<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1996
REGISTRATION NO. 333-16779
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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 (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) 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. Gordon K. Davidson, Esq.
Richard E. Climan, Esq. Fenwick & West LLP
Cooley Godward LLP Two Palo Alto Square
Five Palo Alto Square 3000 El Camino Real
3000 El Camino Real Palo Alto, CA 94306-2122
Palo Alto, CA 94306-2155 (415) 494-0600
(415) 843-5000
------------------------
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 Wyoming Acquisition
Sub, Inc. with and into Cooper & Chyan Technology, Inc., as described in the
Agreement and Plan of Merger and Reorganization, dated as of October 28, 1996,
as amended by the First Amendment thereto dated as of December 17, 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. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
1601 SOUTH DE ANZA BOULEVARD
CUPERTINO, CALIFORNIA 95014
December 18, 1996
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders (the
"CCT Special Meeting") of Cooper & Chyan Technology, Inc. ("CCT"), to be held on
January 24, 1997 at 1:00 p.m., local time, at the Cupertino Courtyard by
Marriott located at 10605 North Wolfe Road, Cupertino, California 95014.
Attached are a Notice of the CCT Special Meeting and a Proxy
Statement/Prospectus containing information about the matters to be acted upon.
At the CCT Special Meeting you will be asked to consider and vote upon the
approval and adoption of the Agreement and Plan of Merger and Reorganization,
dated as of October 28, 1996, as amended by the First Amendment thereto dated as
of December 17, 1996 (as amended, the "Reorganization Agreement"), among CCT,
Cadence Design Systems, Inc. ("Cadence") and Wyoming Acquisition Sub, Inc., a
wholly owned subsidiary of Cadence ("Cadence Merger Sub"), and the Merger (as
defined below). A copy of the Reorganization Agreement appears as Appendix A to
the attached Proxy Statement/Prospectus.
Pursuant to the Reorganization Agreement, Cadence Merger Sub will be merged
with and into CCT (the "Merger"), whereupon CCT will become a wholly owned
subsidiary of Cadence. At that time, each share of common stock of CCT, par
value $0.01 per share ("CCT Common Stock"), issued and outstanding immediately
prior to the effective time of the Merger (except for any such shares held by
CCT as treasury stock and any such shares held by Cadence or any subsidiary of
Cadence or CCT) will be converted into the right to receive eighty-five
hundredths (0.85) of a share of common stock of Cadence, par value $0.01 per
share ("Cadence Common Stock"). Holders of CCT Common Stock will receive cash in
lieu of any fractional shares of Cadence Common Stock to which such stockholders
would have been entitled. Each outstanding option to purchase CCT Common Stock
("CCT Option") will be converted into an option to purchase that number of
shares of Cadence Common Stock determined by multiplying the number of shares of
CCT Common Stock subject to such CCT Option immediately prior to the effective
time of the Merger by 0.85, rounded down to the next lowest whole number of
shares (with cash, less the applicable exercise price, being payable for any
fraction of a share), at an exercise price equal to the exercise price of such
option at the time of the Merger divided by 0.85, rounded up to the next highest
cent.
We urge you to read carefully the enclosed Proxy Statement/Prospectus for
more detailed information concerning CCT, Cadence, the Reorganization Agreement
and the proposed Merger.
Consummation of the proposed Merger is subject to, among other things,
approval by the holders of the majority of the outstanding shares of CCT Common
Stock and expiration or termination of the waiting period applicable to the
Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). The Merger would be consummated shortly after such
stockholder approval is obtained, such waiting period expires or is terminated
and the other conditions to the Merger are satisfied or waived. If the requisite
approval of the stockholders of CCT is received and the waiting period
applicable to the Merger under the HSR Act expires or is terminated, the Merger
is expected to be consummated in February 1997.
After careful consideration, the CCT Board of Directors has unanimously
determined that the Merger is fair and in the best interests of CCT and its
stockholders and has approved and adopted the Reorganization Agreement and
approved the Merger. The Board of Directors unanimously recommends that the
stockholders of CCT vote for the approval and adoption of the Reorganization
Agreement and approval of the Merger.
Whether or not you plan to attend the CCT Special Meeting, please complete,
sign and date the enclosed proxy card and return it in the enclosed envelope,
which requires no postage. If you attend the CCT Special Meeting in person, you
may, if you wish, vote your shares personally on all matters whether or not you
have previously returned a proxy card. Your prompt cooperation will be greatly
appreciated.
Very truly yours,
John R. Harding
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
1601 SOUTH DE ANZA BOULEVARD
CUPERTINO, CALIFORNIA 95014
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
To the Stockholders of
Cooper & Chyan Technology, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "CCT
Special Meeting") of Cooper & Chyan Technology, Inc., a Delaware corporation
("CCT"), will be held on Friday, January 24, 1997 at 1:00 p.m., local time, at
the Cupertino Courtyard by Marriott located at 10605 North Wolfe Road,
Cupertino, California 95014, for the following purposes:
1. To consider and vote upon a proposal to (i) approve and adopt the
Agreement and Plan of Merger and Reorganization, dated as of October 28, 1996,
as amended by the First Amendment thereto dated as of December 17, 1996 (as
amended, the "Reorganization Agreement"), among CCT, Cadence Design Systems,
Inc., a Delaware corporation ("Cadence"), and Wyoming Acquisition Sub, Inc., a
wholly owned subsidiary of Cadence and a Delaware corporation ("Cadence Merger
Sub"), and (ii) approve the merger of Cadence Merger Sub with and into CCT (the
"Merger"). Upon completion of the Merger, CCT will become a wholly owned
subsidiary of Cadence; and
2. To transact such other business as may properly come before the CCT
Special Meeting or any adjournments or postponements thereof.
The proposed Merger is more fully described in, and the Reorganization
Agreement in its entirety is annexed to, the attached Proxy
Statement/Prospectus.
The holders of record of CCT Common Stock at the close of business on
December 18, 1996 are entitled to notice of and to vote at the CCT Special
Meeting and any adjournments or postponements thereof.
All stockholders are cordially invited to attend the CCT Special Meeting.
However, to ensure your representation at the CCT Special Meeting, you are urged
to sign and return the enclosed proxy card as promptly as possible in the
enclosed postage-prepaid envelope. Any stockholder attending the CCT Special
Meeting may vote in person even if the stockholder has returned a proxy card.
THE CCT BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE REORGANIZATION
AGREEMENT AND APPROVED THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CCT VOTE FOR THE APPROVAL AND ADOPTION OF THE REORGANIZATION
AGREEMENT AND FOR APPROVAL OF THE MERGER.
By order of the Board of Directors
John R. Harding
PRESIDENT AND CHIEF EXECUTIVE OFFICER
December 18, 1996
Cupertino, California
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY WHETHER OR
NOT YOU PLAN TO ATTEND THE CCT SPECIAL MEETING. PLEASE NOTE, HOWEVER,
THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE IN PERSON AT THE CCT SPECIAL MEETING, YOU
MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<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>
COOPER & CHYAN TECHNOLOGY, INC.
---------------
PROXY STATEMENT
------------------
CADENCE DESIGN SYSTEMS, INC.
---------------
PROSPECTUS
------------------
This Proxy Statement/Prospectus is being furnished to holders of common
stock, $0.01 par value per share ("CCT Common Stock"), of Cooper & Chyan
Technology, Inc., a Delaware corporation ("CCT"), in connection with the
solicitation of proxies by the CCT Board of Directors for use at CCT's Special
Meeting of Stockholders or any adjournment or postponement thereof (the "CCT
Special Meeting"). The CCT 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 28, 1996, among Cadence Design Systems,
Inc., a Delaware corporation ("Cadence"), Wyoming Acquisition Sub, Inc., a
wholly owned subsidiary of Cadence and a Delaware corporation ("Cadence Merger
Sub"), and CCT, as amended by the First Amendment thereto dated as of December
17, 1996 (as amended, the "Reorganization Agreement"), and the merger of Cadence
Merger Sub with and into CCT (the "Merger").
Upon consummation of the proposed Merger, CCT will become a wholly owned
subsidiary of Cadence and each outstanding share of CCT Common Stock (except for
any such shares held by CCT as treasury stock and any such shares held by
Cadence or any subsidiary of Cadence or CCT) will be converted into the right to
receive eighty-five hundredths (0.85) of a share of common stock, $0.01 par
value per share, of Cadence ("Cadence Common Stock"). Each outstanding option to
purchase CCT Common Stock ("CCT Option") will be converted into an option to
purchase that number of shares of Cadence Common Stock determined by multiplying
the number of shares of CCT Common Stock subject to such CCT Option immediately
prior to the effective time of the Merger by 0.85, rounded down to the next
lowest whole number of shares (with cash, less the applicable exercise price,
being payable for any fraction of a share), at an exercise price equal to the
exercise price of such option at the time of the Merger divided by 0.85, rounded
up to the next highest cent.
The proposed Merger is contingent upon, among other things, the approval of
the holders of a majority of the outstanding shares of CCT Common Stock and
expiration or termination of the waiting period applicable to the Merger under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The proposed Merger will be consummated shortly after such stockholder
approval is obtained, such waiting period expires or is terminated and the other
conditions to the Merger are satisfied or waived. It is currently anticipated
that the Merger will be consummated in February 1997.
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 CCT Common Stock.
All information contained or incorporated by reference herein concerning
Cadence has been furnished by Cadence, and all information contained herein
concerning CCT has been furnished by CCT.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of CCT on or about December 20, 1996.
------------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS OF CCT 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.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE 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 December 18, 1996.
<PAGE>
AVAILABLE INFORMATION
Cadence and CCT are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Cadence and CCT 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 (the "NYSE") at 20 Broad Street, New York, New York 10005. The CCT
Common Stock is listed on the Nasdaq National Market ("Nasdaq") and reports and
other information concerning CCT may be inspected at the offices of the National
Association of Securities Dealers, Inc., 9513 Key West Avenue, Rockville,
Maryland 20850.
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"), with respect to the Cadence Common Stock to be issued in the Merger.
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, CCT,
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 by Cadence
(Commission File Number 1-10606) 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 Reports on Form 8-K filed with the Commission on
February 16, 1996 and November 7, 1996;
4. 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
5. The description of Cadence Common Stock contained in the Registration
Statement on Form 8-A filed with the Commission on August 29, 1990.
ii
<PAGE>
The following documents previously filed with the Commission by CCT
(Commission File Number 0-26750) pursuant to the Exchange Act are incorporated
by reference into this Proxy Statement/ Prospectus:
1. CCT's Annual Report on Form 10-K for the fiscal year ended December 31,
1995;
2. CCT's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1996, June 30, 1996 and September 30, 1996; and
3. CCT's Current Reports on Form 8-K filed with the Commission on September
12, 1996 (as amended) and November 12, 1996.
The information relating to Cadence and CCT 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 and CCT pursuant to Sections 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 CCT 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 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 WITH RESPECT TO
DOCUMENTS RELATING TO CADENCE, OR TO COOPER & CHYAN TECHNOLOGY, INC., 1601 SOUTH
DE ANZA BOULEVARD, CUPERTINO, CA 95134 ATTENTION: INVESTOR RELATIONS, TELEPHONE
NUMBER (408) 366-6966 WITH RESPECT TO DOCUMENTS RELATING TO CCT. IN ORDER TO
ENSURE DELIVERY PRIOR TO THE CCT SPECIAL MEETING, REQUESTS SHOULD BE RECEIVED BY
JANUARY 17, 1997.
------------------------
This Proxy Statement/Prospectus is being furnished to CCT's stockholders in
connection with the solicitation of proxies by the CCT Board of Directors for
use at the CCT Special Meeting. Each copy of this Proxy Statement/Prospectus
mailed to the CCT stockholders is accompanied by a form of proxy for use at the
CCT Special Meeting. This Proxy Statement/Prospectus is also being furnished by
Cadence to holders of CCT Common Stock as a prospectus in connection with the
shares of the Cadence Common Stock to be issued upon consummation of the Merger.
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 CCT.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
iii
<PAGE>
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 CCT SINCE THE DATE HEREOF.
------------------------
This Proxy Statement/Prospectus contains trademarks of Cadence and CCT as
well as trademarks of other companies.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
The Companies........................................................... 1
The Merger.............................................................. 2
Recent Developments Concerning Cadence.................................. 9
The CCT Special Meeting................................................. 10
Markets and Market Prices............................................... 10
Selected Historical and Pro Forma Financial Information................. 11
Comparative Per Share Data.............................................. 14
RISK FACTORS.............................................................. 15
Technological Change and Development of New Products and Services....... 15
Uncertainty Relating to Integration..................................... 15
Potential Fluctuations in Operating Results............................. 16
Competition............................................................. 17
Management of Growth.................................................... 17
Dependence on Key Personnel and Ability to Attract and Retain
Professional Staff.................................................... 17
Risk with Regard to Intellectual Property Rights........................ 18
Potential Dilutive Effect to Stockholders; Transaction Expenses and
Write Offs............................................................ 18
Volatility of Stock Prices.............................................. 18
Risks Associated with International Business Operations................. 19
Antitakeover Provisions................................................. 19
Rights of Holders of CCT Common Stock Following the Merger.............. 19
THE CCT SPECIAL MEETING................................................... 20
Purpose of the CCT Special Meeting...................................... 20
Date, Time and Place of Meeting......................................... 20
Record Date and Outstanding Shares...................................... 20
Voting of Proxies....................................................... 20
Vote Required........................................................... 20
Board Recommendation.................................................... 21
Quorum; Abstentions..................................................... 21
Solicitation of Proxies; Expenses....................................... 21
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS........................... 22
Background of the Merger................................................ 22
CCT Reasons for the Merger.............................................. 24
Cadence Reasons for the Merger.......................................... 25
Opinion of Alex. Brown & Sons Incorporated.............................. 25
Merger Consideration.................................................... 31
Stock Options; Benefit Plans............................................ 31
Conversion of Shares; Procedures for Exchange of Certificates; No
Fractional Shares..................................................... 32
Effect on Certificates.................................................. 33
Absence of Appraisal Rights............................................. 33
Regulatory Matters...................................................... 33
Voting Agreements....................................................... 34
Option Agreements....................................................... 35
Affiliate Agreements.................................................... 36
Employment Agreements................................................... 36
Noncompetition Agreements............................................... 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
Certain Federal Income Tax Consequences................................. 39
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE REORGANIZATION AGREEMENT.............................................. 41
General................................................................. 41
Merger Consideration.................................................... 41
Absence of Appraisal Rights............................................. 41
Corporate Matters....................................................... 41
Conditions to the Merger................................................ 42
Representations and Warranties.......................................... 46
Covenants............................................................... 46
Non-Solicitation........................................................ 49
Indemnification and Insurance........................................... 50
Termination............................................................. 51
Expenses and Termination Fees........................................... 52
No Survival of Representations and Warranties........................... 53
Amendment; Waiver....................................................... 53
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................. 54
COMPARATIVE PER SHARE MARKET PRICE DATA................................... 63
CCT..................................................................... 63
Cadence................................................................. 64
CCT BUSINESS.............................................................. 65
CCT SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA..................... 73
CCT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 75
Overview................................................................ 75
Results of Operations................................................... 77
Liquidity and Capital Resources......................................... 80
Other Factors That May Affect Future Operating Results.................. 81
CCT MANAGEMENT AND EXECUTIVE COMPENSATION................................. 83
CCT Management.......................................................... 83
CCT Executive Compensation.............................................. 85
CCT Option Grants....................................................... 86
CCT Option Exercises and Holdings and Fiscal Year-End Option Values..... 86
CCT PRINCIPAL STOCKHOLDERS................................................ 87
CADENCE BUSINESS.......................................................... 89
General................................................................. 89
The Integrated Circuit and Electronic System Design Process............. 89
The Cadence Solution.................................................... 89
Cadence Products........................................................ 90
Recent Developments..................................................... 92
COMPARISON OF CAPITAL STOCK............................................... 92
Description of Cadence Capital Stock.................................... 92
Description of CCT Common Stock......................................... 93
COMPARISON OF RIGHTS OF HOLDERS OF CADENCE COMMON STOCK AND HOLDERS OF CCT
COMMON STOCK............................................................ 94
EXPERTS................................................................... 95
LEGAL MATTERS............................................................. 95
INDEX TO CCT SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS............... F-1
APPENDICES:
APPENDIX A--Agreement and Plan of Merger and Reorganization, as amended
APPENDIX B--Opinion of Alex. Brown & Sons Incorporated
</TABLE>
vi
<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 THAT INVOLVE RISKS AND UNCERTAINTIES. CADENCE'S AND CCT'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING
STATEMENTS (INCLUDING THOSE SET FORTH OR REFERENCED IN "APPROVAL OF THE MERGER
AND RELATED TRANSACTIONS--OPINION OF ALEX. BROWN & SONS INCORPORATED") 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 CCT
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 APPENDIX ATTACHED HERETO.
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 and 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.
COOPER & CHYAN TECHNOLOGY, INC.
CCT develops, markets and supports software tools that help designers route
the interconnections among electronic components on high performance printed
circuit boards ("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 markets its products worldwide through an extensive
distribution network that includes distributors, original equipment
manufacturers and a direct sales force.
CCT was incorporated in California in January 1989 and was reincorporated in
Delaware in September 1995. The principal executive offices of CCT are located
at 1601 South De Anza Boulevard, Cupertino, California 95014. CCT's telephone
number is (408) 366-6966.
WYOMING 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.
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THE MERGER
GENERAL
At the Effective Time (as defined below), Cadence Merger Sub will merge with
and into CCT, the separate existence of Cadence Merger Sub will cease and CCT
will become a wholly owned subsidiary of Cadence. It is currently anticipated
that the Effective Time will occur during February 1997.
Subject to the terms and conditions of the Reorganization Agreement, at the
Effective Time, by virtue of the Merger and without any action on the part of
Cadence, Cadence Merger Sub, CCT or any holder of shares of CCT Common Stock,
the following will occur:
CONVERSION OF CCT COMMON STOCK. At the Effective Time, each share of
CCT Common Stock then outstanding (except for any such shares held by CCT as
treasury stock and any such shares held by Cadence or any subsidiary of Cadence
or CCT) will be converted into the right to receive eighty-five hundredths
(0.85) of a share of Cadence Common Stock (the "Exchange Ratio"), including,
with respect to each whole share of Cadence Common Stock to be received, the
right to receive one preferred share purchase right under Cadence's Rights
Agreement dated as of February 9, 1996 (the "Rights Plan").
CCT STOCK OPTIONS. At the Effective Time, at the election of Cadence,
either (i) all rights with respect to CCT Common Stock under each option granted
under CCT's 1989 Stock Option Plan, 1993 Equity Incentive Plan or 1995
Directors' Stock Option Plan or under the Stock Option Plan of UniCAD that has
been assumed by CCT (each, a "CCT Option") then outstanding shall be converted
into and become rights with respect to Cadence Common Stock, and Cadence shall
assume each such CCT Option in accordance with the terms (as in effect as of
October 28, 1996) of the stock option plan under which it was issued and the
stock option agreement by which it is evidenced, or (ii) Cadence shall replace
each such outstanding CCT Option by issuing a substantially equivalent
replacement stock option in substitution therefor (in either case with
appropriate adjustments based upon the Exchange Ratio). 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 CCT Options
no later than five business days after the Effective Time. See "Approval of the
Merger and Related Transactions--Stock Options; Benefit Plans."
CCT EMPLOYEE STOCK PURCHASE PLAN. The CCT 1995 Employee Stock Purchase
Plan (the "CCT Purchase Plan") and each "option" to acquire shares of CCT Common
Stock pursuant to such plan that is outstanding as of the Effective Time (a "CCT
Purchase Option") will be assumed by Cadence according to their terms at the
Effective Time. Each CCT Purchase Option will be assumed on the same terms and
conditions set forth in the CCT Purchase Plan except that (i) the number of
shares of Cadence Common Stock to be issued upon exercise of each CCT Purchase
Option will be adjusted based on the Exchange Ratio and (ii) in determining the
exercise price per share of Cadence Common Stock issuable upon exercise of such
options, the "fair market value" of Cadence Common Stock subject to purchase
pursuant to such options on (a) a particular "offering date" will be
appropriately adjusted based on the Exchange Ratio and (b) a particular
"purchase date" will be the last sale price of Cadence Common Stock as reported
on the NYSE on the trading day immediately prior to such date. No new offering
periods will be commenced under the CCT Purchase Plan after the date of the
Reorganization Agreement.
NON-SOLICITATION
Pursuant to the Reorganization Agreement, CCT has agreed that it will not
directly or indirectly, and will not authorize or permit its subsidiaries,
officers, directors, employees, agents, attorneys, accountants, advisors and
representatives directly or indirectly to, take certain actions that may
encourage or facilitate an Acquisition Proposal (as defined under "Approval of
the Merger and Related Transactions--Option Agreements") unless, in addition to
other conditions, the CCT Board of Directors concludes in good faith (i) based
upon the advice of its financial advisor, that such Acquisition Proposal could
reasonably be
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expected to result in a transaction that is more favorable from a financial
point of view to the CCT stockholders than the Merger and (ii) after
consultation with outside legal counsel, that such action is required in order
for the CCT Board of Directors to comply with its fiduciary obligations to CCT's
stockholders under applicable law. See "The Reorganization
Agreement--Non-Solicitation."
CONDUCT OF BUSINESS
Pursuant to the Reorganization Agreement, CCT has made certain covenants
regarding the conduct of CCT's business during the period from the date of the
execution of the Reorganization Agreement through the Effective Time, including,
without limitation, covenants to: (i) conduct its business and operations (a) in
the ordinary course and in accordance with past practices and (b) in compliance
with legal requirements and material contracts; (ii) use reasonable efforts to
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 reasonable notices, assurances and
support required by any material contract relating to proprietary assets; (v)
comply with Cadence's reasonable directions with respect to exercising any
rights or remedies under certain material contracts; and (vi) cause its officers
to report regularly to Cadence concerning the status of the business of CCT. In
addition, CCT has agreed not to take or to agree 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 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 and consultants; (xii) material changes in accounting;
(xiii) material tax elections; (xiv) commencement or settlement of material
legal proceedings; and (xv) material transactions. See "The Reorganization
Agreement--Covenants--Certain Covenants of CCT."
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,
among other things (i) the accuracy of the representations and warranties of CCT
contained in the Reorganization Agreement; (ii) the performance by CCT of
covenants and obligations contained in the Reorganization Agreement; (iii) the
approval and adoption of the Reorganization Agreement and approval of the Merger
by the CCT stockholders; (iv) receipt of certain consents; (v) receipt of
certain agreements, letters, certificates, legal opinions and resignations
(including letters relating to the appropriateness of pooling-of-interests
accounting treatment); (vi) continued employment of certain employees of CCT;
(vii) subject to certain exceptions, the absence of any material adverse change
in CCT's business; (viii) compliance with U.S. Treasury regulations; (ix) the
expiration or termination of the waiting period applicable to the Merger under
the HSR Act; (x) the listing of the Cadence Common Stock to be issued in the
Merger on the NYSE; (xi) the absence of certain litigation or administrative
actions or proceedings; and (xii) the absence of restraining orders, injunctions
and other legal impediments to the Merger.
The obligation of CCT 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) the receipt of legal opinions;
(iv) subject to certain exceptions, the absence of any material adverse change
in Cadence's business; (v) the expiration or termination of the waiting period
applicable to the Merger under the HSR Act; (vi) the listing of the Cadence
Common Stock to be issued in the Merger on
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the NYSE; and (vii) the absence of restraining orders, injunctions and other
legal impediments to the Merger. See "The Reorganization Agreement--Conditions
to the Merger."
TERMINATION
The Reorganization Agreement may be terminated prior to the Effective Time,
whether before or after approval of the Merger by the stockholders of CCT: (i)
by mutual written consent of Cadence and CCT; (ii) subject to certain
exceptions, by either Cadence or CCT if the Merger shall not have been
consummated by 5:00 p.m. (Pacific Time) on May 7, 1997; (iii) by either Cadence
or CCT in connection with certain legal or governmental actions having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; (iv) subject to certain limitations, by either Cadence or CCT if (a) the
CCT Special Meeting shall have been held and (b) the Reorganization Agreement
and the Merger shall not have been adopted and approved at such meeting; (v) by
Cadence (at any time prior to the adoption and approval of the Reorganization
Agreement and the Merger) if a Triggering Event (as defined under "Approval of
the Merger and Related Transactions--Option Agreements") shall have occurred;
(vi) in certain circumstances and subject to certain limitations, by Cadence
following the material breach of any representation, warranty or covenant of CCT
contained in the Reorganization Agreement; or (vii) in certain circumstances and
subject to certain limitations, by CCT following the material breach of any
representation, warranty or covenant of Cadence contained in the Reorganization
Agreement. See "The Reorganization Agreement--Termination" and "Cadence
Business--Recent Developments."
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 CCT shall share equally all fees and expenses, other than attorneys'
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. If the Reorganization Agreement is terminated
under certain circumstances then (i) CCT will be required to pay to Cadence a
nonrefundable fee in the amount of $5.0 million and (ii) subject to certain
limitations, if an Acquisition Transaction (as defined in Exhibit A to the
Reorganization Agreement attached hereto as Appendix A) is consummated at any
time on or prior to the first anniversary of the termination date of the
Reorganization Agreement, then CCT will be required to pay Cadence an additional
nonrefundable fee of up to $10.0 million. See "The Reorganization
Agreement--Expenses and Termination Fees."
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 or at such later time as
may be specified in the Certificate of Merger (the "Effective Time"). The
consummation of the transactions contemplated by the Reorganization Agreement
shall take place on a date to be designated by Cadence (the "Closing Date"),
which (subject to the satisfaction or waiver of all of the conditions to closing
set forth in the Reorganization Agreement) shall be no later than the fifteenth
business day after satisfaction of the latest to occur of the conditions related
to (i) approval and adoption of the Reorganization Agreement and the Merger by
the stockholders of CCT, (ii) expiration or termination of the waiting period
applicable to the Merger under the HSR Act and (iii) approval for listing on the
NYSE of the shares of Cadence Common Stock to be issued in the Merger. Assuming
that all of the conditions to the Merger are met or waived prior thereto, it is
anticipated that the Closing Date will occur during February 1997.
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STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the number of shares of CCT Common Stock issued and outstanding
as of December 17, 1996, an aggregate of approximately 11,147,496 shares of
Cadence Common Stock will be issued to holders of CCT Common Stock. Based upon
the number of shares of Cadence Common Stock issued and outstanding as of
December 17, 1996, and after giving effect to the additional shares of Cadence
Common Stock that the stockholders of HLDS are entitled to receive in connection
with the HLDS Merger (as defined under "--Recent Developments Concerning
Cadence") and the additional shares of Cadence Common Stock that are proposed to
be issued in the Merger (and assuming no exercise of outstanding options and
warrants to purchase Cadence Common Stock), the former holders of CCT Common
Stock would hold and have voting power with respect to approximately 11.4% of
Cadence's total issued and outstanding shares, and holders of CCT Options would
hold options for approximately 2.1% of Cadence's total issued and outstanding
shares (assuming the exercise of only such options).
CCT REASONS FOR THE MERGER
The CCT Board of Directors considered a wide variety of information and a
number of factors in connection with its evaluation of the proposed Merger and
the Reorganization Agreement, and determined that the Merger provides an
opportunity that serves the best interests of CCT and its stockholders. The CCT
Board of Directors believes that the Merger may result in a number of benefits
to CCT and its stockholders, including, among other benefits, the following: (i)
the combined company will have the ability to offer complementary product lines,
increasing the breadth of products offered; (ii) CCT will have access to greater
resources for product development, marketing and distribution resulting from the
Merger, which will enable CCT to respond more effectively to the rapid
technological change and continuing emergence of competing products that
characterize the EDA industry; (iii) the Merger will enable the combined company
to achieve economies of scale and enhance the efficiency of its research and
development efforts; (iv) the Merger will provide CCT stockholders with Cadence
Common Stock in a tax-free exchange at a substantial premium to the market price
of CCT Common Stock in the relevant periods prior to the public announcement of
the proposed Merger; (v) receipt of the Cadence Common Stock will provide CCT
stockholders with increased investment liquidity; and (vi) Cadence Common Stock
is valued at a much more moderate price/earnings multiple in comparison to CCT
Common Stock and therefore is potentially less volatile in terms of future price
performance. See "Approval of the Merger and Related Transactions--CCT Reasons
for the Merger," and "The CCT Special Meeting--Board Recommendation."
RECOMMENDATION OF CCT BOARD OF DIRECTORS
The Board of Directors of CCT has unanimously approved the Reorganization
Agreement and the Merger, and recommends a vote FOR approval and adoption of the
Reorganization Agreement and for approval of the Merger by the stockholders of
CCT.
OPINION OF ALEX. BROWN & SONS INCORPORATED
Alex. Brown & Sons Incorporated ("Alex. Brown") has delivered to the CCT
Board of Directors its written opinion, dated as of October 27, 1996, that, as
of such date, the Exchange Ratio was fair, from a financial point of view, to
the holders of CCT Common Stock. The full text of Alex. Brown's opinion (the
"Alex. Brown Opinion"), which sets forth, among other things, the assumptions
made, matters considered and limitations on the review undertaken, is attached
as Appendix B to this Proxy Statement/Prospectus and is incorporated herein by
reference. CCT stockholders are urged to read the Alex. Brown Opinion in its
entirety. See "Approval of the Merger and Related Transactions--Opinion of Alex.
Brown & Sons Incorporated" and Appendix B to this Proxy Statement/Prospectus.
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CADENCE REASONS FOR THE MERGER
Cadence believes that the combination of Cadence's and CCT's complementary
technology and expertise will provide substantial opportunities for continuing
innovations in IC and PCB design. By joining the strengths of the companies, the
Merger is expected to accelerate the development of advanced solutions for the
creation of building blocks for "system-on-a-chip" design, the assembly of these
blocks on high speed chips and the design of these complex chips into
high-performance PCBs. Both companies provide complementary, high-performance
software tools for the design of PCBs found in products such as computer
systems, telecommunications devices and consumer electronics. Their tools are
currently used together by mutual customers to address the requirements of
high-speed PCB design. By combining the companies' respective expertise, Cadence
believes that the Merger will allow the development of more advanced
methodologies to address critical issues for PCBs operating at clock rates of
100 MHz or more. Cadence believes that the combination of Cadence and CCT's
technology will provide a solution for assembling and integrating the building
blocks required to produce "systems-on-chips." Due to improvements in silicon
manufacturing capabilities that allow the incorporation of an increasingly large
array of functionality onto a single chip, IC designers are now looking to move
to a similar approach as PCB designers. The "system-on-a-chip" design approach
is analogous to the method used in PCB design, where numerous pre-selected
elements can be assembled and connected together on a single substrate. However,
new IC design tools and methodologies are required to realize the potential of
these advanced silicon processes. Cadence believes that CCT's understanding of
the routing aspect of a block-based design approach for both PCBs and ICs,
combined with Cadence's expertise in silicon design, would result in a
technology solution for the next generation of chips and PCBs. Cadence believes
that the companies' combined expertise in system-level design issues and the
application of such expertise to both silicon and PCB design may result in
immediate benefits to a wide spectrum of designers and improve the way the
companies' customers use the products of CCT and Cadence. The Merger complements
the HLDS Merger (as defined under "-- Recent Developments Concerning Cadence")
to enhance Cadence's solution for the design of ICs manufactured using deep
submicron (0.35 micron and below) process geometries. See "Approval of the
Merger and Related Transactions--Cadence Reasons for the Merger."
EXCHANGE OF CCT STOCK CERTIFICATES
As soon as practicable after the Effective Time, Harris Trust and Savings
Bank, Chicago, Illinois (the "Exchange Agent") will mail to the holders of CCT
Common Stock (i) a letter of transmittal (the "Letter of Transmittal") with
respect to the surrender of valid certificates representing shares of CCT Common
Stock ("CCT Stock Certificates") in exchange for certificates representing
Cadence Common Stock and (ii) instructions for use of the Letter of Transmittal.
CCT STOCKHOLDERS SHOULD NOT SURRENDER THEIR CCT 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
Under the HSR Act, and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division"), and
specified waiting period requirements have been observed. The review of the
Merger pursuant to the HSR Act may substantially delay or proscribe consummation
of the Merger. 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, that Cadence
would prevail or would not be required to terminate the Reorganization
Agreement, to divest certain assets, to license certain proprietary technology
to third parties or to accept certain conditions in order to consummate the
Merger. Cadence and CCT filed notification and report forms under the HSR Act
with the FTC and the Antitrust Division on December 5, 1996. These filings
commenced a 30-day waiting period under the HSR Act. If, prior to the expiration
of such period, the FTC
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or the Antitrust Division should request additional information or documentary
material under the HSR Act, consummation of the Merger could be delayed until
after the companies have substantially complied with the request. There can be
no assurance as to whether or when the HSR Act waiting period applicable to the
Merger will expire or be terminated. See "Approval of the Merger and Related
Transactions-- Regulatory Matters."
VOTING AGREEMENTS
Pursuant to Voting Agreements dated as of October 28, 1996 (the "Cadence
Voting Agreements"), John F. Cooper, David Chyan, John R. Harding, Robert D.
Selvi and William J. Portelli, directors and/or officers of CCT who beneficially
own in the aggregate approximately 37.7% of the outstanding CCT Common Stock
(based upon the number of shares of CCT Common Stock issued and outstanding as
of December 17, 1996), 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 representation, warranty, covenant or obligation under
the Reorganization Agreement, and (ii) certain transactions or any other action
which could reasonably be expected to impede, interfere with, delay, postpone,
discourage or adversely affect the Merger or any of the other transactions
contemplated by the Reorganization Agreement. The Cadence Voting Agreements also
include agreements with respect to the voting of shares of CCT Common Stock for
180 days after the valid termination of the Reorganization Agreement in certain
circumstances. Such CCT stockholders have also delivered to Cadence irrevocable
proxies with respect to the matters covered by the Cadence Voting Agreements.
See "Approval of the Merger and Related Transactions--Voting Agreements."
OPTION AGREEMENTS
Pursuant to Option Agreements dated as of November 2, 1996 between Cadence
and each of John F. Cooper and David Chyan (the "Option Agreements"), Messrs.
Cooper and Chyan have granted to Cadence options (the "Cadence Options") to
purchase for cash any or all of their shares of CCT Common Stock at a price of
$32.30 per share. The Cadence Options are exercisable at any time or from time
to time upon the occurrence of either of the following events (each, an
"Identified Termination"): (i) Cadence or CCT validly terminates the
Reorganization Agreement subsequent to the failure of CCT's stockholders to
adopt and approve the Reorganization Agreement and approve the Merger at the CCT
Special Meeting at any time after (a) an Acquisition Proposal (as defined under
"Approval of the Merger and Related Transactions--Option Agreements") has been
made, submitted or announced and not Publicly Withdrawn (as defined under
"Approval of the Merger and Related Transactions--Option Agreements") prior to
the CCT Special Meeting or (b) the occurrence of a Triggering Event (as defined
under "Approval of the Merger and Related Transactions--Option Agreements")
(provided, if such Triggering Event is the result of an Acquisition Proposal,
such proposal was not Publicly Withdrawn prior to the CCT Special Meeting) or
(ii) the Reorganization Agreement is validly terminated by Cadence (at any time
prior to the adoption and approval of the Reorganization Agreement and the
Merger by the stockholders of CCT) after the occurrence of a Triggering Event.
Pursuant to each Option Agreement, the Cadence Options will terminate, to the
extent not previously exercised, on the earliest of (i) the date upon which the
Effective Time occurs, (ii) 180 days after the occurrence of an Identified
Termination (subject to extension in the event a legal impediment precludes
exercise) or (iii) the date upon which the Reorganization Agreement is validly
terminated other than by virtue of an Identified Termination. See "Approval of
the Merger and Related Transactions--Option Agreements."
NONCOMPETITION AGREEMENTS
Certain key employees of CCT, including John F. Cooper, David Chyan, John R.
Harding, Robert D. Selvi and William J. Portelli, have each entered into a
Noncompetition Agreement with Cadence and CCT, dated as of October 28, 1996,
that contains provisions restricting such employees from engaging in certain
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activities that are competitive with Cadence or CCT for a period of from one to
four years (depending upon the individual agreement) following the Effective
Time. In addition, Mr. Harding may receive payments in connection with his
performance under his Noncompetition Agreement. See "Approval of the Merger and
Related Transactions--Noncompetition Agreements."
EMPLOYMENT AGREEMENTS
Cadence has entered into employment agreements, each dated as of October 28,
1996, with David Chyan, John R. Harding and other key employees of CCT. All such
employment agreements become effective upon the consummation of the Merger and
provide for the full-time employment of such persons for periods ranging from
one to three years (depending upon the individual agreement) with compensation
as specified in the individual agreements. In certain instances, such employment
agreements provide for compensation continuation for specified periods if the
employment of such employees is terminated during the term of their respective
employment agreements. See "Approval of the Merger and Related
Transactions--Employment Agreements."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
OFFICERS AND DIRECTORS OF CCT. Certain members of CCT's 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 CCT generally. The CCT
Board of Directors was aware of these interests and considered them, among other
matters, in approving the Reorganization Agreement and the transactions
contemplated thereby. As described above, Cadence has entered into employment
agreements with certain key employees of CCT. Upon effectiveness of the Merger,
each such CCT employee will be entitled to receive benefits under his respective
employment agreement. Certain unvested stock options granted by CCT and held by
officers and non-employee directors of CCT become immediately exercisable as of
the Effective Time. As described under "-- Option Agreements," Cadence has
entered into Option Agreements with each of John Cooper and David Chyan pursuant
to which Cadence holds options to purchase up to an aggregate of approximately
4,866,250 shares of CCT Common Stock. Pursuant to the Option Agreements and the
Cadence Voting Agreements, Cadence has agreed to indemnify the officers and
directors of CCT who are parties to such agreements from claims related to
entering into such agreements. See "Approval of the Merger and Related
Transactions--Voting Agreements" and "--Option Agreements." In addition, Cadence
has agreed, subject to certain limitations, to indemnify each person serving as
an officer or director of CCT as of the date of the Reorganization Agreement
from and after the Effective Time for acts or omissions occurring prior to the
Effective Time as provided in CCT's bylaws and indemnification agreements
between such officers and directors and CCT. Cadence has also agreed to make
certain payments to John R. Harding pursuant to his performance under the terms
of a Noncompetition Agreement between Cadence and Mr. Harding. See "Approval of
the Merger and Related Transactions-- Interests of Certain Persons in the
Merger."
AFFILIATE AGREEMENTS. Certain stockholders of CCT who may be deemed to
be affiliates of CCT 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 CCT 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 CCT 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 Federal Income Tax Consequences."
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LISTING OF CADENCE COMMON STOCK ON NEW YORK STOCK EXCHANGE
It is a condition to Cadence's and CCT's 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.
ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a pooling of interests for
financial reporting purposes in accordance with generally accepted accounting
principles. Cadence's obligation to consummate the Merger is conditioned upon
receipt at the closing of the Merger by Cadence and CCT of letters from Arthur
Andersen LLP, Cadence's independent public accountants, and Ernst & Young LLP,
CCT's independent auditors, as to the appropriateness of pooling-of-interests
accounting for the Merger. See "Approval of the Merger and Related
Transactions--Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to be a tax-free reorganization for federal income
tax purposes, so that no gain or loss will be recognized by the CCT stockholders
on the exchange of CCT Common Stock for Cadence Common Stock, except to the
extent that CCT stockholders receive cash in lieu of fractional shares. The
Reorganization Agreement does not require the parties to obtain a ruling from
the Internal Revenue Service as to the tax consequences of the Merger. As a
condition to CCT's and Cadence's obligations to consummate the Merger, CCT 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.
CCT stockholders are urged to consult their own tax advisors regarding such tax
consequences. See "Approval of the Merger and Related Transactions--Certain
Federal Income Tax Consequences."
RECENT DEVELOPMENTS CONCERNING CADENCE
On December 18, 1996, the acquisition of High Level Design Systems, Inc, a
Delaware corporation ("HLDS"), by Cadence was consummated. In connection with
the acquisition, a wholly owned subsidiary of Cadence was merged into HLDS (the
"HLDS Merger"), and HLDS became a wholly owned subsidiary of Cadence. Each
outstanding share of HLDS capital stock was converted into the right to receive
0.22 of a share of Cadence Common Stock. In connection with the HLDS Merger, the
stockholders of HLDS are entitled to receive approximately 2,562,000 shares of
Cadence Common Stock and Cadence has assumed outstanding HLDS employee stock
options, which have become options to purchase approximately 600,000 shares of
Cadence Common Stock.
HLDS develops, markets and supports EDA software for the design of
high-density, high performance ICs. HLDS's products are designed to solve the
problems inherent in deep submicron (less than 0.35 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, founded in 1991, is headquartered in Santa Clara, California and has
operations in North America and Europe.
Based upon the number of shares of Cadence Common Stock issued and
outstanding as of December 17, 1996, and after giving effect to the additional
shares of Cadence Common Stock that the stockholders of HLDS are entitled to
receive in connection with the HLDS Merger and the additional shares of Cadence
Common Stock that are proposed to be issued in the Merger with CCT (and assuming
no exercise of options and warrants to purchase Cadence Common Stock), the
former holders of HLDS capital stock hold and have voting power with respect to
approximately 2.6% of Cadence's issued and outstanding shares (3.2% assuming
exercise of all outstanding options to purchase HLDS capital stock, which
options have been assumed by Cadence and have become options to acquire Cadence
Common
9
<PAGE>
Stock). The HLDS Merger was a tax-free reorganization under the Internal Revenue
Code and will be accounted for as a purchase. See "Cadence Business--Recent
Developments" and "Risk Factors-- Potential Dilutive Effect to Stockholders;
Transaction Expenses and Write Offs."
THE CCT SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The CCT Special Meeting will be held at the Cupertino Courtyard by Marriot
located at 10605 North Wolfe Road, Cupertino, California 95014 on Friday,
January 24, 1997 at 1:00 p.m., local time. The purpose of the CCT Special
Meeting is to approve and adopt the Reorganization Agreement and approve the
Merger.
RECORD DATE AND VOTE REQUIRED
Only CCT stockholders of record at the close of business on December 18,
1996 (the "Record Date") are entitled to vote at the CCT Special Meeting. Under
the Delaware General Corporation Law (the "DGCL") and the charter documents of
CCT, approval and adoption of the Reorganization Agreement and the Merger
requires the affirmative vote of the holders of a majority of the outstanding
shares of CCT Common Stock entitled to vote (the "Required Vote").
This Proxy Statement/Prospectus and accompanying Notice of Special Meeting
of Stockholders were mailed to all CCT stockholders of record as of the Record
Date and constitute notice of the CCT 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 25, 1996, the last trading day before the announcement by Cadence and
CCT that they had entered into the Reorganization Agreement, the closing price
of Cadence Common Stock as reported on the NYSE was $38.00 per share. Following
the Merger, Cadence Common Stock will continue to be traded on the NYSE under
the symbol "CDN." On December 17, 1996, the closing price of Cadence Common
Stock as reported on the NYSE was $36.88. 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.
CCT Common Stock is traded on Nasdaq under the symbol "CCTI." On October 25,
1996, the last trading day before the announcement by Cadence and CCT that they
had entered into the Reorganization Agreement, the closing price of CCT Common
Stock as reported by Nasdaq was $31.50 per share. Following the Merger, CCT
Common Stock will cease to be traded on Nasdaq. On December 17, 1996, the
closing price of CCT Common Stock as reported by Nasdaq was $30.50. There can be
no assurance as to the actual price of CCT Common Stock prior to or at the
Effective Time. See "Risk Factors--Volatility of Stock Prices" and "Comparative
Per Share Market Price Data."
10
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
CADENCE SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated 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 incorporated by reference in this Proxy
Statement/Prospectus 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" and 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 incorporated by reference in this Proxy
Statement/Prospectus.
<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>
Write off of in-process research and development........................ $ -- $ -- $ -- $ 4,653
Provision for settlement of litigation.................................. -- -- -- 10,054
Loss (income) from operations of disposed division...................... 5,335 (253) 6,200 --
Restructuring costs..................................................... 49,901 -- 13,450 --
--------- --------- --------- ---------
Total unusual items................................................... $ 55,236 $ (253) $ 19,650 $ 14,707
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
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.
11
<PAGE>
CCT SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
The following selected supplemental consolidated financial data should be
read in conjunction with the CCT Supplemental Consolidated Financial Statements
and related notes thereto and "CCT Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this Proxy
Statement/Prospectus. The supplemental consolidated statement of income data for
each of the three years in the period ended December 31, 1995 and the
supplemental consolidated balance sheet data at December 31, 1994 and 1995 are
derived from supplemental consolidated financial statements of CCT which have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this Proxy Statement/Prospectus. The supplemental consolidated
statement of income data for each of the two years in the period ended December
31, 1992 and for the nine months ended September 30, 1995 and 1996 and the
supplemental consolidated balance sheet data at December 31, 1991, 1992 and 1993
are derived from unaudited financial statements. The condensed consolidated
statement of income data for the nine months ended September 30, 1995 and 1996
has been prepared on the same basis as the annual consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the operating results for such periods. The consolidated
operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for any other interim
period or any future fiscal year.
<TABLE>
<CAPTION>
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>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF
INCOME DATA:
Revenue................................ $ 2,753 $ 3,977 $ 7,294 $ 15,545 $ 23,442 $ 16,020 $ 25,680
Income from operations................. 608 454 1,666 1,103 1,820 1,252 4,162
Net income............................. 368 350 1,042 644 1,329 834 3,263
Net income per common share............ $ 0.04 $ 0.04 $ 0.10 $ 0.06 $ 0.11 $ 0.07 $ 0.23
Common and common equivalent shares
used in computing per share
amounts.............................. 9,363 9,792 10,135 10,989 12,272 11,918 14,419
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -------------
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Working capital............................ $ 674 $ 644 $ 1,113 $ 1,123 $ 26,579 $ 32,492
Total assets............................... 1,733 2,459 4,987 8,357 37,489 43,856
Long term obligations...................... -- -- 74 357 558 331
Stockholders' equity....................... 995 1,297 2,295 2,947 29,414 35,758
</TABLE>
12
<PAGE>
CADENCE, CCT AND HLDS UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth the unaudited selected pro forma combined
financial data of Cadence, CCT and HLDS. The unaudited pro forma combined
balance sheet has been prepared as if the Merger with CCT, which will be
accounted for as a pooling of interests by Cadence, and the HLDS Merger, which
will be accounted for as a purchase of HLDS by Cadence, were both consummated as
of September 28, 1996. The unaudited pro forma combined statement of operations
data for the years ended December 31, 1993 and 1994 gives effect to the Merger
with CCT as if the Merger with CCT were completed at the beginning of the
periods presented. The unaudited pro forma combined statement of operations data
for the year ended December 30, 1995 and for the nine months ended September 30,
1995 and September 28, 1996 gives effect to both the Merger with CCT and the
HLDS Merger as if both mergers were completed at the beginning of the periods
presented. The unaudited selected pro forma combined financial data is derived
from the Unaudited Pro Forma Condensed Combined Financial Statements and notes
thereto included elsewhere in this Proxy Statement/Prospectus and should be read
in conjunction with such unaudited pro forma condensed combined financial
statements and notes thereto.
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 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 the
operations of Cadence, CCT and HLDS or (ii) the costs of restructuring,
integrating or consolidating such operations. See "Unaudited Pro Forma Financial
Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, ----------------------------
------------------------------- SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1996
--------- --------- --------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF INCOME DATA:
Revenue.............................................. $ 375,917 $ 444,617 $ 581,987 $ 408,156 $ 564,306
Income (loss) from operations........................ (6,749) 45,150 114,709 72,167 133,181
Net income (loss).................................... (11,737) 37,292 94,297 63,578 87,076
Net income (loss) per common share................... $ (0.11) $ 0.34 $ 0.89 $ 0.60 $ 0.82
Common and common equivalent shares used in computing
per share amounts.................................. 102,287 108,146 106,098 106,019 106,070
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 28, 1996
------------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital........................................................................... $ 32,232
Total assets.............................................................................. 476,429
Long-term obligations and redeemable convertible preferred stock.......................... 20,161
Stockholders' equity...................................................................... 193,191
</TABLE>
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Cadence
and CCT and combined per share data on an unaudited pro forma combined basis
after giving effect to the Merger with CCT and the HLDS Merger (which was
consummated on December 18, 1996) as if both mergers 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
transactions were consummated on September 28, 1996. The following data should
be read in conjunction with the Unaudited Pro Forma Financial Information and
the separate historical financial statements of Cadence and the supplemental
historical financial statements of CCT 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 transactions 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, CCT and HLDS operations or (ii) the costs of restructuring,
integrating or consolidating such operations. See "Unaudited Pro Forma Financial
Information."
<TABLE>
<CAPTION>
AS OF OR FOR
THE NINE
FISCAL YEARS ENDED MONTHS ENDED
DECEMBER 30, --------------------------------
------------------------------- SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1996
--------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
HISTORICAL - CADENCE:
Net income (loss) per common share....................... $ (0.13) $ 0.37 $ 1.05 $ 0.71 $ 0.95
Book value per common share(1)........................... -- -- 1.71 -- 2.07
HISTORICAL - CCT:
Net income per common share.............................. 0.10 0.06 0.11 0.07 0.23
Book value per common share(1)........................... -- -- 2.38 -- 2.76
PRO FORMA COMBINED PER CADENCE SHARE:
Net income (loss) per common share....................... (0.11) 0.34 0.89 0.60 0.82
Book value per common share(1)........................... -- -- -- -- 2.12
EQUIVALENT PRO FORMA COMBINED PER CCT SHARE(2):
Net income (loss) per common share....................... (0.09) 0.29 0.76 0.51 0.70
Book value per common share(1)........................... -- -- -- -- 1.80
</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
Cadence Common Stock as of September 28, 1996.
(2) The equivalent CCT 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 CCT 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 EDA software tools have limited life cycles, 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. Although Cadence believes that the mergers with HLDS and CCT
will enhance Cadence's ability to help customers design chips with feature sizes
of 0.35 micron and below, if Cadence fails to obtain new or developed technology
through the mergers or the mergers are substantially delayed or not consummated,
new product introductions could be substantially delayed, and 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 Cadence's business, financial condition
and results of operations.
In addition, many of Cadence's products operate only on certain versions of
the UNIX operating system. Cadence has only recently begun the development work
necessary to port its software to Windows NT. Failure of Cadence's products to
keep pace with changes in manufacturing technology or processes, software and
hardware platforms and customer preferences could render one or more of
Cadence's software tools obsolete, which could have a material adverse effect on
Cadence's business, financial condition and results of operations.
UNCERTAINTY RELATING TO INTEGRATION
Part of Cadence's strategy is to grow and improve its product offerings
through acquisitions. This strategy involves a number of risks, including risks
related to the integration of the acquired businesses, the substantial
management time devoted to such activities, undisclosed liabilities, the failure
to achieve anticipated benefits, such as cost savings and synergies, and
distribution, engineering, customer support and other issues related to product
transition.
In addition to the Merger with CCT, on December 18, 1996, the HLDS Merger
was consummated. In connection with the HLDS Merger, a wholly owned subsidiary
of Cadence was merged into HLDS, and HLDS became a wholly owned subsidiary of
Cadence. Each outstanding share of HLDS capital stock was converted into the
right to receive 0.22 of a share of Cadence Common Stock. In connection with the
HLDS Merger, the stockholders of HLDS are entitled to receive approximately
2,562,000 shares of Cadence Common Stock and Cadence has assumed outstanding
HLDS employee stock options, which have become options to purchase approximately
600,000 shares of Cadence Common Stock. The HLDS Merger was a tax-free
reorganization under the Internal Revenue Code and will be accounted for as a
purchase.
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
15
<PAGE>
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. While these costs have not been currently
identified, any such costs will have an adverse effect on Cadence's operating
results in the periods in which they are incurred. In addition, Cadence
currently estimates that approximately $91.7 million of the purchase price paid
for HLDS will be allocated to in-process research and development and will be
charged to expense in the fiscal year ended December 31, 1996. 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. During the
pendency of the 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, HLDS'
or CCT's employees in light of uncertainty associated with the Merger with CCT
and the changes effected as a consequence of the HLDS 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.
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. Cadence's focus on providing services
is relatively recent. The percentage revenue growth attributable to services
from 1995 to 1996 may not be indicative of future growth. 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 business, financial condition and
results of operations. Although Cadence's revenues are not generally seasonal in
nature, Cadence has experienced, and may continue to experience, decreases in
first quarter revenue compared with the preceding fourth quarter, which is
believed to result primarily from the capital purchase cycles 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. In particular, during the past 12 months, conditions in the
semiconductor industry have been generally weak and a number of Cadence's
customers have reduced their capital spending plans. There can be no assurance
that such conditions will improve in the near future, if at all, or that
Cadence's customers will increase their rate of spending in the future. 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; market acceptance of new and enhanced
versions of Cadence's products; changes in pricing policies by Cadence or its
competitors; the cancellation of licenses or maintenance agreements; the mix of
16
<PAGE>
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. In addition, certain costs are generally
associated with transactions such as the Merger with CCT and the HLDS Merger,
including the write off of capitalized software, severance payments, closing of
excess facilities, and disposition of excess equipment. While these costs have
not been currently identified, any such costs will have an adverse effect on
Cadence's operating results in the periods in which they are incurred. In
addition, Cadence currently estimates that approximately $91.7 million of the
purchase price paid for HLDS will be allocated to in-process research and
development and will be charged to expense in the fiscal year ended December 31,
1996.
COMPETITION
Cadence operates 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 competes with other companies, including Avant!
Corporation, EPIC Design Technology, Inc., Mentor Graphics Corp., Synopsys,
Inc., Viewlogic Systems, Inc. and Zuken-Redac, that sell one or more competing
EDA products, and with actual and potential customers' internal EDA software
development and design services groups. 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
products which could materially adversely affect Cadence's business, financial
condition and results of operations. 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.
Intense competition in the EDA industry has lowered prices and there can be
no assurance that Cadence will not be required to discount EDA product prices in
the future. Any such discount could have a negative effect on the profit margins
of the discounted product and could have a material adverse effect on Cadence's
business, financial condition and results of operations.
MANAGEMENT OF GROWTH
Cadence has experienced rapid growth that has placed a significant strain
upon its management, operational and financial resources. In connection with the
HLDS Merger and upon consummation of the Merger with CCT, Cadence will need to
integrate a large number of new personnel, as well as operational, financial and
management controls, and 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 KEY PERSONNEL AND ABILITY TO ATTRACT AND RETAIN PROFESSIONAL STAFF
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,
17
<PAGE>
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.
In addition, Cadence has recently increased its focus on offering
professional services to its customers. Cadence's success in its services
business is particularly dependent upon its ability to attract, retain, train
and motivate highly skilled employees, particularly project managers and other
senior technical personnel. There is significant competition for employees with
the skills required to perform the services Cadence offers. 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. 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, or if
Cadence is unable to attract qualified personnel, Cadence's
business, financial condition and results of operations could be materially
adversely affected.
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. Avant! has filed counterclaims
alleging, INTER ALIA, 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. There can be no assurance that Cadence will be able
to protect its proprietary technology, and any failure to do so could have a
material adverse effect on Cadence's business, financial condition and results
of operations.
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS; TRANSACTION EXPENSES AND WRITE OFFS
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 Cadence independently. The issuance
of the Cadence Common Stock in connection with the Merger with CCT and the HLDS
Merger is likely to have a dilutive effect on Cadence's earnings per share. See
"Unaudited Pro Forma Financial Information." In addition, certain costs are
generally associated with transactions such as the mergers, including the write
off of capitalized software, severance payments, closing of excess facilities
and disposition of excess equipment. Cadence currently estimates that
approximately $91.7 million of the purchase price in the HLDS Merger will be
allocated to in-process research and development and will be charged to expense
in the fiscal year ended December 31, 1996. Such charge will adversely affect
operating results of Cadence.
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
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and computer software industries. In addition, in the event that the Merger with
CCT is not consummated, Cadence's stock price may be adversely affected. Also,
the stock market has experienced and continues to experience extreme price and
volume fluctuations which have affected the market prices of securities,
particularly those of technology companies, and which often have 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 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, financial condition
and results of operations. 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 may be
required to have United States Department of Commerce export licenses for
shipment of certain of its products outside the United States. Any failure,
delays or other difficulties in obtaining necessary licenses could have a
material adverse effect on Cadence's 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, Cadence's
Board of Directors has the authority, without further action by the
stockholders, to fix the rights and preferences of, and issue shares of,
authorized but undesignated shares of preferred stock. This provision and other
provisions of 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 CCT COMMON STOCK FOLLOWING THE MERGER
Following the Merger, holders of CCT Common Stock outstanding as of the
Effective Date will become holders of Cadence Common Stock. Certain material
differences exist between the rights of stockholders of CCT under CCT's Restated
Certificate of Incorporation and CCT's Bylaws and the rights of stockholders of
Cadence under the Restated Certificate of Incorporation and Cadence's Bylaws.
See "Comparison of Rights of Holders of Cadence Common Stock and Holders of CCT
Common Stock."
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THE CCT SPECIAL MEETING
PURPOSE OF THE CCT SPECIAL MEETING
The purpose of the CCT Special Meeting is to adopt and approve the
Reorganization Agreement and to approve the Merger and to transact such other
business as may properly come before the CCT Special Meeting or any adjournments
or postponements thereof.
DATE, TIME AND PLACE OF MEETING
The CCT Special Meeting will be held at the Cupertino Courtyard by Marriott
located at 10605 North Wolfe Road, Cupertino, California 95014 on Friday,
January 24 , 1997 at 1:00 p.m., local time.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of CCT Common Stock at the close of business on December
18, 1996 (the "Record Date") are entitled to notice of, and to vote at, the CCT
Special Meeting. As of the Record Date, there were 86 stockholders of record
holding an aggregate of approximately 13,114,701 shares of CCT Common Stock. See
"CCT Principal Stockholders." Except for the stockholders identified herein
under "CCT Principal Stockholders," as of the Record Date, to the knowledge of
CCT, no other person beneficially owns more than 5% of the outstanding CCT
Common Stock.
This Proxy Statement/Prospectus was mailed to all CCT stockholders of record
as of the Record Date and constitutes notice of the CCT 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 CCT
Special Meeting in accordance with the instructions contained therein. If a
proxy is signed and returned without indicating any voting instructions, the
shares of CCT Common Stock represented by the proxy will be voted FOR the
proposal to approve and adopt the Reorganization Agreement and for approval of
the Merger in accordance with the recommendation of the Board of Directors of
CCT and FOR adjournment or postponement of the CCT Special Meeting if an
adjournment or postponement, in the discretion of the proxy holders, is
determined to be necessary or desirable. A stockholder who has executed and
returned a proxy may revoke it at any time before it is voted at the CCT 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 CCT stating
that the proxy is being revoked or (iii) attending the CCT Special Meeting and
voting in person. All written notices of revocation and other communications
with respect to revocation of CCT proxies should be addressed to: Cooper & Chyan
Technology, Inc., 1601 South De Anza Boulevard, Cupertino, California, 95014,
Attention: Corporate Secretary. Attendance at the CCT Special Meeting, in and of
itself, will not constitute a revocation of a proxy.
VOTE REQUIRED
Approval and adoption of the Reorganization Agreement and for approval of
the Merger requires the affirmative vote of holders of a majority of the
outstanding shares of CCT Common Stock. Each stockholder of record of CCT Common
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 CCT at the CCT Special Meeting.
Pursuant to the Cadence Voting Agreements, David Chyan, Executive Vice
President, Product Development of CCT, John F. Cooper, Chairman of the Board and
Chief Technical Officer of CCT, John R. Harding, President and Chief Executive
Officer of CCT, Robert D. Selvi, Vice President and Chief Financial Officer of
CCT, and William R. Portelli, Vice President, Marketing of CCT, who beneficially
own in the aggregate approximately 37.7% of the outstanding CCT Common Stock
(based upon the number of
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shares of CCT Common Stock issued and outstanding as of December 17, 1996), 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 representation,
warranty, covenant or obligation under the Reorganization Agreement and (ii)
certain transactions which are intended to, or could reasonably be expected to,
impede, interfere with, delay or adversely affect the Merger or the other
transactions contemplated by the Reorganization Agreement or the Cadence Voting
Agreements. The Cadence Voting Agreements also include agreements with respect
to the voting of shares of CCT Common Stock for 180 days after the valid
termination of the Reorganization Agreement in certain circumstances. Such CCT
stockholders have also delivered to Cadence irrevocable proxies 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, interest in, or risk
relating to, their shares of CCT 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."
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF CCT HAS UNANIMOUSLY APPROVED AND ADOPTED THE
REORGANIZATION AGREEMENT AND APPROVED THE MERGER, AND RECOMMENDS A VOTE FOR
APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT AND FOR APPROVAL OF THE
MERGER BY THE STOCKHOLDERS OF CCT.
QUORUM; ABSTENTIONS
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of CCT Common Stock entitled to vote at the
CCT 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. If an executed proxy is
returned by a broker holding shares in street name which indicates that the
broker does not have discretionary authority as to certain shares to vote on one
or more matters, such shares will be considered represented at the CCT Special
Meeting for purposes of determining a quorum, but will not be considered to be
represented at the CCT Special Meeting for purposes of calculating the vote with
respect to such matter.
SOLICITATION OF PROXIES; EXPENSES
Regardless of whether the Merger is consummated, each of CCT and Cadence
will pay its own costs and expenses incurred in connection with the
Reorganization Agreement and the transactions contemplated by the Reorganization
Agreement, except that fees and expenses (other than attorneys' fees) incurred
in connection with the printing and filing of the Registration Statement and
this Proxy Statement/ Prospectus will be shared equally by CCT and Cadence.
Subject to the foregoing, the cost of the solicitation of proxies and all
related costs will be borne by CCT. In addition, CCT 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 CCT.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
BACKGROUND OF THE MERGER
As the drive to develop more miniaturized and faster electronics products
continues, the need for higher density packaging using fast circuits has
increased the complexity of both PCB and IC design. The EDA industry has
responded by developing enabling technologies that address these design
challenges. The technologies that have been developed thus far are diverse and
reflect different technological and analytical approaches to, among other
things, optimizing physical design issues such as the placement and
interconnection of components on both PCBs and ICs. There is a growing market
need and opportunity to seamlessly integrate these tools and technologies within
an EDA infrastructure that offers customers "wrap-around" support services to
augment their own design capabilities. CCT's physical design tools are designed
to take advantage of this opportunity.
During August 1996, members of the CCT Board of Directors and senior
management began a strategic reevaluation of CCT's business with particular
focus on competitive industry trends in the EDA software industry, CCT's
financial performance on both a historical and projected basis, its technology
and product development strategies and the financial and management resources
and risks associated with realizing these strategies. As a result of this
process, members of the CCT Board of Directors and senior management decided to
explore a number of different strategic alternatives, including the possibility
of potential strategic relationships and/or business combinations with other EDA
software companies.
On September 12, 1996, CCT and Cadence settled a lawsuit that was filed by
Cadence against CCT on July 29 in the Superior Court of Santa Clara County,
California (Case No. CV759629). The complaint sought to enjoin CCT from selling
a translator that was created by a third party that allows CCT's IC routing
software (IC Craftsman) to connect to Cadence's software. The complaint alleged
that the product was not authorized by Cadence's license agreements with the
third party or CCT. The complaint also sought unspecified damages from CCT. As
part of the settlement agreement, Cadence became a preferred services provider
for CCT's IC and PCB design tools, giving Cadence's professional services
organization access to CCT's tools to fulfill service agreements with mutual
customers. In addition, CCT signed an agreement to become a Cadence Connections
Partner (Cadence's third-party software vendor relationship program), allowing
CCT's products to interface with Cadence's IC and PCB design solutions. The
expanded relationship between Cadence and CCT which resulted from the settlement
of the Cadence lawsuit against CCT led CCT's and Cadence's senior management to
believe that a more significant strategic relationship, including the
possibility of a merger, could be of mutual benefit, and both parties agreed
that further discussions regarding the relationship between CCT and Cadence
should follow.
Beginning September 16, 1996, members of CCT's Board of Directors and senior
management further considered the benefits and challenges to CCT of continuing
as an independent company without seeking to establish a strategic relationship
with another EDA company. In this regard, members of the CCT Board of Directors
and senior management reviewed CCT's anticipated financial performance, its
current market valuation in comparison to other EDA companies and industry
benchmarks and the risks associated with competing as an independent company
with an albeit strategic but comparatively narrowly defined product offering.
On September 26, 1996, CCT and Cadence entered into a confidentiality
agreement and agreed to exchange confidential information regarding the
technology, operations and financial condition of each company.
Beginning September 27, 1996, and continuing for several days thereafter,
members of the senior technical and marketing staffs of CCT and Cadence
conducted a series of meetings to exchange technological and operational
information.
On October 7, 1996, CCT and Alex. Brown executed an engagement letter dated
as of September 16, 1996 pursuant to which Alex. Brown was engaged as CCT's
financial advisor to provide investment banking
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advice and services in connection with CCT's review and analysis of a possible
business combination with Cadence and possibly to identify and evaluate
candidates other than Cadence concerning a possible business combination.
On October 11, 1996, management teams from CCT and Cadence along with their
respective legal and financial advisors met to discuss and agree upon a course
of action to fully evaluate the benefits of a potential merger. This led to a
series of meetings, beginning on October 12, 1996 and continuing for several
days thereafter, in which management teams from CCT and Cadence and their
respective financial and legal advisors continued the exchange of technological,
operational and financial information and began the negotiation of the terms of
a merger proposal of CCT with Cadence, including the valuation of CCT.
On October 16, 1996, management teams from Cadence and CCT met to continue
negotiating the terms of a proposed merger. The parties failed, however, to
reach agreement on the substantive terms of a proposed transaction and in
particular could not reach agreement on the consideration that would be received
by stockholders of CCT in a proposed merger with Cadence. After failing to reach
agreement, discussions were terminated.
On October 18, 1996, CCT and Cadence reopened discussions. Following several
days of meetings, the representatives of each of CCT and Cadence reached
agreement on the substantive terms of a merger proposal. On October 20, the CCT
Board of Directors met at length with its legal and financial advisors to
discuss the merits of the merger proposal negotiated with Cadence. Alex. Brown
made a presentation to the Board of Directors of CCT regarding the proposed
transaction, including a then current summary of the analyses and factors
described in "Opinion of Alex. Brown & Sons Incorporated" below. After
discussion, the Board of Directors of CCT approved an initial agreement, dated
October 20, 1996 (the "Initial Agreement"), which permitted CCT to provide
notice of the proposed merger to certain third parties to whom, pursuant to
certain other agreements, CCT was required to give notice prior to entering into
a definitive merger agreement.
Following execution of the Initial Agreement, representatives of CCT,
together with its legal and financial advisors, met extensively with
representatives of Cadence and its respective legal and financial advisors to
negotiate the terms of a definitive merger agreement.
The CCT Board of Directors met in the late evening of October 27 to consider
a proposed definitive merger agreement and review the opinion of Alex. Brown
dated October 27, 1996 with respect to the fairness, as of such date and from a
financial point of view, of the Exchange Ratio to CCT's stockholders (see
"Opinion of Alex. Brown & Sons Incorporated" below). During this meeting, the
CCT Board of Directors noted that CCT had not received a substantive indication
of interest from any other EDA company, including each of Synopsys, Inc., Harris
Electronic Design Automation, Inc. and PADS Software, Inc., each of whom had
been given notice of the proposed merger transaction with Cadence.
The Cadence Board of Directors duly considered and unanimously approved the
Reorganization Agreement on October 27, 1996. After due consideration, the CCT
Board of Directors unanimously approved the Reorganization Agreement at its
meeting on October 27, 1996. The Reorganization Agreement in definitive form was
executed and jointly announced by CCT and Cadence in the early morning on
October 28, 1996.
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CCT REASONS FOR MERGER
The CCT 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. The CCT Board of Directors believes that the Merger
may result in a number of benefits to CCT and its stockholders, including the
following:
(i) COMPLEMENTARY TECHNOLOGIES/PRODUCT LINES. Cadence develops, markets and
supports a broad range of technologies and products focused on the design
of complex deep submicron ASIC and full custom gate array and cell-based
IC designs. CCT develops, markets and supports software tools that help
designers route the physical wiring interconnections within high
performance PCBs and ICs. The combined company will have the ability to
offer complementary product lines, increasing the breadth of products
offered.
(ii) ACCESS TO GREATER RESOURCES. CCT will have access to greater resources
for product development, marketing and distribution resulting from the
Merger, which will enable CCT to respond more effectively to the rapid
technological change and continuing emergence of competing products that
characterize the EDA industry. Such access also represents a significant
growth opportunity for CCT, and may enhance CCT's financial performance.
(iii) ECONOMIES OF SCALE. CCT and Cadence believe that the Merger will
enable the combined company to achieve economies of scale and enhance the
efficiency of its research and development efforts.
(iv) STOCKHOLDER BENEFITS. The Merger provides CCT stockholders with Cadence
Common Stock in a tax-free exchange at a substantial premium to the
market price of CCT Common Stock in the relevant periods prior to the
public announcement of the proposed Merger. Receipt of Cadence Common
Stock also provides CCT stockholders with increased investment liquidity.
In addition, Cadence Common Stock is valued at a much more moderate
price/earnings multiple in comparison to CCT Common Stock and is,
therefore, potentially less volatile in terms of future price
performance.
The CCT 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 determined that the proposed Merger provides an
opportunity that serves the best interests of CCT and its stockholders. In
particular, the CCT Board of Directors considered, among other things: (i) the
likelihood of realizing superior benefits through alternative business
strategies; (ii) information concerning CCT's and Cadence's respective
businesses, historical financial performances, operations and products; (iii)
comparative stock prices of CCT and Cadence; (iv) comparative trading volumes of
the two companies' stock; (v) an analysis of the relative value that CCT might
contribute to the future business and prospects of the combined company; (vi)
the compatibility of the management and businesses of CCT and Cadence; (vii) a
presentation by Alex. Brown with respect to the Merger, including the opinion of
Alex. Brown, dated October 27, 1996, that, as of such date, the Exchange Ratio
was fair, from a financial point of view, to the stockholders of CCT; and (viii)
reports from management and legal advisors on specific terms of the relevant
agreements and other matters.
The CCT Board of Directors believes that the Merger is in the best interests
of CCT and its stockholders, notwithstanding the following potentially negative
factors: (i) the potential disruption of CCT's business that might result from
employee uncertainty and lack of focus following announcement of the Merger in
connection with integrating the operations of CCT and Cadence; (ii) the
possibility that the Merger might not be consummated, including the risk that
the applicable waiting period under the HSR Act might not expire or be
terminated or that the Antitrust Division or the FTC might impose material
restrictions upon the business of the combined company, and the risk that the
proposed Merger will not be treated as a pooling of interests; (iii) the effects
of the public announcement of the Merger on CCT's sales
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and operating results, its ability to attract and retain key management,
marketing and technical personnel and the progress of certain of its development
projects; (iv) 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 CCT or
Cadence; (v) the risk that Cadence may not prevail in ongoing litigation with
Avant!; and (vi) the risk that the other benefits sought to be achieved by the
Merger will not be achieved. See "Risk Factors."
In view of the complexity and variety of factors considered by the CCT Board
of Directors in connection with its evaluation of the Reorganization Agreement
and the proposed Merger, the CCT 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. After taking into
consideration all of the factors set forth above, the CCT Board of Directors
determined that the Merger was in the best interests of CCT and its stockholders
and that CCT should proceed with the Merger at this time.
CADENCE REASONS FOR THE MERGER
Cadence believes that the combination of Cadence's and CCT's complementary
technology and expertise will deliver substantial opportunities for continuing
innovations in IC and PCB design. By joining the strengths of the companies, the
Merger is expected to accelerate the development of advanced solutions for the
creation of building blocks for "system-on-a-chip" design, the assembly of these
blocks on high speed chips and the design of these complex chips into high
performance PCBs. Both companies provide complementary, high performance
software tools for the design of PCBs found in products such as computer
systems, telecommunications devices and consumer electronics. Their tools are
currently used together by mutual customers to address the requirements of
high-speed PCB design. By combining the companies' respective expertise, Cadence
believes that the Merger will allow the development of more advanced
methodologies to address critical issues for PCBs operating at clock rates of
100 MHz or more. Cadence believes that the combination of Cadence and CCT's
technology will provide a solution for assembling and integrating the building
blocks required to produce a "system-on-a-chip." Due to improvements in silicon
manufacturing capabilities that allow the incorporation of an increasingly large
array of functionality onto a single chip, IC designers are now looking to move
to a similar approach as PCB designers. The "system-on-a-chip" design approach
is analogous to the method used in PCB design, where numerous pre-selected
elements can be assembled and connected together on a single substrate. However,
new IC design tools and methodologies are required to realize the potential of
these advanced silicon processes. Cadence believes that CCT's understanding of
the routing aspect of a block based design approach for both PCBs and ICs,
combined with Cadence's expertise in silicon design, would result in a
technology solution for the next generation of chips and PCBs. Cadence believes
that the companies' combined expertise in system-level design issues and the
application of such expertise to both silicon and PCB design may result in
benefits to a wide spectrum of designers and improve the way the companies'
customers use the products of CCT and Cadence. The Merger complements the HLDS
Merger to enhance Cadence's solution for the design of ICs manufactured using
deep submicron (0.35 micron and below) process geometries.
OPINION OF ALEX. BROWN & SONS INCORPORATED
On October 7, 1996, CCT and Alex. Brown executed an engagement letter dated
as of September 16, 1996 pursuant to which Alex. Brown was engaged to act as
CCT's financial advisor in connection with the Merger, including rendering its
opinion to the CCT Board of Directors as to the fairness, from a financial point
of view, of the Exchange Ratio to CCT's stockholders.
At the October 27, 1996 meeting of the CCT Board of Directors,
representatives of Alex. Brown made a presentation with respect to the Merger
and rendered to the CCT Board of Directors its oral opinion, subsequently
confirmed in writing, that, as of such date, and subject to the assumptions
made, matters considered and limitations set forth in such opinion and
summarized below, the Exchange Ratio was fair,
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from a financial point of view, to CCT's stockholders. No limitations were
imposed by the CCT Board of Directors upon Alex. Brown with respect to the
investigations made or procedures followed by it in rendering its opinion.
THE FULL TEXT OF ALEX. BROWN'S WRITTEN OPINION DATED OCTOBER 27, 1996 (THE
"ALEX. BROWN OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO
AS APPENDIX B AND IS INCORPORATED HEREIN BY REFERENCE. CCT STOCKHOLDERS ARE
URGED TO READ THE ALEX. BROWN OPINION IN ITS ENTIRETY. THE ALEX. BROWN OPINION
IS DIRECTED TO THE CCT BOARD OF DIRECTORS, ADDRESSES ONLY THE FAIRNESS OF THE
EXCHANGE RATIO TO CCT'S STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY CCT STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE CCT SPECIAL MEETING. THE ALEX. BROWN OPINION WAS RENDERED TO
THE CCT BOARD OF DIRECTORS FOR ITS CONSIDERATION IN DETERMINING WHETHER TO
APPROVE THE REORGANIZATION AGREEMENT. THE DISCUSSION OF THE ALEX. BROWN OPINION
IN THIS PROXY STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE ALEX. BROWN OPINION.
In connection with the Alex. Brown Opinion, Alex. Brown reviewed certain
publicly available financial information and other information concerning CCT
and Cadence and certain internal analyses and other information furnished to it
by CCT and Cadence. Alex. Brown also held discussions with the members of the
senior managements of CCT and Cadence regarding the businesses and prospects of
their respective companies and the joint prospects of a combined company. In
addition, Alex. Brown (i) reviewed the reported prices and trading activity for
the common stock of both CCT and Cadence, (ii) compared certain financial and
stock market information for CCT and Cadence with similar information for
certain other companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent business combinations, (iv) reviewed the terms
of the Reorganization Agreement and (v) performed such other studies and
analyses and considered such other factors as it deemed appropriate.
In conducting its review and arriving at its opinion, Alex. Brown assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for purposes of rendering its opinion. With respect to the
financial projections of CCT and other information relating to the prospects of
CCT and Cadence provided to Alex. Brown by each company, Alex. Brown assumed
that such projections and other information were reasonably prepared and
reflected the best currently available judgments and estimates of the respective
managements of CCT and Cadence as to the likely future financial performances of
their respective companies. Alex. Brown did not receive projections prepared by
the management of Cadence; however, Cadence's management confirmed that publicly
available financial estimates (as adjusted by Cadence's management to reflect
the proposed acquisition by Cadence of HLDS, the completion of which was assumed
by Alex. Brown throughout its analysis) (such estimates, as so adjusted, being
the "Cadence Estimates") were generally consistent with expectations of
Cadence's management. The financial projections of CCT that were provided to
Alex. Brown and the Cadence Estimates were utilized and relied upon by Alex.
Brown in the ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES, CONTRIBUTION
ANALYSIS, DISCOUNTED CASH FLOW ANALYSIS and the PRO FORMA EARNINGS ANALYSIS
summarized below. Alex. Brown assumed, with the consent of CCT, that the Merger
would qualify as a tax-free transaction for the stockholders of CCT and for
pooling-of-interests accounting treatment, including assuming that the Public
Offering would be successfully completed at customary and market terms. Alex.
Brown did not make and it was not provided with an independent evaluation or
appraisal of the assets of CCT and Cadence, nor has Alex. Brown been furnished
with any such evaluations or appraisals. The Alex. Brown Opinion is based on
market, economic and other conditions as they existed and could be evaluated as
of the date of the opinion letter.
In arriving at its opinion, Alex. Brown was not authorized to solicit, and
did not solicit, interest from any party with respect to the acquisition of CCT
or any of its assets.
The following is a summary of the analyses performed and factors considered
by Alex. Brown in connection with rendering the Alex. Brown Opinion.
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HISTORICAL FINANCIAL POSITION. In rendering its opinion, Alex. Brown
reviewed and analyzed the historical and current financial condition of CCT and
Cadence which included (i) an assessment of each of CCT's and Cadence's recent
financial statements; (ii) an analysis of each of CCT's and Cadence's revenue,
growth and operating performance trends; and (iii) an assessment of each of
CCT's and Cadence's margin changes and leverage.
HISTORICAL STOCK PRICE PERFORMANCE. Alex. Brown reviewed and analyzed the
daily closing per share market prices and trading volume, for each of CCT Common
Stock and Cadence Common Stock, from November 1, 1995 to October 25, 1996. Alex.
Brown also reviewed the daily closing per share market prices of the CCT Common
Stock and Cadence Common Stock and compared the movement of such daily closing
prices with the movement of the Nasdaq composite average over the periods from
October 31, 1995 and August 1, 1996 through October 25, 1996. Alex. Brown noted
that, on a relative basis, both CCT and Cadence outperformed the Nasdaq
composite average in each of the periods above. Alex. Brown further noted that
over the period from August 1, 1996 through approximately October 10, 1996 the
relative stock price performance of the CCT Common Stock and Cadence Common
Stock was similar and that during the period from approximately October 10, 1996
through October 25, 1996 CCT had outperformed Cadence. Alex. Brown also reviewed
the daily closing per share market prices of CCT Common Stock and Cadence Common
Stock and compared the movement of such closing prices with the movement of an
EDA composite average (consisting of Avant! Corporation, Epic Design Technology,
IKOS Corporation, Mentor Graphics Corporation, Quickturn Design Systems, Inc.,
Synopsis, Inc., Viewlogic Systems, Inc. and Zycad Corporation (collectively, the
"Selected Companies")) over the periods from October 31, 1995 and August 1, 1996
through October 25, 1996. On a relative basis both the CCT Common Stock price
and Cadence Common Stock price outperformed the EDA composite average.
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES. This analysis examines
a company's valuation in the public market as compared to the valuation in the
public market of other selected publicly traded companies. Alex. Brown compared
certain financial information (based on the commonly used valuation measurements
described below) relating to CCT and Cadence to certain corresponding
information from the Selected Companies. Such financial information included,
among other things, (i) equity market valuation ("Equity Value"); (ii)
capitalization ratios; (iii) operating performance; (iv) ratios of Equity Value
as adjusted for debt and cash ("Adjusted Value") to revenues and earnings before
interest expense and income taxes ("EBIT"), each for the latest reported
12-month period and for calendar years 1996 and 1997; and (v) ratios of stock
price to earnings per share ("EPS") for the latest reported 12-month period and
estimates for calendar years 1996 and 1997. The financial information used in
connection with the multiples provided below with respect to CCT, Cadence and
the Selected Companies was based on the latest reported 12-month period as
derived from publicly available information and, for calendar years 1996 and
1997, was based on (A) in the case of CCT, the CCT financial projections
provided to Alex. Brown (except in the case of EPS, which was based on publicly
available Alex. Brown equity research reports), (B) in the case of Cadence, the
Cadence Estimates and (C) in the case of the Selected Companies, estimates
published by the Institutional Brokers Estimating System ("IBES"). Alex. Brown
noted that, on a trailing 12-month basis, the multiple of Adjusted Value to
revenues was 11.7x for CCT and 5.1x for Cadence, compared to a range of 1.0x to
7.2x, with a mean of 3.3x and a median of 2.3x, for the Selected Companies; the
multiple of Adjusted Value to EBIT was 82.0x for CCT and 20.9x for Cadence,
compared to a range of 7.3x to 26.3x, with a mean of 16.8x and a median of
14.0x, for the Selected Companies; the multiple of Adjusted Value to calendar
year 1996 revenues was 10.6x for CCT and 4.5x for Cadence, compared to a range
of 0.7x to 6.0x, with a mean of 2.7x and a median of 1.5x, for the Selected
Companies; and the multiple of Adjusted Value to calendar year 1997 revenues was
7.3x for CCT and 3.6 for Cadence, compared to a range of 0.8x to 4.3x, with a
mean of 2.1x and a median of 1.2x, for the Selected Companies. Alex. Brown
further noted that the multiple of stock price to trailing 12-month EPS was
118.4x for CCT and 32.4x for Cadence, compared to a range of 13.3x to 48.1x,
with a mean of 30.0x and a median of 22.1x, for the Selected Companies; the
multiple of stock price to calendar year 1996 EPS was 87.5x for CCT and 28.8x
for Cadence, compared to a range of 6.0x to 42.2x, with a mean of 22.6x and a
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median of 16.5x, for the Selected Companies; and the multiple of stock price to
calendar year 1997 EPS was 53.4x for CCT and 23.6x for Cadence, compared to a
range of 10.7x to 32.4x, with a mean of 19.9x and a median of 16.3x, for the
Selected Companies. As a result of the foregoing procedures, Alex. Brown noted
that the above multiples applied to (i) the trailing 12-month revenues of CCT
implied a range of values of $4.86 to $20.16 with a mean of $10.68 and a median
of $8.18 based on the Selected Companies, (ii) the calendar year 1996 revenues
of CCT implied a range of values of $4.48 to $18.92 with a mean of $9.84 and a
median of $6.69 based on the Selected Companies, (iii) the calendar year 1997
revenues of CCT implied a range of values of $5.57 to $19.49 with a mean of
$10.74 and a median of $7.30 based on the Selected Companies, (iv) the trailing
12-month EBIT of CCT implied a range of values of $5.05 to $11.77 with a mean of
$8.42 and a median of $7.43 based on the Selected Companies, (v) the trailing
12-month EPS of CCT implied a range of values of $3.54 to $12.81 with a mean of
$7.97 and a median of $5.89 based on the Selected Companies, (vi) the calendar
year 1996 EPS of CCT implied a range of values of $2.18 to $15.20 with a mean of
$8.14 and a median of $5.94 based on the Selected Companies, and (vii) the
calendar year 1997 EPS of CCT implied a range of values of $6.84 to $20.76 with
a mean of $12.70 and a median of $10.43 based on the Selected Companies, in each
case versus the implied offer price of $32.30 (based on Cadence's October 25,
1996 closing price of $38.00).
ANALYSIS OF SELECTED MERGERS AND ACQUISITIONS. Alex. Brown reviewed the
financial terms, to the extent publicly available, of 16 proposed, pending or
completed mergers and acquisitions since October 1989 in the EDA industry (the
"Selected Transactions"). Alex. Brown calculated various financial multiples
based on certain publicly available information for each of the Selected
Transactions and compared them to corresponding financial multiples for the
Merger, based on the Exchange Ratio of 0.85. The 16 EDA industry transactions
reviewed, in reverse chronological order of public announcement, were: Avant!/
FrontLine Design Automation (October 10, 1996), Cadence/High Level Design
Systems, Inc. (October 3, 1996), EPIC Design Technology, Inc./CIDA Technology,
Inc. (August 29, 1996), CCT/UniCAD, Inc. (August 28, 1996), Avant!/Meta-Software
(August 22, 1996), Mentor Graphics Corporation/Interconnectix (August 19, 1996),
Avant!/Anagram (August 15, 1996), ArcSys, Inc./Integrated Silicon Systems
(August 12, 1995), Parametric Technology/Rasna Corporation (May 30, 1995),
Viewlogic Systems/Chronologic Simulation (March 30, 1994), Synopsys Inc./Logic
Modeling Corp. (January 5, 1994), Viewlogic Systems/Quad Design Technology
(March 11, 1993), Cadence/Valid Logic Systems Inc. (October 3, 1991), Cadence/
Automated Systems Inc. (April 10, 1990), Mentor Graphics Corporation/Silicon
Compiler Systems (January 11, 1990) and Cadence/Gateway Design Automation
(October 3, 1989). Alex. Brown noted that (i) the multiple of the equity
purchase price, as adjusted for debt and cash (the "Adjusted Purchase Price"),
to trailing 12-month revenues for the Selected Transactions applied to the
trailing 12-month revenues of CCT implied a range of values of $5.75 to $42.39
with a mean of $15.30 and a median of $12.23, (ii) the multiple of the Adjusted
Purchase Price to trailing 12-month EBIT for the Selected Transactions applied
to the trailing 12-month EBIT of CCT implied a range of value of $7.54 to $20.94
with a mean of $10.69 and a median of $9.44, and (iii) the multiple of the
equity purchase price to trailing 12-month net income for the Selected
Transactions applied to the trailing 12-month net income of CCT implied a range
of value of $6.93 to $20.94 with a mean of $10.85 and a median of $9.57, in each
case versus the implied offer price of $32.30 (based on Cadence's October 25,
1996 closing price of $38.00). All multiples for the Selected Transactions were
based on public information available at the time of announcement of such
transaction, without taking into account differing market and other conditions
during the seven-year period during which the Selected Transactions occurred.
HISTORICAL EXCHANGE RATIO AND PREMIUM ANALYSIS. Alex. Brown reviewed and
analyzed the historical ratio of the per share market closing price of Cadence
Common Stock divided by the corresponding price of CCT Common Stock on each of
the 90th trading day, 60th trading day, 30th trading day and 15th trading day
prior to October 25, 1996 and on October 25, 1996 (the last trading day prior to
announcement of the transaction) as well as the average of such historical
ratios over the 30-trading day period prior to October 25, 1996. Such exchange
ratios as of such dates and the average exchange ratio over such time period
were 0.599, 0.675, 0.684, 0.652, 0.829 and 0.708, respectively. Alex. Brown then
calculated the
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respective premiums over such daily exchange ratios and such average daily
exchange ratio represented by the Exchange Ratio, which as of such dates and for
such time period were 41.8%, 26.0%, 24.3%, 30.4%, 2.5% and 20.0%, respectively.
Finally, Alex. Brown calculated the respective premiums over the per share
market closing price of CCT Common Stock on such dates and over the average
daily per share market closing price over such 30-trading day period represented
by the implied offer price of $32.30 (based on Cadence's October 25, 1996
closing price of $38.00), which as of such dates and for such time period were
45.2%, 53.8%, 31.2%, 24.2%, 2.5% and 19.1%, respectively.
CONTRIBUTION ANALYSIS. Alex. Brown analyzed the relative contributions of
CCT and Cadence, as compared to CCT's relative ownership of approximately 12.5%
of the outstanding capital of the combined company (approximately 12.0% of the
combined company assuming completion of a public offering by Cadence of
4,500,000 shares of Cadence Common Stock) (subsequent to the date of the Alex.
Brown Opinion, Cadence completed a public offering of 5,750,000 shares of
Cadence Common Stock), to the pro forma income statement of the combined
company, based on management's projections for CCT and the Cadence Estimates.
This analysis showed that on a pro forma combined basis (excluding (i) the
effect of any synergies that may be realized as a result of the Merger, and (ii)
non-recurring expenses relating to the Merger) CCT and Cadence would account for
approximately 4.8% and 95.2%, respectively, of the combined company's pro forma
1996 revenue, approximately 5.6% and 94.4% respectively, of the combined
company's 1996 pro forma gross margin, approximately 3.6% and 96.4%,
respectively, of the combined company's pro forma 1996 EBIT, approximately 4.1%
and 95.9%, respectively, of the combined company's pro forma 1996 net income,
approximately 5.5% and 94.5%, respectively, of the combined company's pro forma
1997 revenue, approximately 6.5% and 93.5%, respectively, of the combined
company's pro forma 1997 gross margin, approximately 5.6% and 94.4%,
respectively, of the combined company's pro forma 1997 EBIT and approximately
6.1% and 93.9%, respectively, of the combined company's pro forma 1997 net
income.
DISCOUNTED CASH FLOW ANALYSIS. Alex. Brown performed a discounted cash flow
analysis for CCT. The discounted cash flow approach values a business based on
the current value of the future cash flow that the business will generate. To
establish a current value under this approach, future cash flow must be
estimated and an appropriate discount rate determined. Alex. Brown used
estimates of projected financial performance for CCT for the years 1997 through
2001 prepared by CCT's management. Alex. Brown aggregated the present value of
the cash flows through 2001 with the present value of a range of terminal
values. Alex. Brown discounted these cash flows at discount rates ranging from
20.0% to 26.0%. The terminal value was computed based on projected revenue in
calendar year 2001 and a range of terminal revenue multiples of 4.0x and 7.0x.
Alex. Brown arrived at such discount rates based on an analysis of the weighted
average cost of capital of the Selected Companies, and arrived at such terminal
values based on its review of the trading characteristics of the common stock of
the Selected Companies. This analysis indicated a range of values of $22.16 to
$43.65 per share, versus the implied offer price of $32.30 (based on Cadence's
October 25, 1996 closing price of $38.00).
PRO FORMA COMBINED EARNINGS ANALYSIS. Alex. Brown analyzed certain pro
forma effects of the Merger. Based on such analysis, Alex. Brown computed the
resulting dilution/accretion to the combined company's EPS estimate for the 1997
fiscal year, pursuant to the Merger before taking into account any potential
cost savings and other synergies that CCT and Cadence could achieve if the
Merger were consummated and before nonrecurring costs relating to the Merger.
Alex. Brown noted that before taking into account any potential cost savings and
other synergies and before certain nonrecurring costs relating to the Merger,
the Merger would be approximately 6.1% dilutive to the combined company's EPS
for the 1997 fiscal year (before taking into account the Public Offering).
RELEVANT MARKET AND ECONOMIC FACTORS. In rendering its opinion, Alex. Brown
considered, among other factors, the condition of the U.S. stock markets,
particularly in the EDA sector, and the current level of economic activity.
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No company used in the analysis of other publicly traded companies nor any
transaction used in the analysis of selected mergers and acquisitions summarized
above is identical to CCT, Cadence or the Merger. Accordingly, such analyses
must take into account differences in the financial and operating
characteristics of the Selected Companies and the companies in the Selected
Transactions and other factors that would affect the public trading value and
acquisition value of the Selected Companies and the Selected Transactions,
respectively.
While the foregoing summary describes all analyses and factors that Alex.
Brown deemed material in its presentation to the CCT Board of Directors, it is
not a comprehensive description of all analyses and factors considered by Alex.
Brown. The preparation of a fairness opinion is a complex process that involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Alex. Brown 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, would create an
incomplete view of the evaluation process underlying the Alex. Brown Opinion. In
performing its analyses, Alex. Brown considered general economic, market and
financial conditions and other matters, many of which are beyond the control of
CCT and Cadence. The analyses performed by Alex. Brown are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Additionally, analyses relating to the value of a business do not purport to be
appraisals or to reflect the prices at which the business actually may be sold.
Furthermore, no opinion is being expressed as to the prices at which shares of
Cadence Common Stock may trade at any future time.
Pursuant to a letter agreement dated September 16, 1996 and entered into on
October 7, 1996 between CCT and Alex. Brown, the fees to date payable to Alex.
Brown for rendering the Alex. Brown Opinion have been $500,000, which amount
will be credited against a final fee of 0.6% of the aggregate consideration paid
in the Merger, payable upon consummation of the Merger. The amount of the fee
payable to Alex. Brown will depend on the closing share price of Cadence Common
Stock for the last five trading days prior to the consummation of the Merger.
Based upon the average per share closing price of the Cadence Common Stock over
the five day period ending on December 17, 1996, Alex. Brown's fee would be
approximately $2.78 million. In addition, CCT has agreed to reimburse Alex.
Brown for its reasonable out-of-pocket expenses incurred in connection with
rendering financial advisory services, including fees and disbursements of its
legal counsel. CCT has also agreed to indemnify Alex. Brown and its directors,
officers, agents, employees and controlling persons, for certain costs,
expenses, losses, claims, damages and liabilities related to or arising out of
its rendering of services under its engagement as financial advisor. The terms
of the fee arrangement with Alex. Brown, which CCT and Alex. Brown believe are
customary in transactions of this nature, were negotiated at arm's length
between CCT and Alex. Brown, and the CCT Board of Directors was aware of such
arrangements, including the fact that a significant portion of the aggregate fee
is contingent upon consummation of the Merger.
The Board of Directors of CCT retained Alex. Brown to act as its advisor
based upon Alex. Brown having served as the lead managing underwriter in CCT's
1995 initial public offering of CCT Common Stock and based upon Alex. Brown's
qualifications, reputation, experience and expertise. Alex. Brown is an
internationally recognized investment banking firm and, as a customary part of
its investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. Alex. Brown may actively trade the equity securities of CCT and
Cadence for its own account and for the account of its customers and accordingly
may at any time hold a long or short position in such securities. Alex. Brown
maintains a market in the CCT Common Stock and regularly publishes research
reports regarding the EDA industry and the businesses and securities of CCT and
other publicly traded companies in the EDA industry.
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MERGER CONSIDERATION
CCT COMMON STOCK. At the Effective Time, each share of CCT Common Stock
then outstanding (except for any such shares held by CCT as treasury stock and
any shares held by Cadence or any subsidiary of Cadence or CCT) 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 will be
issued in connection with the Merger, and no certificates for any such
fractional shares will be issued. In lieu of such fractional shares, any holder
of CCT Common 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) will, upon surrender of such
holder's stock certificate(s) representing CCT Common Stock to the Exchange
Agent, 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 Cadence Common Stock on the NYSE on the Closing Date.
STOCK SUBJECT TO CONDITIONS. If any shares of CCT Common 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 CCT, then the shares
of Cadence Common Stock issued in exchange for such shares of CCT Common 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.
STOCK OPTIONS; EMPLOYEE STOCK PURCHASE PLAN; BENEFIT PLANS
STOCK OPTIONS. At the Effective Time, at the election of Cadence, either
(i) all rights with respect to CCT Common Stock under each CCT Option then
outstanding shall be converted into and become rights with respect to Cadence
Common Stock, and Cadence shall assume each such CCT Option in accordance with
the terms (as in effect as of October 28, 1996) of the stock option plan under
which it was issued and the stock option agreement by which it is evidenced, or
(ii) Cadence shall replace each such outstanding CCT Option by issuing a
substantially equivalent replacement stock option in substitution therefor (in
either case with appropriate adjustments based upon the Exchange Ratio). From
and after the Effective Time, (i) each CCT Option assumed by Cadence may be
exercised solely for shares of Cadence Common Stock, (ii) the number of shares
of Cadence Common Stock subject to each such CCT Option shall be equal to the
number of shares of CCT Common Stock subject to such CCT Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounded down to
the nearest whole share (with cash, less the applicable exercise price, being
payable for any fraction of a share), (iii) the per share exercise price under
each such CCT Option shall be adjusted by dividing the per share exercise price
under such CCT Option by the Exchange Ratio and rounding up to the nearest cent,
and (iv) any restriction on the exercise of any such CCT Option shall continue
in full force and effect and the term, exercisability, vesting schedule and
other provisions of such CCT Option shall otherwise remain unchanged; subject 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 assumed CCT Options no later than five business
days after the Effective Date. In lieu of assuming each outstanding CCT Option,
Cadence may, at its election, cause each CCT Option to be replaced by issuing
substantially equivalent replacement stock options in substitution therefor.
Pursuant to the Reorganization Agreement, Cadence is required to use reasonable
efforts to ensure that any replacement options issued in substitution for CCT
Options that, immediately prior to the Effective Time, qualified as incentive
stock options (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended) continue to qualify as incentive stock options immediately after the
Effective Time.
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Existing employment agreements between CCT and each of Messrs. Harding,
Selvi and Portelli provide that unvested stock options to acquire 226,667, 7,500
and 5,000 shares of CCT Common Stock, respectively, become immediately
exercisable as of the Effective Time. In addition, unvested stock options to
acquire an aggregate of 50,000 shares of CCT Common Stock granted to outside
directors of CCT under CCT's 1995 Directors' Stock Option Plan become
immediately exercisable as of the Effective Time.
EMPLOYEE STOCK PURCHASE PLAN. The CCT Purchase Plan and each CCT Purchase
Option that is outstanding as of the Effective Time will be assumed by Cadence
according to their terms at the Effective Time. Each CCT Purchase Option will be
assumed on the same terms and conditions set forth in the CCT Purchase Plan
except that (i) the number of shares of Cadence Common Stock to be issued upon
exercise of each CCT Purchase Option will be adjusted based on the Exchange
Ratio and (ii) in determining the exercise price per share of Cadence Common
Stock issuable upon exercise of such options, the "fair market value" of Cadence
Common Stock subject to purchase pursuant to such options on (a) a particular
"offering date" will be appropriately adjusted based on the Exchange Ratio and
(b) a particular "purchase date" will be the last sale price of Cadence Common
Stock as reported on the NYSE on the trading day immediately prior to such date.
No new offering periods will be commenced under the CCT Purchase Plan after the
date of the Reorganization Agreement.
OTHER CCT BENEFIT PLANS. After the Effective Time, Cadence has agreed to
use reasonable efforts to attempt to ensure that: (i) as soon as practicable
after the Effective Time, Cadence's benefit plans and benefit arrangements will
provide benefits to the Continuing Employees (as defined below) that are
comparable to the non-discretionary, non-cash benefits provided to similarly
situated employees of Cadence; (ii) to the extent practicable, any pre-existing
condition limitations contained in Cadence's health plans and health benefit
arrangements for any Continuing Employee who would be deemed under Cadence's
health plans and health benefit arrangements to have a disqualifying
pre-existing condition are waived, to the extent such condition was covered
immediately prior to the Effective Time; and (iii) to the extent practicable,
Cadence's benefit plans and benefit arrangements give full credit to each
Continuing Employee for such Continuing Employee's period of service with CCT
prior to the Effective Time for all purposes for which such service was
recognized under such benefit plans prior to the Effective Time. "Continuing
Employee" means any employee of CCT who continues as an employee of the
Surviving Corporation or Cadence after the Effective Time.
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 registered holders of CCT Common Stock: (i) the Letter of
Transmittal and (ii) instructions for use of the Letter of Transmittal in
effecting the surrender of CCT Stock Certificates in exchange for certificates
representing Cadence Common Stock. Upon surrender of a CCT 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 CCT 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 will be issued in
connection with the Merger, and no certificates for any such fractional shares
will be issued. See "Merger Consideration--Fractional Shares."
If any CCT Stock Certificate has been lost, stolen or destroyed, Cadence may
require the owner of such lost, stolen or destroyed CCT 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 CCT with respect
to such CCT Stock Certificate.
CCT STOCKHOLDERS SHOULD NOT SURRENDER THEIR SHARE CERTIFICATES FOR EXCHANGE
UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
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EFFECT ON CERTIFICATES
At the Effective Time, (i) all shares of CCT Common Stock outstanding
immediately prior to the Effective Time will automatically be canceled and will
cease to exist, and all holders of certificates representing shares of CCT
Common Stock that were outstanding immediately prior to the Effective Time will
cease to have any rights as stockholders of CCT, and (ii) the stock transfer
books of CCT will be closed with respect to all shares of CCT Common Stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of CCT Common Stock will be made on such stock transfer books after
the Effective Time. If, after the Effective Time, a CCT Stock Certificate is
presented to the Exchange Agent (or to CCT or Cadence), such CCT Stock
Certificate will be canceled and will be exchanged as provided above under the
caption "--Conversion of Shares; Procedure for Exchange of Certificates; No
Fractional Shares."
ABSENCE OF APPRAISAL RIGHTS
Under Section 262 of the DGCL, stockholders who do not vote in favor of or
consent to a merger are not entitled to appraisal rights if the stock subject to
such merger transaction is designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. and the consideration to be received in such merger consists of stock
listed on a national securities exchange. Because Nasdaq is designated as such a
system and the CCT Common Stock is quoted on Nasdaq and the NYSE is a national
securities exchange and the Cadence Common Stock is listed on the NYSE, CCT
stockholders are not entitled to appraisal rights with respect to the Merger.
REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. Cadence and CCT filed
notification and report forms under the HSR Act with the FTC and the Antitrust
Division on December 5, 1996. These filings commenced a 30-day waiting period
under the HSR Act. If, prior to the expiration of such period, the FTC or the
Antitrust Division should request additional information or documentary material
under the HSR Act, consummation of the Merger could be delayed until after the
companies have substantially complied with the request.
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 the consummation of the Merger, the FTC, the Antitrust Division, state
attorneys general or others could take action under antitrust laws with respect
to the Merger, including seeking to enjoin consummation of the Merger, seeking
to cause the divestiture of significant assets of Cadence or CCT or their
subsidiaries or seeking to impose conditions on Cadence with respect to the
business operations of the combined companies. In addition, the review of the
Merger pursuant to the HSR Act may substantially delay or proscribe consummation
of the Merger. There can be no assurance that a challenge to the Merger on
antitrust grounds will not be made, or if such challenge is made, that Cadence
would prevail or would not be required to terminate the Reorganization
Agreement, to divest certain assets, to license certain proprietary technology
to third parties or to accept certain conditions in order to consummate the
Merger. 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 or make any changes 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 CCT or its subsidiaries, 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.
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VOTING AGREEMENTS
Pursuant to the Cadence Voting Agreements, David Chyan (who beneficially
owns approximately 2,514,752 shares of CCT Common Stock and is the Executive
Vice President, Product Development of CCT); John F. Cooper, (who beneficially
owns approximately 2,351,502 shares of CCT Common Stock and is the Chairman of
the Board and Chief Technical Officer of CCT); John R. Harding (who beneficially
owns approximately 46,625 shares of CCT Common Stock and is the President and
Chief Executive Officer of CCT); Robert D. Selvi (who beneficially owns
approximately 31,339 shares of CCT Common Stock and is the Vice President and
Chief Financial Officer of CCT); and William R. Portelli (who beneficially owns
approximately 34,174 shares of CCT Common Stock and is the Vice President,
Marketing of CCT) (collectively such CCT stockholders who beneficially own in
the aggregate approximately 37.7% of the outstanding CCT Common Stock (based
upon the number of shares of CCT Common Stock issued and outstanding as of
December 17, 1996) are referred to as the "Subject Stockholders" and the
approximately 4,978,392 shares of CCT Common Stock beneficially owned by the
Subject Stockholders in the aggregate are referred to as the "Subject Shares")
have agreed that, prior to the earlier to occur 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
representation, warranty, covenant or obligation under the Reorganization
Agreement and (ii) certain transactions which are intended to, or could
reasonably be expected to, impede, interfere with, delay or adversely affect the
Merger or the other transactions contemplated by the Reorganization Agreement or
the Cadence Voting Agreements.
The Cadence Voting Agreements also provide that if an Identified Termination
(as defined under
"--Option Agreements") occurs, then, prior to 180 days following the date on
which the Reorganization Agreement is validly terminated, at any meeting of the
stockholders of CCT, however called, and in any written action by consent of
stockholders of CCT, unless otherwise directed in writing by Cadence, the
Subject Stockholders will vote the Subject Shares (i) against any Acquisition
Proposal (as defined under "--Option Agreements") and any related transaction or
agreement and (ii) against any action which is intended, or could reasonably be
expected, to facilitate the consummation of any Acquisition Transaction; and the
Subject Stockholders will not enter into any agreement or understanding with any
third party to vote or give instructions in any manner inconsistent with the
foregoing. See "CCT Management and Executive Compensation."
Pursuant to the Cadence Voting Agreements, the Subject Stockholders have
also delivered to Cadence irrevocable proxies with respect to matters covered by
the Cadence Voting Agreements. In addition, subject to certain exceptions, the
Subject Stockholders have agreed not to sell, transfer, dispose of, encumber or
otherwise reduce beneficial ownership of or risk relating to the Subject Shares
or any CCT Common Stock subsequently acquired by them until the Effective Time
or the valid termination of the Reorganization Agreement (unless an Identified
Termination (as defined under "--Option Agreements") occurs, in which case the
restrictions continue until 180 days following the date on which the
Reorganization Agreement is validly terminated). The Subject Stockholders have
also agreed that they will not, directly or indirectly (i) solicit, initiate or
encourage the making or announcement of an Acquisition Proposal or take any
action that could reasonably be expected to lead to an Acquisition Proposal;
(ii) furnish any nonpublic information regarding CCT to any person in connection
with an actual or potential Acquisition Proposal; (iii) engage in discussions
with any person regarding an Acquisition Proposal; (iv) approve or recommend any
Acquisition Proposal; or (v) enter into any letter of intent or other similar
document or contract contemplating or relating to an Acquisition Proposal. The
foregoing will not prevent a Subject Stockholder from acting in accordance with
the Subject Stockholder's fiduciary duties as a director or officer, provided
that the Subject Stockholder complies with certain provisions of the
Reorganization Agreement.
Each Cadence Voting Agreement also provides that (i) each party thereto will
hold harmless and indemnify the other party thereto from and against any damages
which are incurred by such other party
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and that arise from any breach of any representation, warranty, covenant or
obligation of such party contained therein and (ii) if the Merger is
consummated, then, from and after the Effective Time, Cadence will hold harmless
and indemnify each Subject Stockholder from and against any damages which are
incurred by such stockholder and that arise from any claim against such
stockholder by any third party asserting that such stockholder's entering into
the Voting Agreement or the grant by such stockholder of the voting rights set
forth therein violates any applicable legal requirement.
OPTION AGREEMENTS
Pursuant to Option Agreements dated as of November 2, 1996 between Cadence
and each of John F. Cooper and David Chyan, Messrs. Cooper and Chyan have
granted to Cadence options (the "Cadence Options") to purchase for cash any or
all of their shares of CCT Common Stock at a price of $32.30 per share (subject
to adjustment under the Reorganization Agreement). Any or all of the Cadence
Options are exercisable at any time or from time to time upon the occurrence of
either of the following events (each an "Identified Termination"): (i) Cadence
or CCT validly terminates the Reorganization Agreement subsequent to the failure
of CCT's stockholders to adopt and approve the Reorganization Agreement and
approve the Merger at the CCT Special Meeting at any time after (a) an
Acquisition Proposal (as defined below) has been made, submitted or announced
and not Publicly Withdrawn (as defined below) prior to the CCT Special Meeting
or (b) the occurrence of a Triggering Event (as defined below) (provided, if
such Triggering Event is the result of an Acquisition Proposal, such proposal
was not Publicly Withdrawn prior to the CCT Special Meeting) or (ii) the
Reorganization Agreement is validly terminated by Cadence (at any time prior to
the adoption and approval of the Reorganization Agreement and the Merger by the
stockholders of CCT) after the occurrence of a Triggering Event. Pursuant to
each Option Agreement, the Cadence Options will terminate, to the extent not
previously exercised, on the earliest of (i) the date upon which the Effective
Time occurs, (ii) 180 days after the occurrence of an Identified Termination
(subject to extension in the event a legal impediment precludes exercise) or
(iii) the date upon which the Reorganization Agreement is validly terminated
other than by virtue of an Identified Termination.
A "Triggering Event" is deemed to have occurred if: (i) the CCT Board of
Directors fails to recommend, or for any reason withdraws or amends or modifies
in a manner adverse to Cadence, its unanimous recommendation in favor of the
Merger or approval or adoption of the Reorganization Agreement; (ii) the CCT
Board of Directors approves, endorses or recommends any Acquisition Proposal;
(iii) CCT enters into any letter of intent or any similar document or any
contract relating to any Acquisition Proposal; (iv) CCT fails to hold the CCT
Special Meeting as promptly as practicable and in any event within 60 days after
the Registration Statement is declared effective; (v) a tender or exchange offer
relating to securities of CCT shall have been commenced and CCT shall not have
sent to its securityholders, within ten business days after the commencement of
such tender or exchange offer, a statement disclosing that CCT recommends
rejection of such tender or exchange offer; or (vi) an Acquisition Proposal is
publicly announced, and CCT (a) fails to issue a press release announcing its
opposition to such Acquisition Proposal or (b) otherwise fails to actively
oppose such Acquisition Proposal.
An "Acquisition Proposal" is any offer or proposal (other than an offer or
proposal by Cadence) contemplating or otherwise relating to any transaction or
series or transactions involving: (i) any merger, consolidation, share exchange,
business combination, issuance of securities, acquisition of securities, tender
offer, exchange offer or other similar transaction (a) in which CCT is a
constituent corporation, (b) in which an individual or entity or "group" (as
defined in the Exchange Act and the rules promulgated thereunder) of individuals
or entities directly or indirectly acquires CCT or more than 50% of CCT's
business or directly or indirectly acquires beneficial or record ownership of
securities representing more than 40% of the outstanding securities of any class
of voting securities of CCT, or (c) in which CCT issues securities representing
more than 40% of the outstanding securities of any class of voting securities of
CCT; or (ii) any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of business),
acquisition or disposition of more than 50% of the assets of
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CCT. An Acquisition Proposal shall be deemed to have been "Publicly Withdrawn"
only if (i) the party who made such Acquisition Proposal publicly announces the
withdrawal of such Acquisition Proposal; and (ii) there shall not have been any
public announcement, or any direct or indirect communication to any of the
stockholders of CCT, stating or suggesting the possibility that such Acquisition
Proposal might be resubmitted or that such party might make, submit or announce
any other Acquisition Proposal.
Each Option Agreement also provides that (i) each party thereto will hold
harmless and indemnify the other party thereto from and against any damages
which are incurred by such other party and that arise from any breach of any
representation, warranty, covenant or obligation of such party contained therein
and (ii) if the Merger is consummated, then, from and after the Effective Time,
Cadence will hold harmless and indemnify Messrs. Cooper and Chyan from and
against any damages which are incurred by such stockholder and that arise from
any claim against such stockholder by any third party asserting that such
stockholder's entering into the Option Agreement or the grant by such
stockholder of the option set forth therein violates any applicable legal
requirement.
AFFILIATE AGREEMENTS
It is a condition to consummation of the Merger that each person who is
reasonably determined to be an "affiliate," as such term is defined in Rule 145
promulgated under the Act, of CCT execute an agreement that prohibits (i) the
sale, transfer or other disposition of Cadence Common Stock received by such
person in connection with the Merger unless: (a) such sale, transfer or other
disposition is effected pursuant to an effective registration statement under
the Act; (b) 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; (c) 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 (d) 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 and (ii) the sale, transfer or other disposition of CCT
Common Stock, Cadence Common Stock or options or other rights to purchase such
stock during the period commencing 30 days prior to the consummation of the
Merger through the date on which financial results covering at least 30 days'
combined operations of Cadence and CCT are published by Cadence, unless at such
time (a) such transfer is a bona fide gift (subject to certain limitations) of
CCT Common Stock to members of such person's immediate family and/or certain
non-profit charitable organizations or (b) such sale, transfer or other
disposition does not exceed an aggregate of 1,500 shares of CCT Common Stock.
Each person deemed to be an affiliate of CCT has signed such an agreement.
EMPLOYMENT AGREEMENTS
Cadence has entered into employment agreements (each, an "Employment
Agreement" and collectively, the "Employment Agreements"), dated as of October
28, 1996, with certain key employees of CCT, including David Chyan, John R.
Harding, Robert D. Selvi and William J. Portelli. All Employment Agreements
become effective upon the effectiveness of the Merger and provide for the
full-time employment of such persons for a period of time (the "Employment
Period") and with compensation as set forth in the individual agreements.
Mr. Chyan's Employment Agreement specifies an Employment Period of three
years and salary of $158,400 per year. Mr. Harding's Employment Agreement
specifies a Employment Period of one year, salary of $227,300 per year and a
target bonus of $160,400 for fiscal year 1997. Mr. Selvi's Employment Agreement
specifies a Employment Period of two years, salary of $167,200 per year and a
minimum bonus of $23,950 for each quarter during which he is a full time
employee at the end of such quarter.
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Mr. Portelli's Employment Agreement specifies an Employment Period of two years,
salary of $165,300 per year (plus any reasonable raise granted prior to the
Merger) and a minimum bonus of $24,250 for each quarter during which he is a
full time employee at the end of such quarter. The Employment Agreements of
Messrs. Selvi and Portelli also provide for part-time employment of up to five
hours per month for twelve months beyond the period of full-time employment at a
salary of approximately $417.00 per month.
If Cadence terminates an employee's Employment Agreement without Cause (as
defined below) during the Employment Period, then Cadence will pay such employee
salary and other compensation (but not any bonuses or other cash compensation)
for the greater of six months or the remaining portion of such employee's
Employment Period. If such employee is terminated by Cadence for Cause, Cadence
shall have no further obligations to pay any salary or other compensation to
such employee.
Pursuant to the Employment Agreements, the employee's employment with
Cadence will be deemed to have been terminated for "Cause" if his employment is
terminated for: (i) any gross misconduct or fraud on the part of such employee
in the performance of his employment; (ii) subject to certain exceptions, the
conviction of such employee of, or the entry by such employee of a guilty plea
with respect to, any felony; and (iii) subject to certain limitations, the
material breach by such employee of his employment agreement. In the case of Mr.
Chyan, "Cause" also includes (i) any bad faith by Mr. Chyan in the performance
of his employment or (ii) Mr. Chyan's repeated failure to perform reasonable
duties assigned to him by Cadence despite the delivery to him of written notice
of such failure.
NONCOMPETITION AGREEMENTS
Certain key employees of CCT, including John F. Cooper, David Chyan, John R.
Harding, Robert D. Selvi and William J. Portelli (the "Noncompete Employees"),
each have entered into a Noncompetition Agreement with Cadence and CCT, dated as
of October 28, 1996 (each, a "Noncompetition Agreement"). The Noncompetition
Agreements contain provisions restricting such employees, for a specified period
following the Effective Time (the "Restriction Period") (four years for Messrs.
Cooper & Chyan; two years for Mr. Harding and two years for Mr. Portelli
(subject to certain modifications); and one year for Mr. Selvi) from (i)
engaging in, (ii) owning a substantial interest or otherwise participating in a
business involving or (iii) providing any service, support, product or
technology to any person or entity involving or relating to, software
development in the areas of routing for PCBs, ICs or multichip modules. In
addition, the Noncompetition Agreements restrict such employees from: (i)
soliciting employees of CCT, Cadence or any subsidiary of Cadence to leave his
or her employment with such companies; or (ii) interfering or attempting to
interfere with any commercial relationship or prospective commercial
relationship of CCT, Cadence or any subsidiary of Cadence. The Noncompetition
Agreement of Mr. Harding also provides for him to receive payments from Cadence
of up to approximately $25,000 per month during the final year of his
Restriction Period, subject to Cadence's right to terminate his Noncompetition
Agreement and such payments during such final year.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
OFFICERS AND DIRECTORS OF CCT. Certain members of CCT's 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 CCT generally. The CCT
Board of Directors was aware of these interests and considered them, among other
matters, in approving the Reorganization Agreement and the transactions
contemplated thereby. As described above under "--Employment Agreements,"
Cadence has entered into employment agreements with certain key employees of
CCT. Upon effectiveness of the Merger, each such CCT employee will be entitled
to receive the benefits under his respective employment agreement. Unvested
stock options granted to James R. Fiebiger and Yoshikazu Hori under CCT's 1995
Directors' Stock Option Plan become immediately exercisable as of the Effective
Time. The existing employment agreements between CCT and each of Messrs.
Harding, Selvi and Portelli provide that the unvested stock options granted to
such individuals to acquire 226,667, 7,500 and 5,000 shares of CCT Common Stock,
respectively, become
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immediately exercisable as of the Effective Time. Cadence has entered into
Option Agreements with each of John Cooper and David Chyan pursuant to which
Cadence holds options to purchase up to an aggregate of approximately 4,866,250
shares of CCT Common Stock. Pursuant to the Option Agreements and the Cadence
Voting Agreements, Cadence has agreed to indemnify the officers and directors of
CCT who are parties to such agreements from claims related to entering into such
agreements. See "Approval of the Merger and Related Transactions--Voting
Agreements" and "--Option Agreements." Cadence has also agreed, subject to
certain limitations, to indemnify each person serving as an officer or director
of CCT as of the date of the Reorganization Agreement from and after the
Effective Time for acts or omissions occurring prior to the Effective Time as
provided in CCT's bylaws and indemnification agreements between such officers
and directors and CCT. See "The Reorganization Agreement--Indemnification and
Insurance." As described above under "--Noncompetition Agreements," Mr. Harding
is entitled to receive certain payments from Cadence related to the performance
of his obligation under his Noncompetition Agreement.
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 Cadence's and CCT's 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.
MERGER EXPENSES AND FEES AND OTHER COSTS
Cadence and CCT estimate that they will incur direct transaction costs of
approximately $10 million associated with the Merger. See "Unaudited Pro Forma
Financial Information."
Cadence and CCT have agreed that, whether or not the Merger is consummated,
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; provided, however, that Cadence and CCT shall share equally all
fees and expenses, other than attorneys' 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 thereto. If,
subject to certain limitations, the Reorganization Agreement is terminated by
either Cadence or CCT because the CCT stockholders do not adopt and approve the
Reorganization Agreement and approve the Merger, or if the Reorganization
Agreement is terminated by Cadence due to the occurrence of a Triggering Event
(as defined under "--Option Agreements"), then (i) CCT will be required to pay
to Cadence a nonrefundable fee in the amount of $5.0 million and (ii) subject to
certain limitations, if an Acquisition Transaction (as defined herein) is
consummated at any time on or prior to the first anniversary of the termination
date of the Reorganization Agreement, then CCT will be required to pay Cadence
an additional nonrefundable fee of up to $10.0 million. See "The Reorganization
Agreement--Expenses and Termination Fees."
CCT has agreed to pay Alex. Brown a fee for its financial advisory services
in connection with the Merger, including, among other things, rendering the
Alex. Brown Opinion and making the presentation referred to above. See
"--Opinion of Alex. Brown & Sons Incorporated."
ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a pooling of interests for
financial reporting purposes in accordance with generally accepted accounting
principles. Cadence's obligation to consummate the Merger is conditioned upon
receipt at the closing of the Merger by Cadence and CCT of letters from Arthur
Andersen LLP, Cadence's independent public accountants, and Ernst & Young LLP,
CCT's independent auditors, as to the appropriateness of pooling-of-interests
accounting for the Merger.
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Candence has the right to waive the condition that the Merger be accounted for
as a pooling of interests. If the Merger is consummated but fails to qualify for
pooling-of-interests accounting treatment, then the transaction would be
accounted for as a purchase. Accounting for the Merger as a purchase could
result in a significant intangible asset or a significant charge against results
of operations or both, which could materially and adversely affect Cadence's
future results of operations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of CCT
Common Stock. This discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, 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, CCT or CCT
stockholders as described herein.
CCT stockholders should be aware that this discussion does not deal with all
U.S. federal income tax considerations that may be relevant to particular CCT
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, CCT
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 CCT 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. Fenwick & West LLP, counsel to CCT, 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 CCT
(including an assumption, based on representations, concerning the "continuity
of interest" requirement discussed below) and are subject to the limitations
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 CCT Common Stock
upon the receipt of Cadence Common Stock solely in exchange for such CCT
Common 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 CCT
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 CCT Common Stock surrendered in exchange therefor;
(iii) The holding period of the Cadence Common Stock so received by each CCT
stockholder in the Merger will include the period for which the CCT
Common Stock surrendered in exchange therefor was considered to be
held, provided that the CCT Common Stock so surrendered is held as a
capital asset at the Effective Time;
(iv) Cash payments received by holders of CCT Common 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
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then redeemed by Cadence. A CCT 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 CCT Common Stock was held as a capital
asset at the Effective Time; and
(v) Neither Cadence nor CCT 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, CCT
and certain stockholders of CCT, including representations in certain
certificates delivered to counsel by the respective managements of Cadence and
CCT and certain stockholders of CCT. Of particular importance are the
assumptions and representations relating to the "continuity of interest"
requirement.
To satisfy the "continuity of interest" requirement, CCT stockholders must
not, pursuant to a plan or intent existing at or prior to the Effective Time,
dispose of or transfer so much of either (i) their CCT Common Stock in
anticipation of the Merger or (ii) the Cadence Common Stock to be received in
the Merger (collectively, "Planned Dispositions"), such that the CCT
stockholders, as a group, would no longer have a significant equity interest in
the CCT business being conducted by Cadence after the Merger. CCT 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 CCT 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 CCT stockholders. A
CCT stockholder would recognize gain or loss with respect to each share of CCT
Common 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.
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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 CCT. As a result of the Merger, Cadence Merger Sub shall cease to
exist, CCT will become a wholly owned subsidiary of Cadence, and the former
stockholders of CCT will become stockholders of Cadence. CCT 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 or at such later time as may be specified in the Certificate of Merger.
Such filing is anticipated to take place as soon as practicable after the
adoption and approval of the Reorganization Agreement and approval of the Merger
by the CCT stockholders and after expiration or termination of the waiting
period under the HSR Act, subject to the satisfaction or waiver of the other
conditions to the Merger. It is currently anticipated that the Effective Time
will occur in February 1997. 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 "--Conditions to the
Merger" and "Approval of the Merger and Related Transactions-- Regulatory
Matters."
MERGER CONSIDERATION
CONSIDERATION FOR COMMON STOCK. For a description of the consideration to
be received in the Merger by the holders of CCT Common Stock, see "Approval of
the Merger and Related Transactions--Merger Consideration."
STOCK OPTIONS AND BENEFIT PLANS. For a description of the treatment of the
CCT stock options and employee benefit plans, see "Approval of the Merger and
Related Transactions--Stock Options; Benefit Plans."
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."
ABSENCE OF APPRAISAL RIGHTS
Under Section 262 of the DGCL, stockholders who do not vote in favor of or
consent to a merger are not entitled to appraisal rights if the stock subject to
such merger transaction is designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. and the consideration to be received in such merger consists of stock
listed on a national securities exchange. Because Nasdaq is designated as such a
system and the CCT Common Stock is quoted on Nasdaq and the NYSE is a national
securities exchange and the Cadence Common Stock is listed on the NYSE, CCT
stockholders are not entitled to appraisal rights with respect to the Merger.
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 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
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the Effective Time, the directors and officers of CCT 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 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 CCT contained in the
Reorganization Agreement shall have been accurate in all respects as of the date
of the Reorganization Agreement, 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
are not reasonably expected to result in, a Material Adverse Effect (as defined
below) on CCT and each of its direct and indirect majority-owned subsidiaries
(collectively with CCT, 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 CCT made or purported to have been made after the date of the
Reorganization Agreement shall be disregarded);
(ii) the representations and warranties of CCT contained in the
Reorganization Agreement shall be accurate in all respects as of the date of the
Closing 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 are not reasonably expected to result in, a Material Adverse
Effect on CCT and each of its direct and indirect majority-owned subsidiaries
(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 CCT made or purported to have been made after
the date of the Reorganization Agreement shall be disregarded);
(iii) each covenant or obligation that CCT 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;
(iv) 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;
(v) the Reorganization Agreement shall have been duly adopted and the Merger
shall have been duly approved by the Required Vote. See "The CCT Special
Meeting--Record Date and Vote Required";
(vi) all material consents required to be obtained in connection with the
Merger and the other transactions contemplated by the Reorganization Agreement
shall have been obtained and shall be in full force and effect;
(vii) Cadence and CCT shall have received the following agreements and
documents (each of which shall be in full force and effect) (a) Affiliate
Agreements in the form attached to the Reorganization Agreement, executed by
each person who is reasonably determined to be an "affiliate" of CCT (as that
term is used in Rule 145 promulgated under the Act), (b) Continuity of Interest
Certificates in the form attached to the Reorganization Agreement, executed by
John F. Cooper and David Chyan, (c) the Employment Agreements referred to in
clause "(xii)" under "--Covenants--Additional Covenants of the Parties,"
executed by the individuals to whom they apply, (d) the Noncompetition
Agreements referred to in clause "(xii)" under "--Covenants--Additional
Covenants of the Parties", executed by the individuals to
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whom they apply, (e) a letter from Ernst & Young LLP, dated as of the Closing
Date and addressed to Cadence, reasonably satisfactory in form and substance to
Cadence, updating the letter referred to in clause "(xi)" under
"--Covenants--Additional Covenants of the Parties", (f) the U.S. Treasury
Department certificate specified in Section 6.6(f) of the Reorganization
Agreement, executed by CCT, (g) a letter from Ernst & Young LLP, dated as of the
Closing Date and addressed to Cadence, CCT and Arthur Andersen LLP, reasonably
satisfactory in form and substance to Cadence and Arthur Andersen LLP, to the
effect that, after reasonable investigation, Ernst & Young LLP is not aware of
any fact concerning CCT or any of the CCT's stockholders or affiliates that
could preclude Cadence from accounting for the Merger as a pooling of interests
in accordance with generally accepted accounting principles, Accounting
Principles Board Opinion No. 16 and all published rules, regulations and
policies of the Commission, (h) a letter from Arthur Andersen LLP, dated as of
the Closing Date and addressed to Cadence, reasonably satisfactory in form and
substance to Cadence, to the effect that Cadence may account for the Merger as a
pooling of interests in accordance with generally accepted accounting
principles, Accounting Principles Board Opinion No. 16 and all published rules,
regulations and policies of the Commission, (i) a legal opinion of Fenwick &
West LLP, dated as of the Closing Date, reasonably satisfactory in form and
substance to Cadence, (j) subject to the receipt and reliance upon by Cooley
Godward LLP of certain Continuity of Interest Certificates and tax
representation letters, a legal opinion of Cooley Godward LLP, dated as of the
Closing Date and addressed to Cadence, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code, (k) a
certificate executed on behalf of CCT by its Chief Executive Officer confirming
that the conditions set forth in clause "(i)", clause "(ii)", clause "(iii)",
clause "(v)", clause "(vi)", clause "(viii)", clause "(ix)", and clause "(x)" of
this paragraph have been duly satisfied; and (l) the written resignations of all
officers and directors of CCT, effective as of the Effective Time;
(viii) none of certain specified individuals shall have ceased to be
employed by CCT, or shall have expressed an intention to terminate his or her
employment with CCT or to decline to accept employment with Cadence; and not
more than 50% of a certain specified group of individuals shall have ceased to
be employed by CCT or shall have expressed an intention to terminate their
employment with CCT or to decline to accept employment with Cadence;
(ix) there shall have been no material adverse change in the business,
condition, assets, liabilities, operations or financial performance of the
Acquired Corporations since the date of the Reorganization Agreement, except for
(a) any such material adverse change that is demonstrated to have resulted
directly from changes that occurred after the date of the Reorganization
Agreement in general business conditions in the EDA industry, and (b) any
material adverse change in CCT's financial performance that is temporary in
nature and is demonstrated to have resulted directly from the public
announcement or the pendency of the Merger;
(x) CCT shall have filed with the Internal Revenue Service the notification
required for compliance with United States Treasury Regulations referred to in
clause "(xvi)" under "--Covenants--Additional Covenants of the Parties";
(xi) the waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated;
(xii) the shares of CCT Common Stock to be issued in the Merger shall have
been approved for listing (subject to notice of issuance) on the NYSE;
(xiii) 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 legal requirement enacted or deemed applicable to the Merger that makes
consummation of the Merger illegal;
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(xiv) there shall not be pending or threatened any legal proceeding in which
a governmental body is or is threatened to become a party or is otherwise
involved: (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, the Surviving Corporation or any
subsidiary of Cadence to own the assets or operate the business of CCT; and
(xv) there shall not be pending any legal proceeding in which there is a
reasonable possibility of an outcome that would have a Material Adverse Effect
on the Acquired Corporations or on Cadence: (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 affect adversely the right of Cadence, the
Surviving Corporation or any subsidiary of Cadence to own the assets or operate
the business of CCT.
For purposes of the Reorganization Agreement, an event, violation,
inaccuracy, circumstance or other matter will be deemed to have a "Material
Adverse Effect" on the Acquired Corporations if such event, violation,
inaccuracy, circumstance or other matter (considered together with all other
matters that would constitute exceptions to the representations and warranties
of CCT referenced in the first paragraph under "--Representations and
Warranties" but for the presence of Material Adverse Effect or other materiality
qualifications, or any similar qualifications, in such representations and
warranties) 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 in the event CCT's
representations and warranties are inaccurate as of the Closing Date as if made
on and as of the Closing Date, the circumstances giving rise to the inaccuracies
in such representations and warranties will not be deemed to constitute a
Material Adverse Effect on the Acquired Corporations for purposes of clause
"(ii)" above if such circumstances (a) are demonstrated to have resulted
directly from changes that occurred after the date of the Reorganization
Agreement in general business conditions in the EDA industry, or (b) are
demonstrated to have resulted directly from the public announcement or the
pendency of the Merger and would reasonably be expected to have only a temporary
effect on the Acquired Corporations and the Acquired Corporations' business and
financial condition.
All the conditions to Cadence's and Cadence Merger Sub's obligation to
effect the Merger must either be satisfied or waived prior to the consummation
of the Merger.
CCT. The obligation of CCT 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 Reorganization Agreement 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 are not reasonably 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 materiality
qualifications contained in such representations and warranties shall be
disregarded);
(ii) the representations and warranties of Cadence and Cadence Merger Sub
contained in the Reorganization Agreement shall be accurate in all respects as
of the Closing Date as if made on and as of
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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 are not reasonably
expected to result in, a Material Adverse Effect on Cadence (it being understood
that, for purposes of determining the accuracy of such representations and
warranties, all materiality qualifications contained in such representations and
warranties shall be disregarded);
(iii) 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;
(iv) 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;
(v) CCT shall have received the following documents: (a) a legal opinion of
Cooley Godward LLP, dated as of the Closing Date, reasonably satisfactory in
form and substance to CCT, (b) subject to the receipt and reliance upon by
Fenwick & West LLP of certain Continuity of Interest Certificates and certain
tax representation letters, a legal opinion of Fenwick & West 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, 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 "(iii)" and
clause "(vi)" of this paragraph have been duly satisfied;
(vi) there shall have been no material adverse change in Cadence's business,
condition, assets, liabilities, operations or financial performance since the
date of the Reorganization Agreement, except for (a) any such material adverse
change that is demonstrated to have resulted directly from changes that occurred
after the date of the Reorganization Agreement in general business conditions in
the EDA industry, and (b) any material adverse change in Cadence's financial
performance that is temporary in nature and is demonstrated to have resulted
directly from the public announcement or the pendency of the Merger;
(vii) the waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated;
(viii) 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;
(ix) no temporary restraining order, preliminary or permanent injunction or
other order preventing the consummation of the Merger by CCT shall have been
issued by any court of competent jurisdiction and remain in effect, and there
shall not be any legal requirement enacted or deemed applicable to the Merger
that makes consummation of the Merger by CCT illegal.
For purposes of the Reorganization Agreement, an event, violation,
inaccuracy, circumstance or other matter will be deemed to have a Material
Adverse Effect on Cadence if such event, violation, inaccuracy, circumstance or
other matter (considered together with all other matters that would constitute
exceptions to the representations and warranties referenced in the second
paragraph under "--Representations and Warranties" but for the presence of
Material Adverse Effect or other materiality qualifications, or any similar
qualifications, in such representations and warranties) 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 in the event Cadence's representations and warranties
are inaccurate as of the Closing Date as if made on and as of the Closing Date,
the circumstances giving rise to the inaccuracies in such representations and
warranties will not be deemed to constitute a Material Adverse Effect on Cadence
for purposes of clause "(ii)" above if such circumstances (a) are demonstrated
to have resulted directly from changes that occurred after the date of the
Reorganization Agreement in general business conditions in the EDA industry, or
(b) are demonstrated to have resulted directly from
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the public announcement or the pendency of the Merger and would reasonably be
expected to have only a temporary effect on Cadence and Cadence's business and
financial condition.
All the conditions to CCT's obligation to effect 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 CCT
as to: (i) due organization and subsidiaries; (ii) charter documents and bylaws;
(iii) capitalization; (iv) filings with the Commission and financial statements;
(v) absence of certain changes; (vi) title to assets; (vii) equipment and
leaseholds; (viii) proprietary assets; (ix) contracts; (x) liabilities; (xi)
compliance with legal requirements; (xii) certain business practices; (xiii)
governmental authorizations; (xiv) tax matters; (xv) employee and labor matters
and benefit plans; (xvi) environmental matters; (xvii) insurance; (xviii)
transactions with affiliates; (xix) legal proceedings and orders; (xx)
authority, inapplicability of anti-takeover statutes and binding nature of the
Reorganization Agreement; (xxi) inapplicability of Delaware law with respect to
business combinations with interested stockholders; (xxii) no existing
discussions; (xxiii) accounting matters; (xxiv) vote required; (xxv) non-
contravention and consents; (xxvi) fairness opinion; (xxvii) brokers, finders,
investment bankers or other fees or commissions; and (xxviii) full disclosure.
The Reorganization Agreement contains further representations and warranties
by Cadence and Cadence Merger Sub as to: (i) organization, standing and power;
(ii) capitalization; (iii) filings with the Commission and financial statements;
(iv) absence of certain changes or events; (v) title to assets; (vi) proprietary
assets; (vii) liabilities; (viii) compliance with legal requirements; (ix)
governmental authorizations; (x) legal proceedings and orders; (xi) vote
required; (xii) authority and binding nature of the Reorganization Agreement;
(xiii) non-contravention and consents; (xiv) valid issuance of Cadence Common
Stock; (xv) accounting matters and (xvi) full disclosure.
COVENANTS
CERTAIN COVENANTS OF CCT. The Reorganization Agreement requires that, from
the date of the execution of the Reorganization Agreement until the Effective
Time:
(i) CCT shall, and shall cause the respective officers, directors,
employees, agents, attorneys, accountants, advisors and representatives
("Representatives") of the Acquired Corporation to, provide Cadence and
Cadence's representatives with reasonable access to its Representatives,
personnel, assets, books, records, tax returns and other documents and
information relating to the Acquired Corporations and such copies of the
existing books, records, tax returns and other documents relating to the
Acquired Corporations as Cadence may reasonably request;
(ii) (a) CCT shall ensure that each of the Acquired Corporations
conducts its business and operations (1) in the ordinary course and in
accordance with past practices and (2) in compliance with all applicable
legal requirements and the requirements of all material contracts; (b) CCT
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)
CCT shall keep in full force its material insurance policies; (d) CCT shall
provide all reasonable notices, assurances and support required by any
contract to which either Acquired Corporation is a party relating to any
proprietary asset of the Acquired Corporations in order to ensure that no
condition under any such contract occurs which would result in (1) any
transfer or disclosure by any Acquired Corporation of any source code
materials or other proprietary asset, or (2) a release from any escrow of
any source code materials or other proprietary asset which have been
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deposited or are required to be deposited in escrow under the terms of such
contract; (e) CCT shall comply with Cadence's reasonable directions with
respect to exercising any right or remedies under certain contracts relating
to securities of CCT (including those contracts that provide for preemptive
rights, rights of participation, rights of maintenance and rights of first
refusal) and (f) CCT shall (to the extent reasonably requested by Cadence)
cause its officers to report regularly to Cadence concerning the status of
the business of CCT;
(iii) CCT shall not (without the prior written consent of Cadence), and
shall not permit any of the Acquired Corporations 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;
(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 any capital stock or other security, or (3) any instrument
convertible into or exchangeable for any capital stock or other security
(except that (A) CCT may issue CCT Common Stock upon the valid exercise
of CCT Options outstanding as of the date of the Reorganization
Agreement, (B) CCT may issue CCT Common Stock upon the valid exercise of
"options" outstanding under the CCT Purchase Plan, and (C) CCT may, in
the ordinary course of business and consistent with past practices, grant
options under CCT's 1995 Equity Incentive Plan to purchase no more than
250,000 shares of CCT Common Stock to employees of CCT);
(c) amend or waive any of its rights under, or accelerate the vesting
under, any provision of any of CCT'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;
(d) 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;
(e) form any subsidiary or acquire any equity interest or other
interest in any other entity;
(f) make any capital expenditure in any calendar month which, when
added to all other capital expenditures made on behalf of the Acquired
Corporations in such calendar month results in such capital expenditures
exceeding $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 or exercise any material right or remedy
(including any right to repurchase shares of CCT Common Stock) under, any
material contract;
(h) acquire, lease or license any right or other asset from any third
party or sell or otherwise dispose of, or lease or license, any right or
other asset to any third party (except in each case for assets acquired,
leased, licensed or disposed of by CCT in the ordinary course of business
and consistent with past practices), or waive or relinquish any material
right;
(i) lend money to any third party, or incur or guarantee any
indebtedness;
(j) (1) establish, adopt or amend any employee benefit plan, or (2)
except for bonus, profit-sharing and similar payments made in the
ordinary course of business consistent with past practices, pay any bonus
or make any profit-sharing or similar payment to, or materially increase
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the amount of commissions payable to, any of its directors, officers or
employees, or (3) materially increase the amount of the wages, salary,
fringe benefits or other compensation or remuneration payable to, any of
its directors, officers or employees;
(k) (1) hire any new employee having an annual salary in excess of
$75,000, or (2) engage any consultant or independent contractor who (A)
is entitled to receive annual compensation in excess of $75,000, and (B)
may not be terminated by CCT (without penalty) on no more than 30 days
notice;
(l) change any of its methods of accounting or accounting practices
in any material respect;
(m) make any material tax election;
(n) commence or settle any material legal proceeding;
(o) enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with past
practices; or
(p) agree or commit to take any of the actions described in clauses
"(a)" through "(o)" of this paragraph; and
(iv) CCT shall promptly notify Cadence in writing of the discovery by
CCT of: (a) 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 a material inaccuracy in any representation or
warranty made by CCT in the Reorganization Agreement; (b) any event,
condition, fact or circumstance that occurs, arises or exists after the date
of and that would cause or constitute a material inaccuracy in any
representation or warranty made by CCT 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 Reorganization
Agreement; (c) any material breach of any covenant or obligation of CCT; and
(d) any event, condition, fact or circumstance that would make the timely
satisfaction of any of the conditions precedent to obligations of CCT
pursuant to the Reorganization Agreement impossible or unlikely or that has
had or would reasonably be expected to have a Material Adverse Effect on the
Acquired Corporations.
ADDITIONAL COVENANTS OF THE PARTIES. The Reorganization Agreement also
contains certain additional covenants of the parties including covenants
relating to: (i) the preparation and filing of the Registration Statement; (ii)
CCT's obligations with respect to the CCT Special Meeting; (iii) regulatory
approvals; (iv) CCT stock options and employee benefit plans; (v)
indemnification of officers and directors; (vi) actions regarding "pooling of
interests" accounting for the Merger; (vii) subject to certain limitations, the
preparation and filing of filings and notices and obtaining approvals, consents,
ratifications, permissions, waivers and authorizations; (viii) press releases,
public statements and other disclosures regarding the Merger, the Reorganization
Agreement and the transactions contemplated thereby; (ix) affiliate agreements;
(x) tax opinion back-up certificates; (xi) delivery of a letter from Ernst &
Young LLP with respect to the Registration Statement; (xii) employment
agreements and noncompetition agreements; (xiii) Cadence equity incentive plans
and benefit arrangements; (xiv) listing of Cadence Common Stock on the NYSE;
(xv) resignation of CCT officers and directors; and (xvi) compliance with United
States Treasury Regulations.
CCT has agreed in the Reorganization Agreement (i) to take all action
necessary in accordance with all applicable law to call, give notice of, convene
and hold the CCT 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 CCT Board of Directors that the CCT stockholders vote
in favor of and adopt and approve the Reorganization Agreement and the Merger;
provided, however, that nothing in the Reorganization Agreement will prevent the
CCT Board of Directors from withdrawing, amending or
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modifying its recommendation in favor of the Merger if (a) an unsolicited bona
fide written Acquisition Proposal is submitted to CCT and is not withdrawn, (b)
the CCT Board of Directors concludes in good faith, based upon the advice of its
financial advisor, that such Acquisition Proposal could reasonably be expected
to result in a transaction that is more favorable from a financial point of view
to CCT's stockholders than the Merger, (c) CCT has not violated its covenant not
to solicit, initiate, encourage or induce any proposals for an Acquisition
Proposal, and (d) the CCT 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 CCT's stockholders under applicable law.
Pursuant to the Reorganization Agreement, Cadence and CCT 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, or commit to cause any of the Acquired
Corporations to dispose of any assets; (ii) discontinue or cause any of its
subsidiaries to discontinue offering any product, or commit to cause any of the
Acquired Corporations to discontinue offering any product; (iii) license or
otherwise make available, or cause any of its subsidiaries to license or
otherwise make available, to any third party, any technology, software or other
proprietary asset, or commit to cause any of the Acquired Corporations to
license or otherwise make available to any third party any technology, software
or other proprietary asset; (iv) hold separate or cause any of its subsidiaries
to hold separate any assets or operations, or to commit to cause any of the
Acquired Corporations to hold separate any assets or operations; or (v) make or
cause any of its subsidiaries to make any commitment regarding its future
operations or the future operations of any of the Acquired Corporations.
NON-SOLICITATION
Pursuant to the Reorganization Agreement, CCT has agreed that it will not,
directly or indirectly, and will not authorize or permit its Representatives,
directly or indirectly to (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 nonpublic information regarding any of the Acquired Corporations to any
third party in connection with or in response to an Acquisition Proposal, (iii)
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 similar document or any contract or other
agreement contemplating or otherwise relating to any Acquisition Transaction;
provided, however, that such provisions shall not prohibit CCT 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 (and not withdrawn) by such third party
if (a) the Board of Directors of CCT concludes in good faith, based upon the
advice of its financial advisor, that such Acquisition Proposal could reasonably
be expected to result in a transaction that is more favorable from a financial
point of view to CCT's stockholders than the Merger, (b) the Board of Directors
of CCT concludes in good faith, after consultation with outside legal counsel,
that such action is required in order for the Board of Directors of CCT to
comply with its fiduciary obligations to CCT's stockholders under applicable
law, (c) prior to furnishing any such nonpublic information to, or entering into
discussions with, such third party, CCT gives Cadence written notice of the
identity of such third party and of CCT's intention to furnish nonpublic
information to, or enter into discussions with, such third party, and CCT
receives from such third party an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such third party by or on behalf of CCT, and (d)
prior to furnishing any such nonpublic information to such third party, CCT
furnishes such nonpublic information to Cadence (to the extent such nonpublic
information has not been previously furnished by CCT to Cadence). Without
limiting the generality of the foregoing, pursuant to the Reorganization
Agreement, CCT has acknowledged and agreed that any violation of any of
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the restrictions referenced in the preceding sentence by any officer, director,
employee, agent, attorney, accountant, advisor or representative of any of the
Acquired Corporations, whether or not such Representative is purporting to act
on behalf of any of the Acquired Corporations, shall be deemed to constitute a
breach of CCT's obligations referenced in the preceding sentence.
INDEMNIFICATION AND INSURANCE
Pursuant to the Reorganization Agreement, all rights to indemnification
existing in favor of the persons serving as directors or officers of CCT as of
the date of the Reorganization Agreement for acts and omissions occurring prior
to the Effective Time, as provided in CCT's Bylaws (as in effect as of the date
of the Reorganization Agreement) and as provided in the indemnification
agreements between CCT and said directors and officers (as in effect as of the
date of the Reorganization Agreement), shall survive the Merger and shall be
maintained by the Surviving Corporation for a period of not less than six years
from the Effective Time; provided, however, that the Surviving Corporation's
indemnification obligations will be reduced to the extent of any insurance
proceeds paid under the CCT D&O Policies (as defined below). The Reorganization
Agreement provides that from and after the Effective Time, Cadence will, to the
fullest extent permitted by law, perform all indemnification obligations of the
Surviving Corporation under this paragraph (without giving effect to the
limitations on the Surviving Corporation's indemnification obligations imposed
by Section 145(b) of the DGCL); provided, however, that Cadence's
indemnification obligations shall be reduced (i) to the extent that the
Surviving Corporation performs such obligations, and (ii) to the extent of any
insurance proceeds paid under the CCT D&O Policies.
If (i) on the Closing Date, a legal proceeding in which a governmental body
is or is threatened to become a party or is otherwise involved or in which there
is a reasonable possiblitity of an outcome that would have a Material Adverse
Effect on the Acquired Corporations or Cadence (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, the Surviving Corporation or any subsidiary of Cadence to own the
assets or operate the business of CCT is pending before any court of competent
jurisdiction, (ii) any person serving as a director or officer of CCT as of the
date of the Reorganization Agreement is named as a defendant in such legal
proceeding by virtue of any action taken by him prior to the Closing Date in his
capacity as a director or officer of CCT, (iii) CCT has disclosed to Cadence,
prior to the Closing Date, the pendency of such legal proceeding, and (iv)
Cadence waives in writing the conditions to consummate the Merger as they apply
to such legal proceeding and elects to proceed with the Closing, then, from and
after the Effective Time, Cadence is required to hold harmless and indemnify
such director or officer from and against all losses and expenses incurred by
such director or officer in connection with such legal proceeding.
Cadence shall have (i) the exclusive right, at its election, to assume and
control the defense (with counsel selected by Cadence and reasonably
satisfactory to the indemnified parties) of any claim or legal proceeding with
respect to which Cadence or the Surviving Corporation has any indemnification
obligation described under "--Indemnification and Insurance," and (ii) the
right, at its election, to settle, adjust or compromise any such claim or legal
proceeding without the consent of any indemnified party (if the agreement
relating to the settlement of such claim contains a customary release of such
indemnified party and other customary terms).
From the Effective Time until the sixth anniversary of the date on which the
Merger becomes effective and subject to certain limitations, the Surviving
Corporation is required to maintain in effect, for the benefit of the persons
serving as directors and officers of CCT as of the date of the Reorganization
Agreement with respect to acts or omissions occurring prior to the Effective
Time, the directors' and
50
<PAGE>
officers' liability insurance policy maintained by CCT as of October 31, 1996 or
substitute policy or policies of comparable coverage (the "CCT D&O Policies").
TERMINATION
The Reorganization Agreement may be terminated prior to the Effective Time,
whether before or after approval of the Merger by the stockholders of CCT:
(i) by mutual written consent of Cadence and CCT;
(ii) by either Cadence or CCT if the Merger shall not have been
consummated by 5:00 p.m. (Pacific Time) on May 7, 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 CCT 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 either Cadence or CCT if (a) the CCT 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; provided,
however, that (1) Cadence shall not be permitted to terminate the
Reorganization Agreement as provided in this clause "(iv)" if the failure of
CCT's stockholders to adopt and approve the Reorganization Agreement and the
Merger at the CCT Special Meeting is attributable to a failure on the part
of Cadence to perform any material obligation required to have been
performed by Cadence under the Reorganization Agreement, (2) CCT shall not
be permitted to terminate the Reorganization Agreement as provided in this
clause "(iv)" if the failure of CCT's stockholders to adopt and approve the
Reorganization Agreement and the Merger at the CCT Special Meeting is
attributable to a failure on the part of CCT to perform any material
obligation required to have been performed by CCT under the Reorganization
Agreement, and (3) CCT shall not be permitted to terminate the
Reorganization Agreement as provided in this clause "(iv)" unless CCT shall
have paid the Initial CCT Fee (as defined under "--Expenses and Termination
Fees").
(v) 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 (as defined in the Reorganization Agreement) shall have
occurred;
(vi) by Cadence if any of CCT's representations and warranties contained
in the Reorganization Agreement shall be or shall have become materially
inaccurate, or if any of CCT's material covenants contained in the
Reorganization Agreement shall have been breached in any material respect;
provided, however, that if an inaccuracy in CCT's representations and
warranties or a breach of a covenant by CCT is curable by CCT and CCT is
continuing to exercise reasonable efforts to cure such inaccuracy or breach,
then Cadence may not terminate the Reorganization Agreement as provided in
this clause "(vi)" on account of such inaccuracy or breach;
(vii) by CCT if any of Cadence's representations and warranties contained
in the Reorganization Agreement shall be or shall have become materially
inaccurate, or if any of Cadence's material covenants contained in the
Reorganization Agreement shall have been breached in any material respect;
provided, however, that if an inaccuracy in Cadence's representations and
warranties or a breach of a covenant by Cadence is curable by Cadence and
Cadence is continuing to exercise reasonable efforts to cure such inaccuracy
or breach, then CCT may not terminate the Reorganization Agreement as
provided in this clause "(vii)" on account of such inaccuracy or breach; or
(viii) by either Cadence or CCT at 5:00 p.m. (Pacific Time) on the
scheduled Closing Date (as designated by Cadence) if (a) Cadence would have
failed to issue shares of Cadence Common Stock
51
<PAGE>
on or prior to the scheduled Closing Date for the purpose of satisfying the
condition specified in paragraph 47d of Accounting Principles Board Opinion
No. 16 (such condition being referred to as the "Paragraph 47d Condition"),
(b) Arthur Andersen LLP were unable to provide, on the scheduled Closing
Date, the letter referred to in Section 6.6(h) of the Reorganization
Agreement solely as a result of Cadence's failure to issue shares of Cadence
Common Stock in order to satisfy the Paragraph 47d Condition, and (c) all of
the conditions set forth under "--Conditions to the Merger-Cadence and
Cadence Merger Sub" had otherwise been fully satisfied (except for any
conditions under "--Conditions to the Merger-Cadence and Cadence Merger Sub"
that were not satisfied as a result of Cadence's failure to perform any
material obligation required to have been performed by Cadence under the
Reorganization Agreement). The required number of shares of Cadence Common
Stock were issued by Cadence between the date of execution of the
Reorganization Agreement and the date of this Proxy Statement/Prospectus or
will be issued in connection with the HLDS Merger.
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 CCT shall share equally all fees and expenses, other than attorneys'
fees, incurred in connection with the printing and filing of the Registration
Statement and the Proxy Statement/Prospectus and any amendments or supplements
thereto.
The Reorganization Agreement provides that if the Reorganization Agreement
is terminated by Cadence or CCT as provided in clause "(iv)" under
"--Termination," or if the Reorganization Agreement is terminated by Cadence as
provided in clause "(v)" under "--Termination," then: (i) CCT shall pay to
Cadence, in cash (at the time specified below), a nonrefundable fee in the
amount of $5,000,000 (the "Initial CCT Fee"); and (ii) in the event an
Acquisition Transaction is consummated at any time on or prior to the first
anniversary of the date on which the Reorganization Agreement is terminated, CCT
shall pay to Cadence, in cash, contemporaneously with the consummation of such
Acquisition Transaction, an additional nonrefundable fee (the "Supplemental CCT
Fee") in an amount equal to the Designated Amount (as defined below). In the
case of termination of the Reorganization Agreement by CCT as provided in clause
"(iv)" under "--Termination", the Initial CCT Fee shall be paid by CCT prior to
such termination, and in the case of termination of the Reorganization Agreement
by Cadence as provided in clause "(iv)" or clause "(v)" under "--Termination,"
the Initial CCT Fee shall be paid by CCT within three business days after such
termination.
The "Designated Amount" shall be $10,000,000; provided, however, that if (i)
the Acquisition Transaction referred to in the preceding paragraph is required
to be accounted for as a pooling of interests, (ii) prior to the consummation of
such Acquisition Transaction, CCT delivers to Cadence reasonable written
evidence of a determination by the Commission that relates specifically to such
Acquisition Transaction and that states that the Commission will not permit such
Acquisition Transaction to be accounted for as a pooling of interests in the
event, and solely because, the Supplemental CCT Fee in the amount of $10,000,000
is paid by CCT to Cadence, (iii) Cadence shall have been given a reasonable
opportunity, both prior to and after such determination by the Commission, to
persuade the appropriate official at the Commission to appropriately modify the
Commission's position on the accounting treatment of such Acquisition
Transaction (so that such Acquisition Transaction can be accounted for as a
pooling of interests notwithstanding the payment by CCT of the Supplemental CCT
Fee), (iv) CCT shall have promptly advised Cadence of all material
communications between CCT or any of its Representatives and the Commission
regarding the accounting treatment of such Acquisition Transaction, (v) CCT
shall have cooperated with Cadence, both prior to and after such determination
by the Commission, in Cadence's efforts to persuade the appropriate official at
the Commission to appropriately modify the Commission's position on the
accounting treatment of such Acquisition Transaction, (vi) CCT shall not have
taken any
52
<PAGE>
action or position, either prior to or after such determination by the
Commission, in opposition to or inconsistent with Cadence's efforts to persuade
the appropriate official at the Commission to appropriately modify the
Commission's position on the accounting treatment of such Acquisition
Transaction, and (vii) the position reflected in such determination by the
Commission shall not have been reversed, withdrawn or otherwise appropriately
altered, then the Designated Amount shall be the lesser of $10,000,000 or the
maximum dollar amount that would not preclude such Acquisition Transaction from
being accounted for as a pooling of interests.
NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
None of the representations and warranties of CCT, Cadence or Cadence Merger
Sub contained in the Reorganization Agreement or in any certificate delivered
pursuant to the Reorganization Agreement shall survive the Merger.
AMENDMENT; WAIVER
The Reorganization Agreement may be amended with the approval of the
respective Boards of Directors of CCT and Cadence at any time before or after
adoption and approval of the Reorganization Agreement by the stockholders of
CCT; provided, however, that after any such adoption and approval of the
Reorganization Agreement and the Merger by CCT's stockholders, no amendment
shall be made which by law requires further approval of the stockholders of CCT
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 thereto. No waiver under the Reorganization Agreement will be
effective unless it is expressly set forth in a written instrument duly executed
and delivered on behalf of the party against whom the enforcement of such waiver
is being sought.
53
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the Merger with CCT and the HLDS Merger (which was consummated on
December 18, 1996) and should be read in conjunction with historical financial
statements and accompanying notes for Cadence and the supplemental historical
financial statements of CCT incorporated by reference or included herein. The
Merger with CCT is subject to approval by the stockholders of CCT, as well as to
other conditions to closing.
The unaudited pro forma combined statements of income for the two fiscal
years in the period ended December 31, 1994 give effect to the proposed Merger
with CCT, which will be accounted for as a pooling of interests, as if the
Merger was completed at the beginning of the periods presented. The unaudited
pro forma combined statements of income for the fiscal year ended December 30,
1995 and the nine-month periods ended September 30, 1995 and September 28, 1996
give effect to the proposed Merger with CCT and the HLDS Merger (which will be
accounted for as a purchase) as if the mergers were completed at the beginning
of the periods presented. The unaudited pro forma condensed combined balance
sheet has been prepared as if the mergers were completed as of September 28,
1996. With respect to the HLDS Merger, 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.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the mergers had been consummated at the beginning of the
earliest period presented, nor is it necessarily indicative of future operating
results or financial position.
54
<PAGE>
CADENCE AND CCT
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CADENCE CCT ADJUSTMENTS BALANCES
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Product.......................... $224,139 $ 6,263 $230,402
Service.......................... 16,872 -- 16,872
Maintenance...................... 127,612 1,031 128,643
-------- ------- ---------
TOTAL REVENUE.................. 368,623 7,294 375,917
-------- ------- ---------
COSTS AND EXPENSES:
Cost of product.................. 53,677 259 53,936
Cost of service.................. 15,431 -- 15,431
Cost of maintenance.............. 14,864 93 14,957
Marketing and sales.............. 160,212 1,490 161,702
Research and development......... 74,467 3,298 77,765
General and administrative....... 38,737 488 39,225
Unusual items.................... 19,650 -- 19,650
-------- ------- ---------
TOTAL COSTS AND EXPENSES....... 377,038 5,628 382,666
-------- ------- ---------
Income (loss) from operations...... (8,415) 1,666 (6,749)
Other income (expense), net........ (4,364) (21) (4,385)
-------- ------- ---------
Income (loss) before provision for
income taxes..................... (12,779) 1,645 (11,134)
Provision for income taxes......... -- 603 603
-------- ------- ---------
NET INCOME (LOSS).............. ($12,779) $ 1,042 ($11,737)
-------- ------- ---------
-------- ------- ---------
NET INCOME (LOSS) PER SHARE.... ($ 0.13) $ 0.10 ($ 0.11)
-------- ------- ---------
-------- ------- ---------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING.................. 96,885 10,135 (4,733)(1) 102,287
-------- ------- ---------
-------- ------- ---------
</TABLE>
- ------------------------------
(1) Converts CCT's weighted average common shares outstanding to Cadence Common
Stock based on the Exchange Ratio. Common equivalent shares have been
excluded because they are antidilutive.
55
<PAGE>
CADENCE AND CCT
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CADENCE CCT ADJUSTMENTS BALANCES
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Product.......................... $241,545 $ 9,525 $251,070
Service.......................... 28,365 -- 28,365
Maintenance...................... 159,162 6,020 165,182
-------- ------- ---------
TOTAL REVENUE.................. 429,072 15,545 444,617
-------- ------- ---------
COSTS AND EXPENSES:
Cost of product.................. 52,897 851 53,748
Cost of service.................. 22,590 -- 22,590
Cost of maintenance.............. 14,313 775 15,088
Marketing and sales.............. 163,408 4,899 168,307
Research and development......... 77,381 5,575 82,956
General and administrative....... 39,729 1,908 41,637
Unusual items.................... 14,707 434 15,141
-------- ------- ---------
TOTAL COSTS AND EXPENSES....... 385,025 14,442 399,467
-------- ------- ---------
Income from operations............. 44,047 1,103 45,150
Other income (expense), net........ 4,816 (100) 4,716
-------- ------- ---------
Income before provision for income
taxes............................. 48,863 1,003 49,866
Provision for income taxes......... 12,215 359 12,574
-------- ------- ---------
NET INCOME..................... $ 36,648 $ 644 $ 37,292
-------- ------- ---------
-------- ------- ---------
NET INCOME PER SHARE........... $ 0.37 $ 0.06 $ 0.34
-------- ------- ---------
-------- ------- ---------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING.................. 98,805 10,989 (1,648)(1) 108,146
-------- ------- ---------
-------- ------- ---------
</TABLE>
- ------------------------------
(1) Converts CCT's weighted average common and common equivalent shares
outstanding to Cadence Common Stock based on the Exchange Ratio.
56
<PAGE>
CADENCE, CCT AND HLDS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUB
CADENCE CCT ADJUSTMENTS TOTAL
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Product.......................... $292,198 $15,661 $ 307,859
Service.......................... 65,860 -- 65,860
Maintenance...................... 190,360 7,781 198,141
-------- ------- ---------
TOTAL REVENUE.................. 548,418 23,442 571,860
-------- ------- ---------
COSTS AND EXPENSES:
Cost of product.................. 44,793 1,157 45,950
Cost of service.................. 54,988 -- 54,988
Cost of maintenance.............. 16,749 846 17,595
Marketing and sales.............. 185,025 10,200 195,225
Research and development......... 88,566 5,893 94,459
General and administrative....... 40,437 3,526 43,963
-------- ------- ---------
TOTAL COSTS AND EXPENSES....... 430,558 21,622 452,180
-------- ------- ---------
Income (loss) from operations...... 117,860 1,820 119,680
Other income, net.................. 17,237 175 17,412
-------- ------- ---------
Income (loss) before provision for
income taxes...................... 135,097 1,995 137,092
Provision (benefit) for income
taxes............................. 37,827 666 38,493
-------- ------- ---------
NET INCOME (LOSS).............. $ 97,270 $ 1,329 $ 98,599
-------- ------- ---------
-------- ------- ---------
NET INCOME (LOSS) PER SHARE.... $ 1.05 $ 0.11 $ 0.95
-------- ------- ---------
-------- ------- ---------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING.................. 92,948 12,272 (1,841)(1) 103,379
-------- ------- ---------
-------- ------- ---------
<CAPTION>
PRO
FORMA
HLDS ADJUSTMENTS BALANCES
-------- ----------- --------
<S> <C> <C> <C>
REVENUE:
Product.......................... $ 7,821 $315,680
Service.......................... 915 66,775
Maintenance...................... 1,391 199,532
-------- --------
TOTAL REVENUE.................. 10,127 581,987
-------- --------
COSTS AND EXPENSES:
Cost of product.................. -- 2,630(2) 48,580
Cost of service.................. 678 55,666
Cost of maintenance.............. -- 17,595
Marketing and sales.............. 3,480 198,705
Research and development......... 3,648 98,107
General and administrative....... 4,662 48,625
-------- --------
TOTAL COSTS AND EXPENSES....... 12,468 467,278
-------- --------
Income (loss) from operations...... (2,341) 114,709
Other income, net.................. 19 17,431
-------- --------
Income (loss) before provision for
income taxes...................... (2,322) 132,140
Provision (benefit) for income
taxes............................. 106 (756)(3) 37,843
-------- --------
NET INCOME (LOSS).............. $ (2,428) $94,297
-------- --------
-------- --------
NET INCOME (LOSS) PER SHARE.... $ 0.89
--------
--------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING.................. 2,719(4) 106,098
--------
--------
</TABLE>
- ------------------------------
(1) Converts CCT's weighted average common and common equivalent shares
outstanding to Cadence Common Stock based on the Exchange Ratio.
(2) Reflects twelve months of amortization of capitalized purchased intangibles
based upon an estimated three-year life.
(3) Adjusts the income tax provision due to HLDS' losses based upon a 28%
effective tax rate.
(4) 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.
57
<PAGE>
CADENCE, CCT AND HLDS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUB
CADENCE CCT ADJUSTMENTS TOTAL
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
REVENUE:
Product.......................... $202,104 $10,736 $212,840
Service.......................... 44,335 -- 44,335
Maintenance...................... 138,223 5,284 143,507
-------- ------- --------
TOTAL REVENUE.................. 384,662 16,020 400,682
-------- ------- --------
COSTS AND EXPENSES:
Cost of product.................. 34,163 885 35,048
Cost of service.................. 38,184 -- 38,184
Cost of maintenance.............. 12,416 465 12,881
Marketing and sales.............. 130,351 6,988 137,339
Research and development......... 65,210 4,263 69,473
General and administrative....... 29,066 2,167 31,233
-------- ------- --------
TOTAL COSTS AND EXPENSES....... 309,390 14,768 324,158
-------- ------- --------
Income (loss) from operations...... 75,272 1,252 76,524
Other income, net.................. 16,992 45 17,037
-------- ------- --------
Income (loss) before provision for
income taxes...................... 92,264 1,297 93,561
Provision (benefit) for income
taxes............................. 25,834 463 26,297
-------- ------- --------
NET INCOME (LOSS).............. $ 66,430 $ 834 $ 67,264
-------- ------- --------
-------- ------- --------
NET INCOME (LOSS) PER SHARE.... $ 0.71 $ 0.07 $ 0.65
-------- ------- --------
-------- ------- --------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING.................. 93,170 11,918 (1,788)(1) 103,300
-------- ------- --------
-------- ------- --------
<CAPTION>
PRO FORMA
HLDS ADJUSTMENTS BALANCES
------- ----------- ---------
<S> <C> <C> <C>
REVENUE:
Product.......................... $ 6,048 $218,888
Service.......................... 564 44,899
Maintenance...................... 862 144,369
------- ---------
TOTAL REVENUE.................. 7,474 408,156
------- ---------
COSTS AND EXPENSES:
Cost of product.................. -- 1,973(2) 37,021
Cost of service.................. 419 38,603
Cost of maintenance.............. -- 12,881
Marketing and sales.............. 2,605 139,944
Research and development......... 2,680 72,153
General and administrative....... 4,154 35,387
------- ---------
TOTAL COSTS AND EXPENSES....... 9,858 335,989
------- ---------
Income (loss) from operations...... (2,384) 72,167
Other income, net.................. 4 17,041
------- ---------
Income (loss) before provision for
income taxes...................... (2,380) 89,208
Provision (benefit) for income
taxes............................. 58 (725)(3) 25,630
------- ---------
NET INCOME (LOSS).............. $(2,438) $ 63,578
------- ---------
------- ---------
NET INCOME (LOSS) PER SHARE.... $ 0.60
---------
---------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING.................. 2,719(4) 106,019
---------
---------
</TABLE>
- ------------------------------
(1) Converts CCT's weighted average common and common equivalent shares
outstanding to Cadence Common Stock based on the Exchange Ratio.
(2) Reflects nine months of amortization of capitalized purchased intangibles
based upon an estimated three-year life.
(3) Adjusts the income tax provision due to HLDS' losses based upon a 33%
effective tax rate.
(4) 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.
58
<PAGE>
CADENCE, CCT AND HLDS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUB
CADENCE CCT ADJUSTMENTS TOTAL
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Product.......................... $291,214 $18,138 $309,352
Service.......................... 80,405 -- 80,405
Maintenance...................... 157,578 7,542 165,120
-------- ------- ---------
TOTAL REVENUE.................. 529,197 25,680 554,877
-------- ------- ---------
COSTS AND EXPENSES:
Cost of product.................. 35,539 1,227 36,766
Cost of service.................. 57,420 -- 57,420
Cost of maintenance.............. 17,707 662 18,369
Marketing and sales.............. 160,952 10,066 171,018
Research and development......... 85,147 5,557 90,704
General and administrative....... 40,444 4,006 44,450
-------- ------- ---------
TOTAL COSTS AND EXPENSES....... 397,209 21,518 418,727
-------- ------- ---------
Income (loss) from operations...... 131,988 4,162 136,150
Other income (expense), net........ (2,355) 788 (1,567)
-------- ------- ---------
Income (loss) before provision for
income taxes...................... 129,633 4,950 134,583
Provision (benefit) for income
taxes............................. 42,779 1,687 44,466
-------- ------- ---------
NET INCOME (LOSS).............. $ 86,854 $ 3,263 $ 90,117
-------- ------- ---------
-------- ------- ---------
NET INCOME (LOSS) PER SHARE.... $ 0.95 $ 0.23 $ 0.87
-------- ------- ---------
-------- ------- ---------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING.................. 91,095 14,419 (2,163)(1) 103,351
-------- ------- ---------
-------- ------- ---------
<CAPTION>
PRO FORMA
HLDS ADJUSTMENTS BALANCES
------- ----------- ---------
<S> <C> <C> <C>
REVENUE:
Product.......................... $6,636 $315,988
Service.......................... 1,135 81,540
Maintenance...................... 1,658 166,778
------- ---------
TOTAL REVENUE.................. 9,429 564,306
------- ---------
COSTS AND EXPENSES:
Cost of product.................. -- 1,973(2) 38,739
Cost of service.................. 846 58,266
Cost of maintenance.............. -- 18,369
Marketing and sales.............. 4,138 175,156
Research and development......... 3,963 94,667
General and administrative....... 1,478 45,928
------- ---------
TOTAL COSTS AND EXPENSES....... 10,425 431,125
------- ---------
Income (loss) from operations...... (996 ) 133,181
Other income (expense), net........ (598 ) (2,165)
------- ---------
Income (loss) before provision for
income taxes...................... (1,594 ) 131,016
Provision (benefit) for income
taxes............................. 115 (641)(3) 43,940
------- ---------
NET INCOME (LOSS).............. $(1,709) $ 87,076
------- ---------
------- ---------
NET INCOME (LOSS) PER SHARE.... $ 0.82
---------
---------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING.................. 2,719(4) 106,070
---------
---------
</TABLE>
- ------------------------------
(1) Converts CCT's weighted average common and common equivalent shares
outstanding to Cadence Common Stock based on the Exchange Ratio.
(2) Reflects nine months of amortization of capitalized purchased intangibles
based upon an estimated three-year life.
(3) Adjusts the income tax provision due to HLDS' losses based upon a 33%
effective tax rate.
(4) 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.
59
<PAGE>
CADENCE, CCT AND HLDS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUB
CADENCE CCT ADJUSTMENTS TOTAL HLDS ADJUSTMENTS
--------- ------- ----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash investments.................. $ 83,211 $ 4,690 $ 87,901 $ 1,509
Short-term investments..................... 2,023 26,737 28,760 68
Accounts receivable, net................... 99,030 6,526 105,556 2,568
Inventories................................ 7,830 -- 7,830 --
Deferred income taxes...................... -- 374 374 --
Prepaid expenses and other................. 25,761 1,932 27,693 400
--------- ------- ----------- -------
TOTAL CURRENT ASSETS................. 217,855 40,259 258,114 4,545
PROPERTY, PLANT AND EQUIPMENT, NET........... 149,685 3,347 153,032 1,026
SOFTWARE DEVELOPMENT COSTS, NET.............. 24,019 -- 24,019 --
PURCHASED SOFTWARE AND INTANGIBLES, NET...... 9,415 -- 9,415 -- 7,890(2,3,4)
OTHER ASSETS................................. 18,041 250 18,291 97
--------- ------- ----------- -------
TOTAL ASSETS......................... $ 419,015 $43,856 $ 462,871 $ 5,668
--------- ------- ----------- -------
--------- ------- ----------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit............ $ -- $ -- $ -- $ 500
Current portion of long-term debt.......... 3,422 -- 3,422 276
Accounts payable and accrued liabilities... 94,974 4,839 10,000(1) 109,813 1,651 3,000(4)
Income taxes payable....................... 6,960 295 7,255 --
Deferred revenue........................... 101,072 2,633 103,705 805
--------- ------- ----------- -------
TOTAL CURRENT LIABILITIES............ 206,428 7,767 224,195 3,232
--------- ------- ----------- -------
LONG-TERM LIABILITIES:
Long-term debt............................. 19,878 -- 19,878 283
Deferred income taxes...................... 2,590 239 2,829 17
Minority interest liability................ 15,246 -- 15,246 --
Other long-term liabilities................ 14,466 92 14,558 --
--------- ------- ----------- -------
TOTAL LONG-TERM LIABILITIES.......... 52,180 331 52,511 300
--------- ------- ----------- -------
STOCKHOLDERS' EQUITY:
Preferred stock............................ -- -- -- 1 (1)(2)
Common stock and capital in excess of par
value.................................... 351,035 28,957 379,992 14,484 85,016(2)
Notes receivable from sale of stock........ -- -- -- (774)
Treasury stock at cost..................... (399,263) -- (399,263) (4,013) 4,013(2)
Deferred Compensation...................... (333) (333) -- --
Retained earnings (deficit)................ 209,412 7,134 (10,000) (1) 206,546 (7,562) (84,138)(2,3)
Accumulated translation adjustment......... (777) -- (777) --
--------- ------- ----------- -------
TOTAL STOCKHOLDERS' EQUITY........... 160,407 35,758 186,165 2,136
--------- ------- ----------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................. $ 419,015 $43,856 $ 462,871 $ 5,668
--------- ------- ----------- -------
--------- ------- ----------- -------
<CAPTION>
PRO FORMA
BALANCES
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash investments.................. $ 89,410
Short-term investments..................... 28,828
Accounts receivable, net................... 108,124
Inventories................................ 7,830
Deferred income taxes...................... 374
Prepaid expenses and other................. 28,093
-----------
TOTAL CURRENT ASSETS................. 262,659
PROPERTY, PLANT AND EQUIPMENT, NET........... 154,058
SOFTWARE DEVELOPMENT COSTS, NET.............. 24,019
PURCHASED SOFTWARE AND INTANGIBLES, NET...... 17,305
OTHER ASSETS................................. 18,388
-----------
TOTAL ASSETS......................... $ 476,429
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit............ $ 500
Current portion of long-term debt.......... 3,698
Accounts payable and accrued liabilities... 114,464
Income taxes payable....................... 7,255
Deferred revenue........................... 104,510
-----------
TOTAL CURRENT LIABILITIES............ 230,427
-----------
LONG-TERM LIABILITIES:
Long-term debt............................. 20,161
Deferred income taxes...................... 2,846
Minority interest liability................ 15,246
Other long-term liabilities................ 14,558
-----------
TOTAL LONG-TERM LIABILITIES.......... 52,811
-----------
STOCKHOLDERS' EQUITY:
Preferred stock............................ 0
Common stock and capital in excess of par
value.................................... 479,492
Notes receivable from sale of stock........ (774)
Treasury stock at cost..................... (399,263)
Deferred Compensation...................... (333)
Retained earnings (deficit)................ 114,846
Accumulated translation adjustment......... (777)
-----------
TOTAL STOCKHOLDERS' EQUITY........... 193,191
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................. $ 476,429
-----------
-----------
</TABLE>
- ------------------------------
(1) Reflects expenses of the Merger with CCT.
(2) 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 HLDS
preferred stock, common stock and capital in excess of par value, treasury
stock at cost and retained earnings (deficit).
(3) Reflects the write off 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.
(4) Records transaction expenses of HLDS, resulting in an increase to purchased
software and intangibles and accounts payable and accrued liabilities of
$3.0 million.
60
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF CADENCE, CCT AND HLDS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of income combine the
historical statements of income of Cadence and CCT for all periods presented
following the pooling of interests method of accounting. No adjustments were
necessary to conform the accounting policies of the combining companies. The
unaudited pro forma condensed combined statements of income for the year ended
December 30, 1995 and the nine month periods ended September 30, 1995 and
September 28, 1996 and the pro forma condensed combined balance sheet at
September 28, 1996 include the acquisition of HLDS (which will be accounted for
using the purchase method of accounting).
NOTE 2. PRO FORMA NET INCOME (LOSS) PER SHARE
The pro forma combined net income per share is based on the combined
weighted average number of common and dilutive equivalent shares of Cadence, CCT
and HLDS based upon the exchange ratios of 0.85 of a share of Cadence Common
Stock for each share of CCT Common Stock and 0.22 shares of Cadence Common Stock
for each share of HLDS Capital Stock. Common equivalent shares are excluded from
the computation when the effect is antidilutive.
NOTE 3. MERGER RELATED EXPENSES OF CADENCE AND CCT
Cadence and CCT estimate that they will incur merger-related expenses,
consisting primarily of transaction costs for investment banker fees, attorneys,
accountants, financial printing and other related charges, of approximately $10
million. This estimate is preliminary and is therefore subject to change. These
nonrecurring expenses will be charged to operations during the period in which
the Merger is consummated. The pro forma combined balance sheet gives effect to
such expenses as if they had been incurred as of September 28, 1996, but the pro
forma condensed statements of income do not give effect to such expenses as such
expenses are non-recurring.
NOTE 4. PURCHASE PRICE OF HLDS
The purchase price for the HLDS Merger is computed as follows (in
thousands):
<TABLE>
<S> <C>
Cadence Common Stock issued........................................ $ 89,500
Employee stock options............................................. 8,000
Direct transaction costs........................................... 2,000
---------
Total.......................................................... $ 99,500
---------
---------
</TABLE>
In connection with the HLDS Merger, Cadence issued approximately 2,559,470
shares of Cadence Common Stock valued at the representative value of the Cadence
Common Stock at the time the 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 5. IN-PROCESS PRODUCT DEVELOPMENT
In connection with the HLDS 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
61
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF CADENCE, CCT AND HLDS (CONTINUED)
NOTE 5. IN-PROCESS PRODUCT DEVELOPMENT (CONTINUED)
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 fiscal year ended December 31, 1996. 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.
62
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE DATA
CCT
CCT Common Stock commenced trading on Nasdaq under the symbol "CCTI" on
October 31, 1995.
The table below sets forth, for the quarters indicated, the reported high
and low sale prices of CCT Common Stock as reported on Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
--------- ----------
<S> <C> <C>
1995
Fourth Quarter (from October 31, 1995)....................................... $ 15.875 $ 10.75
1996
First Quarter................................................................ $ 15.75 $ 11.1875
Second Quarter............................................................... 25.875 13.25
Third Quarter................................................................ 26.375 18.25
Fourth Quarter (through December 17, 1996)................................... 33.00 23.75
</TABLE>
As of the Record Date, there were approximately 86 record holders of CCT
Common Stock.
CCT has never paid cash dividends on the CCT Common Stock and does not plan
to pay any cash dividends in the future.
63
<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 December 17, 1996)............................. 41.38 32.63
</TABLE>
As of the Record Date, there were approximately 1,650 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 CCT Common Stock on October 25, 1996, the business day preceding
public announcement of the Merger, and on December 17, 1996:
<TABLE>
<CAPTION>
CADENCE COMMON EQUIVALENT CCT
STOCK PER SHARE PRICE
----------------- ---------------
<S> <C> <C>
October 25, 1996........................................... $ 38.00 $ 32.30
December 17, 1996.......................................... $ 36.88 $ 31.34
</TABLE>
The equivalent per share price of a share of CCT Common Stock represents
eighty-five hundredths (0.85) of the price of one share of Cadence Common Stock.
CCT STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
CADENCE COMMON STOCK.
64
<PAGE>
CCT BUSINESS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS PROXY STATEMENT/ PROSPECTUS ARE FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THE TIMELY AVAILABILITY AND
ACCEPTANCE OF NEW PRODUCTS, THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING, THE
MANAGEMENT OF GROWTH AND THE OTHER RISKS DETAILED HEREIN, INCLUDING, WITHOUT
LIMITATION, THE RISKS DESCRIBED IN THE SECTIONS ENTITLED "CCT BUSINESS" AND "CCT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." THE ACTUAL RESULTS THAT CCT ACHIEVES MAY DIFFER MATERIALLY FROM ANY
FORWARD-LOOKING STATEMENTS DUE TO SUCH RISKS AND UNCERTAINTIES.
GENERAL
CCT develops, markets and supports software tools that help designers route
the wires that interconnect the electronic devices on high performance PCBs and
ICs. CCT's products are differentiated by CCT's proprietary ShapeBased
technology, which CCT believes offers significant advantages over traditional
grid-based routing tools for complex PCB and IC design applications. CCT
initially developed ShapeBased routing products for the PCB market and
introduced its first product, SPECCTRA, in December 1989. In early 1995, CCT
entered the IC layout market by leveraging its ShapeBased routing technology to
develop its IC CRAFTSMAN product line. IC CRAFTSMAN is designed to solve the
interconnect problems inherent in deep submicron IC design. In addition, CCT's
wholly owned subsidiary, UniCAD, Inc. ("UniCAD") acquired by CCT on August 28,
1996, develops, markets and supports a number of additional electronic design
software tools incorporating design layout, manufacturing and analysis
capabilities.
CCT has established a broad base of customers for its SPECCTRA product line
including AT&T Corp., Hewlett-Packard Company, IBM, Motorola, Inc., NEC Corp.,
Northern Telecom Limited, Siemens AG and Toshiba Corporation. In addition, CCT
has licensed its IC CRAFTSMAN products to a number of customers including
Applied Micro Circuits Corporation, Advanced Micro Devices, Analog Devices,
Inc., Lucent Technologies, Matsushita, Motorola, Inc., Sharp Electronics,
Silicon Graphics, Inc., Sun Microsystems, Inc., Texas Instruments, Inc. and
Toshiba Corporation.
INDUSTRY BACKGROUND
There has been substantial growth in the market for more sophisticated,
miniaturized electronic products such as cellular telephones and laptop
computers. These products have been enabled, in significant part, by
improvements in design and manufacturing technology, which have made possible
increasingly complex, high performance PCBs and ICs. In the 1970s, a typical PCB
consisted of a few hundred components integrated on a double-sided board, and a
typical IC consisted of a few thousand transistors implemented in five micron
technology. Today, designers are creating PCBs consisting of ten or more layers
and over 1,000 components, and ICs consisting of millions of transistors
implemented in 0.5 micron or smaller ("deep submicron") geometries. In addition,
PCBs and ICs are now capable of operating at frequencies above 50 MHz ("fast
circuits"). While these devices provide much higher performance, they also
exhibit physical phenomena such as electromagnetic emissions ("EMI"), cross-talk
and thermal characteristics that are not easily predictable and that present
additional challenges for the design of fast circuit PCBs and ICs. At the same
time, competitive pressures are forcing designers to shorten development cycles
in order to bring products to market more rapidly. These trends have introduced
new challenges into the design process.
EDA software has been an important enabling technology to help designers
achieve advances in high performance PCBs and ICs by bringing greater efficiency
and productivity to electronic design. Routing, a critical phase of the physical
design process, defines the electrical interconnections by "wires" and vias
among the various electronic components (such as ICs on a PCB or transistors on
an IC). Routing must satisfy the engineer's design requirements and obey design
constraints such as electrical signal timing and
65
<PAGE>
physical spacing. Routing affects manufacturability, die size for ICs and the
number of layers for PCBs and, therefore, can directly impact performance,
time-to-market and design and production costs. If a routing tool fails to obey
design constraints, additional iterations between the functional and physical
design stages may be required, increasing the cost and time required to complete
a design.
Accordingly, there is growing demand for routing tools that automate the
interconnection of fast circuits while obeying design constraints and without
wasting valuable PCB or IC space. Furthermore, optimal tools will consider,
analyze and verify fast-circuit physical phenomena as the routing proceeds and
make adjustments as necessary.
THE CCT SOLUTION
CCT has pioneered the development of ShapeBased autorouting tools to meet
the interconnect requirements of fast circuit PCBs and ICs. 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.
CCT believes its products offer the following benefits:
- IMPROVE DESIGN COMPLETION RATES. CCT's ability to optimize component
placement and interconnection can result in fewer design iterations and
higher design completion rates than traditional grid-based solutions.
- REDUCE DESIGN COSTS; FASTER TIME-TO-MARKET. On large complex designs,
manual routing can take several days and may take several weeks,
especially when fast circuit rules must be obeyed. Using CCT's autorouter,
routing can often be completed overnight, resulting in significant labor
savings. Further, developers are often able to complete the physical
design process more quickly than with grid-based or manual routing by
minimizing iterations between the logical, physical and manufacturing
stages.
- CONTROL NOISE AND CROSSTALK. CCT's proprietary software is designed to
control noise and crosstalk during the autorouting process, thus producing
a correct circuit for input to the analysis and verification step. Without
automatic crosstalk prevention, designers are required to manually repair
crosstalk problems, increasing design time.
- MANAGE INTERCONNECT TIMING. CCT's software shortens or lengthens the
interconnections to manage delay between components. The autorouter obeys
rules specified by the designer resulting in precise interconnect timing.
- REDUCE PRODUCTION COSTS. When compared to grid-based solutions, CCT's
technology optimizes space and, in many instances, reduces the number of
interconnect layers on a PCB, thereby reducing production costs. For an
IC, the ability of CCT's software to obey fast circuit constraints can
enable routing completion without increasing IC die size.
- INTEGRATE WITH DESIGN ENVIRONMENTS AND LEADING ANALYSIS TOOLS. The open
architecture of CCT products "plugs-in" to all major CAD systems, supports
third party interfaces such as signal analysis tools and facilitates
integration with other EDA vendor tools. Customers can preserve their
existing investment in tools, models and design databases while taking
advantage of CCT's leading-edge technology.
In addition, on August 28, 1996, CCT acquired UniCAD, its wholly owned
subsidiary that develops, markets and supports a broad range of electronic
design software tools incorporating design layout, manufacturing and analysis
capabilities. Of particular interest to CCT are UniCAD's analysis products,
which allow designers to measure and evaluate the critical performance
characteristics of printed circuit
66
<PAGE>
boards including the effects of various physical phenomena. CCT believes that
the integration of UniCAD's analysis tools with its SPECCTRA routing products
will offer designers the ability to concurrently route and analyze the
interconnect of printed circuit boards. CCT believes such concurrent analysis of
physical phenomena during the routing process should further improve the
efficiency and effectiveness of the design process for fast circuit PCBs by
reducing the need for inefficient design constraints and/or the iterative design
process traditionally used to address the effects of such physical phenomena.
PRODUCTS
CCT has developed the SPECCTRA product line for PCBs and the IC CRAFTSMAN
product line for ICs. CCT's products are designed to be compatible with all of
the commonly used EDA environments and integration pathways, and can be
installed readily into a wide variety of CAD environments. The product lines
consist of various base products with optional features that can be customized
for major platforms and operating systems. CCT's products are written in C and
C++, and support industry standards such as Motif, X-Windows, GDSII Stream
format and EDIF.
SPECCTRA
The SPECCTRA product line, introduced in 1990, is an advanced place and
route system for the design of high density, fast circuit PCBs. Since its
introduction, CCT has released new versions of its SPECCTRA product line
approximately once each year. SPECCTRA products are offered in the form of three
base products: AUTOROUTE, EDITROUTE, AND AUTOPLACE. Customers can choose the
combination of base products and options to fit their design needs.
- AUTOROUTE. AutoRoute provides automatic routing of high density
multi-layer PCBs and achieves 100% completion on most designs. An option
is provided for routing PCBs with fast circuits that includes features to
control crosstalk, manage interconnect timing and route fast circuit
signals such as differential pairs and shielded nets. A design for
manufacturability option provides automatic wire spreading to improve
yield and automatic test point generation that assigns in-circuit test
vias for each test signal.
- EDITROUTE. EditRoute is a manual routing tool that provides designers with
interactive control of the interconnect wires and vias. EditRoute is
compatible with AutoRoute and uses many of the same algorithms. For
example, when new wire is added manually, EditRoute can automatically
shove aside an entire bus of wires if needed to make room for the new
wire.
- AUTOPLACE. AutoPlace provides ShapeBased automatic placement of components
on PCBs without the need to specify a grid. Comprehensive floorplanning
and autoclustering features support power and height constraints and also
provide for the separation of analog and digital circuits. AutoPlace is
compatible with AutoRoute and also provides an extensive set of
interactive placement features.
IC CRAFTSMAN
The IC CRAFTSMAN product line delivers place and route solutions for high
speed digital, analog and deep submicron integrated circuit designs. IC
CRAFTSMAN is built upon the proven ShapeBased technology of SPECCTRA but
enhanced to meet the needs of IC designers. Fast circuit capabilities are
included in all IC CRAFTSMAN products to satisfy timing and control crosstalk.
CCT offers a base product, Inspector, and four additional premium models,
Apprentice, Journeyman, Master and Global Power/Router, that add additional
features.
- INSPECTOR. Inspector employs a Motif-based graphical user interface
("GUI") to check design rule compliance for many high speed digital and
analog IC layout requirements. Inspector checks for placement violations,
clearance violations, timing violations and crosstalk violations. Detected
violations are displayed graphically and characterized textually in
reports.
67
<PAGE>
- APPRENTICE. Apprentice contains all the capabilities found in Inspector,
while adding a complete place and route editing environment. Apprentice's
ShapeBased wire editing supports wire push, shove, copy and move functions
that improve the layout designer's productivity when compared to polygon
layout editors. During wire editing, the wire plowing feature
automatically pushes existing routes aside and routes around layer
obstructions. Using the shove capability, the designer can quickly move a
route that in turn will shove existing routes, even over pins, vias and
other obstructions.
- JOURNEYMAN. Journeyman adds ShapeBased autorouting to all of the
capabilities of Apprentice. It uses timing constraints derived from
popular timing analysis tools to meet signal or path timing requirements.
Journeyman also includes the autorouting of variable width and spacing
wires, and automatic design clean-up to remove unnecessary wire bends and
vias to improve manufacturability.
- MASTER. Master includes all of Journeyman's features and provides
timing-controlled routing capabilities by enforcing interconnect delay
rules and handles crosstalk by managing the spacing of parallel
interconnects. Master supports topology sensitive routing by providing
functions for automatic differential pair routing, automatic net shielding
and design rules by area.
- GLOBAL/POWER ROUTER. The Global/Power router option is used primarily for
top level chip assembly applications. It provides control features to
minimize wire length and congestion, dynamically changes layer direction
to improve routability while observing wire width, spacing and other fast
circuit rules, and routes pins to power trunks and power pins to
input/output paths in ring configurations.
UNICAD PRODUCTS
In addition to the SPECCTRA and IC CRAFTSMAN product lines offered by CCT,
CCT's wholly owned subsidiary, UniCAD, offers a broad range of electronic design
software tools incorporating design layout, manufacturing and analysis
capabilities. UniCAD was founded in 1993 to commercialize and support certain
computer aided analysis and design tools that originated within the
Bell-Northern Research Laboratories, a wholly-owned subsidiary of Northern
Telecom Limited ("Nortel"). These tools have been developed over a period of
several years for the express purpose of supporting the large number of
engineers, designers and manufacturing needs within Nortel. Nortel has licensed
these tools and the underlying technology supporting these tools to UniCAD and
Nortel is restricted from further licensing such technology to others for use in
computer aided analysis and design. From this technology, UniCAD has developed
an integrated set of software tools that create a "virtual or computer
prototype" of a PCB design at various points in the design process. CCT believes
that, as the percentage of high-speed PCB designs increases, the demand for such
integrated tool sets will also increase. UniCAD is actively engaged in continued
development and support of products based on such underlying technology for
Nortel and other commercial customers. UniCAD's products, among others, include:
- UNISOLVE. UniSolve provides computer-aided analysis and prediction tools
in an environment that enables the transparent exploration of
interdependencies among various types of electrical integrity and
performance issues such as EMI, digital and analog signal integrity,
RF/IF, thermal budgeting and component reliability.
- SYNTHESOLVE. SyntheSolve provides concurrent analysis and layout of
high-speed PCBs and multi-chip modules ("MCMs"). SyntheSolve combines
SPECCTRA'S ShapeBased placement and routing with the UNISOLVE analysis
tool suite. This gives engineers a comprehensive tool for fast-circuit PCB
design that reduces design iterations. The impact of design decisions made
in one area are automatically considered in other areas. For example,
while analyzing the effect that a placement change has on compliance with
EMI constraints, SyntheSolve will automatically indicate changed thermal
conditions and their effect on signal integrity.
68
<PAGE>
CCT's products are generally licensed to customers under perpetual,
non-exclusive license agreements. License agreements generally limit use of
products to a certain number of users at any one time. The selling prices for
SPECCTRA configurations range from $1,000 to $65,000, depending on options,
capacity and platform. IC CRAFTSMAN prices range from $10,000 to $120,000.
UniCAD product configurations generally range from $5,000 to $40,000, also
depending on options, capacity and platform.
Until 1995, CCT derived substantially all of its revenue from its SPECCTRA
line of products and from the service activities performed by UniCAD. Since the
introduction of the SPECCTRA product line, CCT has released new versions of its
SPECCTRA product line approximately once each year. The IC Craftsman product
line, introduced in early 1995, has accounted for approximately 15% of CCT's
total revenue in 1995 and 29% of CCT's total revenue in the first nine months of
1996. The SPECCTRA and IC CRAFTSMAN product lines are based on a single set of
core software technologies.
SALES AND MARKETING
CCT markets its products worldwide through an extensive distribution
network. Direct and third party sales channels are used for all products and
geographic areas. The PCB CAD layout industry is fragmented into many small
segments serving specialized product niches, platforms and nationalities. As a
result, CCT supplements its direct sales effort in the PCB segments by offering
its products through OEMs that bundle CCT's products with their CAD systems and
through distributors. Since the IC market is composed of a well known group of
large companies, CCT's IC product line is sold primarily by CCT's direct sales
force.
SALES THROUGH OEMS AND DISTRIBUTORS
CCT has built a substantial network of OEMs and distributors. CCT maintains
contractual relationships with its OEMs that provide for non-exclusive licenses
of CCT's products to the OEM and the payment of royalties and maintenance fees
to CCT. These contractual relationships generally do not require any set amount
of purchases from an OEM. CCT's major OEMs are Mentor Graphics Corporation
("Mentor Graphics"), Accel Technologies, Inc. ("Accel") and PADS Software, Inc.
("PADS"). CCT uses a network of distributors to supplement its OEM activities
outside the United States.
A significant portion of CCT's domestic and international license and
service revenue comes from OEMs, which incorporate CCT's products into their CAD
systems, and distributors. During 1993, 1994, 1995 and the first nine months of
1996, revenue from distributors and OEMs accounted for approximately 78%, 50%,
36% and 18%, respectively, of CCT's total revenue. CCT is particularly dependent
upon one of its OEMs, Mentor Graphics. During 1993, 1994, 1995 and the first
nine months of 1996, sales of licenses to Mentor Graphics accounted for
approximately 26%, 20%, 11%, and 10%, respectively, of CCT's total revenue.
CCT is dependent upon the continued viability and financial stability of its
distributors and OEMs. Since CCT's products are used by highly skilled
professional engineers, an effective distributor or OEM representative must
possess sufficient technical, marketing and sales resources and must devote
these resources to a lengthy sales cycle, customer training and product service
and support. In addition, CCT's distributors and OEMs generally offer products
of several different companies, including in some cases products that are
competitive with CCT's products. Although CCT is not aware of any financial
difficulties being experienced by any of its OEMs or distributors, there can be
no assurance that Mentor Graphics or any of CCT's distributors or other OEMs
will be able to continue to market, service and support CCT's products
effectively, that economic conditions or industry demand will not adversely
affect these distributors and OEMs, that Mentor Graphics or any distributor or
other OEM that licenses CCT's products will choose to continue to license such
products or that any of these distributors and OEMs will not devote greater
resources to marketing and supporting products of other companies. The current
OEM agreement with Mentor Graphics will expire on March 31, 1998. There can be
no assurance that CCT will reach a
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<PAGE>
subsequent agreement with Mentor Graphics. Should CCT fail to reach a subsequent
agreement with Mentor Graphics, there can be no assurance that CCT would be
successful in either securing alternative channels of distribution for its
products or expanding its own direct sales to replace Mentor Graphics. The loss
of, or a significant reduction in revenue from, Mentor Graphics or any of CCT's
distributors or other OEMs would have a material adverse effect on CCT's
business, financial condition and results of operations, at least to the extent
such loss is not offset by a corresponding increase in CCT's direct sales.
DIRECT SALES
CCT maintains domestic sales and support offices in Cupertino, California;
Nashua, New Hampshire; and Dallas, Texas; as well as a telesales group operating
from its headquarters. CCT also has sales support personnel located in
Massachusetts, Pennsylvania and Florida. CCT's international sales and support
offices are located in Munich, Germany; Paris, France; Tokyo, Japan; and
Bracknell, United Kingdom. As of September 30, 1996, CCT employed 22 sales
representatives, including field managers, and 17 application engineers.
Over the past two years CCT has significantly increased its sales and
marketing personnel. The increase in sales and marketing personnel was begun in
anticipation of the introduction of the IC CRAFTSMAN product line and was
continued in order to expand worldwide distribution, principally in Europe and
Japan. While CCT anticipates an increase in revenues as the IC CRAFTSMAN product
line gains commercial acceptance and international sales increase, there can be
no assurance that CCT will continue to achieve revenue levels that justify the
increased expenses. CCT has relatively little experience in direct sales in the
IC market. There can be no assurance that expansion of CCT's direct sales
efforts will succeed or that such expansion will result in increased sales.
Although the success of this direct channel has reduced CCT's dependence on the
OEM channel, there can be no assurance that the expansion of this channel will
not have an adverse effect on existing distributor and OEM relationships.
INTERNATIONAL SALES
During 1993, 1994, 1995 and the first nine months of 1996, CCT derived 31%,
51%, 48% and 41%, respectively, of its total revenue from the licensing and
support of its software products outside the United States. CCT expects that
international license and service revenue will continue to account for a
significant portion of its revenues in the future and that CCT's continued
growth and profitability will require expansion of its sales in foreign markets.
Mentor Graphics and Marubeni Hytech Corporation ("Marubeni") distribute CCT's
products in Japan. Mentor Graphics and a number of other companies distribute
CCT's products throughout Asia. In Europe, CCT's PCB products are distributed
through Mentor Graphics, PADS, Accel and a number of other companies.
CCT's international revenue involves a number of risks, including the impact
of possible recessionary environments in economies outside the United States,
longer receivables collection periods and 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, foreign currency exchange rate fluctuations, difficulties in
staffing and managing foreign operations, the burdens of complying with a
variety of foreign laws, potentially adverse tax consequences and political and
economic instability. There can be no assurance that the foregoing factors will
not have a material adverse effect on CCT's future international license and
service revenue, and, consequently, on CCT's business, financial condition and
results of operations.
CCT has expanded its sales and support organizations in Europe and Asia,
which has resulted in an increase in sales and marketing expenses. CCT intends
to further expand these organizations, resulting in additional increases in
sales and marketing expenses. However, CCT expects the growth rate of such
expenses to be lower than in the past. There can be no assurance that CCT will
be able to sustain or increase revenue derived from international licensing and
service. Any failure to expand sales in foreign
70
<PAGE>
markets would have a material adverse effect on CCT's business, financial
condition and results of operations.
COMPETITION
The EDA software industry is highly competitive and is characterized by
continued advances in technology. CCT must continue to enhance its current
products and develop and introduce new products which address the rapidly
changing requirements of the marketplace. CCT believes that a number of factors
will be necessary for its products to continue to achieve broad market
acceptance. These factors include performance, price, interoperability with
existing systems and the customer's assessment of CCT's technical, managerial,
service and support expertise and capability.
CCT faces intense competition in both the PCB and IC markets. Certain of
CCT's competitors, including Mentor Graphics, also have OEM arrangements with
CCT and bundle the SPECCTRA product line with their own products. There can be
no assurance that CCT's entry into the IC market will not be viewed unfavorably
by CCT's OEMs and have an adverse effect on SPECCTRA OEM sales. CCT also
competes with the internal design groups of its existing and potential
customers, who may be reluctant to purchase products offered by independent
vendors.
CCT expects that it will face increasing pricing pressures from its current
competitors and new market entrants. There can be no assurance that CCT's
competitors will not engage in pricing practices that are detrimental to CCT. In
addition, CCT believes that the amount of design work done by the users of CCT's
products on Windows-based personal computers is increasing relative to
UNIX-based workstations. This trend has led to a decrease in the average selling
prices of CCT's products. If this trend continues, it may continue to negatively
impact CCT's average selling prices. There can be no assurance that such
decreases in average selling price will be offset by an increase in the volume
of sales.
Many of CCT's current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than
CCT. There can be no assurance that CCT's competition will not be able to
develop products comparable or superior to those developed by CCT, adapt more
quickly to new technologies, evolving industry trends or customer requirements
than CCT, or devote greater resources to the development, promotion and sale of
their products than CCT. In addition, current competitors of CCT have
established and may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
CCT's existing and prospective customers. Such alliances among competitors could
present increased competition to CCT. Moreover, the EDA industry has become
increasingly concentrated in recent years as the result of numerous mergers and
acquisitions. CCT expects that competition may increase as a result of this
increased concentration. There can be no assurance that CCT will be able to
compete successfully against current and future competitors or that competitive
pressures faced by CCT will not have a material adverse effect on its business,
financial condition and results of operations.
In addition, the introduction or announcement by CCT or one or more of its
competitors of products embodying new technologies or features could render
CCT's existing products obsolete or unmarketable. There can be no assurance that
the introduction or announcement of new product offerings by CCT or one or more
of its competitors will not cause customers to defer purchases of existing
Company products. Such deferral of purchases could have a material adverse
effect on CCT's business, financial condition and results of operations.
PROPRIETARY RIGHTS
CCT's success is heavily dependent upon its proprietary software technology.
CCT does not currently have any patents and relies principally on trade secret,
copyright and trademark laws, nondisclosure and other contractual agreements and
technical measures to protect its technology, including its ShapeBased
71
<PAGE>
technology. There can be no assurance that the steps taken by CCT will prevent
misappropriation of its technology and effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries. Any
failure by or inability of CCT to protect its proprietary technology could have
a material adverse effect on CCT's business, financial condition and results of
operations. Furthermore, such protections do not preclude competitors from
developing products with functionality or features similar to CCT's products,
and there can be no assurance that third parties will not independently develop
competing technologies that are substantially equivalent or superior to CCT's
technologies.
CCT does not believe its products infringe the proprietary rights of any
third parties. However, there can be no assurance that infringement claims will
not be asserted against CCT or its customers. As the number of software products
in the industry increases and the functionality of these products further
overlaps, CCT believes that software developers may become increasingly subject
to infringement claims. Any such claims, with or without merit, can be time
consuming and expensive to defend and could adversely affect CCT's business,
financial condition and results of operations.
EMPLOYEES
As of September 30, 1996, CCT had a total of 166 regular employees,
including 67 in research and development, 63 in sales and marketing, 19 in
general and administrative functions and 17 in operations. Of these employees,
116 were located in the United States, 34 in Canada, 11 in Europe and 5 in
Japan.
CCT's future depends in large part on the continued service of its key
technical personnel, in particular its founders, and its ability to continue to
attract and retain such personnel, many of whom are highly skilled. The
competition for such personnel in the software industry in general, and the EDA
industry in particular, is intense, and there can be no assurance that CCT will
retain its key technical personnel or continue to attract such personnel in the
future. There are only a limited number of qualified EDA engineers, and
competition for such individuals is especially intense. CCT has at times
experienced and continues to experience difficulty in recruiting qualified
technical personnel. Although such difficulties have not had a material impact
on CCT's business to date, there can be no assurance that such difficulties will
not do so in the future. Generally, CCT's employees are not bound by employment
or noncompetition agreements or covered by key man life insurance policies. In
addition, competitors may attempt to recruit CCT's key employees. The loss of
any key technical, management or marketing personnel or the failure to recruit
such personnel successfully in the future could have a material adverse effect
on CCT's business, financial condition and results of operations.
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<PAGE>
CCT SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The following selected supplemental consolidated financial data should be
read in conjunction with the CCT Supplemental Consolidated Financial Statements
and related notes thereto and "CCT Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this Proxy
Statement/Prospectus. The supplemental consolidated statement of income data for
each of the three years in the period ended December 31, 1995 and the
supplemental consolidated balance sheet data at December 31, 1994 and 1995 are
derived from supplemental consolidated financial statements of CCT which have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this Proxy Statement/Prospectus. The supplemental consolidated
statement of income data for each of the two years in the period ended December
31, 1992 and for the nine months ended September 30, 1995 and 1996 and the
supplemental consolidated balance sheet data at December 31, 1991, 1992 and 1993
and September 30, 1996 are derived from unaudited financial statements. The
condensed consolidated statement of income data for the nine months ended
September 30, 1995 and 1996 has been prepared on the same basis as the annual
consolidated financial statements and, in the opinion of management, contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the operating results for such periods. The consolidated
operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for any other interim
period or any future fiscal year. See "CCT Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
----------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL STATEMENT OF INCOME DATA:
Revenue:
License................................................ $ 2,594 $ 3,629 $ 6,263 $ 9,525 $ 15,661 $ 10,736
Service................................................ 159 348 1,031 6,020 7,781 5,284
--------- --------- --------- --------- --------- ---------
Total revenue........................................ 2,753 3,977 7,294 15,545 23,442 16,020
--------- --------- --------- --------- --------- ---------
Costs and Expenses:
Costs of license revenue............................... 62 88 259 851 1,157 885
Costs of service revenue............................... 30 36 93 775 846 465
Research and development............................... 1,288 2,115 3,298 5,575 5,893 4,263
Sales and marketing.................................... 500 922 1,490 4,899 10,200 6,988
General and administrative............................. 265 362 488 1,908 3,526 2,167
Write offs related to investee company................. -- -- -- 434 -- --
--------- --------- --------- --------- --------- ---------
Total costs and expenses............................. 2,145 3,523 5,628 14,442 21,622 14,768
--------- --------- --------- --------- --------- ---------
Income from operations................................... 608 454 1,666 1,103 1,820 1,252
Interest income.......................................... -- 20 16 14 231 83
Interest expense......................................... -- -- (5) (5) (18) (36)
Equity in losses of investee company..................... -- -- (32) (87) -- --
Other income (loss)...................................... 16 38 -- (22) (38) (2)
--------- --------- --------- --------- --------- ---------
Income before provision for taxes........................ 624 512 1,645 1,003 1,995 1,297
Provision for income taxes............................... 256 162 603 359 666 463
--------- --------- --------- --------- --------- ---------
Net income............................................... $ 368 $ 350 $ 1,042 $ 644 $ 1,329 $ 834
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income per share (1)................................. $ 0.04 $ 0.04 $ 0.10 $ 0.06 $ 0.11 $ 0.07
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Shares used in computing per share amounts............... 9,363 9,792 10,135 10,989 12,272 11,918
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
1996
---------
<S> <C>
SUPPLEMENTAL STATEMENT OF INCOME DATA:
Revenue:
License................................................ $ 18,138
Service................................................ 7,542
---------
Total revenue........................................ 25,680
---------
Costs and Expenses:
Costs of license revenue............................... 1,227
Costs of service revenue............................... 662
Research and development............................... 5,557
Sales and marketing.................................... 10,066
General and administrative............................. 4,006
Write offs related to investee company................. --
---------
Total costs and expenses............................. 21,518
---------
Income from operations................................... 4,162
Interest income.......................................... 772
Interest expense......................................... (23)
Equity in losses of investee company..................... --
Other income (loss)...................................... 39
---------
Income before provision for taxes........................ 4,950
Provision for income taxes............................... 1,687
---------
Net income............................................... $ 3,263
---------
---------
Net income per share (1)................................. $ 0.23
---------
---------
Shares used in computing per share amounts............... 14,419
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER
AS OF DECEMBER 31, 30,
----------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL BALANCE SHEET DATA:
Cash, cash equivalents, and short term investments....... $ 322 $ 331 $ 1,312 $ 2,468 $ 26,989 $ 2,911
Working capital.......................................... 674 644 1,113 1,123 26,579 3,940
Total assets............................................. 1,733 2,459 4,987 8,357 37,489 12,424
Total stockholders' equity............................... 995 1,297 2,295 2,947 29,414 6,547
<CAPTION>
1996
---------
<S> <C>
SUPPLEMENTAL BALANCE SHEET DATA:
Cash, cash equivalents, and short term investments....... $ 31,427
Working capital.......................................... 32,492
Total assets............................................. 43,856
Total stockholders' equity............................... 35,758
</TABLE>
- ------------------------------
(1) For an explanation of the determination of the number of shares used in
computing per share amounts, see Note 1 of Notes to CCT Consolidated
Financial Statements.
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<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited supplemental quarterly
financial data for each quarter of 1995 and the first three quarters of 1996. In
the opinion of CCT's management, this unaudited information has been prepared on
the same basis as the audited supplemental consolidated financial statements
contained herein and includes all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
therein. The operating results for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue............................. $ 4,764 $ 5,094 $ 6,162 $ 7,422 $ 7,997 $ 8,246
Gross profit.............................. 4,282 4,652 5,735 6,769 7,374 7,647
Income from operations.................... 503 273 475 952 1,207 1,454
----------- ----------- ----------- ----------- ----------- -----------
Net income................................ $ 322 $ 191 $ 311 $ 505 $ 978 $ 1,106
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net income per share...................... $ 0.03 $ 0.01 $ 0.03 $ 0.04 $ 0.07 $ 0.08
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Shares used in per share computation...... 11,755 11,931 11,991 13,438 14,214 14,345
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
SEPT. 30,
1996
-----------
<S> <C>
Total revenue............................. $ 9,437
Gross profit.............................. 8,770
Income from operations.................... 1,501
-----------
Net income................................ $ 1,179
-----------
-----------
Net income per share...................... $ 0.08
-----------
-----------
Shares used in per share computation...... 14,698
-----------
-----------
</TABLE>
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<PAGE>
CCT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS PROXY STATEMENT/ PROSPECTUS ARE FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THE TIMELY AVAILABILITY AND
ACCEPTANCE OF NEW PRODUCTS, THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING, THE
MANAGEMENT OF GROWTH AND THE OTHER RISKS DETAILED HEREIN, INCLUDING, WITHOUT
LIMITATION, THE RISK DESCRIBED IN THE SECTIONS ENTITLED "CCT BUSINESS" AND "CCT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." THE ACTUAL RESULTS THAT CCT ACHIEVES MAY DIFFER MATERIALLY FROM ANY
FORWARD-LOOKING STATEMENTS DUE TO SUCH RISKS AND UNCERTAINTIES.
OVERVIEW
CCT develops, markets and supports software tools that help designers route
the physical wiring interconnections within high performance PCBs and ICs. CCT
was founded in 1989 and licensed its first product, SPECCTRA, for the PCB market
in December 1989. CCT has subsequently developed and released several new
versions of the product. As of September 30, 1996, SPECCTRA products were
available on a broad number of operating system platforms with several available
option packages. CCT's recently acquired subsidiary, UniCAD is engaged in the
business of developing, marketing and supporting a broad range of electronic
design software tools incorporating design layout, manufacturing and analysis
capabilities. UniCAD began its business in 1994. Until 1995, CCT derived
substantially all of its revenue from its SPECCTRA line of products and from the
service activities performed by UniCAD. The IC CRAFTSMAN product line,
introduced in early 1995, has accounted for approximately 15% of CCT's total
revenue in 1995 and 29% of CCT's total revenue in the first nine months of 1996.
Revenue consists primarily of fees for licenses of CCT's software products,
maintenance and customer support. CCT recognizes revenue from software licenses
after shipment of the products, fulfillment of acceptance terms, if any, the
absence of significant outstanding contractual obligations and collection of
monies owed is probable. After delivering the software, CCT determines the
significance of remaining contractual obligations, if any, based on an estimate
of the costs and difficulty to fulfill the obligations in comparison to the
overall contract. When CCT receives payment prior to shipment and fulfillment of
significant vendor obligations, such payments are recorded as deferred revenue
and are recognized as revenue upon shipment and fulfillment of significant
vendor obligations.
CCT also derives service revenue primarily from maintenance agreements that
provide customers access to product enhancements and customer support. In
particular, a significant proportion of CCT's service revenue is earned by
UniCAD. Most of CCT's customers have purchased annual maintenance contracts on
initial licenses and have renewed such contracts upon their expiration.
Maintenance revenue is deferred and recognized ratably over the term of the
maintenance agreement, which is typically one year. Revenue from customer
training, support and other services is recognized as the service is performed.
Recently, CCT has significantly increased its research and development and
sales and marketing personnel. The increase in research and development
personnel was primarily to support the development of the IC CRAFTSMAN product
line. The increase in sales and marketing personnel was begun in anticipation of
the introduction of the IC CRAFTSMAN product line and was continued in order to
expand worldwide distribution, principally in Europe and Japan. While CCT
anticipates an increase in revenues as the IC CRAFTSMAN product line gains
further commercial acceptance and international sales increase, there can be no
assurance that CCT will achieve revenue levels that justify the increased
expenses.
CCT's revenues and results of operations are affected by seasonal trends
that may include higher revenues in CCT's second and fourth fiscal quarters and
lower revenues in its first and third fiscal quarters as a result of many
customers' purchasing and budgetary practices, and lower revenues in the summer
months (particularly in Europe) when many businesses make fewer purchases. CCT's
expense levels are based, in part, on its expectations as to future revenue. If
revenue levels are below expectations due to
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<PAGE>
delays associated with customers' acceptance and evaluation procedures or for
any other reason, operating results are likely to be materially adversely
affected. Net income, if any, may be disproportionately affected by a reduction
in revenue because only a small portion of CCT's expenses varies with its
revenue.
Although CCT has recently experienced significant revenue growth, such
growth should not be considered to be indicative of future revenue growth, if
any, or of future operating results. CCT's recent revenue growth is a result of
increased unit volume and new product introductions. There can be no assurance
that CCT's revenue will grow or be sustained in future periods or that CCT will
remain profitable in any future period. In addition, the rapid growth and
expansion CCT has experienced, including the acquisition of UniCAD, has placed
and continues to place a significant strain upon its management, and operational
and financial resources. CCT has grown from 115 permanent full time employees at
December 31, 1994 to 166 permanent full time employees at September 30, 1996,
and currently plans to continue to expand its staff.
To accommodate this recent growth, CCT is currently enhancing a variety of
new and upgraded operational and financial systems, procedures and controls,
including the improvement of its general ledger accounting and other internal
management systems, its customer database and its transaction processing
systems. There can be no assurance that CCT will be able to continue to enhance
these systems, procedures and controls successfully. The failure of CCT to
respond to and manage its growth and changing business conditions, or to adapt
its operational, management and financial control systems to accommodate its
growth, could have a material adverse effect on CCT's business, financial
condition and results of operations.
The increase in the number of CCT's employees and CCT's market
diversification and product development activities have resulted in increased
responsibilities for CCT's management. CCT's ability to operate successfully
will require such personnel to work together effectively. Failure to do so could
have a material adverse effect upon CCT's business, financial condition and
results of operations.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations data of CCT expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30
--------------------------------------------------------------- -----------
1991 1992 1993 1994 1995 1995
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL STATEMENT OF INCOME DATA:
Revenue:
License.......................................... 94% 91% 86% 61% 67% 67%
Service.......................................... 6 9 14 39 33 33
--- --- --- --- --- ---
Total revenue.................................. 100 100 100 100 100 100
--- --- --- --- --- ---
Costs and expenses:
Costs of license revenue......................... 2 2 4 5 4 5
Costs of service revenue......................... 1 1 1 5 4 3
Research and development......................... 47 53 45 34 25 27
Sales and marketing.............................. 18 23 20 34 44 44
General and administrative....................... 10 9 7 12 15 13
Write offs related to investee company........... -- -- -- 3 -- --
--- --- --- --- --- ---
Total costs and expenses....................... 78 89 77 93 92 92
--- --- --- --- --- ---
Income from operations............................. 22 11 23 7 8 8
Interest income.................................... -- 1 -- -- 1 --
Interest expense................................... -- -- -- -- -- --
Equity in losses of investee company............... -- -- -- (1) -- --
Other income (loss)................................ -- 1 -- -- -- --
--- --- --- --- --- ---
Income before provision for taxes.................. 22 13 23 6 9 8
--- --- --- --- --- ---
Provision for income taxes......................... 9 4 9 2 3 3
--- --- --- --- --- ---
--- --- --- --- --- ---
Net income......................................... 13% 9% 14% 4% 6% 5%
--- --- --- --- --- ---
--- --- --- --- --- ---
<CAPTION>
1996
-----------
<S> <C>
SUPPLEMENTAL STATEMENT OF INCOME DATA:
Revenue:
License.......................................... 71%
Service.......................................... 29
---
Total revenue.................................. 100
---
Costs and expenses:
Costs of license revenue......................... 5
Costs of service revenue......................... 3
Research and development......................... 22
Sales and marketing.............................. 39
General and administrative....................... 15
Write offs related to investee company........... --
---
Total costs and expenses....................... 84
---
Income from operations............................. 16
Interest income.................................... 3
Interest expense................................... --
Equity in losses of investee company............... --
Other income (loss)................................ --
---
Income before provision for taxes.................. 19
---
Provision for income taxes......................... 6
---
---
Net income......................................... 13%
---
---
</TABLE>
REVENUE
Total revenue increased by 112% from $7.3 million in 1993 to $15.5 million
in 1994 and increased by 51% to $23.4 million in 1995. For the first nine months
of 1996, total revenue was $25.7 million, an increase of 61% from total revenue
of $16.0 million for the first nine months of 1995. The percentage of CCT's
total revenue attributable to license fees was 86% in 1993, 61% in 1994, 67% in
1995 and 71% in the first nine months of 1996. The decrease in license revenue
as a percentage of total revenue in 1994 was primarily attributable to the
commencement of operations of UniCAD and the resulting increase in service
revenue. The increase in license revenue as a percentage of total revenue since
1994 is primarily attributable to increased licensing of SPECCTRA and IC
CRAFTSMAN.
License revenue increased by 51% from $6.3 million in 1993 to $9.5 million
in 1994 and increased by 65% to $15.7 million in 1995. For the first nine months
of 1996, license revenue was $18.1 million, an increase of 69% from license
revenue of $10.7 million for the first nine months of 1995. The increase in
license revenue from 1993 to 1994 was attributable to increased licensing of
CCT's SPECCTRA products. The increase in license revenue from 1994 to 1995 and
from the first nine months of 1995 to the first nine months of 1996 was
attributable to increased licensing of CCT's IC CRAFTSMAN products, which were
introduced in January 1995, as well as increased licensing of CCT's SPECCTRA
products.
License revenue increased 21% from the second quarter of 1996 to the third
quarter of 1996. This increase was attributable to an increase in IC CRAFTSMAN
revenue partially offset by a decrease in
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<PAGE>
SPECCTRA revenue. The decrease in SPECCTRA revenue was primarily attributable to
a decrease in business with Mentor Graphics Corporation ("Mentor Graphics") and
a decrease in CCT's revenue from the low-end PCB design market generated by
licensing SPECCTRA products with the PCB industry's IBM compatible CAD systems.
Service revenue primarily consists of maintenance revenue and revenue from
customer support and training. Service revenue increased by 500% from $1.0
million in 1993 to $6.0 million in 1994 and increased by 30% to $7.8 million in
1995. For the first nine months of 1996, service revenue was $7.5 million, an
increase of 42% from service revenue of $5.3 million for the first nine months
of 1995. The increase in service revenue from 1993 to 1994 is primarily
attributable to the commencement of operations of UniCAD in 1994 during which
UniCAD earned the majority of its income from service activities. In addition,
the increases in service revenue in each period were attributable to increased
revenue from maintenance contracts in connection with the continued growth of
the installed base of customers licensing CCT's products. The percentage of
CCT's total revenue attributable to service revenue was 14% in 1993, 39% in
1994, 33% in 1995 and 29% in the first nine months of 1996.
International license and service revenue accounted for $2.2 million, $7.9
million and $11.3 million and represented 31%, 51% and 48% of CCT's total
revenue in 1993, 1994 and 1995, respectively. For the first nine months of 1996,
international revenue was $10.6 million representing 41% of total revenue for
such period, versus $7.6 million for the first nine months of 1995. The increase
in international revenue from 1993 to 1994 is was primarily attributable to the
commencement of operations of UniCAD in 1994 during which UniCAD earned the
majority of its income from customers based in Canada. The increases in
international revenue over the other time periods are primarily attributable to
increased licensing of CCT's products internationally. International revenue as
a percentage of total revenue decreased in 1995 and the first nine months of
1996 as compared to 1994 principally due to under performance of the licensing
of CCT's products in Japan relative to licensing in the United States. Because a
majority of CCT's European revenue is denominated in U.S. dollars, CCT has not
engaged in European currency hedging activities there. However, in Japan, where
CCT's revenue is denominated in local currency, CCT has in the past, and may
again in the future, entered into foreign exchange contracts to hedge certain of
its foreign currency exposures. Transaction gains and losses from foreign
exchange hedging activities have not been significant. CCT expects that
international license and service revenue will continue to account for a
significant portion of its revenue in the short term, and as a result, foreign
currency exposure may increase.
In 1993, license and service revenue from Zuken, Harris and Mentor Graphics
accounted for 17%, 13% and 26% of CCT's total revenue, respectively. In 1994,
1995 and the first nine months of 1996, sales to Mentor Graphics accounted for
20%, 11% and 10%, respectively, of CCT's total revenue. Additionally, CCT
received a significant order from Texas Instruments Inc. ("TI") in the third
quarter of 1996. The value of the order received was $4.8 million, of which $3.6
million was for product licenses and $1.2 million was for maintenance on such
products. Sales to TI for the quarter ended September 30, 1996 amounted to $1.0
million or 11% of total revenue. The remaining product licenses are to be
delivered at the request of TI between October 1, 1996 and December 31, 1997.
The maintenance period extends from September 30, 1996 until December 31, 1999.
No other direct customer, OEM or distributor accounted for more than 10% of
total revenue during any of these historical periods.
COST OF REVENUE
Cost of license revenue includes personnel and related operating costs
associated with order processing, documentation and other production costs
related to the licensing of CCT's products. Cost of license revenue increased by
229% from $259,000 in 1993 to $851,000 in 1994 and increased by 36% to $1.16
million in 1995. It also increased by 36% from $885,000 for the first nine
months of 1995 to $1.2 million in the first nine months of 1996. The increase in
cost of license revenue from 1993 to 1994 is attributable to the commencement of
operations of UniCAD in 1994 during which UniCAD invested significantly in the
support of its license business. Beyond that, the increases in cost of license
revenue in each period were primarily attributable to an increase in licenses of
CCT's products. Cost of license
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<PAGE>
revenue was 4%, 5%, 4% and 5% of total revenue for 1993, 1994, 1995 and the
first nine months of 1996, respectively.
Cost of service revenue includes personnel and related costs allocated to
maintenance and other customer support activities. Cost of service revenue
increased by 733% from $93,000 in 1993 to $775,000 in 1994 and increased by 9%
to $846,000 in 1995. It also increased by 42% from $465,000 in the first nine
months of 1995 to $662,000 in the first nine months of 1996. The increase in
cost of service revenue from 1993 to 1994 is attributable to the commencement of
operations of UniCAD in 1994 during which UniCAD invested significantly in the
support of its service business. Beyond that, the increases in cost of service
revenue in each period is primarily attributable to an increase in service
personnel hired to support the growth of the installed base of customers
licensing CCT's products. Cost of service revenue was 1%, 5%, 4%, and 3% of
total revenue in 1993, 1994, 1995 and the first nine months of 1996,
respectively.
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 70% from $3.3 million in 1993 to $5.6 million
in 1994 and increased by 5% to $5.9 million in 1995. They also increased by 30%
from $4.3 million in the first nine months of 1995 to $5.6 million in the first
nine months of 1996. These expenses were 45%, 34%, 25%, and 22% of total revenue
in 1993, 1994, 1995 and the first nine months of 1996, respectively. The
increase in expenses in each period resulted principally from growth in the
number of research and development personnel from 24 at the end of 1993 to 51
and 64 at the end of 1994 and 1995, respectively. A significant proportion of
the increase in headcount and expense in 1994, was due to the starting up of
operations by UniCAD and its investment in research and development activity. At
least for the short term, CCT expects research and development expenses to
increase in absolute dollars but to stay flat or decrease slightly as a
percentage of total revenue, to the extent revenue increases. However, there can
be no assurance that there will be a corresponding increase in revenue to
justify the increase in expenditure.
SALES AND MARKETING
Sales and marketing expenses consist of salaries, commissions paid to
internal sales and marketing personnel and certain third parties, promotional
costs and related operating expenses. Sales and marketing expenses increased by
227% from $1.5 million in 1993 to $4.9 million in 1994 and increased by 108% to
$10.2 million in 1995. These expenses also increased by 44% from $7.0 million in
the first nine months of 1995 to $10.1 million in the first nine months of 1996.
These expenses were 20%, 34%, 44%, and 39% of total revenue in 1993, 1994, 1995
and the first nine months of 1996, respectively. The increases in sales and
marketing expenses in each period consist principally of the cost of additional
sales and marketing personnel related to the expansion of CCT's direct sales
capability in the PCB market, to support CCT's entry into the IC market and to
expand worldwide distribution, principally in Europe and Japan, and increases in
variable sales compensation due to increased revenue. The number of sales and
marketing personnel increased from 11 at the end of 1993 to 38 and 60 at the end
of 1994 and 1995, respectively. At least for the short term, CCT expects sales
and marketing expenses to increase in absolute dollars, but to stay flat or
decrease slightly as a percentage of total revenue, to the extent revenue
increases. This is due to the continuing focus on direct sales. However, there
can be no assurance that there will be a corresponding increase in revenue to
justify the increase in expenditure.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 289% from $488,000 in 1993 to
$1.9 million in 1994 and increased by 84% to $3.5 million in 1995. They also
increased by 82% from $2.2 million in the first nine months of 1995 to $4.0
million in the first nine months of 1996. These expenses were 7%, 12%, 15%, and
15% of total revenue in 1993, 1994, 1995 and the first nine months of 1996,
respectively. The increases in general and administrative expenses from 1993 to
1994, and from 1994 to 1995, were primarily
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attributable to the addition of new management and administrative personnel. The
increase from the first nine months of 1995 to the first nine months of 1996 was
primarily attributable to two non- recurring items. First, professional fees
associated with the settling of the Cadence lawsuit amounted to approximately
$350,000 in the third quarter of 1996. Second, expenses associated with the
acquisition of UniCAD amounted to approximately $400,000 in the same quarter.
The number of general and administrative personnel increased from 5 at the end
of 1993 to 15 and 18 at the end of 1994 and 1995, respectively. A significant
proportion of the increase in personnel and expense in 1994, was due to the
commencement of operations of UniCAD and its investment in the general and
administrative functions. Excluding the non-recurring items described above, CCT
expects general and administrative expenses to increase in absolute dollars but
to stay flat or decrease slightly as a percentage of total revenue, to the
extent revenue increases. However, there can be no assurance that there will be
a corresponding increase in revenue to justify the increase in expenditure.
WRITE OFFS RELATED TO INVESTEE COMPANY
During the fourth quarter of 1994, CCT settled a legal dispute relating to
the termination of its relationship with its former European distributor. CCT
had previously written off its investment and various accounts receivable from
the distributor. The net cost of the settlement and the write offs was $434,000.
INCOME TAXES
The provision for income taxes as a percentage of pre-tax income was 36.7%,
35.8%, 33.4%, and 34% for 1993, 1994, 1995 and the first nine months of 1996,
respectively. These percentages are less than the federal and state combined
statutory rate of approximately 40% due primarily to the utilization of research
and development credits in all aforementioned periods.
LIQUIDITY AND CAPITAL RESOURCES
CCT has financed its operations to date with cash from operations and
through private and public sales of equity securities. Private sales of equity
securities have yielded approximately $4.7 million including the sale of shares
of Common Stock to Synopsys in May 1996, the proceeds of which were
approximately $2.2 million. In addition, in October 1995, CCT completed its
initial public offering, raising approximately $22.4 million.
Net cash provided by operating activities was $1.9 million, $2.2 million and
$1.9 million for 1993, 1994 and 1995, respectively. For the first nine months of
1995, cash used by operations was $264,000 and for the corresponding period of
1996, cash provided by operations was $2.7 million. From 1993 to 1994 and 1995,
the cash generated resulted principally from net income, with increases in
accounts payable, accrued liabilities and deferred revenue more than offsetting
increases in receivables and prepayments. The increase in cash generated in the
nine months of 1996 versus the corresponding period of 1995, is due principally
to the higher level of net income in 1996 coupled with a lower rate of growth in
receivables, versus the same period in 1995, when net income was much lower, and
the growth in receivables was much more pronounced. Accrued liabilities
increased by approximately $1.5 million between December 31, 1994 and December
31, 1995 primarily due to increases in foreign and domestic sales taxes and
accruals of various operating expenses as a result of increases in the level of
operations. Deferred revenue increased by approximately $232,000 from December
31, 1994 to December 31, 1995 as a result of an increase in the number of
maintenance contracts, the revenue from which is deferred and recognized ratably
over the term of the contract.
Cash used in investing activities resulted primarily from additions to
property and equipment and purchases of available for sale securities. Purchases
of property and equipment, consisting primarily of computer equipment, were
$631,000, $1.5 million and $1.9 million in 1993, 1994 and 1995, respectively.
For the first nine months of 1996, purchases of property and equipment were $1.3
million and were $1.4 million for the corresponding period of 1995. Capital
spending was particularly high during the first nine
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<PAGE>
months of 1995 due to the significant increase in headcount during that period
and the associated spending on equipment that was required to support it.
As of September 30, 1996, CCT had working capital of $32.5 million including
cash, cash equivalents and short term investments of $31.4 million. As of
September 30, 1996, CCT had no bank indebtedness and no significant long-term
commitments other than operating lease obligations. CCT believes that existing
cash balances and funds generated from operations will provide CCT with
sufficient funds to finance its operations in the near future. Thereafter, CCT
may require additional funds to support its working capital requirements and for
other purposes and may seek to raise such additional funds through public or
private equity financings or from other sources. No assurance can be given that
additional financing will be available or that, if available, such financing
will be obtainable on terms favorable to CCT or its stockholders.
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The EDA industry is characterized by extremely rapid technological change,
frequent new product introductions and enhancements, evolving industry standards
and rapidly changing customer requirements. Customers in the EDA industry
require software products that allow them to minimize their time-to-market,
differentiate their products, maximize their engineering productivity and reduce
design time and costs. CCT's future success will depend upon its ability to
continually enhance its current products and develop and introduce new products
that keep pace with technological advancements and address the increasingly
sophisticated needs of its customers. There can be no assurance that CCT will be
successful in developing and marketing product enhancements or new products that
respond to technological change, evolving industry standards and changing
customer requirements, that CCT will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of these
products or product enhancements or that its new products and product
enhancements will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. Failure of CCT, for
technological or other reasons, to develop and introduce new products and
product enhancements in a timely and cost-effective manner would have a material
adverse effect on CCT's business, financial condition and results of operations.
Any failure by CCT to anticipate or to respond adequately to changing market
conditions, or any significant delays in product development or introduction,
could cause customers to delay or decide against purchases of CCT's products and
would have a material adverse effect on CCT's business, financial condition and
results of operations.
Software products as complex as those offered by CCT may contain defects or
failures when introduced or when new versions are released. CCT has in the past
discovered software defects in certain of its products and may experience delays
or lost revenue correcting such defects in the future. Although CCT has
corrected known material defects and has not experienced material adverse
effects resulting from any such defects to date, there can be no assurance that,
despite testing by CCT, errors will not be found in new products or releases
after commencement of commercial shipments. Any such occurrence could result in
loss of market share or failure to achieve market acceptance and could have a
material adverse effect upon CCT's business, financial condition and results of
operations.
CCT's future operating results are significantly dependent upon continued
enhancement and market acceptance of its SPECCTRA product line and successful
market acceptance of its IC CRAFTSMAN product line. There can be no assurance
that the SPECCTRA product line will continue to be adequately enhanced to
achieve continued market acceptance or that CCT will be successful in marketing
the IC CRAFTSMAN product line or any other new or enhanced products. In
particular, CCT believes that its future operating results are significantly
dependent upon market acceptance in Japan of CCT's IC CRAFTSMAN products. CCT
believes that a number of factors will be necessary for its IC CRAFTSMAN
products to achieve, and its SPECCTRA products to continue to achieve, broad
market acceptance. These factors include performance, price, interoperability
with existing systems and the customer's assessment of CCT's technical,
managerial, service and support expertise and capability. Failure to succeed
with respect to any of these factors could result in CCT's failing to achieve
market acceptance of its products, which would have a
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material adverse effect on CCT's business, financial condition and results of
operations. A decline in demand for any of CCT's products as a result of
competition, technological change or other factors would have a material adverse
effect on CCT's business, financial condition and results of operations. In
addition, factors adversely affecting the EDA market generally could have a
material adverse effect on CCT's business, financial condition and results of
operations.
The sales cycle for CCT's products is relatively lengthy. In particular,
orders for licenses of CCT's IC CRAFTSMAN products in a given quarter are
typically made by relatively fewer customers and in larger amounts as compared
to orders for licenses of CCT's SPECCTRA products. Accordingly, because IC
CRAFTSMAN revenues have increased as a percentage of CCT's total revenues, such
licenses ordered by a single customer can account for a significant portion of a
quarter's revenues. Because CCT's expenses are relatively fixed in the short
term, the loss or delay of such orders by a single customer or multiple
customers could have a material adverse effect on CCT's business, financial
condition and results of operations.
In addition, CCT believes that its quarterly and annual operating results
have in the past and may in the future vary significantly depending on factors
such as variations in product development or operating expenditures, increased
competition, the purchasing patterns of its customers, the timing of customer
design and development projects, the timing of customer evaluation and
acceptance, the timing of expenditures by CCT in anticipation of product
releases or increased revenue, the timing of product enhancements and product
introductions by CCT and its competitors, market acceptance of new and enhanced
versions of CCT's products, the size, timing and structure of significant
licenses, changes in pricing policies of CCT and its competitors, variations in
the mix of products CCT licenses, delays in processing orders, the mix of direct
and indirect sales, changes in Company strategy, personnel changes and general
economic factors. Any unfavorable changes in these or other factors could have a
material adverse effect on CCT's business, financial condition and results of
operations.
The anticipated benefits of the recently completed acquisition of UniCAD
will not be achieved unless UniCAD and CCT are successfully combined in an
efficient and timely manner. It is possible that the process of combining the
two organizations, integrating their product offerings and coordinating their
research and development, production, administrative and sales and marketing
efforts, will cause an interruption of, or a loss of momentum in, the activities
of either or both of the companies' businesses, which could have a material
adverse effect on CCT's business, financial condition and results of operations,
at least in the near term. The difficulties of integration may be increased by
the necessity of coordinating geographically separated organizations and
integrating personnel with disparate business backgrounds. Furthermore, the
process of combining the companies could have a material adverse effect on
employee morale and on the ability of CCT to retain the key management,
technical and sales and marketing personnel who are critical to CCT's future
operations. In addition, the consummation of the acquisition could cause
customers or potential customers to delay or cancel orders for products as a
result of uncertainty over the integration and support of CCT's products. There
can be no assurances that CCT's current management will be capable of managing
the combined operations, or UniCAD's existing strategic relationships with its
customers, effectively. In addition, it is possible that the business and
management changes brought by the acquisition may cause key employees to leave
UniCAD or cause CCT to terminate key employees of UniCAD. Any failure by UniCAD
or CCT to retain and attract key employees could have a material adverse effect
on CCT's business, financial condition and results of operations.
The anticipated benefits of the recently announced agreement to be acquired
by Cadence will not be achieved unless Cadence and CCT are successfully combined
in an efficient and timely manner. The announcement of the proposed acquisition
by Cadence could have a material adverse effect on employee morale and on the
ability of CCT to retain the key personnel who are critical to CCT's future
operations and could cause customers or potential customers to delay or cancel
orders for products as a result of uncertainty over the integration and support
of CCT's products, either of which could have a material adverse effect on CCT's
business, financial condition and results of operations.
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CCT MANAGEMENT AND EXECUTIVE COMPENSATION
CCT MANAGEMENT
The executive officers, directors and certain other members of senior
management of CCT, and their ages as of the Record Date, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John R. Harding...................................... 41 President, Chief Executive Officer and Director
John F. Cooper....................................... 57 Chief Technical Officer and Chairman of the Board
David Chyan.......................................... 43 Executive Vice President, Product Development and
Director
Robert D. Selvi...................................... 40 Vice President and Chief Financial Officer
William J. Portelli.................................. 39 Vice President, Marketing
Mary I. Cooper....................................... 55 Secretary and Director
James R. Fiebiger(1)(2).............................. 55 Director
Yoshikazu Hori(1)(2)................................. 59 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Harding has served as President and Chief Executive Officer of CCT since
he joined CCT in December 1994, and as a director since September 1995. Before
joining CCT, Mr. Harding was with Zycad Corporation ("Zycad"), an EDA company,
as Executive Vice President, Worldwide Sales and Marketing, from January 1992 to
October 1994, as President, Protocol Services Division from January 1990 to
December 1991, and in various other management positions from January 1984 to
January 1990. Prior to January 1984, Mr. Harding was employed by TXL
Corporation, an equipment financing company, and by IBM. Mr. Harding received a
Bachelor of Arts in Chemistry and Economics from Drew University in 1977.
Mr. Cooper founded CCT together with Mr. Chyan in January 1989, and serves
CCT as Chief Technical Officer and Chairman of the Board. From January 1989 to
December 1994, Mr. Cooper was President of CCT. He has served as a director
since 1989. Mr. Cooper was an Engineering Director at Mentor Graphics
Corporation ("Mentor Graphics") from December 1983 to December 1988, where he
initiated development of the BOARDSTATION product line and, with Mr. Chyan,
developed the BOARDSTATION autorouter. Mr. Cooper also worked for IBM in various
engineering positions from June 1961 to December 1983. Mr. Cooper received a
Bachelor of Science in Electrical Engineering from Clarkson University in 1961.
Mr. Cooper is the husband of Mary Cooper.
Mr. Chyan, CCT's Executive Vice President, Product Development, founded CCT
together with Mr. Cooper in January 1989. He has served as a director since
1989. Mr. Chyan was a member of the senior technical staff at Mentor Graphics
from October 1983 to December 1988, where he was employed in the IC division as
a developer of ASIC place and route products and then, with Mr. Cooper,
developed the BOARDSTATION autorouter. From January 1979 to October 1983, Mr.
Chyan worked for Xerox Corporation in various engineering positions. Mr. Chyan
received a Bachelor of Science in Electrical Engineering from National Taiwan
University in 1975 and a Master of Science in Computer Science from the
University of Southern California in 1979.
Mr. Selvi joined CCT as Vice President and Chief Financial Officer in April
1995. Prior to joining CCT, Mr. Selvi was Senior Vice President, Operations and
Finance and Chief Financial Officer of Claris Corporation, a software subsidiary
of Apple Computer, Inc. ("Apple") from February 1992 to April 1995. Mr. Selvi
was employed by Apple from October 1982 to February 1992, where he served in a
variety of managerial capacities, including, among others, Senior Manager of
Corporate Development, Assistant Treasurer and Manager of Financial Services.
Prior to that time, Mr. Selvi held management positions with Diasonics, Inc., a
medical equipment company, and Memorex Corporation. Mr. Selvi received a
Bachelor
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of Science in Finance in 1978 and a Master of Business Administration in 1981,
each from Santa Clara University.
Mr. Portelli has served as Vice President, Marketing since January 1996, and
as Vice President, Sales and Marketing from March 1995 to December 1995. Prior
to joining CCT, Mr. Portelli was with Zycad as Vice President, Sales and
Marketing from January 1992 to March 1995 serving concurrently as Vice President
and General Manager of the Rapid Prototyping Services Division and the Protocol
Services Division of Zycad from June 1993 to March 1995, and in various
technical and sales positions from October 1983 to December 1991. Prior to that
time, Mr. Portelli worked for General Instruments in various design and design
engineering management positions. Mr. Portelli received a Bachelor of Science in
Electrical Engineering from Rutgers University in 1979.
Ms. Cooper has served as CCT's Secretary since April 1995. From April 1995
to December 1995, Ms. Cooper served as CCT's Vice President, Administration, and
from January 1989 to April 1995, Ms. Cooper served as CCT's Chief Financial
Officer and Secretary. She has served as a director of CCT since January 1989.
Ms. Cooper is the wife of John Cooper.
Dr. Fiebiger has served as a director of CCT since September 1995. Dr.
Fiebiger has served as the Chairman of the Board and Managing Director of
Thunderbird Technology, Inc., a technology licensing company, since August 1994.
Previously, he served as a consultant to and President and Chief Operating
Officer of VLSI Logic, Inc., an integrated circuit design company. Dr. Fiebiger
is also a director of Zycad and Mentor Graphics, both of which are EDA
companies. Dr. Fiebiger received a Bachelor of Science, a Master of Science and
a Doctor of Science in Electrical Engineering in 1964, 1966 and 1970,
respectively, all from the University of California at Berkeley.
Mr. Hori has served as a director of CCT since October 1995. Mr. Hori has
been president of Cray Research Japan Ltd., a supercomputer manufacturer, since
1987. Previous positions include senior managing director for Nippon Fairchild
KK and board member and general manager of sales and marketing of Molex Japan
Inc.
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CCT EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to CCT and its subsidiaries during fiscal
year ended 1995 to the Chief Executive Officer and the four highest compensated
executive officers other than the chief executive officer (collectively the
"Named Officers"). This information includes the dollar values of base salaries,
bonus awards, the number of stock options granted and certain other
compensation, if any, whether paid or deferred.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPEN- ALL OTHER
SATION COMPENSATION
ANNUAL COMPENSATION AWARDS ($)
----------------------------------------- ----------- -------------
OTHER ANNUAL SECURITIES 401(K)
NAME AND PRINCIPAL BONUS COMPENSATION UNDERLYING CONTRIBUTIONS
POSITION (1) YEAR SALARY ($) ($) ($) OPTIONS (2)
- ------------------------------------ --------- ----------- --------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John R. Harding .................... 1995 158,400 100,000 -- -- --
President and 1994 19,450 -- -- 400,000 --
Chief Executive Officer
John F. Cooper ..................... 1995 158,400 100,000 -- -- --
Chief Technical Officer 1994 547,114 -- -- -- 14,838
David Chyan ........................ 1995 158,400 100,000 -- -- --
Executive Vice President, 1994 596,152 -- -- -- 16,830
Product Development
Robert D. Selvi .................... 1995 93,750 33,335 -- 150,000 --
Vice President and 1994 -- -- -- -- --
Chief Financial Officer
William J. Portelli (4) ............ 1995 132,623 60,000 -- 150,000 --
Vice President, 1994 -- -- -- -- --
Sales and Marketing
<CAPTION>
- ------------------------------------
LIFE
NAME AND PRINCIPAL INSURANCE
POSITION (1) PREMIUMS (3)
- ------------------------------------ -------------
<S> <C>
John R. Harding .................... --
President and --
Chief Executive Officer
John F. Cooper ..................... 69,830
Chief Technical Officer 84,045
David Chyan ........................ 25,902
Executive Vice President, 31,912
Product Development
Robert D. Selvi .................... --
Vice President and --
Chief Financial Officer
William J. Portelli (4) ............ --
Vice President, --
Sales and Marketing
</TABLE>
- --------------------------
(1) Messrs. Harding, Selvi and Portelli were hired by CCT in December 1994,
April 1995 and March 1995, respectively.
(2) Amounts in this column represent matching contributions made by CCT to the
executive officer's 401(k) account. Amounts deferred pursuant to CCT's
401(k) plan at the election of an executive officer are included in such
executive officer's salary.
(3) Amounts in this column represent the dollar value of life insurance premiums
paid by CCT for both term life insurance and split-dollar life insurance.
The full dollar value of the premiums paid by CCT is included for
split-dollar life insurance. The premiums reported paid on behalf of Mr.
Cooper include premiums for a split-dollar last-survivor life insurance
policy for both Mr. Cooper and Ms. Cooper. Ms. Cooper is Secretary and a
Director of CCT, and is Mr. Cooper's spouse.
(4) Mr. Portelli's 1995 salary includes a $9,000 cost of living adjustment
associated with his relocation to California.
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CCT OPTION GRANTS
The following table sets forth information concerning stock option grants
during the fiscal year ended December 31, 1995 with respect to the Named
Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1995
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
------------------------------------------------------ RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM (1)
GRANTED EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------------------------- --------- ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John R. Harding........................ -- -- -- -- -- --
John F. Cooper......................... -- -- -- -- -- --
David Chyan............................ -- -- -- -- -- --
Robert D. Selvi........................ 150,000 13% $ 1.50 04/25/05 $ 141,500 $ 358,592
William J. Portelli.................... 150,000 13% $ 1.50 04/25/05 $ 141,500 $ 358,592
</TABLE>
- ------------------------
(1) The 5% and 10% assumed annual rates of compounded stock appreciation are
mandated by the rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
CCT's securities that the actual stock price appreciation over the option
term will be at the assumed 5% and 10% levels or at any other defined level.
Unless the market price of the Common Stock appreciates over the option
term, no value will be realized from the option grants made to the Named
Officers.
CCT OPTION EXERCISES AND HOLDINGS AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the exercise of options
by each of the Named Officers during fiscal 1995, including the aggregate amount
of gains on the date of exercise. In addition, the table includes the number of
shares covered by both the exercisable and unexercisable stock options as of
December 31, 1995.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN FISCAL 1995 AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/95 AT 12/31/95 ($)(2)
SHARES ACQUIRED AGGREGATE VALUE -------------------------- --------------------------
NAME ON EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John R. Harding......... 20,000 $ 195,000 60,000 320,000 $ 870,000 $ 4,690,000
John F. Cooper (3)...... 200,000 $ 140,000 -- -- -- --
David Chyan............. 80,000 $ 56,000 -- -- -- --
Robert D. Selvi......... -- -- -- 150,000 -- $ 2,137,500
William J. Portelli..... -- -- -- 150,000 -- $ 2,137,500
</TABLE>
- --------------------------
(1) Based on the fair market value of the shares on the exercise date less the
exercise price paid for the shares.
(2) Based on the fair market value of the option shares at fiscal-year end (the
closing price on December 29, 1995, the last day of reported trading in
fiscal 1995) less the exercise price.
(3) Includes 40,000 shares acquired on exercise of an option held by Mary I.
Cooper for an aggregate realized value of $28,000. Ms. Cooper is Secretary
and a Director of CCT, and is Mr. Cooper's spouse.
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CCT PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of December 17, 1996,
known to CCT regarding beneficial ownership of CCT's Common Stock as of December
17, 1996 by (i) each person known by CCT to be the beneficial owner of more than
5% of CCT's Common Stock, (ii) each of CCT's directors, (iii) CCT's executive
officers and (iv) all executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES OF CCT
COMMON STOCK
BENEFICIALLY OWNED(1)
-----------------------------
NAME AND ADDRESS NUMBER OF PERCENT OF
OF BENEFICIAL OWNER SHARES CLASS
- ---------------------------------------- ------------- -------------
<S> <C> <C>
Cadence Design Systems, Inc.(2)......... 4,870,909 37.1%
2655 Seely Road
Building 5
San Jose, California 95134
John F. and Mary I. Cooper(3)........... 2,351,502 17.9%
1601 Saratoga-Sunnyvale Road
Cupertino, CA 95014
David Chyan(4).......................... 2,514,752 19.2%
1601 Saratoga-Sunnyvale Road
Cupertino, CA 95014
Synopsys, Inc........................... 1,206,542 9.2%
700 Middlefield Road
Mountain View, CA 94043
John R. Harding(5)...................... 46,625 *
Robert D. Selvi(6)...................... 31,339 *
William J. Portelli(7).................. 34,174 *
Yoshikazu Hori (8)...................... -- --
James R. Fiebiger (9)................... -- --
All current officers and directors as a
group
(8 persons)........................... 4,978,392 37.7%
<CAPTION>
SHARES OF CADENCE
COMMON STOCK
BENEFICIALLY OWNED
AFTER THE MERGER
-----------------------------
NAME AND ADDRESS NUMBER OF PERCENT OF
OF BENEFICIAL OWNER SHARES CLASS
- ---------------------------------------- ------------- -------------
<S> <C> <C>
Cadence Design Systems, Inc.(2)......... 4,140,272 4.3%
2655 Seely Road
Building 5
San Jose, California 95134
John F. and Mary I. Cooper(3)........... 1,998,776 2.1%
1601 Saratoga-Sunnyvale Road
Cupertino, CA 95014
David Chyan(4).......................... 2,137,539 2.6%
1601 Saratoga-Sunnyvale Road
Cupertino, CA 95014
Synopsys, Inc........................... 1,025,560 1.1%
700 Middlefield Road
Mountain View, CA 94043
John R. Harding(5)...................... 39,631 *
Robert D. Selvi(6)...................... 26,638 *
William J. Portelli(7).................. 33,297 *
Yoshikazu Hori (8)...................... -- --
James R. Fiebiger (9)................... -- --
All current officers and directors as a
group
(8 persons)........................... 4,231,633 4.4%
</TABLE>
- --------------------------
* Less than 1%.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of CCT Common Stock subject to options that are currently exercisable
or exercisable within 60 days of December 17, 1996 are deemed to be
outstanding and to be beneficially owned by the person holding such option
for the purpose of computing the percentage ownership of such person but are
not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Represents shares subject to the Cadence Voting Agreements between Cadence
and each of Messrs. Cooper, Chyan, Harding, Selvi and Portelli whereby each
agreed, among other things, to vote his shares of CCT Common Stock in favor
of the Merger. Also represents shares subject to the Cadence Option
Agreement between Cadence and each of Messrs. Cooper and Chyan granting to
Cadence an irrevocable option to purchase any and all of the CCT Common
Stock that each beneficially owns upon the occurrence of certain events. See
"Approval of the Merger and Related Transactions--Voting Agreements" and
"--Option Agreements."
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(3) Mr. and Ms. Cooper are husband and wife. Mr. Cooper, the Chairman of the
Board of Directors and the Chief Technical Officer of CCT, is record owner
of 2,296,502 shares of CCT Common Stock. Ms. Cooper, a director and
Secretary of CCT, is the record owner of 55,000 shares of CCT Common Stock.
(4) Includes 80,000 shares of CCT Common Stock held by Janet Chyan, Mr. Chyan's
wife. Mr. Chyan is a director and Executive Vice President, Product
Development of CCT.
(5) Represents 44,983 shares of CCT Common Stock that Mr. Harding may acquire
upon the exercise of options exercisable within 60 days of December 17,
1996. Mr. Harding is a director and is President and Chief Executive Officer
of CCT. Pursuant to an existing employment agreement between CCT and Mr.
Harding, Mr. Harding's options to acquire an additional 226,667 shares of
CCT Common Stock will become immediately exerciseable as of the Effective
Time.
(6) Represents 30,000 shares of CCT Common Stock that Mr. Selvi may acquire upon
the exercise of options exercisable within 60 days of December 17, 1996. Mr.
Selvi is a Vice President and the Chief Financial Officer of CCT. Pursuant
to an existing employment agreement between CCT and Mr. Selvi, Mr. Selvi's
options to acquire 7,500 shares of CCT Common Stock will become immediately
exerciseable as of the Effective Time.
(7) Represents 32,500 shares of CCT Common Stock that Mr. Portelli may acquire
upon the exercise of options exercisable within 60 days of December 17,
1996. Mr. Portelli is Vice President, Marketing of CCT. Pursuant to an
existing employment agreement between CCT and Mr. Portelli, Mr. Portelli's
options to acquire 5,000 shares of CCT Common Stock will become immediately
exerciseable as of the Effective Time.
(8) Pursuant to CCT's 1995 Directors' Stock Option Plan, Mr. Hori's options to
acquire 25,000 shares of CCT Common Stock will become immediately
exerciseable as of the Effective Time.
(9) Pursuant to CCT's 1995 Directors' Stock Option Plan, Mr. Fiebiger's options
to acquire 25,000 shares of CCT Common Stock will become immediately
exerciseable as of the Effective Time.
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CADENCE BUSINESS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION
CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
CADENCE'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED ABOVE IN "RISK FACTORS," AND IN "CADENCE BUSINESS,"
AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS OR
INCORPORATED HEREIN BY REFERENCE.
GENERAL
Cadence develops, markets and supports EDA software tools that automate,
enhance and accelerate the design and verification of 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 and wireless devices,
automotive components, consumer products and other advanced electronics.
THE INTEGRATED CIRCUIT AND ELECTRONIC SYSTEM DESIGN PROCESS
The electrical design process involves describing the behavioral, functional
and structural attributes of an IC or electronic system. This process involves
creating a design description, simulating the design to identify electrical
defects and refining the description to meet predetermined design
specifications. The first step in the electrical design process is creation of
the design description. To handle the complexity of large designs, design
engineers use a variety of techniques, including block diagrams, equations or
special design description languages referred to as Hardware Description
Language ("HDL").
Before an IC or PCB can be manufactured, high level design descriptions must
be detailed into a structural design, in which the engineer specifically defines
components, their interconnections and associated physical properties.
Structural designs may be created manually or generated using an automated
process called logic synthesis. In structural design, critical design time can
be saved by selecting components from an electronic library and including them
in the design, rather than recreating symbols and data for each design. A
database containing the design's electrical characteristics, interconnections
and specific design rules is automatically created and used as the foundation
for subsequent design steps.
Electronics designers use simulation throughout the electrical design
process to identify design errors before the design is manufactured. In
addition, simulation enables electronics designers to quickly explore design
alternatives, and can be performed at different levels of design abstraction and
with mixed levels of abstraction. This enables a designer to verify the
conceptual, structural and performance aspects of the design. A key element in
the simulation process is the use of component libraries containing software
models of commonly used parts.
When the design is determined to be functionally correct, the designer
generates a non-graphical description called a netlist that details the design
components and interconnections. This netlist becomes the blueprint for physical
design. Next, the physical design team determines the layout and associated
interconnection of the components on the target substrate that will yield the
optimum combination of performance, area and cost. Once this process is
completed, physical verification tools are used to provide a final check of the
design implementation before products are released to manufacturing. Accuracy in
this process is essential to avoiding costly production runs of faulty parts.
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
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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 as customers are seeking
to create higher performance products, lower development costs, improve time to
market and migrate their design and manufacturing efforts to utilize deep
submicron technologies. As a consequence, Cadence believes that its
solutions-oriented approach to providing both EDA tools and services will enable
customers to more effectively respond to demanding market requirements.
CADENCE PRODUCTS
CAE PRODUCTS
Cadence is a leader in the computer aided engineering ("CAE") market
primarily based on its strong market presence in logic simulation. 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 increasingly
important for electronics designers because such tools provide the necessary
bridge between the logic and physical domains. An advanced high level design
planning environment allows engineers to accurately predict physical effects
that are used to provide guidelines for logic optimization and final
implementation. Cadence has developed a broad portfolio of design planning tools
including Preview and SiliconQuest.
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
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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 provides customers with a higher level of design automation
for a number of application areas including wireless communications, networking
and multi-media. The Signal Processing Workbench includes a large applications
library of design blocks, a complete technology base and a visualization and
analysis environment. Once the design is conceptualized, the Signal Processing
Workbench provides links to implementation which include multiple capabilities
that allow the design to be passed downstream to ASIC and IC engineers.
CADENCE'S SPECTRUM SERVICES
Cadence offers a range of design development and support services to its
customers, from assistance with specific designs to a complete re-engineering of
the product design process, and even a complete outsourcing of a particular
design operation. 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 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.
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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
On December 18, 1996, the HLDS Merger was consummated. In connection with
the acquisition, a wholly owned subsidiary of Cadence was merged into HLDS and
HLDS became a wholly owned subsidiary of Cadence. Each outstanding share of HLDS
capital stock was converted into the right to receive 0.22 of a share of Cadence
Common Stock. The stockholders of HLDS are entitled to receive approximately
2,562,000 shares of Cadence Common Stock in connection with the HLDS Merger. The
HLDS Merger was a tax-free reorganization under the Internal Revenue Code and
will be accounted for as a purchase. Based upon the number of shares of Cadence
Common Stock issued and outstanding as of December 17, 1996, and after giving
effect to the additional shares of Cadence Common Stock that the Stockholders of
HLDS are entitled to receive in connection with the HLDS Merger and the
additional shares of Cadence Common Stock that are proposed to be issued in the
Merger with CCT (and assuming no exercise of outstanding options and warrants to
purchase Cadence Common Stock), the former holders of HLDS capital stock hold
and have voting power with respect to approximately 2.6% of Cadence's total
issued and outstanding shares.
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 0.35 micron) IC design and to offer
improved time to market, enhanced IC performance and reduced development and
manufacturing costs when compared to previous generations of EDA software.
HLDS offers three principal design planning products that have application
at several stages of the design process. These design planning products include
Top-Down DP, which has been released for limited customer use, for application
by hardware description language designers in the functional design phase; Logic
DP, for application by gate level designers in the logic implementation phase;
and Physical DP, for application by layout engineers in the physical
implementation and verification phase.
HLDS also offers an EDA infrastructure product on which newly defined deep
submicron design methodologies can be implemented. HLDS' infrastructure product,
called Pillar, provides CAD developers who are responsible for implementing deep
submicron methodologies with a database, graphical user interface, applications
programming interfaces and a software development environment. Pillar allows
"best of breed" deep submicron tools to be integrated quickly and cost
effectively and facilitates internal development of other tools.
HLDS also offers two other standalone EDA tools to solve specific deep
submicron design problems: HyperExtract and Fasnet Delay Calculator. These tools
complement HLDS' design planning products and may be integrated with HLDS'
Pillar infrastructure product. HyperExtract is a deep submicron interconnect
extraction tool that allows distributed resistance and capacitance (including
interlayer and coupling capacitance) to be extracted from design databases.
Fasnet Delay Calculator is a standalone deep submicron delay calculator that
allows gate and interconnect delays to be accurately calculated based on a set
of gate models and interconnect resistance and capacitance characteristics.
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
83,911,085 shares of Cadence Common Stock outstanding held of record by
approximately 1,650 stockholders. Cadence
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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. 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 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 RIGHTS AGREEMENT. The Series A Preferred has been designated for
use in connection with Cadence's Rights Agreement dated February 9, 1996. The
Rights Agreement provides for a dividend of one preferred share purchase right
(a "Right") for each outstanding share of Cadence Common Stock. The dividend was
payable on February 20, 1996 to the stockholders of record on that date. Each
Right entitles the registered holder to purchase from Cadence one one-thousandth
of a share of Series A Preferred at a price of $240 per one one-thousandth of a
share of Series A Preferred, subject to adjustment.
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 CCT COMMON STOCK
The authorized common stock of CCT consists of 30,000,000 shares of common
stock, $0.01 par value per share. As of the Record Date, there were 13,114,701
shares of CCT Common Stock outstanding, held of record by approximately 86
stockholders.
CCT COMMON STOCK. The holders of CCT Common Stock are entitled to one vote
per share on all matters to be voted upon by the stockholders. The holders of
CCT Common Stock are entitled to receive ratably such dividends if any, as may
be declared from time to time by the CCT Board of Directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of CCT, the holders of CCT 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 CCT Common Stock has no
preemptive or conversion rights or other subscription rights. All outstanding
shares of CCT Common Stock are fully paid and nonassessable.
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COMPARISON OF RIGHTS OF HOLDERS OF CADENCE
COMMON STOCK AND HOLDERS OF CCT COMMON STOCK
Upon consummation of the Merger, the holders of CCT Common Stock will become
holders of Cadence Common Stock. There are certain material differences between
the rights and privileges of the holders of CCT Common Stock and the holders of
Cadence Common Stock.
ANTITAKEOVER PROVISIONS. While CCT 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 stockholder rights plan.
Cadence's rights plan 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 the likelihood that the stockholders of CCT
would receive such a premium in similar circumstances. See "Risk Factors--
Antitakeover Provisions."
PERCENTAGE OF VOTING STOCK; INFLUENCE OVER AFFAIRS. Upon completion of the
Merger, the percentage ownership of Cadence by each former CCT stockholder will
be substantially less than such stockholder's current percentage ownership of
CCT. Accordingly, former CCT stockholders will have a significantly smaller
voting influence over the affairs of Cadence than they currently enjoy over the
affairs of CCT.
STOCK EXCHANGE RULES. The CCT Common Stock is currently listed on Nasdaq
and will cease to trade on Nasdaq upon consummation of the Merger. The Cadence
Common Stock is traded on the NYSE. There are material differences between the
corporate governance rules of Nasdaq and the NYSE.
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EXPERTS
The audited consolidated financial statements of Cadence 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 report with respect thereto, and are incorporated by
reference in reliance upon the authority of said firm as experts in giving said
reports.
The audited consolidated financial statements of CCT at December 31, 1995
and 1994 and for each of the three years ended December 31, 1995 incorporated by
reference in this Proxy Statement/Prospectus and the Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon, and are incorporated by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The supplemental consolidated financial statements of CCT at December 31,
1995 and 1994 and for each of the three years ended December 31, 1995, included
in this Proxy Statement/Prospectus and Registration Statement, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report,
appearing elsewhere herein, which, as to the years 1995 and 1994 are based in
part on the reports of Deloitte & Touche, independent auditors. The financial
statements referred to above are included in reliance upon the reports of such
firms given upon the authority of such firms as experts in accounting and
auditing.
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 CCT by Fenwick &
West LLP, Palo Alto, California.
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INDEX TO CCT SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Ernst & Young LLP with respect to Cooper & Chyan Technology, Inc................................. F-2
Report of Deloitte & Touche with respect to UniCAD, Inc.................................................... F-3
Supplemental Consolidated Balance Sheet as of December 31, 1994 and 1995 and September 30, 1996
(unaudited).............................................................................................. F-4
Supplemental Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995 and for
the nine months ended September 30, 1995 (unaudited) and 1996 (unaudited)................................ F-5
Supplemental Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994
and 1995 and for the nine months ended September 30, 1996 (unaudited).................................... F-6
Supplemental Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
for the nine months ended September 30, 1995 (unaudited) and 1996 (unaudited)............................ F-7
Notes to Supplemental Consolidated Financial Statements.................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cooper & Chyan Technology, Inc.
We have audited the accompanying supplemental consolidated balance sheets of
Cooper & Chyan Technology, Inc. (formed as a result of the consolidation of
Cooper & Chyan Technology, Inc. and UniCAD, Inc.) as of December 31, 1994 and
1995, and the related supplemental consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. The supplemental consolidated financial statements give
retroactive effect to the merger of Cooper & Chyan Technology, Inc. and UniCAD,
Inc. on August 28, 1996, which has been accounted for using the pooling of
interests method as described in the notes to the supplemental consolidated
financial statements. These supplemental financial statements are the
responsibility of the management of Cooper & Chyan Technology, Inc. Our
responsibility is to express an opinion on these supplemental financial
statements based on our audits. We did not audit the financial statements of
UniCAD, Inc., which statements reflect total assets constituting 21% for 1994
and 7% for 1995 of the related supplemental consolidated financial statement
totals, and which reflect net income constituting 44% for 1994 and 27% for 1995
of the related consolidated financial statement totals. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for UniCAD, Inc., is based
solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
supplemental financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Cooper & Chyan
Technology, Inc. at December 31, 1994 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, after giving retroactive effect to the merger of
UniCAD, Inc. as described in the notes to the supplemental consolidated
financial statements, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Palo Alto, California
January 26, 1996
(Except for note 2 as to which the date is August 28, 1996)
F-2
<PAGE>
AUDITOR'S REPORT
To the Board of Directors
UniCAD, Inc.
We have audited the consolidated balance sheets of UniCAD, Inc. and
subsidiary as of September 30, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended (not separately presented herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies as of September
1995 and 1994, and the results of their operations and their cash flows for the
years then ended in conformity with United States generally accepted accounting
principles.
Deloitte & Touche
Chartered Accountants
Ottawa, Canada
September 20, 1996
F-3
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30
1994 1995 1996
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................... $ 2,117,092 $ 3,586,998 $ 4,690,200
Short term investments......................................... 350,788 23,402,236 26,737,015
Accounts receivable
(Net of allowance of $329,945 at December 31, 1995).......... 3,318,991 5,599,419 6,525,685
Income taxes receivable........................................ 99,130 -- --
Deferred income taxes.......................................... -- 373,525 373,525
Prepaid expenses and other current assets...................... 289,974 1,133,917 1,932,325
------------ ------------- -------------
Total current assets............................................. 6,175,975 34,096,095 40,258,750
Property, plant and equipment net................................ 2,018,157 3,008,270 3,346,863
Other assets..................................................... 163,197 385,174 250,788
------------ ------------- -------------
$ 8,357,329 $ 37,489,539 $ 43,856,401
------------ ------------- -------------
------------ ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Borrowings under bank credit facility.......................... $ 500,000 $ -- $ --
Trade accounts payable......................................... 277,610 882,074 573,132
Accrued salary and employee benefits........................... 784,672 1,178,947 2,251,297
Accrued liabilities............................................ 629,436 2,180,027 2,014,441
Income taxes payable........................................... -- 242,566 294,937
Deferred revenue............................................... 2,801,519 3,033,293 2,632,724
Deferred income taxes.......................................... 59,937 -- --
------------ ------------- -------------
Total current liabilities........................................ 5,053,174 7,516,907 7,766,531
Deferred income taxes............................................ 42,886 238,851 238,851
Other long term liabilities...................................... 313,819 319,459 92,534
Stockholders' equity
Convertible preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares outstanding at December 31, 1995; no
par value, 4,000,000 shares authorized, 1,480,000 shares
outstanding at December 31, 1994............................. 185,000 -- --
Common stock, $0.01 par value, 30,000,000 shares authorized,
12,321,737 shares outstanding at December 31, 1995; no par
value, 24,000,000 shares authorized, 7,321,349 shares
outstanding at December 31, 1994............................. 107,838 123,228 129,584
Additional paid in capital......................................... 3,778 25,732,747 28,828,228
Notes receivable from stockholders................................. -- (39,010) --
Deferred compensation.............................................. -- (404,626) (333,222)
Retained earnings.................................................. 2,650,834 4,001,983 7,133,895
------------ ------------- -------------
Total stockholders' equity....................................... 2,947,450 29,414,322 35,758,485
------------ ------------- -------------
$ 8,357,329 $ 37,489,539 $ 43,856,401
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
----------------------------
<S> <C> <C> <C> <C> <C>
Revenue
License............................ $ 6,263,681 $ 9,525,076 $ 15,660,859 $ 10,735,585 $ 18,138,210
Service............................ 1,030,764 6,020,059 7,780,879 5,284,006 7,542,007
------------- ------------- ------------- ------------- -------------
Total revenue........................ 7,294,445 15,545,135 23,441,738 16,019,591 25,680,217
------------- ------------- ------------- ------------- -------------
Costs and expenses
Cost of license revenue............ 259,541 850,677 1,157,101 885,160 1,226,884
Cost of service/other revenue...... 92,848 774,805 845,946 465,001 662,056
Research and development........... 3,297,544 5,576,019 5,892,932 4,262,731 5,557,199
Sales and marketing................ 1,490,117 4,898,583 10,200,510 6,987,522 10,066,474
General and administrative......... 488,067 1,907,826 3,525,581 2,167,110 4,006,103
Write offs related to investee
company.......................... -- 434,490 -- -- --
------------- ------------- ------------- ------------- -------------
Total costs and expenses............. 5,628,117 14,442,400 21,622,070 14,767,524 21,518,716
------------- ------------- ------------- ------------- -------------
Income from operations............... 1,666,328 1,102,735 1,819,668 1,252,067 4,161,501
Interest income...................... 15,761 14,373 230,594 82,688 771,637
Interest expense..................... (5,058) (5,134) (17,925) (36,159) (22,935)
Equity in losses of investee
company............................. (32,046) (87,100) -- -- --
Other income(loss)................... -- (22,336) (37,663) (1,600) 38,896
------------- ------------- ------------- ------------- -------------
Income before provision for income
taxes............................... 1,644,985 1,002,538 1,994,674 1,296,996 4,949,639
Provision for income taxes........... 603,217 359,333 665,787 463,393 1,686,597
------------- ------------- ------------- ------------- -------------
Net income........................... $ 1,041,768 $ 643,205 $ 1,328,887 $ 833,603 $ 3,263,042
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income per share................. $ 0.10 $ 0.06 $ 0.11 $ 0.07 $ 0.23
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Shares used in computing per share
amounts............................. 10,134,829 10,989,405 12,271,502 11,917,611 14,418,872
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES
F-5
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL NOTES
--------------------- -------------------- PAID-IN RECEIVABLE FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS
--------- ---------- --------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992....................... 1,480,000 $ 185,000 6,135,600 $ 23,771 $ -- $ --
Exercise of common stock options.................... 276,200 23,457
Cash dividends ($0.045 per preferred share).........
Net income..........................................
--------- ---------- --------- --------- ---------- ---------------
Balances at December 31, 1993....................... 1,480,000 185,000 6,411,800 47,228 -- --
Issuance of common stock (UniCAD inception)......... 372,157 3,722
UniCAD adjustment................................... 3,778
Exercise of common stock options.................... 537,392 56,888
Cash dividends ($0.045 per preferred share).........
Adjustment for unrealized gains/(losses) on
available for sale securities.....................
Currency translation adjustment.....................
Net income..........................................
--------- ---------- --------- --------- ---------- ---------------
Balances at December 31, 1994....................... 1,480,000 185,000 7,321,349 107,838 3,778 --
Deferred compensation related to grant of stock
options........................................... 580,100
Amortization of deferred compensation...............
Cancellation of deferred compensation............... (109,277)
Issuance of Series A convertible preferred stock.... 416,666 2,499,981
Reincorporation in the State of Delaware............ (2,666,014) (138,841) 2,804,855
Conversion of preferred stock to common stock....... (1,896,666) (18,967) 1,896,666 18,967
Process of initial public offering, net of issuance
costs............................................. 2,273,000 22,730 22,411,004
Exercise of common stock options, net of notes
receivable from stockholders...................... 830,722 112,534 42,287 (39,010)
Adjustment for unrealized gains (losses) on
available for sale securities.....................
Currency translation adjustment.....................
Net income..........................................
--------- ---------- --------- --------- ---------- ---------------
Balances at December 31, 1995....................... -- -- 12,321,737 123,228 25,732,747 (39,010)
UniCAD activity for the three months ended December
31, 1995 (unaudited).............................. 139 1 2
Exercise of common stock options (unaudited)........ 433,561 4,278 389,656
Repayment of notes receivable from shareholders
(unaudited)....................................... 39,010
Shares issued under the ESPP Plan (unaudited)....... 47,447 474 443,455
Shares issued to Synopsys for cash (net of offering
costs of $60,263) (unaudited)..................... 160,292 1,603 2,262,368
Adjustment for unrealized gains (losses) on
available for sale securities (unaudited).........
Amortization of deferred compensation (unaudited)...
Currency translation adjustment (unaudited).........
Net income (unaudited)..............................
--------- ---------- --------- --------- ---------- ---------------
Balances at September 30, 1996...................... -- $ -- 12,963,176 $ 129,584 $28,828,228 $ --
--------- ---------- --------- --------- ---------- ---------------
--------- ---------- --------- --------- ---------- ---------------
<CAPTION>
TOTAL
DEFERRED RETAINED STOCKHOLDERS'
COMPENSATION EARNINGS EQUITY
------------- --------- ------------
<S> <C> <C> <C>
Balances at December 31, 1992....................... $ -- $1,087,858 $1,296,629
Exercise of common stock options.................... 23,457
Cash dividends ($0.045 per preferred share)......... (66,600) (66,600)
Net income.......................................... 1,041,768 1,041,768
------------- --------- ------------
Balances at December 31, 1993....................... -- 2,063,026 2,295,254
Issuance of common stock (UniCAD inception)......... 3,722
UniCAD adjustment................................... 3,778
Exercise of common stock options.................... 56,888
Cash dividends ($0.045 per preferred share)......... (66,600) (66,600)
Adjustment for unrealized gains/(losses) on
available for sale securities..................... (3,895) (3,895)
Currency translation adjustment..................... 15,098 15,098
Net income.......................................... 643,205 643,205
------------- --------- ------------
Balances at December 31, 1994....................... -- 2,650,834 2,947,450
Deferred compensation related to grant of stock
options........................................... (580,100) --
Amortization of deferred compensation............... 66,197 66,197
Cancellation of deferred compensation............... 109,277 --
Issuance of Series A convertible preferred stock.... 2,499,981
Reincorporation in the State of Delaware............ --
Conversion of preferred stock to common stock....... --
Process of initial public offering, net of issuance
costs............................................. 22,433,734
Exercise of common stock options, net of notes
receivable from stockholders...................... 115,811
Adjustment for unrealized gains (losses) on
available for sale securities..................... 19,179 19,179
Currency translation adjustment..................... 3,083 3,083
Net income.......................................... 1,328,887 1,328,887
------------- --------- ------------
Balances at December 31, 1995....................... (404,626) 4,001,983 29,414,322
UniCAD activity for the three months ended December
31, 1995 (unaudited).............................. (14,039) (14,036)
Exercise of common stock options (unaudited)........ 393,934
Repayment of notes receivable from shareholders
(unaudited)....................................... 39,010
Shares issued under the ESPP Plan (unaudited)....... 443,929
Shares issued to Synopsys for cash (net of offering
costs of $60,263) (unaudited)..................... 2,263,971
Adjustment for unrealized gains (losses) on
available for sale securities (unaudited)......... (15,853) (15,853)
Amortization of deferred compensation (unaudited)... 71,404 71,404
Currency translation adjustment (unaudited)......... (101,238) (101,238)
Net income (unaudited).............................. 3,263,042 3,263,042
------------- --------- ------------
Balances at September 30, 1996...................... $(333,222) $7,133,895 $35,758,485
------------- --------- ------------
------------- --------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
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............................................... $ 1,041,768 $ 643,205 $ 1,328,887 $ 833,603 $ 3,263,042
Adjustments to reconcile net income to net
Cash provided by (used in) operating activities:
Depreciation and amortization.......................... 95,760 667,703 978,315 597,570 933,123
Equity in losses of investee company................... 32,046 87,100 -- -- --
Write off of investment in investee company............ -- 80,854 -- -- --
Deferred income taxes.................................. (40,151) (251,772) (237,497) 8,784 --
Amortization of deferred stock compensation............ -- -- -- 42,395 71,404
Other.................................................. -- 12,089 3,470 -- --
Changes in assets and liabilities:
Accounts receivable.................................... (711,739) (1,297,456) (2,280,428) (1,874,380) (926,266)
Income taxes receivable................................ -- (99,130) 99,130 (166,915) --
Prepaid expenses and other current assets.............. (137,890) (23,999) (843,943) (760,260) (798,408)
Other assets........................................... (91,500) (41,145) (221,977) (81,056) 134,386
Trade accounts payable................................. 44,160 233,450 604,464 519,206 (308,942)
Accrued salary and employee benefits................... 168,240 357,459 394,275 (40,664) 1,072,350
Other accrued liabilities.............................. (25,732) 629,436 1,550,591 562,700 (165,586)
Income taxes payable................................... 380,733 (400,068) 242,566 170,000 52,371
Deferred revenue....................................... 1,146,166 1,336,291 231,774 7,964 (400,569)
Other long term liabilities............................ -- 313,819 5,640 (83,189) (226,925)
----------- ----------- ------------- ----------- -------------
Total adjustments........................................ 860,093 1,604,631 526,380 (1,097,845) (563,062)
----------- ----------- ------------- ----------- -------------
Net cash provided by (used in) operating activities...... 1,901,861 2,247,836 1,855,267 (264,242) 2,699,980
----------- ----------- ------------- ----------- -------------
Cash flows from investing activities
Purchase of property and equipment....................... (630,675) (1,456,013) (1,902,232) (1,366,687) (1,271,716)
Purchase of available-for-sale securities................ -- (784,046) (23,478,433) (76,197) (29,778,494)
Proceeds from sale of available-for-sale securities...... -- 417,274 442,695 430,880 26,427,862
Purchase of common stock in equity investee.............. (100,000) -- -- -- --
Acquisition of subsidiary, net of cash acquired.......... -- (133,063) -- -- --
----------- ----------- ------------- ----------- -------------
Net cash provided by (used in) investing activities...... (730,675) (1,955,848) (24,937,970) (1,012,004) (4,622,348)
----------- ----------- ------------- ----------- -------------
Cash flows from financing activities
Proceeds (payments) on notes payable to shareholders..... (146,406) -- -- 39,010
Proceeds (repayment) of bank credit facility............. -- 500,000 (500,000) (500,000) --
Proceeds from issuance of convertible preferred stock.... -- -- 2,499,981 2,499,981 --
Proceeds from issuance of common stock................... 23,457 64,388 22,549,545 67,523 3,101,837
Dividends paid........................................... (66,600) (66,600) -- -- --
----------- ----------- ------------- ----------- -------------
Net cash provided by (used in) financing activities...... (189,549) 497,788 24,549,526 2,067,504 3,140,847
----------- ----------- ------------- ----------- -------------
Net increase in cash and cash equivalents................ 981,637 789,776 1,466,823 791,258 1,218,479
Effect of exchange rates on foreign currency cash
balances............................................... -- 15,098 3,083 2,181 (101,238)
UniCAD activity for the three months ended December 31,
1995................................................... -- -- -- -- (14,039)
Cash and cash equivalents at beginning of period......... 330,581 1,312,218 2,117,092 2,117,092 3,586,998
----------- ----------- ------------- ----------- -------------
Cash and cash equivalents at end of period............... $ 1,312,218 $ 2,117,092 $ 3,586,998 $ 2,910,531 $ 4,690,200
----------- ----------- ------------- ----------- -------------
----------- ----------- ------------- ----------- -------------
Supplemental disclosure of cash flow information
Cash paid during the period for income taxes........... $ 244,435 $ 1,261,534 $ 531,068 $ 439,709 $ 1,490,444
----------- ----------- ------------- ----------- -------------
----------- ----------- ------------- ----------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Cooper & Chyan Technology, Inc. (the "Company") was incorporated in January
1989. The Company develops, markets and supports software tools that help
designers route the interconnections among the electronic devices on high
performance printed circuit boards ("PCBs") and integrated circuits ("ICs").
As more fully described in Note 2, on August 28, 1996, the Company entered
into a business combination with UniCAD. The business combination has been
accounted for as a pooling of interests and the historical consolidated
financial statements of the Company for all years prior to the business
combination have been restated in the accompanying Supplemental Consolidated
Financial Statements to include the financial positions, results of operations
and cash flows of UniCAD. The supplemental financial statements will become the
historical financial statements of CCT upon issuance of financial statements for
the subsequent period that includes the date of the acquisition of UniCAD.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after the elimination of significant
intercompany transactions and balances.
INTERIM FINANCIAL DATA
In the opinion of management, the interim financial statements have been
prepared on the same basis as the annual financial statements and include all
adjustments (consisting only of normal recurring adjustments) necessary to state
fairly, the financial information set forth therein, in accordance with
generally accepted accounting principles. The results of operations for the nine
months ended September 30, 1996 are not necessarily indicative of results to be
expected for the full fiscal year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit with banks and money
market and debt instruments with original maturities of 90 days or less.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
The Company's major market is the electronic design automation ("EDA")
industry which is very volatile. Any significant downturn in the EDA industry
could have a material affect on the Company's operating results.
The Company's revenue consists principally of revenue based on two distinct
product lines, the SPECCTRA product line for the PCB market, and the IC
CRAFTSMAN product line for the IC market. In 1995, SPECCTRA product revenues
accounted for 60% of total revenue, and IC product revenue accounted for 15% of
total revenue.
One customer accounted for approximately 26%, 20% and 11% of revenues for
the years ended December 31, 1993, 1994 and 1995, respectively. Two other
customers accounted for approximately 17% and 13% of revenues for the year ended
December 31, 1993. The loss of, or a significant reduction in revenue from, any
of the Company's distributors or OEMs would have a material adverse effect on
the Company's business, financial condition and results of operations, at least
to the extent such loss is not offset by a corresponding increase in the
Company's direct sales.
F-8
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 1995, 48% of the Company's revenue was earned overseas. Overseas
operations entail a number of risks associated with exchange rate fluctuations,
longer receivables collection periods, the general economic situation of foreign
countries, reduced protection of intellectual property rights, tariffs and other
trade barriers.
Financial instruments that potentially subject the Company to a
concentration of credit risk primarily consist of cash and cash equivalents,
short-term investments and trade receivables. The Company's cash and cash
equivalents are on deposit with major financial institutions.
The Company invests its excess cash balances in a variety of short term
municipal bond funds and money market funds. The Company has not experienced any
material losses from any of these instruments.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral. In the year ended December 31,
1995, the Company provided total bad debt provisions of $329,945.
EQUITY INVESTMENTS
The Company accounts for investments using the equity method when the
Company owns a 20% to 50% equity interest. Under this method, the Company's
original investment is adjusted by its share of earnings or losses, net of any
dividends received.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company accounts for stock option grants in accordance with the
provisions of the Accounting Principle Board's Opinion No. 25, "Accounting for
Stock Issued to Employees."
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over estimated
useful lives of three to seven years.
Leasehold improvements are amortized using the straight-line method over the
shorter of the estimated useful lives of the assets or the remaining term of the
lease.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period. Pursuant to
the Securities and Exchange Commission Staff Accounting Bulletins and staff
policy, such computations include all common and common equivalent shares issued
within 12 months of the Company's initial public offering in October 1995 as if
they were outstanding for all periods presented using the treasury stock method.
Common
F-9
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
equivalent shares consist of the incremental common shares issuable upon the
conversion of the convertible preferred stock (using the if-converted method)
and shares issuable upon the exercise of stock options (using the treasury stock
method).
SOFTWARE DEVELOPMENT COSTS
Under Statement of Financial Accounting Standards No. 86 ("SFAS 86"),
software development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a product is
available for general release to customers. Generally, the establishment of
technological feasibility of the Company's products and general release have
coincided. As a result, the Company has not capitalized any software development
costs because any costs meeting the requirements of SFAS 86 have not been
significant.
REVENUE RECOGNITION
Revenues primarily include revenue from software product shipments and
revenue from maintenance contracts. The Company recognizes revenue from software
licenses after shipment of the products and fulfillment of acceptance terms, if
any, and when no significant contractual obligations remain outstanding and
collection of the resulting receivable is deemed probable. When the Company
receives payment prior to shipment and fulfillment of significant vendor
obligations, such payments are recorded as deferred revenue. Revenue from
maintenance contracts is recognized ratably over the related contractual period,
generally 12 months. Revenue from customer training, support and other services
is recognized as the service is performed.
FOREIGN CURRENCY TRANSLATION
The Company translates assets and liabilities of its foreign subsidiaries
into U.S. dollars at the rates of exchange in effect at the end of the period.
Income and expense items are translated on a quarterly basis at the average
rates of exchange prevailing during the quarter. Gains and losses from this
translation are credited or charged to stockholders' equity. Foreign currency
transaction gains and losses, which have been immaterial, are included in the
results of operations.
2. BUSINESS COMBINATIONS
On August 28, 1996, the Company completed its acquisition of UniCAD, a
leading PCB CAD software developer and distributor. The Company exchanged an
aggregate of 460,735 shares of CCT common stock and options for all of the
outstanding capital stock and assumption of all of the outstanding stock options
of UniCAD, a privately held company. The business combination was treated as a
pooling of interests for accounting purposes, and accordingly, the historical
financial statements of the Company have been restated as if the transaction
occurred at the beginning of the earliest period presented. In connection with
the business combination, the Company incurred direct transaction costs of
approximately $400,000 which consist of fees for investment banking, legal and
accounting services and other related expenses incurred in conjunction with the
business combination.
The Supplemental Consolidated Financial Statements have been prepared to
give retroactive effect to the business combination with UniCAD on August 28,
1996. Generally accepted accounting principles prohibit giving effect to a
consummated business combination accounted for by the pooling-of-interests
F-10
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BUSINESS COMBINATIONS (CONTINUED)
method in financial statements that do not include the date of consummation. The
accompanying supplemental consolidated financial statements do not extend
through the date of consummation, however, they will become the historical
consolidated financial statements of the company after financial statements
covering the date of consummation of the business combination are issued.
The table below sets forth the combined net revenues and net income for the
periods indicated.
<TABLE>
<CAPTION>
COMBINED
SUBSEQUENT TO
CCT UNICAD MERGER COMBINED
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Net revenues.................... $ 7,294,445 $ -- $ -- $ 7,294,445
Net income...................... 1,041,768 -- -- 1,041,768
Year ended December 31, 1994
Net revenues.................... $ 10,832,256 $ 4,712,879 $ -- $ 15,545,135
Net income...................... 359,603 283,602 -- 643,205
Year ended December 31, 1995
Net revenues.................... $ 17,718,073 $ 5,723,665 $ -- $ 23,441,738
Net income...................... 975,433 353,454 -- 1,328,887
Nine months ended
September 30, 1995 (unaudited)
Net revenues.................... $ 11,721,009 $ 4,298,582 $ -- $ 16,019,591
Net income...................... 333,534 500,069 -- 833,603
Nine months ended
September 30, 1996 (unaudited)
Net revenues.................... $ 16,297,210 $ 3,852,367 $ 5,530,640 $ 25,680,217
Net income (loss)(1)............ 1,762,885 (196,321) 1,696,478 3,263,042
</TABLE>
- ------------------------
(1) After the deduction of transaction costs of $400,000.
3. SHORT-TERM INVESTMENTS
Management determines the appropriate classification of equity securities at
the time of purchase and reevaluates such designations as of each balance sheet
date.
The Company has classified its marketable equity and mutual fund securities
as available-for-sale. Available-for-sale securities are carried at fair value
with unrealized holding gains and losses being reported in stockholders' equity.
Realized gains and losses on available-for-sale securities are included in
interest income.
F-11
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SHORT-TERM INVESTMENTS (CONTINUED)
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
December 31, 1994
Equity securities...................... $ 149,072 $ 889 $ 5,154 $ 144,807
Mutual funds........................... 205,611 370 -- 205,981
------------- ----------- ----------- -------------
$ 354,683 $ 1,259 $ 5,154 $ 350,788
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
December 31, 1995
Money Market........................... $ 1,412,238 $ -- $ -- $ 1,412,238
Municipal Funds........................ 22,047,716 19,179 -- 22,066,895
------------- ----------- ----------- -------------
$ 23,459,954 $ 19,179 $ -- $ 23,479,133
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
Of the $23,479,133, $76,897 has been included in cash and cash equivalents
in the accompanying balance sheet.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995
------------ -------------
<S> <C> <C>
Property and equipment consists of the following:
Office and computer equipment.................................... $ 2,180,301 $ 3,552,048
Furniture and fixtures........................................... 259,065 374,133
Purchase software................................................ 307,992 495,563
Leasehold improvements........................................... 150,666 378,511
------------ -------------
2,898,024 4,800,255
Accumulated depreciation and amortization........................ (879,867) (1,791,985)
------------ -------------
$ 2,018,157 $ 3,008,270
------------ -------------
------------ -------------
</TABLE>
5. INVESTMENT IN EQUITY INVESTEE
The Company held an investment of 32% in CAD Connection International, Inc.
("CCI"), a company based in Munich, Germany. The Company accounted for the
investment using the equity method and because of net losses and write offs, the
investment balance at December 31, 1994 was zero. During 1994, the Company wrote
off $435,000 pertaining to its investment, related accounts receivable and the
settlement of a related legal dispute.
During the years ended December 31, 1993, 1994 and 1995, the Company made
sales of $138,031, $164,592 and zero, respectively, to CCI.
F-12
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT IN EQUITY INVESTEE (CONTINUED)
Summarized financial information of CCI for 1993 and the interim period of
1994 up to the write off of the CCI investment is as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
(UNAUDITED)
<S> <C> <C>
Current assets............................................................. $ 1,052 $ 1,043
Noncurrent assets.......................................................... 84 84
Current liabilities........................................................ 923 1,196
Noncurrent liabilities..................................................... -- --
Net sales.................................................................. 2,302 1,095
Gross profit............................................................... 864 376
Net loss................................................................... (103) (272)
</TABLE>
6. BANK CREDIT FACILITY
The Company had a $500,000 revolving line of credit agreement which expired
in May 1995. Borrowings under this agreement bore interest at the bank's prime
rate plus 1%. The loan was secured by a first position interest in all of the
Company's business assets.
7. ACCRUED LIABILITIES
Accrued liabilities consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- ------------
<S> <C> <C>
Accrued Value Added Tax............................................. $ -- $ 411,231
Other............................................................... 629,436 1,768,796
---------- ------------
$ 629,436 $ 2,180,027
---------- ------------
---------- ------------
</TABLE>
8. INCOME TAXES
The components of the provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal....................................................... $ 496,840 $ 581,467 $ 913,241
State......................................................... 142,285 112,708 65,373
Foreign....................................................... -- -- 16,870
---------- ------------ ------------
639,125 694,175 995,484
---------- ------------ ------------
Deferred:
Federal....................................................... (21,105) (269,391) (262,058)
State......................................................... (14,803) (65,451) (67,639)
Foreign....................................................... -- -- --
---------- ------------ ------------
(35,908) (334,842) (329,697)
---------- ------------ ------------
$ 603,217 $ 359,333 $ 665,787
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
F-13
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The provisions for income taxes differ from the amount computed by applying
the statutory federal income tax rate to income before income taxes. The source
and tax effects of the differences are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
------------ ------------- -------------
<S> <C> <C> <C>
Income before provision for income taxes.................... $ 1,644,985 $ 1,002,538 $ 1,994,674
------------ ------------- -------------
------------ ------------- -------------
Income tax at statutory federal rate
(34%, 34%, and 35%)....................................... $ 559,295 $ 340,863 $ 698,136
State income tax, net of federal benefit.................... 84,138 31,190 (1,473)
Research and development tax credits........................ (62,687) (108,500) (101,786)
Foreign losses not benefited................................ -- -- 24,783
Other....................................................... 22,471 95,780 46,127
------------ ------------- -------------
$ 603,217 $ 359,333 $ 665,787
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities computed in accordance with
FAS 109 are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Nondeductible reserves and accruals......................... $ 580,794 $ 215,647 $ --
Less, valuation allowance................................... (206,699) (77,449) --
Other--net.................................................. 16,615 72,093 --
Foreign investment tax credits.............................. 209,760 80,836 --
------------ ------------ ------------
Net deferred tax assets..................................... 600,470 291,127 --
------------ ------------ ------------
Deferred tax liabilities:
Cash to accrual............................................. (102,399) (145,375) (266,536)
Depreciation................................................ (173,663) (110,448) (70,673)
Other--net.................................................. (14,429) (55,057) (17,386)
------------ ------------ ------------
Total deferred tax liabilities................................ (290,491) (310,880) (354,595)
------------ ------------ ------------
Net deferred tax assets (liabilities)......................... $ 309,979 $ (19,753) $ (354,595)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The company's Canadian subsidiary has provincial tax loss carryforwards
available of approximately $62,000 expiring in 2001 and 2002. In addition, the
subsidiary has investment tax credits of approximately $209,760 which expire in
2004 and 2005. A valuation allowance has been provided to reduce the deferred
tax assets to an amount management believes is more likely than not to be
realized. During 1995, the valuation allowance was increased by $129,250
primarily as a result of additional investment tax credits being generated by
the Canadian subsidiary.
F-14
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PREFERRED STOCK
In May 1995, the Company sold 250,000 shares of Series A preferred stock to
Mentor Graphics Corporation for $1,500,000 and 166,666 shares of Series A
preferred stock for $999,981 to Marubeni Hytech Corporation, a Japanese
corporation.
In October 1995, the Company completed the initial public offering of its
common stock. In connection with this offering, all outstanding shares of Series
A convertible preferred stock were automatically converted into common stock. At
December 31, 1995, the Company is authorized to issue 5,000,000 shares of
undesignated preferred stock.
10. EQUITY PLANS
In 1989, the Company adopted the 1989 Stock Option Plan (the "1989 Plan")
which provides for the issuance of up to 2,000,000 shares of the Company's
common stock. Options may be granted under the 1989 Plan to employees, officers
and directors of the Company. In 1993, the Company adopted the 1993 Equity
Incentive Plan (the "1993 Plan") which provides for the issuance of up to
2,200,000 shares of the Company's common stock. The 1993 Plan authorizes the
award of options, stock bonuses and opportunities to purchase restricted stock.
The 1989 Plan was terminated upon the adoption of the 1993 Plan. Incentive stock
options may be granted at a price not less than the fair market value of the
stock (110% of the fair market value for options granted to stockholders owning
10% or more of the voting stock) at the date of the grant. Restricted stock may
be granted at not less than 85% of the fair market value of the common stock at
the date of grant. Options expire ten years from the date of grant (five years
for options issued to owners of 10% or more of the voting stock) and vest over a
five-year period.
In August 1995, the Company's board of directors authorized an increase in
the number of shares available for grant under the 1993 Plan by 2,000,000
shares. In addition, the Company's board of directors adopted the 1995 Directors
Stock Option Plan which authorized the issuance of 150,000 shares. This Plan
provides for each outside director to be granted an option to purchase 20,000 of
common stock on the date on which such person first becomes an outside Director
following the effective date of the Director Option Plan and, annually
thereafter, an option to purchase 5,000 shares of common stock. The exercise
price of such options will be the fair market value at the date of grant. The
initial options vest over 4 years. Through December 31, 1995, 40,000 shares have
been granted under this plan.
F-15
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EQUITY PLANS (CONTINUED)
Incentive and nonqualified stock option activity under the above-mentioned
Plans is as follows:
<TABLE>
<CAPTION>
SHARES UNDER
SHARES OUTSTANDING OPTIONS
AVAILABLE -----------------------------
FOR GRANT SHARES PRICE
----------- ----------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1993.................... 435,080 1,581,400 $ 0.01 - $ 0.26
Additional shares authorized for grant........ 1,376,682 -- $ -- - $ --
Options granted............................... (1,056,962) 1,056,962 $ 0.01 - $ 1.25
Options exercised............................. -- (537,392) $ 0.01 - $ 0.26
Options cancelled............................. 14,808 (14,808) $ -- - $ 0.24
----------- ----------- ----------------
Balance at December 31, 1994 769,608 2,086,162 $ 0.01 - $ 1.25
Additional shares authorized for grant........ 2,243,284 -- $ -- - $ --
Options granted............................... (1,266,459) 1,266,459 $ 0.01 - $14.00
Options exercised............................. -- (822,838) $ 0.01 - $ 1.25
Options cancelled............................. 261,521 (261,521) $ 0.01 - $ 4.50
----------- ----------- ----------------
Balance at December 31, 1995.................... 2,007,954 2,268,262 $ 0.01 - $14.00
----------- ----------- ----------------
----------- ----------- ----------------
</TABLE>
At December 31, 1995, options to acquire 333,016 shares were exercisable
(December 31, 1994-- 756,680).
In August 1995, the Company's board of directors adopted the 1995 Employee
Stock Purchase Plan (the "Purchase Plan") which authorizes the issuance of
150,000 shares of common stock. Shares may be purchased under the Purchase Plan
at 85% of the lesser of the fair market value of the common stock on the date of
grant or the purchase date.
The Company has recorded deferred compensation expense of $580,100 for the
difference between the grant price and the deemed fair market value of certain
of the Company's common stock options granted in 1995. This amount is being
amortized over the vesting period of the individual options, generally five
years. Compensation expense recognized in 1995 totaled $66,917 and $109,277 of
deferred compensation was canceled due to employee terminations. At December 31,
1995 deferred compensation totaled $404,626.
11. COMMITMENTS
FACILITY LEASES
The Company leases office facilities under noncancelable operating leases.
In addition to monthly rent, the Company is responsible for the payment of
certain operating costs. Rent expense was approximately $235,000, $439,615 and
$704,253 for the years ended December 31, 1993, 1994 and 1995, respectively.
F-16
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS (CONTINUED)
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
------------
<S> <C>
1996........................................................ $ 860,350
1997........................................................ 840,927
1998........................................................ 744,177
1999........................................................ 670,002
2000........................................................ 326,366
------------
$3,441,822
------------
------------
</TABLE>
12. EXPORT SALES
The Company markets its products in the United States and in foreign
countries through its sales personnel and distributors. The Company's export
sales are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1993 1994 1995
------------- ------------ -------------
<S> <C> <C> <C>
Europe........................................... $ 786,236 $ 2,075,822 $ 3,952,658
Asia............................................. 1,443,717 2,101,585 3,600,552
Canada........................................... -- 3,628,349 3,700,686
Other............................................ -- 108,967 52,267
------------- ------------ -------------
$ 2,229,953 $ 7,914,723 $ 11,306,163
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
13. EMPLOYEE BENEFIT PLAN
The Company has a deferred contribution plan which covers substantially all
employees over the age of 21 completing at least one year of service. Company
contributions to the Plan are determined annually at the discretion of the board
of directors and vest over six years of service. Employee contributions are
fully vested at all times. Employer contributions for 1993, 1994 and 1995 were
$184,176, $285,000 and zero respectively.
14. PURCHASE RIGHTS
The Company has included purchase right provisions in certain of its OEM
agreements. Generally, pursuant to these provisions, the Company must notify
such OEMs whenever the Company intends to accept certain third-party offers to
acquire an interest in the Company, whereupon the OEM has the opportunity to
enter a competing bid meeting specified conditions.
15. EVENTS SUBSEQUENT TO THE DATE OF THE AUDITORS REPORT
On October 28, 1996, the Company entered into a definitive agreement to be
acquired by Cadence, a leading supplier of business solutions for the design of
electronic components and systems. Under the terms of the agreement, each share
of CCT common stock will be exchanged for 0.85 shares of Cadence common stock.
In accordance with the same conversion ratio, each option to purchase shares of
CCT common stock will be assumed by Cadence and will be converted into an option
to purchase that number of shares of Cadence common stock. Based on the number
of outstanding shares of CCT common stock
F-17
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. EVENTS SUBSEQUENT TO THE DATE OF THE AUDITORS REPORT (CONTINUED)
and CCT options on October 28, 1996, it is anticipated that Cadence will issue
approximately 11.0 million shares of Cadence common stock and assume employee
stock options to purchase approximately 1.9 million shares of Cadence common
stock.
The transaction is intended to be a tax-free reorganization and is
anticipated to be accounted for as a pooling of interests. Consummation of the
merger is subject to review by the United States Department of Justice under the
Hart-Scot-Rodino Antitrust Improvements Act of 1976, as amended, approval by the
stockholders of the Company, and normal closing conditions. Upon completion of
the merger, the Company will become a wholly-owned subsidiary of Cadence.
F-18
<PAGE>
APPENDIX A
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
CADENCE DESIGN SYSTEMS, INC.,
a Delaware corporation;
WYOMING ACQUISITION SUB, INC.,
a Delaware corporation;
and
COOPER & CHYAN TECHNOLOGY, INC.,
a Delaware corporation
---------------------
Dated as of October 28, 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-2
1.7 Exchange of Company Stock Certificates.................... A-3
1.8 Tax Consequences.......................................... A-4
1.9 Accounting Consequences................................... A-4
1.10 Further Action............................................ A-4
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............. A-4
2.1 Due Organization; Subsidiaries; Etc....................... A-4
2.2 Certificate of Incorporation and Bylaws................... A-5
2.3 Capitalization, Etc....................................... A-5
2.4 SEC Filings; Financial Statements......................... A-6
2.5 Absence of Changes........................................ A-6
2.6 Title to Assets........................................... A-8
2.7 Equipment; Leaseholds..................................... A-8
2.8 Proprietary Assets........................................ A-8
2.9 Contracts................................................. A-10
2.10 Liabilities............................................... A-12
2.11 Compliance with Legal Requirements........................ A-12
2.12 Certain Business Practices................................ A-12
2.13 Governmental Authorizations............................... A-12
2.14 Tax Matters............................................... A-12
2.15 Employee and Labor Matters; Benefit Plans................. A-13
2.16 Environmental Matters..................................... A-15
2.17 Insurance................................................. A-15
2.18 Transactions with Affiliates.............................. A-15
2.19 Legal Proceedings; Orders................................. A-16
2.20 Authority; Inapplicability of Anti-takeover Statutes;
Binding Nature of Agreement............................. A-16
2.21 Section 203 of the DGCL Not Applicable.................... A-16
2.22 No Existing Discussions................................... A-16
2.23 Accounting Matters........................................ A-16
2.24 Vote Required............................................. A-17
2.25 Non-Contravention; Consents............................... A-17
2.26 Fairness Opinion.......................................... A-18
2.27 Financial Advisor......................................... A-18
2.28 Full Disclosure........................................... A-18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB... A-18
3.1 Organization, Standing and Power.......................... A-18
3.2 Capitalization, Etc....................................... A-18
3.3 SEC Filings; Financial Statements......................... A-20
3.4 Absence of Certain Changes or Events...................... A-20
3.5 Title to Assets........................................... A-21
3.6 Proprietary Assets........................................ A-21
3.7 Liabilities............................................... A-21
3.8 Compliance with Legal Requirements........................ A-21
3.9 Governmental Authorizations............................... A-22
3.10 Legal Proceedings; Orders................................. A-22
3.11 Vote Required............................................. A-22
3.12 Authority; Binding Nature of Agreement.................... A-22
3.13 Non-Contravention; Consents............................... A-22
3.14 Valid Issuance............................................ A-23
3.15 Accounting Matters........................................ A-23
3.16 Full Disclosure........................................... A-23
SECTION 4. CERTAIN COVENANTS OF THE PARTIES.......................... A-24
4.1 Access and Investigation.................................. A-24
4.2 Operation of the Company's Business....................... A-25
4.3 No Solicitation........................................... A-27
4.4 Notification by Parent.................................... A-27
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES....................... A-28
5.1 Registration Statement; Prospectus/Proxy Statement........ A-28
5.2 Company Stockholders' Meeting............................. A-28
5.3 Regulatory Approvals...................................... A-29
5.4 Stock Options............................................. A-30
5.5 Indemnification of Officers and Directors................. A-31
5.6 Pooling of Interests...................................... A-32
5.7 Additional Agreements..................................... A-32
5.8 Disclosure................................................ A-33
5.9 Affiliate Agreements...................................... A-34
5.10 Tax Matters............................................... A-34
5.11 Letter of the Company's Accountants....................... A-34
5.12 Employment Matters........................................ A-34
5.13 Parent Plans and Benefit Arrangements..................... A-34
5.14 NYSE Listing.............................................. A-35
5.15 Resignation of Officers and Directors..................... A-35
5.16 FIRPTA Matters............................................ A-35
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER
SUB..................................................... A-35
6.1 Accuracy of Representations............................... A-35
6.2 Performance of Covenants.................................. A-35
6.3 Effectiveness of Registration Statement................... A-35
6.4 Stockholder Approval...................................... A-35
6.5 Consents.................................................. A-35
6.6 Agreements and Documents.................................. A-36
6.7 Employees................................................. A-36
6.8 No Material Adverse Change................................ A-37
6.9 FIRPTA Compliance......................................... A-37
6.10 HSR Act................................................... A-37
6.11 Listing................................................... A-37
6.12 No Restraints............................................. A-37
6.13 No Governmental Litigation................................ A-37
6.14 No Other Litigation....................................... A-37
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY......... A-37
7.1 Accuracy of Representations............................... A-37
7.2 Performance of Covenants.................................. A-38
7.3 Effectiveness of Registration Statement................... A-38
7.4 Documents................................................. A-38
7.5 No Material Adverse Change................................ A-38
7.6 HSR Act................................................... A-38
7.7 Listing................................................... A-38
7.8 No Restraints............................................. A-38
SECTION 8. TERMINATION............................................... A-38
8.1 Termination............................................... A-38
8.2 Effect of Termination..................................... A-40
8.3 Expenses; Termination Fees................................ A-40
SECTION 9. MISCELLANEOUS PROVISIONS.................................. A-41
9.1 Amendment................................................. A-41
9.2 Waiver.................................................... A-41
9.3 No Survival of Representations and Warranties............. A-41
9.4 Entire Agreement; Counterparts; Applicable Law............ A-41
9.5 Disclosure Schedule....................................... A-42
9.6 Attorneys' Fees........................................... A-42
9.7 Assignability............................................. A-42
9.8 Notices................................................... A-42
9.9 Cooperation............................................... A-43
9.10 Construction.............................................. A-43
</TABLE>
EXHIBITS
Exhibit A -- Certain definitions
Exhibit B -- Form of Certificate of Incorporation of Surviving Corporation
Exhibit C -- Form of Affiliate Agreement
Exhibit D -- Form of Continuity of Interest Certificate
Exhibit E -- Form of Employment Agreement
Exhibit F -- Form of Option Agreement
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 28, 1996, by and among: CADENCE DESIGN SYSTEMS,
INC., a Delaware corporation ("Parent"); WYOMING ACQUISITION SUB, INC., a
Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"); and
COOPER & CHYAN TECHNOLOGY, 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"). For accounting purposes, it is intended that the Merger be
treated as a "pooling of interests."
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, 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 designated by Parent (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 fifteenth business day after
satisfaction of the latest to occur of the conditions set forth in Sections 6.4,
6.10 and 6.11. 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 or at such later time as may be specified in the Certificate of
Merger (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 Section 1.5(d), 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 Common 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 Common 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), each share of Company Common Stock then outstanding shall be
converted into the right to receive eighty-five hundredths (0.85) of a share
of Parent Common Stock; and
(iv) each share of the common stock, par value $0.001 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) (as such fraction may be adjusted in accordance with this Section
1.5(b)) is referred to as the "Exchange Ratio." If, between the date of this
Agreement and the Effective Time, the outstanding shares of Company Common 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
Exchange Ratio shall be appropriately adjusted.
(c) If any shares of Company Common 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 Common 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 Common
Stock who would otherwise be entitled to receive a fraction of a share of Parent
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) (as defined in Section 1.6), 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 Common Stock outstanding immediately prior to the
Effective Time shall automatically be canceled and shall cease to exist, and all
holders of certificates representing shares of Company Common Stock that
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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 Common Stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of Company Common 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 Common Stock (a "Company
Stock Certificate") is presented to the Exchange Agent (as defined in Section
1.7) 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 COMPANY STOCK 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 registered 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(b), 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 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) No dividends or other distributions declared or made with respect to
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock represented thereby, until such holder surrenders
such Company Stock Certificate in accordance with this Section 1.7 (at which
time such holder shall be entitled to receive all such dividends and
distributions, without interest).
(d) Any portion of the Exchange Fund that remains undistributed to holders
of Company Stock Certificates on the first anniversary of the date on which the
Merger becomes effective shall be delivered to Parent upon demand, and any
holders of Company Stock Certificates who have not theretofore surrendered their
Company Stock Certificates in accordance with Section 1.7(b) shall thereafter
look only to Parent for satisfaction 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.
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(e) 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
Common 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.
(f) Neither Parent nor the Surviving Corporation shall be liable to any
holder or former holder of Company Common Stock with respect to 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 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 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.
1.9 ACCOUNTING CONSEQUENCES. For accounting purposes, the Merger is
intended to be treated as a "pooling of interests."
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.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that, except as
set forth in the Company SEC Documents (as defined in Section 2.4(a)), excluding
the exhibits thereto, or in the disclosure schedule that has been prepared by
the Company in accordance with the requirements of Section 9.5 and that has been
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; SUBSIDIARIES; ETC.
(a) Part 2.1 of the Company Disclosure Schedule identifies each Entity in
which the Company owns any shares of capital stock, or in which the Company owns
any equity interest of any nature, together with the number of shares owned by
and the percentage ownership held by the Company. (The Company and each of its
direct and indirect majority-owned subsidiaries are referred to collectively in
this Agreement as the "Acquired Corporations"). None of the Acquired
Corporations has agreed or is obligated to make any future investment in or
capital contribution to any Entity. None 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.
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2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. 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.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i) 30,000,000
shares of Company Common Stock, of which 12,986,056 shares have been issued and
are outstanding as of the date of this Agreement; and (ii) 5,000,000 shares of
preferred stock, $0.01 par value per share, of which no shares are outstanding
as of the date of this Agreement. All of the outstanding shares of Company
Common Stock have been duly authorized and validly issued, and are fully paid
and nonassessable. As of the date of this Agreement, there are no shares of
Company Common Stock held in treasury by the Company or held by any of the
subsidiaries of the Company. Except as set forth in Part 2.3(b) of the Company
Disclosure Schedule: (i) none of the outstanding shares of Company Common Stock
is entitled or subject to any preemptive right, right of participation, right of
maintenance or any similar right; (ii) none of the outstanding shares of Company
Common Stock is subject to any right of first refusal in favor of the Company;
and (iii) there is no Acquired Corporation Contract relating to the voting or
registration of, or restricting any Person from purchasing, selling, pledging or
otherwise disposing of (or granting any option or similar right with respect
to), any shares of Company Common Stock. Upon consummation of the Merger, (A)
the shares of Parent Common Stock issued in exchange for any shares of Company
Common Stock that are subject to a Contract pursuant to which the Company has
the right to repurchase, redeem or otherwise reacquire any shares of Company
Common Stock 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, and (B) Parent will automatically succeed to and
become entitled to exercise the Company's rights and remedies under any such
Contract. The Company is under no obligation to repurchase, redeem or otherwise
acquire any outstanding shares of Company Common Stock.
(b) As of the date of this Agreement: (i) 47,711 shares of Company Common
Stock are reserved for future issuance pursuant to stock options granted and
currently outstanding under the Company's 1989 Stock Option Plan; (ii) 2,073,660
shares of Company Common Stock are reserved for future issuance pursuant to
stock options granted and currently outstanding under the Company's 1993 Equity
Incentive Plan; (iii) 50,000 shares of Company Common Stock are reserved for
future issuance pursuant to stock options granted and currently outstanding
under the Company's 1995 Directors Stock Option Plan; and (iv) 150,000 shares of
Company Common Stock are reserved for future issuance under the Company's 1995
Employee Stock Purchase Plan (the "1995 Purchase Plan"). (Stock options granted
by the Company pursuant to the 1989 Stock Option Plan, the 1993 Equity Incentive
Plan and the 1995 Directors Stock Option Plan are referred to in this Agreement
as "Company Options.") Part 2.3(b) 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 the date
of this Agreement; and (vii) the date on which such Company Option expires. 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 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; (iii) stockholder rights plan
(or similar plan commonly referred to as a "poison pill") or 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
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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.
(d) All outstanding shares of Company Common Stock, all outstanding Company
Options, and, to the best of the knowledge of the Company, all outstanding
shares of capital stock of each of the subsidiaries of the Company have been
issued and granted in 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 each of the
subsidiaries of the Company 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 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent accurate and complete copies of each
report, registration statement (on a form other than Form S-8) and definitive
proxy statement (excluding copies of exhibits) filed by the Company with the SEC
since October 30, 1995 (the "Company SEC Documents"), including the Company's
Registration Statement on Form S-1 filed with the SEC on October 30, 1995, and
the Company's prospectus contained therein. As of the time it was filed with the
SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the Company 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 Company SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) The financial statements (including any related notes) contained in the
Company 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 or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC, and except that the unaudited financial
statements may not contain footnotes and are subject to normal and recurring
year-end adjustments which will not, individually or in the aggregate, be
material in amount), and (iii) fairly present the consolidated financial
position of the Company and its subsidiaries as of the respective dates thereof
and the consolidated results of operations and cash flows of the Company and its
subsidiaries for the periods covered thereby.
(c) The Company has delivered to Parent an unaudited consolidated balance
sheet of the Company and its subsidiaries as of September 30, 1996 (the "Company
Unaudited Interim Balance Sheet"), and the related unaudited consolidated income
statement, statement of stockholders' equity and statement of cash flows of the
Company for the nine months then ended. The financial statements referred to in
this Section 2.4(c): (i) were prepared in accordance with generally accepted
accounting principles applied on a basis consistent with the basis on which the
financial statements referred to in Section 2.4(b) were prepared (except that
the financial statements referred to in this Section 2.4(c) do not contain
footnotes and are subject to normal and recurring year-end adjustments which
will not, individually or in the aggregate, be material in amount), and (ii)
fairly present the consolidated financial position of the Company and its
subsidiaries as of September 30, 1996 and the consolidated results of operations
and cash flows of the Company and its subsidiaries for the period covered
thereby.
2.5 ABSENCE OF CHANGES. Between September 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 the
Acquired Corporations taken as a whole, and no event has
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occurred that would reasonably be expected to have a Material Adverse Effect
on the Acquired Corporations;
(b) there has not been any loss, damage or destruction to, or any
interruption in the use of, any of the assets of any of the Acquired
Corporations (whether or not covered by insurance) that has had or would
reasonably be expected to have a Material Adverse Effect on the Acquired
Corporations;
(c) none 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;
(d) none of the Acquired Corporations has sold, issued, granted or
authorized the issuance or grant of (i) any capital stock or other security
(except for Company Common Stock issued upon the exercise of outstanding
Company Options), (ii) any option, call, warrant or right to acquire any
capital stock or any other security (except for Company Options described in
Part 2.3(b) of the Company Disclosure Schedule), 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 any of the Acquired
Corporations, and none 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;
(g) none of the Acquired Corporations has (i) received any Acquisition
Proposal, or (ii) solicited, initiated, encouraged or induced, or provided
any nonpublic information to or entered into any discussions with any Person
for the purpose of soliciting, initiating, encouraging or inducing, the
making or submission of any Acquisition Proposal;
(h) none of the Acquired Corporations has formed any subsidiary or
acquired any equity interest or other interest in any other Entity;
(i) none of the Acquired Corporations has made any capital expenditure
in any calendar month which, when added to all other capital expenditures
made on behalf of the Acquired Corporations in such calendar month results
in such capital expenditures exceeding $100,000 in the aggregate;
(j) none of the Acquired Corporations has amended or prematurely
terminated, or waived any right or remedy under, any Material Contract (as
defined in Section 2.9), except for amendments, terminations or waivers that
have not had and could not reasonably be expected to have a Material Adverse
Effect on the Acquired Corporations;
(k) none of the Acquired Corporations has (i) acquired, leased or
licensed any material right or other asset from any other Person, except in
ordinary course of business and consistent with past practices, (ii) sold or
otherwise disposed of, or leased or licensed, any material right or other
asset to any other Person, except in the ordinary course of business and
consistent with past practices, or (iii) waived or relinquished any material
right;
(l) none of the Acquired Corporations has written off as uncollectible,
or established any extraordinary reserve with respect to, any material
amount of accounts receivable or other indebtedness;
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(m) none of the Acquired Corporations has made any pledge of any of its
assets or otherwise permitted any of its assets to become subject to any
Encumbrance, except for Encumbrances of assets made in the ordinary course
of business and consistent with past practices;
(n) none of the Acquired Corporations has (i) lent, or made any advance
of, more than $10,000 to any one Person or more than $100,000 to all Persons
to whom any of the Acquired Corporations has lent money or otherwise made
advances, or (ii) incurred or guaranteed any indebtedness for borrowed
money;
(o) none of the Acquired Corporations has (i) established or adopted any
employee benefit plan, (ii) caused or permitted any employee benefit plan to
be amended in any material respect, or (iii) except for bonus,
profit-sharing and similar payments made in the ordinary course of business
and consistent with past practices, paid any bonus or made any
profit-sharing or similar payment to, materially increased the amount of
commissions payable to, or materially increased the amount of the wages,
salary, fringe benefits or other compensation or remuneration payable to,
any of its directors, officers or employees;
(p) none of the Acquired Corporations has changed any of its methods of
accounting or accounting practices in any material respect;
(q) none of the Acquired Corporations has made any material Tax
election;
(r) none of the Acquired Corporations has commenced or settled any Legal
Proceeding;
(s) none of the Acquired Corporations has entered into any material
transaction or taken any other material action that has had, or would
reasonably be expected to have, a Material Adverse Effect on the Acquired
Corporations; and
(t) none of the Acquired Corporations has agreed or committed to take
any of the actions referred to in clauses "(c)" through "(s)" 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, including:
(i) all assets reflected on the Company Unaudited Interim Balance Sheet (except
for assets sold or otherwise disposed of since the date of the Company Unaudited
Interim Balance Sheet); and (ii) all other assets reflected in the books and
records of the Acquired Corporations as being owned by the Acquired
Corporations. All of said assets are owned by the Acquired Corporations free and
clear of any Encumbrances, except for (x) any Encumbrance for current taxes not
yet due and payable, (y) minor Encumbrances that have arisen in the ordinary
course of business, and (z) Encumbrances 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 any of the Acquired Corporations.
2.7 EQUIPMENT; LEASEHOLDS. 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. None of the Acquired Corporations own any real property or any
interest in real property, except for the leaseholds created under the real
property leases identified in Part 2.7 of the Company Disclosure Schedule.
2.8 PROPRIETARY ASSETS.
(a) Part 2.8(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 2.8(a)(ii) of the Company Disclosure Schedule identifies
and provides a brief description of all other Proprietary
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Assets owned by the Acquired Corporations that are material to the business of
the Acquired Corporations. The Acquired Corporations have good, valid and
marketable title to all of the Proprietary Assets identified in Parts 2.8(a)(i)
and 2.8(a)(ii) of the Company Disclosure Schedule, free and clear of all liens,
pledges, security interests or hypothecations, except for (i) any lien for
current taxes not yet due and payable, (ii) immaterial liens, pledges, security
interests or hypothecations that have arisen in the ordinary course of business,
and (iii) liens, pledges, security interests or hypothecations 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 all
Proprietary Assets being used by the Acquired Corporations. None of the Acquired
Corporations has developed jointly with any other Person any Proprietary Asset
that is embodied in or related to any of the Company's products identified in
Part 2.8(a)(ii) of the Company Disclosure Schedule with respect to which such
other Person has any rights (except that such other Person may have rights to
certain Proprietary Assets embodied in translators or interfaces that are part
of the products identified in Part 2.8(a)(ii) of the Company Disclosure
Schedule, which rights do not materially detract from the value to the Company
of any Proprietary Asset owned by any of the Acquired Corporations or materially
impair the business or operations of any of 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
Proprietary Assets owned by or licensed to any of the Acquired Corporations
(except for any such Proprietary Assets whose value would be unimpaired by
disclosure). Without limiting the generality of the foregoing, except as set
forth in Part 2.8 of the Company Disclosure Schedule, all current and former
employees, consultants and independent contractors of the Acquired Corporations
who are or were involved in, or who have contributed to, the creation or
development of any material Proprietary Asset owned by or licensed to any of the
Acquired Corporations have executed and delivered to the Acquired Corporations
an agreement that is substantially similar to the form of Invention Assignment
and Proprietary Information Agreement previously delivered by the Company to
Parent, except for current or former employees, consultants or independent
contractors whose failure to execute and deliver such an Employee Information
Assignment and Proprietary Information Agreement has not had and would not
reasonably be expected to have a Material Adverse Effect on the Acquired
Corporations. To the best of the knowledge of the Company, no current or former
employee, officer, director, consultant (who is or was involved in, or who has
contributed to, the creation or development of any material Proprietary Asset
owned by any of the Acquired Corporations) or independent contractor (who is or
was involved in, or who has contributed to, the creation or development of any
material Proprietary Asset owned by any of the Acquired Corporations) has any
right, claim or interest in or with respect to any material Proprietary Asset
owned by any of the Acquired Corporations.
(c) To the best of the knowledge of the Company: (i) all patents,
trademarks, service marks and copyrights owned by any of the Acquired
Corporations and material to the business of any of the Acquired Corporations
are valid, enforceable and subsisting; (ii) none of the Proprietary Assets owned
by any of the Acquired Corporations and no Proprietary Asset that is currently
being developed by any of the Acquired Corporations (either by itself or with
any other Person) infringes or misappropriates any Proprietary Asset owned by
any other Person, except where any liability, or any restriction on sale, use,
development or licensing of a Proprietary Asset, arising from such infringement,
misappropriation or unlawful use has not had and would not reasonably be
expected to have a Material Adverse Effect on the Acquired Corporations; (iii)
none of the Acquired Corporations is infringing, misappropriating or making any
unlawful use of any Proprietary Asset owned by any other Person, except where
any liability, or any restriction on sale, use, development or licensing of a
Proprietary Asset, arising from such infringement, misappropriation or unlawful
use has not had and would not reasonably be expected to have a Material Adverse
Effect on the Acquired Corporations; (iv) none of the products that are or have
been designed, created, developed, assembled, manufactured or sold by any of the
Acquired Corporations is infringing, misappropriating or making any unlawful or
unauthorized use of any Proprietary Asset owned or used by any other Person, and
none of such products has at any time infringed, misappropriated or made any
unlawful or unauthorized
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use of, any Proprietary Asset of any other Person, except where any liability,
or any restriction on sale, use, development or licensing of a Proprietary
Asset, arising from such infringement, misappropriation or unlawful use has not
had and would not reasonable be expected to have a Material Adverse Effect on
the Acquired Corporations; (v) since September 30, 1995, none 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; (vi) no other Person is infringing,
misappropriating or making any unlawful or unauthorized use of, and no
Proprietary Asset owned or used by any other Person infringes any material
Proprietary Asset owned by any of the Acquired Corporations, except where such
infringement, misappropriation or unlawful use has not had and would not
reasonably be expected to have a Material Adverse Effect on the Acquired
Corporations.
(d) The Proprietary Assets owned by or licensed to the Acquired Corporations
constitute all the Proprietary Assets necessary to enable the Acquired
Corporations to conduct their business substantially in the manner in which such
business has been and is being conducted.
(e) Except as set forth in Part 2.8(e) of the Company Disclosure Schedule,
none of the Acquired Corporations has 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 material portion or aspect of the source code, or any
material proprietary information or algorithm contained in any source code, of
any material Proprietary Asset owned by any of the Acquired Corporations. No
event has occurred, and no circumstance or condition exists, that (with or
without notice or mere lapse of time) will, or would reasonably be expected to,
result in the disclosure or delivery to any Person of the source code, or any
material portion or aspect of the source code, or any material proprietary
information or algorithm contained in any source code, of any material
Proprietary Asset owned by or licensed to any of the Acquired Corporations. Part
2.8(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 material portion or aspect of the
source code, or any material proprietary information or algorithm contained in
or relating to any source code, of any material Proprietary Asset owned by any
of the Acquired Corporations, and further describes whether the execution of
this Agreement or the consummation of any of the transactions contemplated
hereby, in and of itself, would reasonably be expected to result in the release
from escrow of the source code, or any material portion or aspect of the source
code, or any material proprietary information or algorithm contained in or
relating to any source code, of any material Proprietary Asset owned by any of
the Acquired Corporations.
2.9 CONTRACTS.
(a) Part 2.9(a) of the Company Disclosure Schedule identifies each Acquired
Corporation Contract that constitutes a "Material Contract." (For purposes of
this Agreement, each of the following shall be deemed to constitute a "Material
Contract":
(i) any Contract providing for the employment of, or the performance of
services by, any employee or consultant (to the extent such consultant may
not be terminated without penalty on no more than 30 days notice), and any
Contract pursuant to which any of the Acquired Corporations is required to
make any severance, termination or similar payment, relocation payment or
any other payment (including any bonus payment, but excluding payments in
respect of salary or commissions earned by employees of the Company in the
ordinary course of business and consistent with past practices) in excess of
$25,000, to any current or former employee or director of any of the
Acquired Corporations;
(ii) any Contract (A) relating to the acquisition, transfer,
development, sharing, license (to or by any of the Acquired Corporations),
use or other exploitation of any Proprietary Asset (except for any Contract
pursuant to which (1) any Proprietary Asset is licensed to the Acquired
Corporations under any third party software license generally available to
the public, and (2) any Proprietary Asset is
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licensed by any of the Acquired Corporations to any Person on a
non-exclusive basis); or (B) of the type referred to in Section 2.8(e);
(iii) any Contract which provides for indemnification of any officer,
director, employee or agent of any of the Acquired Corporations;
(iv) any Contract imposing any restriction on the right or ability of
any Acquired Corporation (A) to compete with any other Person, (B) to
acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other
Person or to transact business or deal in any other manner with any other
Person, or (C) develop or distribute any technology;
(v) any Contract (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities, (B) providing any Person
with any preemptive right, right of participation, right of maintenance or
any similar right with respect to any securities, or (C) providing the
Company with any right of first refusal with respect to, or right to
repurchase or redeem, any securities;
(vi) any Contract requiring that the Company give any notice or provide
any information to any Person prior to accepting any Acquisition Proposal;
(vii) any Contract (A) that contemplates or involves the payment or
delivery of cash or other consideration in an amount or having a value in
excess of $25,000 in the aggregate, or contemplates or involves the
performance of services having a value in excess of $25,000 in the
aggregate, and (B) that has a term of more than 90 days and that may not be
terminated by such Acquired Corporation (other than for breach of any such
Contract and, in any event, without penalty) within 90 days after the
delivery of a termination notice by such Acquired Corporation; and
(viii) any Contract (not otherwise identified in clauses "(i)" through
"(vii)" of this sentence) that is or would be material to any of the
Acquired Corporations, to the business, condition, capitalization or
operations of any of the Acquired Corporations or to any of the transactions
contemplated by this Agreement. There is no Acquired Corporation Contract to
which any Governmental Body is a party or under which any Governmental Body
has any rights or obligations.
(b) Each Material Contract is valid and in full force and effect, and is
enforceable by an Acquired Corporation 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) (i) none of the Acquired Corporations has violated or breached, or
committed any default under, any Acquired Corporation Contract, except for
defaults that have not had and would not reasonably be expected to have a
Material Adverse Effect on the Acquired Corporations; 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 for defaults that have not had
and would not reasonably be expected to 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 would reasonably be expected to, (A)
result in a violation or breach of any of the provisions of any Acquired
Corporation Contract, (B) give any Person the right to declare a default or
exercise any remedy under any Acquired Corporation Contract, (C) give any Person
the right to a 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, except in each such case for defaults, acceleration rights,
termination rights and other rights that have not had and would not reasonably
be expected to have a Material Adverse Effect on the Acquired Corporations; and
(iii) since December 31, 1995, none 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
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Corporation Contract, except in each such case for defaults, acceleration
rights, termination rights and other rights that have not had and would not
reasonably be expected to have a Material Adverse Effect on the Acquired
Corporations.
2.10 LIABILITIES. None 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 principles), except
for: (a) liabilities identified as such in the "liabilities" column of the
Company Unaudited Interim Balance Sheet; (b) normal and recurring liabilities
that have been incurred by the Acquired Corporations since September 30, 1996 in
the ordinary course of business and consistent with past practices; and (c)
liabilities that have not had and would not reasonably be expected to have a
Material Adverse Effect on the Acquired Corporations.
2.11 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Acquired Corporations
is, and has at all times since September 30, 1995 been, in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and would not reasonably be expected to have a
Material Adverse Effect on the Acquired Corporations. Since September 30, 1995,
none 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.
2.12 CERTAIN BUSINESS PRACTICES. None of the Acquired Corporations nor any
director, officer, agent or employee of any 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.
2.13 GOVERNMENTAL AUTHORIZATIONS. The Acquired Corporations hold all
Governmental Authorizations necessary to enable the Acquired Corporations to
conduct their respective businesses in the manner in which such businesses are
currently being conducted, except where the failure to hold such Governmental
Authorizations has not had and would not reasonably be expected to have a
Material Adverse Effect on the Acquired Corporations. All such Governmental
Authorizations are valid and in full force and effect. Each Acquired Corporation
is, and at all times since September 30, 1995 has been, in compliance with the
terms and requirements of such Governmental Authorizations, except where the
failure to be in compliance with the terms and requirements of such Governmental
Authorizations has not had and would not reasonably be expected to have a
Material Adverse Effect on the Acquired Corporations. Since September 30, 1995,
none 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.
2.14 TAX MATTERS.
(a) All material 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.
(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
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principles, except where the failure to accrue such liabilities has not had and
would not reasonably be expected to have a Material Adverse Effect on the
Acquired Corporations. 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 September 30, 1996 through the
Closing Date.
(c) No Acquired Corporation Return has been examined or audited by any
Governmental Body since December 31, 1994. 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 any of the Acquired Corporations except liens for current Taxes not
yet due and payable. None of the Acquired Corporations has entered into or
become bound by any agreement or consent pursuant to Section 341(f) of the Code.
None of the Acquired Corporations has been, and none 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 any of the Acquired Corporations that, considered individually or considered
collectively with any other such Contracts, will, or would 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.
None 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.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Company Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by any of the
Acquired Corporations for the benefit of any current or former employee of any
of the Acquired Corporations.
(b) Except as set forth in Part 2.15(a) of the Company Disclosure Schedule,
none of the Acquired Corporations maintains, sponsors or contributes to, and
none of the Acquired Corporations has at any time in the past maintained,
sponsored or contributed to, any employee pension benefit plan (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not excluded from coverage under specific Titles or Merger
Subtitles of ERISA) for the benefit of employees or former employees of any of
the Acquired Corporations (a "Pension Plan").
(c) Except as set forth in Part 2.15(a) of the Company Disclosure Schedule,
none of the Acquired Corporations maintains, sponsors or contributes to any: (i)
employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of any employees or former employees of any of the Acquired
Corporations (a "Welfare Plan"), or (ii) self-funded medical, dental or other
similar Plan. None of the Plans identified in
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the Company Disclosure Schedule is a multiemployer plan (within the meaning of
Section 3(37) of ERISA).
(d) None of the Acquired Corporations is or has ever been required to be
treated as a single employer with any other Person under Section 4001(b)(1) of
ERISA or Section 414(b), (c), (m) or (o) of the Code. None of the Acquired
Corporations has ever been a member of an "affiliated service group" within the
meaning of Section 414(m) of the Code. None of the Acquired Corporations has
ever made a complete or partial withdrawal from a multiemployer plan, as such
term is defined in Section 3(37) of ERISA, resulting in "withdrawal liability,"
as such term is defined in Section 4201 of ERISA (without regard to subsequent
reduction or waiver of such liability under either Section 4207 or 4208 of
ERISA).
(e) None of the Acquired Corporations has any plan or commitment to create
any Welfare Plan or any additional Pension Plan, or to modify or change any
existing Pension Plan (other than to comply with applicable law) in a manner
that would affect any employee of any of the Acquired Corporations.
(f) Except as set forth in Part 2.15 of the Company Disclosure Schedule, no
Plan provides death, medical or health benefits (whether or not insured) with
respect to any current or former employee of any of the Acquired Corporations
after any such employee's termination of service (other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code, (ii) benefits accrued as liabilities on the Company
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former employees of any of the Acquired Corporations (or the
employees' beneficiaries)).
(g) With respect to any Plan constituting a group health plan within the
meaning of Section 4980B(g)(2) of the Code, the provisions of Section 4980B of
the Code ("COBRA") have been complied with in all material respects. None of the
Acquired Corporations has any obligation or liability as of the date of this
Agreement under any of the provisions of COBRA which would reasonably be
expected to have a Material Adverse Effect on the Acquired Corporations.
(h) Each of the Plans has been operated and administered in all material
respects in accordance with applicable Legal Requirements, including but not
limited to ERISA and the Code.
(i) Each of the Plans intended to be qualified under Section 401(a) of the
Code has received a favorable determination from the Internal Revenue Service,
and the Company is not aware of any reason why any such determination letter
should be revoked.
(j) Neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former employee or director of
any of the Acquired Corporations (whether or not under any Plan), or materially
increase the benefits payable under any Plan, or result in any acceleration of
the time of payment or vesting of any such benefits.
(k) Part 2.15(k) of the Company Disclosure Schedule contains a list of all
salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. None of the Acquired Corporations is a party to any collective
bargaining contract or other Contract with a labor union involving any of its
employees. Except as set forth in Part 2.15 of the Company Disclosure Schedule,
all of the employees of the Acquired Corporations are "at will" employees.
(l) To the best of the knowledge of the Company, there is no employee of the
Company who is not fully available to perform work because of disability or
other leave.
(m) Each of the Acquired Corporations is in compliance in all material
respects with all applicable Legal Requirements and Contracts relating to
employment, employment practices, wages, bonuses and
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terms and conditions of employment, including employee compensation matters,
except with respect to any back payment that might be required to be made by the
Company because of the possible characterization of independent contractors as
employees of the Company.
(n) Each of the Acquired Corporations has good labor relations, and none of
the Acquired Corporations has any knowledge of any facts indicating that (i) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement will have a material adverse effect on the labor relations of any of
the Acquired Corporations, or (ii) any of the employees of any of the Acquired
Corporations intends to terminate his or her employment with the Acquired
Corporation with which such employee is employed.
2.16 ENVIRONMENTAL MATTERS. To the best of the knowledge of the Company,
each of the Acquired Corporations is in compliance in all respects with all
applicable Environmental Laws (as defined in this Section 2.16) (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),
except where the failure to comply has not had and would not reasonably be
expected to have a Material Adverse Effect on the Acquired Corporations. None 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 any 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 any 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 any 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 any of the Acquired Corporations is not in
compliance with any Environmental Law. To the best of the knowledge of the
Company, all property that is leased to, controlled by or used by the Company,
and all surface water, groundwater and soil associated with or adjacent to such
property is in clean and healthful condition and is free of any material
environmental contamination of any nature. (For purposes of this Section
2.16:(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.)
2.17 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 any of the Acquired Corporations. Each
such insurance policy is in full force and effect. Since December 31, 1993, none
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 claim
(including any workers' compensation claim) under or based upon any insurance
policy of any of the Acquired Corporations; and 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, except where such claim has not had and would not reasonably be expected
to have a Material Adverse Effect on the Acquired Corporations.
2.18 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Company SEC
Documents, since the date of the Company's last proxy statement filed with the
SEC, no event has occurred that would be
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required to be reported by the Company pursuant to Item 404 of Regulation S-K
promulgated by the SEC. Part 2.18 of the Company Disclosure Schedule identifies
each person who is an "affiliate" (as that term is used in Rule 145 promulgated
under the Securities Act) of the Company as of the date of this Agreement.
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) There is no material pending Legal Proceeding, and, to the best of the
knowledge of the Company, no Person has since September 30, 1995 threatened to
commence any material Legal Proceeding that involves any of the Acquired
Corporations or any of the assets owned or used by any of the Acquired
Corporations. 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 would reasonably be expected to
cause or provide a basis for a director, officer or other Representative of any
of the Acquired Corporations to seek indemnification from, or commence a Legal
Proceeding against or involving, any of the Acquired Corporations.
(b) There is no order, writ, injunction, judgment or decree to which any of
the Acquired Corporations, or any of the assets owned or used by any of the
Acquired Corporations, is subject, except for any orders, writs, injunctions,
judgments or decrees which have not had and would not be reasonably expected to
have a Material Adverse Effect on the Acquired Corporations. To the best of the
knowledge of the Company, no officer or other employee of any 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 any of the Acquired
Corporations.
2.20 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, and (c) unanimously recommended the adoption
and approval of this Agreement and the Merger by the holders of Company Common
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). 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.
2.21 SECTION 203 OF THE DGCL NOT APPLICABLE. As of the date hereof and at
all times on or prior to the Effective Time, the restrictions applicable to
business combinations contained in Section 203 of the DGCL are, and will be,
inapplicable to the execution, delivery and performance of this Agreement and to
the consummation of the Merger and the other transactions contemplated by this
Agreement. Prior to the execution of those certain Voting Agreements of even
date herewith between Parent and each of John F. Cooper, David Chyan, John R.
Harding, William Portelli and Robert D. Selvi, the Board of Directors of the
Company approved: (a) said Voting Agreements and the transactions contemplated
thereby; and (b) the Option Agreements (in the form of Exhibit F) which may be
executed by Parent and each of John F. Cooper and David Chyan, and the
transactions contemplated thereby.
2.22 NO EXISTING DISCUSSIONS. None of the Acquired Corporations, and no
Representative of any of the Acquired Corporations, is engaged, directly or
indirectly, in any discussions or negotiations with any other Person relating to
any Acquisition Proposal.
2.23 ACCOUNTING MATTERS. To the best of the knowledge of the Company,
neither the Company nor any of its affiliates has taken or agreed to, or plans
to, take any action that would prevent Parent from accounting for the Merger as
a "pooling of interests." Ernst & Young llp has confirmed in a letter the date
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of this Agreement and addressed to the Company, Parent and Arthur Andersen llp,
an executed copy of which has been delivered to Parent, that Ernst & Young llp
is not aware of any fact concerning the Company that would preclude Parent from
accounting for the Merger as a "pooling of interests."
2.24 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Company Common Stock outstanding on the record date for the
Company Stockholders' Meeting (the "Required Vote") 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.
2.25 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance by the Company of this Agreement, nor (2) the consummation by the
Company of the Merger, 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 any 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 any of the Acquired Corporations;
(b) contravene, conflict with or result in a violation of any Legal
Requirement or any order, writ, injunction, judgment or decree to which any
of the Acquired Corporations, or any of the assets owned or used by any of
the Acquired Corporations, is subject (it being understood that no
representation or warranty is being made by the Company regarding compliance
with any federal or state antitrust or fair trade law or any other similar
Legal Requirement);
(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 Governmental
Authorization that is held by any of the Acquired Corporations or that
otherwise relates to the business of any of the Acquired Corporations or to
any of the assets owned or used by any 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 default, remedy, rebate, chargeback,
penalty, change in delivery schedule, acceleration, cancellation,
termination or modification which has not had and would not reasonably be
expected to 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 any of the Acquired Corporations
(except for minor Encumbrances 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 any 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 Proprietary Asset owned by or licensed to any of the Acquired
Corporations, or the transfer of any material asset of any of the Acquired
Corporations to any Person (other than Parent or Merger Sub).
Except as may be required by the Exchange Act, the DGCL, the HSR Act and the
Bylaws of the National Association of Securities Dealers, Inc. (the "NASD") (as
they relate to the S-4 Registration
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Statement and the Prospectus/Proxy Statement, as defined in Section 2.28(b)),
none of the Acquired Corporations was, 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 the execution, delivery or performance of this Agreement, or the
consummation of the Merger.
2.26 FAIRNESS OPINION. The Company's Board of Directors has received the
written opinion of Alex. Brown & Sons Incorporated, financial advisor to the
Company, dated the date of this Agreement, to the effect that the Exchange Ratio
is fair to the stockholders of the Company from a financial point of view.
2.27 FINANCIAL ADVISOR. Except for Alex. Brown & Sons Incorporated, 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 any of the Acquired Corporations. The total of all fees,
commissions and other amounts that have been paid by the Company to Alex. Brown
& Sons Incorporated and all fees, commissions and other amounts that may become
payable to Alex. Brown & Sons Incorporated by the Company if the Merger is
consummated will not exceed the amount described in that certain letter
agreement dated September 16, 1996, between the Company and Alex. Brown & Sons
Incorporated, an accurate and complete copy of which has been delivered to
Parent prior to 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 6.6(k) 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 or on behalf of
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 the light of the circumstances under which they are
made, not misleading. None of the information supplied or to be supplied by or
on behalf of the Company for inclusion or incorporation by reference in the
Prospectus/Proxy Statement to be filed with the SEC 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 the 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 the Exchange Act and the rules and
regulations promulgated by the SEC thereunder.
SECTION 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 3.3(a)), excluding
the exhibits thereto:
3.1 ORGANIZATION, STANDING AND POWER. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary power and authority: (a) to
conduct its business in the manner in which its business is currently being
conducted; (b) to own and use its assets in the manner in which its assets are
currently owned and used; and (c) to perform its obligations under all Contracts
by which it is bound. Each of Parent and
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Merger Sub is duly 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 be so qualified
would have a Material Adverse Effect on Parent. Parent has delivered to the
Company accurate and complete copies of the certificate of incorporation and
bylaws of Parent, including all amendments thereto.
3.2 CAPITALIZATION, ETC.
(a) The authorized capital stock of Parent consists of: (a) 150,000,000
shares of Parent Common Stock, of which 77,637,647 shares (excluding shares of
Parent Common Stock held in treasury) were outstanding as of October 15, 1996;
and (b) 2,000,000 shares of Preferred Stock, $0.01 par value per share, of which
no shares are outstanding as of the date of this Agreement. All of the
outstanding shares of Parent Common Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. As of October 15, 1996: (i)
9,562,052 shares of Parent Common Stock were reserved for future issuance
pursuant to stock options granted and outstanding under Parent's 1987 Stock
Option Plan, as amended; (ii) 9,374,978 shares of Parent Common Stock were
reserved for future issuance pursuant to stock options granted and outstanding
under Parent's 1993 Nonstatutory Stock Option Plan; (iii) 123,750 shares of
Parent Common Stock were reserved for future issuance pursuant to stock options
granted and outstanding under Parent's 1988 Directors Stock Option Plan; (iv)
191,250 shares of Parent Common Stock were reserved for future issuance pursuant
to stock options granted and outstanding under Parent's 1993 Directors Stock
Option Plan; (v) 315,000 shares of Parent Common Stock were reserved for future
issuance pursuant to stock options granted and outstanding under Parent's 1995
Directors Stock Option Plan; (vi) 128,028 shares of Parent Common Stock were
reserved for future issuance pursuant to stock options granted and outstanding
other than under the stock option plans referred to in clauses "(i)" through
"(v)" of this Section 3.2; (vii) 1,347,149 shares of Parent Common Stock were
reserved for future issuance under Parent's 1990 Employee Stock Purchase Plan;
(viii) 120,000 shares of Parent Common Stock were reserved for future issuance
pursuant to outstanding warrants to purchase shares of Parent Common Stock held
by Comdisco Systems, Inc.; and (ix) 2,433,002 shares of Parent Common Stock were
reserved for future issuance pursuant to certain outstanding put warrants and
call options. All outstanding shares of Parent Common Stock, all outstanding
options to purchase shares of Parent Common Stock, and all outstanding shares of
capital stock of each subsidiary of Parent have been issued and granted in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
(b) Between October 15, 1996 and the date of this Agreement, there has been:
(i) no material change in the number of outstanding shares of Parent Common
Stock (other than as a result of the exercise of options referred to in Section
3.2(a)); and (ii) no change in the number of shares of Parent Common Stock
reserved for future issuance under the stock option plans or the stock purchase
plan referred to in Section 3.2(a).
(c) As of the date of this Agreement: (i) there are no outstanding options
or rights to purchase shares of Parent Common Stock, other than the options,
warrants and other rights referred to in Section 3.2(a), certain options granted
between October 15, 1996 and the date of this Agreement under the stock option
plans referred to in Section 3.2(a) and the rights outstanding under that
certain Rights Agreement dated as of February 9, 1996 between Parent and Harris
Trust and Savings Bank; and (ii) Parent is not obligated to issue any shares of
Parent Common Stock or any rights to acquire shares of Parent Common Stock,
other than pursuant to (A) the options, warrants and rights referred to in
Section 3.2(a) and certain options granted between October 15, 1996 and the date
of this Agreement under the stock option plans referred to in Section 3.2(a),
(B) the rights outstanding under that certain Rights Agreement dated as of
February 9, 1996 between Parent and Harris Trust and Savings Bank, (C) the terms
of this Agreement or any other agreement referred to in this Agreement, and (D)
that certain Agreement and Plan of Merger and Reorganization dated as of October
3, 1996, among Parent, Harbor Acquisition Sub, Inc. and High Level Design
Systems, Inc.
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3.3 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete copies of each
report, registration statement (on a form other than Form S-8) and definitive
proxy statement (excluding copies of exhibits) 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 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 (including any related notes)
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
normal and recurring year-end audit adjustments which will not, individually or
in the aggregate, be material in amount); 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 and cash
flows of Parent and its subsidiaries for the periods covered thereby.
(c) Parent has delivered to the Company an unaudited consolidated balance
sheet of Parent and its subsidiaries as of September 28, 1996 (the "Parent
Unaudited Interim Balance Sheet"), and the related consolidated unaudited income
statement and statement of cash flows of Parent and its subsidiaries for the
nine months then ended. The financial statements referred to in this Section
3.3(c): (i) were prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the basis on which the financial
statements referred to in Section 3.3(b) were prepared (except that the
financial statements referred to in this Section 3.3(c) do not contain footnotes
and are subject to normal and recurring year-end adjustments which will not,
individually or in the aggregate, be material in amount), and (ii) fairly
present the consolidated financial position of Parent and its subsidiaries as of
September 28, 1996 and the consolidated results of operations and cash flows of
Parent and its subsidiaries for the period covered thereby.
3.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. Between September 28, 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 Parent and its subsidiaries taken as a whole, and no event has
occurred that would reasonably be expected to have a Material Adverse Effect on
Parent; (b) Parent has not declared, accrued, set aside or paid any dividend or
made any other distribution in respect of any shares of capital stock, or
repurchased, redeemed or otherwise reacquired any shares of capital stock or
other securities; (c) there has not been any loss, damage or destruction to, or
any interruption in the use of, any of the assets of Parent (whether or not
covered by insurance), except for any loss, damage, destruction or interruption
that has not had and would not reasonably be expected to have a Material Adverse
Effect on Parent; (d) Parent has not entered into any material transaction or
taken any other material action that has had, or would reasonably be expected to
have, a Material Adverse Effect on Parent; (e) Parent has not amended its
certificate of incorporation or bylaws; (f) Parent has not 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; (g) Parent has not changed any of its methods of
accounting or accounting practices in any material respect; and (h) Parent has
not agreed or committed to take any of the actions referred to in clauses "(a)"
through "(g)" of this Section 3.4, except that Parent has entered into an
Agreement and Plan of Merger and Reorganization dated as of October 3, 1996,
contemplating a merger of a subsidiary of Parent with High Level Design Systems,
Inc.
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3.5 TITLE TO ASSETS. Parent or its subsidiaries own, and have good, valid
and marketable title to, all assets purported to be owned by them, including:
(i) all assets reflected on the Parent Unaudited Interim Balance Sheet (except
for assets sold or otherwise disposed of since the date of the Parent Unaudited
Interim Balance Sheet); and (ii) all other assets reflected in the books and
records of Parent or its subsidiaries as being owned by Parent or its
subsidiaries. All of said assets are owned by Parent or its subsidiaries free
and clear of any Encumbrances, except for (x) any Encumbrance for current taxes
not yet due and payable, (y) minor Encumbrances that have arisen in the ordinary
course of business, and (z) Encumbrances 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 Parent or any of its subsidiaries.
3.6 PROPRIETARY ASSETS.
(a) To the best of the knowledge of Parent: (i) all patents, trademarks,
service marks and copyrights held by Parent and material to the business of
Parent are valid, enforceable and subsisting; (ii) no Proprietary Asset owned by
Parent and no Proprietary Asset that is currently being developed by Parent
(either by itself or with any other Person) infringes or misappropriates any
Proprietary Asset owned by any other Person, except where any liability, or any
restriction on sale, use, development or licensing of a Proprietary Asset,
arising from such infringement, misappropriation or unlawful use has not had and
would not reasonably be expected to have a Material Adverse Effect on Parent;
(iii) Parent is not infringing, misappropriating or making any unlawful use of
any Proprietary Asset owned by any other Person, except where any liability, or
any restriction on sale, use, development or licensing of a Proprietary Asset,
arising from such infringement, misappropriation or unlawful use has not had and
would not reasonably be expected to have a Material Adverse Effect on Parent;
(iv) none of the products that are or have been designed, created, developed,
assembled, manufactured or sold by Parent is infringing, misappropriating or
making any unlawful or unauthorized use of any Proprietary Asset owned by any
other Person, and none of such products has at any time infringed,
misappropriated or made any unlawful or unauthorized use of, any Proprietary
Asset of any other Person, except where any liability, or any restriction on
sale, use, development or licensing of a Proprietary Asset, arising from such
infringement, misappropriation or unlawful use has not had and would not
reasonably be expected to have a Material Adverse Effect on Parent; (v) since
December 31, 1995, Parent has not 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; (vi) no other Person is
infringing, misappropriating or making any unlawful or unauthorized use of any
Proprietary Asset owned by Parent, and no Proprietary Asset owned or used by any
other Person infringes any material Proprietary Asset owned by Parent, except
where such infringement, misappropriation or unlawful use has not had and would
not reasonably be expected to have a Material Adverse Effect on Parent.
(b) The Proprietary Assets owned by or licensed to Parent constitute all the
Proprietary Assets necessary to enable Parent to conduct its business
substantially in the manner in which such business has been and is being
conducted.
3.7 LIABILITIES. Parent has no accrued, contingent or other liabilities of
any nature, either matured or unmatured (of the type required to be reflected in
a balance sheet of Parent prepared in accordance with generally accepted
principles), except for: (a) liabilities identified as such in the "liabilities"
column of the Parent Unaudited Interim Balance Sheet; (b) normal and recurring
liabilities that have been incurred by Parent since September 28, 1996 in the
ordinary course of business and consistent with past practices; and (c)
liabilities that have not had and would not reasonably be expected to have a
Material Adverse Effect on Parent.
3.8 COMPLIANCE WITH LEGAL REQUIREMENTS. Parent is, and has at all times
since December 31, 1995 been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and would not reasonably be expected to have a Material Adverse
Effect
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on Parent. Since December 31, 1995, Parent has not 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.
3.9 GOVERNMENTAL AUTHORIZATIONS. Parent holds all Governmental
Authorizations necessary to enable Parent to conduct its business in the manner
in which such business is currently being conducted, except where the failure to
hold such Governmental Authorizations has not had and would not reasonably be
expected to have a Material Adverse Effect on Parent. All such Governmental
Authorizations are valid and in full force and effect. Parent is, and at all
times since December 31, 1995 has been, in compliance with the terms and
requirements of such Governmental Authorizations, except where the failure to be
in compliance with the terms and requirements of such Governmental
Authorizations has not had and would not reasonably be expected to have a
Material Adverse Effect on Parent. Since December 31, 1995, Parent has not
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.
3.10 LEGAL PROCEEDINGS; ORDERS. There is no material pending Legal
Proceeding, and, to the best of the knowledge of Parent, no Person has since
December 31, 1995 threatened to commence any material Legal Proceeding, that
involves Parent or any of the assets owned or used by Parent. There is no order,
writ, injunction, judgment or decree to which Parent, or any of the assets owned
or used by Parent, is subject, except for any orders, writs, injunctions,
judgments or decrees which have not had and would not reasonably be expected to
have a Material Adverse Effect on Parent.
3.11 VOTE REQUIRED. No vote of the holders of Parent Common Stock is
required to authorize the Merger.
3.12 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to enter into and to
perform their obligations under this Agreement. The board of directors of Parent
(at a meeting duly called and held) has unanimously approved the execution,
delivery and performance of this Agreement by Parent and unanimously approved
the Merger. The board of directors of Merger Sub (by written consent) has
unanimously approved the execution, delivery and performance of this Agreement
by Merger Sub and unanimously approved the Merger. 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.
3.13 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance by Parent of this Agreement, nor (2) the consummation by Parent and
Merger Sub of the Merger 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 or bylaws of Parent or
Merger Sub, or (ii) any resolution adopted by the stockholders, the board of
directors or any committee of the board of directors of Parent or Merger Sub;
(b) contravene, conflict with or result in a violation of any Legal Requirement
or any order, writ, injunction, judgment or decree to which Parent, or any of
the assets owned or used by Parent, is subject (it being understood that no
representation or warranty is being made by Parent or Merger Sub regarding
compliance with any federal or state antitrust or fair trade law or any other
similar Legal Requirement); (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
Governmental Authorization that is held by Parent or that otherwise relates to
the business of Parent or to any of the assets owned or used by Parent; (d)
contravene, conflict with or result in a violation or breach by Parent or Merger
Sub of, or result in a default by Parent or Merger Sub under, any provision of
any material Contract to which Parent or Merger Sub is a party, or give any
Person the right to
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(i) declare a default or exercise any remedy under any such material Contract,
(ii) accelerate the maturity or performance of any such material Contract, or
(iii) cancel, terminate or modify any term of such material Contract, except for
any default, acceleration, cancellation, termination or modification which has
not had and would not reasonably be expected to have a Material Adverse Effect
on Parent; or (e) result in the imposition or creation of any Encumbrance upon
or with respect to any asset owned or used by Parent (except for minor
Encumbrances that would not, in any case or in the aggregate, materially detract
from the value of the assets subject thereto or materially impair the operations
of Parent). Except as may be required by the Securities Act, the Exchange Act,
state securities or "blue sky" laws, the DGCL, the HSR Act, the NASD Bylaws (as
they relate to the S-4 Registration Statement and the Prospectus/Proxy
Statement) and the rules and regulations of the NYSE (as they relate to the S-4
Registration Statement and the Prospectus/Proxy Statement), Parent is not and
will not be required to make any filing with or give any notice to, or to obtain
any Consent from, any Person in connection with the execution, delivery or
performance of this Agreement or the consummation of the Merger.
3.14 VALID ISSUANCE. The Parent Common Stock to be issued in the Merger,
when issued in accordance with the provisions of this Agreement: (a) will be
validly issued, fully paid and nonassessable; and (b) will not be subject to any
restrictions on resale under the Securities Act, other than restrictions imposed
by Rule 145 promulgated under the Securities Act.
3.15 ACCOUNTING MATTERS. To the best of the knowledge of Parent, neither
Parent nor any of its affiliates has taken or agreed to, or plans to, take any
action that would prevent Parent from accounting for the Merger as a "pooling of
interests." Parent has received a letter dated the date of this Agreement, from
Arthur Andersen llp, a copy of which has been delivered to the Company,
regarding Arthur Andersen's belief (subject to the qualifications contained in
such letter) that the Merger should be treated as a "pooling of interests" in
conformity with generally accepted accounting principles, as described in
Accounting Principles Board Opinion No. 16 and the applicable rules and
regulations of the SEC.
3.16 FULL DISCLOSURE.
(a) This Agreement does not, and the certificate referred to in Section
7.4(c) 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 or on behalf of
Parent for inclusion or incorporation by reference 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 the light of the circumstances under
which they are made, not misleading. None of the information supplied or to be
supplied by or on behalf of Parent for inclusion or incorporation by reference
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 the
light of the circumstances under which they are made, not misleading. The S-4
Registration Statement will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations promulgated by
the SEC thereunder.
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SECTION 4. CERTAIN COVENANTS OF THE PARTIES
4.1 ACCESS AND INVESTIGATION.
(a) During the period from the date of this Agreement through the
Effective Time (the "Pre-Closing Period"), the Company shall, and shall
cause the respective Representatives of the Acquired Corporations to: (i)
provide Parent and Parent's Representatives with reasonable access to 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 (ii) 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, promptly after the execution of this Agreement,
the Company shall deliver to Parent with respect to each Plan sponsored,
maintained, contributed to or required to be contributed to by any of the
Acquired Corporations for any current or former employee of any of the
Acquired Corporations: (1) an accurate and complete copy of such Plan
(including all amendments thereto); (2) an accurate and complete copy of the
annual report, if required under ERISA, with respect to such Plan for each
of the last two years; (3) an accurate and complete copy of the most recent
summary plan description, together with each Summary of Material
Modifications, if required under ERISA, with respect to such Plan; (4) if
such Plan is funded through a trust or any third party funding vehicle, an
accurate and complete copy of the trust or other funding agreement
(including all amendments thereto) and accurate and complete copies the most
recent financial statements thereof; and (5) an accurate and complete copy
of the most recent determination letter received from the Internal Revenue
Service with respect to such Plan (if such Plan is intended to be qualified
under Section 401(a) of the Code).
(b) Without limiting the generality of anything contained in Section
4.1(a), 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 (A) 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 and (B)
copies of any sales forecasts, marketing plans, development plans,
discount reports, write-off reports, hiring reports and capital
expenditure reports prepared for the Company's senior management;
(ii) any written materials or communications sent by or on behalf of
the Company to its stockholders;
(iii) any material notice, document or other communication sent by or
on behalf of any of the Acquired Corporations to any party to any
Material Contract or sent to any of the Acquired Corporations by any
party to any Material Contract (other than any communication that relates
solely to commercial transactions between the Company and the other party
to any such Material Contract and that is of the type sent in the
ordinary course of business and consistent with past practices);
(iv) 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; and
(v) any material notice, report or other document received by any of
the Acquired Corporations from any Governmental Body.
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(c) Notwithstanding anything to the contrary contained in this Section
4.1, the Company shall not be required under this Section 4.1 to take any
action that would cause the Company to violate the HSR Act.
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 past 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 2.17; (iv) the Company shall
provide all reasonable 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 would result
in (A) any transfer or disclosure by any Acquired Corporation of any source code
materials or other Proprietary Asset, or (B) a release from any escrow of any
source code materials or other Proprietary Asset which have been deposited or
are required to be deposited in escrow under the terms of such Acquired
Corporation Contract; (v) the Company shall comply with Parent's reasonable
directions with respect to exercising any rights or remedies under any Material
Contract of the type referred to in clause "(v)" of Section 2.9(a); and (vi) the
Company shall (to the extent reasonably 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 any of the other Acquired
Corporations 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 any capital stock or other security, or (iii) any instrument
convertible into or exchangeable for any capital stock or other security
(except that (A) the Company may issue Company Common Stock upon the valid
exercise of Company Options outstanding as of the date of this Agreement,
(B) the Company may issue Company Common Stock upon the valid exercise of
"options" outstanding under the 1995 Purchase Plan as of the date of this
Agreement, and (C) the Company may, in the ordinary course of business and
consistent with past practices, grant options under its 1995 Equity
Incentive Plan to purchase no more than 250,000 shares of Company Common
Stock to employees of the Company);
(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;
(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;
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(vi) make any capital expenditure in any calendar month which, when
added to all other capital expenditures made on behalf of the Acquired
Corporations in such calendar month results in such capital expenditures
exceeding $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 or exercise any material right or remedy
(including any right to repurchase shares of Company Common Stock) 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 past practices), or waive or relinquish any
material right;
(ix) lend money to any Person, or incur or guarantee any indebtedness;
(A) establish, adopt or amend any employee benefit plan, or (B) except
for bonus, profit-sharing and similar payments made in the ordinary course
of business consistent with past practices, pay any bonus or make any
profit-sharing or similar payment to, or materially increase the amount of
commissions payable to, any of its directors, officers or employees, or (C)
materially increase the amount of the wages, salary, fringe benefits or
other compensation or remuneration payable to, any of its directors,
officers or employees;
(xi) (A) hire any new employee having an annual salary in excess of
$75,000, or (B) engage any consultant or independent contractor who (1) is
entitled to receive annual compensation in excess of $75,000, and (2) may
not be terminated by the Company (without penalty) on no more than 30 days
notice;
(xii) change any of its methods of accounting or accounting practices in
any material respect;
(xiii) make any material Tax election;
(xiv) commence or settle any material Legal Proceeding;
(xv) enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with past
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: (1) the
taking of any action described in clauses "(vi)" through "(xi)" or clause
"(xiii)" or "(xiv)" of this Section 4.2(b); or (2) the repurchase by the Company
of shares of Company Common Stock in accordance with the terms of certain
Contracts (in existence as of, and disclosed to Parent prior to, the execution
of this Agreement) pursuant to which the Company has the right to repurchase
shares of Company Common Stock.
(c) During the Pre-Closing Period, the Company shall promptly notify Parent
in writing of the discovery by the Company of: (i) any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a material inaccuracy in any representation or
warranty made by the Company in this Agreement; (ii) any event, condition, fact
or circumstance that occurs, arises or exists after the date of this Agreement
and that would cause or constitute a material inaccuracy in 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
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make the timely satisfaction of any of the conditions set forth in Section 6
impossible or unlikely or that has had or would reasonably be expected to have a
Material Adverse Effect on the Acquired Corporations.
(d) Notwithstanding anything to the contrary contained in this Section 4.2,
the Company shall not be required under this Section 4.2 to take any action that
would cause the Company to violate the HSR Act.
4.3 NO SOLICITATION.
(a) The Company shall not directly or indirectly, and shall not authorize or
permit any subsidiary of the Company or any Representative of any of the
Acquired Corporations directly or indirectly to, (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 nonpublic information regarding any of
the Acquired Corporations to any Person in connection with or in response to an
Acquisition Proposal, (iii) 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 similar document or any
Contract contemplating or otherwise relating to any Acquisition Transaction;
PROVIDED, HOWEVER, that this Section 4.3(a) shall not prohibit the Company 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 (and not withdrawn) 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
reasonably be expected to result in a transaction that is more favorable from a
financial point of view to the Company's stockholders than the Merger, (2) the
Board of Directors of the Company concludes in good faith, after consultation
with 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, (3) prior to furnishing any such
nonpublic information to, or entering into discussions with, such Person, the
Company gives Parent written notice of the identity of such Person and of the
Company's intention to furnish nonpublic information to, or enter into
discussions with, such Person, and the Company receives from such Person an
executed confidentiality agreement containing customary limitations on the use
and disclosure of all nonpublic written and oral information furnished to such
Person by or on behalf of the Company, and (4) prior to furnishing any such
nonpublic information to such Person, the Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
previously furnished by the Company to Parent). Without limiting the generality
of the foregoing, the Company acknowledges and agrees that any violation of any
of the restrictions set forth in the preceding sentence by any Representative of
any of the Acquired Corporations, whether or not such Representative is
purporting to act on behalf of any of the Acquired Corporations, shall be deemed
to constitute a breach of this Section 4.3 by the Company.
(b) The Company shall promptly advise Parent orally and in writing of any
Acquisition Proposal (including the identity of the Person making or submitting
such Acquisition Proposal and the terms thereof) that is made or submitted by
any Person during the Pre-Closing Period.
(c) As of the date of this Agreement, the Company shall immediately cease
and cause to be terminated any existing discussions with any Person that relate
to any Acquisition Proposal.
(d) Notwithstanding anything to the contrary contained in this Agreement,
the Company may give a copy of this Section 4.3 and Section 5.2(c) to any Person
who submits an unsolicited bona fide written Acquisition Proposal to the Company
if, prior to giving a copy of this Section 4.3 and Section 5.2(c) to such
Person, the Company gives Parent written notice that the Company intends to give
a copy of this Section 4.3 and Section 5.2(c) to such Person.
4.4 NOTIFICATION BY PARENT. During the Pre-Closing Period, Parent shall
promptly notify the Company in writing of the discovery by Parent of: (i) any
event, condition, fact or circumstance that occurred or existed on or prior to
the date of this Agreement and that caused or constitutes a material inaccuracy
in
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any representation or warranty made by Parent in this Agreement; (ii) any event,
condition, fact or circumstance that occurs, arises or exists after the date of
this Agreement and that would cause or constitute a material inaccuracy in any
representation or warranty made by Parent 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 Parent; and (iv) any event, condition, fact or
circumstance that would make the timely satisfaction of any of the conditions
set forth in Section 7 impossible or unlikely or that has had or would
reasonably be expected to have a Material Adverse Effect on Parent.
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 reasonable efforts to cause the
S-4 Registration Statement (including the Prospectus/Proxy 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. The Company shall promptly furnish to Parent all
information concerning the Acquired Corporations and the Company's stockholders
that may be required or reasonably requested in connection with any action
contemplated by this Section 5.1. If any event relating to any of the Acquired
Corporations occurs, or if the Company becomes aware of 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 shall promptly
inform Parent thereof and shall cooperate with Parent in filing such amendment
or supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the stockholders of the Company.
(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 registered or qualified under the securities law
of every jurisdiction of the United States in which any registered holder of
Company Common Stock has an address of record on the record date for determining
the stockholders entitled to notice of and to vote at the Company Stockholders'
Meeting.
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 Common Stock to consider, act upon and vote upon the adoption of this
Agreement and approval of the Merger (the "Company Stockholders' Meeting"). The
Company Stockholders' Meeting will be held as promptly as practicable and in any
event within 60 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. 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 unanimously 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
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statement to the effect that the Board of Directors of the Company has
unanimously 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 unanimous
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. For purposes of this Agreement, said recommendation of the Board of
Directors shall be deemed to have been modified in a manner adverse to Parent if
said recommendation shall no longer be unanimous.
(c) Nothing in clause "(iv)" of the first sentence of Section 4.3(a) or in
Section 5.2(b) shall prevent the Board of Directors of the Company from
withdrawing, amending or modifying its unanimous recommendation in favor of the
Merger if (i) an unsolicited bona fide written Acquisition Proposal is submitted
to the Company and is not withdrawn, (ii) the Board of Directors of the Company
concludes in good faith, based upon the advice of its financial advisor, that
such Acquisition Proposal could reasonably be expected to result in a
transaction that is more favorable from a financial point of view to the
Company's stockholders than the Merger, (iii) neither the Company nor any of its
Representatives shall have violated any of the restrictions set forth in Section
4.3, and (iv) the Board of Directors of the Company concludes in good faith,
after consultation with its outside legal 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 in clause "(iv)" of the
first sentence of Section 4.3(a) or in Section 5.2(b) shall prevent the Board of
Directors of the Company from recommending that its stockholders accept an
unsolicited tender offer or exchange offer commenced by a third party with
respect to shares of Company Common Stock if (1) such tender offer or exchange
offer constitutes an Acquisition Proposal, (2) the Board of Directors of the
Company shall have withdrawn its recommendation in favor of the Merger in
accordance with and as permitted by the preceding sentence, (3) the Board of
Directors of the Company shall have concluded in good faith, based upon the
advice of its financial advisor, that such tender offer or exchange offer is
more favorable from a financial point of view to the Company's stockholders than
the Merger, (4) neither the Company nor any of its Representatives shall have
violated any of the restrictions set forth in Section 4.3, and (5) the Board of
Directors of the Company shall have concluded in good faith, after consultation
with its outside legal counsel, that the recommendation in favor of acceptance
of such tender offer or exchange offer 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 convene and hold the Company
Stockholders' Meeting (regardless of whether the unanimous recommendation of the
Board of Directors of the Company shall have been withdrawn, amended or modified
and regardless of whether the Board of Directors of the Company shall have
recommended acceptance of a tender offer or exchange offer commenced by a third
party), it being understood that the Company shall be required to convene and
hold the Company Stockholders' Meeting in accordance with this Section 5.2
unless the holding of such meeting would constitute a violation of any
applicable court order or statute. The Company shall use all reasonable efforts
to ensure that the holding of the Company Stockholders' Meeting will not
constitute a violation of any applicable court order or statute.
5.3 REGULATORY APPROVALS. The Company and Parent shall use reasonable
efforts to file, as soon as practicable after the date of this Agreement, all
notices, reports and other documents required 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. Without limiting the generality of the foregoing, the
Company and Parent shall, promptly after the date of this Agreement, prepare and
file the notifications required under the HSR Act in connection with the Merger.
The Company and Parent shall respond as promptly as practicable to (i) any
inquiries or requests received from the Federal Trade Commission or the
Department of Justice for additional information or documentation and (ii) any
inquiries or requests received from any state attorney general
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or other Governmental Body in connection with antitrust or related matters. Each
of the Company and Parent shall (1) give the other party prompt notice of the
commencement of any Legal Proceeding by or before any Governmental Body with
respect to the Merger or any of the other transactions contemplated by this
Agreement, (2) keep the other party informed as to the status of any such Legal
Proceeding, and (3) promptly inform the other party of any communication to or
from the Federal Trade Commission, the Department of Justice or any other
Governmental Body regarding the Merger. The Company and Parent will consult and
cooperate with one another, and will consider in good faith the views of one
another, in connection with any analysis, appearance, presentation, memorandum,
brief, argument, opinion or proposal made or submitted in connection with any
Legal Proceeding under or relating to the HSR Act or any other federal or state
antitrust or fair trade law. In addition, except as may be prohibited by any
Governmental Body or by any Legal Requirement, in connection with any Legal
Proceeding under or relating to the HSR Act or any other federal or state
antitrust or fair trade law or any other similar Legal Proceeding, each of the
Company and Parent agrees to permit authorized Representatives of 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, opinion or proposal made or submitted to any Governmental Body in
connection with any such Legal Proceeding.
5.4 STOCK OPTIONS.
(a) Subject to Section 5.4(b), 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 Exchange Ratio,
rounded down to the nearest whole share (with cash, less the applicable exercise
price, 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 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 (A) in accordance with the terms of
the Employment Agreement between John R. Harding and the Company dated December
1, 1994, all unvested Company Options granted to John R. Harding pursuant to
said Employment Agreement shall become immediately exercisable as of the
Effective Time, (B) in accordance with the terms of that certain Employment
Agreement between Robert D. Selvi and the Company dated April 24, 1995, and that
certain Employment Agreement between William Portelli and the Company dated
March 3, 1995, certain unvested Company Options granted to Messrs. Selvi and
Portelli pursuant to said Employment Agreements shall become immediately
exercisable as of the Effective Time, (C) in accordance with the terms of the
Company's 1995 Directors Stock Option Plan, unvested Company Options granted to
outside directors of the Company pursuant to such plan shall become immediately
exercisable as of the Effective Time, and (D) each Company Option assumed by
Parent in accordance with this Section 5.4(a) 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. Parent shall file
with the SEC, no later than five business days after the date on which the
Merger becomes effective, a Registration Statement on Form S-8 relating to the
shares of Parent Common Stock issuable with respect to the Company Options
assumed by Parent in accordance with this Section 5.4(a).
(b) Notwithstanding anything to the contrary contained in this Section 5.4,
in lieu of assuming outstanding Company Options in accordance with Section
5.4(a), Parent may, at its election, cause such
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outstanding Company Options to be replaced by issuing substantially equivalent
replacement stock options in substitution therefor. Parent shall use reasonable
efforts to attempt to ensure that any such replacement stock options issued in
substitution for Company Options that, immediately prior to the Effective Time,
qualified as incentive stock options (as defined in Section 422 of the Code)
continue to qualify as incentive stock options immediately after the Effective
Time.
(c) 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.
(d) The Company shall terminate the 1995 Purchase Plan and all outstanding
"options" thereunder prior to the Effective Time, and shall take such actions as
may be necessary to ensure that: (i) all outstanding "options" under the 1995
Purchase Plan terminate on the last trading day preceding the date on which the
Merger becomes effective; (ii) the price per share of the Company Common Stock
purchased pursuant to all such "options" is determined as if the "Purchase Date"
under Section 8 of the 1995 Purchase Plan were the last trading day preceding
the date on which the Merger becomes effective; (iii) any shares of Company
Common Stock purchased pursuant to such "options" are automatically converted as
of the Effective Time into the right to receive Parent Common Stock on the same
basis as all other outstanding shares of Company Common Stock; and (iv) the 1995
Purchase Plan terminates immediately following the purchase of shares of Company
Common Stock pursuant to such "options."
5.5 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(a) All rights to indemnification existing in favor of the current directors
and officers of the Company for acts and omissions occurring prior to the
Effective Time, as provided in the Company's Bylaws (as in effect as of the date
of this Agreement) and as provided in the indemnification agreements between the
Company and said directors and officers (as in effect as of the date of this
Agreement), shall survive the Merger and shall be maintained by the Surviving
Corporation for a period of not less than six years from the Effective Time;
PROVIDED, HOWEVER, that the Surviving Corporation's indemnification obligations
will be reduced to the extent of any insurance proceeds paid under the insurance
policy or policies referred to in Section 5.5(d). From and after the Effective
Time, Parent will, to the fullest extent permitted by law, perform all
indemnification obligations of the Surviving Corporation under this Section
5.5(a) (without giving effect to the limitations on the Surviving Corporation's
indemnification obligations imposed by Section 145(b) of the DGCL); PROVIDED,
HOWEVER, that Parent's indemnification obligations shall be reduced (i) to the
extent that the Surviving Corporation performs such obligations, and (ii) to the
extent of any insurance proceeds paid under the insurance policy or policies
referred to in Section 5.5(d).
(b) If (i) on the Closing Date, a Legal Proceeding described in Section 6.13
or 6.14 is pending before any court of competent jurisdiction, (ii) any current
director or officer of the Company is named as a defendant in such Legal
Proceeding by virtue of any action taken by him prior to the Closing Date in his
capacity as a director or officer of the Company, (iii) the Company has
disclosed to Parent, prior to the Closing Date, the pendency of such Legal
Proceeding, and (iv) Parent waives in writing the condition specified in Section
6.13 or Section 6.14 (as the case may be) as it applies to such Legal Proceeding
and elects to proceed with the Closing, then, from and after the Effective Time,
Parent shall hold harmless and indemnify such director or officer from and
against all losses and expenses incurred by such director or officer in
connection with such Legal Proceeding.
(c) Parent shall have (i) the exclusive right, at its election, to assume
and control the defense (with counsel selected by Parent and reasonably
satisfactory to the indemnified parties) of any claim or Legal Proceeding with
respect to which Parent or the Surviving Corporation has any indemnification
obligation under this Section 5.5, and (ii) the right, at its election, to
settle, adjust or compromise any such claim or Legal Proceeding without the
consent of any indemnified party (if the agreement relating to the settlement of
such claim contains a customary release of such indemnified party and other
customary terms).
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(d) From the Effective Time until the sixth anniversary of the date on which
the Merger becomes effective, the Surviving Corporation shall maintain in
effect, for the benefit of the current directors and officers of the Company
with respect to acts or omissions occurring prior to the Effective Time, the
directors' and officers' liability insurance policy described in Part 5.5(d) of
the Company Disclosure Schedule (the "Specified Policy"); PROVIDED, HOWEVER,
that (i) the Surviving Corporation may substitute for the Specified Policy a
policy or policies of comparable coverage, and (ii) the Surviving Corporation
shall not be required to pay an annual premium for the Specified Policy (or for
any substitute policy or policies) in excess of $260,000. In the event any
future annual premium for the Specified Policy (or any substitute policy or
policies) exceeds $260,000, the Surviving Corporation shall be entitled to
reduce the amount of coverage of the Specified Policy (or any substitute policy
or policies) to the amount of coverage that can be obtained for an annual
premium equal to $260,000; PROVIDED, HOWEVER, that if the amount of any such
future annual premium payable prior to such sixth anniversary for the Specified
Policy (or for any substitute policy or policies) exceeds $260,000, then: (1)
Parent shall notify John R. Harding of that fact a reasonable time before such
future annual premium becomes due; and (2) in the event that, a reasonable time
before such future annual premium becomes due, the current directors and
officers of the Company pay to Parent, in cash, the amount by which the amount
of such future annual premium exceeds $260,000, Parent shall use the amount
received from such directors and officers to pay such premium in order to avoid
a reduction in the amount of coverage of the Specified Policy (or any substitute
policy or policies).
5.6 POOLING OF INTERESTS.
(a) Each of the Company and Parent agrees (i) not to take any action during
the Pre-Closing Period that would adversely affect the ability of Parent to
account for the Merger as a "pooling of interests," and (ii) to use reasonable
efforts to attempt to ensure that none of its "affiliates" (as that term is used
in Rule 145 promulgated under the Securities Act) takes any action that could
adversely affect the ability of Parent to account for the Merger as a "pooling
of interests."
(b) The parties acknowledge that, in order to permit Parent to account for
the Merger as a "pooling of interests," it may be necessary, in light of the
condition specified in paragraph 47d of Accounting Principles Board Opinion No.
16 (said condition being referred to as the "Paragraph 47d Condition"), for
Parent to issue shares of Parent Common Stock at or prior to the Effective Time
(in addition to the shares of Parent Common Stock to be issued in the Merger).
Subject to Section 5.6(c), Parent agrees that, at or prior to the Closing Date
(as designated by Parent in accordance with Section 1.3), it will issue a number
of shares of Parent Common Stock that is sufficient to cause the Paragraph 47d
Condition to be satisfied (it being understood that the timing of the offering
and issuance of such shares by Parent will be determined by Parent in its sole
discretion).
(c) Notwithstanding anything to the contrary contained in Section 5.6(b) or
elsewhere in this Agreement (but subject to Section 8.3(e)), Parent shall not
have any obligation under this Agreement to offer or to issue shares of Parent
Common stock if (i) Parent's financial advisor, Goldman, Sachs & Co., shall have
advised Parent in writing that, in light of prevailing market conditions as they
relate to Parent, it would be detrimental for Parent to proceed with the
offering or issuance of a sufficient number of shares of Parent Common Stock to
enable Parent to satisfy the Paragraph 47d Condition, and (ii) a second
financial advisor (comparable in stature to Goldman, Sachs & Co.) jointly
selected by Parent and the Company is unwilling to commit to offer and sell such
shares on behalf of Parent on terms that are reasonably determined by Parent to
be acceptable.
5.7 ADDITIONAL AGREEMENTS.
(a) 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, and (ii) shall use 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. The
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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 this Agreement,
Parent shall not have any obligation under this Agreement: (i) to dispose or
cause any of its subsidiaries to dispose of any assets, or to commit to cause
any of the Acquired Corporations to dispose of any assets; (ii) to discontinue
or cause any of its subsidiaries to discontinue offering any product, or to
commit to cause any of the Acquired Corporations to discontinue offering any
product; (iii) to license or otherwise make available, or cause any of its
subsidiaries to license or otherwise make available, to any Person, any
technology, software or other Proprietary Asset, or to commit to cause any of
the Acquired Corporations to license or otherwise make available to any Person
any technology, software or other Proprietary Asset; (iv) to hold separate or
cause any of its subsidiaries to hold separate any assets or operations (either
before or after the Closing Date), or to commit to cause any of the Acquired
Corporations to hold separate any assets or operations; or (v) to make or cause
any of its subsidiaries make any commitment (to any Governmental Body or
otherwise) regarding its future operations or the future operations of any of
the Acquired Corporations.
5.8 DISCLOSURE.
(a) The Company shall not, and shall not permit any of its Representatives
to, issue any press release or otherwise publicly disseminate any document or
other written material relating to the Merger or any of the other transactions
contemplated by this Agreement unless (i) Parent shall have approved such press
release or written material (it being understood that Parent shall not
unreasonably withhold its approval of any such press release or written
material), or (ii) the Company shall have been advised by its outside legal
counsel that the issuance of such press release or the dissemination of such
written material is required by any applicable law or regulation, and the
Company shall have consulted with Parent prior to issuing such press release or
disseminating such written material; PROVIDED, HOWEVER, that the Company shall
be entitled to file with the SEC, after the execution and delivery of this
Agreement, a Report on Form 8-K (including a description of the possible sale of
up to 50,000 shares of Company Common Stock by John R. Harding), together with a
copy of this Agreement (including the exhibits hereto) and the press release
(which shall have been approved by Parent) announcing this Agreement. The
Company shall use reasonable efforts to ensure that none of its Representatives
makes any public statement that is materially inconsistent with any press
release issued or any written material publicly disseminated by the Company with
respect to the Merger or with respect to any of the other transactions
contemplated by this Agreement.
(b) Parent shall not, and shall not permit any of its Representatives to,
issue any press release or otherwise publicly disseminate any document or other
written material relating to the Merger or any of the other transactions
contemplated by this Agreement unless (i) the Company shall have approved such
press release or written material (it being understood that the Company shall
not unreasonably withhold its approval of any such press release or written
material), or (ii) Parent shall have been advised by its outside legal counsel
that the issuance of such press release or the dissemination of such written
material is required by any applicable law or regulation, and Parent shall have
consulted with the Company prior to issuing such press release or disseminating
such written material; PROVIDED, HOWEVER, that (1) notwithstanding anything to
the contrary contained in this Section 5.8, Parent may, without the approval of
the Company, issue any press release or otherwise disseminate any written
material relating to any offering or issuance of shares of Parent Common Stock
contemplated by Section 5.6(b), and (2) Parent shall be entitled to file with
the SEC, after the execution and delivery of this Agreement, a Report on Form
8-K, together with a copy of this Agreement (including the exhibits hereto) and
the press release (which shall have been approved by the Company) announcing
this Agreement. Parent shall use reasonable efforts to ensure that none of its
Representatives makes any public statement that is materially inconsistent with
any press release issued or any written material publicly disseminated by Parent
with respect to the Merger or with respect to any of the other transactions
contemplated by this Agreement.
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5.9 AFFILIATE AGREEMENTS. The Company shall use reasonable efforts to
cause each Person identified in Part 2.18 of the Company Disclosure Schedule and
each other Person who is or becomes an "affiliate" (as that term is used in Rule
145 promulgated under the Securities Act) of the Company to execute and deliver
to Parent, prior to the date of the mailing of the Prospectus/Proxy Statement to
the Company's stockholders, an Affiliate Agreement in the form of Exhibit C.
Parent shall use reasonable efforts to cause each of Parent's "affiliates" (as
that term is used in Rule 145 promulgated under the Securities Act) to execute
and deliver to Parent, at least 30 days prior to the date on which the Merger
becomes effective, an "affiliate letter" in customary form relating to "pooling
of interests" accounting requirements.
5.10 TAX MATTERS. The Company shall use reasonable efforts to obtain and
deliver to Parent, as soon as practicable after the date of this Agreement,
Continuity of Interest Certificates in the form of Exhibit D signed by John F.
Cooper and David Chyan. At or prior to the Closing, the Company and Parent shall
execute and deliver to Cooley Godward LLP and to Fenwick & West LLP tax
representation letters in customary form. Parent and the Company shall use
reasonable efforts to cause the Merger to qualify as a tax free reorganization
under Section 368(a)(1) of the Code.
5.11 LETTER OF THE COMPANY'S ACCOUNTANTS. The Company shall use reasonable
efforts to cause to be delivered to Parent a letter of Ernst & Young LLP, dated
no more than two business days before the date on which the S-4 Registration
Statement becomes effective (and reasonably satisfactory in form and substance
to Parent), that is customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the S-4 Registration Statement.
5.12 EMPLOYMENT MATTERS. The employees of the Company identified in Part
5.12A of the Company Disclosure Schedule have executed Employment Agreements
with Parent (which will become effective on the date the Merger becomes
effective). The employees of the Company identified in Part 5.12B of the Company
Disclosure Schedule have executed Noncompetition Agreements in favor of the
Company and Parent (which will become effective on the date the Merger becomes
effective). The Company shall use reasonable efforts to cause each of the
additional employees of the Company identified in Part 5.12C of the Company
Disclosure Schedule to execute and deliver to Parent an employment agreement in
the form of Exhibit E.
5.13 PARENT PLANS AND BENEFIT ARRANGEMENTS. Those Plans identified in Part
2.15(a) of the Company Disclosure Schedule that provide non-discretionary,
non-cash benefits to employees of the Company and that are substantially similar
to benefit plans and benefit arrangements currently maintained by Parent shall,
to the extent practicable, be maintained in effect by the Surviving Corporation
until the Continuing Employees (as defined in this Section 5.13) are allowed to
participate in such similar benefit plans or benefit arrangements maintained by
Parent. Parent shall use reasonable efforts to attempt to ensure that: (a) as
soon as practicable after the Effective Time, Parent's benefit plans and benefit
arrangements will provide benefits to the Continuing Employees that are
comparable to the non-discretionary, non-cash benefits provided to similarly
situated employees of Parent; (b) to the extent practicable, any pre-existing
condition limitations contained in Parent's health plans and health benefit
arrangements for any Continuing Employee who would be deemed under Parent's
health plans and health benefit arrangements to have a disqualifying
pre-existing condition are waived, to the extent such condition was covered by a
Plan immediately prior to the Effective Time (provided that, in the case of
Parent's disability and life insurance plans, such Continuing Employee is
actively at work and is not hospitalized or on disability leave as of the
Effective Time); and (c) to the extent practicable, Parent's benefit plans and
benefit arrangements give full credit to each Continuing Employee for such
Continuing Employee's period of service with the Company prior to the Effective
Time for all purposes for which such service was recognized under the Plans
prior to the Effective Time. For purposes of this Section 5.13, "Continuing
Employee" shall mean any employee of the Company who continues as an employee of
the Surviving Corporation or Parent after the Effective Time.
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5.14 NYSE LISTING. Parent shall use reasonable efforts to cause the shares
of Parent Common Stock being issued in the Merger to be approved for listing
(subject to notice of issuance) on the NYSE.
5.15 RESIGNATION OF OFFICERS AND DIRECTORS. The Company shall use
reasonable efforts to obtain and deliver to Parent prior to the Closing the
resignation of each officer and director of the Company.
5.16 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.
(a) 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, 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 are not reasonably 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).
(b) The representations and warranties of the Company contained in this
Agreement 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 are not reasonably
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 CONSENTS. All material Consents required to be obtained in connection
with the Merger and the other transactions contemplated by this Agreement shall
have been obtained and shall be in full force and effect.
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6.6 AGREEMENTS AND DOCUMENTS. Parent and the Company shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) Affiliate Agreements in the form of Exhibit C, executed by each
Person who is reasonably determined by the Company to be an "affiliate" of
the Company (as that term is used in Rule 145 promulgated under the
Securities Act);
(b) Continuity of Interest Certificates in the form of Exhibit D,
executed by John F. Cooper and David Chyan;
(c) the Employment Agreements referred to in the second sentence of
Section 5.12, executed by the individuals identified in Part 5.12A of the
Company Disclosure Schedule;
(d) the Noncompetition Agreements referred to in the first sentence of
Section 5.12, executed by the individuals identified in Part 5.12B of the
Company Disclosure Schedule;
(e) a letter from Ernst & Young LLP, dated as of the Closing Date and
addressed to Parent, reasonably satisfactory in form and substance to
Parent, updating the letter referred to in Section 5.11;
(f) the statement referred to in Section 5.16(a), executed by the
Company;
(g) a letter from Ernst & Young LLP, dated as of the Closing Date and
addressed to Parent, the Company and Arthur Andersen LLP, reasonably
satisfactory in form and substance to Parent and Arthur Andersen LLP, to the
effect that, after reasonable investigation, Ernst & Young LLP is not aware
of any fact concerning the Company or any of the Company's stockholders or
affiliates that could preclude Parent from accounting for the Merger as a
"pooling of interests" in accordance with generally accepted accounting
principles, Accounting Principles Board Opinion No. 16 and all published
rules, regulations and policies of the SEC;
(h) a letter from Arthur Andersen LLP, dated as of the Closing Date and
addressed to Parent, reasonably satisfactory in form and substance to
Parent, to the effect that Parent may account for the Merger as a "pooling
of interests" in accordance with generally accepted accounting principles,
Accounting Principles Board Opinion No. 16 and all published rules,
regulations and policies of the SEC;
(i) a legal opinion of Fenwick & West LLP, dated as of the Closing Date,
reasonably satisfactory in form and substance to Parent;
(j) a legal opinion of Cooley Godward LLP, dated as of the Closing Date
and addressed to Parent, 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 Continuity of Interest Certificates and tax representation letters
referred to in Section 5.10);
(k) 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, 6.5, 6.7, 6.8 and 6.9 have been duly satisfied; and
(l) the written resignations of all officers and directors of the
Company, effective as of the Effective Time.
6.7 EMPLOYEES. None of the individuals identified in Part 5.12B of the
Company Disclosure Schedule shall have ceased to be employed by the Company, or
shall have expressed an intention to terminate his or her employment with the
Company or to decline to accept employment with Parent; and not more than 50% of
the individuals identified in Part 5.12C of the Company Disclosure Schedule
shall have ceased to be employed by the Company or shall have expressed an
intention to terminate their employment with the Company or to decline to accept
employment with Parent.
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6.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the business, condition, assets, liabilities, operations or financial
performance of the Acquired Corporations since the date of this Agreement,
except for (a) any such material adverse change that is demonstrated to have
resulted directly from changes that occurred after the date of this Agreement in
general business conditions in the electronic design automation industry, and
(b) any material adverse change in the Company's financial performance that is
temporary in nature and is demonstrated to have resulted directly from the
public announcement or the pendency of the Merger.
6.9 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.16(b).
6.10 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
6.11 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.
6.12 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 Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.13 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is or is threatened to become
a party or is otherwise involved: (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.
6.14 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding
in which there is a reasonable possibility of an outcome that would have a
Material Adverse Effect on the Acquired Corporations or on Parent: (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 affect adversely 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 OBLIGATION OF THE COMPANY
The obligation of the Company 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 the following conditions:
7.1 ACCURACY OF REPRESENTATIONS.
(a) 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, 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 are not reasonably expected to
result in, a Material Adverse Effect on Parent (it being understood that, for
purposes of determining the accuracy of such
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representations and warranties, all materiality qualifications contained in such
representations and warranties shall be disregarded).
(b) The representations and warranties of Parent and Merger Sub contained in
this Agreement 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
are not reasonably 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 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:
(a) a legal opinion of Cooley Godward LLP, dated as of the Closing Date,
reasonably satisfactory in form and substance to the Company;
(b) a legal opinion of Fenwick & West 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, Fenwick & West LLP may rely upon the Continuity of Interest
Certificates and tax representation letters referred to in Section 5.10);
and
(c) a certificate executed on behalf of Parent by an executive officer
of Parent, confirming that conditions set forth in Sections 7.1, 7.2 and 7.5
have been duly satisfied.
7.5 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in Parent's business, condition, assets, liabilities, operations or
financial performance since the date of this Agreement, except for (a) any such
material adverse change that is demonstrated to have resulted directly from
changes that occurred after the date of this Agreement in general business
conditions in the electronic design automation industry, and (b) any material
adverse change in Parent's financial performance that is temporary in nature and
is demonstrated to have resulted directly from the public announcement or the
pendency of the Merger.
7.6 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
7.7 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.
7.8 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 Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger by the Company
illegal.
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;
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(b) by either Parent or the Company if the Merger shall not have been
consummated by 5:00 p.m. (Pacific Time) on May 7, 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 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;
PROVIDED, HOWEVER, that (1) Parent shall not be permitted to terminate this
Agreement pursuant to this Section 8.1(d) if the failure of the Company's
stockholders to adopt and approve this Agreement and the Merger at the
Company Stockholders' Meeting is attributable to a failure on the part of
Parent to perform any material obligation required to have been performed by
Parent under this Agreement, (2) the Company shall not be permitted to
terminate this Agreement pursuant to this Section 8.1(d) if the failure of
the Company's stockholders to adopt and approve this Agreement and the
Merger at the Company Stockholders' Meeting is attributable to a failure on
the part of the Company to perform any material obligation required to have
been performed by the Company under this Agreement, and (3) the Company
shall not be permitted to terminate this Agreement pursuant to this Section
8.1(d) unless the Company shall have paid the fee referred to in clause
"(i)" of Section 8.3(b);
(e) 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;
(f) by Parent if any of the Company's representations and warranties
contained in this Agreement shall be or shall have become materially
inaccurate, or if any of the Company's material covenants contained in this
Agreement shall have been breached in any material respect; PROVIDED,
HOWEVER, that if an inaccuracy in the Company's representations and
warranties or a breach of a covenant by the Company is curable by the
Company and the Company is continuing to exercise reasonable efforts to cure
such inaccuracy or breach, then Parent may not terminate this Agreement
under this Section 8.1(f) on account of such inaccuracy or breach;
(g) by the Company if any of Parent's representations and warranties
contained in this Agreement shall be or shall have become materially
inaccurate, or if any of Parent's material covenants contained in this
Agreement shall have been breached in any material respect; PROVIDED,
HOWEVER, that if an inaccuracy in Parent's representations and warranties or
a breach of a covenant by Parent is curable by Parent and Parent is
continuing to exercise reasonable efforts to cure such inaccuracy or breach,
then the Company may not terminate this Agreement under this Section 8.1(g)
on account of such inaccuracy or breach;
(h) by either Parent or the Company at 5:00 p.m. (Pacific Time) on the
scheduled Closing Date (as designated by Parent in accordance with Section
1.3) if (i) Parent shall have failed to issue shares of Parent Common Stock
on or prior to the scheduled Closing Date for the purpose of satisfying the
Paragraph 47d Condition, (ii) Arthur Andersen LLP is unable to provide, on
the scheduled Closing Date, the letter referred to in Section 6.6(h) solely
as a result of Parent's failure to issue shares of Parent Common Stock in
order to satisfy the Paragraph 47d Condition, and (iii) all of the
conditions set forth in Section 6 have otherwise been fully satisfied
(except for any conditions in Section 6 that have not been satisfied as a
result of Parent's failure to perform any material obligation required to
have been performed by Parent under this Agreement); PROVIDED, HOWEVER, that
(1) Parent shall not be permitted to terminate this Agreement pursuant to
this Section 8.1(h) if Parent's failure to issue shares of Parent Common
Stock for the purpose of satisfying the Paragraph 47d Condition is
attributable to a failure on the part of Parent to perform any material
obligation required to have been
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performed by Parent under this Agreement, and (2) the Company shall not be
permitted to terminate this Agreement pursuant to this Section 8.1(h) if
Parent's failure to issue shares of Parent Common Stock for the purpose of
satisfying the Paragraph 47d Condition is attributable to a failure on the
part of the Company to perform any material obligation required to have been
performed by the Company under this Agreement; or
(i) by Parent at any time on or after November 2, 1996 if John F. Cooper
and David Chyan shall not have executed and delivered to Parent Option
Agreements in the form of Exhibit F.
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 breach of this Agreement.
8.3 EXPENSES; TERMINATION FEES.
(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' 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) If this Agreement is terminated by Parent or the Company pursuant to
Section 8.1(d), or if this Agreement is terminated by Parent pursuant to Section
8.1(e), then:
(i) the Company shall pay to Parent, in cash (at the time specified in
Section 8.3(c)), a nonrefundable fee in the amount of $5,000,000; and
(ii) in the event an Acquisition Transaction is consummated at any time
on or prior to the first anniversary of the date on which this Agreement is
terminated, the Company shall pay to Parent, in cash, contemporaneously with
the consummation of such Acquisition Transaction, an additional
nonrefundable fee in an amount equal to the Designated Amount (as defined in
Section 8.3(d)).
(c) In the case of termination of this Agreement by the Company pursuant to
Section 8.1(d), the fee referred to in clause "(i)" of Section 8.3(b) shall be
paid by the Company prior to such termination, and in the case of termination of
this Agreement by Parent pursuant to Section 8.1(d) or Section 8.1(e), the fee
referred to in clause "(i)" of Section 8.3(b) shall be paid by the Company
within three business days after such termination.
(d) The "Designated Amount" shall be $10,000,000; PROVIDED, HOWEVER, that if
(i) the Acquisition Transaction referred to in clause "(ii)" of Section 8.3(b)
is required to be accounted for as a "pooling of interests," (ii) prior to the
consummation of such Acquisition Transaction, the Company delivers to Parent
reasonable written evidence of a determination by the SEC that relates
specifically to such Acquisition Transaction and that states that the SEC will
not permit such Acquisition Transaction to be accounted for as a "pooling of
interests" in the event, and solely because, a fee in the amount of $10,000,000
is paid by the Company to Parent in accordance with clause "(ii)" of Section
8.3(b), (iii) Parent shall have been given a reasonable opportunity, both prior
to and after such determination by the SEC, to persuade the appropriate official
at the SEC to appropriately modify the SEC's position on the accounting
treatment of such Acquisition Transaction (so that such Acquisition Transaction
can be accounted for as a "pooling of interests" notwithstanding the payment by
the Company of a fee in the amount of $10,000,000 in accordance with clause
"(ii)" of Section 8.3(b)), (iv) the Company shall have promptly advised Parent
of all material communications between the Company or any of its Representatives
and the SEC regarding the accounting treatment of such Acquisition Transaction,
(v) the Company shall have cooperated with Parent,
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both prior to and after such determination by the SEC, in Parent's efforts to
persuade the appropriate official at the SEC to appropriately modify the SEC's
position on the accounting treatment of such Acquisition Transaction, (vi) the
Company shall not have taken any action or position, either prior to or after
such determination by the SEC, in opposition to or inconsistent with Parent's
efforts to persuade the appropriate official at the SEC to appropriately modify
the SEC's position on the accounting treatment of such Acquisition Transaction,
and (vii) the position reflected in such determination by the SEC shall not have
been reversed, withdrawn or otherwise appropriately altered, then the
"Designated Amount" shall be the lesser of $10,000,000 or the maximum dollar
amount that would not preclude such Acquisition Transaction from being accounted
for as a "pooling of interests."
(e) If this Agreement is validly terminated pursuant to Section 8.1(h), then
Parent shall pay to the Company, in cash, a nonrefundable fee in the amount of
$10,000,000. If this Agreement is validly terminated by Parent pursuant to
Section 8.1(h), then such fee shall be paid to the Company on the date Parent
terminates this Agreement. If this Agreement is validly terminated by the
Company pursuant to Section 8.1(h), then such fee shall be paid to the Company
within three business days after the date on which the Company terminates this
Agreement.
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 adoption and approval of this Agreement and the Merger by the stockholders
of the Company; PROVIDED, HOWEVER, that after any such adoption and approval of
this Agreement and the Merger by the Company's stockholders, 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) 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.
9.4 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Agreement and the
other agreements referred to herein and the letter agreements dated as of
September 26, 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 the State of Delaware. The parties hereto waive trial by jury in
any action at law or suit in equity based upon, or arising out of, this
Agreement or the subject matter hereof.
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<PAGE>
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 information disclosed 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 shall not be deemed to relate to or to qualify any other
representation or warranty (unless it is reasonably apparent to Parent that such
information qualifies another 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 of this Agreement or any of such rights by the Company without such
consent shall be void and of no effect. Except as set forth in Section 5.5 with
respect to the current directors and officers of the Company, nothing in this
Agreement, express or implied, 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. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent:
Cadence Design Systems, Inc.
2655 Seely Avenue
San Jose, California 95135
Attention: General Counsel
Facsimile: (408) 944-0215
if to Merger Sub:
Wyoming Acquisition Sub, Inc.
Cadence Design Systems, Inc.
2655 Seely Avenue
San Jose, California 95135
Attention: General Counsel
Facsimile: (408) 944-0215
if to the Company:
Cooper & Chyan Technology, Inc.
1601 South DeAnza Boulevard
Cupertino, California 95014
Attention: President and Chief Financial Officer
Facsimile: (408) 342-5650
9.9 COOPERATION. The Company agrees to cooperate fully with Parent and to
execute and deliver such further documents, certificates, agreements and
instruments and to take such other actions as may be
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<PAGE>
reasonably requested by Parent to evidence or reflect the transactions
contemplated by this Agreement and to carry out the intent and purposes of this
Agreement.
9.10 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include masculine
and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
(c) 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."
(d) 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: __ _______________________________
R.L. Smith McKeithen,
VICE PRESIDENT AND GENERAL
COUNSEL
WYOMING ACQUISITION SUB, INC.
By: __ _______________________________
R.L. Smith McKeithen,
VICE PRESIDENT AND SECRETARY
COOPER & CHYAN TECHNOLOGY, INC.
By: __ _______________________________
Robert D. Selvi
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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<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 any of the Acquired Corporations is a party; (b) by
which any of the Acquired Corporations or any asset of any of the Acquired
Corporations is or may become bound or under which any of the Acquired
Corporations has, or may become subject to, any obligation; or (c) under which
any of the Acquired Corporations has or may acquire any right or interest.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by Parent) contemplating or otherwise
relating to any Acquisition Transaction.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction or series of related transactions involving:
(a) any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange
offer or other similar transaction (i) in which the Company is a constituent
corporation, (ii) in which a Person or "group" (as defined in the Exchange
Act and the rules promulgated thereunder) of Persons directly or indirectly
acquires the Company or more than 50% of the Company's business or directly
or indirectly acquires beneficial or record ownership of securities
representing more than 40% of the outstanding securities of any class of
voting securities of the Company, or (iii) in which the Company issues
securities representing more than 40% of the outstanding securities of any
class of voting securities of the Company; or
(b) any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of business),
acquisition or disposition of more than 50% of the assets 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.
COMPANY COMMON STOCK. "Company Common Stock" shall mean the Common Stock,
$0.01 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 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.
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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).
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, audit or active
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 will be deemed to have a "Material Adverse Effect" on the Acquired
Corporations if such event, violation, inaccuracy, circumstance or other matter
(considered together with all other matters that would constitute exceptions to
the representations and warranties set forth in Section 2 of the Agreement but
for the presence of "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications, in such representations and
warranties) 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 in the event the
Company's representations and warranties are inaccurate as of the Closing Date
as if made on and as of the Closing Date, the circumstances giving rise to the
inaccuracies in such representations and warranties will not be deemed to
constitute a Material Adverse Effect on the Acquired Corporations for purposes
of Section 6.1(b) if such circumstances (i) are demonstrated to have resulted
directly from changes that occurred after the date of this Agreement in general
business conditions in the electronic design automation industry, or (ii) are
demonstrated to have resulted directly from the public announcement or the
pendency of the Merger and would reasonably be expected to have only a temporary
effect on the Acquired Corporations and the Acquired Corporations' business and
financial condition. An event, violation, inaccuracy, circumstance or other
matter will be deemed to have a "Material Adverse Effect" on Parent if such
event, violation, inaccuracy, circumstance or other matter (considered together
with all other matters that would constitute exceptions to the representations
and warranties set forth in Section 3 of the Agreement but for the presence of
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, in such representations and warranties) 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 in the event Parent's representations and warranties are
inaccurate as of the Closing Date as if made on and as of the Closing Date, the
circumstances giving rise to the inaccuracies in such representations and
warranties will not be deemed to constitute a Material Adverse Effect on Parent
for purposes of Section 7.1(b) if such circumstances (i) are demonstrated to
have resulted directly from changes that occurred after the date of this
Agreement in general business conditions in the electronic design automation
industry, or (ii) are demonstrated to have resulted directly from the public
announcement or the pendency of the Merger and would reasonably be expected to
have only a temporary effect on Parent and Parent's business and financial
condition.
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<PAGE>
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 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.
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 unanimous recommendation in favor of, the Merger or
approval or adoption of this Agreement; (ii) the Company shall have failed to
include in the Prospectus/Proxy Statement the unanimous 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 similar document or any Contract
relating to any Acquisition Proposal; (v) the Company shall have failed to hold
the Company Stockholders' Meeting as promptly as practicable and in any event
within 60 days after the S-4 Registration Statement is declared effective; (vi)
a tender or exchange offer 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; or (vii) an Acquisition Proposal is publicly announced, and the
Company (A) fails to issue a press release announcing its opposition to such
Acquisition Proposal within five business days after such Acquisition Proposal
is announced or (B) otherwise fails to actively oppose such Acquisition
Proposal.
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<PAGE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
("Amendment") is made and entered into as of December 17, 1996 by and among
Cadence Design Systems, Inc., a Delaware corporation ("Cadence"), Wyoming
Acquisition Sub, Inc., a Delaware corporation, and Cooper & Chyan Technology,
Inc., a Delaware corporation (collectively, the "Parties").
RECITALS
A. The Parties have entered into an Agreement and Plan of Merger and
Reorganization dated as of October 28, 1996 (the "Reorganization Agreement").
B. The Parties wish to amend the Reorganization Agreement in the manner set
forth in this Amendment.
AMENDMENT
For good and valuable consideration, the Parties agree as follows:
I. AMENDMENT OF SECTION 2.3 OF THE REORGANIZATION AGREEMENT. Section 2.3 of
the Reorganization Agreement is hereby amended to add Section 2.3(f) thereto,
which Section 2.3(f) reads in its entirety as follows:
"(f) As of October 28, 1996, there were three "Offering Periods" (as
defined in Section 5 of the 1995 Purchase Plan) underway pursuant to the
1995 Purchase Plan (the "Current Offering Periods"). The Current Offering
Periods commenced on November 1, 1995 (the "First Offering Date"), May 1,
1996 and November 1, 1996 and will end on October 31, 1997, April 30, 1998
and October 31, 1998, respectively."
II. AMENDMENT OF SECTION 5.4(D) OF REORGANIZATION AGREEMENT. Section 5.4(d)
of the Reorganization Agreement is hereby amended in its entirety to read as
follows:
"(d) The 1995 Purchase Plan and each "option" to acquire shares of
Company Common Stock pursuant to the 1995 Purchase Plan that is outstanding
as of the Effective Time (a "Company Purchase Option") shall be assumed by
Parent at the Effective Time. The 1995 Purchase Plan shall be assumed on the
terms and conditions set forth therein. At the Effective Time, the
securities reserved under the 1995 Purchase Plan shall become shares of
Parent Common Stock and the number of shares of Parent Common Stock reserved
under the 1995 Purchase Plan shall be equal to the result of the
multiplication of (i) the number of shares of Company Common Stock reserved
under the 1995 Purchase Plan and not issued thereunder prior to the
Effective Time by (ii) the Exchange Ratio. No additional shares of Company
Common Stock or Parent Common Stock shall be reserved under the 1995
Purchase Plan before or after its assumption by Parent. The Company Purchase
Options assumed by Parent shall be on the same terms and conditions set
forth in the 1995 Purchase Plan except that (i) each Company Purchase Option
shall thereafter be exercisable for Parent Common Stock, (ii) subject to the
terms and conditions of the 1995 Purchase Plan, the number of shares of
Parent Common Stock subject to such Company Purchase Option shall be equal
to the number of shares of Company Common Stock subject to such Company
Purchase Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded down to the nearest whole share, and (iii) the
exercise price per share for the number of whole shares of Parent Common
Stock issuable upon exercise of each of the Company Purchase Options shall
be determined in accordance with the formula set forth in the 1995 Purchase
Plan, except that the "fair market value" of the Parent Common Stock subject
to purchase pursuant to the Company Purchase Options (A) on a particular
"Offering Date" under Section 8 of the 1995 Purchase Plan shall be the
quotient resulting from the
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<PAGE>
division of the last sale price of Company Common Stock as reported on the
Nasdaq National Market on the trading day immediately prior to such Offering
Date (except in the case of the First Offering Date, such price shall be
deemed to be $11.00) by the Exchange Ratio and (B) on a particular "Purchase
Date" under Section 8 of the 1995 Purchase Plan shall be the last sale price
of Parent Common Stock as reported on the New York Stock Exchange on the
trading day immediately prior to such Purchase Date. No new "Offering
Periods" (as defined in Section 5 of the 1995 Purchase Plan) will be
commenced. The 1995 Purchase Plan shall be modified as may be reasonably
necessary or advisable to permit such plan to continue to qualify as a plan
described in Section 423 of the Code following the Effective Time and to
reflect the provisions of this Section 5.4(d). The Company shall take all
action that may be necessary (under the 1995 Purchase Plan and otherwise) to
effectuate the provisions of this Section 5.4(d) and to ensure that, from
and after the Effective Time, holders of Company Purchase Options and
employees of the Company participating in the 1995 Purchase Plan after the
Effective Time have no rights with respect to the 1995 Purchase Plan other
than those specifically provided in this Section 5.4(d)."
III. MISCELLANEOUS. The provisions of the Reorganization Agreement, as
amended by this Amendment, shall remain in full force and effect. This Amendment
may be executed in several counterparts, each of which shall constitute an
original and all of which, when taken together, shall constitute one agreement.
The Parties have caused this Amendment to be executed and delivered as of
the date first written above.
CADENCE DESIGN SYSTEMS, INC.,
a Delaware corporation
By: /s/ R.L. SMITH MCKEITHEN
-----------------------------------------
R.L. Smith McKeithen,
VICE PRESIDENT AND GENERAL COUNSEL
WYOMING ACQUISITION SUB, INC.,
a Delaware corporation
By: /s/ R.L. SMITH MCKEITHEN
-----------------------------------------
R.L. Smith McKeithen,
VICE PRESIDENT AND SECRETARY
COOPER & CHYAN TECHNOLOGY, INC.,
a Delaware corporation
By: /s/ ROBERT D. SELVI
-----------------------------------------
Robert D. Selvi,
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
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APPENDIX B
[LOGO]
OPINION OF ALEX. BROWN & SONS INCORPORATED
October 27, 1996
Board of Directors
Cooper & Chyan Technology, Inc.
1601 South De Anza Boulevard
Cupertino, California 95014
Dear Sirs:
Cooper & Chyan Technology, Inc. ("CCT" or the "Company"), Cadence Design
Systems, Inc. ("Cadence") and Wyoming Acquisition Sub, Inc., a Delaware
corporation and a wholly-owned subsidiary of Cadence (the "Merger Sub"), propose
to enter into an Agreement and Plan of Merger and Reorganization (the
"Agreement"). Pursuant to the Agreement, the implementation of which is
contingent on stockholder approval by CCT stockholders, the Merger Sub will be
merged with and into CCT (the "Merger"), and each share of CCT common stock
issued and outstanding immediately prior to the effective time of the Merger
will be converted into 0.85 shares (the "Exchange Ratio") of common stock of
Cadence. We have assumed, with your consent, that the Merger will qualify as a
tax-free transaction for federal income tax purposes for the stockholders of the
Company and for pooling-of-interests accounting treatment, including assuming
that any required follow-on offering of common stock of Cadence will be
successfully completed at customary and market terms. You have requested our
opinion as to whether the Exchange Ratio is fair, from a financial point of
view, to CCT's stockholders.
Alex. Brown & Sons Incorporated ("Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of CCT in
connection with the transaction described above and will receive a fee for our
services, a significant portion of which is contingent upon the consummation of
the Merger. We also served as the lead-managing underwriter in CCT's 1995
initial public offering of CCT common stock. Alex. Brown maintains a market in
the common stock of CCT and regularly publishes research reports regarding the
electronic design automation industry and the businesses and securities of CCT
and other publicly owned companies in the electronic design automation industry.
In the ordinary course of business, Alex. Brown may actively trade the
securities of both the Company and Cadence for our own account and the account
of our customers and, accordingly, may at any time hold a long or short position
in securities of the Company and Cadence.
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning CCT and Cadence and
certain internal analyses and other information furnished to us by CCT and
Cadence. We have also held discussions with the members of the senior management
of CCT and Cadence regarding the businesses and prospects of their respective
companies and the joint prospects of a combined company. In addition, we have
(i) reviewed the reported prices and trading activity for the common stock of
both CCT and Cadence, (ii) compared certain financial and stock market
information for CCT and Cadence with similar information for certain other
companies whose
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<PAGE>
securities are publicly traded, (iii) reviewed the financial terms of certain
recent business combinations, (iv) reviewed the terms of the Agreement, and (v)
performed such other studies and analyses and considered such other factors as
we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of CCT and
Cadence, we have assumed that such information reflects the best currently
available judgments and estimates of the management of CCT and Cadence. In
addition, we have not made nor been provided with an independent evaluation or
appraisal of the assets of CCT and Cadence, nor have we been furnished with any
such evaluations or appraisals. Our opinion is based on market, economic and
other conditions as they exist and can be evaluated as of the date of this
letter.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.
Our advisory services and the opinion expressed herein were prepared for the
use of the Board of Directors of CCT and do not constitute a recommendation to
CCT's stockholders as to how they should vote at the stockholders' meeting in
connection with the Merger. We hereby consent, however, to the inclusion of this
opinion as an exhibit to any proxy or registration statement distributed in
connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Ratio is fair, from a financial point of view,
to CCT's stockholders.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
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<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
Registrant 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 Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.1 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 (See Appendix A to the Proxy Statement/ Prospectus).
2.2+ Form of Certificate of Merger to be entered into by Registrant and CCT.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.3 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. (incorporated by reference to
Registrant's Current Report on Form 8-K filed on November 7, 1996 (the "November 7, 1996 8-K")).
2.4 Form of Certificate of Merger to be entered into by Registrant and HLDS (incorporated by reference to
Exhibit 2.2 to the Registrant's Form S-4 Registration Statement (No. 333-15771) filed on November 7,
1996 (the "November 7, 1996 Form S-4")).
2.5+ First Amendment to Agreement and Plan of Merger and Reorganization dated as of December 17, 1996 by and
among the Registrant, Wyoming Acquisition Sub, Inc., a Delaware corporation, and Cooper & Chyan
Technology, Inc., a Delaware Corporation (See Appendix A to the Proxy Statement/Prospectus).
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 Designation 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 Form 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 Designation 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 Exhibits 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
8.2+ Tax Opinion of Fenwick & West LLP.
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 Exhibit 99.1
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 Exhibit 99.2 to the November 7, 1996 8-K).
9.3 Employment Agreement, dated as of October 3, 1996, between Cadence and J. George Janac (incorporated by
reference to Exhibit 9.3 to the November 7, 1996 Form S-4).
9.4 Employment Agreement, dated as of October 2, 1996, between Cadence and Robert P. Wiederhold
(incorporated by reference to Exhibit 9.4 to the November 7, 1996 Form S-4).
9.5 Form of Voting Agreement, dated as of October 28, 1996, between Cadence and each of John F. Cooper,
David Chyan, William J. Portelli, Robert D. Selvi and John R. Harding (incorporated by reference to
Exhibit 99.3 to the November 7, 1996 Form 8-K).
9.6 Option Agreement, dated as of November 2, 1996, between Cadence and John F. Cooper (incorporated by
reference to Exhibit 99.4 the November 7, 1996 Form 8-K).
9.7 Option Agreement, dated as of November 2, 1996, between Cadence and David Chyan (incorporated by
reference to Exhibit 99.5 to the November 7, 1996 Form 8-K).
9.8* Employment Agreement, dated as of October 28, 1996, between Cadence and David Chyan.
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 Exhibits 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).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
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).
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")).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.25 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")).
10.26 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).
10.27 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 third quarter ended September 30, 1994).
10.28 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).
10.29 The Registrant's Amended and Restated 401(k) Plan (incorporated by reference to the Registrant's Form
10-Q for the first quarter ended March 30, 1996 (the "March 30, 1996 10-Q")).
10.30 Amendment dated May 3, 1996, to Registrant's 1993 Non Statutory Stock Option Plan (incorporated by
reference to the Registrant's Form 10-Q for the third quarter ended September 30, 1994).
10.31 Revolving line of credit dated April 1996, by and between Credit Lyonnais and the Registrant
(incorporated by reference to the March 30, 1996 10-Q).
10.32 Term loan dated May 31, 1996, by and between Credit Lyonnais and River Oaks Place Associates L.P.
(ROPA), a California limited partnership (the Term Loan) (incorporated by reference to the
Registrant's Form 10-Q for the second quarter ended June 29, 1996 (the "June 29, 1996 10-Q")).
10.33 Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing
Statement dated May 31, 1996, Schedule to Term Loan (incorporated by reference to the June 29, 1996
10-Q).
10.34 Assignment of Leases and Rents dated May 31, 1996, Schedule to Term Loan (incorporated by reference to
the June 29, 1996 10-Q).
10.35 Assignment of Partnership Interest/Seeley Properties, Inc. dated May 31, 1996, Schedule to Term Loan
(incorporated by reference to the June 29, 1996 10-Q).
10.36 Assignment of Partnership Interest/Cadence Design Systems, Inc. dated May 31, 1996, Schedule to Term
Loan (incorporated by reference to the June 29, 1996 10-Q).
10.37 Environmental Indemnity dated May 31, 1996, Schedule to Term Loan (incorporated by reference to the
June 29, 1996 10-Q).
10.38 Amendment dated August 2, 1996, to Registrant's 1987 Stock Option filed on May 31, 1994 (incorporated
by reference to Exhibit 4.01 to the Registrant's Form S-8 Registration Statement No. 33-53913).
10.39 Amendment dated August 2, 1996, to Registrant's 1993 Non Statutory Stock Option Plan (incorporated by
reference to the Registrant's Form 10-Q for the third quarter ended September 30, 1994).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.40 Amendment Number 1, dated May 31, 1996 (incorporated by reference to Registrant's Form 10-Q for the
second quarter ended June 29, 1996 (the "June 29, 1996 Form 10-Q")), to Lease Agreement for the
Registrant's executive offices at 555 River Oaks Parkway, San Jose, California by and between ROPA
and the Registrant (incorporated by reference to Exhibit 10.14 to Registrant's Form 10-K for the
fiscal year ended December 31, 1990 (the "1990 Form 10-K")).
10.41 Amendment Number 2, dated May 31, 1996 (incorporated by reference to the June 29, 1996 Form 10-Q), to
Lease Agreement for the Registrant's executive offices at 555 River Oaks Parkway, San Jose,
California by and between ROPA and the Registrant (incorporated by reference to Exhibit 10.14 to the
1990 Form 10-K).
10.42 Amendment Number 1, dated May 31, 1996 (incorporated by reference to the June 29, 1996 Form 10-Q), to
Lease Agreement for the Registrant's offices at 575 River Oaks Parkway, San Jose, California, by and
between ROPA and the Registrant (incorporated by reference to Exhibit 10.16 to the 1990 Form 10-K).
10.43 Amendment Number 2, dated May 31, 1996 (incorporated by reference to the June 29, 1996 Form 10-Q), to
Lease Agreement for the Registrant's offices at 575 River Oaks Parkway, San Jose, California, by and
between ROPA and the Registrant (incorporated by reference to Exhibit 10.16 to the 1990 Form 10-K).
10.44 Amendment Number 1, dated May 31, 1996 (incorporated by reference to the June 29, 1996 Form 10-Q), to
Lease Agreement for the Registrant's offices at 535 and 545 River Oaks Parkway, San Jose, California,
by and between ROPA and the Registrant (incorporated by reference to Exhibit 10.17 to the 1990 Form
10-K).
10.45 Amendment Number 2, dated May 31, 1996 (incorporated by reference to the June 29, 1996 Form 10-Q), to
Lease Agreement for the Registrant's offices at 535 and 545 River Oaks Parkway, San Jose, California,
by and between ROPA and the Registrant (incorporated by reference to Exhibit 10.17 to the 1990 Form
10-K).
10.46 HLDS 1993 Stock Option Plan and Form of Stock Option Grant (incorporated by reference to Exhibit 10.25
to the November 7, 1996 Form S-4).
10.47 HLDS 1995 Special Nonstatutory Stock Option Plan and Form of Stock Option Grant (incorporated by
reference to Exhibit 10.26 to the November 7, 1996 Form S-4).
10.48* CCT 1989 Stock Option Plan.
10.49* CCT 1993 Equity Incentive Plan.
10.50+ CCT 1995 Employee Stock Purchase Plan (replaces Exhibit 10.50 filed with this Registration Statement on
November 26, 1996).
10.51* UniCAD Stock Option Plan.
21.01 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 Ernst & Young LLP with respect to CCT financial statements.
23.03+ Consent of Deloitte & Touche with respect to UniCAD financial statements.
23.04+ Consent of Fenwick & West LLP (included in Exhibit 8.2).
23.05+ Consent of Cooley Godward LLP (included in Exhibits 5.1 and 8.1).
24.01* Power of Attorney.
99.01+ Form of proxy card for CCT Special Meeting
</TABLE>
- ------------------------
+ Filed herewith.
* Previously filed.
II-6
<PAGE>
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 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 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 Registrant hereby undertakes that, for purposes of determining any
liability under the Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) 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 Registrant 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 Act, 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Cadence Design Systems, Inc. has duly caused this Amendment No. 1 to the
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 17th day of December, 1996.
CADENCE DESIGN SYSTEMS, INC.
By: /s/ JOSEPH B. COSTELLO
-----------------------------------------
Joseph B. Costello
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the 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>
President, Chief Executive
/s/ JOSEPH B. COSTELLO Officer and Director
------------------------------------------------ (Principal Executive December 17, 1996
Joseph B. Costello Officer)
Executive Vice President,
/s/ H. RAYMOND BINGHAM Chief Financial Officer and
------------------------------------------------ Secretary December 17, 1996
H. Raymond Bingham (Principal Financial
Officer)
Vice President, Corporate
/s/ WILLIAM PORTER Controller and Assistant
------------------------------------------------ Secretary (Principal December 17, 1996
William Porter Accounting Officer)
/s/ CAROL BARTZ*
------------------------------------------------ Director December 17, 1996
Carol Bartz
------------------------------------------------ Director December 17, 1996
Henry E. Johnston
/s/ DR. LEONARD Y.W. LIU*
------------------------------------------------ Director December 17, 1996
Dr. Leonard Y.W. Liu
/s/ DONALD L. LUCAS*
------------------------------------------------ Director December 17, 1996
Donald L. Lucas
/s/ DR. ALBERTO SANGIOVANNI-VINCENTELLI*
------------------------------------------------ Director December 17, 1996
Dr. Alberto Sangiovanni-Vincentelli
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------------ ------------------------------ ----------------------
<C> <S> <C>
/s/ GEORGE M. SCALISE*
------------------------------------------------ Director December 17, 1996
George M. Scalise
/s/ DR. JOHN B. SHOVEN*
------------------------------------------------ Director December 17, 1996
Dr. John B. Shoven
/s/ JAMES E. SOLOMON*
------------------------------------------------ Director December 17, 1996
James E. Solomon
</TABLE>
*By: /s/ R.L. SMITH
MCKEITHEN
-------------------------
R.L. Smith McKeithen
ATTORNEY-IN-FACT
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS PAGE
- --------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
2.1 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 (See Appendix A to the Proxy Statement/Prospectus).
2.2+ Form of Certificate of Merger to be entered into by Registrant and CCT.
2.3 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.
(incorporated by reference to Registrant's Current Report on Form 8-K filed on November 7,
1996 (the "November 7, 1996 8-K")).
2.4 Form of Certificate of Merger to be entered into by Registrant and HLDS (incorporated by
reference to Exhibit 2.2 to the Registrant's Form S-4 Registration Statement (No. 333-15771)
filed on November 7, 1996 (the "November 7, 1996 Form S-4")).
2.5 First Amendment to Agreement and Plan of Merger and Reorganization dated as of December 17, 1996
by and among the Registrant, Wyoming Acquisition Sub, Inc., a Delaware corporation, and Cooper
& Chyan Technology, Inc., a Delaware corporation (See Appendix A to the Proxy
Statement/Prospectus).
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 Designation 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 Form 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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS PAGE
- --------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
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 Designation 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 Exhibits 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 Fenwick & West LLP.
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
Exhibit 99.1 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 Exhibit 99.2 to the November 7, 1996 8-K).
9.3 Employment Agreement, dated as of October 3, 1996, between Cadence and J. George Janac
(incorporated by reference to Exhibit 9.3 to the November 7, 1996 Form S-4).
9.4 Employment Agreement, dated as of October 2, 1996, between Cadence and Robert P. Wiederhold
(incorporated by reference to Exhibit 9.4 to the November 7, 1996 Form S-4).
9.5 Form of Voting Agreement, dated as of October 28, 1996, between Cadence and each of John F.
Cooper, David Chyan, William J. Portelli, Robert D. Selvi and John R. Harding (incorporated by
reference to Exhibit 99.3 to the November 7, 1996 Form 8-K).
9.6 Option Agreement, dated as of November 2, 1996, between Cadence and John F. Cooper (incorporated
by reference to Exhibit 99.4 the November 7, 1996 Form 8-K).
9.7 Option Agreement, dated as of November 2, 1996, between Cadence and David Chyan (incorporated by
reference to Exhibit 99.5 to the November 7, 1996 Form 8-K).
9.8* Employment Agreement, dated as of October 28, 1996, between Cadence and David Chyan.
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 Exhibits 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")).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS PAGE
- --------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS PAGE
- --------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
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 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")).
10.26 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).
10.27 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 third quarter ended September
30, 1994).
10.28 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).
10.29 The Registrant's Amended and Restated 401(k) Plan (incorporated by reference to the Registrant's
Form 10-Q for the first quarter ended March 30, 1996 (the "March 30, 1996 10-Q")).
10.30 Amendment dated May 3, 1996, to Registrant's 1993 Non Statutory Stock Option Plan (incorporated
by reference to the Registrant's Form 10-Q for the third quarter ended September 30, 1994).
10.31 Revolving line of credit dated April 1996, by and between Credit Lyonnais and the Registrant
(incorporated by reference to the March 30, 1996 10-Q).
10.32 Term loan dated May 31, 1996, by and between Credit Lyonnais and River Oaks Place Associates
L.P. (ROPA), a California limited partnership (the Term Loan) (incorporated by reference to
the Registrant's Form 10-Q for the second quarter ended June 29, 1996 (the "June 29, 1996
10-Q")).
10.33 Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing
Statement dated May 31, 1996, Schedule to Term Loan (incorporated by reference to the June 29,
1996 10-Q).
10.34 Assignment of Leases and Rents dated May 31, 1996, Schedule to Term Loan (incorporated by
reference to the June 29, 1996 10-Q).
10.35 Assignment of Partnership Interest/Seeley Properties, Inc. dated May 31, 1996, Schedule to Term
Loan (incorporated by reference to the June 29, 1996 10-Q).
10.36 Assignment of Partnership Interest/Cadence Design Systems, Inc. dated May 31, 1996, Schedule to
Term Loan (incorporated by reference to the June 29, 1996 10-Q).
10.37 Environmental Indemnity dated May 31, 1996, Schedule to Term Loan (incorporated by reference to
the June 29, 1996 10-Q).
10.38 Amendment dated August 2, 1996, to Registrant's 1987 Stock Option filed on May 31, 1994
(incorporated by reference to Exhibit 4.01 to the Registrant's Form S-8 Registration Statement
No. 33-53913).
10.39 Amendment dated August 2, 1996, to Registrant's 1993 Non Statutory Stock Option Plan
(incorporated by reference to the Registrant's Form 10-Q for the third quarter ended September
30, 1994).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS PAGE
- --------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
10.40 Amendment Number 1, dated May 31, 1996 (incorporated by reference to Registrant's Form 10-Q for
the second quarter ended June 29, 1996 (the "June 29, 1996 Form 10-Q")), to Lease Agreement
for the Registrant's executive offices at 555 River Oaks Parkway, San Jose, California by and
between ROPA and the Registrant (incorporated by reference to Exhibit 10.14 to Registrant's
Form 10-K for the fiscal year ended December 31, 1990 (the "1990 Form 10-K")).
10.41 Amendment Number 2, dated May 31, 1996 (incorporated by reference to the June 29, 1996 Form
10-Q), to Lease Agreement for the Registrant's executive offices at 555 River Oaks Parkway,
San Jose, California by and between ROPA and the Registrant (incorporated by reference to
Exhibit 10.14 to the 1990 Form 10-K).
10.42 Amendment Number 1, dated May 31, 1996 (incorporated by reference to the June 29, 1996 Form
10-Q), to Lease Agreement for the Registrant's offices at 575 River Oaks Parkway, San Jose,
California, by and between ROPA and the Registrant (incorporated by reference to Exhibit 10.16
to the 1990 Form 10-K).
10.43 Amendment Number 2, dated May 31, 1996 (incorporated by reference to the June 29, 1996 Form
10-Q), to Lease Agreement for the Registrant's offices at 575 River Oaks Parkway, San Jose,
California, by and between ROPA and the Registrant (incorporated by reference to Exhibit 10.16
to the 1990 Form 10-K).
10.44 Amendment Number 1, dated May 31, 1996 (incorporated by reference to the June 29, 1996 Form
10-Q), to Lease Agreement for the Registrant's offices at 535 and 545 River Oaks Parkway, San
Jose, California, by and between ROPA and the Registrant (incorporated by reference to Exhibit
10.17 to the 1990 Form 10-K).
10.45 Amendment Number 2, dated May 31, 1996 (incorporated by reference to the June 29, 1996 Form
10-Q), to Lease Agreement for the Registrant's offices at 535 and 545 River Oaks Parkway, San
Jose, California, by and between ROPA and the Registrant (incorporated by reference to Exhibit
10.17 to the 1990 Form 10-K).
10.46 HLDS 1993 Stock Option Plan and Form of Stock Option Grant (incorporated by reference to Exhibit
10.25 to the November 7, 1996 Form S-4).
10.47 HLDS 1995 Special Nonstatutory Stock Option Plan and Form of Stock Option Grant (incorporated by
reference to Exhibit 10.26 to the November 7, 1996 Form S-4).
10.48* CCT 1989 Stock Option Plan.
10.49* CCT 1993 Equity Incentive Plan.
10.50+ CCT 1995 Employee Stock Purchase Plan (replaces Exhibit 10.50 filed with this Registration
Statement on November 26, 1996).
10.51* UniCAD Stock Option Plan.
21.01 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 Ernst & Young LLP with respect to CCT financial statements.
23.03+ Consent of Deloitte & Touche with respect to UniCAD financial statements.
23.04+ Consent of Fenwick & West LLP (included in Exhibit 8.2).
23.05+ Consent of Cooley Godward LLP (included in Exhibits 5.1 and 8.1).
24.01* Power of Attorney.
99.01+ Form of proxy card for CCT Special Meeting
</TABLE>
- ------------------------
+ Filed herewith.
* Previously filed.
<PAGE>
CERTIFICATE OF MERGER
MERGING
WYOMING ACQUISITION SUB, INC.
WITH AND INTO
COOPER & CHYAN TECHNOLOGY, INC.
-----------------------
Pursuant to Section 251 of the General Corporation Law of
the State of Delaware
-----------------------
Cooper & Chyan Technology, Inc. ("CCT") does hereby certify as follows:
FIRST: That the constituent corporations Wyoming Acquisition Sub, Inc.
("Wyoming") and CCT were incorporated pursuant to the Delaware General
Corporation Law (the "DGCL").
SECOND: That an Agreement and Plan of Merger and Reorganization (the
"Reorganization Agreement"), setting forth the terms and conditions of the
merger of Wyoming with and into CCT (the "Merger"), has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the requirements of Section 251(c) of the DGCL.
THIRD: That CCT shall be the surviving corporation after the Merger (the
"Surviving Corporation"). The name of the Surviving Corporation shall be Cooper
& Chyan Technology, Inc.
FOURTH: That the certificate of incorporation of the Surviving
Corporation, with such amendments as are effected by the Merger, is attached to
this Certificate of Merger as Exhibit A, and, as so amended, shall constitute
the Certificate of Incorporation, as amended, of the Surviving Corporation.
FIFTH: That an executed copy of the Reorganization Agreement is on file
at the principal place of business of the Surviving Corporation at the following
address:
Cooper & Chyan Technology, Inc.
c/o Cadence Design Systems, Inc.
2655 Seely Avenue
Building 5
San Jose, CA 95134
SIXTH: That a copy of the Reorganization Agreement will be furnished by
the Surviving Corporation, on request and without cost, to any stockholder of
any constituent corporation.
<PAGE>
SEVENTH: That the Merger shall become effective upon the filing of this
Certificate of Merger with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Surviving Corporation has caused this Certificate
of Merger to be executed in its corporate name this ____ day of ____________,
1997.
COOPER & CHYAN TECHNOLOGY, INC.
By:
-----------------------------
Name:
----------------------
Title:
----------------------
2.
<PAGE>
[LETTERHEAD]
December 17, 1996
Cadence Design Systems, Inc.
2655 Seely Road
Building 5, M55B2
San Jose, California 95134
RE: CADENCE DESIGN SYSTEMS, INC.
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Cadence Design Systems, Inc. (the "Company") of a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission covering the offering of 13,077,784 shares of
the Company's Common Stock (the "Shares"), with a par value of $0.01, pursuant
to the Agreement and Plan of Reorganization and Merger (the "Agreement") by and
between the Company and Cooper & Chyan Technology, Inc.
In connection with this opinion, we have examined the Registration Statement,
the Company's Certificate of Incorporation and Bylaws, as amended, and such
other documents, records, certificates, memoranda and other instruments as we
deem necessary as a basis for this opinion. We have assumed the genuineness and
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as copies thereof, and the due
execution and delivery of all documents where due execution and delivery are a
prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Agreement and the
Registration Statement, will be validly issued, fully paid, and nonassessable.
<PAGE>
Cadence Design Systems, Inc.
December 17, 1996
Page 2
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement.
Very truly yours,
Cooley Godward LLP
/s/ Alan C. Mendelson
Alan C. Mendelson
<PAGE>
[COOLEY GODWARD LETTERHEAD]
December 18, 1996
Cadence Design Systems, Inc.
2655 Seely Avenue
San Jose, CA 95134
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section 6.6(j) of
the Agreement and Plan of Merger and Reorganization dated as of October 28, 1996
(the "Reorganization Agreement") by and among Cadence Design Systems, Inc., a
Delaware corporation ("Parent"), Wyoming Acquisition Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of Parent ("Merger Sub") and Cooper &
Chyan Technology, Inc., a Delaware corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to Parent and Merger Sub in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in, the following documents
(including all exhibits and schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated December 18, 1996
delivered to us by Parent, Merger Sub and the Company containing certain
representations of Parent, Merger Sub and the Company (the "Tax
Representation Letters");
(c) Continuity of Interest Certificates dated October 28, 1996 by
certain shareholders of the Company in favor of Parent, Merger Sub and the
Company (the "Continuity of Interest Certificates"); and
(d) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related
to the consummation of the Merger and the other transactions contemplated by
the Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
1. Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the
Effective Date) duly and validly executed and delivered where due execution
and delivery are a prerequisite to the effectiveness thereof;
2. All representations, warranties and statements made or agreed to by
Parent, Merger Sub and/or the Company, their managements, employees,
officers, directors and/or shareholders in
1
<PAGE>
Cadence Design Systems, Inc.
December 18, 1996
Page 2
connection with the Merger, including, but not limited to, those set forth
in the Reorganization Agreement (including the exhibits thereto), the Tax
Representation Letters and the Continuity of Interest Certificates are true
and accurate at all relevant times;
3. All covenants contained in the Reorganization Agreement (including
exhibits thereto), the Tax Representation Letters and the Continuity of
Interest Certificates are performed without waiver or breach of any material
provision thereof;
4. There is no plan or intention on the part of the shareholders of the
Company to engage in a sale, exchange, transfer, distribution, pledge, or
other disposition or any transaction which results in a reduction of risk of
ownership, or a direct or indirect disposition of shares of Parent Common
Stock to be received in the Merger that would reduce the Company's
shareholders' ownership of Parent Common Stock to a number of shares having
an aggregate fair market value, as of the Effective Time, of less than fifty
percent (50%) of the aggregate fair market value of all of the Company
Common Stock and Preferred Stock ("Company Capital Stock") outstanding
immediately prior to the Effective Time. (For purposes of the preceding
sentence, shares of Company Capital Stock pursuant to which shareholders of
the Company exercise dissenters' rights in the Merger, or which are
exchanged for cash in lieu of fractional shares of Parent Common Stock or
are sold, redeemed or disposed of in a transaction that is in contemplation
of or related to the Merger, shall be considered shares of the Company
Capital Stock held by shareholders of the Company immediately prior to the
Merger which are exchanged for shares of Parent Common Stock in the Merger
and then disposed of pursuant to a plan);
5. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
6. The opinion, dated December 18, 1996, from Fenwick & West LLP to the
Company in satisfaction of Section 7.4(b) of the Reorganization Agreement
has been delivered and has not been withdrawn.
7. The Merger will be consummated pursuant to the Reorganization
Agreement and will be effective under applicable state law.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, for federal income tax purposes, the Merger will be a
reorganization within the meaning of Sections 368(a)(1) of the Code.
In addition to your request for our opinion on this specific matter of
federal income tax law, you have asked us to review the discussion of federal
income tax issues contained in Parent's S-4 Registration Statement filed in
connection with the Merger ("Registration Statement"). We have reviewed the
discussion entitled "Certain Federal Income Tax Considerations" contained in the
Registration Statement and believe that such information fairly presents the
current federal income tax law applicable to the Merger and the material federal
tax consequences to Acquiror, the Company and the stockholders of the Company as
a result of the Merger.
This opinion does not address the various state, local, foreign, estate or
gift tax consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein.
2
<PAGE>
Cadence Design Systems, Inc.
December 18, 1996
Page 3
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement, or as to any other transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of the
Reorganization Agreement and without waiver of any material provision thereof.
To the extent that any of the representations, warranties, statements and
assumptions material to our opinion and upon which we have relied are not
accurate and complete in all material respects at all relevant times, our
opinion would be adversely affected and should not be relied upon.
No ruling has been or will be requested from the Internal Revenue Service
concerning the U.S. federal income tax consequences of the Merger. You should be
aware that this opinion only represents our best judgment as to the federal
income tax consequences of the Merger and is not binding on the Internal Revenue
Service or any court of law, tribunal, administrative agency or other
Governmental Body. The conclusions are based on the Code, existing judicial
decisions, administration regulations and published rulings of the Internal
Revenue Service, any and all of which could be changed at any time. No assurance
can be given that future legislative, judicial or administrative changes or
interpretations would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, by rendering this opinion, we undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws.
We consent to the reference to our firm under the caption "Certain Federal
Income Tax Considerations" in the Proxy Statement/Prospectus included in the
Registration Statement and to the filing of this opinion as an exhibit to the
Prospectus and as an exhibit to the Registration Statement.
This opinion is being delivered in connection with the filing of the
Registration Statement. It is intended for the benefit of Parent, the Company
and the stockholders of the Company and may not be relied upon or utilized for
any other purpose or by any other person and may not be distributed or otherwise
made available to any other person without our prior written consent.
Very truly yours,
Cooley Godward LLP
3
<PAGE>
[FENWICK & WEST LETTERHEAD]
December 18, 1996
Cooper & Chyan Technology, Inc.
1601 S. De Anza Boulevard
Cupertino, CA 95014
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section 6.6(i) of
the Agreement and Plan of Merger and Reorganization dated as of October 28,
1996 (the "Reorganization Agreement") by and among Cadence Design Systems,
Inc., a Delaware corporation ("Parent"), Wyoming Acquisition Sub, Inc., a
Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub") and
Cooper & Chyan Technology, Inc., a Delaware corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All
section references, unless otherwise indicated, are to the Internal Revenue
Code of 1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined, and
are relying upon (without any independent investigation or review thereof)
the truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in, the following documents
(including all exhibits and schedules attached thereto):
(a) The Reorganization Agreement;
(b) those certain tax representation letters dated December 18, 1996
delivered to us by Parent, Merger Sub and the Company containing certain
representations of Parent, Merger Sub and the Company (the "Tax
Representation Letters");
(c) Continuity of Interest Certificates dated October 28, 1996 by
certain shareholders of the Company in favor of Parent, Merger Sub and the
Company (the "Continuity of Interest Certificates"); and
(d) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company related to
the consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
<PAGE>
Cooper & Chyan Technology, Inc.
December 18, 1996
Page 2
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
1. Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Date) duly and validly executed and delivered where due execution and
delivery are a prerequisite to the effectiveness thereof;
2. All representations, warranties and statements made or agreed to by
Parent, Merger Sub and/or the Company, their managements, employees,
officers, directors and/or shareholders in connection with the Merger,
including, but not limited to, those set forth in the Reorganization
Agreement (including the exhibits thereto), the Tax Representation Letters
and the Continuity of Interest Certificates are true and accurate at all
relevant times;
3. All covenants contained in the Reorganization Agreement (including
exhibits thereto) the Tax Representation Letters and the Continuity of
Interest Certificates are performed without waiver or breach of any material
provision thereof;
4. There is no plan or intention on the part of the shareholders of
the Company to engage in a sale, exchange, transfer, distribution, pledge, or
other disposition or any transaction which results in a reduction of risk of
ownership, or a direct or indirect disposition of shares of Parent Common
Stock to be received in the Merger that would reduce the Company's
shareholders' ownership of Parent Common Stock to a number of shares having
an aggregate fair market value, as of the Effective Time, of less than fifty
percent (50%) of the aggregate fair market value of all of the Company Common
Stock and Preferred Stock ("Company Capital Stock") outstanding immediately
prior to the Effective Time. (For purposes of the preceding sentence,
shares of Company Capital Stock pursuant to which shareholders of the
Company exercise dissenters' rights in the Merger, or which are exchanged for
cash in lieu of fractional shares of Parent Common Stock or are sold,
redeemed or disposed of in a transaction that is in contemplation of or
related to the Merger, shall be considered shares of the Company Capital
Stock held by shareholders of the Company immediately prior to the Merger
which are exchanged for shares of Parent Common Stock in the Merger and then
disposed of pursuant to a plan);
5. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification;
6. The opinion, dated December 18, 1996, from Cooley Godward LLP to
Parent in satisfaction of Section 7.4(a) of the Reorganization Agreement has
been delivered and has not been withdrawn; and
7. The Merger will be consummated pursuant to the Reorganization
Agreement and will be effective under applicable state law.
<PAGE>
Cooper & Chyan Technology, Inc.
December 18, 1996
Page 3
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are
of the opinion that, for federal income tax purposes, the Merger will be a
reorganization within the meaning of Sections 368(a)(1) of the Code.
This opinion does not address the various state, local, foreign, estate or
gift tax consequences that may result from the Merger or the other
transactions contemplated by the Reorganization Agreement. In addition, no
opinion is expressed as to any federal income tax consequence of the Merger
or the other transactions contemplated by the Reorganization Agreement except
as specifically set forth herein, and this opinion may not be relied upon
except with respect to the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement, or as to any other transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of
the Reorganization Agreement and without waiver of any material provision
thereof. To the extent that any of the representations, warranties,
statements and assumptions material to our opinion and upon which we have
relied are not accurate and complete in all material respects at all relevant
times, our opinion would be adversely affected and should not be relied upon.
No ruling has been or will be requested from the Internal Revenue Service
concerning the U.S. federal income tax consequences of the Merger. You
should be aware that this opinion only represents our best judgment as to the
federal income tax consequences of the Merger and is not binding on the
Internal Revenue Service or any court of law, tribunal, administrative agency
or other Governmental Body. The conclusions are based on the Code, existing
judicial decisions, administration regulations and published rulings of the
Internal Revenue Service, any and all of which could be changed at any time.
No assurance can be given that future legislative, judicial or administrative
changes or interpretations would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, by rendering this opinion, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
We consent to the reference to our firm under the caption "Certain Federal
Income Tax Consideration" in the Proxy Statement/Prospectus included in the
Registration Statement and to the filing of this opinion as an exhibit to the
Prospectus and as an exhibit to the Registration Statement.
<PAGE>
Cooper & Chyan Technology, Inc.
December 18, 1996
Page 4
This option is being delivered in connection with the filing of the
Registration Statement. It is intended for the benefit of the Company and may
not be relied upon or utilized for any other purpose or by any other person
and may not be distributed or otherwise made available to any other person
without our prior written consent.
Very truly yours,
FENWICK & WEST LLP
<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
As Adopted on August 16, 1995 and Amended Through October 26, 1995
1. ESTABLISHMENT OF PLAN. Cooper & Chyan Technology, Inc., a Delaware
corporation (the "Company"), proposes to grant options for purchase of the
Company's Common Stock to eligible employees of the Company and its Subsidiaries
(as hereinafter defined) pursuant to this Employee Stock Purchase Plan (this
"Plan"). For purposes of this Plan, "Parent Corporation" and "Subsidiary"
(collectively, "Subsidiaries") shall have the same meanings as "parent
corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code").
The Company intends this Plan to qualify as an "employee stock purchase plan"
under Section 423 of the Code (including any amendments to or replacements of
such Section), and this Plan shall be so construed. Any term not expressly
defined in this Plan but defined for purposes of Section 423 of the Code shall
have the same definition herein. A total of 150,000 shares of the Company's
Common Stock is reserved for issuance under this Plan. Such number shall be
subject to adjustments effected in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide employees of the
Company and Subsidiaries designated by the Board of Directors of the Company
(the "Board") as eligible to participate in this Plan with a convenient means of
acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company and
Subsidiaries, and to provide an incentive for continued employment.
3. ADMINISTRATION. This Plan shall be administered by a committee
appointed by the Board (the "Committee") consisting of at least two (2) members
of the Board, each of whom is a Disinterested Person as defined in Rule 16b-3(d)
of the Securities Exchange Act of 1934 (the "Exchange Act"). As used in this
Plan, references to the "Committee" shall mean either such committee or the
Board if no committee has been established. After registration of the Company
under the Exchange Act, Board members who are not Disinterested Persons may not
vote on any matters affecting the administration of this Plan, but any such
member may be counted for determining the existence of a quorum at any meeting
of the Board. Subject to the provisions of this Plan and the limitations of
Section 423 of the Code or any successor provision in the Code, all questions of
interpretation or application of this Plan shall be determined by the Board and
its decisions shall be final and binding upon all participants. Members of the
Board shall receive no compensation for their services in connection with the
administration of this Plan, other than standard fees as established from time
to time by the Board for services rendered by Board members serving on Board
committees. All expenses incurred in connection with the administration of this
Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Subsidiaries is
eligible to participate in an Offering Period (as hereinafter defined) under
this Plan except the following:
1.
<PAGE>
(a) employees who are not employed by the Company or Subsidiaries one
(1) month before the beginning of such Offering Period, except that employees
who are employed on the effective date of the registration statement fled by the
Company with the Securities and Exchange Commission ("SEC") under the Securities
Act of 1933, as amended (the "Securities Act") registering the initial public
offering of the Company's Common Stock is declared effective by the SEC shall be
eligible to participate in the first Offering Period under the Plan;
(b) employees who are customarily employed for less than twenty (20)
hours per week;
(c) employees who are customarily employed for less than five (5)
months in a calendar year;
(d) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own stock
or hold options to purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any of its Subsidiaries or who, as a result of being granted an option under
this Plan with respect to such Offering Period, would own stock or hold options
to purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any of its
Subsidiaries.
5. OFFERING DATES. The offering periods of this Plan (each, an "Offering
Period") shall be of twenty-four (24) months duration commencing on November I
and May I of each year and ending on April 30 and October 31 of each year;
provided, however, that notwithstanding the foregoing, the first such Offering
Period shall commence on the first business day after the date on which the
registration statement filed by the Company with the SEC under the Securities
Act registering the initial public offering of the Company's Common Stock is
declared effective by the SEC (the "First Offering Date") and shall end on
October 31. 1997. Each Offering Period shall consist of four (4) six-month
purchase periods (individually, a "Purchase Period") during which payroll
deductions of the participants are accumulated under this Plan. The first
business day of each Offering Period is referred to as the "Offering Date". The
last business day of each Purchase Period is referred to as the "Purchase Date".
The Board shall have the power to change the duration of Offering Periods or
Purchase Periods with respect to future offerings without stockholder approval
if such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period or Purchase Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's treasury department (the "Treasury Department") not
later than the 15th day of the month before such Offering Date unless a later
time for filing the subscription agreement authorizing payroll deductions is set
by the Board for all eligible employees with respect to a given Offering Period.
An eligible employee who does not deliver a subscription agreement to the
Treasury Department by such date after becoming eligible to participate in such
Offering Period shall not participate in that
2.
<PAGE>
Offering Period or any subsequent Offering Period unless such employee enrolls
in this Plan by filing a subscription agreement with the Treasury Department not
later than the 15th day of the month preceding a subsequent Offering Date. Once
an employee becomes a participant in an Offering Period, such employee will
automatically participate in the Offering Period commencing immediately
following the last day of the prior Offering Period unless the employee
withdraws or is deemed to withdraw from this Plan or terminates further
participation in the Offering Period as set forth in Section 11 below. Such
participant is not required to file any additional subscription agreement in
order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date (but in no event less than the par value of a share
of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date (but
in no event less than the par value of a share of the Company's Common Stock);
provided, however, that the number of shares of the Company's Common Stock
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (a) the maximum number of shares set by the Board pursuant to Section 10(c)
below with respect to the applicable Offering Period, or (b) the maximum number
of shares which may be purchased pursuant to Section 10(b) below with respect to
the applicable Offering Period. The fair market value of a share of the
Company's Common Stock shall be determined as provided in Section 8 hereof.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date;
provided, however, that in no event may the purchase price per share of the
Company's Common Stock be below the par value per share of the Company's Common
Stock.
For purposes of this Plan, the term "fair market value" on a given date
shall mean the fair market value of the Company's Common Stock as determined by
the Board in its sole discretion, exercised in good faith; provided, however,
that where there is a public market for the Common Stock, the fair market value
per share shall be the average of the last reported bid and asked prices of the
Common Stock on the last trading day prior to the date of determination (or the
average closing price over the number of consecutive trading days preceding the
date of determination as the Board shall deem appropriate), or, in the event the
Common Stock is listed on a stock exchange or on the Nasdaq National Market, the
fair market value per share shall be the closing price on such exchange or
quotation system on the last trading date prior to the date
3.
<PAGE>
of determination (or the average closing price over the number of consecutive
trading days preceding the date of determination as the Board shall deem
appropriate); and provided further, that notwithstanding the foregoing, the fair
market value of the Company's Common Stock on the First Offering Date (which is
the first business day of the first Offering Period under this Plan) shall be
deemed to be the price per share at which shares of the Company's Common Stock
are initially offered for sale to the public in the Company's initial public
offering of its Common Stock pursuant to a registration statement tiled with the
SEC under the Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean all W-2 compensation,
including, but not limited to base salary, wages, commissions, overtime, shift
premiums and bonuses, plus draws against commissions; provided, however, that
for purposes of determining a participant's compensation, any election by such
participant to reduce his or her regular cash remuneration under Sections 125 or
401(k) of the Code shall be treated as if the participant did not make such
election. Payroll deductions shall commence on the first payday following the
Offering Date and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in this Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Offering Period. A participant may increase or decrease
the rate of payroll deductions for any subsequent Offering Period by fling with
the Treasury Department a new authorization for payroll deductions not later
than the 15th day of the month before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering. Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf
4.
<PAGE>
of the participant as of that date returned to the participant, the Company
shall apply the funds then in the participant's account to the purchase of whole
shares of Common Stock reserved under the option granted to such participant
with respect to the Offering Period to the extent that such option is
exercisable on the Purchase Date. The purchase price per share shall be as
specified in Section 8 of this Plan. Any cash remaining in a participant's
account after such purchase of shares shall be refunded to such participant in
cash, without interest. In the event that this Plan has been oversubscribed,
all funds not used to purchase shares on the Purchase Date shall be returned to
the participant, without interest. No Common Stock shall be purchased on a
Purchase Date on behalf of any employee whose participation in this Plan has
terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company
shall arrange the delivery to each participant of a certificate representing the
shares purchased upon exercise of his option.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be delivered to a participant
under this Plan will be registered in the name of the participant or in the name
of the participant and his or her spouse.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No employee shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No employee shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Board
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "Maximum
Share Amount"). In no event shall the Maximum Share Amount exceed the amounts
permitted under Section 10(b) above. If a new Maximum Share Amount is set, then
all participants must be notified of such Maximum Share Amount not less than
fifteen (15) days prior to the commencement of the next Offering Period. Once
the Maximum Share Amount is set, it shall continue to apply with respect to all
succeeding Purchase Dates and Offering Periods unless revised by the Board as
set forth above.
5.
<PAGE>
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Board shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's option to each participant affected
thereby.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
this Plan.
(c) If the purchase price on the first day of any current Offering
Period in which a participant is enrolled is higher than the purchase price on
the first day of any subsequent Offering Period, the Company will automatically
enroll such participant in the subsequent Offering Period. A participant does
not need to file any forms with the Company to automatically be enrolled in the
subsequent Offering Period.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee, immediately terminates his or her participation in
this Plan. In such event, the payroll deductions credited to the participant's
account will be returned to him or her or, in the case of his or her death, to
his or her legal representative, without interest. For purposes of this Section
12, an employee will not be deemed to have terminated employment or failed to
remain in the continuous employ of the Company in the case of sick leave,
military leave, or any other leave of absence approved by the Board; provided
that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
6.
<PAGE>
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant's account. No interest shall accrue on the payroll deductions
of a participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "Reserves "), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
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"; and provided further, that the price per
share of Common Stock shall not be reduced below its par value per share. Such
adjustment shall be made by the Board, whose determination shall be final,
binding and conclusive. Except as expressly provided herein, no issue 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.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that the options
under this Plan shall terminate as of a date fixed by the Board and give each
participant the right to exercise his or her option as to all of the optioned
stock, including shares which would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger or consolidation of the Company with or into another corporation,
each option under this Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the participant
shall have the right to exercise the option as to all of the optioned stock. If
the Board makes an option exercisable in lieu of assumption or substitution in
the event of a merger, consolidation or sale of assets, the Board shall notify
the participant that the option shall be fully exercisable for a period of
twenty (20) days from the date of such notice, and the option will terminate
upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations,
7.
<PAGE>
recapitalizations, rights offerings or other increases or reductions of shares
of its outstanding Common Stock, or in the event of the Company being
consolidated with or merged into any other corporation; provided, that the price
per share of Common Stock shall not be reduced below its par value per share.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any.rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company if
the participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two (2) years from the
Offering Date or within one (1) year from the Purchase Date on which such shares
were purchased (the "Notice Period"). Unless such participant is disposing of
any of such shares during the Notice Period, such participant shall keep the
certificates representing such shares in his or her name (and not in the name of
a nominee) during the Notice Period. The Company may, at any time during the
Notice Period, place a legend or legends on any certificate representing shares
acquired pursuant to this Plan requesting the Company's transfer agent to notify
the Company of any transfer of the shares. The obligation of the participant to
provide such notice shall continue notwithstanding the placement of any such
legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Subsidiary, or restrict the right of the Company or
any Subsidiary to terminate such employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company or the Board, be
reformed to comply with the requirements of Section 423. This Section 19 shall
take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received
8.
<PAGE>
in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the date that is the First Offering Date (as
defined above); provided, however, that if the First Offering Date does not
occur on or before December 31, 1995, this Plan will terminate as of December
31, 1995 having never become effective. This Plan shall be approved by the
stockholders of the Company, in any manner permitted by applicable corporate
law, within twelve (12) months before or after the date this Plan is adopted by
the Board. No purchase of shares pursuant to this Plan shall occur prior to
such stockholder approval. Thereafter, no later than twelve (12) months after
the Company becomes subject to Section 16(b) of the Exchange Act, the Company
will comply with the requirements of Rule 16b-3 with respect to stockholder
approval. This Plan shall continue until the earlier to occur of (a)
termination of this Plan by the Board (which termination may be effected by the
Board at any time), (b) issuance of all of the shares of Common Stock reserved
for issuance under this Plan, or (c) ten (10) years from the adoption of this
Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under this Plan who is living
at the time of such participant's death, the Company shall deliver such shares
or cash to the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, 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 automated quotation system 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.
9.
<PAGE>
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or the extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan; or
(c) constitute an amendment for which stockholder approval is
required in order to comply with Rule 16b-3 (or any successor rule) of the
Exchange Act.
<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
30, 1995 and to all references to our firm included in this Registration
Statement.
ARTHUR ANDERSEN LLP
San Jose, California
December 17, 1996
<PAGE>
EXHIBIT 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "CCT Selected
Supplemental Financial Data" and "Experts" and to the use of our report dated
January 26, 1996 with respect to the consolidated financial statements of Cooper
& Chyan Technology, Inc included in its Annual Report on Form 10-K for the year
ended December 31, 1995 and our report dated January 26, 1996 (except for note 2
which is dated August 28, 1996), with respect to the supplemental consolidated
financial statements of Cooper & Chyan Technology, Inc. included in Amendment
No. 1 to the Registration Statement (Form S-4 No. 333-16779) and related
Prospectus of Cooper & Chyan Technology, Inc.
ERNST & YOUNG LLP
Palo Alto, California
December 18, 1996
<PAGE>
EXHIBIT 23.03
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Cadence Design
Systems Inc. on Amendment No. 1 to the Form S-4 of our report dated September
20, 1996 (related to the financial statements of UniCAD, Inc. not presented
separately herein) appearing in the Proxy Statement/Prospectus constituting part
of this Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Proxy Statement/Prospectus.
Deloitte & Touche
Ottawa, Canada
December 18, 1996
<PAGE>
PROXY
COOPER & CHYAN TECHNOLOGY, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints John R. Harding and Robert D. Selvi, or
either of them, each with power of substitution and revocation thereof, to
represent the undersigned at the Special Meeting of Stockholders of Cooper &
Chyan Technology, Inc. (the "Company") to be held at 1:00 p.m. on Friday,
January 24, 1997 at the Cupertino Courtyard by Marriott located at 10605
North Wolfe Road, Cupertino, California, and at any adjournments or
postponements thereof, and to vote the number of shares the undersigned would
be entitled to vote if personally present as directed on the reverse side of
this proxy.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY AND WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE OF THIS PROXY. IN
THE ABSENCE OF DIRECTION, THIS PROXY WILL BE VOTED FOR THE APPROVAL AND
ADOPTION OF THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AND FOR THE
APPROVAL OF THE MERGER, AS DESCRIBED FURTHER IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS. In their discretion, the proxy holders named above are
authorized to vote upon such other business as may properly come before the
meeting and any adjournment thereof to the extent authorized by Rule 14a-4(c)
promulgated by the Securities and Exchange Commission. The Board of Directors
recommends a vote FOR the approval and adoption of the Agreement and Plan of
Merger and Reorganization and FOR the approval of the Merger. The
undersigned hereby acknowledges receipt of: (a) the Notice of Special Meeting
of Stockholders of the Company; and (b) the accompanying Proxy
Statement/Prospectus.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE
SIDE
<PAGE>
/X/ Please mark votes as in this example.
1. Approve and Adopt the Agreement and Plan of Merger and Reorganization and
approve the Merger, as described further in the accompanying Proxy
Statement/Prospectus. (The Board recommends a vote "FOR" the approval and
adoption of the Agreement and Plan of Merger and Reorganization and "FOR" the
approval of the Merger.)
FOR AGAINST ABSTAIN
/ / / / / /
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all
of such persons should sign the proxy. If shares of stock are held of record
by a corporation, the proxy should be executed by the president or vice
president and the secretary or assistant secretary. Executors,
administrators or other fiduciaries who execute the above proxy for a
deceased stockholder should give their full title. Please date the proxy.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE PROVIDED SO THAT
YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
Signature: ______________________________ Date: ___________________
Signature: ______________________________ Date: ___________________
