and marketing
expenses from 1992 to the first nine months of 1996 was due primarily to an
increase in the number of sales and technical sales personnel and related
overhead costs and an increase in the level of sales commissions associated with
the increasing revenue levels experienced through these periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 68% from $318,000 in 1992 to $533,000 in 1993, and increased by 174% to $1.5
million in 1994. General and administrative expenses increased 13% from $1.5
million in 1994 to $1.7 million in 1995 and increased by 29% from $1.1 million
for the first nine months of 1995 to $1.5 million for the first nine months of
1996. General and administrative expenses as a percentage of revenues were
25.5%, 17.2%, 41.1% and 16.3% in 1992, 1993, 1994 and 1995, respectively, and
15.3% and 15.7% for the first nine months of 1995 and 1996, respectively. The
increase in general and administrative expenses in each period was due primarily
to an increase in the number of employees, expenses associated with HLDS' status
as a Canadian public company and expansion of HLDS' facilities to support HLDS'
growth.
COMPENSATION CHARGE RELATED TO STOCK OPTIONS. In September 1995, HLDS
granted options to purchase 300,000 shares of HLDS Common Stock under its 1995
Special Nonstatutory Stock Option Plan. Because these option grants were fully
vested and were substantially discounted from the fair market value of the HLDS
Common Stock as of the date of grant, HLDS incurred a non-recurring, non-cash
compensation charge of $3.0 million.
OTHER INCOME (EXPENSE). Other income (expense) represents interest income
on cash and short-term investments net of interest expense relating to capital
leases and HLDS' line of credit.
EXPENSED OFFERING COSTS. During the second quarter of 1996, HLDS incurred a
non-recurring charge of approximately $627,000 related to the write-off of costs
incurred in connection with its suspended U.S. initial public offering filed in
November 1995.
INCOME TAXES. The provision for income taxes in 1992, 1993, 1994, 1995 and
the nine months ended September 30, 1996 consisted primarily of foreign
withholding taxes. As of December 31, 1995, HLDS had deferred tax assets of
approximately $2.8 million. Because of uncertainties surrounding the timing of
the realization of the deferred tax assets, HLDS has provided a valuation
allowance for a substantial portion of its deferred tax assets due to its
limited operating history and variability of its operating results. As of
December 31, 1995, HLDS had federal and state net operating loss carryforwards
of approximately $2.0 million and $430,000, respectively, which expire in
various periods through 2009. HLDS' ability to utilize the net operating loss
carryforwards in future years may be limited in some circumstances, including
significant changes in ownership interests.
70
<PAGE>
QUARTERLY RESULTS
The following tables set forth certain unaudited statement of operations
data for the seven quarters ended September 30, 1996, as well as such data
expressed as a percentage of HLDS' revenues for the periods indicated. This data
has been derived from unaudited financial statements that, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information when read in
conjunction with HLDS' annual audited financial statements and notes thereto.
HLDS' quarterly results have fluctuated in the past and are expected to
fluctuate significantly in the future. As a result, HLDS believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful. In any event, such comparisons should not be relied upon as
indications of future performance.
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1995 31, 1995 1996 1996 1996
--------- --------- ------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
License........................... $ 1,651 $ 1,875 $ 2,522 $ 1,773 $ 2,306 $ 2,254 $ 2,076
Service........................... 414 532 480 880 952 900 941
--------- --------- ------------- --------- --------- --------- -------------
TOTAL REVENUES.................. 2,065 2,407 3,002 2,653 3,258 3,154 3,017
COSTS AND EXPENSES:
Cost of service................... 101 150 168 259 279 276 291
Research & development............ 843 840 997 968 1,197 1,412 1,354
Sales & marketing................. 735 864 1,006 875 1,215 1,367 1,556
General & administrative.......... 311 405 430 508 460 460 558
Compensation charge............... -- -- 3,008 -- -- -- --
--------- --------- ------------- --------- --------- --------- -------------
TOTAL COSTS AND EXPENSES........ 1,990 2,259 5,609 2,610 3,151 3,515 3,759
INCOME (LOSS) FROM OPERATIONS... 75 148 (2,607) 43 107 (361) (742)
Other income (expense).............. 7 4 (7) 16 7 (13) 35
Expensed offering costs............. -- -- -- -- -- (627) --
INCOME (LOSS) BEFORE TAXES...... 82 152 (2,614) 59 114 (1,001) (706)
Benefit (provision) for income
taxes............................. 6 (42) (22) (49) (31) 8 (92)
--------- --------- ------------- --------- --------- --------- -------------
NET INCOME (LOSS)............... $ 88 $ 110 $ (2,636) $ 10 $ 83 $ (993) $ (799)
--------- --------- ------------- --------- --------- --------- -------------
--------- --------- ------------- --------- --------- --------- -------------
NET INCOME (LOSS) PER SHARE..... $ 0.01 $ 0.01 $ (0.24) $ -- $ 0.01 $ (0.09) $ (0.07)
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING................. 11,316 13,186 11,107 12,740 12,518 11,126 10,986
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1995 31, 1995 1996 1996 1996
--------- --------- ------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
License............................... 80.0% 77.9% 84.0% 66.8% 70.8% 71.5% 68.8%
Service............................... 20.0 22.1 16.0 33.2 29.2 28.5 31.2
--------- --------- ----- --------- --------- --------- -----
TOTAL REVENUES...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
COSTS AND EXPENSES:
Cost of service....................... 4.9 6.3 5.6 9.8 8.6 8.8 9.6
Research & development................ 40.8 34.9 33.2 36.5 36.7 44.8 44.9
Sales & marketing..................... 35.6 35.9 33.5 33.0 37.3 43.3 51.5
General & administrative.............. 15.1 16.8 14.3 19.1 14.1 14.6 18.5
Compensation charge................... -- -- 100.2 -- -- -- --
--------- --------- ----- --------- --------- --------- -----
TOTAL COSTS AND EXPENSES............ 96.4 93.9 186.8 98.4 96.7 111.5 124.5
INCOME (LOSS) FROM OPERATIONS....... 3.6 6.1 (86.8) 1.6 3.3 (11.5) (24.5)
Other income (expense).................. 0.3 0.2 (0.3) 0.6 0.2 (0.4) 1.2
Expensed offering costs................. -- -- -- -- -- (19.9) --
INCOME (LOSS) BEFORE TAXES.......... 3.9 6.3 (87.1) 2.2 3.5 (31.8) (23.3)
Benefit (Provision) for income taxes.... 0.3 (1.7) (0.7) (1.8) (1.0) 0.3 (3.0)
--------- --------- ----- --------- --------- --------- -----
NET INCOME (LOSS)................... 4.2% 4.6% (87.8)% 0.4% 2.5% (31.5)% (26.3)%
--------- --------- ----- --------- --------- --------- -----
--------- --------- ----- --------- --------- --------- -----
</TABLE>
71
<PAGE>
GENERAL. HLDS' quarterly operating results have fluctuated in the past and
are expected to fluctuate significantly in the future due to a number of
factors, including, among others, the size and timing of customer orders, the
timing and market acceptance of new products of HLDS, changes in the level of
operating expenses, new product introductions by HLDS' competitors, competitive
conditions in the EDA industry, the potential impact on HLDS' revenues caused by
the year-end capital budgets and spending activities of HLDS' customers,
technological advances, personnel changes and the level and pricing of
international sales. HLDS generally ships orders as received and, as a result,
typically has little or no backlog. Therefore, revenues and operating results
for a particular quarter depend on the volume and timing of orders received
during such quarter, which are difficult to forecast. In addition, because HLDS
has recognized the substantial majority of its quarterly license revenues in the
last weeks of each quarter and HLDS' expenditure levels for product development
and other operating expenses are based in large part on anticipated revenues,
the timing and amount of revenues associated with orders have caused, and may
continue to cause, significant variations in operating results from quarter to
quarter. As a result, HLDS may not learn of, or be able to confirm, revenue or
earnings shortfalls until late in the quarter from anticipated levels or other
occurrences impacting its ability to meet market expectations for results of
operations. In addition, the sales cycle associated with the license of HLDS'
products is relatively lengthy and typically takes several months to complete,
depending upon the interest of the prospective customer in HLDS' products, the
size of the order (which may involve a significant commitment of capital by the
customer), the decision-making and acceptance procedures within the customer's
organization, the complexity of implementation and other factors.
REVENUES. After experiencing rapid growth in the first three quarters of
1995, HLDS experienced a decline in quarterly revenue in the fourth quarter of
1995. Quarterly revenues reached a high point during the first quarter of 1996
and have declined in the ensuing second and third quarters of 1996. These
fluctuations have resulted primarily from customer delays in product purchases,
economic conditions relating to the semiconductor marketplace, delays in the
introduction of new or enhanced versions of HLDS' products and the level and
acceptance of international sales. HLDS' quarterly fluctuations are indicative
of the factors impacting its business and there can be no assurance that HLDS
will be able to increase revenues in future periods or that it will be able to
sustain its current or historical revenue growth rate.
COSTS AND EXPENSES. Costs and expenses increased in absolute dollar terms
during the four quarters in 1995 and the first three quarters of 1996 due
primarily to an increased number of employees in all areas, an increase in sales
commissions and increases in operating expenses, including facilities, equipment
and travel-related costs. In addition, HLDS incurred a non-recurring, non-cash
compensation charge of $3.0 million in the third quarter of 1995 as a result of
below-market, fully vested option grants for 300,000 shares of HLDS Common Stock
under its 1995 Special Nonstatutory Stock Option Plan, which resulted in a net
loss for such quarter of $2.6 million. The shares subject to options granted
under such plan are equal in number to the shares of HLDS Common Stock
contributed to the capital of HLDS by one of HLDS' founders in September 1995.
HLDS also incurred a non-recurring charge of approximately $627,000 in the
second quarter ended June 30, 1996, related to the write-off of costs incurred
in connection with its suspended U.S. initial public offering filed in November
1995. HLDS' expense levels are based in part on its expectations of future
revenues. If revenue levels are under expectations, operating results will be
adversely affected. Operating and net income are likely to be disproportionately
impacted by a revenue level below expectations due to a minimum portion of HLDS'
expenses varying with its revenue.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operations was $140,000, ($530,000), ($3.1
million) and $1.5 million in 1992, 1993, 1994 and 1995, respectively, and
($45,000) and ($785,000) for the first nine months of 1995 and 1996,
respectively. The increase in net cash used in operations in 1996 was primarily
the result of the net loss incurred in 1996.
72
<PAGE>
HLDS has funded its operations to date primarily from the sale of its equity
securities, for which HLDS has received aggregate net proceeds of approximately
$6.5 million and, to a lesser degree, through borrowings and capital equipment
leases.
HLDS' capital investment activity used cash of $122,000, $793,000, $756,000
and $625,000, in 1992, 1993, 1994 and 1995, respectively, and $369,000 and
$557,000 for the first nine months of 1995 and 1996, respectively. These
investments consist primarily of computer equipment used in development,
testing, demonstrating and supporting HLDS' software products. As of September
30, 1996, HLDS did not have any material commitments for capital expenditures.
As of September 30, 1996, HLDS had working capital of approximately $1.3
million, including cash and short-term investments of approximately $1.6
million. HLDS has entered into a revolving line of credit agreement that expires
May 1, 1997 and provides for borrowings of up to $500,000. As of September 30,
1996, $500,000 was outstanding under the line of credit. Borrowings bear
interest at the bank's reference rate plus 0.5% (8.75% as of September 30, 1996)
and are limited to 70% of eligible accounts receivable as defined in the
agreement. Borrowings are secured by HLDS' accounts receivable and by
substantially all of HLDS' assets. HLDS was in compliance with the covenants
under the line of credit agreement as of December 31, 1995 and September 30,
1996.
73
<PAGE>
HLDS MANAGEMENT AND EXECUTIVE COMPENSATION
HLDS MANAGEMENT
The executive officers, directors and certain other members of senior
management of HLDS, and their ages as of the Record Date, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
Dennis DeCoste........................ 51 Chairman of the Board
J. George Janac....................... 37 President, Chief Executive Officer, Chief Technical Officer, Vice
President, Research and Development, Secretary and Director
Robert P. Wiederhold.................. 37 Executive Vice President, Chief Operating Officer and Director
Kevin E. Moynihan..................... 39 Vice President, Technical Services
Peter S. Teshima...................... 38 Vice President, Finance and Administration and Chief Financial
Officer
Michael S. O'Brien.................... 36 Vice President, Sales
E. Arklin Kee......................... 39 Vice President, Business Development
Harvey C. Allison..................... 40 Director
Aki Fujimura.......................... 37 Director
Michael J.M. Walsh.................... 52 Director
</TABLE>
Mr. DeCoste has been Chairman of the Board of HLDS since January 1992 and
served as the Chief Financial Officer of HLDS from January 1992 to June 1994.
Mr. DeCoste has held senior finance, operating and administration positions with
several California-based technology companies, including The Santa Cruz
Operation, a provider of commercial open systems software, where he was employed
from 1984 to 1989, most recently as Vice President of Corporate Development.
From January 1991 until joining HLDS, Mr. DeCoste was an independent management
consultant and private investor. From November 1989 to December 1990, Mr.
DeCoste was President and CEO of Fact Software International, a company engaged
in developing and marketing financial/manufacturing management software. Mr.
DeCoste has served as a director of Novadigm, Inc. since 1992.
Mr. Janac founded HLDS in April 1991. Mr. Janac served as Chief Technical
Officer and Vice President, Engineering from October 1992 to October 1994, as
President of HLDS from January 1992 through October 1992, and as President,
Chief Executive Officer, Chief Technical Officer and Vice President, Research
and Development from October 1994 to the present. Mr. Janac has also served as
Secretary and a Director of HLDS since April 1991. In 1985, Mr. Janac formed
AfCAD, a consulting firm in the electronic design automation industry and a
predecessor to HLDS, and served as its President until December 1991. Mr. Janac
has held design engineering positions at the Cornell Wilson Synchrontron Lab,
AT&T Bell Labs, Cadence and Apple Computer, Inc.
Mr. Wiederhold joined HLDS in May 1994 and served as the Vice President,
Marketing until September 1994, when he became HLDS' Executive Vice President
and Chief Operating Officer. Mr. Wiederhold was appointed a Director of HLDS in
February 1995. From 1986 through May 1994, Mr. Wiederhold was employed by
Cadence and has held senior management positions in their IC, ASIC, Services and
Systems Division, and from February 1993 to May 1994, Mr. Wiederhold was Vice
President, Marketing for Cadence's Systems Division. Prior to 1986, Mr.
Wiederhold was employed by AT&T Bell Labs as a project leader/IC designer.
Mr. Moynihan joined HLDS in March 1991 and has served as Vice President,
Technical Services since January 1994. His previous positions at HLDS include
Director, Consulting Services from July 1993 to January 1994 and Manager,
Consulting Services from March 1991 to July 1993. From October 1987
74
<PAGE>
through January 1991, Mr. Moynihan served as Senior CAD Engineer at Advanced
Micro Devices, a semiconductor company.
Mr. Teshima joined HLDS in March 1994 as Vice President, Finance and
Administration, and has served as Chief Financial Officer since June 1994. From
January 1993 to March 1994, he served as Vice President, Finance and Chief
Financial Officer at Aurelian Systems, Inc., an applications software developer.
From 1988 to December 1992, Mr. Teshima served as the Director of Financial
Planning and Analysis for The Santa Cruz Operation.
Mr. O'Brien joined HLDS in April 1996 as Vice President, Sales. Mr. O'Brien
served as Vice President, Japanese Operations from December 1993 to April 1996,
and as Director of Marketing from December 1992 to December 1993 at Compass
Design Automation.
Mr. Kee joined HLDS in September 1995 as Director of Business Development,
and has served as Vice President, Business Development since March 1996. From
June 1990 to September 1995, Mr. Kee served as Group Director, Technical Sales
at Cadence. From June 1989 to June 1990, Mr. Kee served as an Engineering
Manager at Silicon Graphics, Inc. From June 1984 to June 1989, Mr. Kee served as
Director, Engineering at SDA/Cadence. Prior to 1984, Mr. Kee was employed by
Bell Labs as an engineer.
Mr. Allison has served as a Director of HLDS since August 1995. Since
September 1996, he has been President of Attractor Investment Management Inc.
Prior to September 1996, he was a Senior Technology Analyst for Amerindo
Investment Advisors, Inc., an investment advisor concentrating on high
technology investments. From October 1989 to February 1993 when he joined
Amerindo Investments Advisors, Inc., Mr. Allison was a Technology Analyst with
Alex. Brown & Sons Incorporated, an investment bank.
Mr. Fujimura has served as a Director of HLDS since May 1996. Since October
1996, Mr. Fujimura has served as a Director of Pure Atria (formerly Pure
Software, Inc.). From April 1993 to August 1996, Mr. Fujimura served as Vice
President and Director of Pure Software, Inc. From March 1989 to April 1993, Mr.
Fujimura served as Vice President, Central Engineering and Information Services
at Cadence.
Mr. Walsh has served as a director of HLDS since March 1996. He is currently
the President and Chief Executive Officer of Omniview Design, Inc., a maker of
board- and system-level synthesis tools. From May 1994 to December 1995, when he
joined Omniview Design, Inc., Mr. Walsh was a Vice President and Chief Operating
Officer of Compass Design Automation. From June 1984 to May 1994, Mr. Walsh
served as Senior Vice President at Comdisco Resources, a DSP design-tool maker.
EXECUTIVE COMPENSATION
The following table sets forth the compensation received for services
rendered to HLDS in all capacities for the fiscal year ended December 31, 1995
by HLDS' Chief Executive Officer and each of the four other most highly
compensated officers (collectively, the "Named Officers").
75
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
- -------------------------------------------------------------------------- ---------- --------- ----------------
<S> <C> <C> <C>
J. George Janac .......................................................... $ 140,727 $ 6,161 $ --
President, Chief Executive Officer, Chief Technical Officer and Vice
President, Research and Development
Dennis DeCoste ........................................................... 130,000 -- --
Chairman of the Board
Robert P. Wiederhold ..................................................... 150,000 -- --
Executive Vice President and Chief Operating Officer
David T. Tarpley(2) ...................................................... 154,374 7,500 72,367
Vice President, Sales
Kevin Moynihan ........................................................... 91,667 3,894 25,977
Vice President, Technical Services
</TABLE>
- ------------------------
(1) Amount represents sales commissions.
(2) Mr. Tarpley resigned in April 1996.
OPTION GRANTS
No stock option grants were made to the Named Officers during the fiscal
year ended December 31, 1995. No stock appreciation rights were granted to the
Named Officers during the fiscal year ended December 31, 1995.
OPTION EXERCISES AND HOLDINGS AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option holdings for
the fiscal year ended December 31, 1995, with respect to the Named Officers. No
Named Officer exercised any stock options during the fiscal year ended December
31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1995 DECEMBER 31, 1995(1)
ACQUIRED ON VALUE -------------------------- ------------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
J. George Janac............. -- -- -- -- $ -- $ --
Dennis DeCoste.............. -- -- -- -- -- --
Robert P. Wiederhold........ -- -- 54,796 80,204 499,466 731,059
26,383 38,617 242,064 354,311
David Tarpley............... -- -- 41,684 58,316 379,950 513,550
83,368 116,632 764,901 1,070,099
Kevin Moynihan.............. -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Based on the closing price of $11.125 of the HLDS Common Stock as reported
on the VSE on December 31, 1995, less the exercise price of the option.
CERTAIN TRANSACTIONS
In February 1995, HLDS entered into a Restricted Stock Purchase Agreement
with Robert P. Wiederhold, Executive Vice President and Chief Operating Officer,
pursuant to which Mr. Wiederhold
76
<PAGE>
purchased 500,000 shares of HLDS Common Stock at a purchase price of $0.85 per
share, which was the fair market value of the HLDS Common Stock on the date of
such purchase. In connection with the agreement, HLDS received consideration
from Mr. Wiederhold in the form of a promissory note for $425,000 at an interest
rate of 7.91% per annum compounded semi-annually due on the earlier of (i)
February 3, 2005 or (ii) twelve months following the termination of Mr.
Wiederhold's employment or association with HLDS. Mr. Wiederhold's note is
secured by the 500,000 purchased shares of HLDS Common Stock and as of September
30, 1996, the principal and accrued interest under such note was $483,318. The
shares sold to Mr. Wiederhold are subject to repurchase by HLDS upon the
termination of Mr. Wiederhold's employment or association with HLDS, and are
released from the repurchase option at the rate of 125,000 shares as of October
1, 1995, and 1/48th of the purchased shares monthly thereafter. In connection
with the purchase of shares by Mr. Wiederhold, HLDS has agreed that in the event
of a Change of Control (as defined below), Mr. Wiederhold's association with
HLDS shall continue, either as an officer or consultant as mutually agreed upon
between Mr. Wiederhold and HLDS, until such time as all of such shares have been
released from the repurchase option. A "Change of Control" is defined as a sale
of HLDS Common Stock to one or more third parties which would result in such
third parties owning more than 50% of HLDS Common Stock then outstanding, or a
merger or consolidation of HLDS with another company which would result in the
HLDS Common Stock continuing to represent (either by survival or conversion)
less than 50% of the total voting securities of the surviving entity. The Merger
constitutes a Change of Control for the purposes of Mr. Wiederhold's Restricted
Stock Purchase Agreement.
In December 1995, HLDS entered into a security agreement and promissory note
with J. George Janac, HLDS' President and Chief Executive Officer, whereby HLDS
loaned to him the sum of $200,000. The loan accrues interest at the rate of 10%
per annum compounded annually and all principal and interest are due and payable
on the first anniversary date of the loan. The approximate loan amount including
principal and interest as of September 30, 1996 was $215,395. The note is
secured by 57,143 shares of Mr. Janac's HLDS Common Stock.
In April 1996, HLDS entered into a Termination Agreement and General Release
with David T. Tarpley, HLDS' Vice President of Sales at that time. As part of
his termination package, HLDS agreed to accept an interest bearing note in the
sum of $326,041 from Mr. Tarpley as consideration for the purchase of the vested
portion of his stock options. The note accrues interest at the rate of 10% per
annum compounded semi-annually and is due on the third anniversary date of the
note.
77
<PAGE>
HLDS PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to HLDS with
respect to beneficial ownership of HLDS Capital Stock as of September 30, 1996
by (i) each beneficial owner of more than 5% of each class of HLDS Capital
Stock, (ii) the Named Officers, (iii) each director and (iv) all directors and
officers as a group.
<TABLE>
<CAPTION>
SHARES OF HLDS CAPITAL STOCK
BENEFICIALLY OWNED(1)(2)
-----------------------------------------------------------------------------
HLDS COMMON STOCK HLDS PREFERRED STOCK
----------------------------- ----------------------------- PERCENT OF
NUMBER PERCENT OF NUMBER PERCENT OF HLDS
OF SHARES CLASS(2) OF SHARES CLASS CAPITAL STOCK
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. George Janac......................... 1,800,000 16.3% -- -- 15.5%
c/o High Level Design Systems
3945 Freedom Circle
Santa Clara, CA 95054
Dennis DeCoste.......................... 963,042 8.7% -- -- 8.3%
c/o High Level Design Systems
3945 Freedom Circle
Santa Clara, CA 95054
Robert P. Wiederhold(4)................. 672,036 6.0% -- -- 5.7%
c/o High Level Design Systems
3945 Freedom Circle
Santa Clara, CA 95054
Sumitomo Corporation(5)................. -- * 600,000 100% 5.2%
2-2 Hitotsubashi 1-chome,
Chiyoda-ku
Tokyo 100 Japan
C.T.O. Box 1529
Tokyo, 100-91 Japan
Kevin E. Moynihan....................... 200,000 1.8% -- -- 1.7%
David T. Tarpley(6)..................... 165,503 1.5% -- -- 1.4%
Aki Fujimura............................ -- * -- -- *
Michael Walsh........................... -- * -- -- *
Harvey Allison(7)....................... 16,153 * -- -- *
All directors and executive officers as
a group (8 persons)(8)................ 3,932,758 34.5% -- -- 32.7%
<CAPTION>
SHARES OF CADENCE COMMON
STOCK BENEFICIALLY OWNED
AFTER THE MERGER(3)
-----------------------------
NUMBERS OF
SHARES PERCENT
------------- -------------
<S> <C> <C>
J. George Janac......................... 396,000 *
c/o High Level Design Systems
3945 Freedom Circle
Santa Clara, CA 95054
Dennis DeCoste.......................... 211,869 *
c/o High Level Design Systems
3945 Freedom Circle
Santa Clara, CA 95054
Robert P. Wiederhold(4)................. 147,848 *
c/o High Level Design Systems
3945 Freedom Circle
Santa Clara, CA 95054
Sumitomo Corporation(5)................. 132,000 *
2-2 Hitotsubashi 1-chome,
Chiyoda-ku
Tokyo 100 Japan
C.T.O. Box 1529
Tokyo, 100-91 Japan
Kevin E. Moynihan....................... 44,000 *
David T. Tarpley(6)..................... 36,411 *
Aki Fujimura............................ 0 *
Michael Walsh........................... 0 *
Harvey Allison(7)....................... 4,214 *
All directors and executive officers as
a group (8 persons)(8)................ 865,207 *
</TABLE>
- ------------------------
* Less than one percent
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of HLDS Common Stock.
(2) With respect to each stockholder listed in the table, the number of shares
of HLDS Common Stock deemed to be outstanding prior to this offering
includes the shares issuable pursuant to stock options held by such
stockholder that may be exercised within 60 days after September 30, 1996.
(3) Includes HLDS Options to be assumed or substituted by Cadence at the
Effective Time, which HLDS Options will become exercisable for Cadence
Common Stock based upon the Exchange Ratio.
(4) Includes options exercisable for 127,036 shares of HLDS Common Stock under
the HLDS 1993 Stock Option Plan.
(5) Assumes conversion of all shares of HLDS Preferred Stock into HLDS Common
Stock.
(6) Mr. Tarpley resigned as Vice President, Sales in April 1996.
(7) Represents options exercisable for 16,153 shares of HLDS Common Stock under
the HLDS 1993 Stock Option Plan.
(8) Includes options exercisable for 374,716 shares of HLDS Common Stock under
the HLDS 1993 Stock Option Plan.
78
<PAGE>
CADENCE BUSINESS
THE DISCUSSION IN THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. CADENCE'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, WITHOUT
LIMITATION, THOSE DISCUSSED IN THE SECTIONS ENTITLED "RISK FACTORS," AND
"BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROXY
STATEMENT/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 integrated circuits ("ICs") and electronic systems. Cadence combines its
technology with services to help optimize its customers' product development
processes. Cadence'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/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 assure it is void of
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 (often called design entry, design capture or schematic
capture). To handle the complexity of large designs, design engineers use a
variety of design capture techniques, including block diagrams, equations or
special design description languages collectively referred to as Hardware
Description Language ("HDL"). Similar standard HDLs are emerging for analog
design.
Before an IC or printed circuit board ("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
every symbol and all data for each design. A database containing the design's
electrical characteristics, interconnections and specific design rules may be
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 quickly to 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. The design,
simulation, and verification iterations are often repeated several times to
refine the design of the IC or PCB. A key element in the simulation process is
the use of component libraries containing software models of commonly used
parts.
Although the design process may vary depending on the the of device being
designed or tools employed, the following is a generalized description of a
generalized design flow. When a design is determined to be architectually or
behaviorally complete, the designer generates a non-graphical description called
a netlist that details the logic of the circuitry of the design components and
interconnections. A "logical" netlist may then be synthesized to create a
"physical" netlist which 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
79
<PAGE>
implementation before products are released to manufacturing. Accuracy in this
process is essential to avoiding costly production runs of faulty parts and the
flow at information back to earlior stages of the prcess is a key to minimize
costly iterations of the design process.
THE CADENCE SOLUTION
Cadence's EDA tools are used by customers to analyze, simulate, implement
and verify electronic designs. In addition, Cadence'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, Cadence believes that customer support
is a key factor in successfully marketing EDA products and generating repeat
orders. Cadence's product maintenance contracts entitle the customers to product
updates, documentation and ongoing support.
Cadence 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, even with the most
sophisticated EDA software, and 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, Cadence believes that its solutions-oriented
approach to provide 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. Cadence's
Verilog HDL logic simulator, Verilog XL, is used by numerous ASIC vendors and
supports over 185 ASIC libraries.
Cadence 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 mandatory for
electronics designers because they 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 offers a
broad portfolio of design planning tools including Preview and the recently
introduced SiliconQuest.
80
<PAGE>
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, Cadence
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.
The Ensemble product family provides advanced place and route ("P&R")
solutions for gate, cell, block and mixed designs. Cadence 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, Cadence
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, Cadence offers thermal, signal integrity, reliability and
electromagnetic analysis tools for detecting potential manufacturing problems.
In 1995, Cadence 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, Cadence introduced
SpectreHDL, the industry's first analog behavioral simulation system for analog
and mixed-signal applications. In 1995, Cadence 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, Cadence's Analog Workbench offers tools from top-down
design through board design.
ELECTRONIC SYSTEMS DESIGN AUTOMATION PRODUCTS
Cadence offers a class of software for top-down design known as Electronic
Systems Design Automation ("ESDA"). Cadence'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 is able to provide 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 provide 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 complete
81
<PAGE>
outsourcing of a particular design operation. Cadence 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.
Cadence'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 unsurpassed
reliability. Cadence offers on-site design assistance and full service chip
designs. Library design services assist in the optimization of libraries for
performance, density, quality, reliability and testability and the targeting of
existing libraries to multiple foundry sources and product applications. Cadence
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 Cadence tools and technology,
aimed at maximizing customers' productivity with Cadence's software
applications.
RECENT DEVELOPMENTS
Cadence believes that the CCT Merger and the Merger with HLDS will allow
Cadence to obtain new technologies and expand and enhance its product lines and
research and development programs. Following the mergers, Cadence intends to
combine the operations and technologies of Cadence, CCT and HLDS as soon as
practicable.
CCT
On October 28, 1996 Cadence entered into an Agreement and Plan of Merger and
Reorganization by and among Cadence, 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
Cadence in a stock-for-stock merger that is expected to be tax free and
accounted as a pooling of interests. 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 Cadence Common Stock. Based upon the approximately 12.9 million shares
of CCT capital stock outstanding on September 30, 1996, Cadence will issue
approximately 11 million shares of Cadence Common Stock in the CCT Merger (12.9
million shares assuming exercise of all outstanding CCT options).
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'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 the interconnect.
At the core of CCT's products are proprietary autorouting algorithms built
upon CCT's ShapeBased architecture. CCT initially developed ShapeBased routing
products for the PCB market and introduced its first product, SPECCTRA, in
December 1989. 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 routing technology to develop its IC Craftsman product
line. IC Craftsman is designed to solve the interconnect problems inherent in
82
<PAGE>
deep submicron IC design. CCT initially developed ShapeBased products for the
PCB market, where interconnect problems were not adequately addressed by
traditional grid-based systems.
COMPARISON OF CAPITAL STOCK
DESCRIPTION OF CADENCE CAPITAL STOCK
The authorized capital stock of Cadence consists of 150,000,000 shares of
Common Stock, $0.01 par value ("Cadence Common Stock"), and 2,000,000 shares of
Preferred Stock, $0.01 par value.
CADENCE COMMON STOCK. As of the Record Date, there were approximately
77,831,057 shares of Cadence Common Stock outstanding held of record by
approximately 1,686 stockholders. Cadence Common Stock is listed on the NYSE
under the symbol "CDN." Holders of Cadence Common Stock are entitled to one vote
per share on all matters to be voted upon by the stockholders. The stockholders
may not cumulate votes in connection with the election of Directors. The holders
of Cadence Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of Cadence, the holders of Cadence Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities. The Cadence Common
Stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the Cadence Common
Stock. All outstanding shares of Cadence Common Stock are fully paid and
non-assessable, and the shares of Cadence Common Stock to be outstanding upon
completion of the Merger will be fully paid and non-assessable.
CADENCE PREFERRED STOCK. Cadence has 2,000,000 shares of Preferred Stock
authorized, of which 400,000 shares are designated Series A Participating
Preferred (the "Series A Preferred"), and no shares are outstanding. The Series
A Preferred has been designated for use in connection with Cadence's Rights
Agreement dated February 9, 1996. Cadence's Board of Directors has the authority
to issue up to 2,000,000 shares of Preferred Stock (including the 400,000 shares
of Series A Participating Preferred) in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon any
unissued and undesignated shares of Preferred Stock and to fix the number of
shares constituting any series and the designations of such series, without any
further vote or action by the stockholders. Although it presently has no
intention to do so, Cadence's Board of Directors, without stockholder approval,
can issue Preferred Stock with voting and conversion rights which could
adversely affect the voting power or other rights of the holders of Cadence
Common Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of Cadence. Cadence has no present
plans to issue Preferred Stock.
CADENCE TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for
the Cadence Common Stock is the Harris Trust and Savings Bank, 311 West Monroe
Street--14th Floor, Chicago, Illinois 60690 and its telephone number is (312)
461-2121.
DESCRIPTION OF HLDS CAPITAL STOCK
The authorized capital stock of HLDS consists of 35,000,000 shares of common
stock, $0.001 par value per share ("HLDS Common Stock"), and 5,000,000 shares of
preferred stock, $0.001 par value per share, of which 800,000 shares are
designated as Series A Preferred ("HLDS Preferred Stock"). As of the Record
Date, there were 11,045,164 shares of HLDS Common Stock outstanding, held of
record by approximately 94 stockholders and 600,000 shares of HLDS Preferred
Stock outstanding, held of record by one stockholder.
HLDS COMMON STOCK. The holders of HLDS Common Stock are entitled to one
vote per share on all matters to be voted upon by the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, the
holders of HLDS Common Stock are entitled to receive ratably such
83
<PAGE>
dividends if any, as may be declared from time to time by the HLDS Board of
Directors out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of HLDS, the holders of HLDS Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities subject to prior distribution rights of preferred stock, if any,
then outstanding. The HLDS Common Stock has no preemptive or conversion rights
or other subscription rights. There are no redemption of sinking fund provisions
applicable to the HLDS Common Stock. All outstanding shares of HLDS Common Stock
are fully paid and nonassessable. During 1992, 1993 and 1995, HLDS sold
3,530,000, 715,000, and 500,000 shares of HLDS Common Stock at $0.02, $0.02 and
$0.85 per share, respectively, which was the fair market value of HLDS Common
Stock at the date of sale, to employees in exchange for promissory notes under
restricted stock purchase agreements. Each note bears interest at 8% compounded
semi-annually and is due within 30 days of full vesting, or upon termination of
employment, whichever is earlier, and is secured by the underlying HLDS Common
Stock. The restricted stock purchase agreements, as amended, provided for the
repurchase of unvested shares by HLDS at the original purchase price, at HLDS'
option, upon termination of employment for any reason. The shares generally vest
25% one year after the date of sale and ratably thereafter over three years. As
of December 31, 1995, $457,000 remained outstanding under these promissory notes
receivable from the sale of HLDS Common Stock and approximately 742,292 shares
were subject to repurchase by HLDS related to these restricted stock purchase
agreements.
PREFERRED STOCK. HLDS' Restated Certificate of Incorporation authorizes
5,000,000 shares of preferred stock. The HLDS Board of Directors has the
authority to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of HLDS without further
action by the stockholders and may adversely affect the voting and other rights
of the holders of HLDS Common Stock. The issuance of preferred stock with voting
and conversion rights may adversely affect the voting power of the holders of
HLDS Common Stock, including the loss of voting control to others.
Eight hundred thousand shares of HLDS Preferred Stock has been designated as
Series A Preferred of which 600,000 shares of HLDS Preferred Stock have been
issued and are outstanding. The holders of the HLDS Preferred Stock have certain
rights, preferences and privileges including: (i) a non-cumulative dividend
preference of $0.25 per share per year; and (ii) a liquidation preference of
$2.50 per share. Each share of HLDS Preferred Stock is convertible at the option
of the holder into one share of HLDS Common Stock (subject to adjustments), has
voting rights equal to the number of shares of HLDS Common Stock into which it
converts and is redeemable, at any time after December 31, 1997, by HLDS at the
price of $2.50 per share.
Pursuant to the Sumitomo Voting Agreement, Sumitomo has agreed to vote its
600,000 shares of HLDS Preferred Stock (representing approximately 5.2% of the
outstanding HLDS Capital Stock as of September 30, 1996) in accordance with the
recommendations of the Board of Directors of HLDS in not less than the same
proportion as the votes cast by the other holders of HLDS Capital Stock. In
addition, in connection with the Sumitomo Voting Agreement, Sumitomo has granted
to HLDS an irrevocable proxy to vote all of the HLDS Preferred Stock held by
Sumitomo as HLDS in its sole discretion deems proper in respect of any meeting
or written consent. Accordingly, it is expected that Sumitomo will vote its HLDS
Preferred Stock for the approval and adoption of the Reorganization Agreement
and approval of the Merger in at least the same proportion as the votes cast by
the holders of HLDS Common Stock.
84
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF CADENCE
COMMON STOCK AND HOLDERS OF HLDS CAPITAL STOCK
Upon consummation of the Merger, the holders of HLDS Capital Stock will
become holders of Cadence Common Stock. There are certain material differences
between the rights and privileges of the holders of HLDS Common Stock and the
holders of Cadence Common Stock.
ANTITAKEOVER PROVISIONS. While HLDS has not adopted a stockholder rights
plan similar to what is commonly known as a "poison pill," Cadence is subject to
certain antitakeover provisions pursuant to its Rights Plan. In addition, while
the Bylaws of HLDS impose no conditions on the stockholders of HLDS who wish to
submit a matter for the written consent of the stockholders of HLDS, the Bylaws
of Cadence require that a stockholder of Cadence, who wishes to submit a matter
for the written consent of the stockholders of Cadence, request that the Board
of Directors of Cadence set a record date for such action and describe in such
request the action proposed to be taken. Cadence is subject to Section 203 of
the DGCL ("Section 203"). Section 203 provides that any person who acquires, has
the right to acquire or the right to control the voting or disposition of 15% or
more of a corporation's voting stock (thereby becoming an "interested
stockholder") may not engage in certain "business combinations" with the target
corporation for a period of three years following the date the person became an
interested stockholder, unless (i) the board of directors of the corporation has
approved, prior to that acquisition date, either the business combination or the
transaction that resulted in the person becoming an interested stockholder, (ii)
upon consummation of the transaction that resulted in the person becoming an
interested stockholder, that person owns at least 85% of the corporation's
voting stock outstanding at the time the transaction is commenced (excluding
shares owned by persons who are both directors and officers and shares owned by
employee stock plans in which participants do not have the right to determine
confidentially whether shares will be tendered in a tender or exchange offer),
or (iii) the business combination is approved by the board of directors and
authorized by the affirmative vote (at an annual or special meeting and not by
written consent) of at least 66% of the outstanding voting stock not owned by
the interested stockholder. HLDS is not subject to Section 203. The foregoing
provisions in Cadence's Rights Plan and Bylaws and Section 203 may have the
effect of reducing the likelihood that stockholders of Cadence will receive a
premium for their shares of Cadence Common Stock in connection with hostile
takeovers or changes in control or management of Cadence relative to likelihood
that the stockholders of HLDS will receive such a premium in similar
circumstances. See "Risk Factors--Antitakeover Provisions."
APPRAISAL RIGHTS. While HLDS stockholders are entitled to appraisal rights
under the DGCL in connection with a merger, including the Merger, Cadence
stockholders are not entitled to appraisal rights under the DGCL in connection
with a merger, including the Merger. See "Approval of the Merger and Related
Transactions--Appraisal Rights."
RIGHTS AND PRIVILEGES OF HLDS PREFERRED STOCK. As of the Effective Time,
the holder of HLDS Preferred Stock will no longer be entitled to certain rights
and privileges previously provided for in HLDS' Restated Certificate of
Incorporation. Such rights include (i) a dividend preference in the amounts
described above and (ii) a liquidation preference in the amounts described
above. In addition, certain contractual rights presently possessed by holders of
HLDS Preferred Stock will cease to exist after the Effective Time. Specifically,
certain information rights and registration rights will terminate at the
Effective Time.
PERCENTAGE OF VOTING STOCK; INFLUENCE OVER AFFAIRS. Upon completion of the
Merger, the percentage ownership of Cadence by each former HLDS stockholder will
be substantially less than such stockholder's current percentage ownership of
HLDS. Accordingly, former HLDS stockholders will have a significantly smaller
voting influence over the affairs of Cadence than they currently enjoy over the
affairs of HLDS.
STOCK EXCHANGE RULES. The HLDS Common Stock is currently listed on the VSE
and will cease to trade on the VSE upon consummation of the Merger. The Cadence
Common Stock is traded on the NYSE. There are material differences between the
corporate governance rules of the VSE and the NYSE.
85
<PAGE>
EXPERTS
The audited consolidated financial statements of Cadence and HLDS included
(or incorporated by reference) in this Proxy Statement/Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included (or incorporated by reference) in reliance upon the authority of said
firm as experts in giving said reports.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for Cadence by Cooley Godward LLP, Palo Alto, California. Certain legal
matters in connection with the Merger will be passed upon for HLDS by Wilson
Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
86
<PAGE>
INDEX TO HLDS FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996
(Unaudited)........................................................................ F-3
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1995 and the nine months ended September 30, 1995 and 1996
(Unaudited)........................................................................ F-4
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1995 and the nine months ended September 30, 1996
(Unaudited)........................................................................ F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1995 and the nine months ended September 30, 1995 and 1996
(Unaudited)........................................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To High Level Design Systems, Inc.:
We have audited the accompanying consolidated balance sheets of High Level
Design Systems, Inc. (a Delaware corporation) and Subsidiary as of December 31,
1994 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of High Level
Design Systems, Inc. and Subsidiary as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
February 16, 1996
F-2
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 1,655 $ 2,133 $ 1,209
Restricted cash..................................................... 300 300 300
Short-term investments.............................................. 68 68 68
Accounts receivable, less allowance for doubtful accounts of $274,
$217 and $70, respectively........................................ 1,163 2,320 2,568
Deferred income taxes............................................... 102 102 102
Prepaid expenses.................................................... 85 122 298
------------- ------------- -------------
Total current assets............................................ 3,373 5,045 4,545
------------- ------------- -------------
PROPERTY AND EQUIPMENT, at cost:
Computer software and equipment..................................... 1,844 2,469 2,953
Furniture and fixtures.............................................. 129 129 164
Leasehold improvements.............................................. 62 62 100
------------- ------------- -------------
2,035 2,660 3,217
Less--Accumulated depreciation and amortization..................... (711) (1,480) (2,191)
------------- ------------- -------------
Net property and equipment...................................... 1,324 1,180 1,026
------------- ------------- -------------
OTHER ASSETS 56 64 97
------------- ------------- -------------
$ 4,753 $ 6,289 $ 5,668
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit..................................... $ 400 $ 400 $ 500
Current portion of long-term debt................................... 57 135 276
Accounts payable.................................................... 341 957 870
Accrued liabilities................................................. 538 642 781
Deferred revenues................................................... 164 814 805
------------- ------------- -------------
Total current liabilities....................................... 1,500 2,948 3,232
------------- ------------- -------------
LONG-TERM DEBT, net of current portion................................ 104 183 283
------------- ------------- -------------
DEFERRED INCOME TAXES................................................. 17 17 17
------------- ------------- -------------
COMMITMENTS (Notes 9 and 10)
STOCKHOLDERS' EQUITY:
Preferred stock: $.001 par value, 5,000,000 shares authorized,
Series A--
800,000 shares designated, aggregated liquidation preference of
$1,500; 600,000 shares outstanding at December 31, 1994 and 1995
and September 30, 1996............................................ 1 1 1
Common stock: $.001 par value; 35,000,000 shares authorized;
10,582,346, 11,125,909, and 11,333,956 shares issued at December
31, 1994 and 1995, and September 30, 1996, respectively........... 11 11 11
Additional paid-in capital.......................................... 6,584 13,452 14,473
Notes receivable from sale of common stock.......................... (39) (457) (774)
Treasury stock 300,000 common shares................................ -- (4,013) (4,013)
Accumulated deficit................................................. (3,425) (5,853) (7,562)
------------- ------------- -------------
Total stockholders' equity...................................... 3,132 3,141 2,136
------------- ------------- -------------
$ 4,753 $ 6,289 $ 5,668
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------ ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Licenses............................................ $ 2,804 $ 3,119 $ 7,821 $ 6,048 $ 6,636
Services............................................ 292 441 2,306 1,426 2,793
------------ ------------ ------------ ------------ ------------
Total revenues.................................... 3,096 3,560 10,127 7,474 9,429
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of services.................................... 106 144 678 419 846
Research and development............................ 1,030 2,910 3,648 2,680 3,963
Sales and marketing................................. 1,130 2,888 3,480 2,605 4,138
General and administrative.......................... 533 1,462 1,654 1,146 1,478
Compensation charge related to stock options........ -- -- 3,008 3,008 --
------------ ------------ ------------ ------------ ------------
Total costs and expenses.......................... 2,799 7,404 12,468 9,858 10,425
------------ ------------ ------------ ------------ ------------
Income (loss) from operations..................... 297 (3,844) (2,341) (2,384) (996)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Expensed offering costs............................. -- -- -- -- (627)
Interest expense.................................... (13) (10) (68) (46) (70)
Interest income..................................... 4 59 70 51 49
Other, net.......................................... (1) 40 17 (1) 50
------------ ------------ ------------ ------------ ------------
Other income (expense), net....................... (10) 89 19 4 (598)
------------ ------------ ------------ ------------ ------------
Income (loss) before provision for income taxes... 287 (3,755) (2,322) (2,380) (1,594)
PROVISION FOR INCOME TAXES............................ 38 23 106 58 115
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS)..................................... $ 249 $ (3,778) $ (2,428) $ (2,438) $ (1,709)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) PER
SHARE............................................... $ 0.03 $ (0.34) $ (0.22) $ (0.22) $ (0.16)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENTS
SHARES.............................................. 7,834,473 11,168,579 10,982,762 11,037,233 10,879,598
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL NOTES RECEIVABLE
---------------------- ---------------------- PAID-IN FROM SALE OF TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL COMMON STOCK STOCK
--------- ----------- --------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992............. -- $ -- 5,630,000 $ 6 $ 106 $ (70) $ --
Issuance of common stock for notes at
$0.02 per share.................... -- -- 715,000 1 13 (14) --
Sale of common stock at $0.40 and
$0.65 per share, net of issuance
costs.............................. -- -- 1,850,000 2 936 -- --
Sale of common stock in initial
public offering on Vancouver Stock
Exchange at $0.97 per share, net of
issuance
costs.............................. -- -- 1,200,000 1 789 -- --
Sale of common stock and attached
warrants at $0.76 and $1.88 per
unit, net of issuance costs........ -- -- 1,275,000 1 1,929 -- --
Exercise of warrants at $0.94 and
$0.98 per share.................... -- -- 500,000 -- 481 -- --
Repurchase of common stock at $0.02
per share.......................... -- -- (175,000) -- (4) 4 --
Payments received on notes
receivable......................... -- -- -- -- -- 5 --
Net income........................... -- -- -- -- -- -- --
--------- ----- --------- ----- ----------- ----- -----------
BALANCE, DECEMBER 31, 1993............. -- -- 10,995,000 11 4,250 (75) --
Sale of preferred stock at $2.50 per
share, net of issuance costs....... 600,000 1 -- -- 1,476 -- --
Exercise of warrants at $1.80 per
share.............................. -- -- 487,346 1 875 -- --
Repurchase of common stock at $0.02
per share.......................... -- -- (900,000) (1) (17) 18 --
Payments received on notes
receivable......................... -- -- -- -- -- 4 --
Forgiveness of notes receivable...... -- -- -- -- -- 14 --
Net loss............................. -- -- -- -- -- -- --
--------- ----- --------- ----- ----------- ----- -----------
BALANCE, DECEMBER 31, 1994............. 600,000 1 10,582,346 11 6,584 (39) --
Issuance of common stock for notes at
$0.85 per share.................... -- -- 500,000 -- 425 (425) --
Exercise of stock options at $1.00 to
$2.19 per share.................... -- -- 43,563 -- 49 -- --
Payments received on notes
receivable......................... -- -- -- -- -- 7 --
Contribution of 300,000 shares of
common stock at fair market
value.............................. -- -- -- -- 4,013 -- (4,013)
Compensation charge related to stock
options............................ -- -- -- -- 3,008 -- --
Capitalized offering costs........... -- -- -- -- (627) -- --
Net loss............................. -- -- -- -- -- -- --
--------- ----- --------- ----- ----------- ----- -----------
BALANCE, DECEMBER 31, 1995............. 600,000 1 11,125,909 11 13,452 (457) (4,013)
Exercise of stock options at $1.00 to
$2.19 per share.................... -- -- 208,047 -- 394 (326) --
Payments received on notes
receivable......................... -- -- -- -- -- 9 --
Expensed offering costs.............. -- -- -- -- 627 -- --
Net loss............................. -- -- -- -- -- -- --
--------- ----- --------- ----- ----------- ----- -----------
BALANCE, SEPTEMBER 30, 1996
(unaudited).......................... 600,000 $ 1 11,333,956 $ 11 $ 14,473 $ (774) $ (4,013)
--------- ----- --------- ----- ----------- ----- -----------
--------- ----- --------- ----- ----------- ----- -----------
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
(DEFICIT) EQUITY
----------- -------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1992............. $ 104 $ 146
Issuance of common stock for notes at
$0.02 per share.................... -- --
Sale of common stock at $0.40 and
$0.65 per share, net of issuance
costs.............................. -- 938
Sale of common stock in initial
public offering on Vancouver Stock
Exchange at $0.97 per share, net of
issuance
costs.............................. -- 790
Sale of common stock and attached
warrants at $0.76 and $1.88 per
unit, net of issuance costs........ -- 1,930
Exercise of warrants at $0.94 and
$0.98 per share.................... -- 481
Repurchase of common stock at $0.02
per share.......................... -- --
Payments received on notes
receivable......................... -- 5
Net income........................... 249 249
----------- -------------
BALANCE, DECEMBER 31, 1993............. 353 4,539
Sale of preferred stock at $2.50 per
share, net of issuance costs....... -- 1,477
Exercise of warrants at $1.80 per
share.............................. -- 876
Repurchase of common stock at $0.02
per share.......................... -- --
Payments received on notes
receivable......................... -- 4
Forgiveness of notes receivable...... -- 14
Net loss............................. (3,778) (3,778)
----------- -------------
BALANCE, DECEMBER 31, 1994............. (3,425) 3,132
Issuance of common stock for notes at
$0.85 per share.................... -- --
Exercise of stock options at $1.00 to
$2.19 per share.................... -- 49
Payments received on notes
receivable......................... -- 7
Contribution of 300,000 shares of
common stock at fair market
value.............................. -- --
Compensation charge related to stock
options............................ -- 3,008
Capitalized offering costs........... -- (627)
Net loss............................. (2,428) (2,428)
----------- -------------
BALANCE, DECEMBER 31, 1995............. (5,853) 3,141
Exercise of stock options at $1.00 to
$2.19 per share.................... -- 68
Payments received on notes
receivable......................... -- 9
Expensed offering costs.............. -- 627
Net loss............................. (1,709) (1,709)
----------- -------------
BALANCE, SEPTEMBER 30, 1996
(unaudited).......................... $ (7,562) $ 2,136
----------- -------------
----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FOR THE YEARS
ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 249 $ (3,778) $ (2,428) $ (2,438) $ (1,709)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities--
Depreciation and amortization....... 134 546 769 560 711
Provision for allowance for doubtful
accounts.......................... 12 264 188 39 (147)
Forgiveness of notes receivable from
sale of common stock.............. -- 14 -- -- --
Revenue recognized on non-monetary
exchange.......................... (180) -- -- -- --
Compensation charge related to stock
options........................... -- -- 3,008 3,008 --
Expensed offering costs............. -- -- -- -- 627
Change in assets and liabilities--
Increase in restricted cash....... -- (300) -- -- --
Increase in accounts receivable... (1,052) (146) (1,345) (1,913) (101)
Increase in deferred income
taxes........................... (65) -- -- -- --
Decrease (increase) in prepaid
expenses........................ (78) 17 (37) (60) (176)
Decrease (increase) in other
assets.......................... -- 5 (8) (39) (33)
Increase (decrease) in accounts
payable......................... 138 125 616 110 (87)
Increase in accrued liabilities... 245 113 104 367 139
Increase (decrease) in deferred
revenues........................ 67 89 650 321 (9)
------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities.......... (530) (3,051) 1,517 (45) (785)
------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (793) (688) (625) (369) (557)
Purchase of held-to-maturity
short-term investments.............. -- (68) -- -- --
------ ------------ ------------ ------------ ------------
Net cash used in investing
activities.................... (793) (756) (625) (369) (557)
------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes
payable to related parties.......... 94 -- -- -- --
Repayment of notes payable to related
parties............................. (152) -- -- -- --
Proceeds from borrowings under line of
credit.............................. -- 400 -- -- 100
Repayments on debt.................... (19) (35) (131) (84) (183)
Proceeds from issuance of preferred
stock, net of issuance costs........ -- 1,477 -- -- --
Proceeds from sale of common stock and
exercise of warrants, net of
issuance costs...................... 4,135 876 49 38 68
Payments received on notes receivable
from sale of common stock........... 5 4 7 7 9
Proceeds from equipment refinancing... -- -- 288 264 424
Capitalized offering costs............ -- -- (627) -- --
------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities.......... 4,063 2,722 (414) 225 418
------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 2,740 (1,085) 478 (189) (924)
CASH AND CASH EQUIVALENTS, beginning of
period................................ -- 2,740 1,655 1,655 2,133
------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 2,740 $ 1,655 $ 2,133 $ 1,466 $ 1,209
------ ------------ ------------ ------------ ------------
------ ------------ ------------ ------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes............ $ 48 $ 26 $ 130 $ 20 $ 2
------ ------------ ------------ ------------ ------------
------ ------------ ------------ ------------ ------------
Cash paid for interest expense........ $ 12 $ 9 $ 68 $ 46 $ 70
------ ------------ ------------ ------------ ------------
------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS:
High Level Design Systems, Inc. (the "Company") was incorporated in
California in April 1991, commenced operations effective January 1992 and was
reincorporated in Delaware in October 1995. The Company operates in a single
industry segment and develops, markets, and supports electronic design
automation ("EDA") software for the design of high-density, high performance
integrated circuits. The principal markets for the Company's products are the
United States, Asia and Europe. The Company's initial technology was based upon
research and development originally performed by AfCAD Corporation ("AfCAD"),
the Company's predecessor, which was primarily a consulting firm that created
the Company's design planner technology. Effective January 1, 1992, AfCAD
transferred substantially all of its EDA technology, contracts and rights to the
Company. During 1992, the Company operated primarily as a consulting services
business with sales of products through original equipment manufacturer
relationships and its consulting efforts. In 1993, the Company embarked on a
planned transition from a consulting services business to a products-based
business. In 1993, the Company completed a public offering of its common stock
on the Vancouver Stock Exchange (see Note 6).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary based in the United Kingdom. All
intercompany balances and transactions have been eliminated. The accompanying
consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles. There are no significant differences
between U.S. and Canadian generally accepted accounting principles which would
have a material effect on the accompanying consolidated financial statements.
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements for the nine months ended
September 30, 1995 and 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.
EFFECT OF RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The disclosure requirements of
SFAS No. 123 are effective as of the beginning of the Company's 1996 fiscal
year. The Company does not expect the new pronouncement to have an impact on its
results of operations since the intrinsic value-based method prescribed by APB
Opinion No. 25 and also allowed by SFAS No. 123 will continue to be used for the
valuation of stock-based compensation plans.
F-7
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
USE OF ESTIMATES
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.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's subsidiary is the United States
dollar. Accordingly, all translation gains and losses resulting from
transactions denominated in currencies other than United States dollars are
included in the consolidated statement of operations. To date, the resulting
gains and losses have not been material.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist of investments in bank certificates of deposit with
initial maturities of three months or less and money market accounts. Short-term
investments consist of a certificate of deposit, maturing in October 1996, which
the Company has the ability and intention to hold to maturity.
In January 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115). The Company's investments in debt securities are
considered to be held to maturity and are stated at amortized cost, which
approximated the fair value at December 31, 1994 and 1995 and September 30,
1996, respectively. Adoption of SFAS No. 115 did not have a material impact on
the Company's financial position or results of operations.
RESTRICTED CASH
Restricted cash represents the minimum average daily balance, calculated
monthly, required to be maintained on account with the Company's lender under
its revolving line of credit agreement (see Note 3).
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
assets, which is three years for computer software and equipment and furniture
and fixtures and over the shorter of the economic life or the life of the lease
for leasehold improvements.
SOFTWARE DEVELOPMENT COSTS
Under the provisions of SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," software development costs
are capitalized upon the establishment of technological feasibility, which the
Company defines as establishment of a working model and further
F-8
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
defines as a beta version of the software. The period of time commencing when a
product achieves beta status and ending when a product is offered for sale is
typically very short. Accordingly, amounts which could have been capitalized
under this statement were immaterial to the Company's results of operations and
financial position. Therefore, the Company has expensed all software development
costs and included those costs in research and development expenses in the
accompanying statements of operations.
REVENUE RECOGNITION
The Company generates revenues from licensing the rights to use its software
products to both end users and resellers. The Company also generates revenues
from consulting and training services performed for customers as well as
revenues from support and software update rights (maintenance).
Revenues from software license agreements with end users and resellers are
recognized upon shipment of the licensed software if there are no significant
post-delivery obligations, payment is due within one year and collectibility is
probable.
Revenues for maintenance are recognized ratably over the term of the support
period. If maintenance is included free in a license agreement, the maintenance
services are unbundled from the license fee at the fair market value of the
maintenance services based on the value established by independent sale of such
maintenance to customers.
Consulting revenues are primarily related to implementation services
performed under separate service arrangements related to the installation of the
Company's software products. Such services do not include customization or
modification of the underlying software code. If included free in a license
agreement, such services are unbundled at their fair market value based on the
value established by the independent sale of such services to customers.
Revenues from such consulting services as well as training services are
recognized as the services are performed.
Cost of licenses consists of product packaging, documentation, production
costs and royalties to development partners. Such costs are not material and are
included in selling and marketing expenses in the accompanying statements of
operations.
Deferred revenues relate to maintenance, consulting and training fees which
have been paid by the customers prior to performance of those services.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares are excluded from the computation if their effect is
antidilutive.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments and trade
receivables. The Company has cash investment policies that limit the amount of
credit exposure to any one financial institution and restrict placement of these
investments to financial institutions evaluated as highly creditworthy.
Concentrations of credit risk
F-9
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
with respect to trade receivables exist because the Company's revenues are
derived primarily from the sale of software licenses and services to a limited
number of companies in the technology industry. The Company performs ongoing
credit evaluation of its customers and generally does not require collateral.
SIGNIFICANT CUSTOMERS AND EXPORT REVENUES
Sales to significant customers as a percentage of total revenues for the
years ended December 31, 1993, 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Customer A....................................................................... 10% 18% 37%
Customer B....................................................................... 12% 14% 7%
Customer C....................................................................... 23% 7% 7%
Customer D....................................................................... 16% 1% --
</TABLE>
Export sales, which consist of sales to customers in foreign countries, as a
percentage of total revenues for the years ended December 31, 1993, 1994 and
1995 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Asia (primarily Japan)....................................................... 23% 16% 9%
Europe....................................................................... -- 2 1
--- --- ---
23% 18% 10%
--- --- ---
--- --- ---
</TABLE>
3. LINE OF CREDIT AGREEMENT:
The Company has a revolving line of credit agreement with a bank which
provides for borrowings of up to $500,000 through May 1997. Borrowings are
limited to 70% of eligible accounts receivable (as defined). Interest on the
line of credit borrowings is payable monthly at the bank's reference interest
rate plus .5 percent (9.5% percent at December 31, 1995). As of December 31,
1995, there were borrowings outstanding of $400,000 and available borrowings of
$100,000 under this line of credit agreement. As of September 30, 1996, there
were borrowings outstanding of $500,000.
Borrowings under the line of credit agreement are secured by the Company's
accounts receivable and other assets. The line of credit agreement requires the
Company to maintain a minimum cash balance of $300,000. As of September 30, 1996
the line of credit agreement also requires the Company to maintain specified
financial covenants, including tangible net worth of not less than $1.9 million,
a ratio of total liabilities to tangible net worth of less than 1.7 to 1,
working capital in excess of $1.3 million, and a current ratio in excess of 1.4
to 1. The Company was in compliance with the covenants as of December 31, 1995
and September 30, 1996.
F-10
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
4. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Sales tax............................................................................... $ 93 $ 84
Accrued employee compensation........................................................... 317 422
Other................................................................................... 128 136
--------- ---------
Total................................................................................... $ 538 $ 642
--------- ---------
--------- ---------
</TABLE>
5. LONG-TERM DEBT:
At December 31, 1994 and 1995, long-term debt of the Company consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Notes payable, secured by equipment, interest at 11% per year, principal and interest
due in equal monthly installments of $6 through October 1997........................... $ 161 $ 110
Notes payable, secured by equipment, interest at 16%-17% per year, principal and
interest due in equal monthly installments of $9 through February 1998 and thereafter
equal monthly installments of $3 through August 1998................................... -- 208
--------- ---------
161 318
Less- Current portion................................................................... (57) (135)
--------- ---------
Long-term debt, net of current portion.................................................. $ 104 $ 183
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1995, maturities of long-term debt are as follows (in
thousands):
<TABLE>
<S> <C>
1996................................................................. $ 135
1997................................................................. 146
1998................................................................. 37
---------
$ 318
---------
---------
</TABLE>
6. COMMON STOCK AND STOCK OPTIONS:
In 1993, the Company completed a public offering of 1,200,000 shares of
common stock on the Vancouver Stock Exchange. Net proceeds to the Company after
commissions and other issuance costs were approximately $.66 per share or
$790,000.
During 1992, 1993 and 1995, the Company sold 3,530,000, 715,000, and 500,000
shares of common stock at $.02, $.02 and $.85 per share, respectively, which was
the fair market value at the date of sale, to employees in exchange for
promissory notes under restricted stock purchase agreements. Each note bears
interest at 8% compounded semi-annually and is due within 30 days of full
vesting, or upon termination of
F-11
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
6. COMMON STOCK AND STOCK OPTIONS: (CONTINUED)
employment, whichever is earlier, and is secured by the underlying common stock.
Unvested shares are subject to repurchase by the Company at the original
purchase price, at the Company's option, upon termination of employment for any
reason. The shares generally vest 25% one year after the date of sale and
ratably thereafter over three years. As of December 31, 1995, $457,000 remained
outstanding under these promissory notes receivable from the sale of common
stock and approximately 742,292 shares were subject to repurchase by the Company
related to these restricted stock purchase agreements.
During 1993, the Board of Directors adopted the 1993 Stock Option Plan (the
"Option Plan"). During 1994, the Company's Board of Directors approved an
increase in the number of shares authorized for issuance under the Option Plan
from 1,000,000 shares of its common stock to 2,750,000 shares. During 1995, the
Board of Directors approved an increase in the number of shares authorized for
issuance under the Option Plan to 4,000,000 shares. Under the Option Plan,
incentive and nonstatutory stock options may be granted with an exercise price
equal to the fair market value on the date of grant. Options granted under the
Option Plan generally vest 25% one year after the date of grant and ratably
thereafter over three years and expire ten years from the date of grant.
As of December 31, 1995, options for 796,486 shares were exercisable. The
weighted average exercise price of options outstanding at December 31, 1995 was
$1.82 per share. Activity under the Option Plan is as follows:
<TABLE>
<CAPTION>
PRICE
AVAILABLE OUTSTANDING PER SHARE
------------ ------------ ---------------
<S> <C> <C> <C>
Initial authorized shares................................. 1,000,000 -- --
Granted................................................. (548,500) 548,500 $ 1.00
Exercised............................................... -- -- --
Canceled................................................ -- -- --
------------ ------------ ---------------
Balance at December 31, 1993.............................. 451,500 548,500 $ 1.00
Authorized.............................................. 1,750,000 -- --
Granted................................................. (1,486,000) 1,486,000 $ 1.95 - $ 2.12
Exercised............................................... -- -- --
Canceled................................................ 250,000 (250,000) $ 1.00
------------ ------------ ---------------
Balance at December 31, 1994.............................. 965,500 1,784,500 $ 1.00 - $ 2.12
Authorized.............................................. 1,250,000 -- --
Granted................................................. (969,000) 969,000 $ 1.70 - $14.63
Exercised............................................... -- (43,563) $ 1.00 - $ 2.19
Canceled................................................ 141,437 (141,437) $ 1.00 - $13.38
------------ ------------ ---------------
Balance, December 31, 1995................................ 1,387,937 2,568,500 $ 1.00 - $14.63
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>
At December 31, 1993, 1,000,000 warrants to purchase common stock were
outstanding. Each warrant entitled the holder to purchase one share of common
stock for approximately $1.80 per share. Of the total warrants, 487,346 were
exercised during 1994, and the remaining warrants expired unexercised in June
1994.
F-12
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
6. COMMON STOCK AND STOCK OPTIONS: (CONTINUED)
1995 SPECIAL NONSTATUTORY STOCK OPTION PLAN
The Company's 1995 Special Nonstatutory Stock Option Plan (the "Special NSO
Plan") was adopted by the Company's Board of Directors in September 1995. A
total of 300,000 shares of common stock has been reserved for issuance under the
Special NSO Plan. In September 1995, 300,000 shares of common stock were granted
under the Special NSO Plan at an exercise price of $3.35 per share and there
were no shares available for future grant. Because option grants under the
Special NSO Plan are fully vested and are substantially discounted from the fair
market value of the common stock as of the date of grant, the Company incurred a
non-recurring, non-cash compensation charge of $3,008,000 during the quarter
ended September 30, 1995, which represents the difference between the fair
market value of the stock on the date of grant and the exercise price. The
Special NSO Plan was authorized by the Board of Directors in connection with a
concurrent contribution to the Company by the Company's President of 300,000
shares of common stock owned by him. The contributed shares of common stock were
valued at fair market value on the date of contribution and are reflected as
treasury stock in the accompanying balance sheet as of December 31, 1995. The
Special NSO Plan and the option grants authorized under the plan are intended by
the Company and the Company's President to enable the Company to attract and
retain key employees and consultants. As of December 31, 1995, no options had
been exercised under the Special NSO Plan and 300,000 options remained
outstanding.
1995 EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
The Company's 1995 Employee Qualified Stock Purchase Plan (the "Purchase
Plan") was adopted by the Company's Board of Directors in September 1995. A
total of 150,000 shares of common stock are reserved for issuance under the
Purchase Plan. The Purchase Plan will enable eligible employees to purchase
common stock at 85% of the lower of the fair market value of the Company's
common stock on the first day or the last day of each purchase period. The
Purchase Plan will terminate in September 2005 and will only become effective if
the Company completes an initial public offering in the United States.
1995 DIRECTOR OPTION PLAN
The Company's 1995 Director Option Plan (the "Director Plan") was adopted by
the Company's Board of Directors in September 1995. A total of 150,000 shares of
common stock are reserved for issuance under the Director Plan. The Director
Plan provides for the grant of nonstatutory stock options to nonemployee
directors of the Company. Under the Director Plan, an option for 15,000 shares
of common stock are granted on the later of the effective date of the Director
Plan or the date on which the optionee first becomes a nonemployee director of
the Company and an additional option to purchase 5,000 shares of common stock
each year beginning on November 1, 1996. Options granted under the Director Plan
have a term of ten years. The exercise price per share of all options granted
under the Director Plan are equal to the fair market value of a share of the
Company's common stock on the date of grant of the option. The Director Plan
will terminate in September 2005 and will only become effective if the Company
completes an initial public offering in the United States.
F-13
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
6. COMMON STOCK AND STOCK OPTIONS: (CONTINUED)
At December 31, 1995, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock.................... 600,000
1993 Stock Option Plan.................................... 3,956,437
1995 Special Nonstatutory Stock Option Plan............... 300,000
1995 Employee Qualified Stock Purchase Plan............... 150,000
1995 Director Option Plan................................. 150,000
------------
Total shares reserved..................................... 5,156,437
------------
------------
</TABLE>
STOCK RIGHTS AGREEMENTS
In October 1994 the Company entered into an agreement with a third party
which gave the third party the right to purchase up to $1,000,000 of shares of
the Company's common stock at 150% of the average trading price in the preceding
ten days. This right expired unexercised on December 31, 1995.
In September 1995 the Company entered into an agreement with a different
third party which allows the third party the right to acquire up to 40,000
shares of the Company's common stock at a price of $12 per share. The right may
be exercised at any time after 12 months following the effective date of any
initial public offering the Company may complete in the United States. The right
expires two years following such effective date.
7. PREFERRED STOCK:
At December 31, 1995, the Company has authorized 5,000,000 shares of
preferred stock, of which 800,000 shares have been designated as Series A
preferred stock. Significant rights, restrictions and preferences of the Series
A preferred stock are as follows:
- The holders of shares of Series A preferred stock are entitled to receive
dividends payable in preference and priority to payment of any dividend on
the common stock, at the rate of $.25 per share per annum, when and if
declared by the Board of Directors. Dividends on the Series A preferred
stock shall not be cumulative. No dividends have been declared to date as
of December 31, 1995.
- The Company has the right, at any time after December 31, 1997, to redeem
all of the Series A preferred stock at the price of $2.50 per share,
together with any declared but unpaid dividends. Redemption of less than
all of the then outstanding shares of the Series A preferred stock shall
be pro rata among the holders of the Series A preferred stock.
- In the event of any liquidation, dissolution or winding up of the Company,
the holders of each share of Series A preferred stock shall receive,
before any payment is made with respect to the common stock, $2.50 per
share, plus all declared but unpaid dividends. After paying the amounts
due the holders of the Series A preferred stock, any remaining assets
available for distribution to stockholders shall be distributed ratably
among the holders of common stock and the holders of preferred stock on an
as-converted basis.
F-14
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
7. PREFERRED STOCK: (CONTINUED)
- Each share of Series A preferred stock is convertible at the option of the
holder into one share of common stock (subject to adjustments for events
of dilution). The Series A preferred stock will automatically be converted
into common stock upon the closing of a public offering of common stock in
the United States which meets certain criteria.
- Each share of Series A preferred stock has voting rights equal to the
number of shares of common stock into which it converts.
8. INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes," which requires an asset and liability approach
for financial accounting and reporting of income taxes.
The provision for income taxes for the years ended December 31, 1993, 1994
and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current provision--
Federal............................................................. $ 30 $-- $ 10
State............................................................... 2 1 1
Foreign............................................................. 70 22 95
--------- --------- ---------
102 23 106
--------- --------- ---------
Deferred benefit--
Federal............................................................. (62) -- --
State............................................................... (2) -- --
--------- --------- ---------
(64) -- --
--------- --------- ---------
Total provision for income taxes...................................... $ 38 $ 23 $ 106
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax basis of assets and
liabilities given the provisions of the enacted tax laws. The
F-15
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
8. INCOME TAXES: (CONTINUED)
tax effect of significant temporary differences representing deferred tax assets
and liabilities are as follows at December 31, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Foreign tax credit carryforwards......................................... $ 95 $ 188
Research and development credit carryforwards............................ 207 333
Net operating loss carryforwards......................................... 954 703
AMT credit carryforward.................................................. -- 9
Net operating loss carryback............................................. 77 77
Items not currently deductible for tax purposes.......................... 204 1,326
Depreciation............................................................. 136 103
Research and development costs capitalized for state purposes............ -- 74
--------- ---------
1,673 2,813
Valuation allowance...................................................... (1,588) (2,728)
--------- ---------
Net deferred income tax assets........................................... $ 85 $ 85
--------- ---------
--------- ---------
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $2,000,000 and $430,000, respectively, available to offset future
federal and state taxable income. These loss carryforwards expire through the
year 2009. The availability and timing of the amount of prior losses to be used
to offset taxable income in future years will be limited due to various
provisions, including any change in ownership of the Company resulting from
significant stock transactions.
The Company has provided a valuation allowance for a substantial portion of
its net deferred tax assets as the Company believes sufficient uncertainty
exists regarding the realization of these items due to its limited operating
history and the variability of its operating results.
9. COMMITMENTS:
On January 1, 1994, the Company entered into a non-cancelable operating
lease for office space which expires in October 1997. In addition, the Company
leases certain equipment under operating leases expiring in 1997. Total rent
expense was approximately $122,000, $431,000 and $864,000 for the years ended
December 31, 1993, 1994 and 1995, respectively. At December 31, 1995, future
minimum rental payments under the non-cancelable operating leases are as follows
(in thousands):
<TABLE>
<S> <C>
1996......................................................... $ 496
1997......................................................... 369
---------
$ 865
---------
---------
</TABLE>
10. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
On October 3, 1996, the Company entered into an Agreement and Plan of Merger
and Reorganization ("Reorganization Agreement") with Cadence Design Systems,
Inc. ("Cadence") whereby each share
F-16
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
10. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED): (CONTINUED)
of the Company's common and preferred stock would be exchanged for 0.22 of a
share of Cadence common stock. All outstanding stock options of the Company will
be assumed or substituted at the 0.22 exchange ratio by Cadence. The
Reorganization Agreement is subject to certain conditions including approval by
the Company's stockholders.
Prior to the signing of the Reorganization Agreement, the Company entered
into an arrangement with a financial advisor for services prior to and in
connection with the acquisition. This arrangement requires the payment of a fee
that is dependent on the final consideration value received per share by the
Company as a result of the consummation of the acquisition by Cadence. The
Company has estimated that the fee payable on completion of the transaction with
Cadence will be approximately $2,100,000. The Company will record an expense for
this fee when consummation of the transaction is considered probable. If the
acquisition is not consummated, the Company will be required to pay a fee of
between $50,000 and $100,000.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
CADENCE DESIGN SYSTEMS, INC.,
a Delaware corporation;
HARBOR ACQUISITION SUB, INC.,
a Delaware corporation; and
HIGH LEVEL DESIGN SYSTEMS, INC.,
a Delaware corporation
---------------------
Dated as of October 3, 1996
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 1. DESCRIPTION OF TRANSACTION................................ A-1
1.1 Merger of Merger Sub into the Company..................... A-1
1.2 Effect of the Merger...................................... A-1
1.3 Closing; Effective Time................................... A-1
1.4 Certificate of Incorporation and Bylaws; Directors and
Officers................................................ A-1
1.5 Conversion of Shares...................................... A-2
1.6 Closing of the Company's Transfer Books................... A-3
1.7 Exchange of Certificates.................................. A-3
1.8 Appraisal Rights.......................................... A-4
1.9 Tax Consequences.......................................... A-4
1.10 Further Action............................................ A-5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............. A-5
2.1 Due Organization; Subsidiary; Etc......................... A-5
2.2 Certificate of Incorporation and Bylaws; Records.......... A-5
2.3 Capitalization, Etc....................................... A-5
2.4 VSE/BCSC Filings; Financial Statements.................... A-7
2.5 Absence of Changes........................................ A-7
2.6 Title to Assets........................................... A-9
2.7 Receivables, Loans and Advances........................... A-9
2.8 Equipment; Leasehold...................................... A-9
2.9 Proprietary Assets........................................ A-10
2.10 Contracts................................................. A-11
2.11 Liabilities............................................... A-12
2.12 Compliance with Legal Requirements........................ A-12
2.13 Certain Business Practices................................ A-12
2.14 Governmental Authorizations............................... A-12
2.15 Tax Matters............................................... A-12
2.16 Employee Benefit Plans.................................... A-13
2.17 Environmental Matters..................................... A-14
2.18 Insurance................................................. A-14
2.19 Related Party Transactions................................ A-14
2.20 Legal Proceedings; Orders................................. A-14
2.21 Authority; Inapplicability of Anti-takeover Statutes;
Binding Nature of Agreement............................. A-15
2.22 DGCL Section 203.......................................... A-15
2.23 Inapplicability of Hart-Scott-Rodino Act.................. A-15
2.24 Vote Required............................................. A-15
2.25 Non-Contravention; Consents............................... A-16
2.26 Fairness Opinion.......................................... A-16
2.27 Financial Advisor......................................... A-17
2.28 Full Disclosure........................................... A-17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB... A-17
3.1 Organization, Standing and Power.......................... A-17
3.2 SEC Filings; Financial Statements......................... A-17
3.3 Disclosure................................................ A-18
3.4 Absence of Certain Changes or Events...................... A-18
3.5 Legal Proceedings......................................... A-18
3.6 Authority; Binding Nature of Agreement.................... A-18
3.7 Valid Issuance............................................ A-18
SECTION 4. CERTAIN COVENANTS OF THE COMPANY.......................... A-18
4.1 Access and Investigation.................................. A-18
4.2 Operation of the Company's Business....................... A-19
4.3 No Solicitation........................................... A-21
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES....................... A-21
5.1 Registration Statement; Prospectus/Proxy Statement........ A-21
5.2 Company Stockholders' Meeting............................. A-22
5.3 Regulatory Approvals...................................... A-22
5.4 Stock Options............................................. A-23
5.5 Indemnification of Officers and Directors................. A-24
5.6 Additional Agreements..................................... A-24
5.7 Disclosure................................................ A-25
5.8 Affiliate Agreements...................................... A-25
5.9 Tax Matters............................................... A-25
5.10 Resignation of Officers and Directors..................... A-25
5.11 Employee Benefits......................................... A-25
5.12 FIRPTA Matters............................................ A-25
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER
SUB..................................................... A-25
6.1 Accuracy of Representations............................... A-25
6.2 Performance of Covenants.................................. A-26
6.3 Effectiveness of Registration Statement................... A-26
6.4 Stockholder Approval...................................... A-26
6.5 Agreements and Documents.................................. A-26
6.6 Employees................................................. A-26
6.7 No Material Adverse Change................................ A-26
6.8 No Restraints............................................. A-27
6.9 No Governmental Litigation................................ A-27
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY........ A-27
7.1 Accuracy of Representations............................... A-27
7.2 Performance of Covenants.................................. A-27
7.3 Effectiveness of Registration Statement................... A-27
7.4 Documents................................................. A-27
7.5 Listing................................................... A-27
7.6 No Restraints............................................. A-28
7.7 No Material Adverse Change................................ A-28
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 8. TERMINATION............................................... A-28
8.1 Termination............................................... A-28
8.2 Effect of Termination..................................... A-29
8.3 Transactions and Expenses; Termination Fee................ A-29
SECTION 9. MISCELLANEOUS PROVISIONS.................................. A-29
9.1 Amendment................................................. A-29
9.2 Waiver.................................................... A-29
9.3 No Survival of Representations and Warranties............. A-29
9.4 Entire Agreement; Counterparts; Applicable Law............ A-30
9.5 Disclosure Schedule....................................... A-30
9.6 Attorneys' Fees........................................... A-30
9.7 Assignability............................................. A-30
9.8 Notices................................................... A-30
9.9 Cooperation............................................... A-31
9.10 Certain Terms............................................. A-31
9.11 Titles.................................................... A-31
9.12 Sections and Exhibits..................................... A-32
</TABLE>
EXHIBITS
Exhibit A -- Certain definitions
Exhibit B -- Form of Certificate of Incorporation of Surviving Corporation
Exhibit C -- Certain employees
Exhibit D -- Certain additional employees
iii
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of October 3, 1996, by and among: CADENCE DESIGN SYSTEMS,
INC., a Delaware corporation ("Parent"); HARBOR ACQUISITION SUB, INC., a
Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"); and
HIGH LEVEL DESIGN SYSTEMS, INC., a Delaware corporation (the "Company"). Certain
capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with this Agreement and the Delaware General
Corporation Law (the "Merger"). Upon consummation of the Merger, Merger Sub will
cease to exist, and the Company will become a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. The respective boards of directors of Parent, Merger Sub and the Company
have approved this Agreement and the Merger.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement and in accordance with the provisions
of applicable law, at the Effective Time (as defined in Section 1.3), Merger Sub
shall be merged with and into the Company, and the separate existence of Merger
Sub shall cease. The Company will continue as the surviving corporation in the
Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Delaware General
Corporation Law (the "DGCL").
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto,
California, at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which (subject to the satisfaction or waiver of the conditions set forth
in Sections 6 and 7) shall be no later than the second business day after
satisfaction of the latest to occur of the conditions set forth in Sections 6.3,
6.4 and 7.5. Contemporaneously with or as promptly as practicable after the
Closing, a properly executed certificate of merger conforming to the
requirements of the DGCL (the "Certificate of Merger") shall be filed with the
Secretary of State of the State of Delaware. The Merger shall take effect at the
time the Certificate of Merger is filed with the Secretary of State of the State
of Delaware (the "Effective Time").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND
OFFICERS. Unless otherwise determined by Parent prior to the Effective Time:
(a) the Certificate of Incorporation of the Surviving Corporation shall
be amended and restated as of the Effective Time to conform to Exhibit B;
A-1
<PAGE>
(b) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as
in effect immediately prior to the Effective Time; and
(c) the directors and officers of the Surviving Corporation immediately
after the Effective Time shall be the respective individuals who are
directors and officers of Merger Sub immediately prior to the Effective
Time.
1.5 CONVERSION OF SHARES.
(a) Subject to Sections 1.5(d) and 1.8, at the Effective Time, by virtue of
the Merger and without any further action on the part of Parent, Merger Sub, the
Company or any stockholder of the Company:
(i) any shares of Company Capital Stock then held by the Company or any
subsidiary of the Company (or held in the Company's treasury) shall be
canceled;
(ii) any shares of Company Capital Stock then held by Parent, Merger Sub
or any other subsidiary of Parent shall be canceled;
(iii) except as provided in clauses "(i)" and "(ii)" above and subject to
Section 1.5(b), (A) each share of Company Common Stock then outstanding
shall be converted into the right to receive twenty-two hundredths (0.22) of
a share of Parent Common Stock, and (B) each share of Company Preferred
Stock then outstanding shall be converted into the right to receive
twenty-two hundredths (0.22) of a share of Parent Common Stock, in each case
upon surrender of the certificate representing such share of Company Common
Stock or Company Preferred Stock (as the case may be) in the manner provided
in Section 1.7 (or in the case of a lost, stolen or destroyed certificate,
upon delivery of an affidavit (and bond, if required) in the manner provided
in Section 1.7); and
(iv) each share of the common stock, par value $.001 per share, of
Merger Sub then outstanding shall be converted into one share of common
stock of the Surviving Corporation.
(b) The fraction of a share of Parent Common Stock into which each
outstanding share of Company Common Stock is to be converted pursuant to Section
1.5(a)(iii)(A) (as such fraction may be adjusted in accordance with this Section
1.5(b)) is referred to as the "Common Stock Exchange Ratio," and the fraction of
a share of Parent Common Stock into which each outstanding share of Company
Preferred Stock is to be converted pursuant to Section 1.5(a)(iii)(B) (as such
fraction may be adjusted in accordance with this Section 1.5(b)) is referred to
as the "Preferred Stock Exchange Ratio". If, between the date of this Agreement
and the Effective Time, the outstanding shares of Company Common Stock, Company
Preferred Stock or Parent Common Stock are changed into a different number or
class of shares by reason of any stock split, stock dividend, reverse stock
split, reclassification, recapitalization or other similar transaction, then the
Common Stock Exchange Ratio and/or the Preferred Stock Exchange Ratio shall be
appropriately adjusted.
(c) If any shares of Company Capital Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company, then the shares of Parent Common
Stock issued in exchange for such shares of Company Capital Stock will also be
unvested and subject to the same repurchase option, risk of forfeiture or other
condition, and the certificates representing such shares of Parent Common Stock
may accordingly be marked with appropriate legends. The Company shall take all
action that may be necessary to ensure that, from and after the Effective Time,
Parent is entitled to exercise any such repurchase option or other right set
forth in any such restricted stock purchase agreement or other agreement.
(d) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any holder of Company
Capital Stock who would otherwise be entitled to receive a fraction of a share
of Parent
A-2
<PAGE>
Common Stock (after aggregating all fractional shares of Parent Common Stock
issuable to such holder) shall, upon surrender of such holder's Company Stock
Certificate(s), be paid in cash the dollar amount (rounded to the nearest whole
cent), without interest, determined by multiplying such fraction by the closing
price of a share of Parent Common Stock on the NYSE on the date the Merger
becomes effective.
1.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time: (a)
all shares of Company Capital Stock outstanding immediately prior to the
Effective Time shall automatically be canceled and retired and shall cease to
exist, and all holders of certificates representing shares of Company Capital
Stock that were outstanding immediately prior to the Effective Time shall cease
to have any rights as stockholders of the Company; and (b) the stock transfer
books of the Company shall be closed with respect to all shares of Company
Capital Stock outstanding immediately prior to the Effective Time. No further
transfer of any such shares of Company Capital Stock shall be made on such stock
transfer books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of Company Capital Stock
(a "Company Stock Certificate") is presented to the Exchange Agent or to the
Surviving Corporation or Parent, such Company Stock Certificate shall be
canceled and shall be exchanged as provided in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) Prior to the Closing Date, Parent shall select a reputable bank or trust
company to act as exchange agent in the Merger (the "Exchange Agent"). Promptly
after the Effective Time, Parent shall deposit with the Exchange Agent (i)
certificates representing the shares of Parent Common Stock issuable pursuant to
this Section 1 and (ii) cash sufficient to make payments in lieu of fractional
shares in accordance with Section 1.5(d). The shares of Parent Common Stock and
cash amounts so deposited with the Exchange Agent, together with any dividends
or distributions received by the Exchange Agent with respect to such shares, are
referred to collectively as the "Exchange Fund."
(b) As soon as practicable after the Effective Time, the Exchange Agent will
mail to the holders of Company Stock Certificates (i) a letter of transmittal in
customary form and containing such provisions as Parent may reasonably specify
(including a provision confirming that delivery of Company Stock Certificates
shall be effected, and risk of loss and title to Company Stock Certificates
shall pass, only upon delivery of such Company Stock Certificates to the
Exchange Agent), and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for certificates representing Parent
Common Stock. Subject to Section 1.5(d), upon surrender of a Company Stock
Certificate to the Exchange Agent for exchange, together with a duly executed
letter of transmittal and such other documents as may be reasonably required by
the Exchange Agent or Parent, (1) the holder of such Company Stock Certificate
shall be entitled to receive in exchange therefor a certificate representing the
number of shares of Parent Common Stock that such holder has the right to
receive pursuant to the provisions of Section 1.5(a)(iii), and (2) the Company
Stock Certificate so surrendered shall be canceled. Until surrendered as
contemplated by this Section 1.7, each Company Stock Certificate shall be
deemed, from and after the Effective Time, to represent only the right to
receive shares of Parent Common Stock (and cash in lieu of any fractional share
of Parent Common Stock) as contemplated by this Section 1. If any Company Stock
Certificate shall have been lost, stolen or destroyed, Parent may, in its
discretion and as a condition precedent to the issuance of any certificate
representing Parent Common Stock, require the owner of such lost, stolen or
destroyed Company Stock Certificate to provide an appropriate affidavit and to
deliver a bond (in such sum as Parent may reasonably direct) as indemnity
against any claim that may be made against the Exchange Agent, Parent or the
Surviving Corporation with respect to such Company Stock Certificate.
(c) Any portion of the Exchange Fund that remains undistributed to former
stockholders of the Company as of the date 180 days after the date on which the
Merger becomes effective shall be delivered to Parent upon demand, and any
former stockholders of the Company who have not theretofore surrendered their
Company Stock Certificates in accordance with this Section 1.7 shall thereafter
look only
A-3
<PAGE>
to Parent for payment of their claims for Parent Common Stock, cash in lieu of
fractional shares of Parent Common Stock and any dividends or distributions with
respect to Parent Common Stock.
(d) Each of the Exchange Agent, Parent and the Surviving Corporation shall
be entitled to deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any holder or former holder of Company
Capital Stock such amounts as may be required to be deducted or withheld
therefrom under the Code or under any provision of state, local or foreign tax
law. To the extent such amounts are so deducted or withheld, such amounts shall
be treated for all purposes under this Agreement as having been paid to the
Person to whom such amounts would otherwise have been paid.
(e) Neither Parent nor the Surviving Corporation shall be liable to any
holder or former holder of Company Common Stock for any shares of Parent Common
Stock (or dividends or distributions with respect thereto), or for any cash
amounts, delivered to any public official pursuant to any applicable abandoned
property, escheat or similar law.
1.8 APPRAISAL RIGHTS.
(a) Notwithstanding anything to the contrary contained in this Agreement,
Appraisal Shares (as defined in Section 1.8(c)) shall not be converted into or
represent the right to receive Parent Common Stock in accordance with Section
1.5(a) (or cash in lieu of fractional shares in accordance with Section 1.5(d)),
and each holder of Appraisal Shares shall be entitled only to such rights with
respect to such Appraisal Shares as may be granted to such holder in Section 262
of the DGCL and (if the Company is subject to Section 2115 of the California
Corporations Code) such rights as may be granted to such holder in Chapter 13 of
the California General Corporation Law. From and after the Effective Time, a
holder of Appraisal Shares shall not have and shall not be entitled to exercise
any of the voting rights or other rights of a stockholder of the Surviving
Corporation. If any holder of Appraisal Shares shall fail to perfect or shall
waive, rescind, withdraw or otherwise lose such holder's right of appraisal
under Section 262 of the DGCL and such holder's rights (if any) under Chapter 13
of the California General Corporation Law, then (i) any right of such holder to
require the Company to purchase the Appraisal Shares for cash shall be
extinguished and (ii) such shares shall automatically be converted into and
shall represent only the right to receive (upon the surrender of the certificate
or certificates representing such shares) Parent Common Stock in accordance with
Section 1.5(a) (and cash in lieu of any fractional share in accordance with
Section 1.5(d)).
(b) The Company (i) shall give Parent prompt written notice of any demand by
any stockholder of the Company for appraisal of such stockholder's shares of
Company Capital Stock pursuant to the DGCL and of any other notice, demand or
instrument delivered to the Company pursuant to the DGCL or the California
General Corporation Law, and (ii) shall give Parent's Representatives the
opportunity to participate in all negotiations and proceedings with respect to
any such notice, demand or instrument. The Company shall not make any payment or
settlement offer with respect to any such notice or demand unless Parent shall
have consented in writing to such payment or settlement offer.
(c) For purposes of this Agreement, "Appraisal Shares" shall refer to any
shares of Company Capital Stock outstanding immediately prior to the Effective
Time that (i) are held by stockholders who are entitled to demand and who
properly demand appraisal of such shares pursuant to, and who comply with the
applicable provisions of, Section 262 of the DGCL or (ii) are or may become
"dissenting shares" within the meaning of Chapter 13 of the California General
Corporation Law. Notwithstanding anything to the contrary contained in this
Agreement, no holder of any shares of Company Capital Stock shall be entitled to
exercise any rights under Chapter 13 of the California General Corporation Law
unless the Company is subject to Section 2115 of the California Corporations
Code.
1.9 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt
A-4
<PAGE>
this Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
1.10 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full right,
title and possession of and to all rights and property of Merger Sub and the
Company, the officers and directors of the Surviving Corporation and Parent
shall be fully authorized (in the name of Merger Sub, in the name of the Company
and otherwise) to take such action.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that, except as
set forth in the disclosure schedule delivered by the Company to Parent on the
date of this Agreement and signed by the President of the Company (the "Company
Disclosure Schedule"):
2.1 DUE ORGANIZATION; SUBSIDIARY; ETC.
(a) The Company owns no shares of capital stock of, or equity interest of
any nature in, any Entity, other than High Level Design Systems Limited, a
corporation organized under the laws of England (the "Subsidiary"). (The Company
and the Subsidiary are referred to collectively in this Agreement as the
"Acquired Corporations"). Neither of the Acquired Corporations has agreed or is
obligated to make any future investment in or capital contribution to any
Entity. Neither of the Acquired Corporations has, at any time, been a general
partner of any general partnership, limited partnership or other Entity.
(b) Each of the Acquired Corporations is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all necessary power and authority: (i) to conduct its
business in the manner in which its business is currently being conducted; (ii)
to own and use its assets in the manner in which its assets are currently owned
and used; and (iii) to perform its obligations under all Contracts by which it
is bound.
(c) Each of the Acquired Corporations is qualified to do business as a
foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of its business requires such qualification and
where the failure to so qualify would have a Material Adverse Effect on the
Acquired Corporations.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of the certificate of
incorporation, bylaws and other charter and organizational documents of the
respective Acquired Corporations, including all amendments thereto. The Company
has made available to Parent accurate and complete copies in all material
respects of the minutes and other records of the meetings and other proceedings
(including any actions taken by written consent or otherwise without a meeting)
of the stockholders of each of the Acquired Corporations, the boards of
directors of each of the Acquired Corporations and all committees of the boards
of directors of each of the Acquired Corporations. There have been no formal
meetings or other proceedings of the stockholders of either of the Acquired
Corporations, the board of directors of either of the Acquired Corporations or
any committee of the board of directors of either of the Acquired Corporations
that are not fully reflected in such minutes or other records. The books of
account, stock records, minute books and other records of each of the Acquired
Corporations are accurate, up-to-date and complete in all material respects, and
have been maintained in accordance with prudent business practices.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i) 35,000,000
shares of Company Common Stock, of which 11,333,956 shares (less 300,000 shares
of Company Common Stock held in treasury) have been issued and are outstanding
as of the date of this Agreement; and (ii) 5,000,000 shares of Company Preferred
Stock, 800,000 of which have been designated "Series A Preferred Stock," of
which
A-5
<PAGE>
600,000 shares have been issued and are outstanding as of the date of this
Agreement. Each outstanding share of Series A Preferred Stock is convertible
into one share of Company Common Stock. All of the outstanding shares of Company
Capital Stock have been duly authorized and validly issued, and are fully paid
and non-assessable. Part 2.3(a)(i) of the Company Disclosure Schedule sets forth
a listing of the record stockholders of the Company as of the most recent
practicable date and the number of shares of Company Capital Stock held by each
such stockholder. Part 2.3(a)(ii) of the Company Disclosure Schedule identifies
each Contract pursuant to which the Company has the right to repurchase, redeem
or otherwise reacquire shares of Company Capital Stock, and, with respect to
each such Contract, sets forth: (i) the effective date of such Contract; (ii)
the number of shares of Company Capital Stock subject to such Contract; and
(iii) the terms of each repurchase option contained in such Contract. Upon
consummation of the Merger, the shares of Parent Common Stock issued in exchange
for the shares of Company Capital Stock subject to a Contract that is, or is
required to be, identified in Part 2.3(a)(ii) of the Company Disclosure Schedule
will, without any further act of Parent, the Company or any other Person, become
subject to the restrictions, conditions and other provisions contained in such
Contract. The Company has delivered to Parent an accurate and complete copy of
each Contract identified in Part 2.3(a)(ii) of the Company Disclosure Schedule.
(b) As of the date of this Agreement: (i) 2,929,107 shares of Company Common
Stock are reserved for future issuance pursuant to stock options granted and
outstanding under the Company's 1993 Stock Option Plan; and (ii) 300,000 shares
of Company Common Stock are reserved for future issuance pursuant to stock
options granted and outstanding under the Company's 1995 Special Nonstatutory
Stock Option Plan. (Stock options granted by the Company pursuant to its stock
option plans are referred to in this Agreement as "Company Options.") Part
2.3(b)(i) of the Company Disclosure Schedule sets forth the following
information with respect to each Company Option outstanding as of the date of
this Agreement: (i) the particular plan pursuant to which such Company Option
was granted; (ii) the name of the optionee; (iii) the number of shares of
Company Common Stock subject to such Company Option; (iv) the exercise price of
such Company Option; (v) the date on which such Company Option was granted; (vi)
the extent to which such Company Option is vested as of September 18, 1996; and
(vii) the date on which such Company Option expires. No Company Option has ever
been granted under the Company's Incentive Stock Option Plan, and the Company
has received from each potential beneficiary under the Incentive Stock Option
Plan a clarification confirming that the Company has not granted any option or
other right to acquire any shares of Company Capital Stock under the Incentive
Stock Option Plan. The Incentive Stock Option Plan has been (or will be within
ten days after the date of this Agreement) validly terminated and is, or within
ten days after the date of this Agreement will be, no longer in effect. Neither
the "1995 Director Option Plan" nor the "1995 Employee Qualified Stock Purchase
Plan" referred to in the footnotes to the Company's audited financial statements
as of and for the year ended December 31, 1995 ever became effective, and no
option or right to purchase shares of Company Common Stock has ever been granted
or issued pursuant to either of such plans. The Company has delivered to Parent
accurate and complete copies of all stock option plans pursuant to which the
Company has ever granted stock options.
(c) Except as set forth in Part 2.3(b) of the Company Disclosure Schedule
there is no: (i) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of the Company; (ii) outstanding security, instrument
or obligation that is or may become convertible into or exchangeable for any
shares of the capital stock or other securities of the Company (except for the
600,000 shares of Company Preferred Stock outstanding as of the date of this
Agreement, which are convertible into 600,000 shares of Company Common Stock);
(iii) Contract under which the Company is or may become obligated to sell or
otherwise issue any shares of its capital stock or any other securities; or (iv)
to the best of the knowledge of the Company, condition or circumstance that may
give rise to or provide a basis for the assertion of a claim by any Person to
the effect that such Person is entitled to acquire or receive any shares of
capital stock or other securities of the Company.
A-6
<PAGE>
(d) All outstanding shares of Company Capital Stock, all outstanding Company
Options, and all outstanding shares of capital stock of the Subsidiary have been
issued and granted in material compliance with (i) all applicable securities
laws and other applicable Legal Requirements, and (ii) all requirements set
forth in applicable Contracts.
(e) All of the outstanding shares of capital stock of the Subsidiary are
validly issued, fully paid and nonassessable and are owned beneficially and of
record by the Company, free and clear of any Encumbrances.
2.4 VSE/BCSC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent a complete and accurate copy of each
report, schedule, registration statement, information circular, definitive proxy
statement or similar document filed by the Company with the BCSC or the VSE on
or after January 1, 1993 (the "Company Reports"), which are all the forms,
reports and documents required to be filed by the Company with the BCSC or the
VSE since January 1, 1993. The Company Reports (i) complied in all material
respects with the requirements of applicable Canadian securities laws and
regulations and applicable regulations of the BCSC and the VSE at and as of the
times they were filed (or, if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) and (ii) did not at and
as of the time they were filed (or, if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(b) The Company has delivered to Parent the following financial statements
and notes (collectively, the "Company Financial Statements"):
(i) the audited consolidated balance sheets of the Company as of
December 31, 1995 and 1994, and the related audited consolidated income
statements, statements of stockholders' equity and statements of cash flows
of the Company for the years ended December 31, 1995, 1994 and 1993,
together with the notes thereto and the unqualified report and opinion of
Arthur Andersen LLP relating thereto; and
(ii) the unaudited consolidated balance sheet of the Company as of June
30, 1996 (the "Unaudited Interim Balance Sheet"), and the related unaudited
consolidated income statement and statement of cash flows of the Company for
the six months then ended.
(c) The Company Financial Statements present fairly the consolidated
financial position of the Acquired Corporations as of the respective dates
thereof and the consolidated results of operations and cash flows of the
Acquired Corporations for the periods covered thereby. The Company Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered (except
that the financial statements referred to in Section 2.4(b)(ii) do not contain
footnotes and are subject to normal and recurring year-end audit adjustments,
which will not, individually or in the aggregate, be material in magnitude).
2.5 ABSENCE OF CHANGES. Between June 30, 1996 and the date of this
Agreement:
(a) there has not been any material adverse change in the business,
condition, assets, liabilities, operations or financial performance of
either of the Acquired Corporations, and no event has occurred that could
reasonably be expected to have a Material Adverse Effect on the Acquired
Corporations;
(b) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of the assets of either of the
Acquired Corporations (whether or not covered by insurance);
A-7
<PAGE>
(c) neither of the Acquired Corporations has (i) declared, accrued, set
aside or paid any dividend or made any other distribution in respect of any
shares of capital stock, or (ii) repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities (except pursuant
to rights of repurchase of any such shares under any employee or consultant
stock plan or arrangement applicable to either of the Acquired
Corporations);
(d) neither of the Acquired Corporations has sold, issued or authorized
the issuance of (i) any capital stock or other security (except for Company
Common Stock issued upon the exercise of outstanding Company Options), (ii)
any option or right to acquire any capital stock or any other security
(except for Company Options granted under the Company's 1993 Stock Option
Plan consistent with past practices), or (iii) any instrument convertible
into or exchangeable for any capital stock or other security;
(e) the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, (i) any provision of any of the
Company's stock option plans, (ii) any provision of any agreement evidencing
any outstanding Company Option, or (iii) any restricted stock purchase
agreement;
(f) there has been no amendment to the certificate of incorporation,
bylaws or other charter or organizational documents of either of the
Acquired Corporations, and neither of the Acquired Corporations has effected
or been a party to any merger, consolidation, share exchange, business
combination, recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction or received any Acquisition
Proposal;
(g) neither of the Acquired Corporations has formed any subsidiary or
acquired any equity interest or other interest in any other Entity;
(h) neither of the Acquired Corporations has made any capital
expenditure which, when added to all other capital expenditures made on
behalf of the Acquired Corporations since June 30, 1996, exceeds $100,000 in
the aggregate;
(i) except as disclosed in Part 2.10 of the Company Disclosure Schedule,
neither of the Acquired Corporations has (i) entered into or permitted any
of the material assets owned or used by it to become bound by any Material
Contract, or (ii) amended or prematurely terminated, or waived any material
right or remedy under, any Material Contract;
(j) neither of the Acquired Corporations has (i) acquired, leased or
licensed any right or other asset from any other Person, (ii) sold or
otherwise disposed of, or leased or licensed, any right or other asset to
any other Person, or (iii) waived or relinquished any right, except for
immaterial rights or other immaterial assets acquired, leased, licensed or
disposed of in the ordinary course of business and consistent with past
practices;
(k) neither of the Acquired Corporations has written off as
uncollectible, or established any extraordinary reserve with respect to, any
account receivable or other indebtedness;
(l) neither of the Acquired Corporations has made any pledge of any of
its assets or otherwise permitted any of its material assets to become
subject to any Encumbrance, except for (i) any lien for current taxes not
yet due and payable, and (ii) minor liens that have arisen in the ordinary
course of business and that do not (individually or in the aggregate)
materially detract from the value of the assets subject thereto or
materially impair the operations of either of the Acquired Corporations;
(m) neither of the Acquired Corporations has (i) lent money to any
Person, or (ii) incurred or guaranteed any indebtedness for borrowed money;
(n) neither of the Acquired Corporations has (i) established or adopted
any Plan, (ii) caused or permitted any Plan to be amended in any material
respect, or (iii) paid any bonus or made any profit-sharing or similar
payment to or for the benefit of any of its directors, officers or employees
in excess
A-8
<PAGE>
of $5,000 in any single case or $25,000 in the aggregate, or materially
increased the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to any of its directors or
officers or employees;
(o) neither of the Acquired Corporations has changed any of its methods
of accounting or accounting practices in any respect;
(p) neither of the Acquired Corporations has made any material Tax
election;
(q) neither of the Acquired Corporations has commenced any Legal
Proceeding or settled any Legal Proceeding involving payments in excess of
$10,000 or involving any material asset of either of the Acquired
Corporations;
(r) neither of the Acquired Corporations has entered into any material
transaction or taken any other material action outside the ordinary course
of business or inconsistent with its past practices; and
(s) neither of the Acquired Corporations has agreed or committed to take
any of the actions referred to in clauses "(c)" through "(r)" above.
2.6 TITLE TO ASSETS. The Acquired Corporations own, and have good, valid
and marketable title to, all assets purported to be owned by them and which are
material to either of the Acquired Corporations or to the conduct of their
business, including: (i) all assets owned by either of the Acquired Corporations
and reflected on the Unaudited Interim Balance Sheet; and (ii) all assets
referred to in Parts 2.7(b), 2.8 and 2.9 of the Company Disclosure Schedule and
all rights under the Contracts identified in Part 2.10 of the Company Disclosure
Schedule. All of said assets are owned by the Acquired Corporations free and
clear of any Encumbrances, except for (x) any lien for current taxes not yet due
and payable, and (y) minor liens that have arisen in the ordinary course of
business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the operations
of either of the Acquired Corporations.
2.7 RECEIVABLES, LOANS AND ADVANCES.
(a) All existing accounts receivable of the Acquired Corporations (including
those accounts receivable reflected on the Unaudited Interim Balance Sheet that
have not yet been collected and those accounts receivable that have arisen since
June 30, 1996 and have not yet been collected) (i) represent valid obligations
of customers of the Acquired Corporations arising from bona fide transactions
entered into in the ordinary course of business, (ii) are current and will be
collected in full when due, without any counterclaim or set off (net of an
allowance for doubtful accounts not to exceed $50,000 in the aggregate).
(b) Part 2.7(b) of the Company Disclosure Schedule contains an accurate and
complete list as of the date of this Agreement of all loans and advances made
by, and note receivables and other receivables of, either of the Acquired
Corporations, including loans and advances made by either of the Acquired
Corporations to any employee, director, consultant or independent contractor of
such Acquired Corporation, other than trade receivables in excess of $25,000
that have arisen in the ordinary course of business consistent with past
practices or routine travel advances made to employees in the ordinary course of
business.
2.8 EQUIPMENT; LEASEHOLD. Part 2.8 of the Company Disclosure Schedule
accurately identifies all material items of equipment leased by the Acquired
Corporations. All material items of equipment and other tangible assets owned by
or leased to the Acquired Corporations are adequate for the uses to which they
are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of the business of the Acquired
Corporations in the manner in which such business is currently being conducted.
Neither of the Acquired Corporations owns any real property or any interest in
real property, except for the leaseholds created under the real property leases
identified in Part 2.8 of the Company Disclosure Schedule.
A-9
<PAGE>
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth, with
respect to each Proprietary Asset owned by the Acquired Corporations and
registered with any Governmental Body or for which an application has been filed
with any Governmental Body, (i) a brief description of such Proprietary Asset,
and (ii) the names of the jurisdictions covered by the applicable registration
or application. Part 2.9(a)(ii) of the Company Disclosure Schedule identifies
and provides a brief description of all other Proprietary Assets owned by the
Acquired Corporations that are material to the business of the Acquired
Corporations. Part 2.9(a)(iii) of the Company Disclosure Schedule identifies and
provides a brief description of each Proprietary Asset that is licensed or
otherwise made available to the Acquired Corporations by any Person and is
material to the business of the Acquired Corporations (except for any
Proprietary Asset that is licensed to the Acquired Corporations under any third
party software license generally available to the public), identifies the
Contract under which such Proprietary Asset is being licensed or otherwise made
available to such Acquired Corporation. The Acquired Corporations have good,
valid and marketable title to all of the Acquired Corporation Proprietary Assets
identified in Parts 2.9(a)(i) and 2.9(a)(ii) of the Company Disclosure Schedule,
free and clear of all Encumbrances, except for (i) any lien for current taxes
not yet due and payable, and (ii) minor liens that have arisen in the ordinary
course of business and that do not (individually or in the aggregate) materially
detract from the value of the assets subject thereto or materially impair the
operations of either of the Acquired Corporations. The Acquired Corporations
have a valid right to use, license and otherwise exploit all Proprietary Assets
identified in Part 2.9(a)(iii) of the Company Disclosure Schedule. Except as set
forth in Part 2.9(a)(iv) of the Company Disclosure Schedule, neither of the
Acquired Corporations has developed jointly with any other Person any Acquired
Corporation Proprietary Asset that is material to the business of the Acquired
Corporations with respect to which such other Person has any rights. Except as
set forth in Part 2.9(a)(v) of the Company Disclosure Schedule, there is no
Acquired Corporation Contract (with the exception of end user license agreements
in the form previously delivered by the Company to Parent) pursuant to which any
Person has any right (whether or not currently exercisable) to use, license or
otherwise exploit any Acquired Corporation Proprietary Asset. Without limiting
the generality of the foregoing, no Person has any right or license to use,
sell, manufacture or cause to be manufactured any product embodying any
invention or discovery made, conceived or actually reduced to practice in
connection with the performance of any Contract, except that the distributors of
the Acquired Corporations have the non-exclusive right to sell products
manufactured by the Acquired Corporations pursuant to their distribution
agreements with the Acquired Corporations.
(b) The Acquired Corporations have taken reasonable measures and precautions
to protect and maintain the confidentiality, secrecy and value of all material
Acquired Corporation Proprietary Assets (except Acquired Corporation Proprietary
Assets whose value would be unimpaired by public disclosure). No current or
former officer, director, stockholder, employee, consultant or independent
contractor has any right, claim or interest in or with respect to any Acquired
Corporation Proprietary Asset.
(c) To the best of the knowledge of the Company, all patents, trademarks,
service marks and copyrights that are registered with any Governmental Body and
held by either of the Acquired Corporations are valid and subsisting. To the
best of the knowledge of the Company, none of the Acquired Corporation
Proprietary Assets and no Proprietary Asset that is currently being developed by
either of the Acquired Corporations (either by itself or with any other Person)
infringes, misappropriates or conflicts with any Proprietary Asset owned or used
by any other Person. To the best of the knowledge of the Company, none of the
products that are or have been designed, created, developed, assembled,
manufactured or sold by either of the Acquired Corporations is infringing,
misappropriating or making any unlawful or unauthorized use of, and none of such
products has at any time infringed, misappropriated or made any unlawful or
unauthorized use of, and neither of the Acquired Corporations has received any
notice or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement, misappropriation or unlawful or unauthorized
use of, any Proprietary Asset owned or used by any other Person. To the best of
the knowledge of the Company, no other Person is infringing,
A-10
<PAGE>
misappropriating or making any unlawful or unauthorized use of, and no
Proprietary Asset owned or used by any other Person infringes or conflicts with,
any material Acquired Corporation Proprietary Asset.
(d) The Acquired Corporation Proprietary Assets constitute all the
Proprietary Assets necessary to enable the Acquired Corporations to conduct
their business in the manner in which such business has been and is being
conducted. Neither of the Acquired Corporations has (i) licensed any of the
Acquired Corporation Proprietary Assets to any Person on an exclusive basis, or
(ii) entered into any covenant not to compete or Contract limiting its ability
to exploit fully any material Acquired Corporation Proprietary Assets or to
transact business in any market or geographical area or with any Person.
(e) Except as set forth in Part 2.9(e) of the Company Disclosure Schedule,
neither of the Acquired Corporations has (other than pursuant to license or
escrow agreements identified in Part 2.10 of the Company Disclosure Schedule)
disclosed or delivered to any Person, or permitted the disclosure or delivery to
any escrow agent or other Person, of the source code, or any portion or aspect
of the source code, or any proprietary information or algorithm contained in any
source code, of any material Acquired Corporation Proprietary Asset. No event
has occurred, and no circumstance or condition exists, that (with or without
notice or lapse of time) will, or could reasonably be expected to, result in the
disclosure or delivery to any other Person of the source code, or any portion or
aspect of the source code, or any proprietary information or algorithm contained
in any source code, of any material Acquired Corporation Proprietary Asset. Part
2.9(e) of the Company Disclosure Schedule identifies each Contract pursuant to
which the Company has deposited or is required to deposit with an escrowholder
or any other Person the source code, or any portion or aspect of the source
code, or any proprietary information or algorithm contained in or relating to
any source code, of any material Acquired Corporation Proprietary Asset.
2.10 CONTRACTS.
(a) Part 2.10 of the Company Disclosure Schedule identifies each Acquired
Corporation Contract that constitutes a Material Contract.
(b) The Company has delivered to Parent accurate and complete copies of all
written Contracts identified in Part 2.10 of the Company Disclosure Schedule,
including all amendments thereto. Each Contract identified in Part 2.10 of the
Company Disclosure Schedule is valid and in full force and effect, and is
enforceable by the Company in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
(c) Except as set forth in Part 2.10 of the Company Disclosure Schedule:
(i) neither of the Acquired Corporations has violated or breached, or
committed any default under, any Acquired Corporation Contract, and, to the
best of the knowledge of the Company, no other Person has violated or
breached, or committed any default under, any Company Contract, except where
such violations, breaches or defaults, individually or in the aggregate,
have not had and will not have a Material Adverse Effect on the Acquired
Corporations;
(ii) to the best of the knowledge of the Company, no event has occurred,
and no circumstance or condition exists, that (with or without notice or
lapse of time) will, or could reasonably be expected to, (A) result in a
material violation or breach of any of the provisions of any Acquired
Corporation Contract, (B) give any Person the right to declare a material
default or exercise any material remedy under any Acquired Corporation
Contract, (C) give any Person the right to a material rebate, chargeback,
penalty or change in delivery schedule under any Acquired Corporation
Contract, (D) give any Person the right to accelerate the maturity or
performance of any Acquired Corporation Contract, or (E) give any Person the
right to cancel, terminate or modify any Acquired Corporation Contract;
A-11
<PAGE>
(iii) since December 31, 1993, neither of the Acquired Corporations has
received any notice or other communication regarding any actual or possible
violation or breach of, or default under, any Acquired Corporation Contract;
and
(iv) neither of the Acquired Corporations has waived any of its material
rights under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms of any
Acquired Corporation Contract to renegotiate, any amount paid or payable to any
Acquired Corporation under any Material Contract or any other material term or
provision of any Material Contract.
2.11 LIABILITIES. Neither of the Acquired Corporations has any accrued,
contingent or other liabilities of any nature, either matured or unmatured (of
the type required to be reflected in a balance sheet of the Acquired
Corporations prepared in accordance with generally accepted accounting
principles, except for: (a) liabilities identified as such in the "liabilities"
column of the Unaudited Interim Balance Sheet; and (b) liabilities that have
been incurred by the Acquired Corporations since June 30, 1996 in the ordinary
course of business and consistent with past practices.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Acquired Corporations
is, and has at all times since December 31, 1993 been, in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and will not have a Material Adverse Effect on
the Acquired Corporations. Since December 31, 1993, except as disclosed in Part
2.15 of the Company Disclosure Schedule, neither of the Acquired Corporations
has received any notice or other communication from any Governmental Body
regarding any actual or possible violation of, or failure to comply with, any
Legal Requirement.
2.13 CERTAIN BUSINESS PRACTICES. Neither of the Acquired Corporations nor
any director, officer, agent or employee of either of the Acquired Corporations
has (i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful
payment.
2.14 GOVERNMENTAL AUTHORIZATIONS. The Acquired Corporations hold all
material Governmental Authorizations necessary to enable the Acquired
Corporations to conduct their respective businesses in the manner in which such
businesses are currently being conducted. All such Governmental Authorizations
are valid and in full force and effect. Each Acquired Corporation is, and at all
times since December 31, 1993 has been, in substantial compliance with the terms
and requirements of such Governmental Authorizations. Since December 31, 1993,
neither of the Acquired Corporations has received any notice or other
communication from any Governmental Body regarding (a) any actual or possible
violation of or failure to comply with any term or requirement of any material
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
material Governmental Authorization.
2.15 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the respective
Acquired Corporations with any Governmental Body with respect to any taxable
period ending on or before the Closing Date (the "Acquired Corporation Returns")
(i) have been or will be filed on or before the applicable due date (including
any extensions of such due date), and (ii) have been, or will be when filed,
prepared in all material respects in compliance with all applicable Legal
Requirements. All amounts shown on the Acquired Corporation Returns to be due on
or before the Closing Date have been or will be paid on or before the Closing
Date.
A-12
<PAGE>
(b) The Company Financial Statements fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the dates thereof in
accordance with generally accepted accounting principles. Each Acquired
Corporation will establish, in the ordinary course of business and consistent
with its past practices, reserves adequate for the payment of all Taxes for the
period from June 30, 1996 through the Closing Date. As of December 31, 1995, the
Company had a net operating loss carryforward for federal income tax purposes in
the amount of $2,000,000.
(c) No Acquired Corporation Return relating to income Taxes has ever been
examined or audited by any Governmental Body. There have been no examinations or
audits of any Acquired Corporation Return. No extension or waiver of the
limitation period applicable to any of the Acquired Corporation Returns has been
granted (by the Company or any other Person), and no such extension or waiver
has been requested from any Acquired Corporation.
(d) No claim or Legal Proceeding is pending or, to the best of the knowledge
of the Company, has been threatened against or with respect to any Acquired
Corporation in respect of any material Tax. There are no unsatisfied liabilities
for material Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by any Acquired Corporation with respect to any
material Tax (other than liabilities for Taxes asserted under any such notice of
deficiency or similar document which are being contested in good faith by the
Acquired Corporations and with respect to which adequate reserves for payment
have been established). There are no liens for material Taxes upon any of the
assets of either of the Acquired Corporations except liens for current Taxes not
yet due and payable. Neither of the Acquired Corporations has entered into or
become bound by any agreement or consent pursuant to Section 341(f) of the Code.
Neither of the Acquired Corporations has been, and neither of the Acquired
Corporations will be, required to include any adjustment in taxable income for
any tax period (or portion thereof) pursuant to Section 481 or 263A of the Code
or any comparable provision under state or foreign Tax laws as a result of
transactions or events occurring, or accounting methods employed, prior to the
Closing.
(e) There is no agreement, plan, arrangement or other Contract covering any
employee or independent contractor or former employee or independent contractor
of either of the Acquired Corporations that, considered individually or
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount that
would not be deductible pursuant to Section 280G or Section 162 of the Code.
Neither of the Acquired Corporations is, or has ever been, a party to or bound
by any tax indemnity agreement, tax sharing agreement, tax allocation agreement
or similar Contract.
2.16 EMPLOYEE BENEFIT PLANS
(a) With respect to each material employee benefit plan, program,
arrangement and contract (including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") maintained or contributed to by the Acquired
Corporations (the "Plans"), the Acquired Corporations have made available to
Parent an accurate and complete copy of, to the extent applicable, (i) such
Plan, (ii) the most recent annual report (Form 5500) for such Plan, (iii) each
trust agreement related to such Plan, (iv) the most recent summary plan
description for such Plan, and (v) the most recent Internal Revenue Service (the
"IRS") determination letter issued with respect to such Plan.
(b) Each Plan which is intended to be qualified under Section 401(a) of the
Code has received a favorable determination from the IRS covering the provisions
of the Tax Reform Act of 1986 stating that such Plan is so qualified and nothing
has occurred since the date of such letter that could reasonably be expected to
affect the qualified status of such Plan. Each Plan has been operated in all
material respects in accordance with its terms and the requirements of
applicable law. Neither of the Acquired Corporations has incurred or is
reasonably expected to incur any material liability under Title IV of ERISA in
connection with any Plan.
A-13
<PAGE>
2.17 ENVIRONMENTAL MATTERS. Each of the Acquired Corporations is in
compliance in all material respects with all applicable Environmental Laws,
which compliance includes the possession by each of the Acquired Corporations of
all permits and other Governmental Authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof.
Neither of the Acquired Corporations has received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that either of the Acquired
Corporations is not in compliance with any Environmental Law, and, to the best
of the knowledge of the Company, there are no circumstances that may prevent or
interfere with the compliance by either of the Acquired Corporations with any
Environmental Law in the future. To the best of the knowledge of the Company, no
current or prior owner of any property leased or controlled by either of the
Acquired Corporations has received any notice or other communication (in writing
or otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or either of the
Acquired Corporations is not in compliance with any Environmental Law. (For
purposes of this Section 2.17: (i) "Environmental Law" means any federal, state,
local or foreign Legal Requirement relating to pollution or protection of human
health or the environment (including ambient air, surface water, ground water,
land surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; and (ii) "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is now or
hereafter regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.)
2.18 INSURANCE. The Company has delivered to Parent a copy of each
material insurance policy and each material self insurance program relating to
the business, assets or operations of either of the Acquired Corporations. Each
such insurance policy is in full force and effect. Since December 31, 1993,
neither of the Acquired Corporations has received any notice or other
communication regarding any actual or possible (a) cancellation or invalidation
of any insurance policy, (b) refusal of any coverage or rejection of any
material claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy. There is no
pending material claim (including any workers' compensation claim) under or
based upon any insurance policy of either of the Acquired Corporations; and, to
the best of the knowledge of the Company, no event has occurred and no condition
or circumstance exists, that might (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for any such claim.
2.19 RELATED PARTY TRANSACTIONS. No Related Party has any direct or
indirect interest in any material asset used in or otherwise relating to the
business of either of the Acquired Corporations. No Related Party has any direct
or indirect financial interest in, any material Contract, transaction or
business dealing involving either of the Acquired Corporations. No Related Party
is competing directly or indirectly with either of the Acquired Corporations. No
Related Party has any claim or right against either of the Acquired Corporations
(other than rights under Company Options and rights to receive compensation for
services performed as an employee of an Acquired Corporation). (For purposes of
this Section 2.19 each of the following shall be deemed to be a "Related Party":
(i) each individual who is an officer or director of either of the Acquired
Corporations; (ii) each member of the immediate family of each of the
individuals referred to in clause "(i)" above; and (iii) any trust or other
Entity (other than an Acquired Corporation) in which any one of the individuals
referred to in clauses "(i)" and "(ii)" above holds (or in which more than one
of such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest.)
2.20 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding, and (to the best of the knowledge
of the Company) no Person has threatened to commence any Legal Proceeding: (i)
that involves either of the Acquired
A-14
<PAGE>
Corporations or any of the assets owned or used by either of the Acquired
Corporations; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the best of
the knowledge of the Company, no event has occurred, and no claim, dispute or
other condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding. Without limiting the generality of the foregoing, to the best
of the knowledge of the Company, no event has occurred, and no claim, dispute or
other condition or circumstance exists, that will, or that could reasonably be
expected to, cause or provide a basis for a director, officer or other
Representative of either of the Acquired Corporations to seek indemnification
from, or commence a Legal Proceeding against or involving, either of the
Acquired Corporations.
(b) There is no order, writ, injunction, judgment or decree to which either
of the Acquired Corporations, or any of the assets owned or used by either of
the Acquired Corporations, is subject. To the best of the knowledge of the
Company, no officer or other employee of either of the Acquired Corporations is
subject to any order, writ, injunction, judgment or decree that prohibits such
officer or other employee from engaging in or continuing any conduct, activity
or practice relating to the business of either of the Acquired Corporations.
2.21 AUTHORITY; INAPPLICABILITY OF ANTI-TAKEOVER STATUTES; BINDING NATURE
OF AGREEMENT. The Company has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this Agreement. The
board of directors of the Company (at a meeting duly called and held) has (a)
unanimously determined that the Merger is advisable and fair and in the best
interests of the Company and its stockholders, (b) unanimously approved the
execution, delivery and performance of this Agreement by the Company and has
unanimously approved the Merger, (c) unanimously recommended the adoption and
approval of this Agreement and the Merger by the holders of Company Capital
Stock and directed that this Agreement and the Merger be submitted for
consideration by the Company's stockholders at the Company Stockholders' Meeting
(as defined in Section 5.2), and (d) adopted a resolution having the effect of
causing the Company not to be subject to any state takeover law or similar Legal
Requirement that might otherwise apply to the Merger or any of the other
transactions contemplated by this Agreement. This Agreement constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of
law governing specific performance, injunctive relief and other equitable
remedies.
2.22 DGCL SECTION 203. As of the date hereof and at all times on or prior
to the Effective Date, Section 203 of the DGCL is, and will be, inapplicable to
the Merger and the other transactions contemplated by this Agreement.
2.23 INAPPLICABILITY OF HART-SCOTT-RODINO ACT. No stockholder of the
Company directly or indirectly beneficially owns or has the right to vote 50% or
more of the outstanding voting securities of the Company, or, directly or
indirectly, has the right (whether by Contract or otherwise) to elect 50% or
more of the members of the Board of Directors of the Company. Accordingly, the
Company is the "ultimate parent entity" of the Acquired Corporations for
purposes of the HSR Act. The total assets (within the meaning of the HSR Act) of
the Acquired Corporations are less than $10,000,000 in the aggregate, and
accordingly no notification form or other document is required to be filed under
the HSR Act with respect to the Merger or any of the other transactions
contemplated by this Agreement.
2.24 VOTE REQUIRED. The Required Vote (as hereinafter defined) is the only
vote of the holders of any class or series of the Company's capital stock
necessary to adopt and approve this Agreement, the Merger and the other
transactions contemplated by this Agreement. For purposes of this Agreement,
"Required Vote" shall mean the affirmative vote of the holders of a majority of
the outstanding shares of Company Capital Stock (voting together as a single
class); PROVIDED, HOWEVER, that if the Company is subject to Section 2115 of the
California Corporations Code, then "Required Vote" shall mean the affirmative
A-15
<PAGE>
vote of the holders of a majority of the outstanding shares of Company Common
Stock and the holders of a majority of the outstanding shares of Company
Preferred Stock.
2.25 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of the
provisions of the certificate of incorporation, bylaws or other charter or
organizational documents of either of the Acquired Corporations, or (ii) any
resolution adopted by the stockholders, the board of directors or any
committee of the board of directors of either of the Acquired Corporations;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Merger or any
of the other transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which either of the Acquired Corporations,
or any of the assets owned or used by either of the Acquired Corporations,
is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any material Governmental
Authorization that is held by either of the Acquired Corporations or that
otherwise relates to the business of either of the Acquired Corporations or
to any of the assets owned or used by either of the Acquired Corporations;
(d) contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any Acquired Corporation
Contract that is or would constitute a Material Contract, or give any Person
the right to (i) declare a default or exercise any remedy under any such
Acquired Corporation Contract, (ii) a rebate, chargeback, penalty or change
in delivery schedule under any such Acquired Corporation Contract, (iii)
accelerate the maturity or performance of any such Acquired Corporation
Contract, or (iv) cancel, terminate or modify any term of such Acquired
Corporation Contract, except for any such violations, breaches, defaults or
other occurrences that would not have a Material Adverse Effect on the
Acquired Corporations;
(e) result in the imposition or creation of any Encumbrance upon or with
respect to any asset owned or used by either of the Acquired Corporations
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or
materially impair the operations of either of the Acquired Corporations); or
(f) result in, or increase the likelihood of, the disclosure or delivery
to any escrowholder or other Person (other than Parent or Merger Sub) of the
source code, or any portion or aspect of the source code, or any proprietary
information or algorithm contained in or relating to any source code, of any
material Acquired Corporation Proprietary Asset, or the transfer of any
material asset of either of the Acquired Corporations to any Person (other
than Parent or Merger Sub).
Except as may be required by the DGCL, neither of the Acquired Corporations
is or will be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement. The Company does not know
of any reason why any required Consent will not be obtained.
2.26 FAIRNESS OPINION. The Company has received the written opinion of DMG
Technology Group, financial advisor to the Company, dated the date of this
Agreement, to the effect that the consideration to
A-16
<PAGE>
be received by the Company's stockholders in the Merger is fair to the
stockholders of the Company from a financial point of view.
2.27 FINANCIAL ADVISOR. Except for DMG Technology Group, no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or any of the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
either of the Acquired Corporations. The total of all fees, commissions and
other amounts that have been paid and that may become payable to DMG Technology
Group by the Company if the Merger is consummated will not exceed that amount
disclosed in writing to Parent on or before the date of this Agreement.
2.28 FULL DISCLOSURE.
(a) This Agreement (including the Company Disclosure Schedule) does not, and
the certificate referred to in Section 6.7(j) will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) omit to state any material fact necessary in order
to make the representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.
(b) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the registration statement on Form
S-4 to be filed with the SEC by Parent in connection with the issuance of Parent
Common Stock in the Merger(the "S-4 Registration Statement") will, at the time
the S-4 Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in the Prospectus/Proxy Statement
filed as part of the S-4 Registration Statement (the "Prospectus/Proxy
Statement"), will, at the time the Prospectus/Proxy Statement is mailed to the
stockholders of the Company, at the time of the Company Stockholders' Meeting or
as of the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Prospectus/Proxy Statement will comply as to
form in all material respects with the provisions of applicable Legal
Requirements.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company that, except as
set forth in the Parent SEC Documents (as defined in Section 3.2(a)):
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a material adverse effect on the ability of Parent and Merger Sub to consummate
the transactions contemplated hereby.
3.2 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete copies
(excluding copies of exhibits) of each report, registration statement (on a form
other than Form S-8) and definitive proxy statement filed by Parent with the SEC
between January 1, 1996 and the date of this Agreement (the "Parent SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to
A-17
<PAGE>
the date of this Agreement, then on the date of such filing): (i) each of the
Parent SEC Documents complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act (as the case may be); and
(ii) none of the Parent SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The consolidated financial statements contained in the Parent SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered, except as may be indicated in the notes to
such financial statements and (in the case of unaudited statements) as permitted
by Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to year-end audit adjustments; and (iii)
fairly present the consolidated financial position of Parent and its
subsidiaries as of the respective dates thereof and the consolidated results of
operations of Parent and its subsidiaries for the periods covered thereby.
3.3 DISCLOSURE. None of the information to be supplied by Parent for
inclusion in the S-4 Registration Statement will, at the time the S-4
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. None of
the information to be supplied by Parent for inclusion in the Prospectus/Proxy
Statement will, at the time the Prospectus/Proxy Statement is mailed to the
stockholders of the Company, at the time of the Company Stockholders' Meeting or
as of the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
3.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. Between June 30, 1996 and the
date of this Agreement, there has not been: (i) any event that had a Material
Adverse Effect on Parent; or (ii) any material change by Parent in its
accounting methods, principles or practices, except as required by changes in
generally accepted accounting principles.
3.5 LEGAL PROCEEDINGS. There is no pending Legal Proceeding and (to the
best of the knowledge of Parent) no Person has threatened to commence any Legal
Proceeding that involves Parent or any of the assets owned or used by Parent and
would have a Material Adverse Effect on Parent.
3.6 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have the
absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and Merger Sub of this Agreement (including the contemplated issuance of
Parent Common Stock in the Merger in accordance with this Agreement) have been
duly authorized by all necessary action on the part of Parent and Merger Sub and
their respective boards of directors. This Agreement constitutes the legal,
valid and binding obligation of Parent and Merger Sub, enforceable against them
in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of
law governing specific performance, injunctive relief and other equitable
remedies.
3.7 VALID ISSUANCE. The Parent Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives and the Subsidiary's Representatives
to: (a) provide Parent and Parent's Representatives with reasonable access to
A-18
<PAGE>
the Acquired Corporations' Representatives, personnel and assets and to all
existing books, records, Tax Returns, work papers and other documents and
information relating to the Acquired Corporations; and (b) provide Parent and
Parent's Representatives with such copies of the existing books, records, Tax
Returns, work papers and other documents and information relating to the
Acquired Corporations, and with such additional financial, operating and other
data and information regarding the Acquired Corporations, as Parent may
reasonably request. Without limiting the generality of the foregoing, during the
Pre-Closing Period, the Company shall promptly provide Parent with copies of:
(i) all material operating and financial reports prepared by the Company
for its senior management, including copies of the unaudited monthly
consolidated balance sheets of the Acquired Corporations and the related
unaudited monthly consolidated income statements, statements of changes in
stockholders' equity and statements of cash flows;
(ii) any written materials or communications sent by the Company to its
stockholders; and
(iii) any notice, report or other document filed with or sent to any
Governmental Body in connection with the Merger or any of the other
transactions contemplated by this Agreement.
4.2 OPERATION OF THE COMPANY'S BUSINESS.
(a) During the Pre-Closing Period: (i) the Company shall ensure that each of
the Acquired Corporations conducts its business and operations (A) in the
ordinary course and in accordance with prudent business practices and (B) in
compliance with all applicable Legal Requirements and the requirements of all
Material Contracts; (ii) the Company shall use reasonable efforts to ensure that
each of the Acquired Corporations preserves intact its current business
organization, keeps available the services of its current officers and employees
and maintains its relations and goodwill with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other Persons having
business relationships with the respective Acquired Corporations; (iii) the
Company shall keep in full force all insurance policies referred to in Section
- -2.18; (iv) the Company shall provide all notices, assurances and support
required by any Acquired Corporation Contract relating to any Proprietary Asset
in order to ensure that no condition under such Acquired Corporation Contract
occurs which could result in, or could increase the likelihood of, a release
from any escrow of any source code materials or other Proprietary Assets which
have been deposited or are required to be deposited in escrow under the terms of
such Acquired Corporation Contract; and (v) the Company shall (to the extent
requested by Parent) cause its officers to report regularly to Parent concerning
the status of the Company's business.
(b) During the Pre-Closing Period, the Company shall not (without the prior
written consent of Parent), and shall not permit the Subsidiary to:
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities;
(ii) sell, issue, grant or authorize the issuance or grant of (i) any
capital stock or other security, (ii) any option, call, warrant or right to
acquire, or relating to, any capital stock or other security, or (iii) any
instrument convertible into or exchangeable for any capital stock or other
security (except that the Company may (1) issue up to 600,000 shares of
Company Common Stock upon the valid conversion of shares of outstanding
Company Preferred Stock, and (2) issue Company Common Stock upon the valid
exercise of Company Options outstanding as of the date of this Agreement);
(iii) amend or waive any of its rights under, or accelerate the vesting
under, any provision of any of the Company's stock option plans, any
provision of any agreement evidencing any outstanding stock option or any
restricted stock purchase agreement, or otherwise modify any of the terms of
any outstanding option, warrant or other security or any related Contract;
A-19
<PAGE>
(iv) amend or permit the adoption of any amendment to its certificate of
incorporation or bylaws or other charter or organizational documents, or
effect or become a party to any merger, consolidation, share exchange,
business combination, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(v) form any subsidiary or acquire any equity interest or other interest
in any other Entity;
(vi) make any capital expenditure (except that the Acquired Corporations
may make capital expenditures that, when added to all other capital
expenditures made on behalf of the Acquired Corporations during the
Pre-Closing Period, do not exceed $100,000 in the aggregate);
(vii) enter into or become bound by, or permit any of the assets owned or
used by it to become bound by, any Material Contract, or amend or
prematurely terminate, or waive any material right or remedy under, any
Material Contract;
(viii) acquire, lease or license any right or other asset from any other
Person or sell or otherwise dispose of, or lease or license, any right or
other asset to any other Person (except in each case for assets acquired,
leased, licensed or disposed of by the Company in the ordinary course of
business and consistent with prudent business practices), or waive or
relinquish any material right;
(ix) lend money to any Person, or incur or guarantee any indebtedness
(except that the Company may make routine borrowings in the ordinary course
of business and in accordance with prudent business practices under its line
of credit with Coast Commercial Bank);
(x) establish, adopt or amend any employee benefit plan, pay any bonus
or make any profit-sharing or similar payment (except pursuant to existing
plans or programs consistent with past practices) to, or increase by more
than 5% the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors,
officers or employees;
(xi) hire any new employees, or engage any consultant or independent
contractor for a period exceeding 30 days;
(xii) change any of its methods of accounting or accounting practices in
any respect;
(xiii) make any material Tax election;
(xiv) commence any Legal Proceeding, or enter into any settlement of any
Legal Proceeding involving payments in excess of $10,000 or involving any
material asset of either of the Acquired Corporations;
(xv) enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with prudent
business practices; or
(xvi) agree or commit to take any of the actions described in clauses
"(i)" through "(xv)" of this Section 4.2(b).
Parent agrees that it will not unreasonably withhold its consent to any
proposal by the Company to repurchase shares of Company Common Stock pursuant to
rights of repurchase existing as of the date of this Agreement under any
employee or consultant stock plan or arrangement.
(c) During the Pre-Closing Period, the Company shall promptly notify Parent
in writing of: (i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes an inaccuracy in or breach of any representation
or warranty made by the Company in this Agreement, which inaccuracy or breach,
considered together with all other such inaccuracies and breaches, would have a
Material Adverse Effect on the Acquired Corporations; (ii) any event, condition,
fact or circumstance that occurs, arises or exists after the date of this
Agreement, that (together with all other such events, conditions, facts and
circumstances) would have a Material Adverse Effect on the Acquired Corporations
and that would cause
A-20
<PAGE>
or constitute an inaccuracy in or breach of any representation or warranty made
by the Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement; (iii) any material breach of any covenant or obligation of the
Company; and (iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 6 or Section 7
impossible or unlikely or that has had or could reasonably be expected to have a
Material Adverse Effect on the Acquired Corporations.
4.3 NO SOLICITATION.
(a) The Company shall not directly or indirectly, and shall instruct its
Representatives and the Subsidiary's Representatives not to, directly or
indirectly, (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal or take any action that could
reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any
information regarding the Company or the Subsidiary to any Person in connection
with or in response to an Acquisition Proposal, (iii) negotiate or engage in
discussions with any Person with respect to any Acquisition Proposal, (iv)
approve, endorse or recommend any Acquisition Proposal or (v) enter into any
letter of intent or Contract contemplating or otherwise relating to any
Acquisition Proposal; provided, however, that this Section 4.3(a) shall not
prohibit the Company or its Board of Directors from furnishing nonpublic
information regarding the Acquired Corporations to, or entering into discussions
with, any Person in response to an unsolicited bona fide written Acquisition
Proposal submitted by such Person if (1) the Board of Directors of the Company
concludes in good faith, based upon the advice of its financial advisor, that
such Acquisition Proposal could result in a transaction that is more favorable
to the Company's stockholders from a financial point of view than the Merger,
(2) the Board of Directors of the Company concludes in good faith, based upon
the advice of its outside legal counsel, that such action is required in order
for the Board of Directors of the Company to comply with its fiduciary
obligations to the Company's stockholders under applicable law, and (3) prior to
furnishing such nonpublic information to, or entering into discussions with,
such Person, the Board of Directors of the Company receives from such Person an
executed confidentiality agreement containing customary limitations on the use
and disclosure of all written and oral information furnished to such Person on
behalf of the Company.
(b) The Company shall promptly advise Parent orally and in writing of any
Acquisition Proposal that is made or submitted by any Person during the
Pre-Closing Period.
(c) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any Person that relate to any
Acquisition Proposal.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 REGISTRATION STATEMENT; PROSPECTUS/PROXY STATEMENT.
(a) As promptly as practicable after the date of this Agreement, the Company
and Parent shall prepare and cause to be filed with the SEC the S-4 Registration
Statement, together with the Prospectus/ Proxy Statement and any other documents
required by the Securities Act or the Exchange Act in connection with the
Merger. Each of Parent and the Company shall use all reasonable efforts to cause
the S-4 Registration Statement to comply with the rules and regulations
promulgated by the SEC, to respond promptly to any comments of the SEC or its
staff and to have the S-4 Registration Statement declared effective under the
Securities Act as promptly as practicable after it is filed with the SEC. Each
of Parent and the Company shall promptly furnish to the other all information
that may be required or reasonably requested in connection with any action
contemplated by this Section 5.1. If any event relating to either of the
Acquired Corporations or relating to Parent occurs, or if the Company or Parent
discovers any information, that should be set forth in an amendment or
supplement to the S-4 Registration Statement or the Prospectus/Proxy Statement,
then the Company or Parent (as the case may be) shall promptly inform
A-21
<PAGE>
the other thereof and shall cooperate with the other in filing such amendment or
supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to stockholders of the Company. Each of the Company and Parent shall
(after consulting with the other) use all reasonable efforts to ensure that any
applicable rules, regulations or requirements of the VSE or the BCSC relating to
the S-4 Registration Statement or the Prospectus/Proxy Statement are complied
with in all respects.
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Parent Common Stock to
be issued in the Merger will be qualified under the securities law of every
jurisdiction of the United States and Canada in which any registered holder of
Company Capital Stock has an address of record on the record date for
determining the stockholders entitled to notice of and to vote on the Merger.
5.2 COMPANY STOCKHOLDERS' MEETING.
(a) The Company shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and hold a meeting of the holders
of Company Capital Stock (the "Company Stockholders' Meeting") to consider, act
upon and vote upon the adoption of this Agreement and approval of the Merger.
The Company Stockholders' Meeting will be held as promptly as practicable and
(subject to all applicable laws and regulations) in any event within 45 days
after the S-4 Registration Statement is declared effective by the SEC. The
Company shall ensure that the Company Stockholders' Meeting is called, noticed,
convened, held and conducted, and that all proxies solicited in connection with
the Company Stockholders' Meeting are solicited, in compliance with all
applicable Legal Requirements (including any applicable regulations of the VSE).
The Company's obligation to call, give notice of, convene and hold the Company
Stockholders' Meeting in accordance with this Section 5.2(a) shall not be
limited or otherwise affected by the commencement, disclosure, announcement or
submission to the Company of any Acquisition Proposal.
(b) Subject to Section 5.2(c): (i) the Board of Directors of the Company
shall recommend that the Company's stockholders vote in favor of and adopt and
approve this Agreement and the Merger at the Company Stockholders' Meeting; (ii)
the Prospectus/Proxy Statement shall include a statement to the effect that the
Board of Directors of the Company has recommended that the Company's
stockholders vote in favor of and adopt and approve this Agreement and the
Merger at the Company Stockholders' Meeting; and (iii) neither the Board of
Directors of the Company nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify, in a manner adverse
to Parent, the recommendation of the Board of Directors of the Company that the
Company's stockholders vote in favor of and adopt and approve this Agreement and
the Merger.
(c) Nothing in this Agreement shall prevent the Board of Directors of the
Company from withdrawing, amending or modifying its recommendation in favor of
the Merger if (i) the Company shall not have violated any of the restrictions
set forth in Section 4.3, and (ii) the Board of Directors of the Company
concludes in good faith, based upon the advice of its outside counsel, that the
withdrawal, amendment or modification of such recommendation is required in
order for the Board of Directors of the Company to comply with its fiduciary
obligations to the Company's stockholders under applicable law. Nothing
contained in this Section 5.2 shall limit the Company's obligation to hold and
convene the Company Stockholders' Meeting (regardless of whether the
recommendation of the Board of Directors of the Company shall have been
withdrawn, amended or modified).
5.3 REGULATORY APPROVALS. The Company and Parent shall use all reasonable
efforts to file as soon as practicable after the date of this Agreement all
notices, reports and other documents required by law to be filed with any
Governmental Body with respect to the Merger and the other transactions
contemplated by this Agreement and to submit promptly any additional information
requested by any such Governmental Body. Each of the Company and Parent shall
(i) give the other party prompt notice of the commencement of any material Legal
Proceeding by or before any court or other Governmental Body with respect to the
Merger or any of the other transactions contemplated by this Agreement, (ii)
keep the other party
A-22
<PAGE>
informed as to the status of any such Legal Proceeding and (iii) except as may
be prohibited by any Governmental Body or by any Legal Requirement, permit the
other party to be present at each meeting or conference relating to any such
Legal Proceeding and to have access to and be consulted in connection with any
document filed with or provided to any Governmental Body in connection with any
such Legal Proceeding.
5.4 STOCK OPTIONS.
(a) As soon as practicable after the date of this Agreement, the Company
shall (after consulting with Parent) make arrangements to cause each outstanding
Company Option with a per share exercise price exceeding the Specified Price (as
defined below) to be modified by reducing such exercise price to an amount equal
to the Specified Price. The "Specified Price" shall be determined by multiplying
the Common Stock Exchange Ratio by the closing price of a share of Parent Common
Stock on the NYSE on the second trading day following the date of this
Agreement. The Company shall not be permitted to implement such arrangements
unless Parent shall have notified the Company in writing that all documentation
to be used for the purpose of implementing such arrangements is satisfactory to
Parent.
(b) Subject to Section 5.4(c), at the Effective Time, all rights with
respect to Company Common Stock under each Company Option then outstanding shall
be converted into and become rights with respect to Parent Common Stock, and
Parent shall assume each such Company Option in accordance with the terms (as in
effect as of the date of this Agreement) of the stock option plan under which it
was issued and the stock option agreement by which it is evidenced. From and
after the Effective Time, (i) each Company Option assumed by Parent may be
exercised solely for shares of Parent Common Stock, (ii) the number of shares of
Parent Common Stock subject to each such Company Option shall be equal to the
number of shares of Company Common Stock subject to such Company Option
immediately prior to the Effective Time multiplied by the Common Stock Exchange
Ratio, rounding down to the nearest whole share (with cash, less the applicable
exercise price (as adjusted as set forth in clause "(iii)" of this sentence),
being payable for any fraction of a share), (iii) the per share exercise price
under each such Company Option shall be adjusted by dividing the per share
exercise price under such Company Option by the Common Stock Exchange Ratio and
rounding up to the nearest cent and (iv) any restriction on the exercise of any
such Company Option shall continue in full force and effect and the term,
exercisability, vesting schedule and other provisions of such Company Option
shall otherwise remain unchanged; PROVIDED, HOWEVER, that each such Company
Option shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, reverse stock split,
reclassification, recapitalization or other similar transaction subsequent to
the Effective Time. After the Effective Time, Parent will deliver to each holder
of an outstanding Company Option a notice describing the assumption of such
Company Option. It is the intention of the parties that Company Stock Options
assumed by Parent qualify as incentive stock options as defined in Section 422
of the Code to the extent that they qualified as incentive stock options
immediately prior to the Effective Time. Parent agrees to file with the SEC a
Registration Statement on Form S-8 relating to the shares of Parent Common Stock
issuable with respect to the assumed Company Options no later than ten business
days after the Closing Date.
(c) Notwithstanding anything to the contrary contained in this Section 5.4,
in lieu of assuming outstanding Company Options in accordance with Section
5.4(b), Parent may, at its election, cause such outstanding Company Options to
be replaced by issuing reasonably equivalent replacement stock options in
substitution therefor.
(d) The Company shall take all action that may be necessary (under the plans
pursuant to which Company Options are outstanding and otherwise) to effectuate
the provisions of this Section 5.4 and to ensure that, from and after the
Effective Time, holders of Company Options have no rights with respect thereto
other than those specifically provided in this Section 5.4.
A-23
<PAGE>
5.5 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(a) All rights to indemnification existing in favor of the present directors
and officers of the Company for acts and omissions occurring prior to the
Effective Time, as provided in the Company's Certificate of Incorporation (as in
effect on the date of this Agreement) and the Company's Bylaws (as in effect as
of the date of this Agreement), shall survive the Merger and shall be observed
by the Surviving Corporation for a period of not less than six years from the
Effective Time.
(b) Commencing as of the Effective Time, for a period of six years from the
Effective Time, Parent shall, and shall cause the Surviving Corporation to, to
the fullest extent permitted under applicable law, indemnify and hold harmless
each of the present directors and officers of the Company (collectively, the
"Indemnified Parties") against any costs or expenses (including reasonable
attorneys' fees, judgments, fines, losses, damages, liabilities and amounts paid
in settlement) incurred by him in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative (a "Third Party Action"), to the extent such Third Party Action
arises out of or pertains to any action or omission in his capacity as a
director or officer of the Company arising out of or pertaining to the
transactions contemplated by this Agreement. In the event of any such Third
Party Action (whether commenced before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time must be reasonably satisfactory to the Surviving Corporation and Parent,
(ii) after the Effective Time, Parent shall, and shall cause the Surviving
Corporation to, pay the reasonable fees and expenses of such counsel related to
the defense of such Third Party Action, promptly after statements therefor are
received, and (iii) Parent shall, and shall cause the Surviving Corporation to,
cooperate in the defense of such Third Party Action; PROVIDED, HOWEVER, that
neither Parent nor the Surviving Corporation will be liable for any settlement
effected without the written consent of Parent and the Surviving Corporation
(which consent will not be unreasonably withheld); and PROVIDED, FURTHER, that
in the event any claim for indemnification is asserted or made hereunder by an
Indemnified Party against Parent or the Surviving Corporation within such
six-year period, all rights of such Indemnified Party to indemnification in
respect of such claim will continue until the disposition of such claim. Parent
and the Surviving Corporation shall be entitled to participate in (but not
control) the defense of any such Third Party Action, and shall be entitled to
receive full information with respect to any such Third Party Action. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to any Third Party Action unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties.
(c) This Section 5.5 is intended to benefit the Indemnified Parties
commencing as of the Effective Time, and will be binding on the successors of
Parent and the Surviving Corporation after the Effective Time.
5.6 ADDITIONAL AGREEMENTS.
(a) Subject to Section 5.6(b), Parent and the Company shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the Merger and make effective the other transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, but subject to
Section 5.6(b), each party to this Agreement (i) shall make all filings (if any)
and give all notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by this
Agreement, (ii) shall use all reasonable efforts to obtain each Consent (if any)
required to be obtained (pursuant to any applicable Legal Requirement or
Contract, or otherwise) by such party in connection with the Merger or any of
the other transactions contemplated by this Agreement, and (iii) shall use all
reasonable efforts to lift any restraint, injunction or other legal bar to the
Merger. The Company shall promptly deliver to Parent a copy of each such filing
made, each such notice given and each such Consent obtained by the Company
during the Pre-Closing Period.
(b) Notwithstanding anything to the contrary contained in Section 5.6(a) or
elsewhere in this Agreement, Parent shall not have any obligation under this
Agreement to (i) dispose or cause any of its
A-24
<PAGE>
subsidiaries to dispose of any assets, (ii) discontinue offering any product or
make any other change to its operations or proposed operations or to the
operations or proposed operations of any of its subsidiaries or (iii) make any
commitment (to any Governmental Body or otherwise) regarding its future
operations, or the future operations of any of its subsidiaries, or the future
operations of the Surviving Corporation or the Subsidiary (even though the
disposition of such assets or the making of such change or commitment might
facilitate the obtaining of a required Governmental Authorization or might
otherwise facilitate the consummation of the Merger).
5.7 DISCLOSURE. Parent and the Company shall consult with each other
before issuing any press release or otherwise making any public statement with
respect to the Merger or any of the other transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, the Company shall
not, and shall not permit any of its Representatives to, make any disclosure
regarding the Merger or any of the other transactions contemplated by this
Agreement unless (a) Parent shall have approved such disclosure or (b) the
Company shall have been advised by its outside legal counsel that such
disclosure is required by applicable law.
5.8 AFFILIATE AGREEMENTS. The Company shall deliver to Parent, within ten
days after the date of this Agreement, a letter from the Company identifying all
Persons who may be "affiliates" of the Company as that term is used in Rule 145
under the Securities Act. The Company shall use all reasonable efforts to cause
each Person identified in such letter and each other Person who is or becomes an
"affiliate" of the Company to execute and deliver to Parent, prior to the date
of the mailing of the Prospectus/Proxy Statement, an Affiliate Agreement in a
form reasonably satisfactory to Parent.
5.9 TAX MATTERS. At or prior to the Closing, the Company and Parent shall
execute and deliver to Cooley Godward LLP and to Wilson, Sonsini, Goodrich &
Rosati, P.C. appropriate tax representation letters (which will be used in
connection with the legal opinions contemplated by Sections 6.5(b) and 7.4(b)).
5.10 RESIGNATION OF OFFICERS AND DIRECTORS. The Company shall use all
reasonable efforts to obtain and deliver to Parent prior to the Closing the
resignation of each officer and director of the Company.
5.11 EMPLOYEE BENEFITS. Parent agrees that, immediately following the
Effective Time, it will make available to each employee of the Company who
continues as an employee of the Surviving Corporation or Parent, employee
benefit plans and policies of Parent that are at least as favorable as the plans
and policies of Parent in effect immediately prior to the Effective Time, and
will provide each such employee with credit (for purposes of participation in
Parent's employee benefit plans and policies) for service as an employee of the
Company prior to the Effective Time.
5.12 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of the
Company contained in this Agreement shall have been accurate in all respects as
of the date of this Agreement and shall be accurate in all respects as of the
Closing Date as if made on and as of the Closing Date, except that any
inaccuracies in such representations and warranties will be disregarded if the
circumstances giving rise to
A-25
<PAGE>
all such inaccuracies (considered collectively) do not constitute, and could not
reasonably be expected to result in, a Material Adverse Effect on the Acquired
Corporations (it being understood that, for purposes of determining the accuracy
of such representations and warranties, (i) all "Material Adverse Effect"
qualifications and other materiality qualifications contained in such
representations and warranties shall be disregarded and (ii) any update of or
modification to the Company Disclosure Schedule made or purported to have been
made after the date of this Agreement shall be disregarded).
6.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that the Company
is required to comply with or to perform at or prior to the Closing shall have
been complied with and performed in all material respects.
6.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the S-4 Registration Statement.
6.4 STOCKHOLDER APPROVAL. This Agreement shall have been duly adopted and
the Merger shall have been duly approved by the Required Vote.
6.5 AGREEMENTS AND DOCUMENTS. Parent and the Company shall have received
the following documents, each of which shall be in full force and effect:
(a) a legal opinion of Wilson, Sonsini, Goodrich & Rosati, P.C., dated
as of the Closing Date, in a form reasonably satisfactory to Parent;
(b) a legal opinion of Cooley Godward LLP, dated as of the Closing Date,
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368 of the Code (it being understood that, in rendering
such opinion, Cooley Godward LLP may rely upon the tax representation
letters referred to in Section 5.9);
(c) a certificate executed on behalf of the Company by its Chief
Executive Officer confirming that the conditions set forth in Sections 6.1,
6.2, 6.4, 6.6, 6.7, 6.8 and 6.9 have been duly satisfied; and
(d) the written resignations of all officers and directors of the
Company, effective as of the Effective Time.
6.6 EMPLOYEES.
(a) None of the individuals identified on Exhibit C shall have ceased to be
employed by the Company, or shall have expressed a bona fide intention to
terminate his employment with the Company or (provided that Parent has offered
to employ such individual on terms substantially similar to, or at least as
favorable on an overall basis as, the terms set forth in the employment letter
executed by Parent and such individual) a bona fide intention to decline to
accept employment with Parent.
(b) Not more than one of the individuals identified on Exhibit D shall have
ceased to be employed by the Company, or shall have expressed a bona fide
intention to terminate his employment with the Company or (provided that Parent
has offered to employ such individual on terms substantially similar to, or at
least as favorable on an overall basis as, the terms set forth in the employment
letter executed by Parent and such individual) a bona fide intention to decline
to accept employment with Parent.
6.7 NO MATERIAL ADVERSE CHANGE. Except for adverse changes that result
directly from the public announcement of the Merger or from general economic
conditions or conditions affecting the Company's industry generally, there shall
have been no material adverse change in the Company's business since the date of
this Agreement (it being understood that a downturn in the Company's financial
performance shall not, in and of itself, constitute a "material adverse change"
in the Company's business for purposes of this Section 6.7).
A-26
<PAGE>
6.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any U.S. or Canadian federal, state or provincial
law or regulation enacted or deemed applicable to the Merger that makes
consummation of the Merger illegal.
6.9 NO GOVERNMENTAL LITIGATION. There shall not be pending any litigation
or administrative action or proceeding in which a U.S. or Canadian federal,
state or provincial Governmental Body is a party: (a) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement; (b) relating to the Merger and
seeking to obtain from Parent or any of its subsidiaries any damages that may be
material to Parent; (c) seeking to prohibit or limit in any material respect
Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporation; or (d) which would materially and adversely affect the right of
Parent, the Surviving Corporation or any subsidiary of Parent to own the assets
or operate the business of the Company.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to effect the Merger and otherwise consummate
the transactions contemplated by this Agreement is subject to the satisfaction,
at or prior to the Closing, of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall have been accurate in
all respects as of the date of this Agreement and shall be accurate in all
respects as of the Closing Date as if made on and as of the Closing Date, except
that any inaccuracies in such representations and warranties will be disregarded
if the circumstances giving rise to all such inaccuracies (considered
collectively) do not constitute, and could not reasonably be expected to result
in, a Material Adverse Effect on Parent (it being understood that, for purposes
of determining the accuracy of such representations and warranties, all
"Material Adverse Effect" and other materiality qualifications contained in such
representations and warranties shall be disregarded).
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
7.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the S-4 Registration Statement.
7.4 DOCUMENTS. The Company shall have received the following documents,
each of which shall be in full force and effect:
(a) a legal opinion of Cooley Godward LLP, dated as of the Closing Date,
in a form reasonably satisfactory to the Company;
(b) a legal opinion of Wilson, Sonsini, Goodrich & Rosati, P.C., dated
as of the Closing Date, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code (it being
understood that, in rendering such opinion, Wilson, Sonsini, Goodrich &
Rosati, P.C. may rely upon the tax representation letters referred to in
Section 5.9); and
(c) a certificate executed on behalf of Parent by an executive officer
of Parent confirming that the conditions set forth in Sections 7.1, 7.2,
7.5, 7.6 and 7.7 have been duly satisfied.
7.5 LISTING. The shares of Parent Common Stock to be issued in the Merger
shall have been approved for listing (subject to notice of issuance) on the
NYSE.
A-27
<PAGE>
7.6 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger by
the Company shall have been issued by any court of competent jurisdiction and
remain in effect, and there shall not be any U.S. or Canadian federal, state or
provincial law or regulation enacted or deemed applicable to the Merger that
makes consummation of the Merger by the Company illegal.
7.7 NO MATERIAL ADVERSE CHANGE. Except for adverse changes that result
directly from the public announcement of the Merger or from general economic
conditions or conditions affecting Parent's industry generally, there shall have
been no material adverse change in Parent's business since the date of this
Agreement (it being understood that a decline in Parent's stock price shall not,
in and of itself, constitute a "material adverse change" in Parent's business
for purposes of this Section 7.7).
SECTION 8. TERMINATION
8.1 TERMINATION. This Agreement may be terminated prior to the Effective
Time, whether before or after approval of the Merger by the stockholders of the
Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated by April 30, 1997 (unless the failure to consummate the Merger
is attributable to a failure on the part of the party seeking to terminate
this Agreement to perform any material obligation required to be performed
by such party at or prior to the Effective Time);
(c) by either Parent or the Company if a court of competent jurisdiction
or other Governmental Body shall have issued a final and nonappealable
order, decree or ruling, or shall have taken any other action, having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger;
(d) by Parent upon the occurrence of a Material Adverse Effect on the
Acquired Corporations;
(e) by the Company upon the occurrence of a Material Adverse Effect on
Parent;
(f) by either Parent or the Company if (i) the Company Stockholders'
Meeting shall have been held and (ii) this Agreement and the Merger shall
not have been adopted and approved at such meeting by the Required Vote;
(g) by Parent (at any time prior to the adoption and approval of this
Agreement and the Merger by the Required Vote) if a Triggering Event shall
have occurred;
(h) by Parent, following a breach of any representation, warranty or
covenant of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become inaccurate, in
either case such that the condition set forth in Section 6.1 or Section 6.2
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become inaccurate, PROVIDED,that if
such breach or the inaccuracy in such representation or warranty is curable
by the Company through the exercise of reasonable efforts within 45 days
after the time of such breach or the time such representation or warranty
shall have become inaccurate, then Parent may not terminate this Agreement
under this Section 8.1(h) during such 45-day period provided the Company
continues to exercise such reasonable efforts; or
(i) by the Company, following a breach of any representation, warranty
or covenant of Parent set forth in this Agreement, or if any representation
or warranty of Parent shall have become inaccurate, in either case such that
the condition set forth in Section 7.1 or Section 7.2 would not be satisfied
as of the time of such breach or as of the time such representation or
warranty shall have become inaccurate, PROVIDED that if such breach or the
inaccuracy in such representation or warranty is curable by Parent through
the exercise of reasonable efforts within 45 days after the time of such
breach or the time such representation or warranty shall have become
inaccurate, then the Company
A-28
<PAGE>
may not terminate this Agreement under this Section 8.1(i) during such
45-day period provided Parent continues to exercise such reasonable efforts.
8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 8.1, this Agreement shall be of no further
force or effect; PROVIDED, HOWEVER,that (i) this Section 8.2, Section 8.3 and
Section 9 shall survive the termination of this Agreement and shall remain in
full force and effect, and (ii) the termination of this Agreement shall not
relieve any party from any liability for any willful and knowing breach of this
Agreement.
8.3 TRANSACTIONS AND EXPENSES; TERMINATION FEE.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses, whether or not the
Merger is consummated; PROVIDED, HOWEVER, that Parent and the Company shall
share equally all fees and expenses, other than attorneys' and accountants'
fees, incurred in connection with the printing and filing of the S-4
Registration Statement and the Prospectus/Proxy Statement and any amendments or
supplements thereto.
(b) The Company shall pay to Parent, in immediately available funds, a
nonrefundable fee in the amount of $2,500,000 (the "Termination Amount") if
either: (i) an Acquisition Proposal is publicly announced (and not publicly
withdrawn) prior to the Company Stockholders' Meeting and this Agreement is
terminated by Parent or the Company pursuant to Section 8.1(f); or (ii) this
Agreement is terminated by Parent pursuant to Section 8.1(g). If payable, the
Termination Amount shall be paid by the Company to Parent within five business
days after the termination of this Agreement. For purposes of this Section
8.3(b), an Acquisition Proposal shall be deemed to have been "publicly
withdrawn" only if: (1) acting in good faith, the Person who made such
Acquisition Proposal publicly announces the withdrawal of such Acquisition
Proposal and (2) it is not reasonably expected that such Acquisition Proposal
will be resubmitted or that such Person will make, submit or announce any other
Acquisition Proposal.
SECTION 9. MISCELLANEOUS PROVISIONS
9.1 AMENDMENT. This Agreement may be amended with the approval of the
respective Boards of Directors of the Company and Parent at any time before or
after approval of this Agreement by the stockholders of the Company; PROVIDED,
HOWEVER, that after any such stockholder approval, no amendment shall be made
which by law requires further approval of the stockholders of the Company
without the further approval of such stockholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
9.2 WAIVER.
(a) No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any party
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) Subject to Section 8.2, no party shall be deemed to have waived any
claim arising out of this Agreement, or any power, right, privilege or remedy
under this Agreement, unless the waiver of such claim, power, right, privilege
or remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
9.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any certificate
delivered pursuant to this Agreement shall survive the Merger.
A-29
<PAGE>
9.4 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Agreement and the
other agreements referred to herein and the letter agreement dated as of
September 12, 1996 between Parent and the Company constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among or between any of the parties with respect to the subject matter
hereof and thereof. This Agreement may be executed in several counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same instrument, and shall be governed in all respects by the laws of the
State of Delaware as applied to contracts entered into and to be performed
entirely within Delaware.
9.5 DISCLOSURE SCHEDULE. The Company Disclosure Schedule shall be arranged
in separate parts corresponding to the numbered and lettered sections contained
in Section 2, and the disclosure in any numbered or lettered part shall be
deemed to relate to and to qualify only the particular representation or
warranty set forth in the corresponding numbered or lettered section in Section
2, and not any other representation or warranty.
9.6 ATTORNEYS' FEES. In any action at law or suit in equity to enforce
this Agreement or the rights of any of the parties hereunder, the prevailing
party in such action or suit shall be entitled to receive a reasonable sum for
its attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
9.7 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors and assigns; PROVIDED, HOWEVER, that neither this
Agreement nor any of the Company's rights hereunder may be assigned by the
Company without the prior written consent of Parent, and any attempted
assignment by the Company of this Agreement or any of such rights without such
consent shall be void and of no effect. Except as set forth in Section 5.5 with
respect to directors and officers of the Company and as otherwise provided in
this Agreement, nothing in this Agreement is intended to or shall confer upon
any Person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
9.8 NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized, overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
To Parent:
Cadence Design Systems, Inc.
2655 Seely Avenue
San Jose, CA 95134
Attention: General Counsel
Telephone: (408) 944-7748
Fax: (408) 944-0215
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Alan C. Mendelson
Telephone: (415) 843-5000
Fax: (415) 857-0663
A-30
<PAGE>
To Merger Sub:
Harbor Acquisition Sub, Inc.
c/o Cadence Design Systems, Inc.
2655 Seely Avenue
San Jose, CA 95134
Attention: General Counsel
Telephone: (408) 944-7748
Fax: (408) 944-0215
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Alan C. Mendelson
Telephone: (415) 843-5000
Fax: (415) 857-0663
To the Company:
High Level Design Systems, Inc.
3945 Freedom Circle
Fourth Floor
Santa Clara, CA 95054
Attention: J. George Janac
Telephone: (408) 748-3464
Fax: (408) 748-3499
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94306
Attention: Douglas H. Collom
Telephone: (415) 493-9300
Fax: (415) 493-6811
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of a telecopy, when the party receiving such telecopy shall have confirmed
receipt of the communication, (c) in the case of delivery by nationally-
recognized, overnight courier, on the business day following dispatch and (d) in
the case of mailing, on the fifth business day following such mailing.
9.9 COOPERATION. Each of the Company and Parent agrees to cooperate fully
with the other party and to execute and deliver such further documents,
certificates, agreements and instruments and to take such other actions as may
be reasonably requested by the other party to evidence or reflect the
transactions contemplated by this Agreement and to carry out the intent and
purposes of this Agreement.
9.10 CERTAIN TERMS. As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
9.11 TITLES. The titles and captions of the Sections of this Agreement are
included for convenience of reference only and shall have no effect on the
construction or meaning of this Agreement.
A-31
<PAGE>
9.12 SECTIONS AND EXHIBITS. Except as otherwise indicated, all references
in this Agreement to "Sections" and "Exhibits" are intended to refer to Sections
of this Agreement and Exhibits to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date first above written.
CADENCE DESIGN SYSTEMS, INC.
By: __________________________________
HARBOR ACQUISITION SUB, INC.
By: __________________________________
HIGH LEVEL DESIGN SYSTEMS, INC.
By: __________________________________
A-32
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUIRED CORPORATION CONTRACT. "Acquired Corporation Contract" shall mean
any Contract: (a) to which either of the Acquired Corporations is a party; (b)
by which either of the Acquired Corporations or any asset of either of the
Acquired Corporations is or may become bound or under which either of the
Acquired Corporations has, or may become subject to, any obligation; or (c)
under which either of the Acquired Corporations has or may acquire any right or
interest.
ACQUIRED CORPORATION PROPRIETARY ASSET. "Acquired Corporation Proprietary
Asset" shall mean any Proprietary Asset owned by or licensed to either of the
Acquired Corporations or otherwise used by either of the Acquired Corporations.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by Parent) regarding: (i) any merger,
consolidation, share exchange, business combination or other similar transaction
or series of related transactions involving the Company or any subsidiary of the
Company; (ii) any sale, lease, exchange, transfer, license or disposition of a
substantial portion of the assets of the Company or any subsidiary of the
Company in any one transaction or in a series of related transactions (other
than sales of products in the ordinary course of business); or (iii) any
acquisition (by tender offer or otherwise), in any one transaction or in a
series of related transactions, of record or beneficial ownership of more than
30% of the outstanding securities of any class of voting securities of the
Company or any subsidiary of the Company.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached, as it may be amended from
time to time.
BCSC. "BCSC" shall mean the British Columbia Securities Commission.
COMPANY CAPITAL STOCK. "Company Capital Stock" shall mean Company Common
Stock and Company Preferred Stock.
COMPANY COMMON STOCK. "Company Common Stock" shall mean the Common Stock,
$.001 par value per share, of the Company.
COMPANY PREFERRED STOCK. "Company Preferred Stock" shall mean the Preferred
Stock, $.001 par value per share, of the Company.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any
AA-1
<PAGE>
limited liability company or joint stock company), firm or other enterprise,
association, organization or entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal). The VSE shall be deemed to be a "Governmental Body" for
purposes of this Agreement.
HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. An event, violation, inaccuracy, circumstance or
other matter (or group of matters) will be deemed to have a "Material Adverse
Effect" on the Acquired Corporations if such event, violation, inaccuracy,
circumstance or other matter (or group of matters) would have a material adverse
effect on the business, condition, assets, liabilities, operations or financial
performance of the Acquired Corporations taken as a whole; PROVIDED, HOWEVER,
that (i) any event, violation, inaccuracy, circumstance or other matter
occurring after the date of the Agreement that results directly from the public
announcement of the Merger or from general economic conditions or conditions
affecting the Company's industry generally shall not, in and of itself,
constitute a "Material Adverse Effect" on the Acquired Corporations, and (ii) a
downturn in the Company's financial performance following the date of the
Agreement shall not, in and of itself, constitute a "Material Adverse Effect" on
the Acquired Corporations (it being understood that a downturn in the Company's
financial performance resulting from circumstances that would otherwise cause
any representation or warranty of the Company to be inaccurate may nevertheless
constitute a "Material Adverse Effect" on the Acquired Corporations). An event,
violation, inaccuracy, circumstance or other matter (or group of matters) will
be deemed to have a "Material Adverse Effect" on Parent if such event,
violation, inaccuracy, circumstance or other matter (or group of matters) would
have a material adverse effect on the business, condition, assets, liabilities,
operations or financial performance of Parent and its subsidiaries taken as a
whole; PROVIDED, HOWEVER, that (1) any event, violation, inaccuracy,
circumstance or other matter occurring after the date of the Agreement that
results directly from the public announcement of the Merger or from general
economic conditions or conditions affecting the Company's industry generally
shall not, in an of itself, constitute a "Material Adverse Effect" on Parent and
(2) a decline in Parent's stock price at any time after the date of the
Agreement shall not, in and of itself, constitute a "Material Adverse Effect" on
Parent.
MATERIAL CONTRACT. "Material Contract" shall mean any Acquired Corporation
Contract that is or would be material to either of the Acquired Corporations, to
the business, condition, capitalization or
AA-2
<PAGE>
operations of either of the Acquired Corporations or to any of the transactions
contemplated by the Agreement.
NYSE. "NYSE" shall mean the New York Stock Exchange.
PARENT COMMON STOCK. "Parent Common Stock" shall mean the Common Stock,
$.01 par value per share, of Parent. Unless the context otherwise requires, all
references in the Agreement to Parent Common Stock shall be deemed to refer also
to the associated rights under Parent's Rights Agreement dated as of February 9,
1996 between Parent and Harris Trust and Savings Bank.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, source code, algorithm, invention, design,
blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right or intangible asset; or (b) right to
use or exploit any of the foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
TRIGGERING EVENT. A "Triggering Event" shall be deemed to have occurred if:
(i) the Board of Directors of the Company shall have failed to recommend, or
shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to Parent its recommendation in favor of, the Merger or approval
or adoption of this Agreement following the making, submission or announcement
of an Acquisition Proposal; (ii) the Company shall have failed to include in the
Prospectus/Proxy Statement the recommendation of the Board of Directors of the
Company in favor of approval and adoption of this Agreement and the Merger;
(iii) the Board of Directors of the Company shall have approved, endorsed or
recommended any Acquisition Proposal; (iv) the Company shall have entered into
any letter of intent or Contract relating to any Acquisition Proposal; (v) the
Company shall have willfully failed to hold the Company Stockholders' Meeting as
promptly as practicable after the S-4 Registration Statement is declared
effective; or (vi) a tender or exchange offer constituting an Acquisition
Proposal relating to securities of the Company shall have been commenced and the
Company shall not have sent to its securityholders, within ten business days
after the commencement of such tender or exchange offer, a statement disclosing
that the Company recommends rejection of such tender or exchange offer.
VSE. "VSE" shall mean the Vancouver Stock Exchange.
AA-3
<PAGE>
APPENDIX B
FAIRNESS OPINION OF DEUTSCHE MORGAN GRENFELL INC.
October 3, 1996
Board of Directors
High Level Design Systems, Inc.
3945 Freedom Circle
Fourth Floor
Santa Clara, CA 95054
Members of the Board:
We understand that Cadence Design Systems, Inc. ("Cadence"), High Level
Design Systems, Inc. ("HLD"), and Harbor Acquisition Sub, Inc. ("Cadence Merger
Sub"), a wholly-owned subsidiary of Cadence, have entered into an Agreement and
Plan of Merger and Reorganization, dated as of the date hereof (collectively,
the "Merger Agreement"), which provides, among other things, for the merger (the
"Merger") of Cadence Merger Sub with and into HLD. Pursuant to the Merger, HLD
will become a wholly-owned subsidiary of Cadence and each issued and outstanding
share of common stock, $0.001 par value per share, of HLD (the "HLD Common
Stock"), and each outstanding share of preferred stock, $0.001 par value per
share, of HLD (the "HLD Preferred Stock" and together with the HLD Common Stock,
the "HLD Capital Stock") other than shares held in treasury or held by Cadence
or any subsidiary or affiliate of Cadence or as to which dissenters' rights have
been perfected, shall be converted into the right to receive 0.220 (the
"Exchange Ratio") of a share of common stock, $0.01 par value per share, of
Cadence (the "Cadence Common Stock"). The terms and conditions of the Merger are
more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
HLD Common Stock.
For purposes of the opinion set forth herein, we have:
i. analyzed certain publicly available financial statements and other
information of Cadence and HLD, respectively;
ii. analyzed certain internal financial statements and other financial and
operating data concerning HLD prepared by the management of HLD;
iii. analyzed certain financial projections relating to HLD prepared by the
managements of HLD;
iv. discussed the past and current operations and other financial condition
and the prospects of HLD with senior executives of HLD;
v. discussed the past and current operations and financial condition and
the prospects of Cadence with senior executives of Cadence;
vi. analyzed the pro forma impact of the Merger on the earnings per share,
consolidated capitalization and other financial ratios of Cadence;
vii. reviewed the reported prices and trading activity for the HLD Common
Stock and the Cadence Common Stock, respectively;
viii. compared the financial performance of HLD and Cadence and the prices
and trading activity of the HLD Common Stock and the Cadence Common
Stock with that of certain other comparable publicly-traded companies
and their securities;
B-1
<PAGE>
ix. reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
x. participated in discussions and negotiations among representatives of
HLD and Cadence and their respective financial and legal advisors;
xi. participated in discussions with third parties other than Cadence
regarding a potential strategic combination with HLD;
xii. reviewed the Merger Agreement and certain related agreements; and
xiii. performed such other analyses and considered such other facters as we
have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of HLD. We
have not made any independent valuation or appraisal of the assets, liabilities
or technology of HLD or Cadence, respectively, nor have we been furnished with
any such appraisals. Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have acted as financial advisor to the Board of Directors of HLD in
connection with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of HLD only and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by HLD with the Securities and Exchange Commission or
regulatory authority in British Columbia, Canada with respect to the
transactions contemplated by the Merger Agreement. In addition, we express no
recommendation or opinion as to how the holders of HLD Capital Stock should vote
at the shareholders' meeting held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of the HLD Capital Stock.
Very truly yours,
DEUTSCHE MORGAN GRENFELL
By: /s/ GEORGE F. BOUTROS
-----------------------------------------
George F. Boutros
MANAGING DIRECTOR
By: /s/ DAVID A. POPOWITZ
-----------------------------------------
David A. Popowitz
VICE PRESIDENT
B-2
<PAGE>
APPENDIX C
SECTION 262
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
262 APPRAISAL RIGHTS (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251,252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of a merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market systems security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did no require for its approval
the vote of the holders of the surviving corporation as provided in (1)
SUBSECTIONS (F) OR (G) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
C-1
<PAGE>
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) and (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the
C-2
<PAGE>
corporation surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by one or more publications at least one week before the day
of the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding,
C-3
<PAGE>
including, without limitation, reasonable attorney's fees and the fees and
expenses of experts, to be charged pro rata against the value of all the shares
entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 79, L.
'95, eft. 7-1-95.)
C-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach or alleged breach of their duty of care. The Registrant also maintains a
limited amount of director and officer insurance. In addition, as permitted by
Section 145 of the Delaware General Corporation Law, the Bylaws of the
Registrant provide that: (i) the Registrant is required to indemnify its
directors, officers and employees, and persons serving in such capacities in
other business enterprises (including, for example, subsidiaries of the
Registrant) at the Registrant's request, to the fullest extent permitted by
Delaware law, including those circumstances in which indemnification would
otherwise be discretionary; (ii) the Registrant is required to advance expenses,
as incurred, to such directors, officers and employees in connection with
defending a proceeding (except that it is not required to advance expenses to a
person against whom the Registrant brings a claim for breach of the duty of
loyalty, failure to act in good faith, intentional misconduct, knowing violation
of law or deriving an improper personal benefit); (iii) the rights conferred in
the Bylaws are not exclusive and the Registrant is authorized to enter into
indemnification agreements with such directors, officers and employees; (iv) the
Registration is required to maintain director and officer liability insurance to
the extent reasonably available; and (v) the Registrant may not retroactively
amend the Bylaw provision in a way that is adverse to such directors, officers
and employees.
The Registrant's policy is to enter into indemnity agreements with each of
its executive officers and directors that provide the maximum indemnity allowed
to officers and directors by Section 145 of the Delaware General Corporation Law
and the Bylaws, as well as certain additional procedural protections. In
addition, the indemnity agreements provide that officers and directors will be
indemnified to the fullest possible extent not prohibited by law against all
expenses (including attorney's fees) and settlement amounts paid or incurred by
them in any action or proceeding, including any derivative action by or in the
right of the Registrant, on account of their services as directors or officers
of the Registrant or as directors or officers of any other company or enterprise
when they are serving in such capacities at the request of the Registrant. No
indemnity will be provided, however, to any director or officer on account of
conduct that is adjudicated to be knowingly fraudulent, deliberately dishonest
or willful misconduct. The indemnity agreements also provide that no
indemnification will be available if a final court adjudication determines that
such indemnification is not lawful, or in respect of any accounting of profits
made from the purchase or sale of securities of the Registrant in violation of
Section 16(b) of the Exchange Act.
The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its officers or directors, may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liability arising under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization dated as of October 3, 1996, among the Registrant, High
Level Designs Systems, Inc. ("HLDS") and Harbor Acquisition Sub, Inc. (See Appendix A to the Proxy
Statement/Prospectus.)
2.2+ Form of Certificate of Merger to be entered into by Registrant and HLDS.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.3 Agreement and Plan of Merger and Reorganization dated as of October 28, 1996, by and among the
Registrant, Wyoming Acquisition Sub, Inc., a Delaware corporation, and Cooper & Chyan Technology,
Inc., a Delaware corporation (incorporated by reference to Registrant's Current Report on Form 8-K
filed on November 7, 1996 (the "November 7, 1996 8-K")).
3.1 The Registrant's Certificate of Incorporation, as filed with the Secretary of State of the State of
Delaware on April 8, 1987 (incorporated by reference to Exhibit 3.01 to Registrant's Form S-1
Registration Statement (No. 33-13845) originally filed on April 29, 1987 (the "1987 Form S-1")).
3.2 The Registrant's Certificate of Retirement of Stock as filed with the Secretary of State of the State of
Delaware on September 28, 1987 (incorporated by reference to Exhibit 3.01(b) to Registrant's Form S-4
Registration Statement (No. 33-20724) originally filed on February 25, 1988).
3.3 The Registrant's Certificate of Ownership and Merger as filed with the Secretary of State of the State
of Delaware on June 1, 1988 (incorporated by reference to Exhibit 3.02(c) to the Registrant's Form S-1
Registration Statement (No. 33-32107) originally filed on July 18, 1988 (the "1988 Form S-1")).
3.4 The Registrant's Certificate of Designations of Series A Junior Participating Preferred Stock as filed
with the Secretary of State of the State of Delaware on June 8, 1989 (incorporated by reference to
Exhibit 3A to the Registrant's Form 8-K originally filed on June 12, 1989 (the "1989 Form 8-K")).
3.5 The Registrant's Certificate of Amendment of Certificate of Incorporation as filed with the Secretary of
State of the State of Delaware on July 26, 1991 (incorporated by reference to Exhibit 3.01(e) to the
Registrant's Form S-4 Registration Statement (No. 33-43400) originally filed on October 7, 1991 (the
"1991 S-4").
3.6 The Registrant's Certificate of Designation of Series A Convertible Preferred Stock as filed with the
Secretary of State of the State of Delaware on December 30, 1991 (incorporated by reference to Exhibit
3.01(f) from the Registrant's Form 10-K for the fiscal year ended December 31, 1991).
3.7 The Registrant's Bylaws, as currently in effect (incorporated by reference to Exhibit 3.02 to the 1987
Form S-1 and Exhibit 3-b to the 1989 Form 8-K).
4.1 Form of Specimen Certificate for Registrant's Common Stock (incorporated by reference to the 1991 Form
S-4).
4.2 Rights Agreement, dated as of February 9, 1996, between Cadence and Harris Trust and Savings Bank which
includes as exhibits thereto the Certificate of Designations for the Series A Junior Participating
Preferred Stock, the form of Right Certificate and the Summary of Rights to Purchase Preferred Shares
(incorporated by reference to Exhibit 1A, 1B and 1C to the Registrant's Form 8-K filed February 9,
1996).
5.1+ Legal Opinion of Cooley Godward LLP.
8.1+ Tax Opinion of Cooley Godward LLP.
8.2+ Tax Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
9.1 Form of Voting Agreement, dated as of October 3, 1996, between Cadence and each of J. George Janac,
Dennis DeCoste, Robert P. Wiederhold and Peter S. Teshima (incorporated by reference to the November
7, 1996 8-K).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
9.2 Option Agreement, dated as of October 3, 1996, between Cadence and J. George Janac. (incorporated by
reference to the November 7, 1996 8-K).
9.3* Employment Agreement, dated as of October 3, 1996, between Cadence and J. George Janac.
9.4* Employment Agreement, dated as of October 2, 1996, between Cadence and Robert P. Wiederhold.
10.1 The Registrant's 1987 Stock Option Plan, as amended to date, (incorporated by reference to Exhibit 4.01
to the Registrant's Form S-8 Registration Statement (No. 33-53913) filed on May 31, 1994 (the "1994
Form S-8")).
10.2 Form of Stock Option Agreement and Form of Stock Option Exercise Request, as currently in effect under
the Registrant's 1987 Stock Option Plan (incorporated by reference to Exhibit 4.01 to the Registrant's
Form S-8 Registration Statement (No. 33-22652) filed on June 20, 1988).
10.3 The Registrant's 1988 Directors Stock Option Plan, as amended to date, including the Stock Option Grant
and Stock Option Exercise Notice and Agreement (the first document is incorporated by reference to
Exhibit 4.02 to the Registrant's 1994 Form S-8 and the latter two documents are incorporated by
reference to Exhibit 10.08 - 10.10 to the Registrant's 1988 Form S-1).
10.4 The Registrant's 1993 Directors Stock Option Plan including the Stock Option Grant (incorporated by
reference to Exhibit 10.04 of the 1994 Form S-8).
10.5 The Registrant's 1995 Directors Stock Option Plan including the Stock Option Grant (incorporated by
reference to Exhibit 10.05 to the 1995 Form 10-K).
10.6 The Registrant's 1990 Employee Stock Purchase Plan as amended to date (incorporated by reference to
Exhibit 4.03 of the 1994 Form S-8).
10.7 The Registrant's Senior Executive Bonus Plan for 1995 (incorporated by reference to Exhibit 10.08 of the
Registrant's Form 10-K for the fiscal year ended December 31, 1994 (the "1994 Form 10-K")).
10.8 The Registrant's Senior Executive Bonus Plan for 1996 (incorporated by reference to Exhibit 10.08 to the
1995 Form 10-K).
10.9 The Registrant's Chief Executive Officer Bonus Plan for 1996 (incorporated by reference to Exhibit 10.09
to the 1995 Form 10-K).
10.10 The Registrant's Deferred Compensation Plan for 1994 (incorporated by reference to Exhibit 10.09 to the
1994 Form 10-K).
10.11 The Registrant's 1996 Deferred Compensation Venture Investment Plan (incorporated by reference to
Exhibit 10.11 to the 1995 Form 10-K).
10.12 Amended and Restated Lease, dated June 29, 1989, by and between River Oaks Place Associates ("ROPA"), a
California limited partnership, and the Registrant, for the Registrant's executive offices at 555
River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.14 to the
Registrant's Form 10-K for the fiscal year ended December 31, 1990 (the "1990 Form 10-K")).
10.13 Lease dated June 29, 1989 by and between ROPA and the Registrant for the Registrant's offices at 575
River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.16 to the 1990 Form
10-K).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.14 Lease dated June 29, 1989 by and between ROPA and the Registrant for the Registrant's offices at 535 and
545 River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.17 to the 1990
Form 10-K).
10.15 Lease dated September 3, 1985 by and among the Richard T. Peery and John Arrillaga Separate Property
Trusts ("P/A Trusts") and Valid Logic Systems Incorporated ("Valid") (which merged into the
Registrant) for the Registrant's offices at 75 West Plumeria Avenue, San Jose, California
(incorporated by reference to Exhibit 10.16 to the Form 10-K for Valid for the fiscal year ended
December 30, 1990 (the "1990 Valid Form 10-K")).
10.16 Amendment Number 1, dated March 2, 1988, to Lease Agreement for 75 West Plumeria Avenue, San Jose,
California, by and among Valid and the P/A Trusts (incorporated by reference to Exhibit 10.17 to the
1990 Valid Form 10-K).
10.17 Lease dated December 19, 1988 by and among the P/A Trusts and Valid for the Registrant's offices at 2835
North First Street, San Jose, California (incorporated by reference to Exhibit 10.18 to the 1990 Valid
Form 10-K).
10.18 Lease dated September 3, 1985 by and among the P/A Trusts and Valid for the Registrant's offices at 2820
Orchard Parkway, San Jose, California (incorporated by reference to Exhibit 10.14 to the 1990 Valid
Form 10-K).
10.19 Amendment Number 1, dated March 2, 1988, to Lease Agreement for 2820 Orchard Parkway, San Jose,
California, by and among Valid and the P/A Trusts (incorporated by reference to Exhibit 10.15 to the
1990 Valid Form 10-K).
10.20 Form of Executive Compensation Agreement dated May 1989 between Registrant and Mr. Costello
(incorporated by reference to Exhibit 10.20 to the Registrant's Form S-4 registration statement (No.
33-31673), originally filed on October 18, 1989).
10.21 Offer letter to H. Raymond Bingham dated May 12, 1993 (incorporated by reference to Exhibit 10.24 to the
Form 10-K for the fiscal year ended December 31, 1993 (the "1993 Form 10-K")).
10.22 Offer letter to M. Robert Leach dated May 17, 1993 (incorporated by reference to Exhibit 10.25 to the
1993 Form 10-K).
10.23 1993 Non-Statutory Stock Option Plan (incorporated by reference to Exhibit 4.05 to the 1994 Form S-8).
10.24 Consulting agreement dated May 1, 1994 with Henry E. Johnston, who was made a director on July 5, 1994
by unanimous written consent of directors of Cadence (incorporated by reference to the Registrant's
Form 10-Q for the quarterly period ended June 30, 1994 (the "1994 Second Quarter Form 10-Q")).
10.25* HLDS 1993 Stock Option Plan and Form of Stock Option Grant.
10.26* HLDS 1995 Special Nonstatutory Stock Option Plan and Form of Stock Option Grant.
10.27 Agreement of Merger and Plan of Reorganization by and among Registrant, Simon Software, Inc. and Redwood
Design Automation, Inc. ("Redwood") dated as of July 8, 1994 (incorporated by reference to the
Registrant's Form 10-Q/A, Amendment Number 1 to the 1994 Second Quarter Form 10-Q, filed November 14,
1994 (the "1994 Second Quarter 10-Q/A")).
10.28 Agreement of Merger dated as of August 1, 1994 between Redwood and CDS Corporation (incorporated by
reference to the Registrant's 1994 Second Quarter 10-Q/A).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.29 Form of Stock Option Agreement for Registrant's 1993 Non Statutory Stock Option Plan (incorporated by
reference to the Registrant's Form 10-Q for the quarter ended September 30, 1994).
10.30 Form of Underwriting Agreement in connection with Integrated Measurement Systems, Inc. public offering
(incorporated by reference to the Registrant's Form 10-Q for the third quarter ended September 30,
1995).
22.01 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.01 to the 1995 Form 10-K).
23.01* Consent of Arthur Andersen LLP with respect to Cadence financial statements.
23.02* Consent of Arthur Andersen LLP with respect to HLDS financial statements.
23.02+ Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 8.2).
23.03+ Consent of Cooley Godward LLP (included in Exhibits 5.1 and 8.1).
24.01* Power of Attorney (see page II-7).
27.01* Financial Data Schedule of Cadence.
27.02* Financial Data Schedule of HLDS.
99.01* Form of proxy card for HLDS Special Meeting.
</TABLE>
- ------------------------
+ To be filed by amendment.
* Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are required of Cadence or High Level
Designs Systems, Inc.
(c) ITEM 4(B) REPORTS
See Appendix B to the Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
(1) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Proxy Statement/Prospectus pursuant
to Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(2) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the Articles of Incorporation
and the Bylaws of the Registrant and the Delaware General Corporation Law, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in a successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
II-5
<PAGE>
question has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(5) (A) The undersigned registration hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(B) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (A) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Cadence Design Systems, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Jose, County of Santa Clara, State of California, on the 7th day of
November, 1996.
CADENCE DESIGN SYSTEMS, INC.
By: /s/ JOSEPH B. COSTELLO
-----------------------------------------
Joseph B. Costello
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph B. Costello, H. Raymond Bingham and R.L.
Smith McKeithen, and each or any one of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
/s/ JOSEPH B. COSTELLO President, Chief Executive
------------------------------------------- Officer and Director (Principal November 7, 1996
Joseph B. Costello Executive Officer)
/s/ H. RAYMOND BINGHAM Executive Vice President, Chief
------------------------------------------- Financial Officer and Secretary November 7, 1996
H. Raymond Bingham (Principal Financial Officer)
Vice President, Corporate
/s/ WILLIAM PORTER Controller and Assistant
------------------------------------------- Secretary (Principal November 7, 1996
William Porter Accounting Officer)
/s/ CAROL BARTZ
------------------------------------------- Director November 7, 1996
Carol Bartz
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
------------------------------------------- Director November , 1996
Henry E. Johnston
/s/ DR. LEONARD Y.W. LIU
------------------------------------------- Director November 7, 1996
Dr. Leonard Y.W. Liu
/s/ DONALD L. LUCAS
------------------------------------------- Director November 7, 1996
Donald L. Lucas
/s/ DR. ALBERTO SANGIOVANNI-VINCENTELLI
------------------------------------------- Director November 7, 1996
Dr. Alberto Sangiovanni-Vincentelli
/s/ GEORGE M. SCALISE
------------------------------------------- Director November 7, 1996
George M. Scalise
/s/ DR. JOHN B. SHOVEN
------------------------------------------- Director November 7, 1996
Dr. John B. Shoven
/s/ JAMES E. SOLOMON
------------------------------------------- Director November 7, 1996
James E. Solomon
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization dated as of October 3, 1996, among the Registrant, High
Level Designs Systems, Inc. ("HLDS") and Harbor Acquisition Sub, Inc. (See Appendix A to the Proxy
Statement/Prospectus.)
2.2+ Form of Certificate of Merger to be entered into by Registrant and HLDS.
2.3 Agreement and Plan of Merger and Reorganization dated as of October 28, 1996, by and among the
Registrant, Wyoming Acquisition Sub, Inc., a Delaware corporation, and Cooper & Chyan Technology,
Inc., a Delaware corporation (incorporated by reference to Registrant's Current Report on Form 8-K
filed on November 7, 1996 (the "November 7, 1996 8-K")).
3.1 The Registrant's Certificate of Incorporation, as filed with the Secretary of State of the State of
Delaware on April 8, 1987 (incorporated by reference to Exhibit 3.01 to Registrant's Form S-1
Registration Statement (No. 33-13845) originally filed on April 29, 1987 (the "1987 Form S-1")).
3.2 The Registrant's Certificate of Retirement of Stock as filed with the Secretary of State of the State of
Delaware on September 28, 1987 (incorporated by reference to Exhibit 3.01(b) to Registrant's Form S-4
Registration Statement (No. 33-20724) originally filed on February 25, 1988).
3.3 The Registrant's Certificate of Ownership and Merger as filed with the Secretary of State of the State
of Delaware on June 1, 1988 (incorporated by reference to Exhibit 3.02(c) to the Registrant's Form S-1
Registration Statement (No. 33-32107) originally filed on July 18, 1988 (the "1988 Form S-1")).
3.4 The Registrant's Certificate of Designations of Series A Junior Participating Preferred Stock as filed
with the Secretary of State of the State of Delaware on June 8, 1989 (incorporated by reference to
Exhibit 3A to the Registrant's Form 8-K originally filed on June 12, 1989 (the "1989 Form 8-K")).
3.5 The Registrant's Certificate of Amendment of Certificate of Incorporation as filed with the Secretary of
State of the State of Delaware on July 26, 1991 (incorporated by reference to Exhibit 3.01(e) to the
Registrant's Form S-4 Registration Statement (No. 33-43400) originally filed on October 7, 1991 (the
"1991 S-4").
3.6 The Registrant's Certificate of Designation of Series A Convertible Preferred Stock as filed with the
Secretary of State of the State of Delaware on December 30, 1991 (incorporated by reference to Exhibit
3.01(f) from the Registrant's Form 10-K for the fiscal year ended December 31, 1991).
3.7 The Registrant's Bylaws, as currently in effect (incorporated by reference to Exhibit 3.02 to the 1987
Form S-1 and Exhibit 3-b to the 1989 Form 8-K).
4.1 Form of Specimen Certificate for Registrant's Common Stock (incorporated by reference to the 1991 Form
S-4).
4.2 Rights Agreement, dated as of February 9, 1996, between Cadence and Harris Trust and Savings Bank which
includes as exhibits thereto the Certificate of Designations for the Series A Junior Participating
Preferred Stock, the form of Right Certificate and the Summary of Rights to Purchase Preferred Shares
(incorporated by reference to Exhibit 1A, 1B and 1C to the Registrant's Form 8-K filed February 9,
1996).
5.1+ Legal Opinion of Cooley Godward LLP.
8.1+ Tax Opinion of Cooley Godward LLP.
8.2+ Tax Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
9.1 Form of Voting Agreement, dated as of October 3, 1996, between Cadence and each of J. George Janac,
Dennis DeCoste, Robert P. Wiederhold and Peter S. Teshima (incorporated by reference to the November
7, 1996 8-K).
9.2 Option Agreement, dated as of October 3, 1996, between Cadence and J. George Janac. (incorporated by
reference to the November 7, 1996 8-K).
9.3* Employment Agreement, dated as of October 3, 1996, between Cadence and J. George Janac.
9.4* Employment Agreement, dated as of October 2, 1996, between Cadence and Robert P. Wiederhold.
10.1 The Registrant's 1987 Stock Option Plan, as amended to date, (incorporated by reference to Exhibit 4.01
to the Registrant's Form S-8 Registration Statement (No. 33-53913) filed on May 31, 1994 (the "1994
Form S-8")).
10.2 Form of Stock Option Agreement and Form of Stock Option Exercise Request, as currently in effect under
the Registrant's 1987 Stock Option Plan (incorporated by reference to Exhibit 4.01 to the Registrant's
Form S-8 Registration Statement (No. 33-22652) filed on June 20, 1988).
10.3 The Registrant's 1988 Directors Stock Option Plan, as amended to date, including the Stock Option Grant
and Stock Option Exercise Notice and Agreement (the first document is incorporated by reference to
Exhibit 4.02 to the Registrant's 1994 Form S-8 and the latter two documents are incorporated by
reference to Exhibit 10.08 - 10.10 to the Registrant's 1988 Form S-1).
10.4 The Registrant's 1993 Directors Stock Option Plan including the Stock Option Grant (incorporated by
reference to Exhibit 10.04 of the 1994 Form S-8).
10.5 The Registrant's 1995 Directors Stock Option Plan including the Stock Option Grant (incorporated by
reference to Exhibit 10.05 to the 1995 Form 10-K).
10.6 The Registrant's 1990 Employee Stock Purchase Plan as amended to date (incorporated by reference to
Exhibit 4.03 of the 1994 Form S-8).
10.7 The Registrant's Senior Executive Bonus Plan for 1995 (incorporated by reference to Exhibit 10.08 of the
Registrant's Form 10-K for the fiscal year ended December 31, 1994 (the "1994 Form 10-K")).
10.8 The Registrant's Senior Executive Bonus Plan for 1996 (incorporated by reference to Exhibit 10.08 to the
1995 Form 10-K).
10.9 The Registrant's Chief Executive Officer Bonus Plan for 1996 (incorporated by reference to Exhibit 10.09
to the 1995 Form 10-K).
10.10 The Registrant's Deferred Compensation Plan for 1994 (incorporated by reference to Exhibit 10.09 to the
1994 Form 10-K).
10.11 The Registrant's 1996 Deferred Compensation Venture Investment Plan (incorporated by reference to
Exhibit 10.11 to the 1995 Form 10-K).
10.12 Amended and Restated Lease, dated June 29, 1989, by and between River Oaks Place Associates ("ROPA"), a
California limited partnership, and the Registrant, for the Registrant's executive offices at 555
River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.14 to the
Registrant's Form 10-K for the fiscal year ended December 31, 1990 (the "1990 Form 10-K")).
10.13 Lease dated June 29, 1989 by and between ROPA and the Registrant for the Registrant's offices at 575
River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.16 to the 1990 Form
10-K).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.14 Lease dated June 29, 1989 by and between ROPA and the Registrant for the Registrant's offices at 535 and
545 River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.17 to the 1990
Form 10-K).
10.15 Lease dated September 3, 1985 by and among the Richard T. Peery and John Arrillaga Separate Property
Trusts ("P/A Trusts") and Valid Logic Systems Incorporated ("Valid") (which merged into the
Registrant) for the Registrant's offices at 75 West Plumeria Avenue, San Jose, California
(incorporated by reference to Exhibit 10.16 to the Form 10-K for Valid for the fiscal year ended
December 30, 1990 (the "1990 Valid Form 10-K")).
10.16 Amendment Number 1, dated March 2, 1988, to Lease Agreement for 75 West Plumeria Avenue, San Jose,
California, by and among Valid and the P/A Trusts (incorporated by reference to Exhibit 10.17 to the
1990 Valid Form 10-K).
10.17 Lease dated December 19, 1988 by and among the P/A Trusts and Valid for the Registrant's offices at 2835
North First Street, San Jose, California (incorporated by reference to Exhibit 10.18 to the 1990 Valid
Form 10-K).
10.18 Lease dated September 3, 1985 by and among the P/A Trusts and Valid for the Registrant's offices at 2820
Orchard Parkway, San Jose, California (incorporated by reference to Exhibit 10.14 to the 1990 Valid
Form 10-K).
10.19 Amendment Number 1, dated March 2, 1988, to Lease Agreement for 2820 Orchard Parkway, San Jose,
California, by and among Valid and the P/A Trusts (incorporated by reference to Exhibit 10.15 to the
1990 Valid Form 10-K).
10.20 Form of Executive Compensation Agreement dated May 1989 between Registrant and Mr. Costello
(incorporated by reference to Exhibit 10.20 to the Registrant's Form S-4 registration statement (No.
33-31673), originally filed on October 18, 1989).
10.21 Offer letter to H. Raymond Bingham dated May 12, 1993 (incorporated by reference to Exhibit 10.24 to the
Form 10-K for the fiscal year ended December 31, 1993 (the "1993 Form 10-K")).
10.22 Offer letter to M. Robert Leach dated May 17, 1993 (incorporated by reference to Exhibit 10.25 to the
1993 Form 10-K).
10.23 1993 Non-Statutory Stock Option Plan (incorporated by reference to Exhibit 4.05 to the 1994 Form S-8).
10.24 Consulting agreement dated May 1, 1994 with Henry E. Johnston, who was made a director on July 5, 1994
by unanimous written consent of directors of Cadence (incorporated by reference to the Registrant's
Form 10-Q for the quarterly period ended June 30, 1994 (the "1994 Second Quarter Form 10-Q")).
10.25* HLDS 1993 Stock Option Plan and Form of Stock Option Grant.
10.26* HLDS 1995 Special Nonstatutory Stock Option Plan and Form of Stock Option Grant.
10.27 Agreement of Merger and Plan of Reorganization by and among Registrant, Simon Software, Inc. and Redwood
Design Automation, Inc. ("Redwood") dated as of July 8, 1994 (incorporated by reference to the
Registrant's Form 10-Q/A, Amendment Number 1 to the 1994 Second Quarter Form 10-Q, filed November 14,
1994 (the "1994 Second Quarter 10-Q/A")).
10.28 Agreement of Merger dated as of August 1, 1994 between Redwood and CDS Corporation (incorporated by
reference to the Registrant's 1994 Second Quarter 10-Q/A).
10.29 Form of Stock Option Agreement for Registrant's 1993 Non Statutory Stock Option Plan (incorporated by
reference to the Registrant's Form 10-Q for the quarter ended September 30, 1994).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.30 Form of Underwriting Agreement in connection with Integrated Measurement Systems, Inc. public offering
(incorporated by reference to the Registrant's Form 10-Q for the third quarter ended September 30,
1995).
22.01 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.01 to the 1995 Form 10-K).
23.01* Consent of Arthur Andersen LLP with respect to Cadence financial statements.
23.02* Consent of Arthur Andersen LLP with respect to HLDS financial statements.
23.02+ Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 8.2).
23.03+ Consent of Cooley Godward LLP (included in Exhibits 5.1 and 8.1).
24.01* Power of Attorney (see page II-7).
27.01* Financial Data Schedule of Cadence.
27.02* Financial Data Schedule of HLDS.
99.01* Form of proxy card for HLDS Special Meeting.
</TABLE>
- ------------------------
+ To be filed by amendment.
* Filed herewith.
<PAGE>
OCTOBER 3, 1996
Mr. J. George Janac
1674 Seven Springs Drive
Cupertino, CA 95014
Dear George:
We are very pleased to welcome you as a future employee of Cadence Design
Systems, Inc. In the context of Cadence's proposed acquisition of High Level
Design Systems ("HLD"), this letter sets forth the terms of our offer of
employment to you as well as other related matters for your approval and
signature. This employment agreement will go into effect on the date that
Cadence completes its merger with HLD. At that time, in addition to becoming an
employee of Cadence, you will be exchanging your stock interest in HLD for stock
or stock options of Cadence.
As part of this agreement, you will agree to work for Cadence for a
two-year period beginning on the Cadence/HLD merger date in a substantially
similar position. Your salary and commissions will be $150,000 per year
(subject to customary withholding and other taxes), paid by Cadence according to
its standard payroll schedule. In addition, you will be eligible to receive
additional bonuses and other compensation (if any) as you and Cadence may agree.
You will receive the same health and other benefits as are generally available
to the rest of Cadence's employees (provided, of course, you meet the standard
eligibility requirements for such benefits).
As a normal part of its operations, Cadence asks its employees to sign an
Employee Invention and Confidential Information Agreement, a copy of which is
attached for your signature. Additionally, in connection with the acquisition,
you agree to execute the Non-competition Agreement attached hereto as Exhibit A.
If Cadence terminates your employment without cause(1), at any time during
your two-year employment term, Cadence will pay you severance equal to your
salary (but not any bonuses or other compensation) for twelve months or the
remaining period of your employment term. However if you are terminated for
cause, the obligation of Cadence to pay you your salary and other compensation
shall end. If at any time during your employment with Cadence (including
- -----------------
(1)You shall be considered to have been terminated with "cause" if your
employment is terminated for (a) any gross misconduct, fraud or bad faith in the
performance of your employment, (b) your conviction or guilty plea with respect
to any felony, (c) your material breach of this agreement, or (d) your repeated
failure to perform any reasonable duties assigned you by Cadence despite written
notice delivered to you of such failure.
<PAGE>
AFTER you have completed your two-year employment term) you are terminated
without cause, the noncompetition restrictions contained in Exhibit A shall be
void.
At the end of your two-year employment term, your employment relationship
with Cadence will become "at will". This agreement shall be governed by the law
of the state of California.
We are excited about the potential represented by the Merger and we are
pleased you will be joining us as a key part of the new team.
Sincerely,
Joe Costello
Acknowledged and agreed:
/s/George Janac
- -------------------------------
(signature)
George Janac
- -------------------------------
(print name)
Date: October 3, 1996
-2-
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement is being entered into as of October 2, 1996 by
and between Cadence Design Systems, Inc., a Delaware corporation ("Employer")
and Robert P. Wiederhold ("Employee").
AGREEMENT
In consideration of the mutual covenants and agreements contained herein,
the parties agree as follows:
1. TERM. This Employment Agreement will become effective on the
date (the "Effective Date") that Employer's subsidiary merges into High Level
Design Systems, Inc. ("HLD"). Employee agrees to serve as an employee of
Employer during the period commencing on the Effective Date and terminating on
the first anniversary of the Effective Date (the "Employment Period"). On the
Effective Date, in addition to becoming an employee of Employer, Employee will
be exchanging his stock interest in HLD for stock and stock options of Employer.
During the Employment Period, Employee shall serve in such
capacity as Employer may specify from time to time and shall have such
responsibilities as may be assigned to Employee by Employer. Employee agrees to
serve Employer to the best of Employee's ability and to devote substantially all
of Employee's working time and efforts during the Employment Period to the
business and affairs of Employer.
2. SALARY. In consideration of the services to be rendered by
Employee to Employer during the Employment Period, Employer shall pay to
Employee a salary of one hundred and fifty thousand dollars ($150,000) per annum
(as may be increased from time to time in accordance with Employer's normal
compensation practices), payable at such times as other salaried employees of
Employer receive their regular salary payments. In addition, Employee will be
eligible to receive additional bonuses and other compensation (if any) as
Employee and Employer may agree. Employer shall be entitled to withhold from
the salary payments such amounts as Employer is required to withhold under
applicable tax laws and other applicable legal requirements.
3. BENEFITS. During the Employment Period, Employer shall provide
to Employee the same benefits that Employer makes generally available to
similarly situated employees during the Employment Period, provided that
Employee meets the standard eligibility requirements for such benefits.
4. TERMINATION.
(a) VOLUNTARY TERMINATION. If Employee shall voluntarily
terminate his employment with Employer during the Employment Period, vesting
shall stop permanently with respect to any options which remain unexercisable as
of the date of termination of employment and
<PAGE>
all obligations of Employer to Employee, including any obligation to pay salary
or other compensation to Employee, shall immediately end upon such termination.
Any options which are vested at the time of such voluntary termination must be
exercised, if at all, in accordance with the terms of the stock option plan
under which they were issued and the stock option agreement by which they are
evidenced.
In the event that during the one year period immediately
following the Employment Period, Employee (after negotiating in good faith with
Employer to remain in the employ of, or to act as a consultant to, Employer)
voluntarily terminates his employment with Employer and does not accept
Employer's offer to become a consultant to Employer, Employer shall continue to
pay Employee his salary as described in Section 2 above (but not any bonuses or
other compensation) until the first to occur of: (a) Employee's violation of
Section 5 below, (b) Employee becoming an employee of, or a full-time
consultant to, a company (other than in violation of Section 5 below), or (c)
the expiration of two years from the Effective Date. In addition, Employer
shall permit Employee to remain in a limited consulting or other arrangement
with Employer as necessary to permit Employee's options to remain outstanding in
accordance with the terms (including the vesting schedule) of the stock option
plan under which they were issued and the stock option agreement by which they
are evidenced. Any options which are vested at the time of such voluntary
termination or which vest thereafter must be exercised, if at all, in accordance
with the terms of the stock option plan under which they were issued and the
stock option agreement by which they are evidenced, except that Employee's
options shall terminate upon the first to occur of the expiration date of such
options or 30 days following the date on which such options become fully vested
for exercise.
(b) INVOLUNTARY TERMINATION. Employer may terminate Employee's
employment, with or without cause, at any time during the Employment Period by
delivering written notice of such termination to Employee. If Employer
terminates Employee's employment without "cause" during the Employment Period or
during the one year immediately following the Employment Period, Employer shall
continue to pay Employee his salary (as described in Section 2 above) (but not
any bonuses or other compensation) until the first to occur of: (i) Employee
becoming an employee of, or full-time consultant to, a company (other than in
violation of Section 5 below), or (ii) the expiration of two years from the
Effective Date. In addition, except as otherwise provided below, Employer
shall permit Employee to remain in a limited consulting or other arrangement
with Employer as necessary to permit Employee's options to remain outstanding in
accordance with the terms (including the vesting schedule) of the stock option
plan under which they were issued and the stock option agreement by which they
are evidenced, except that Employee's options shall terminate upon the first to
occur of the expiration date of such options or 30 days following the date on
which such options become fully vested for exercise.
Notwithstanding anything to the contrary contained herein or
in the stock option plan under which Employee's options were issued or the stock
option agreement by which they are evidenced, if Employee shall violate Section
5 below, Employee's options shall cease to vest and shall terminate as to any
vested but unexercised options within 30 days from the date of such violation.
-2-
<PAGE>
If Employee is terminated by Employer for "cause", all
obligations of Employer to Employee, including any obligation to pay salary or
other compensation to Employee, shall immediately end, and Employee's options
shall cease to vest and shall terminate as to any vested but unexercised options
within 30 days from the date of such termination. Employee shall be considered
to have been terminated for "cause" if Employee's employment is terminated for
(a) any gross misconduct, fraud or bad faith in the performance of Employee's
employment, (b) Employee's conviction or guilty plea with respect to any felony,
(c) Employee's material breach of this agreement, or (d) Employee's repeated and
substantial failure to perform any reasonable duties assigned to Employee by
Employer despite written notice delivered to Employee of such failure.
5. NON-COMPETITION PROVISION. In connection with the acquisition of
all of Employee's stock in HLD for stock in Employer, Employee agrees that for a
period of two years after the Effective Date, Employee will not own (except for
a less than 5% stock ownership in a publicly traded corporation), manage, join,
control, be employed by, provide services to or be connected with any electronic
design automation company that Employer, acting in good faith and after
consultation with Employee, determines to be competitive with Employer.
6. CONFIDENTIAL INFORMATION AGREEMENT. Employee agrees to sign an
Employee Invention and Confidential Information Agreement, a copy of which is
attached hereto.
7. GOVERNING LAW. This agreement shall be governed by the laws of
the state of California.
Please acknowledge your acceptance of this offer and intention to be bound
by its terms by signing and dating it below. We look forward to working with
you.
Sincerely,
Cadence Design Systems, Inc.
By: ____________________________
Acknowledged and agreed:
________________________________
Robert P. Wiederhold
Date: October ___, 1996
-3-
<PAGE>
HIGH LEVEL DESIGN SYSTEMS
1993 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means High Level Design Systems, a California
corporation.
(g) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not, provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship with the Company or any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of: (i) any leave
of absence approved by the Company, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract (including certain Company
policies) or statute; provided, further, that on the ninety-first (91st) day of
any such leave (where reemployment is not guaranteed by contract or statute) the
Optionee's Incentive Stock Option shall cease to be treated as an Incentive
Stock Option
<PAGE>
and will be treated for tax purposes as a Nonstatutory Stock Option; or
(ii) transfers between locations of the Company or between the Company, its
Parent, its Subsidiaries or its successor.
(i) "EMPLOYEE" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported, as quoted
on such exchange or system for the last market trading day prior to the time of
determination) as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is listed the Vancouver Stock Exchange
("VSE"), its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported, as quoted on such exchange or
system for the last market trading day prior to the time of determination) as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable;
(iii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
or;
(iv) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "OPTION" means a stock option granted pursuant to the Plan.
-2-
<PAGE>
(p) "OPTIONED STOCK" means the Common Stock subject to an Option.
(q) "OPTIONEE" means an Employee or Consultant who receives an
Option.
(r) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(s) "PLAN" means this 1993 Stock Option Plan.
(t) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(u) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 2,750,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a committee appointed by the Board.
(b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY
BECOMES SUBJECT TO THE EXCHANGE ACT.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With
respect to grants of Options to Employees who are also officers or directors of
the Company, the Plan shall be administered by (A) the Board if the Board may
administer the Plan in compliance with Rule 16b-3 promulgated under the Exchange
Act or any successor thereto ("Rule 16b-3") with respect to a plan intended to
qualify thereunder as a discretionary plan, or (B) a committee designated by the
Board to administer the Plan, which committee shall be constituted in such a
manner as to permit the Plan to comply with Rule 16b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new
-3-
<PAGE>
members in substitution therefor, fill vacancies, however caused, and remove all
members of the Committee and thereafter directly administer the Plan, all to the
extent permitted by Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan.
(ii) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER
EMPLOYEES. With respect to grants of Options to Employees or Consultants who
are neither directors nor officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of California corporate and securities laws, the securities laws of British
Columbia, of the Code, and of any applicable stock exchange (the "Applicable
Laws"). Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder;
-4-
<PAGE>
(vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted, provided that
if and for so long as the Stock is listed on the Vancouver Stock Exchange, such
reductions shall be approved in accordance with applicable policies of the
Vancouver Stock Exchange; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares underlying Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under all plans of the
Company or any Parent or Subsidiary) in excess of $100,000, such excess shall be
treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
(e) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Securities Exchange Act of 1934, as amended, or upon the Plan being assumed by a
corporation having a class of common equity securities required to be registered
under Section 12 of the Securities Exchange Act, the following limitations shall
apply to grants of Options to Employees:
-5-
<PAGE>
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12(a).
(iii) If an Option is cancelled (other than in connection with a
transaction described in Section 12), the cancelled Option will be counted
against the limit set forth in Section 5(e)(i). For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Option shall be five (5) years from the date of grant thereof or such
shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
-6-
<PAGE>
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
-7-
<PAGE>
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event that an Optionee's Continuous Status as an Employee or Consultant
terminates (but not in the event of a change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the ninety-first (91st)
day following such change of status) or from Consultant to Employee), other than
upon the Optionee's death or Disability, the Optionee may exercise his or her
Option, but only within such period of time as is determined by the
Administrator, and only to the extent that the Optionee was entitled to exercise
it at the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant). If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the Shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee as a
result of his or her disability, Optionee may, but only within six (6) months
from the date of such termination (and in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination; provided, however, that if such disability is not a "disability" as
such term is defined in Section 22(e)(3) of the Code, in the case of an
Incentive Stock Option such Incentive Stock Option shall automatically convert
to a Nonstatutory Stock Option on the day three months and one day following
such termination. To the extent that Optionee is not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
to the extent so entitled within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
-8-
<PAGE>
(e) RULE 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) MERGER. In the event of a merger of the Company with or into
another corporation, the Option shall be assumed or an equivalent option shall
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the option confers the right to purchase, for
each Share of Optioned Stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or
-9-
<PAGE>
property) received in the merger by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger was not solely common stock of the successor corporation
or its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of
the Option for each Share of Optioned Stock subject to the Option to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
-10-
<PAGE>
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. AGREEMENTS. Options shall be evidenced by written agreements in such
form as the Board shall approve from time to time.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
18. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to
each Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such individual owns such Shares.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
-11-
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC.
NOTICE OF STOCK OPTION GRANT
Dear :
You have been granted an option (the "Option") to purchase Common Stock of
HIGH LEVEL DESIGN SYSTEMS, INC. (the "Company") as follows:
Date of Grant:
Exercise Price: $ per share
Number of Shares Granted:
Type of Option: Incentive Stock Option
Nonstatutory Stock Option
Vesting Start Date:
Term/Expiration Date: Five years from Date of Grant
Exercise Schedule: The Option shall be exercisable at any time
prior to expiration or earlier termination as
to shares which are vested in accordance with
the Vesting Schedule below.
Vesting Schedule: Vesting commences on the "Vesting Start
Date." 25% of the shares shall vest at the
end of 12 months following the Vesting Start
Date and 1/48 of the shares shall vest at the
end of each month thereafter, so long as such
Employee remains employed by the Company or
such Outside Director remains on the Board.
Termination Period: Option may be exercised for up to 30 days
after termination of employment relationship
except as set out in Sections 7 and 8 of the
Stock Option Agreement (but in no event later
than the Expiration Date).
<PAGE>
OPTIONEE REPRESENTS THAT HE OR SHE IS CURRENTLY AN EMPLOYEE OF THE COMPANY,
IS UNDER A CONTRACT TO PROVIDE MANAGEMENT SERVICES TO THE COMPANY OR IS AN
OUTSIDE DIRECTOR OF THE COMPANY. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE
VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING TO
SERVE ON THE BOARD OR CONTINUING EMPLOYMENT AT THE WILL OF THE COMPANY, AS THE
CASE MAY BE, (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF STATUS AS AN OUTSIDE DIRECTOR OR OF EMPLOYMENT BY THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S OR THE COMPANY'S
RIGHT TO TERMINATE OPTIONEE'S STATUS AS AN OUTSIDE DIRECTOR OR EMPLOYMENT
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the Company's 1993 Stock Plan and the Stock Option
Agreement, all of which are attached and made a part of this document.
OPTIONEE: HIGH LEVEL DESIGN SYSTEMS, INC.
By:
- ------------------------------ -------------------------------
Date: Title:
------------------------ ----------------------------
Date:
-----------------------------
-2-
<PAGE>
HIGH LEVEL DESIGN SYSTEMS
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. HIGH LEVEL DESIGN SYSTEMS, a California corporation
(the "Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase a total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the 1993 Stock Plan (the "Plan")
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Code.
2. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the Exercise Schedule set out in the Notice of Grant and with
the provisions of Section 9 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) This Option may not be exercised for a fraction of a share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitation contained in
subsection 2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by written
notice in the form attached as Exhibit A which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the
<PAGE>
Company. The written notice shall be accompanied by payment of the Exercise
Price. This Option shall be deemed to be exercised upon receipt by the Company
of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of this Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall
be considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchased
pursuant to the exercise of this Option are listed on the Vancouver Stock
Exchange, Optionee shall concurrently with the grant of this Option, deliver to
the Company for filing with the Vancouver Stock Exchange a Declaration of Stock
Option Position in the form attached hereto as Exhibit B. In the event the
Shares purchasable pursuant to the exercise of this Option have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, Optionee shall, concurrently with the exercise of all or any
portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached to the Notice of Exercise.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by cash or
check.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
6. ADJUSTMENTS FOR STOCK SPLITS, RECAPITALIZATIONS.
(a) The Exercise Price and number of Shares subject to this Option
(as set forth on the Notice of Grant) shall be subject to adjustment as follows:
If the Company at any time (i) subdivides (by any stock split, stock dividend or
otherwise) the Common Stock into a greater number of shares, the Exercise Price
in effect
-2-
<PAGE>
immediately prior to such subdivision will be proportionately reduced and the
number of Shares issuable shall be proportionately increased, and (ii) if the
Company at any time combines (by reverse stock split or otherwise) the Common
Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and
the number of Shares issuable shall be proportionately decreased.
(b) If at any time while this Option is outstanding there shall be
any reclassification or conversion of the Common Stock into the another class of
securities (other than a subdivision or combination or shares provided for in
the preceding paragraph), the Optionee shall thereafter be entitled to receive,
during the term hereof and upon payment of the Exercise Price, the number of
shares of stock to which a holder of the Common Stock would have been entitled
upon such reclassification or conversion had the Optionee exercised this Option
immediately prior to such reclassification or conversion.
7. TERMINATION OF OPTION.
(a) UPON DISSOLUTION, LIQUIDATION OR MERGER. In the event of the
proposed dissolution or liquidation of the Company or a Change of Control, the
Board shall notify the Optionee at least fifteen (15) days prior to such
proposed action. To the extent it has not been previously exercised, the Option
will terminate immediately prior to the consummation of such proposed action.
(b) UPON TERMINATION OF EMPLOYMENT OR STATUS AS AN OUTSIDE DIRECTOR.
In the event of termination of Optionee's Continuous Status as an Employee or
Outside Director for any reason, including, without limitation, the total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may,
to the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise this Option during the Termination Period set out
in the Notice of Grant. To the extent that Optionee was not entitled to
exercise this Option at the date of such termination, or if Optionee does not
exercise this Option within the time specified herein, the Option shall
terminate.
(c) DEATH OF OPTIONEE. In the event of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 10 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
-3-
<PAGE>
only to the extent the Optionee could exercise the Option at the date of death.
8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
9. RESTRICTION ON TRANSFER.
(a) The Optionee agrees that following the date of the exercise of
this Option, he or she shall not effect any sale or transfer of the Shares
issued pursuant to such exercise on the Vancouver Stock Exchange (the "VSE")
without first obtaining the prior written consent of the Board of Directors of
the Company (or any committee designated therefor), which consent shall be in
the sole discretion of the Board.
(b) All transferees of Shares or any interest therein shall be
required as a condition of such transfer to agree in writing in the form
satisfactory to the Company that they will receive and hold such Shares or
interests subject to the provisions of this Stock Option Agreement (the
"Agreement"), including, insofar as applicable, the restriction on resale set
forth in this Section 10. Any sale or transfer of the Company's Shares shall be
void unless the provisions of this Agreement are met.
(c) The restriction on resale imposed by this Section 10 shall
terminate on the second anniversary of the date of exercise of this Option.
Upon termination of the restriction, at the Optionee's request the Company shall
issue a new certificate representing the Shares without a legend referring to
such restriction.
10. LEGENDS. Optionee understands and agrees that the Company shall cause
the legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by state or federal securities laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
-4-
<PAGE>
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933".
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY."
11. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
12. CERTAIN BUSINESS COMBINATIONS. In the event it is determined by the
Board of Directors, upon receipt of a written opinion of the Company's
independent public accountants, that the enforcement of any Section or
subsection of this Agreement would preclude accounting for any proposed business
combination of the corporation involving a Change of Control as a pooling of
interests, and the Board otherwise desires to approve such a proposed business
transaction which requires as a condition to the closing of such transaction
that it be accounted for as a pooling of interests, that any such Section or
subsection of this Agreement shall be null and void.
13. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
of this Option of some of the federal and state tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
(i) EXERCISE OF INCENTIVE STOCK OPTION. If this Option qualifies as
an Incentive Stock Option, there will be no regular federal income tax liability
or state income tax liability upon the exercise of the Option, although the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price will be treated as an adjustment to the alternative
minimum tax for federal tax purposes and may subject the Optionee to the
alternative minimum tax in the year of exercise.
(ii) EXERCISE OF NONQUALIFIED STOCK OPTION. If this Option does not
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a state income tax
-5-
<PAGE>
liability upon the exercise of the Option. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price. If Optionee is an employee, the Company will
be required to withhold from Optionee's compensation or collect from Optionee
and pay to the applicable taxing authorities an amount equal to a percentage of
this compensation income at the time of exercise.
(iii) DISPOSITION OF SHARES. In the case of an Nonstatutory Stock
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and state income tax purposes. In the case of an Incentive Stock Option, if
Shares transferred pursuant to the Option are held for at least one year after
exercise and are disposed of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and state income tax purposes. If Shares purchased
under an Incentive Stock Option are disposed of within such one-year period or
within two years after the Date of Grant, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the excess, if any, of the fair market value of the Shares on the date
of exercise over the Exercise Price.
(iv) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK OPTION
SHARES. If the Option granted to Optionee herein is an Incentive Stock Option,
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (1) the date
two years after the Date of Grant, or (2) the date one year after transfer of
such Shares to the Optionee upon exercise of the Incentive Stock Option, the
Optionee shall immediately notify the Company in writing of such disposition.
Optionee agrees that Optionee may be subject to income tax withholding by the
Company on the compensation income recognized by the Optionee from the early
disposition by payment in cash or out of the current earnings paid to the
Optionee.
14. ARBITRATION. Optionee agrees that any dispute or controversy arising
out of or relating to any interpretation, construction, performance or breach of
this Agreement, shall be settled by arbitration to be held in Saddle Brook, New
Jersey, in accordance with the rules then in effect of the American Arbitration
Association. The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgement may be
entered on the arbitrator's
-6-
<PAGE>
decision in any court having jurisdiction. The Company and Optionee shall each
pay one-half of the costs and expenses of such arbitration; each party shall
separately pay its own counsel fees and expenses.
15. MISCELLANEOUS.
(i) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California excluding that body of
law pertaining to conflicts of law.
(ii)SEVERABILITY. Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.
NOTHING CONTAINED IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN
WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT
WITH RESPECT TO CONTINUATION OF STATUS AS AN OUTSIDE DIRECTOR OR OF EMPLOYMENT
BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH THE OPTIONEE'S OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S STATUS AS AN OUTSIDE DIRECTOR OR
EMPLOYMENT RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
-7-
<PAGE>
EXHIBIT A
EXERCISE NOTICE
HIGH LEVEL DESIGN SYSTEMS
3945 Freedom Circle, 4th Floor
Santa Clara, California 95054
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the
undersigned ("OPTIONEE") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "SHARES") of High Level Design Systems
(the "COMPANY") under and pursuant to the Company's 1993 Stock Plan, as amended
(the "PLAN") and the [ ] Incentive [ ] Nonqualified Stock Option Agreement
dated ________ (the "OPTION AGREEMENT").
2. REPRESENTATIONS OF OPTIONEE.
(a) Optionee acknowledges that Optionee has received, read and
understood the Plan and the Option Agreement and agrees to abide by and be bound
by their terms and conditions.
(b) In the event the Shares being purchased pursuant to the exercise
of this Option have not been registered under the Securities Act of 1933, as
amended, at the time this Option is exercised, Optionee shall, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto.
3. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the
Shares.
4. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees,
<PAGE>
and this Agreement shall inure to the benefit of the successors and assigns of
the Company. Subject to the restrictions on transfer herein set forth, this
Agreement shall be binding upon Optionee and his or her heirs, executors,
administrators, successors and assigns.
6. ARBITRATION. Optionee agrees that any dispute or controversy arising
out of or relating to any interpretation, construction, performance or breach of
this Agreement, shall be settled by arbitration to be held in Saddle Brook, New
Jersey, in accordance with the rules then in effect of the American Arbitration
Association. The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgement may be
entered on the arbitrator's decision in any court having jurisdiction. The
Company and Optionee shall each pay one-half of the costs and expenses of such
arbitration; each party shall separately pay its own counsel fees and expenses.
7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California excluding that body of law
pertaining to conflicts of law.
8. SEVERABILITY. Should any provision of this Agreement be determined by
a court of law to be illegal or unenforceable, the other provisions shall
nevertheless remain effective and shall remain enforceable.
9. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
10. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
11. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
-2-
<PAGE>
12. ENTIRE AGREEMENT. The Plan, Notice of Grant/Option Agreement and, if
applicable, Investment Representation Statement are incorporated herein by
reference. This Agreement, the Plan, the Notice of Grant/Option Agreement and,
if applicable, Investment Representation Statement constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the company and Optionee with respect to the subject matter
hereof, and are governed by California law except for that body of law
pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: HIGH LEVEL DESIGN SYSTEMS
- -----------------------------------
By:
------------------------------------
Signature
Its:
- ----------------------------------- -----------------------------------
Print Name
ADDRESS: ADDRESS:
3945 Freedom Circle, 4th Floor
- -----------------------------------
Santa Clara, California 95054
- -----------------------------------
-3-
<PAGE>
EXHIBIT B
LISTINGS POLICY STATEMENT NO. 1
- --------------------------------------------------------------------------------
FORMS VSE 1-1A
DECLARATION OF STOCK OPTION POSITION
THIS FORM FOR COMPLETION BY OPTIONEE
RE:
-------------------------------------
RE: incentive stock options in
---------------- ---------------
(No. of options) (Company)
I, ________________________, HEREBY CERTIFY that the aforesaid non-transferable
options have been granted to me in compliance with the requirements of the
V.S.E. Listings Policy Statement No. 1: and more particularly that at the time
of grant, I was not aware of any change in the affairs of the Company which
might have affected the trading price and had not been disclosed to the public.
If the Company is classified as a Venture Company as of the date of this
declaration, I confirm that I have not been granted a stock option in the said
Company within 2 years of the date of grant of the above-stated options.
I HEREBY FURTHER CERTIFY (complete either Part I or Part II as applicable):
PART I
THAT I have not been granted any director or employee incentive share options by
any other listed companies.
DATED the day of ,19 SIGNATURE
---- -------- -- -------------------
PART II
THAT I hold as of the date of this Declaration existing incentive share options
which have been granted to me by the above named company or other listed
companies as follows:
Outstanding
Name of No. of Balance as
Listed Shares Date of Date of at Date of
Co. Optioned Exercise Grant Certificate
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Complete on separate sheet if insufficient space)
DATED the day of , 19 SIGNATURE
---- -------- -- -------------------
- --------------------------------------------------------------------------------
Policy No. 1 December 14, 1990 Page 8 of 11
<PAGE>
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : HIGH LEVEL DESIGN SYSTEMS
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Shares, the undersigned
Optionee represents to the Company the following:
(a) Optionee is an employee of the Company, is under a contract to
provide management services to the Company or is an Outside Director of the
Company. Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Optionee is
acquiring the Shares for investment for Optionee's own account only and not with
a view to, or for resale in connection with, any "distribution" thereof within
the meaning of the United States Securities Act of 1933, as amended (the
"Securities Act").
(b) Optionee understands that the Shares have not been registered
under the Securities Act, that no market presently exists for Shares, and that
the Shares may not be sold or transferred unless and until registered under the
Securities Act or unless, in the opinion of counsel, such transfer is exempt
from the registration requirements of the Securities Act.
(c) Optionee acknowledges and understands that the Shares constitute
"restricted securities" under the Securities Act and have been issued in
reliance upon a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of Optionee's investment intent as
expressed herein. In this connection, Optionee understands that, in the view of
the United States Securities and Exchange Commission, the statutory basis for
such exemption may be unavailable if Optionee's representation was predicated
solely upon a present intention to hold these Shares for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an
increase or decrease in the market price of the Shares, or for a period of
<PAGE>
one year or any other fixed period in the future. Optionee further understands
that the Shares must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Optionee further acknowledges and understands that the Company is
under no obligation to register the Shares.
(d) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of exercise of the Option by the Optionee,
such exercise will be exempt from registration under the Securities Act. In the
event the Company later becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days
thereafter securities exempt under Rule 701 may be resold, subject to the
satisfaction of certain of the conditions specified by Rule 144, including among
other things: (1) the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the United States Securities Exchange Act of 1934); and,
in the case of an affiliate, (2) the availability of certain public information
about the Company, and the amount of securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), if
applicable.
In the event that the Company does not qualify under Rule 701 at the time
of exercise of the Option, then the Shares may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires among other
things: (1) the resale occurring not less than two years after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (2) the availability of
certain public information about the Company, (3) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934), and (4) the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satis-
-2-
<PAGE>
fied, registration under the Securities Act, compliance with Regulation A, or
some other registration exemption will be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities
and Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk. Optionee understands that no
assurances can be given that any such other registration exemption will be
available in such event.
(f) Optionee agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell, make
short sale of, loan, grant any options for the purchase of, or otherwise dispose
of any shares of capital stock of the Company held by Optionee (other than those
shares included in the registration) without the prior written consent of the
Company or the underwriters managing such initial underwritten public offering
of the Company's securities for one hundred eighty (180) days from the effective
date of such registration, and (2) further agrees to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering; PROVIDED, HOWEVER, that the Optionees shall be relieved of the
foregoing obligation unless the officers and directors of the Company who own
the stock of the Company also agree to similar restrictions. Optionee agrees
that, in order to ensure compliance with the restrictions referred to herein,
the Company may issue appropriate "stop transfer" instructions to its transfer
agent, if any, and that, if the Company transfers its own securities, it may
make appropriate notations to the same effect in its own records.
(g) Optionee understands and agrees that the Company shall cause the
legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE
-3-
<PAGE>
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
(f) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(g) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement the Companys Articles of
Incorporation or the Company's Bylaws or (ii) to treat as owner of such Shares
or to accord the right to vote or pay dividends to any purchaser or other
transferee to whom such Shares shall have been so transferred.
OPTIONEE
----------------------------------------
Signature
Date: , 19
---------------- --
-4-
<PAGE>
HIGH LEVEL DESIGN SYSTEMS
1995 SPECIAL NONSTATUTORY STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and any Parent or Subsidiary and to promote the success of the
Company's business. Options granted under the Plan may be only Nonstatutory
Stock Options, as determined by the Administrator at the time of grant of an
option and subject to the applicable provisions of Section 422 of the Code and
the regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means High Level Design Systems, a California
corporation.
(g) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave.
(i) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
<PAGE>
(j) "EMPLOYEE" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination, as reported in THE WALL STREET JOURNAL or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but
not on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(n) "OPTION" means a stock option granted pursuant to the Plan.
(o) "OPTIONED STOCK" means the Common Stock subject to an Option.
(p) "OPTIONEE" means an Employee or Consultant who receives an
Option.
(q) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(r) "PLAN" means this 1995 Special Nonstatutory Stock Option Plan.
(s) "SECTION 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(t) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
-2-
<PAGE>
(u) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 300,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); PROVIDED,
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. ADMINISTRATION OF THE PLAN.
(a) PLAN PROCEDURE. The Plan shall be administered by the Board or a
committee appointed by the Board.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange or national market
system upon which the Common Stock is then listed, the Administrator shall have
the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions may include, but are not
-3-
<PAGE>
limited to, the exercise price, the time or times when Options may be exercised,
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or the Shares relating thereto,
based in each case on such factors as the Administrator, in its sole discretion,
shall determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(e) instead of Common Stock;
(viii) to reduce the exercise price of any Option if the Fair
Market Value of the Common Stock covered by such Option has declined since the
date the Option was granted;
(ix) to provide for the early exercise of Options for the
purchase of unvested Shares, subject to such terms and conditions as the
Administrator may determine; and
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. An Employee or Consultant who has been granted an Option may, if
otherwise eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement
as a Nonstatutory Stock Option.
(c) The Plan shall not confer upon any Optionee any right with
respect to the continuation of the Optionee's employment or consulting
relationship with the Company, nor shall it interfere in any way with the
Optionee's right or the Company's right to terminate the Optionee's employment
or consulting relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board of Directors. It shall continue in effect until and including
September 30, 1995, unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof.
-4-
<PAGE>
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator, without regard to Fair Market Value.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator and may consist entirely of (1) cash, (2) check,
(3) promissory note, (4) other Shares which (x) in the case of Shares acquired
upon exercise of an Option have been owned by the Optionee for more than six
months on the date of surrender and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which such
Option shall be exercised, (5) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price, or
(6) any combination of the foregoing methods of payment. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
-5-
<PAGE>
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Upon
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is specified in the
Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant). In
the absence of a specified time in the Notice of Grant, the Option shall remain
exercisable for three (3) months following the Optionee's termination. If, on
the date of termination, the Optionee is not entitled to exercise the Optionee's
entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's change in
status from Consultant to Employee or Employee to Consultant, an Optionee's
Continuous Status as an Employee or Consultant shall not automatically terminate
solely as a result of such change in status.
(c) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her Disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of his or her Option as set forth in the Option Agreement), exercise the
Option to the extent the Optionee was otherwise entitled to exercise it on the
date of such termination. To the extent that the Optionee is not entitled to
exercise the Option on the date of termination, or if the Optionee does not
exercise the Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by the Option shall revert to
the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who has acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquires the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
-6-
<PAGE>
10. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company:
(i) OPTIONS. Each Option may be assumed or an equivalent
option substituted by such successor corporation (including as a "successor" any
purchaser of substantially all of the assets of the Company) or a parent or
subsidiary of such successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option the Optionee shall
have the right to exercise an Option as to all of the Optioned Stock covered
thereby, including Shares as to which the Option would not otherwise be
exercisable. In such event the Administrator shall notify the Optionee as soon
as practicable prior to the effective date of such transaction that the Option
shall be fully exercisable for a period of ten (10) days from the date of such
notice, and the
-7-
<PAGE>
Option shall terminate upon the expiration of such period. For the purposes of
this paragraph, an Option shall be considered assumed if, following the merger,
the option confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option immediately prior to the merger, the consideration
(whether stock, cash, or other securities or property) received in the merger by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the Option,
to be solely common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger.
(ii) SHARES SUBJECT TO REPURCHASE OPTION. Any Shares subject
to a repurchase option of the Company shall be exchanged for the consideration
(whether stock, cash, or other securities or property) received in the merger or
asset sale by the holders of Common Stock for each Share held on the effective
date of the transaction, as described in the preceding paragraph. If in such
exchange the Optionee receives shares of stock of the successor corporation or a
parent or subsidiary of such successor corporation, and if the successor
corporation has agreed to assume or substitute for Options as provided in the
preceding paragraph, such exchanged shares shall continue to be subject to a
repurchase option as provided in the Optionee's restricted stock purchase
agreement. If, as provided in the preceding paragraph, the Optionee shall have
the right to exercise an Option as to all of the Optioned Stock covered thereby,
all Shares that are subject to a repurchase option of the Company shall be
released from such repurchase option and shall be fully vested.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
-8-
<PAGE>
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or national market system
upon which the Common Stock is then listed or traded, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. AGREEMENTS. Options shall be evidenced by written agreements in such
form as the Administrator shall approve from time to time.
-9-
<PAGE>
HIGH LEVEL DESIGN SYSTEMS
1995 SPECIAL NONSTATUTORY STOCK OPTION PLAN
NOTICE OF GRANT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[OPTIONEE'S NAME AND ADDRESS]
- -----------------------------
You have been granted a nonstatutory option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Stock Option
Agreement, as follows:
Grant Number
----------------------------
Date of Grant
----------------------------
Vesting Commencement Date
----------------------------
Exercise Price per Share $
----------------------------
Total Number of Shares Granted
----------------------------
Total Exercise Price $
----------------------------
Term/Expiration Date: [10 years/[18] months]
VESTING SCHEDULE:
This Option may be exercised, in whole or in part immediately.
TERMINATION PERIOD:
This Option may be exercised for three (3) months after termination of
employment or consulting relationship, or such longer period as may be
applicable upon death or Disability of Optionee as provided in the Plan, but in
no event later than the Term/Expiration Date as provided above.
<PAGE>
HIGH LEVEL DESIGN SYSTEMS
1995 SPECIAL NONSTATUTORY STOCK OPTION PLAN
OPTION AGREEMENT
1. GRANT OF OPTION. High Level Design Systems (the "Company") hereby
grants to the Optionee (the "Optionee") named in the Notice of Grant, a
nonstatutory option (the "Option" or "NSD") to purchase the total number of
shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the
exercise price per share set forth in the Notice of Grant (the "Exercise Price")
subject to the terms, definitions and provisions of the 1995 Special
Nonstatutory Stock Option Plan (the "Plan") adopted by the Company, which is
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option
Agreement.
2. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and with
the provisions of Section 9 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) This Option may not be exercised for a fraction of a
Share.
(b) In the event of Optionee's death, disability or other
termination of the Optionee's Continuous Status as an Employee or Consultant,
the exercisability of the Option is governed by Sections 6, 7 and 8 below,
subject to the limitation contained in subsection 2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by
written notice (in the form attached as Exhibit A) which shall state the
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised, and such other representations and agreements as to
the holder's investment intent with respect to such shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company. The written notice shall
be accompanied by payment of the Exercise Price. This Option shall be deemed to
be exercised upon receipt by the Company of such written notice accompanied by
the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange or national market system upon which
the Common Stock is then listed. Assuming such compliance, for income tax
purposes the Shares shall be considered transferred to the Optionee on the date
on which the Option is exercised with respect to such Shares.
<PAGE>
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) promissory note; or
(iv) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(v) to the extent authorized by the Company, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. TERMINATION OF RELATIONSHIP. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her Disability, Optionee may, but
only within twelve (12) months from the date of such termi-
-2-
<PAGE>
nation (and in no event later than the expiration date of the term of such
Option as set forth in the Notice of Grant) exercise the Option to the extent
otherwise entitled to exercise it at the date of such termination. To the
extent that Optionee is not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
8. DEATH OF OPTIONEE. In the event of termination of Optionee's
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 10 below), by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee could exercise the Option at
the date of death.
9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
10. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
11. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT
A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) EXERCISE OF AN NSO. There may be a regular federal income tax
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an Employee, the Company will be
required to withhold from Optionee's compensation or collect from Optionee and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
-3-
<PAGE>
(ii) DISPOSITION OF SHARES. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal income tax purposes.
HIGH LEVEL DESIGN SYSTEMS
By:
------------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1995 SPECIAL NONSTATUTORY STOCK
OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY
THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME,
WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated:
------------------ ----------------------------------------
Optionee
Residence Address:
----------------------------------------
----------------------------------------
-4-
<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
----------------------------------------
Spouse of Optionee
<PAGE>
EXHIBIT A
HIGH LEVEL DESIGN SYSTEMS
1995 SPECIAL NONSTATUTORY STOCK OPTION PLAN
EXERCISE NOTICE
High Level Design Systems
3945 Freedom Circle, 4th Floor
Santa Clara, California 95054
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the
undersigned ("OPTIONEE") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of High Level Design Systems
the "Company") under and pursuant to the 1995 Special Nonstatutory Stock Option
Plan, as amended (the "Plan") and the Nonstatutory Stock Option Agreement dated
September __, 1995 (the "Stock Option Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Stock Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. RIGHTS AS SHAREHOLDER. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
<PAGE>
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee (the "Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) PURCHASE PRICE. The purchase price (the "Purchase Price") for
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Administrator in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash, by check, by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so
-2-
<PAGE>
transferred subject to the provisions of this Section, and there shall be no
further transfer of such Shares except in accordance with the terms of this
Section.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate upon the closing of the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
5. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws
at the time of the issuance of the Shares:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
THE ISSUER OF THE SHARES (THE "ISSUER") HAS RECEIVED AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE WITH THE ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST
REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THE SHARES REPRESENTED HEREBY.
-3-
<PAGE>
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator of the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on the Company and on Optionee.
9. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
-4-
<PAGE>
13. ENTIRE AGREEMENT. The Plan, the Notice of Grant, and the Stock Option
Agreement are incorporated herein by reference. This Agreement, the Plan, the
Notice of Grant, the Stock Option Agreement and the Investment Representation
Statement (if applicable) constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof.
Submitted by: Accepted by:
OPTIONEE: HIGH LEVEL DESIGN SYSTEMS
By:
------------------------------------
Its:
-----------------------------------
- ------------------------------
(Signature)
ADDRESS: ADDRESS:
- ------------------------------
- ------------------------------
-5-
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY :
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under then applicable state or federal securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted
<PAGE>
securities" acquired, directly or indirectly from the issuer thereof, in a non-
public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of the grant of
the Option to the Optionee, the exercise will be exempt from registration under
the Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") ninety (90) days thereafter (or such longer period
as any market stand-off agreement may require) the Securities exempt under
Rule 701 may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including: (1) the resale being made through a broker in
an unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Exchange Act); and, in the case of an
affiliate, (2) the availability of certain public information about the Company,
(3) the amount of Securities being sold during any three month period not
exceeding the limitations specified in Rule 144(e), and (4) the timely filing of
a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters (the "Managing Underwriter") in connection
with any registration of the offering of any securities of the Company under the
Securities Act, Optionee shall not sell or otherwise transfer any Shares or
other securities of the Company during the 180-day period (or such longer period
of time as may be requested in writing by the Managing Underwriter and agreed to
in writing by the Company) (the "Market Standoff Period") following the
effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall only apply to the
first registration statement of the Company to become effective under the
Securities Act which include securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A under the Securities Act, or
some other registration exemption will be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities
and Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such
-2-
<PAGE>
transactions do so at their own risk. Optionee understands that no assurances
can be given that any such other registration exemption will be available in
such event.
Signature of Optionee:
----------------------------------------
Date: 19
------------------------- --------
-3-
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated January 19, 1996
included in Cadence Design Systems, Inc.'s Form 10-K for the year ended December
31, 1995 and to all references to our Firm included in this Registration
Statement.
ARTHUR ANDERSEN LLP
San Jose, California
November 6, 1996
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report for High Level Design Systems, Inc. and to all references to our Firm
included in or made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
San Jose, California
November 6, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-28-1996
<CASH> 83,211
<SECURITIES> 2,023
<RECEIVABLES> 99,030
<ALLOWANCES> 6,651
<INVENTORY> 7,830
<CURRENT-ASSETS> 217,855
<PP&E> 271,836
<DEPRECIATION> 122,151
<TOTAL-ASSETS> 419,015
<CURRENT-LIABILITIES> 206,428
<BONDS> 0
0
0
<COMMON> (48,228)
<OTHER-SE> 208,635
<TOTAL-LIABILITY-AND-EQUITY> 419,015
<SALES> 529,197
<TOTAL-REVENUES> 529,197
<CGS> 110,666
<TOTAL-COSTS> 110,666
<OTHER-EXPENSES> 286,543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,131
<INCOME-PRETAX> 129,633
<INCOME-TAX> 42,779
<INCOME-CONTINUING> 86,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,854
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HIGH LEVEL
DESIGN SYSTEMS, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE INTERIM PERIOD ENDED 30 SEPTEMBER, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 2433 1509
<SECURITIES> 68 68
<RECEIVABLES> 2537 2638
<ALLOWANCES> 217 70
<INVENTORY> 0 0
<CURRENT-ASSETS> 5045 4545
<PP&E> 2660 3217
<DEPRECIATION> 1480 2191
<TOTAL-ASSETS> 6289 5668
<CURRENT-LIABILITIES> 2948 3232
<BONDS> 0 0
0 0
1 1
<COMMON> 11 11
<OTHER-SE> 3129 2124
<TOTAL-LIABILITY-AND-EQUITY> 6289 5668
<SALES> 10,127 9429
<TOTAL-REVENUES> 10,127 9429
<CGS> 678 846
<TOTAL-COSTS> 678 846
<OTHER-EXPENSES> 11,790 9579
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 68 70
<INCOME-PRETAX> (2322) (1594)
<INCOME-TAX> 106 115
<INCOME-CONTINUING> (2428) (1709)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2428) (1709)
<EPS-PRIMARY> (0.22) (0.16)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
HIGH LEVEL DESIGN SYSTEMS, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HLDS
THE UNDERSIGNED STOCKHOLDER OF HIGH LEVEL DESIGN SYSTEMS, INC., A DELAWARE
CORPORATION ("HLDS"), HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL
MEETING OF STOCKHOLDERS AND THE PROXY STATEMENT/PROSPECTUS, EACH DATED
, 1996, AND HEREBY APPOINTS PETER S. TESHIMA AND J. GEORGE
JANAC, AND EACH OF THEM, PROXIES AND ATTORNEYS-IN-FACT, WITH FULL POWER TO EACH
OF SUBSTITUTION, ON BEHALF AND IN THE NAME OF THE UNDERSIGNED, TO REPRESENT THE
UNDERSIGNED AT THE SPECIAL MEETING OF STOCKHOLDERS OF HLDS TO BE HELD ON
, 199 AT : , LOCAL TIME, AT THE PRINCIPAL EXECUTIVE
OFFICES OF HLDS LOCATED AT 3945 FREEDOM CIRCLE, FOURTH FLOOR, SANTA CLARA,
CALIFORNIA 95054, AND AT ANY CONTINUATIONS OR ADJOURNMENTS THEREOF, AND TO VOTE
ALL SHARES OF COMMON STOCK AND/OR PREFERRED STOCK WHICH THE UNDERSIGNED WOULD BE
ENTITLED TO VOTE IF THEN AND THERE PERSONALLY PRESENT, ON THE MATTERS SET FORTH
BELOW.
THE HLDS BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
PROVIDED.
Proposal: To approve and adopt the Agreement and Plan of Merger and
Reorganization, dated as of October 3, 1996 (the "Reorganization Agreement"), by
and among Cadence Design Systems, Inc., Harbor Acquisition Sub, Inc. ("Sub"),
and HLDS, and approve the merger of Sub with and into HLDS as provided in the
Reorganization Agreement.
/ / FOR / / AGAINST / / ABSTAIN
The proxy holder may in his discretion vote with respect to amendments or
variations to matters identified in the Notice of Meeting or to other matters
which may properly come before the meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT
AND APPROVE THE MERGER, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS
AS MAY COME BEFORE THE MEETING.
<PAGE>
DATED THIS PLEASE SIGN EXACTLY AS NAME APPEARS ON PROXY.
DAY OF , 199 .
------------------------------------------------
Signature
------------------------------------------------
Signature
------------------------------------------------
Name of stockholder(s)
NOTES
1. A stockholder has the right to appoint a person (who need not be a
stockholder) other than the persons designated in this proxy to attend and
act for him or her on his behalf at the Special Meeting. Such right may be
exercised by printing in the space provided the name of the person to be
appointed, in which case only the person so named may vote the shares at the
Special Meeting.
2. The proxy to be effective must be deposited at the office of R-M Trust
Company at Mall Level, 1177 West Hastings Street, Vancouver, British
Columbia, Canada, V6E 2K3 prior to the close of business on the day
preceding the date the Special Meeting is to be held or any adjournment
thereof, or with the chairman or inspector of election of the Special
Meeting, prior to the commencement of the Special Meeting.
3. This proxy will not be valid unless it is dated and signed by the
stockholder or his or her attorney properly authorized in writing or, if the
stockholder is a corporation, by a duly authorized officer or attorney of
the corporation, and ceases to be valid one year from its date. If the proxy
is executed by an attorney-in-fact for an individual stockholder or by an
officer or an attorney-in-fact of a corporate stockholder, the originally
executed and notarized power of attorney or other instrument so empowering
the officer or attorney, as the case may be, should accompany the proxy.
4. The proxy should be dated, signed by the stockholder(s) (or the
stockholder's attorney-in-fact) exactly as his or her name appears on the
proxy, and returned promptly in the enclosed envelope. Persons signing in a
fiduciary capacity should so indicate. If shares are held by joint tenants
or as community property, both should sign.
