<PAGE>
As filed with the Securities and Exchange Commission on May 7, 1999.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
CADENCE DESIGN SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 7372 77-0148231
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
2655 Seely Avenue, Building 5, San Jose, California 95134
(408) 943-1234
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
R.L. Smith McKeithen
Senior Vice President, General Counsel and Secretary
Cadence Design Systems, Inc.
2655 Seely Avenue, Building 5, San Jose, California 95134
(408) 943-1234
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
Kenneth R. Lamb Larry Sonsini
Gregory J. Conklin Herbert P. Fockler
Gibson, Dunn & Crutcher LLP Wilson Sonsini Goodrich & Rosati
One Montgomery Street, Telesis Tower 650 Page Mill Road
San Francisco, California 94104 Palo Alto, California 94303
(415) 393-8200 (650) 493-9300
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all other conditions to the merger described in the
proxy statement/prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Aggregate Offering Amount of
Registered(1) Registered(2) Per Share Price(3) Registration Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 23,604,575 $13.9375 $328,967,509.38 $0
</TABLE>
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(1) Also includes associated Rights to purchase shares of the Registrant's
common stock, which Rights are not currently separable from the shares of
common stock and not currently exercisable.
(2) The Registrant previously registered 11,800,000 shares of its common stock,
par value $.01 per share, under its Registration Statement on Form S-4 (No.
333-69589) (the "Original Form S-4"), which was declared effective on April
20, 1999. The number of shares to be registered under this Registration
Statement, combined with the number of shares registered under the Original
Form S-4, is based on the aggregate number of outstanding shares of
Quickturn Design Systems, Inc. ("Quickturn") common stock, par value $.001
per share, and the number of shares of Quickturn common stock issuable upon
exercise of outstanding options and warrants to acquire shares of Quickturn
common stock, multiplied by an assumed exchange ratio (representing a value
of $15 per share of Quickturn common stock) of 1.5 shares of common stock,
par value $.01 per share, of the Registrant, based on an assumed per share
price of the Registrant's common stock of $10.
(3) A registration fee of $ 91,885.31 was previously paid in connection with
the registration of 11,800,000 shares of the Registrant's common stock
under the Original Form S-4. The registration fee paid under the Original
Form S-4 was calculated pursuant to Rules 457(f) and 457(c) under the
Securities Act of 1933, as amended (the "Securities Act"), based on the
average of the high and low sales prices of Quickturn common stock, as
reported by the Nasdaq National Market System on December 16, 1998. Using
the average of the high and low sales prices of Quickturn common stock, as
reported by the Nasdaq National Market System on April 30, 1999, the
proposed maximum offering price under this Registration Statement is
$328,967,509.38. Because this amount is less than the proposed maximum
offerering price of $330,622,711.75 set forth on the facing page of the
Original Form S-4, no registration fee is payable herewith.
THIS REGISTRATION STATEMENT IS FILED PURSUANT TO RULE 429 UNDER THE
SECURITIES ACT OF 1933 AND RELATES TO THE REGISTRANT'S REGISTRATION STATEMENT
ON FORM S-4 (NO. 333-69589).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
QUICKTURN DESIGN SYSTEMS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1999
TO THE STOCKHOLDERS OF
QUICKTURN DESIGN SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Quickturn
Design Systems, Inc., will be held on May 21, 1999, at 9 a.m., local time, at
its principal executive offices, 55 W. Trimble Road, San Jose, California, for
the following purposes:
1. To consider and vote upon the merger of Quickturn and Cadence Design
Systems, Inc. Cadence's acquisition of Quickturn will result in Quickturn
stockholders becoming Cadence stockholders. Each share of Quickturn common
stock will be converted into $15 worth of Cadence common stock. The merger
is intended to be a tax-free reorganization, so that Quickturn stockholders
will generally incur no federal income tax as the result of the exchange of
Quickturn common stock for Cadence common stock. These transactions are
more fully described in the enclosed proxy statement/prospectus.
2. To consider and vote upon any postponement or adjournment of the
special meeting to solicit additional votes to approve the merger if the
secretary of the special meeting determines that there are not enough votes
to approve the merger.
The close of business on April 9, 1999 is the record date for determining
stockholders entitled to vote at the special meeting. Only stockholders of
record on April 9, 1999 are entitled to notice of, and to vote at, the special
meeting and any adjournments or postponements.
By Order of the Board of Directors
/s/ Keith R. Lobo
Keith R. Lobo
President and Chief Executive
Officer
April 20, 1999
Whether or not you plan to attend the special meeting in person, please
complete, date, sign and return the enclosed proxy card. If you attend the
special meeting, you may vote in person, even if you have returned your proxy
card.
The merger must be approved by the holders of a majority of the outstanding
shares of Quickturn common stock. Your vote on this matter is very important.
We urge you to review carefully the enclosed material and to return your proxy
card promptly.
Your Board of Directors unanimously recommends that you vote FOR the merger.
Please do not return your Quickturn common stock certificates with your
enclosed proxy and do not forward your certificates to the exchange agent until
you receive a letter of transmittal following the merger.
<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-69589
QUICKTURN DESIGN SYSTEMS, INC. CADENCE DESIGN SYSTEMS, INC.
PROXY STATEMENT PROSPECTUS
----------------
Cadence Design Systems, Inc. and Quickturn Design Systems, Inc. have entered
into a merger agreement that provides for Quickturn's becoming a wholly-owned
subsidiary of Cadence. In the merger, Quickturn stockholders will receive $15
worth of Cadence common stock for each of their shares of Quickturn common
stock.
You may not know the number of shares of Cadence common stock you will
receive at the time you vote on the merger because the Cadence common stock
will be valued at its average closing prices over a period of days that ends
just before we complete the merger. Although we anticipate completing the
merger within one or two business days after the special meeting if Quickturn
stockholders have approved the merger, we cannot be certain of this.
This proxy statement/prospectus is being furnished to Quickturn stockholders
in connection with the solicitation by Quickturn's Board of Directors of
proxies for use at the special meeting of stockholders to be held at
Quickturn's principal executive offices located at 55 W. Trimble Road, San
Jose, California, at 9 a.m., local time, on Friday, May 21, 1999. At this
meeting, Quickturn stockholders will vote on the proposed merger. This proxy
statement/prospectus also constitutes the prospectus of Cadence with respect to
the shares of Cadence common stock to be issued to Quickturn stockholders in
the merger.
Share Information:
Cadence ("CDN") New York Stock Exchange
closing price on April 19, 1999: $21.00
Quickturn ("QKTN") Nasdaq National Market System
closing price on April 19, 1999: $14.34
All information concerning Cadence in this proxy statement/prospectus has
been furnished by Cadence, and all information concerning Quickturn in this
proxy statement/prospectus has been furnished by Quickturn. Quickturn
stockholders are encouraged to read this proxy statement/prospectus carefully
and understand it before they vote.
See "Risk Factors" beginning on page 14 for a discussion of the risks that
you should consider in determining how to vote on the proposed merger.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the securities to be issued in this transaction or
determined that this proxy statement/prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated April 20, 1999, and is first being
mailed to Quickturn stockholders on or about April 23, 1999.
<PAGE>
SUMMARY
This brief summary highlights selected information from the proxy
statement/prospectus. It does not contain all of the information that is
important to you. We urge you to carefully read the entire proxy
statement/prospectus and the other documents to which this proxy
statement/prospectus refers to fully understand our proposed merger. See "Where
You Can Find More Information."
The Merger (page 30)
We've attached the merger agreement to this document as Appendix A. Please
read the merger agreement. It is the legal document that governs the merger.
General
We propose that Cadence and Quickturn combine by way of a merger that will
result in Quickturn's becoming a wholly-owned subsidiary of Cadence and your
becoming Cadence stockholders. We expect to complete the merger no later than
May 25, 1999. We also expect that the merger will close within two business
days after the special meeting if Quickturn stockholders approve the merger.
Exchange of Shares (page 51)
When the merger occurs, each of your shares of Quickturn common stock will
automatically become the right to receive from Cadence $15 worth of Cadence
common stock. For this purpose, Cadence common stock will be valued at its
average of the closing prices during the five trading days before the second
business day before the merger occurs. Therefore, you may not know the number
of shares of Cadence common stock you will receive in the merger when you vote
on the merger. However, the merger agreement requires that Cadence issue you
however many shares of Cadence common stock as are necessary to give you $15
worth for each of your Quickturn shares, and Cadence may not call off the
merger because it would have to issue more shares than it had anticipated at
the time it entered into the merger agreement.
You will have to surrender your Quickturn common stock certificates to
receive new certificates representing Cadence common stock. You do not need to
do this, however, until you receive written instructions after we have
completed the merger.
Quickturn Stock Options and Warrants (page 51)
In the merger, each stock option and warrant to buy Quickturn common stock
will become an option or warrant, as applicable, to buy Cadence common stock.
However, each option and warrant will continue to be governed by the terms of
the Quickturn stock option plan or other agreement under which it was issued.
The number of shares of Cadence common stock subject to each new stock option
or warrant, as well as the exercise price of that stock option or warrant, will
be adjusted to reflect the actual number of shares of Cadence common stock
issued in the merger in exchange for each share of Quickturn common stock.
Comparative Per Share Market Price Information (page 67)
Cadence common stock is traded on the New York Stock Exchange. On December 8,
1998, the last trading day before we announced the merger, Cadence common stock
closed at $30 per share. Quickturn common stock is traded on the Nasdaq
National Market System. On December 8, 1998, Quickturn common stock closed at
$12.188 per share. On April 19, 1999, Cadence common stock closed at $21.00 per
share, and Quickturn common stock closed at $14.34 per share. For example, if
you assume that Quickturn stockholders approved the merger on April 19, 1999
and the merger occurred on April 21, 1999, the number of shares of Cadence
common stock you would receive for each share of Quickturn common stock would
be based upon the average of the closing prices of Cadence common stock for the
five trading days ending on April 16, 1999. In that case, the average price was
$23.70, and you would receive approximately .633 shares of Cadence common stock
for each of your shares of Quickturn common stock. Note, however, that because
the price of Cadence common stock fluctuated between April 16, 1999 and the
assumed closing date of April 21, 1999, the value of the shares of Cadence
common stock you receive when the merger occurs could be more or less than $15
as of that date.
1
SUMMARY
<PAGE>
The following table shows several examples of the number of shares of Cadence
common stock you would receive in the merger for each of your shares of
Quickturn common stock assuming several different average closing prices of
Cadence common stock:
<TABLE>
<CAPTION>
Number of
Assumed Cadence Shares Issued
Average Closing Price of for Each
Cadence Common Stock Quickturn Share
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<S> <C>
$ 29.8 (1/13/99) .503
31.075 (1/27/99) .483
28.85 (2/17/99) .520
23.93 (3/16/99) .627
25.53 (4/6/99) .588
23.70 (4/16/99) .633
</TABLE>
Cadence and Quickturn (pages 68 and 69)
Cadence Design Systems, Inc.
2655 Seely Avenue
San Jose, California 95134
(408) 943-1234
Cadence is the largest supplier of software products, consulting services,
and design services used to accelerate and manage the design of products for
the world's leading electronics companies, including the design of
semiconductors, computer systems, networking and telecommunications equipment,
consumer electronics and a variety of other electronic-based products.
Cadence's product offerings include a variety of electronic design automation
tools, which enable engineers to increase the productivity and quality of the
electronic design process. These products include software tools that enable
engineers to design, optimize and verify electronic systems and complex chips
from architectural to physical design, and to design and optimize printed
circuit boards used in electronic systems.
Cadence offers developers of electronic products a broad range of design and
consulting services. Cadence consulting services help improve design
environments, from training classes and custom software coding to flow and
methodology deployment to complete design process re-engineering. In addition,
Cadence offers services to perform design projects for electronic system
components such as integrated circuits or software.
With approximately 4,400 employees at December 31, 1998 and 1998 sales of
$1.2 billion, Cadence has sales offices, design centers and research facilities
around the world. Cadence is headquartered in San Jose, California.
Quickturn Design Systems, Inc.
55 W. Trimble Road
San Jose, California 95131
(408) 914-6000
Quickturn is a leading provider of complex computer systems that emulate the
performance and operation of computer chips and electronic systems. Quickturn
products are used to verify that the customers' computer chips and electronic
systems perform in accordance with their desired specifications. Quickturn also
provides software products that enable engineers early in the design process to
simulate the performance and operation of individual computer chips in order to
verify that each chip performs in accordance with its desired specifications.
Quickturn is also a leading provider of engineering services that enable
designers of electronic systems and complex computer chips to reduce the time
it takes from designing a product to marketing it. Quickturn's systems and
software products serve the needs of chip and electronic system design
engineers in a variety of industries, including the merchant semiconductor,
computer, workstation, telecommunications, networking, multimedia and graphics
industries.
In addition, Quickturn offers services to assist customers in verifying the
operations of integrated circuits. Quickturn's principal design verification
products include the System Realizer(TM), Mercury Design Verification
System(TM) and CoBALT(TM) (Concurrent Broadcast Array Logic Technology)
emulators, and SpeedSim(TM) cycle-based simulation software.
At December 31, 1998, Quickturn had approximately 386 employees and in 1998
had sales of $104.1 million. Quickturn's corporate headquarters are located in
San Jose, California.
(TM)System Realizer, Mercury Design Verification System, CoBALT and SpeedSim
are trademarks of Quickturn Design Systems, Inc.
2
SUMMARY
<PAGE>
The Quickturn stockholders meeting (page 28)
The Quickturn stockholders meeting will be held on May 21, 1999 at 9:00 a.m.,
local time, at 55 W. Trimble Road, San Jose, California. At the Quickturn
meeting, you will be asked:
1. to approve a merger agreement that provides for the merger of Cadence
and Quickturn; and
2. to vote on the postponement or adjournment of the meeting to solicit
additional votes to approve the merger agreement, if the secretary of
the meeting decides that there are not enough votes to approve the
merger.
Record Date; Vote Required (page 28)
You can vote at the special meeting if you owned Quickturn common stock at
the close of business on April 9, 1999. You can cast one vote for each share of
Quickturn common stock you owned at that time. To adopt the merger agreement,
the holders of a majority of shares of Quickturn common stock allowed to vote
at the meeting must vote in favor of it.
You may vote your shares in person by attending the meeting or by mailing us
your proxy if you are unable or do not wish to attend. You may revoke your
proxy at any time before we take a vote at the meeting by sending a written
notice revoking the proxy or a later-dated proxy to the secretary of Quickturn,
or by attending the meeting and voting in person.
Our Reasons for the Merger (page 42)
Cadence and Quickturn are proposing to merge because they believe that the
combined company will be stronger than either individually and, as such, will
provide significant benefits to their respective stockholders and customers.
We believe that, as the complexity of computer chip design increases, the
complexity of design verification increases much more. By integrating
Quickturn's hardware-based emulation products with Cadence's software-based
design and simulation products, we expect that the combined company will
significantly improve its ability to meet customer demand for faster
development of high-speed systems on a chip.
Cadence believes that a combination with Quickturn furthers its objectives
for growing its business by acquiring complementary businesses that have
management depth and technical talent.
For its part, Quickturn believes that a merger with Cadence will increase
value for its stockholders, employees and customers, and will allow Quickturn
to continue pursuing its business strategy. Quickturn believes that the merger
will provide its stockholders with an attractive price for their shares of
Quickturn common stock while enabling them to share in Cadence's growth over
the long term. The companies believe that Cadence's strong international sales
channels will make Quickturn's technology available to a larger customer base
than is currently the case.
The discussion of our reasons for the merger includes forward-looking
statements about possible or assumed future results of our operations and the
performance of the combined company after the merger. For a discussion of
factors that could affect these future results, see "Forward-Looking Statements
May Prove Inaccurate" on page 6.
Management after the Merger (page 66)
There will be no change in the current management of Cadence as a result of
the merger.
Several members of Quickturn's current management, including Keith R. Lobo,
Quickturn's President and Chief Executive Officer, who is also a director of
Quickturn, have signed employment and related agreements providing for them to
remain with Quickturn, as part of Cadence, following the merger.
Quickturn Board's Recommendation to Stockholders (page 42)
The Quickturn Board of Directors believes that the merger is advisable, fair
to you and in your best interests, and unanimously recommends that you vote
"FOR" approval of the merger agreement.
Opinion of Quickturn's Financial Advisor (page 45)
Hambrecht & Quist LLC has delivered its written opinion to Quickturn's Board
of Directors that, as of December 8, 1998, the consideration to be received by
Quickturn stockholders was fair to them
3
SUMMARY
<PAGE>
from a financial point of view. On that date, Cadence and Quickturn agreed that
you would receive $14 worth of Cadence common stock for each of your Quickturn
shares. Since then, Cadence has agreed to exchange $15 worth of its common
stock for each of your Quickturn shares. We have attached this opinion as
Appendix C. You should read it completely to understand the assumptions made,
matters considered and limitations of the review undertaken by Hambrecht &
Quist in providing its opinion.
Upon completion of the merger, Quickturn will pay to Hambrecht & Quist a
total fee of approximately $3,160,000 and reimburse Hambrecht & Quist for its
reasonable expenses relating to this engagement.
Conditions to Completion of the Merger (pages 15 and 56)
Whether we complete the merger depends on a number of conditions being met in
addition to Quickturn stockholders' approval of the merger agreement.
However, either Cadence or Quickturn could choose to complete the merger even
though one or more of these conditions has not been satisfied, as long as the
law allows them to do so. We cannot be certain when, or if, the conditions to
the merger will be satisfied or waived, or that the merger will be completed.
Termination of the Merger Agreement (page 59)
We can agree at any time prior to completing the merger to terminate the
merger agreement. Also, either of us can decide, without the other's consent,
to terminate the merger agreement if the merger has not been completed by June
30, 1999, the other company has breached the merger agreement, or for other
reasons.
In addition, Quickturn may terminate the merger agreement if, after
Quickturn's Board of Directors has received an unsolicited proposal from
another potential acquiror, the board decides in good faith, based upon advice
from legal counsel, that it must withdraw its recommendation of the merger with
Cadence in order to comply with its fiduciary duties under Delaware law. Under
these circumstances, however, Quickturn's Board of Directors must give Cadence
a chance to at least match the potential acquiror's proposal. Cadence may
terminate the merger agreement if Quickturn's Board of Directors withdraws or
adversely modifies its recommendation that Quickturn stockholders approve the
merger with Cadence or recommends that Quickturn stockholders approve another
competing transaction.
Quickturn has agreed to pay Cadence liquidated damages of $10,557,000 if the
merger agreement is terminated because Quickturn decides not to complete the
merger, generally where there is another offer for Quickturn outstanding, or
Quickturn has breached the merger agreement and later agrees to be acquired by
another company.
Upon termination of the merger agreement under circumstances more fully
described in "The Merger--Termination of the Merger Agreement," each of us has
agreed to reimburse the other for its costs and expenses related to the merger
in the amount of $3,500,000. Otherwise, whether or not the merger is completed,
we will each pay our own fees and expenses.
Waiver and Amendment (page 61)
We may jointly amend the merger agreement, and each of us may waive its right
to require the other to adhere to the terms and conditions of the merger
agreement. However, we may not do so after Quickturn stockholders approve the
merger, if the amendment or waiver reduces or changes the consideration that
they will receive, unless they approve the amendment or waiver.
Accounting Treatment (page 59)
We expect the merger to qualify as a pooling-of-interests. This means that,
for accounting and financial reporting purposes, Cadence will treat our two
companies as if they have always been one company.
Stock Option Agreement (page 63 and Appendix B)
Quickturn has entered into a stock option agreement granting Cadence an
option to purchase 3,619,100 shares of Quickturn common stock under
4
SUMMARY
<PAGE>
specified circumstances if the merger is not completed. The total number of
shares that Cadence may purchase if it exercises the option represents 19.99%
of the shares of Quickturn common stock outstanding on December 8, 1998. The
exercise price of the option is $14 per share. Under circumstances outlined in
the stock option agreement and summarized below, Cadence may require Quickturn
to repurchase the option and Quickturn may require Cadence to sell to Quickturn
any shares of Quickturn common stock received by Cadence upon its exercise of
the option.
Cadence may not receive total value in excess of $14,075,000 from the option
and Quickturn's payment of liquidated damages upon termination of the merger
agreement as described above. The number of shares Cadence purchases upon
exercise of the option will be reduced as necessary to comply with this
limitation.
Cadence may not exercise its option unless specified events occur. These
events generally are business combinations or acquisition transactions
involving Quickturn and related events, other than the merger we are proposing,
including a merger or the sale of a substantial amount of assets or stock to a
company other than Cadence. We do not know of any event that has occurred as of
this date that would allow Cadence to exercise its option.
Interest of Quickturn's Officers in the Merger that Differ from Your Interest
(page 61)
Some of Quickturn's officers have interests in the merger that differ from,
or are in addition to, their interests as stockholders of Quickturn. These
interests exist because of employment and related agreements that these
officers have entered into with Quickturn and Cadence, and rights that these
officers have or will have under some of the benefit plans maintained by
Quickturn and Cadence. These agreements and plans will provide the Quickturn
officers with severance benefits if their employment with Quickturn is
terminated after the merger occurs or after Quickturn is acquired by anyone
else.
If the employment of the current president and chief executive officer and
other four most highly compensated officers of Quickturn were terminated after
the merger, the aggregate amount payable to them would be approximately
$4,000,000. In addition, after the merger, Cadence will continue the
indemnification arrangements for directors and officers of Quickturn and its
subsidiaries in effect prior to the merger. Also, Quickturn will generally
maintain a policy of directors' and officers' liability insurance for at least
six years after the merger for the benefit of those persons who were directors
or officers covered by liability insurance immediately before the merger
occurs.
Additional interests of some of Quickturn's directors and executive officers
are described under "Management After the Merger."
The members of Quickturn's Board of Directors knew about these interests, and
considered them, when they approved the merger agreement.
Dissenters' Appraisal Rights (page 77)
Delaware law does not provide you with dissenters' appraisal rights in the
merger.
Material Federal Income Tax Consequences to Quickturn Stockholders (page 57)
We expect that, for United States federal income tax purposes, your exchange
of shares of Quickturn common stock for shares of Cadence common stock
generally will not cause you to recognize any gain or loss. You will, however,
be taxed on any gain in connection with any cash you receive instead of
fractional shares.
This tax treatment may not apply to every Quickturn stockholder. Determining
the actual tax consequences of the merger to you may be complicated. They will
depend on your specific situation and on variables not within our control. You
should consult your own tax advisor for a full understanding of the merger's
tax consequences to you.
Material Differences in the Rights of Stockholders (page 71)
The rights of Cadence stockholders are governed by Delaware law and Cadence's
certificate of incorporation and by-laws. The rights of Quickturn stockholders
are also governed by Delaware law and Quickturn's certificate of
incorporation and by-laws. If we complete the
5
SUMMARY
<PAGE>
merger, you will become a stockholder of Cadence, and your rights will be
governed by Delaware law and by Cadence's certificate of incorporation and by-
laws.
Forward-Looking Statements May Prove Inaccurate (page 14)
We have each made forward-looking statements in this proxy
statement/prospectus and in other documents to which we refer you that are
subject to risks and uncertainties. These forward-looking statements include
information about possible or assumed future results of our operations or the
performance of the new company after the merger is completed. When we use any
of the words "believes," "expects," "anticipates," "estimates" or similar
expressions, we are making forward-looking statements. Many possible events or
factors could affect the future financial results and performance of each of
our companies and the new company after the merger, and these factors or events
could cause those results or performance to differ materially from those
expressed in our forward-looking statements. These possible events or factors
include the following:
. our revenues after the merger may be lower than we currently expect;
. competition among companies in Cadence's and Quickturn's industries may
increase or a significant new competitor may emerge;
. we may have more difficulty integrating our businesses or our other
acquired businesses than we currently expect;
. general economic conditions in the U.S. or abroad may change or be worse
than we currently expect;
. legislative or regulatory changes may adversely affect our business;
. customers' financial conditions may deteriorate or bankruptcies increase;
. technology-related changes, including "Year 2000" data systems
compliance, may be harder to make or more expensive than we currently
expect;
. changes may occur in the securities markets; and
. proprietary intellectual property rights or patents may be infringed or
appropriated.
6
SUMMARY
<PAGE>
Unaudited Comparative Per Common Share Data
The following table shows information about our historical income per common
share and book value per share, and similar information reflecting the
completion of our proposed merger. We refer to this information as "pro forma"
information. In presenting the comparative pro forma information for the
specified time periods, we assumed that we had been one company throughout
those periods. This method is known as "pooling-of-interests" accounting.
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 combined book value per common share is
computed by dividing pro forma stockholders' equity by the pro forma number of
shares of Cadence common stock outstanding at the end of the period. This
information gives effect to all splits of Cadence common stock, including the
two-for-one split effected in October 1997, and three-for-two splits effected
in May 1996 and October 1995.
The information listed as "equivalent pro forma" was obtained by multiplying
the pro forma amounts by an assumed exchange ratio of .633 to 1.0. We present
this information to reflect the fact that Quickturn stockholders will receive
$15 worth of shares of Cadence common stock for each share of Quickturn common
stock exchanged in the merger. Also, pro forma combined per share information
for 1998 reflects the pro forma effects of Cadence's acquisition of Ambit
Design Systems, Inc., which closed in the quarter ended October 3, 1998. The
pro forma information, while helpful in illustrating the financial
characteristics of the new company under one set of assumptions, does not
attempt to predict or suggest future results. It also doesn't necessarily
reflect what the historical results of the combined company would have been had
Cadence and Quickturn been actually combined during the periods presented.
The information in the following table is based on, and should be read
together with, the historical financial information that we have presented in
our prior Securities and Exchange Commission filings and the "Unaudited Pro
Forma Condensed Combined Financial Information" on page 82. We have
incorporated the historical financial information into this document by
reference. See "Where You Can Find More Information" on page 79.
7
SUMMARY
<PAGE>
Unaudited Comparative Per Common Share Data
of Cadence and Quickturn
<TABLE>
<CAPTION>
For the fiscal years
ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ------------
<S> <C> <C> <C>
HISTORICAL QUICKTURN
Net income (loss) per common share--basic.. $(0.39) $(0.17) $0.87
Net income (loss) per common share--
diluted................................... (0.39) (0.17) 0.79
Book value per common share................ 4.99 -- --
<CAPTION>
For the fiscal years ended
----------------------------------
January 2, January 3, December 28,
1999 1998 1996
---------- ---------- ------------
<S> <C> <C> <C>
HISTORICAL CADENCE
Net income per common share--basic......... $ 0.15 $ 0.86 $0.19
Net income per common share--diluted....... 0.14 0.77 0.16
Book value per common share................ 4.00 -- --
PRO FORMA COMBINED PER CADENCE SHARE
Net income per common share--basic......... 0.51 0.86 0.26
Net income per common share--diluted....... 0.46 0.77 0.22
Book value per common share................ 4.14 -- --
EQUIVALENT PRO FORMA COMBINED PER QUICKTURN
SHARE
Net income per common share--basic......... 0.32 0.54 0.16
Net income per common share--diluted....... 0.29 0.49 0.14
Book value per common share................ 2.62 -- --
</TABLE>
8
SUMMARY
<PAGE>
Selected Financial Data
The following tables show summarized historical financial data for each of us
and also show similar pro forma information reflecting the completion of our
proposed merger. This pro forma information reflects the pooling-of-interests
method of accounting.
This pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, doesn't
attempt to predict or suggest future results. It also doesn't necessarily
reflect what the historical results of the combined company would have been had
Cadence and Quickturn actually been combined during the periods presented.
The information in the following tables is based on historical financial
information that we have presented in our prior Securities and Exchange
Commission filings. You should read all of the summary financial information we
provide in the following tables in connection with this historical financial
information and with the more detailed financial information we provide in this
document, which you can find beginning on page 82. This historical financial
information has also been incorporated into this document by reference. See
"Where You Can Find More Information" on page 79. Cadence's audited historical
financial statements were audited by Arthur Andersen LLP and Quickturn's
audited historical financial statements were audited by PricewaterhouseCoopers
LLP, each independent public accountants.
Selected Consolidated Historical Financial Data of Cadence and Quickturn
Cadence Design Systems, Inc.
<TABLE>
<CAPTION>
For the fiscal years ended
------------------------------------------------------------
January 2, January 3, December 28, December 30, December 31,
1999 1998 1996 1995 1994
---------- ---------- ------------ ------------ ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenue................. $1,216,070 $ 926,369 $779,064 $571,860 $444,617
Expenses................ 1,110,882 693,824 680,825 452,180 399,467
Income before income
taxes and cumulative
effect of change in
accounting method...... 112,667 258,760 98,465 137,092 49,866
Provision for income
taxes.................. 80,685 78,384 64,155 38,493 12,574
Net income ............. 31,982 168,100 34,310 98,599 37,292
PER COMMON SHARE DATA
Net income:
Basic.................. 0.15 0.86 0.19 0.55 0.19
Diluted................ 0.14 0.77 0.16 0.47 0.17
BALANCE SHEET DATA
At period end:
Total assets........... 1,405,958 1,023,850 769,172 411,526 369,405
Long-term debt......... 136,380 1,599 20,292 1,619 2,098
Total stockholders'
equity................ 857,479 727,097 468,038 163,496 179,011
</TABLE>
In the table above, expenses include the following unusual items:
<TABLE>
<CAPTION>
For the fiscal years ended
-----------------------------------------------
January 2, January 3, December 28, December 31,
1999 1998 1996 1994
---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Write-off of in-process
technology................... $194,100 $ 6,571 $ 95,700 $ 4,653
Restructuring charges......... 69,494 34,417 2,119 --
Write-off of capitalized
software development costs... -- 3,065 2,724 --
Provision for settlement of
litigation................... -- -- -- 10,054
-------- ------- -------- -------
$263,594 $44,053 $100,543 $14,707
======== ======= ======== =======
</TABLE>
9
SUMMARY
<PAGE>
In 1998, Cadence wrote off approximately $194.1 million of in-process
technology that had not yet reached technological feasibility and has no
alternative future use as part of its acquisitions of Ambit, Bell Lab's
Integrated Circuit Design Automation Group, Symbionics Group Limited, and
Excellent Design, Inc. In 1998, Cadence also recorded restructuring costs of
approximately $69.5 million related to staff reductions and facilities and
program streamlining.
In 1997, Cadence incurred restructuring charges of $34.4 million for the
termination of redundant employees, closure of duplicative and excess
facilities, fees of financial advisors, attorneys, and accountants, and other
expenses associated with its merger with Cooper & Chyan Technology, Inc. and
its acquisition of High Level Design Systems, Inc. In addition, Cadence wrote
off approximately $6.6 million of in-process technology that had not yet
reached technological feasibility and has no alternative future use as part of
its acquisitions of Synthesia AB and certain assets of Advanced
Microelectronics. Cadence also wrote off capitalized software development costs
of $3.1 million for products developed by Cadence which were replaced by Cooper
and Chyan products or by license of replacement technology.
In 1996, Cadence wrote off approximately $95.7 million of in-process
technology that had not yet reached technological feasibility and has no
alternative future use in conjunction with its acquisition of High Level
Design. In addition, Cadence wrote off approximately $2.7 million of
capitalized software development costs for products developed by Cadence which
were replaced by High Level Design products, and incurred $2.1 million of
restructuring charges consisting of employee termination costs and costs
associated with excess facilities.
There were no unusual items in 1995.
In 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. In addition, Cadence wrote
off approximately $4.7 million of in-process technology that had not yet
reached technological feasibility and has no alternative future use in
conjunction with its acquisition of Redwood Design Automation, Inc.
In addition to the unusual items discussed above, net income (loss) and net
income (loss) per common share, basic and diluted, in the "Statement of
Operations Data" and "Per Common Share Data" above include a $9.2 million and a
$13.6 million after tax gain on the sale of stock of a subsidiary in the
periods ended January 3, 1998 and December 30, 1995, respectively, and $3.1
million after tax gain on the sale of an equity investment in the year ended
December 30, 1994.
Net income and net income per common share, basic and diluted, for the fiscal
year ended January 3, 1998 excludes the cumulative effect of change in
accounting method totalling $12.3 million net of tax.
10
SUMMARY
<PAGE>
Quickturn Design Systems, Inc.
The 1997 Statement of Operations Data and Per Common Share Data in the table
below include one-time acquisition and merger related charges of $4.0 million
before taxes.
<TABLE>
<CAPTION>
For the fiscal years ended December 31,
---------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue......................... $104,109 $110,404 $109,578 $82,442 $65,523
Expenses........................ 119,808 119,243 91,605 71,357 61,469
Income (loss) before income
taxes.......................... (12,620) (6,664) 19,852 11,866 5,002
Income tax expense (benefit).... (5,762) (3,686) 5,721 (612) 401
Net income (loss)............... (6,858) (2,978) 14,131 12,478 4,601
PER COMMON SHARE DATA
Net income (loss):
Basic.......................... (0.39) (0.17) 0.87 0.81 0.36
Diluted........................ (0.39) (0.17) 0.79 0.74 0.32
BALANCE SHEET DATA
At period end:
Total assets................... 134,628 131,560 111,977 94,240 77,349
Long-term debt................. -- -- -- 3,701 3,819
Total stockholders' equity..... 90,355 94,266 84,045 66,337 49,895
</TABLE>
11
SUMMARY
<PAGE>
Selected Unaudited Pro Forma Financial Data of Cadence, Ambit and Quickturn
The following table sets forth the unaudited selected pro forma combined
financial data of Cadence, Ambit Design Systems, Inc. and Quickturn. The
unaudited pro forma combined balance sheet has been prepared as if our proposed
merger, which will be accounted for as a pooling-of-interests by Cadence, had
been consummated on January 2, 1999. The unaudited pro forma combined statement
of operations data for the year ended January 2, 1999 gives effect to both the
acquisition of Ambit and our proposed merger as if both transactions had been
completed at the beginning of the period presented. The unaudited pro forma
combined statement of operations data for the fiscal years ended January 3,
1998 and December 28, 1996 gives effect to our proposed merger as if it had
been completed at the beginning of the periods presented. This 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 these financial statements and notes.
This 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 these transactions actually occurred on the dates indicated, nor
does it represent a forecast of the combined financial position or results of
operations of Cadence, Ambit and Quickturn for any future period. No pro forma
adjustments have been included which reflect potential effects of the
efficiencies which may be obtained by combining the operations of Cadence,
Ambit and Quickturn, or the costs of restructuring, integrating or
consolidating their operations.
See "Where You Can Find More Information" and "Unaudited Pro Forma Condensed
Combined Financial Information."
<TABLE>
<CAPTION>
For the fiscal years ended
---------------------------------------
January 2, January 3, December 28,
1999 1998 1996
--------------- ---------- ------------
(In thousands, except per share
amounts)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue.............................. $1,330,995 $1,036,773 $888,642
Expenses............................. 1,162,933 813,067 772,430
Income before provision for income
taxes............................... 179,055 252,096 118,317
Provision for income taxes........... 66,283 74,698 69,876
Net income before the cumulative
effect of change in accounting
method.............................. 112,772 177,398 48,441
PER COMMON SHARE DATA
Net income before cumulative effect of
a change in accounting method:
Basic................................ 0.51 0.86 0.26
Diluted.............................. 0.46 0.77 0.22
<CAPTION>
As of
January 2, 1999
---------------
(In thousands)
<S> <C> <C> <C>
BALANCE SHEET DATA
At period end:
Total assets......................... $1,540,586
Long-term debt....................... 136,380
Total stockholders' equity........... 934,334
</TABLE>
12
SUMMARY
<PAGE>
Expenses in the preceding table include the following unusual items:
<TABLE>
<CAPTION>
For the fiscal years ended
----------------------------------
January 2, January 3, December 28,
1999 1998 1996
---------- ---------- ------------
(In thousands)
<S> <C> <C> <C>
Write-off of in-process technology......... $194,100 $ 6,571 $ 95,700
Restructuring charges...................... 69,494 34,417 2,119
Write-off of capitalized software
development costs......................... -- 3,065 2,724
Write-off of acquisition and merger related
charges................................... -- 3,957 --
-------- ------- --------
$263,594 $48,010 $100,543
======== ======= ========
</TABLE>
See "Selected Consolidated Historical Financial Data of Cadence and
Quickturn" for a detailed discussion of the unusual items reflected in the
table above.
13
SUMMARY
<PAGE>
RISK FACTORS
Quickturn stockholders should carefully consider the following risk factors,
together with the other information included and incorporated by reference in
this proxy statement/prospectus, in deciding whether to vote to approve the
merger.
Risk Factors Relating to the Merger
Cadence and Quickturn may not successfully integrate their business
operations.
Integrating the operations of Cadence with those of Quickturn after the
merger may be difficult and time consuming. After the merger has been
completed, Cadence may integrate, among other things, the product and service
offerings, the product development, sales and marketing, research and
development, administrative and customer service functions, and the management
information systems of Quickturn with those of Cadence. The integration of our
combined operations may temporarily distract management from the day-to-day
business of the combined company after the merger. Cadence and Quickturn may
fail to manage this integration effectively or to achieve any of the
anticipated benefits that both companies hope will result from the merger.
Cadence expects to incur potentially significant integration costs in
connection with the merger.
Cadence expects to incur restructuring and integration costs from integrating
Quickturn's operations with those of Cadence. These costs may be substantial
and may include costs for employee severance, facilities closures, relocation
and disposition of excess equipment and other merger-related costs. Cadence has
not yet determined the amount of these costs. Cadence expects to charge these
costs to operations in the quarter in which the merger is completed, and this
will hurt Cadence's operating results for that quarter.
Quickturn stockholders may experience lower returns after merger.
Quickturn stockholders may receive a lower return on their investment after
the merger than if the merger does not occur. This is because Cadence may not
achieve the anticipated operating and strategic benefits of the merger. Also,
the issuance of Cadence common stock in the merger could hurt its market price.
The IRS may challenge the tax-free nature of the merger.
Cadence and Quickturn will not obtain a ruling from the Internal Revenue
Service that the merger will generally be tax-free to Quickturn stockholders.
Therefore, there is a risk that the Internal Revenue Service may challenge the
tax-free nature of the merger. If it does, Quickturn stockholders may be
required to pay tax on any gain realized in the merger. See "The Merger--
Material Federal Income Tax Consequences."
Quickturn's directors and officers have conflicts of interest in recommending
the merger to Quickturn stockholders.
In considering the recommendation of the Quickturn Board of Directors to
approve the merger, Quickturn stockholders should recognize that some of
Quickturn's directors and officers have conflicts of interest because of
employment arrangements, potential severance benefits and other reasons. These
reasons are described under the headings "The Merger--Interests of Certain
Persons in the Merger" and "Management After the Merger."
Cadence's stock price is volatile.
The trading price of Cadence common stock has fluctuated significantly in the
past. Often, these fluctuations have been greater than those experienced by the
stock market in general. The future trading price of Cadence common stock is
likely to continue experiencing wide price fluctuations in response to such
factors as:
. Actual or anticipated fluctuations in revenues or operating results;
14
RISK FACTORS
<PAGE>
. Failure to meet securities analysts' expectations of performance;
.Announcements of technological innovations or new products by Cadence or
its competitors;
.Developments in or disputes regarding patents and other proprietary
rights;
.Proposed and completed acquisitions by Cadence or its competitors;
.The mix of products and services sold;
.The timing of significant orders from and shipments to customers;
.Product and services pricing, discounts and margins; and
.General economic conditions.
Cadence could lose key Quickturn personnel necessary to the combined company's
success.
The merger could lead to the loss of key Quickturn personnel even though some
of them have signed employment and related agreements providing for them to
remain with Quickturn after the merger. Quickturn's contribution to the
combined company's success will depend in part on the continued service of key
groups of other Quickturn personnel. If one or more of Quickturn's engineers or
manufacturing, sales or customer support personnel leaves after we complete the
merger, Quickturn's business could be seriously harmed. Cadence currently has
no hardware manufacturing operations, so a loss of any of Quickturn's key
hardware manufacturing personnel in particular could seriously harm Quickturn's
business after the merger.
The failure to satisfy conditions to our completion of the merger other than
approval of Quickturn's stockholders could jeopardize the merger.
Even if Quickturn's stockholders approve the merger, the merger may not close
unless several other conditions are met. These include:
. Quickturn has not experienced any material and adverse change in its
business since the time Quickturn and Cadence signed the merger
agreement;
. Certain third parties have consented to the merger;
. Keith R. Lobo, Quickturn's President and Chief Executive Officer, will
continue his employment with Quickturn after the merger;
. Neither Cadence nor Quickturn has materially breached any of its
representations, warranties or covenants made in the merger agreement;
. There is no law or court order prohibiting the merger; and
. Cadence's and Quickturn's independent accountants have agreed with the
companies' determination that the merger will be accounted for as a
pooling-of-interests.
Our failure to complete the merger could be costly to Quickturn and its
stockholders.
If the merger is not completed:
. Quickturn may be required to pay Cadence liquidated damages of
$10,557,000 and an expense reimbursement of $3,500,000;
. Cadence's option to purchase 3,619,100 shares of Quickturn common stock
may become exercisable;
. The price of Quickturn common stock may decline, assuming that current
market prices reflect a market assumption that the merger will be
completed; and
. Quickturn must still pay its costs related to the merger, such as legal,
accounting and financial advisory fees.
Furthermore, if the merger agreement is terminated and Cadence exercises its
option to purchase Quickturn common stock, Quickturn may not be able to account
for a future transaction as a pooling-of-interests.
15
RISK FACTORS
<PAGE>
Risk Factors Relating to Cadence
Cadence's inability to compete in its industries could seriously harm its
business.
The electronic design automation software and the commercial electronic
design and consulting services industries are highly competitive. If Cadence is
unable to compete successfully in these industries, it could seriously harm
Cadence's business, operating results and financial condition. To compete in
these industries, Cadence must identify and develop innovative and cost
competitive electronic design automation software products and market them in a
timely manner. It must also gain industry acceptance for its professional
services and offer better strategic concepts, technical solutions, prices and
response time, or a combination of these factors, than those of other design
companies and the internal design departments of electronics manufacturers.
Cadence cannot assure you that it will be able to compete successfully in these
industries. Factors which could affect Cadence's ability to succeed include:
. The development of competitive software products and design and
consulting services could result in a shift of customer preferences away
from Cadence's products and services and cause a significant decrease in
revenues;
. The electronics design and consulting services industries are relatively
new industries and electronics design companies and manufacturers are
only beginning to purchase these services from outside vendors; and
. There are a significant number of current and potential competitors in
the electronic design automation software industry and the cost of entry
is low.
In the electronic design automation software industry, Cadence currently
competes with a number of large companies, including Avant! Corporation, Mentor
Graphics Corporation, Synopsys, Inc. and Zuken-Redac, and numerous small
companies. Cadence also competes with manufacturers of electronic devices that
have developed or have the capability to develop their own electronic design
automation software. Many of these manufacturers may be reluctant to purchase
services from independent vendors like Cadence because they wish to promote
their own internal design departments. In the electronics design and consulting
services industries, Cadence competes with numerous electronic design and
consulting companies as well as with the internal design capabilities of
electronics manufacturers. Other electronics companies and management
consulting firms continue to enter the electronic design and consulting
industry.
Cadence's failure to respond quickly to technological developments could make
its products uncompetitive and obsolete.
The industries in which Cadence competes experience rapid technological
developments, changes in industry standards, changes in customer requirements
and frequent new product introductions and improvements. Currently, the
electronic chip design industry is experiencing several revolutionary trends:
. Developments in manufacturing that enable production of chips with
extremely small spacing between transistors, so-called deep sub-micron
chips, that challenge the fundamental laws of physics and chemistry.
. The ability of manufacturers to produce chips from 12 inch silicon
wafers as opposed to today's eight inch wafers. This ability to place
millions of additional transistors on each chip requires entirely new
software tools for designers to design these 12 inch chips.
. The ability to design entire electronic systems on a single chip, so-
called System-on-a-Chip or SOC, rather than a circuit board greatly
increases design complexity and requires the ability to design both
hardware and software on a single chip.
If Cadence is unable to respond quickly and successfully to these
developments and changes, Cadence may lose its competitive position and its
products or technologies may become uncompetitive or obsolete. In
16
RISK FACTORS
<PAGE>
order to compete successfully, Cadence must develop or acquire new products and
improve its existing products and processes on a schedule that keeps pace with
technological developments in its industries. Cadence must also be able to
support a range of changing computer software, hardware platforms and customer
preferences. There is no guarantee that Cadence will be successful in this
regard.
Cadence lacks long-term experience in its electronics design and consulting
services business.
Cadence only recently began to focus on offering electronics design and
consulting services and therefore may not be as experienced in this business as
others. The market for these services is relatively new and rapidly evolving.
Cadence's failure to succeed in these services businesses may seriously harm
Cadence's business, operating results and financial condition.
The success of Cadence's electronic design and consulting services businesses
depends on many factors that are beyond its control.
In order to be successful with its electronics design and consulting
services, Cadence must overcome several factors that are beyond its control,
including the following:
. Many service contracts generally represent large amounts of
revenue. Cadence's electronics design and consulting services contracts
generally represent a relatively large amount of revenue per order.
Therefore, the loss of individual orders could seriously hurt Cadence's
revenue and operating results.
. Many service contracts are at a fixed price. A substantial portion of
these service contracts are fixed-price contracts. This means that the
customer pays a fixed price which has been agreed upon ahead of time, no
matter how much time or how many resources Cadence must devote to
perform the contract. If Cadence's cost in performing the services
consistently and significantly exceeds the amount the customer has
agreed to pay, it could seriously harm Cadence's business, operating
results and financial condition.
. Cadence's cost of service personnel is high and reduces gross margin.
Gross margins represent the difference between the amount of revenue
from the sale of services and Cadence's cost of providing those
services. Cadence must pay high salaries to professional services
personnel to attract and retain them. This results in lower gross
margins than the gross margins in Cadence's software business. In
addition, the high cost of training new services personnel or not fully
utilizing these personnel can significantly lower gross margins.
Fluctuations in quarterly results of operations could hurt Cadence's business
and the market price of its stock.
Cadence has experienced, and may continue to experience, varied quarterly
operating results. Various factors affect Cadence's quarterly operating results
and some of them are not within Cadence's control, including the mix of
products and services sold and the timing of significant orders for its
software products by customers. Quarterly operating results are affected by the
mix of products sold because there are significant differences in margins from
the sale of products and services. Cadence realizes gross margins on product
sales of approximately 90% but realizes gross margins of approximately 30% on
its performance of services. In addition, Cadence's quarterly operating results
are affected by the timing of significant orders for its software products
because a significant number of contracts for software products are in excess
of $5 million. The failure to close a contract for the sale of one or more
orders of Cadence's software products could seriously hurt its quarterly
operating results.
In addition, Cadence bases its expense budgets partially on its expectations
of future revenue. However, it is difficult to predict revenue levels or
growth. Revenue levels that are below Cadence's expectations could seriously
hurt Cadence's business, operating results and financial condition. If revenue
or operating results fall short of the levels expected by public market
analysts and investors, the trading price of Cadence common
17
RISK FACTORS
<PAGE>
stock could decline dramatically. Also, because of the large order size and its
customers' buying patterns, Cadence may not learn of revenue shortfalls,
earnings shortfalls or other failures to meet market expectations until late in
a fiscal quarter, which could cause even more immediate and serious harm to the
trading price of Cadence common stock.
Because Cadence's focus on providing services is relatively recent, it
believes that quarter-to-quarter comparisons of its results of operations may
not be meaningful. Therefore, Quickturn stockholders should not view Cadence's
historical results of operations as reliable indicators of its future
performance.
Cadence expects to acquire other companies and may not successfully integrate
them.
Cadence has acquired other businesses before and may do so again. While
Cadence expects to analyze carefully all potential transactions before
committing to them, Cadence cannot assure you that any transaction that is
completed will result in long-term benefits to Cadence or its stockholders or
that Cadence's management will be able to manage the acquired businesses
effectively. In addition, growth through acquisition involves a number of
risks. If any of the following events occurs after Cadence acquires another
business, it could seriously harm Cadence's business, operating results and
financial condition:
. Difficulties in combining previously separate businesses into a single
unit;
. The substantial diversion of management's attention from day-to-day
business when negotiating these transactions and later integrating an
acquired business;
. The discovery after the acquisition has been completed of liabilities
assumed from the acquired business;
. The failure to realize anticipated benefits such as cost savings and
revenue enhancements;
. Difficulties related to assimilating the products of an acquired
business; for example, in distribution, engineering and customer support
areas;
. The failure to identify or correct a material Year 2000 problem of an
acquired business.
Cadence's failure to attract, train, motivate and retain key employees may
harm its business.
The competition for highly skilled employees is intense. Cadence's business
depends on the efforts and abilities of its senior management, its research and
development staff and a number of other key management, sales, support,
technical and services personnel. Cadence's failure to attract, train, motivate
and retain such employees would impair its development of new products, its
ability to provide design and consulting services and the management of its
businesses. This would seriously harm Cadence's business, operating results and
financial condition.
Cadence's international operations may seriously harm its financial condition
because of several weak foreign economies and the effect of foreign exchange
rate fluctuations.
Cadence has operations outside the United States. Cadence's revenue from
international operations as a percentage of total revenue was approximately 48%
in 1996, 53% in 1997 and 50% in 1998. Cadence also transacts business in
various foreign currencies. Recent economic uncertainty and the weakening of
foreign currencies in the Asia-Pacific region has had, and may continue to
have, a seriously harmful effect on Cadence's revenues and operating results.
Fluctuations in the rate of exchange between U.S. Dollars and the currencies
of countries other than the U.S. in which Cadence conducts business could
seriously harm its business, operating results and financial condition. For
example, if there is an increase in the rate at which a foreign currency
exchanges into U.S. Dollars, it will take more of the foreign currency to equal
a specified amount of U.S. Dollars than before the rate increase. If Cadence
prices its products and services in the foreign currency, it will receive less
in U.S.
18
RISK FACTORS
<PAGE>
Dollars than it did before the rate increase went into effect. If Cadence
prices its products and services in U.S. Dollars, an increase in the exchange
rate will result in an increase in the price for Cadence's products and
services compared to those products of its competitors that are priced in local
currency. This could result in Cadence's prices being uncompetitive in markets
where business is transacted in the local currency. Cadence's international
operations may also be subject to other risks, including:
.The adoption and expansion of government trade restrictions;
.Volatile foreign exchange rates and currency conversion risks;
.Limitations on repatriation of earnings;
.Reduced protection of intellectual property rights in some countries;
.Recessions in foreign economies;
.Longer receivables collection periods and greater difficulty in collecting
accounts receivable;
.Difficulties in managing foreign operations;
.Political and economic instability;
.Unexpected changes in regulatory requirements;
.Tariffs and other trade barriers; and
.U.S. government licensing requirements for export as licenses can be
difficult to obtain.
Cadence expects that revenue from its international operations will continue
to account for a significant portion of its total revenue.
Exposure to foreign currency transaction risk can arise when transactions are
conducted in a currency different from the functional currency of a Cadence
subsidiary. A subsidiary's functional currency is the currency in which it
primarily conducts its operations, including product pricing, expenses and
borrowings. Cadence uses foreign currency forward exchange contracts, as part
of its foreign currency hedging program, to help protect against currency
exchange risks. These contracts allow Cadence to buy or sell specific foreign
currencies at specific prices on specific dates. Under this program, increases
or decreases in the value of Cadence's foreign currency transactions are
partially offset by gains and losses on these forward exchange contracts.
Although Cadence attempts to reduce the impact of foreign currency
fluctuations, significant exchange rate movements may hurt Cadence's results of
operations as expressed in U.S. Dollars.
Foreign currency exchange risk occurs for some of Cadence's foreign
operations whose functional currency is the local currency. The primary effect
of foreign currency translation on Cadence's results of operations is a
reduction in revenue from a strengthening U.S. Dollar, offset by a smaller
reduction in expenses. Exchange rate gains and losses on the translation into
U.S. Dollars of amounts denominated in foreign currencies are included as a
separate component of stockholders' equity and were losses of $2.8 million in
1996, $5.3 million in 1997 and $2.2 million in 1998.
Cadence's inability to deal effectively with the conversion to the Euro may
negatively impact its marketing and pricing strategies.
On January 1, 1999, 11 member countries of the European Union adopted the
Euro as their common legal currency and established fixed conversion rates
between their sovereign currencies and the Euro. Transactions can be made in
either the sovereign currencies or the Euro until January 1, 2002, when the
Euro must be used exclusively. Currently, only electronic transactions may be
conducted using the Euro. Cadence believes that its internal systems and
financial institution vendors are capable of handling the Euro conversion and
is in the process of examining current marketing and pricing policies and
strategies that may be affected by conversion
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RISK FACTORS
<PAGE>
to the Euro. The cost of this effort is not expected to materially hurt
Cadence's results of operations or financial condition. However, Cadence cannot
assure you that all issues related to the Euro conversion have been identified
and that any additional issues would not materially hurt Cadence's results of
operations or financial condition. For example, the conversion to the Euro may
have competitive implications on Cadence's pricing and marketing strategies and
Cadence may be at risk to the extent its principal European suppliers and
customers are unable to deal effectively with the impact of the Euro
conversion. Cadence has not yet completed its evaluation of the impact of the
Euro conversion on its functional currency designations.
Cadence's failure to obtain software or other intellectual property licenses
or adequately protect its proprietary rights could seriously harm its
business.
Cadence's success depends, in part, upon its proprietary technology. Many of
Cadence's products include software or other intellectual property licensed
from third parties, and Cadence may have to seek new or renew existing licenses
for this software and other intellectual property in the future. Cadence's
design services business also requires it to license software or other
intellectual property of third parties. Cadence's failure to obtain for its use
software or other intellectual property licenses or other intellectual property
rights on favorable terms, or the need to engage in litigation over these
licenses or rights, could seriously harm Cadence's business, operating results
and financial condition.
Also, Cadence generally relies on patents, copyrights, trademarks and trade
secret laws to establish and protect its proprietary rights in technology and
products. Despite precautions Cadence may take to protect its intellectual
property, Cadence cannot assure you that third parties will not try to
challenge, invalidate or circumvent these patents. Cadence also cannot assure
you that the rights granted under its patents will provide it with any
competitive advantages, patents will be issued on any of its pending
applications or future patents will be sufficiently broad to protect Cadence's
technology. Furthermore, the laws of foreign countries may not protect
Cadence's proprietary rights in those countries to the same extent as U.S. law
protects these rights in the United States.
Cadence cannot assure you that its reliance on licenses from or to third
parties, or patent, copyright, trademark and trade secret protection, will be
enough to be successful and profitable in the industries in which Cadence
competes.
Intellectual property infringement by or against Cadence could seriously harm
its business.
There are numerous patents in the electronic design automation software
industry and new patents are being issued at a rapid rate. It is not always
economically practicable to determine in advance whether a product or any of
its components infringes the patent rights of others. As a result, from time to
time, Cadence may be forced to respond to or prosecute intellectual property
infringement claims to protect its rights or defend a customer's rights. These
claims, regardless of merit, could consume valuable management time, result in
costly litigation or cause product shipment delays, all of which could
seriously harm Cadence's business, operating results and financial condition.
In settling these claims, Cadence may be required to enter into royalty or
licensing agreements with the third parties claiming infringement. These
royalty or licensing agreements, if available, may not have terms acceptable to
Cadence. Being forced to enter into a license agreement with unfavorable terms
could seriously harm Cadence's business, operating results and financial
condition.
Failure to obtain export licenses could harm Cadence's business.
Cadence must comply with United States Department of Commerce regulations in
shipping its software products and other technologies outside the United
States. Although Cadence has not had any significant difficulty complying with
these regulations so far, any significant future difficulty in complying could
harm Cadence's business, operating results and financial condition.
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RISK FACTORS
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"Year 2000 computer problems" could interrupt Cadence's business operations.
The so-called Year 2000 problem occurs when computer programs and embedded
microprocessors fail to process date information correctly beginning in 1999.
If Cadence experiences a Year 2000 problem, it could result in an interruption
in, or a failure of, normal business operations. This could seriously harm
Cadence's business, operating results and financial condition.
While Cadence has established a Year 2000 project team to identify and
resolve its potential Year 2000 issues, Cadence has not fully assessed the
risks the Year 2000 problem poses to its business. Cadence believes that its
own internally-developed software products generally will not have Year 2000
problems. However, Cadence is uncertain as to the Year 2000 readiness of third-
party suppliers and customers, approximately 30% of its internal information
business systems, and products acquired through recent acquisitions. Because of
these uncertainties, Cadence is currently unable to determine whether and to
what extent the Year 2000 problem will harm its business, operating results or
financial condition.
Cadence purchases call options and issues put warrants which may cause the
market price of its stock to fall.
Cadence repurchases shares of its common stock under stock repurchase
programs in order to make sure it has enough shares for issuance under its
Employee Stock Purchase Plan, its 1997 Stock Option Plan and for other
corporate purposes. This may result in sales of a large number of shares and
consequent decline in the market price of Cadence common stock. As part of
these repurchase programs, Cadence has purchased and will purchase call options
or has sold and will sell put warrants.
. Call options allow Cadence to buy shares of its stock on a specified day
at a specified price. If the market price of the stock is greater than
the exercise price of a call option, Cadence will typically exercise the
option and receive shares of stock. If the market price of the stock is
less than the exercise price of a call option, Cadence typically will
not exercise the option.
. Call option issuers may accumulate a substantial number of shares of
Cadence common stock in anticipation of Cadence's exercising its call
option and may dispose of these shares if and when Cadence fails to
exercise its call option. This could cause the market price of Cadence
common stock to fall.
. Put warrants allow the holder to sell to Cadence shares of Cadence
common stock on a specified day at a specified price. Cadence has the
right to settle the put warrant with shares of Cadence common stock
valued at the difference between the exercise price and the fair value
of the stock at the date of exercise.
. Depending on the exercise price of the put warrant and the market price
of the stock at the time of exercise, settlement of the put warrants
with stock could cause Cadence to issue a substantial number of shares
to the holder of the put warrant. The holder may sell these shares in
the market, which could cause the price of Cadence common stock to fall.
. Put warrant holders may accumulate a substantial number of shares of
stock in anticipation of exercising their put warrants and may dispose
of these shares if and when they exercise their put warrants and Cadence
issues shares in settlement of their put warrants. This could also cause
the market price of Cadence common stock to fall.
Anti-takeover defenses in Cadence's charter and under Delaware law could
prevent an acquisition of Cadence or limit the price that investors might be
willing to pay for Cadence common stock.
Provisions of the Delaware General Corporation Law that apply to Cadence and
its certificate of incorporation could make it difficult for another company to
acquire control of Cadence. For example:
. Section 203 of the Delaware General Corporation Law generally prohibits
a Delaware corporation from engaging in any business combination with a
person owning 15% or more of the voting stock
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RISK FACTORS
<PAGE>
of the corporation, or who is affiliated with the corporation and owned
15% or more of its voting stock at any time within 3 years prior to the
proposed business combination, for a period of three years from the date
the person became a 15% owner, unless specified conditions are met.
. Cadence's certificate of incorporation allows the Cadence Board of
Directors to issue at any time and without stockholder approval,
preferred stock with such terms as it may determine. No shares of
Cadence preferred stock are currently outstanding. However, the rights
of holders of any Cadence preferred stock that may be issued in the
future may be superior to the rights of holders of Cadence common stock.
. Cadence has a rights plan, commonly known as a "poison pill," which
would make it difficult for someone to acquire Cadence without the
approval of Cadence's Board of Directors. Cadence's rights plan is
described in more detail in "Cadence Capital Stock and Comparison of
Stockholder Rights-- Description of Cadence Capital Stock--Cadence
Rights Plan."
All of these factors could limit the price that certain investors would be
willing to pay for shares of Cadence common stock and could delay, prevent or
allow the Board of Directors of Cadence to resist an acquisition of Cadence,
even if the proposed transaction was favored by a majority of Cadence's
independent stockholders.
Risk Factors Relating to Quickturn
Quickturn's quarterly results of operations can fluctuate substantially.
A delay in the shipment of a few orders can have a significant adverse
effect upon Quickturn's total revenue and results of operations in a given
quarter. Many of Quickturn's customers order products only when needed. They
often wait until they know that a new integrated circuit development project
will begin. In addition, a significant portion of Quickturn's revenue in each
quarter generally results from shipments in the last few weeks of the quarter.
Quickturn may not learn of these revenue shortfalls until late in a quarter.
In two quarters of 1994, significant orders were delayed into the succeeding
quarter, causing Quickturn to miss its revenue targets.
Quickturn relies on a few customers for much of its revenue.
The loss of a major customer or fewer or smaller orders by a major customer
could harm Quickturn's financial condition or results of operations. Quickturn
relies on a limited number of customers for a substantial portion of its total
revenue. Quickturn's top ten customers represented, as a percentage of total
revenue, 52% in 1996, 43% in 1997 and 60% in 1998. In 1998, sales to one
customer, Fujitsu, were $14.7 million or 14% of Quickturn's total revenue. In
1996, sales to Fujitsu were $13.1 million or 12% of Quickturn's total revenue.
In 1997, no individual customer comprised more than 10% of Quickturn's total
revenue. Quickturn expects that sales to a limited number of customers in the
future will continue to represent a high percentage of its total revenue. In
addition, any significant delays in or cancellations of a major customer's
development projects, new product announcements and releases by Quickturn, and
economic conditions in the electronics industry generally could result in
delayed, smaller or cancelled orders. In the first quarter of 1997, some of
Quickturn's major customers lengthened their purchase cycles and, in the first
quarter of 1998, major customers in the Asia/Pacific region cancelled projects
which would have otherwise been expected to result in purchases of Quickturn's
products.
Transition to a new product may cause customers to defer purchases.
In June 1998, Quickturn announced a new hardware-based emulation product,
the Mercury Design Verification System,(TM) which is designed to replace
Quickturn's System Realizer emulation product. This announcement could cause
customers to defer purchasing these existing products. The transition to the
new Mercury system may also be disrupted by slow industry acceptance or
interruptions in manufacturing or component availability.
Quickturn is exposed to currency exchange rate fluctuations.
Fluctuations of the U.S. Dollar against foreign currencies, the current
uncertain international economic situation and the seasonality of
international markets could harm Quickturn's results of operations and
financial condition.
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RISK FACTORS
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Revenue from most of Quickturn's international customers is in U.S. Dollars,
but Quickturn transacts business with some customers in foreign currencies.
Quickturn's foreign currency hedging program may not protect it from
fluctuations in currency exchange rates and this could seriously harm the value
of payment generated by sales in foreign currencies.
Quickturn's inability to deal effectively with the conversion to the Euro may
negatively impact its marketing and pricing strategies.
On January 1, 1999, 11 member countries of the European Union adopted the
Euro as their common legal currency and established fixed conversion rates
between their sovereign currencies and the Euro. Electronic transactions can be
made in either the sovereign currencies or the Euro until January 1, 2002,
after which the Euro must be used exclusively for all transactions. Quickturn
believes that its internal systems and financial institution vendors are
capable of handling the Euro conversion and is in the process of examining
current marketing and pricing policies and strategies that may be affected by
conversion to the Euro. The cost of this effort is not expected to materially
hurt Quickturn's results of operations or financial condition. However,
Quickturn cannot assure you that all issues related to the Euro conversion have
been identified and that any additional issues would not materially hurt
Quickturn's results of operations or financial condition. For example, the
conversion to the Euro may have competitive implications on Quickturn's pricing
and marketing strategies and Quickturn may be at risk to the extent its
principal European customers are unable to deal effectively with the impact of
the Euro conversion. Quickturn has not yet completed its evaluation of the
impact of the Euro conversion on its functional currency designations.
Quickturn may continue to be affected by foreign economic conditions.
Quickturn derives a significant portion of its revenue and net income from
its international operations. Quickturn's products may not achieve widespread
commercial acceptance in international markets in the future. Quickturn is
uncertain whether the recent weakness experienced in Asia-Pacific markets will
continue. Because of this downturn, sales of Quickturn's products in Japan have
decreased in the first three quarters of 1998. The downturn could also cause
major Japanese electronics firms to continue lowering their electronic design
automation spending budgets. Consequently, sales of Quickturn's design
verification products in Japan may continue to decrease.
Quickturn's international sales may be subject to additional risks associated
with international operations, including:
. The adoption and expansion of unfavorable government trade regulations;
. Limitations on the repatriation of earnings;
. Reduced respect for intellectual property rights by some countries;
. Recessions in foreign countries and regions;
. Longer receivables collection periods and greater difficulty in
collecting international accounts receivable;
. Difficulties in managing Quickturn's own operations in multiple,
distinct geographic locations and diverse cultures;
. Political and economic instability;
. Tariffs and other trade barriers; and
. Difficulties in obtaining U.S. government export licenses.
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RISK FACTORS
<PAGE>
Quickturn obtains key components from a limited number of suppliers.
Quickturn depends on several suppliers for certain key components and board
assemblies used in its hardware-based emulation products. Quickturn's inability
to develop alternative sources or to obtain sufficient quantities of these
components or board assemblies could result in delays or reductions in product
shipments. In particular, Quickturn currently relies on Xilinx, Inc. for the
supply of key integrated circuits and on IBM for the hardware components for
both Quickturn's CoBALT(TM) product and Mercury Design Verification System.(TM)
With regard to the Mercury Design Verification System,(TM) IBM recently
replaced Quickturn's previous supplier. IBM is currently providing the assembly
services for several Mercury components on an order-by-order basis. Quickturn
is negotiating with IBM to establish an overall contract, but these
negotiations may not be successfully completed. Other disruptions in supply may
also occur. If there were a reduction or interruption, Quickturn's results of
operations would be seriously harmed. Even if Quickturn can eventually obtain
these components from alternative sources, a significant amount of time and
resources would be required to redesign Quickturn's products to accommodate the
alternative supplier.
Quickturn may not be able to sustain or increase its gross margins.
Quickturn may not be able to sustain or increase its gross margins which
traditionally have averaged between 68% and 71% excluding unusual items. Gross
margin represents the difference between the amount of revenue from the sale of
a product, less returns and allowances, and the cost of making the product.
Quickturn has experienced, and expects to continue to experience, competitive
pressures in its industry from existing companies and new entrants. These
pressures could cause Quickturn to lower its prices. Furthermore, to the extent
that Quickturn is able to achieve cost reductions, the resulting savings may be
passed on to Quickturn's customers.
Quickturn's industry is highly competitive.
The electronic design automation industry is highly competitive and rapidly
changing. Quickturn faces significant competition from companies that produce
products similar to Quickturn's, as well as from companies offering products
based on other integrated circuit design verification methods which involve
building and then testing complete electronics system prototypes and some of
which rely on new electronics technologies. Because of the growing demand for
electronics design verification methods that reduce the number of costly design
cycles and improve product quality, Quickturn expects competition to increase
as other companies attempt to introduce products similar to Quickturn's, and as
new technologies may emerge. Increased competition could result in price
reductions, reduced profits and loss of market share, which could seriously
harm Quickturn's business, operating results and financial condition. Many of
Quickturn's competitors have significantly greater financial, technical and
marketing resources and greater name recognition than Quickturn. Many have also
established relationships with current and potential customers of Quickturn.
Quickturn is involved in substantial intellectual property litigation which
will be costly and may invalidate some of its intellectual property rights.
From time to time Quickturn has received, and may receive in the future,
notice of claims of infringement of other parties' proprietary rights,
invalidity claims, or claims for indemnification resulting from infringement
claims. Quickturn has also found it necessary in the past to enforce its
intellectual property rights through litigation. Quickturn's competitors may
sue Quickturn in order to obtain a competitive edge. Litigation can result in
substantial costs to Quickturn and significant diversions of management time
from Quickturn's day-to-day operations. In 1995, Quickturn's competitor,
Mentor, sued Quickturn. Mentor sought to have several of Quickturn's patents
declared invalid as well as to have the court determine that Mentor was not
infringing them. Quickturn filed counterclaims against Mentor and Mentor's
French subsidiary, Meta Systems, for infringement of the same Quickturn
patents. Quickturn is also involved in patent litigation with Mentor's
subsidiary in Germany; with Mentor's French and Dutch subsidiaries, with Meta
Systems and with a French
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company named M2000 in France; and with Aptix Corporation, Meta Systems and
Mentor in California. Even though patent and intellectual property disputes in
Quickturn's industry are often settled through licensing, cross-licensing or
similar arrangements, costs associated with litigation can be substantial. The
costs and any adverse outcomes of Quickturn's current litigation could
seriously harm its business, operating results and financial condition. In
addition, litigation by Quickturn could result in unintended consequences, such
as Quickturn's patents being invalidated.
"Year 2000" computer problems could interrupt Quickturn's business operations.
Quickturn's failure to correct a material Year 2000 problem could result in
an interruption in certain normal business activities or operations. Any
interruption of this kind could seriously harm Quickturn's business, operating
results and financial condition. Quickturn has determined that it must modify
or replace portions of its software so that its internal systems and products
recognize dates beyond December 31, 1999. If these modifications of existing
software and conversions are not made, the Year 2000 problem could seriously
harm Quickturn's operations. In addition, other systems on which Quickturn's
systems rely may not be converted in a timely fashion or in a way that is
compatible with Quickturn's systems. Quickturn's operations could also be
seriously harmed if third parties with whom Quickturn deals are not Year 2000
compliant.
Quickturn's design verification products may not be broadly accepted by the
market.
Broad market acceptance of its design verification products by existing and
new customers is critical to Quickturn's future success. Because the market for
design verification products is new and evolving, it is difficult to predict
whether the market for design verification products will continue to expand.
Substantially all of Quickturn's revenue has been derived from the sale of its
design verification products, and sales of these products are expected to
continue to account for substantially all of Quickturn's revenue in the
foreseeable future. To date, however, these products have been sold to a
limited number of customers, and sales to additional customers must overcome
substantial obstacles. For example, the adoption of Quickturn's design
verification products in the design process by computer chip and system
designers, particularly those which have historically relied on other methods,
generally requires the designer to adopt an entirely new method of design
verification. While Quickturn believes that its design verification products
offer considerable advantages in the high-end system design process, market
acceptance of these products may not continue to grow. Moreover, emulation
products may not be adopted beyond the high-end emulation market, which is
characterized by complex computer chips of hundreds of thousands or, in some
cases, millions of logic gates. The adoption of Quickturn's design verification
products for designing computer chips and systems also depends on continued
increased complexity of computer chips designed into electronic systems,
integration of Quickturn's products with the tools for design and verification,
importance of the time-to-market benefits of Quickturn's design verification
products and industry acceptance of the need to close the gap between high
level design and silicon production.
The lengthy sales cycles for Quickturn's products may cause fluctuations in
operating results and inventory obsolescence.
Quickturn's design verification products typically have a lengthy sales
cycle, during which Quickturn may expend substantial funds and management
effort without any assurance that a sale will result. Sales of Quickturn's
products depend, in significant part, upon the decision of the prospective
customer to commence a project for the design and development of complex
computer chips and systems. Such projects often require significant amounts of
time and commitments of capital. Quickturn's sales may be delayed if customers
delay commencement of projects. Lengthy sales cycles subject Quickturn to a
number of significant risks over which Quickturn has little or no control,
including inventory obsolescence and fluctuations in operating results.
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RISK FACTORS
<PAGE>
Quickturn's business may suffer if new system and computer chip design
projects do not continue to increase.
Most of Quickturn's sales occur upon the commencement of new projects for
electronic systems and computer chips by developers. A decrease in the rate at
which new system and computer chip design projects are started could materially
adversely affect Quickturn's business. The electronics industry has
historically experienced sudden and unexpected downturns during which new
system and design projects decrease.
Quickturn's success depends on its ability to introduce new products and keep
up with technological change.
Quickturn's future success depends upon its ability to enhance its current
lines of verification products and to design, develop and support its next-
generation products on a timely basis that keep pace with technological
developments and emerging industry standards. Quickturn may not be able to do
so successfully. The electronic design automation industry is characterized by
extremely rapid technological change in hardware and software development,
frequent new product introductions and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render Quickturn's existing products obsolete and
unmarketable. Next-generation design verification products must address
increasingly sophisticated customer needs, all of which require a high level of
expenditures for research and development by Quickturn. Quickturn may
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products, and these products may not
adequately meet the requirements of the marketplace and achieve market
acceptance.
Quickturn's introduction of new products could cause customers to defer
purchasing Quickturn's existing products.
From time to time, Quickturn may announce new products or technologies that
have the potential to replace Quickturn's existing product offerings. The
announcement of new product offerings could cause customers to defer purchases
of existing Quickturn products, which could adversely affect Quickturn's
results of operations.
Quickturn may not be able to meet customer requirements for quality and
reliability in the future.
If Quickturn fails to provide a high level of quality and reliability,
Quickturn's future sales may be harmed and existing customers may be lost.
Quickturn's emulation systems are complex and are used by Quickturn's customers
in critical development projects which demand a high level of quality and
reliability. Any decline in quality or reliability in Quickturn's products
could greatly increase the cost and production time of customer's technical
design projects.
Quickturn may be unable to successfully protect its intellectual property
rights.
Quickturn's success and ability to compete is dependent upon its proprietary
technology. If Quickturn fails to successfully protect its intellectual
property rights, its business could be seriously harmed. Quickturn relies on
patent, trademark, trade secret and copyright law, as well as confidentiality
and license agreements, to protect its technology. Despite these precautions,
it may be possible for a third party to copy or use Quickturn's products or
technology without authorization. Others may also be able to develop
technologies that are similar or superior to Quickturn's, duplicate Quickturn's
technology or design around its patents. In addition, effective copyright and
trade secret protection may be unavailable or limited in some foreign countries
in which Quickturn sells its products.
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Quickturn could lose the right to incorporate one or more third party software
products in its products.
Quickturn incorporates into its products software licensed from third parties
to perform various peripheral functions, such as displaying verification
results in particular formats. This third-party software may not continue to be
available to Quickturn on commercially reasonable terms. If Quickturn loses or
is unable to maintain any of these software licenses, its product shipments
could be delayed or reduced until equivalent software is identified, licensed
and integrated, which could degrade Quickturn's ability to deliver its
products.
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QUICKTURN SPECIAL MEETING
General
This proxy statement/prospectus is first being mailed to the record holders
of Quickturn common stock around April 23, 1999. Also enclosed is a notice of
the special meeting of Quickturn stockholders and a form of proxy that is
solicited by the Board of Directors of Quickturn for use at the special
meeting. The special meeting will be held on Friday, May 21, 1999, at 9 a.m.,
local time, at 55 W. Trimble Road, San Jose, California, and at any
adjournments or postponements thereof.
Matters to be Considered
The purpose of the special meeting is to vote on the merger agreement, dated
as of December 8, 1998, by and among Cadence, CDSI Acquisition, Inc., a wholly-
owned subsidiary of Cadence, and Quickturn. Since December 8, 1998, we have
modified the merger agreement in several respects, the most important of which
was to increase the value of Cadence common stock to be exchanged for each
Quickturn share from $14 to $15. Quickturn stockholders may also be asked to
vote upon a proposal to adjourn or postpone the special meeting to allow
additional time for the solicitation of additional votes to approve the merger
agreement if the secretary of the meeting determines that there are not
sufficient votes to approve the merger agreement.
Proxies
Quickturn stockholders should fill out and send back the accompanying form of
proxy if they will be unable to attend the special meeting in person. Quickturn
stockholders may revoke their proxies at any time before they are exercised by
giving the secretary of Quickturn written notice of revocation, properly
executed proxies of a later date or by attending the special meeting and voting
in person. Written notices of revocation and other communications with respect
to the revocation of Quickturn proxies should be addressed to Quickturn Design
Systems, Inc., 55 W. Trimble Road, San Jose, California 95131, Attention:
Corporate Secretary. All shares represented by valid proxies received and not
revoked before they are exercised will be voted in the manner specified in the
proxies. If no specification is made, the proxies will be voted in favor of the
merger agreement. No proxy that is voted against the merger agreement will be
voted in favor of any adjournment or postponement of the special meeting for
the purpose of soliciting additional proxies. However, if a stockholder
abstains from voting on the adoption of the merger agreement and makes no
specification on an adjournment or postponement for the purpose of soliciting
additional proxies, then the proxy will be voted for the adjournment or
postponement.
Solicitation of Proxies
Quickturn will pay the entire cost of soliciting proxies. In addition to
solicitating proxies by mail, Quickturn will request banks, brokers and other
record holders to send proxies and proxy material to the beneficial owners of
Quickturn stock and obtain their voting instructions, if necessary. Quickturn
will reimburse these record holders for their reasonable expenses in performing
these tasks. Quickturn has also made arrangements with Morrow & Co., Inc. to
assist in soliciting proxies from banks, brokers and nominees and has agreed to
pay Morrow approximately $15,000 plus expenses for its services. If necessary,
Quickturn may also use several of its regular employees, who will not be
specially compensated, to solicit proxies from Quickturn stockholders, either
personally or by telephone, letter or other means.
Record Date and Voting Rights
The Quickturn Board of Directors has fixed April 9, 1999 as the record date
for determining the Quickturn stockholders entitled to notice of and to vote at
the Quickturn special meeting. Therefore, only stockholders of record at the
close of business on the record date will receive notice of and be able to vote
at the Quickturn special meeting. At the close of business on the record date,
there were 18,395,730 shares of Quickturn common
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stock outstanding held by about 332 record holders in addition to approximately
4,500 holders who do not hold shares in their own names. A majority of these
shares must be present at the special meeting, either in person or by proxy, in
order for there to be a quorum at the special meeting. There must be a quorum
in order for the vote on the merger agreement to occur. Each share of
outstanding Quickturn common stock entitles its holder to one vote.
Shares of Quickturn common stock present in person at the Quickturn special
meeting but not voting, and shares for which Quickturn has received proxies but
with respect to which holders of these shares have abstained, will be counted
as present at the special meeting for purposes of determining whether or not a
quorum exists. Brokers who hold shares in nominee or "street" name for
customers who are the beneficial owners of the shares may not give a proxy to
vote shares held for these customers on the matters to be voted on at the
special meeting without specific instructions from them. However, broker non-
votes will be counted for purposes of determining whether a quorum exists.
Under Delaware law and Quickturn's certificate of incorporation, a majority
of the outstanding shares of Quickturn common stock entitled to vote at the
Quickturn special meeting must vote for the merger agreement in order for it to
be adopted by Quickturn.
Because approval of the merger agreement requires the affirmative vote of a
majority of the outstanding shares of Quickturn common stock entitled to vote
at the special meeting, abstentions and broker non-votes will have the same
effect as votes against approving the merger agreement. Therefore, the
Quickturn Board of Directors urges stockholders to complete, date and sign the
accompanying proxy and return it promptly in the enclosed, postage-paid
envelope.
As of the record date, Quickturn's directors and executive officers
beneficially owned about 1,521,805 shares of Quickturn common stock, entitling
them to exercise about 8.27% of the voting power of the Quickturn common stock
entitled to vote at the special meeting. Quickturn expects that each of these
directors and/or executive officers will vote his or her shares for the merger
agreement.
More information about the beneficial ownership of Quickturn common stock by
those who own more than 5% of the stock, and more detailed information about
the beneficial ownership of Quickturn common stock by directors and executive
officers of Quickturn, can be found in Quickturn's Annual Report on Form 10-K/A
for the year ended December 31, 1998. See "Where You Can Find More
Information."
Recommendation of Quickturn Board
The Quickturn Board has unanimously approved the merger agreement and the
proposed merger and other transactions described in the merger agreement. The
Quickturn Board believes that the merger agreement is in the best interests of
Quickturn and its stockholders and recommends that Quickturn stockholders vote
"FOR" the merger agreement. See "The Merger--Recommendation of the Quickturn
Board and Quickturn's Reasons for the Merger."
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QUICKTURN SPECIAL MEETING
<PAGE>
THE MERGER
The following summary of the material terms and provisions of the merger
agreement and the option agreement is qualified by reference to the merger
agreement and the option agreement. The merger agreement is attached as
Appendix A and the option agreement is attached as Appendix B to this proxy
statement/prospectus, each of which is incorporated herein by reference.
General
The Boards of Directors of Cadence and Quickturn have each unanimously
approved the merger agreement, which provides for combining Cadence and
Quickturn through a merger that will result in Quickturn's becoming a wholly-
owned subsidiary of Cadence. Upon completion of the merger, each outstanding
share of Quickturn common stock will be converted into the right to receive
$15 worth of Cadence common stock.
For purposes of determining the number of Cadence shares to be exchanged for
each share of Quickturn common stock in the merger, we will use the average
closing price of one share of Cadence common stock, as reported on the New
York Stock Exchange Composite Transactions reporting system, for the five
trading days immediately preceding the business day that is two business days
before the merger closes.
Each share of Cadence common stock issued to you will also represent the
Series A Junior Participating Preferred Share Purchase Rights issued to the
Cadence stockholders under Cadence's rights plan, which is commonly known as a
poison pill.
This section of the proxy statement/prospectus describes the most
significant aspects of the merger, including the principal provisions of the
merger agreement and the stock option agreement between Quickturn and Cadence.
Background of the Merger
Patent Litigation with Mentor. For a number of years, Quickturn and Mentor
have been litigating the validity of certain Quickturn patents and Mentor's
alleged infringement of them. In January 1996, Quickturn filed a complaint
with the International Trade Commission seeking to stop unfair importation
into the U.S. of logic emulation systems manufactured by Meta Systems,
Mentor's French subsidiary. In the complaint, Quickturn alleged that Mentor's
hardware logic emulation systems infringed several of Quickturn's patents.
Some of these patents were purchased by Quickturn from Mentor in 1992. In
August 1996, Quickturn sought and received temporary relief from the
International Trade Commission in the form of temporary exclusion and
temporary cease and desist orders. The Federal Circuit Court of Appeals
affirmed the International Trade Commission's issuance of temporary relief in
August 1997. In December 1997, the International Trade Commission issued:
. a permanent limited exclusion order, which permanently prohibits the
importation of hardware logic emulation system, subassemblies or
components manufactured by Mentor and/or Meta, which infringe
Quickturn's patents and
. a permanent cease and desist order, which permanently prohibits Mentor
from, among other things, selling, offering for sale or advertising the
same hardware logic emulation devices in the U.S.
Quickturn is also involved in a federal district court case with Mentor and
Meta over five of Quickturn's patents. Quickturn has pending actions against
Mentor and Meta for infringement of these five patents, and Mentor and Meta
are seeking a declaratory judgment of non-infringement and unenforceability of
the five patents, and of invalidity of two of those patents. In June 1997,
Quickturn filed a motion for preliminary injunction, asking the district court
to prohibit Mentor from manufacturing, assembling, marketing, loaning or
otherwise distributing infringing emulation products and components in the
United States. On August 1, 1997, the U.S. District Court in Oregon granted
Quickturn's motion for a preliminary injunction against Mentor's domestic
emulation activities. The Federal Circuit Court of Appeals affirmed the Oregon
district court's
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<PAGE>
decision on August 5, 1998. The bench trial for the Oregon action was held on
April 6, 1999. No decision has been issued by the court. A jury trial on the
remaining liability and damages issues is scheduled for June 1999. Some or all
of Quickturn's patents at issue could be determined to be invalid and/or
unenforceable, which could preclude Quickturn from excluding others from
making, using, selling or offering for sale devices or methods covered by the
applicable Quickturn patents.
Quickturn and Mentor are also engaged in other litigation matters. In October
1997, Quickturn filed a complaint in the German District Court of Dusseldorf
against Mentor's German subsidiary, Mentor Graphics (Deutschland) GmbH,
alleging infringement of the German part of Quickturn's European Patent No. 0
437 491 B1. After two preliminary hearings in which procedural matters were
discussed, the parties submitted their briefs to the court. The main court
hearing for this action was held on March 16, 1999, and the court's decision
will be issued on April 29, 1999.
On March 19, 1999, Quickturn's patent counsel in Germany received official
service of a nullification complaint, filed by Mentor Graphics (Deutschland)
GmbH, in the German Federal Patent Court located in Munich. The nullification
complaint seeks to have certain claims of Quickturn's European Patent EP 0 437
491 declared void with respect to the sovereign territory of the Federal
Republic of Germany. Quickturn's initial response to this complaint is due by
April 19, 1999.
In February 1998, Aptix Corporation and Meta filed a lawsuit against
Quickturn, in the U.S. District Court, the Northern District of California,
alleging infringement of a U.S. patent owned by Aptix and licensed to Meta.
Quickturn named Mentor as a party to this suit and filed a counterclaim
requesting the court to declare the Aptix patent unenforceable based on Aptix's
inequitable conduct during the prosecution of that patent. Quickturn also filed
a counterclaim against Aptix, Meta and Mentor for abuse of process, based on
Aptix, Meta and Mentor's submission of falsified evidence relating to the date
of invention of the technology described in the Aptix patent. Quickturn is
seeking $10 million in damages from Mentor, Meta and Aptix for their abuse of
process. The case is currently in the discovery phase, and is scheduled for
trial in January 2000. Quickturn's products could be found to infringe Aptix's
patent, which could preclude Quickturn from making, using, selling or offering
for sale products which are found to infringe that patent. If Quickturn is
found to infringe the Aptix patent, Quickturn might also be liable for damages.
In October 1998, Quickturn filed a complaint in the District Court of Paris,
France, against Mentor Graphics (France) SARL, Mentor Graphics (Netherlands)
BV, Meta Systems (France), and M2000 (France) S.A. for infringement of the
French part of Quickturn's European Patent No. 0 437 491 B1. This case has only
recently been initiated, and no schedule has been set for determining its final
disposition.
The Mentor Tender Offer. On August 12, 1998, MGZ Corporation, a wholly-owned
subsidiary of Mentor, commenced an offer to purchase all outstanding shares of
Quickturn common stock at a price of $12.125 per share, net to the seller in
cash, without interest, on the terms and conditions described in MGZ's Offer to
Purchase and related Letter of Transmittal. Quickturn believes the most
significant conditions to Mentor's offer were:
. That a majority of the outstanding shares of Quickturn common stock be
validly tendered and not withdrawn prior to the expiration of Mentor's
offer;
. That Quickturn's preferred stock rights issued under its poison pill be
redeemed, invalidated or found inapplicable to Mentor's offer;
. That the Delaware business combination statute not limit Mentor's
ability to complete its acquisition of Quickturn following consummation
of Mentor's offer; and
. That the waiting period for Hart-Scott-Rodino antitrust clearance has
expired or terminated.
In order to facilitate the successful completion of Mentor's offer, Mentor
also announced its intention to solicit other Quickturn stockholders to join
with Mentor in requesting that Quickturn call a special meeting of stockholders
to replace the Quickturn Board with a slate of independent directors nominated
by Mentor. The
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THE MERGER
<PAGE>
Quickturn by-laws permit stockholders holding at least 10% of the Quickturn
common stock to request that a stockholder meeting be called. Mentor announced
that it held approximately 3.3% of the Quickturn common stock. Mentor began
this solicitation shortly thereafter.
Neither Quickturn nor Cadence can say what role, if any, the patent
litigations between Quickturn and Mentor played in Mentor's determination to
make Mentor's offer. You can find more information about Mentor's offer by
reviewing the Tender Offer Statement on Schedule 14D-1, dated August 12, 1998,
as amended, filed with the Securities and Exchange Commission by MGZ.
The Quickturn Board's Response to Mentor's offer. On August 21, 1998, the
Quickturn Board of Directors held a meeting, at which they reviewed and
considered Mentor's offer and related matters in consultation with its
financial and legal advisors. Quickturn's senior management made a presentation
concerning Quickturn's business plan, and Hambrecht & Quist LLC presented its
financial analyses of Mentor's offer. After its presentation, Hambrecht & Quist
orally provided the Quickturn Board of Directors its opinion, which was later
confirmed in writing, that Mentor's offer was inadequate from a financial point
of view.
In arriving at its conclusion that Mentor's offer was inadequate, Hambrecht &
Quist:
. reviewed publicly available consolidated financial statements and other
relevant financial and operating data of Quickturn;
. reviewed Mentor's offer;
. reviewed internal financial and operating information, including certain
projections relating to Quickturn prepared by Quickturn's management;
. reviewed publicly available consolidated financial statements and other
relevant financial and operating data of Mentor;
. reviewed recent reported prices and trading activity for the common
stock of Quickturn and Mentor and compared this information and certain
financial information for Quickturn and Mentor with similar information
for several other companies engaged in businesses they deemed
comparable;
. reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions; and
. performed such other analyses and examinations and considered such other
information, financial studies, analyses and investigations and
financial, economic and market data as they deemed relevant.
The opinion of Hambrecht & Quist did not identify what it considered to be a
fair value per Quickturn share.
After further review by the Quickturn Board of Directors and consideration of
the interests of Quickturn stockholders, the Quickturn Board of Directors
determined that Mentor's offer was inadequate and not in the best interests of
Quickturn stockholders, that Mentor's offer did not fully reflect the long-term
value of Quickturn and that stockholder interests would be better served by
Quickturn's continuing to pursue its business plan. In particular, the
Quickturn Board of Directors determined that Quickturn's business plan offered
the potential for obtaining higher long-term benefits for Quickturn
stockholders than Mentor's offer. This determination was primarily based on the
opportunities for business expansion and revenue and earnings growth resulting
from recently introduced products and from products under development for use
in the electronic design automation industry and in other related parts of the
industry. You can obtain more information about the Quickturn Board of
Directors' response to Mentor's offer from the Solicitation/Recommendation
Statement on Schedule 14D-9 filed by Quickturn with the Securities and Exchange
Commission on August 24, 1998. Quickturn's 14D-9, as amended to the date of
this proxy statement/prospectus, contains a complete discussion of Mentor's
offer and the Quickturn Board of Directors' position with respect to the offer.
We urge you to read Quickturn's 14D-9 in its entirety. You may obtain a copy of
Quickturn's 14D-9 from the Securities and Exchange Commission. See "Where You
Can Find More Information."
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<PAGE>
In reaching these conclusions, the Quickturn Board of Directors took into
account numerous factors, including the following:
. Information relating to the business, financial condition, prospects and
business plan of Quickturn, the nature of the business and markets in
which Quickturn operates and the Quickturn Board's belief that Mentor's
offer did not adequately reflect the long-term opportunities available
to Quickturn in its business and the electronic design automation
market. In this regard, the Quickturn Board particularly considered the
following:
. Quickturn's established position as the leading provider of
technology for emulating the operation of integrated circuits and
electronic systems. The board also recognized Quickturn's position as
a leader in cycle-based simulation software for verifying designs of
integrated circuits, as well as its general reputation in the
industry as a technological leader and innovator. In this regard, the
Quickturn Board of Directors noted that Quickturn had supplied more
than 80% of emulation systems in use worldwide.
. Quickturn's prospects for future growth based on its current and
future product plans, including the then-recently introduced Mercury
Design Verification System,(TM) which offers improved performance and
ease of use, as well as Quickturn's additional products and
enhancements planned for introduction over the next few years.
. Quickturn's proven technical expertise, reflected in an estimated
4,000 completed customer design projects and developed over years of
activity in electronic design verification.
. Quickturn's expenditures of over $60 million on research and
development in the past three years, leading to current and future
planned products.
. Quickturn's strong intellectual property position, including 25
issued United States patents, 25 pending United States patent
applications and numerous international patents and patent
application filings.
. Quickturn's reputation for high-quality worldwide customer service
and support.
. Quickturn's acknowledged strength in the sale and implementation of
emulation products.
. Quickturn's acknowledged high-quality manufacturing capability.
. Anticipated growth in demand for emulation and cycle-based simulation
software resulting from continuing substantial increases in
semiconductor design complexity.
. Then-current conditions in Quickturn's business and markets,
including the then-current adverse economic conditions in Asia, which
had a substantial effect upon Quickturn's quarterly financial
performance and stock price.
. The risks Quickturn would face, and the underlying assumptions in
achieving Quickturn's business plan.
. The historical trading prices of Quickturn common stock, including the
Quickturn Board's belief that the trading price for the stock
immediately prior to Mentor's offer did not fully reflect the long-term
value inherent in Quickturn. In this regard, the Quickturn Board noted
that Mentor's offer represented a more than 25% discount from the
highest closing price of Quickturn common stock during the year
preceding Mentor's offer and a less than 4% premium over the average
closing price of the Quickturn common stock during the same period.
. The analyses performed by Hambrecht & Quist concerning, among other
things, Quickturn's historical and projected financial performance and
consequent implied valuations of Quickturn; Mentor's historical
financial performance; projected pro forma financial results for Mentor
were Mentor's offer to be successful; comparisons of the terms of
Mentor's offer, transaction premium and the implied valuation of
Quickturn to those in other comparable transactions; and the trading
histories of Mentor and Quickturn.
. The written opinion, dated August 21, 1998, of Hambrecht & Quist that,
as of that date, Mentor's offer was inadequate, from a financial point
of view, to Quickturn stockholders.
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THE MERGER
<PAGE>
. The history of extensive patent litigation between Quickturn and Mentor,
which had to date affirmed the validity of Quickturn's key patents and
had resulted, among other things, in:
. The issuance by the International Trade Commission of the permanent
limited exclusion order against Mentor prohibiting Mentor from
importing into the United States certain integrated circuit emulation
systems, subassemblies and components manufactured by Mentor and Meta
which infringe Quickturn's patents;
. The issuance by the International Trade Commission of the permanent
cease and desist order permanently prohibiting Mentor from, among
other things, selling, offering for sale or advertising these
emulation systems, subassemblies and components in the United States;
and
. The granting by the U.S. District Court of Quickturn's motion for a
preliminary injunction against Mentor's United States emulation
activities. The Quickturn Board also noted that the grant of this
motion had been affirmed by the United States Court of Appeals for
the Federal Circuit on August 5, 1998--seven days prior to Mentor's
commencement of Mentor's offer.
. The disruptive effect of Mentor's offer on Quickturn's sales efforts
with its customers, as well as on Quickturn's relationships with its
suppliers and employees.
. The Quickturn Board's commitment to acting in the best interests of and
protecting Quickturn's stockholders.
. The various circumstances of Mentor's offer and conditions to which it
was subject.
In view of the wide variety of factors considered in its evaluation of
Mentor's offer, the Quickturn Board of Directors did not find it practicable
to, and did not, quantify or attempt to assign relative weights to each
specific factor.
The Quickturn Board took other actions in response to Mentor's offer. These
included actions and amendments to the Quickturn rights plan and an amendment
to Quickturn's bylaws. On August 21, 1998, the Quickturn Board adopted a
resolution to defer the date on which the Quickturn rights plan would be
triggered as a result of Mentor's offer to a date to be determined by the
Quickturn Board of Directors. Without this action, the Quickturn preferred
stock rights would have been triggered on August 22, 1998, the tenth day after
public announcement of Mentor's offer. In addition, the Quickturn Board amended
the Quickturn rights agreement to:
. Delete all provisions requiring a majority of directors not affiliated
with a potential acquiror to approve the redemption or exchange of the
Quickturn rights after the time the acquiror obtains 15% of Quickturn
common stock under certain circumstances, or the amendment of the
Quickturn poison pill after it has been triggered;
. Add a requirement that if a majority of the Quickturn Board is elected
at an annual or special meeting of stockholders, then for a period of
180 days after this election the Quickturn rights cannot be redeemed or
exchanged, and the Quickturn rights plan cannot be amended, if the
action is likely to facilitate an acquisition of Quickturn by someone
who proposed, nominated or supported a director of Quickturn elected at
that meeting; and
. Add a provision allowing the Quickturn Board to determine the date on
which the Quickturn poison pill would be triggered as a result of
Mentor's offer or any subsequent tender offer by Mentor.
Even without the above-described amendment relating to the 180 day delay in
the redemption or exchange of the Quickturn preferred stock rights or the
amendment of the Quickturn rights plan, the Quickturn rights plan makes its
substantially more difficult for any potential acquirer, including Mentor, to
complete a tender offer for the Quickturn common stock successfully. Generally
for such a transaction to proceed, the Quickturn rights plan would have to be
dismantled, which can be done only by the Quickturn Board of Directors. The
Quickturn Board of Directors could do this through redemption or exchange of
the Quickturn rights or amendment of the Quickturn rights plan itself.
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THE MERGER
<PAGE>
Also on August 21, 1998, the Quickturn Board amended Quickturn's by-laws to
establish procedures relating to how a special meeting of stockholders is
called at the request of stockholders holding shares representing 10% or more
of the votes at that meeting. This amendment included specifying that the
Quickturn Board would set the time, place and record date for any such meeting,
and that the date of the meeting could be no less than 90 days nor more than
100 days after the receipt by Quickturn of such a request and the determination
of its validity.
Mentor's First Lawsuit Against Quickturn and the Quickturn Board. On August
12, 1998, Mentor and MGZ filed a complaint against Quickturn and the Quickturn
Board of Directors in the Court of Chancery of the State of Delaware seeking,
among other things, an order:
. Declaring that Quickturn's failure to redeem its preferred stock rights
or to render these rights inapplicable to Mentor's offer or its failure
to approve the offer would constitute a breach of the Quickturn Board of
Directors' fiduciary duties under Delaware law.
. Invalidating Quickturn's preferred stock rights or compelling the
Quickturn Board of Directors to redeem the rights or render the rights
inapplicable to Mentor's offer.
. Compelling the Quickturn Board of Directors to approve Mentor's offer
for purposes of the Delaware General Corporation Law.
. Enjoining the Quickturn Board of Directors from taking any actions to
impede Mentor's offer or the solicitation by Mentor of agent
designations and declaring that any of these actions would constitute a
breach of the Quickturn Board of Directors' fiduciary duties under
Delaware law.
. Enjoining the Quickturn Board of Directors from taking any actions to
impede, or refuse to recognize the validity of, Mentor's call for a
special meeting of Quickturn stockholders, provided that Mentor obtained
agent designations from Quickturn stockholders holding at least 10% of
the outstanding shares of Quickturn common stock.
The complaint filed by Mentor in the Delaware Chancery Court is attached as
Exhibit 7 to Quickturn's 14D-9.
Mentor's Call for a Special Meeting of Stockholders. On September 11, 1998,
Mentor announced that it was delivering to Quickturn a request, purportedly
from Quickturn stockholders holding at least 10% of the Quickturn common stock,
that Quickturn call a special meeting of stockholders. Mentor stated that the
purpose of the meeting was to replace the existing Quickturn Board of Directors
with a slate of independent directors nominated by Mentor. Mentor also stated
that, if its nominees were elected, it expected that, subject to their
fiduciary duties to all Quickturn stockholders, the nominees would take the
steps necessary to facilitate consummation of Mentor's offer at the earliest
practicable date.
On October 1, 1998, Quickturn announced that, based upon an independent
inspection by CT Corporation System, the Quickturn Board had determined that
Mentor's request for a special meeting of stockholders was valid. In accordance
with the procedures set forth in the August 21, 1998 amendment to the Quickturn
by-laws, the Quickturn Board of Directors called for such a meeting to be held
on January 8, 1999. Over the next months, Mentor continually solicited from
Quickturn stockholders proxies for use at the special meeting in favor of its
proposals. During this same period, Quickturn solicited proxies in opposition
to Mentor's proposals.
In its request for a special meeting of Quickturn stockholders, Mentor itself
had specified a date for the meeting. Mentor challenged the validity of the
August 21, 1998 amendment of the Quickturn by-laws in the Delaware Chancery
Court, alleging that the Quickturn Board of Directors had breached its
fiduciary duty by adopting this amendment and requesting that Mentor be
entitled to set the date for the meeting it had called. Mentor also challenged
the validity of the August 21, 1998 amendment to Quickturn's rights plan
prohibiting the Quickturn Board of Directors from redeeming or exchanging the
Quickturn rights or amending the Quickturn rights plan for 180 days after an
election of directors if the redemption, exchange or amendment would facilitate
an acquisition by a person who proposed a director in that election. Mentor
argued that the purpose of this amendment was simply to prevent Mentor from
completing its offer for six months after the election of a Mentor proposed
board, should Mentor succeed in doing so.
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<PAGE>
Further Legal Developments. On December 3, 1998, the Delaware Chancery Court
rendered its decision, revised December 7, 1998, on Mentor's complaint. The
Chancery Court upheld the right of the Quickturn Board of Directors to set the
meeting date and the record date of the special stockholders meeting called by
Mentor, in accordance with Quickturn's by-laws. The special meeting would
therefore proceed on January 8, 1999. Quickturn stockholders of record on
November 10, 1998 were entitled to vote at the special meeting. The Chancery
Court also ruled as invalid the amendment to Quickturn's rights plan relating
to the 180 day delay in the ability to redeem or exchange the Quickturn
preferred stock rights under the plan or to amend the plan. As a result,
Quickturn concluded that there was now a greater likelihood that Mentor would
succeed in acquiring Quickturn. At the same time, Quickturn believed that it
was less likely that Mentor would enter into negotiations with the Quickturn
Board, because Mentor was no longer faced with having to maintain its offer for
an additional six months after the stockholder meeting. Accordingly, the
Quickturn Board determined to renew its efforts to investigate alternatives to
the Mentor offer in order to obtain greater value for its stockholders. The
decision of the Chancery Court is attached as Exhibit 53 to Quickturn's 14D-9.
On December 14, 1998, Quickturn filed an appeal of the Delaware Chancery
Court's decision with the Delaware State Supreme Court. On December 31, 1998,
the Delaware Supreme Court issued its opinion affirming the December 3, 1998
decision of the Chancery Court. The Supreme Court's decision is attached as
Exhibit 70 to Quickturn's 14D-9.
Also on August 12, 1998, Mentor and MGZ filed a complaint against Quickturn
in the United States District Court for the District of Delaware seeking, among
other things, a declaratory judgment that Mentor and MGZ disclosed all
information required by, and are otherwise in full compliance with, the
Securities Exchange Act of 1934 and any other federal securities laws, rules
and regulations deemed applicable to Mentor's offer and Mentor's solicitation
of agent designations. Mentor's complaint in the Delaware District Court is
attached as Exhibit 8 to Quickturn's 14D-9.
As of the date of this proxy statement/prospectus, the Delaware District
Court has not rendered a decision on Mentor's federal complaint, other than
denying the parties' cross motions for preliminary injunction in September and
October of 1998 and denying Mentor's application for a temporary restraining
order on January 8, 1999 in connection with the special meeting of Quickturn
shareholders initiated by Mentor, as discussed below.
First Shapiro Lawsuit Against Quickturn and the Quickturn Board. On August
13, 1998, Howard Shapiro filed a purported class action suit in the Delaware
Chancery Court on behalf of individual plaintiffs against Quickturn and the
Quickturn Board of Directors. The complaint alleges, among other things, that
the defendants breached their fiduciary duties to Quickturn stockholders by
failing to maximize stockholder value in not negotiating a deal with Mentor.
The complaint seeks, among other things, to compel the defendants to carry out
their fiduciary duties and to cooperate with anyone having a bona fide interest
in proposing any transaction with Quickturn which would maximize stockholder
value. A copy of the Shapiro complaint is attached as Exhibit 9 to Quickturn's
14D-9. The Chancery Court decision on Mentor's Delaware complaint, as affirmed
by the Delaware Supreme Court, effectively decided the matters raised in the
Shapiro I Complaint. Quickturn's appeal of this decision by Chancery Court to
the Delaware Supreme Court included an appeal of the decision rendered on the
Shapiro complaint. On December 31, 1998, the Delaware Supreme Court affirmed
the decision of the Chancery Court. The Supreme Court's decision is attached as
Exhibit 70 to Quickturn's 14D-9.
The Proposed Transaction with Cadence. While the Quickturn Board of Directors
rejected Mentor's offer, the offer generated significant discussion among the
members of the Board, senior management and Hambrecht & Quist about Quickturn's
strategic direction and options. The Quickturn Board of Directors also
considered advice from Hambrecht & Quist. Among the options considered was a
strategic partnership with a financially stronger company that, unlike the all
cash offer by Mentor, could provide Quickturn stockholders with an opportunity
to participate in Quickturn's future growth. As a former officer and director
of Cadence, Glen M. Antle, Chairman of the Quickturn Board of Directors,
believed that a strategic partnership between Cadence and Quickturn would
enable Quickturn stockholders to maximize the value of their investment.
Therefore, on September 1, 1998,
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Mr. Antle met with John R. Harding, President and Chief Executive Officer of
Cadence, to inquire about Cadence's interest in pursuing a possible combination
with Quickturn. Mr. Harding replied that Cadence would not be interested in
having discussions about such a combination.
During the week of November 16, 1998, Mr. Antle again contacted Mr. Harding
to see if Cadence's interest had changed. Mr. Antle requested that they and
certain other representatives from each of their companies meet to provide
Quickturn the opportunity to explain its business and product strategy. Mr.
Harding agreed.
On December 1, 1998, Mr. Harding, Shane V. Robison, Executive Vice President,
Research and Development of Cadence and Michael J. Casey, Associate General
Counsel of Cadence, met with Mr. Antle, Keith R. Lobo, President and Chief
Executive Officer of Quickturn, Raymond K. Ostby, Chief Financial Officer of
Quickturn, Christopher J. Tice, Vice President, Worldwide Support Services of
Quickturn, and Naeem Zafar, Vice President, Marketing of Quickturn, at
Quickturn's headquarters in San Jose, California. At this meeting the Quickturn
representatives made a presentation regarding Quickturn's business and product
strategy.
On December 3, 1998, Messrs. Lobo and Harding met at Cadence's headquarters
in San Jose, California and discussed the broad outlines of a possible
combination of Quickturn and Cadence. This proposal, as presented by Cadence,
called for an acquisition of Quickturn in a tax-free, stock-for-stock
transaction. Cadence did not propose any exchange ratio for the transaction,
nor were any concrete terms of the transaction specified. In fact, Cadence
indicated its intention not to discuss an exchange ratio or other specific
terms until further due diligence could be conducted and the Cadence Board of
Directors and its advisors could consider the results. Quickturn's primary
concern in these discussions was to determine the exchange ratio at which
Cadence would be willing to do the transaction and whether a transaction
beneficial to the Quickturn stockholders could actually be achieved. At the
conclusion of this meeting, they agreed to meet again the following day with
their legal, accounting and financial advisors to commence due diligence and
discuss documentation for a possible combination of Cadence and Quickturn.
Later that day, the Quickturn Board of Directors held a telephonic meeting to
discuss, among other things, the meetings with Cadence.
On December 4, 1998, Messrs. Harding and Casey, H. Raymond Bingham, Executive
Vice President and Chief Financial Officer of Cadence, Margaret McCarthy, Vice
President, Business Development of Cadence, R.L. Smith McKeithen, Senior Vice
President, General Counsel and Secretary of Cadence, and Dr. Alberto
Sangiovanni-Vincentelli, a member of the Cadence Board of Directors, together
with other Cadence employees and its attorneys from Gibson, Dunn & Crutcher LLP
and Drinker, Biddle & Reath LLP and accounting advisors from
PricewaterhouseCoopers LLP, which performs due diligence for Cadence on its
acquisitions, met with Messrs. Antle, Lobo and Ostby and Quickturn's
intellectual property attorneys, Lyon & Lyon, and financial advisors, Hambrecht
& Quist, at the San Jose offices of Lyon & Lyon. At this meeting, Quickturn and
its representatives discussed Quickturn's patent infringement litigation with
Mentor, Meta Systems, a French subsidiary of Mentor, and Aptix Corporation, as
well as the litigation between Quickturn and Mentor in the Delaware state and
federal courts relating to Mentor's offer, and the Shapiro complaint described
above. The parties also discussed logistics for the two companies' due
diligence of each other and a schedule for negotiating a transaction between
them over the next few days. Cadence and Quickturn agreed on the basic terms of
a confidentiality agreement. Cadence and Quickturn entered into a
confidentiality and standstill agreement dated December 4, 1998.
On December 5, 1998, representatives of Quickturn and Hambrecht & Quist met
with representatives of Cadence and its attorneys, accounting advisors and
financial advisors, Goldman, Sachs & Co., at the Palo Alto offices of Gibson,
Dunn & Crutcher. At this meeting, Messrs. Lobo, Ostby and Zafar made a
presentation about Quickturn and its business operations, strategy and
financial results. Other due diligence was also conducted. That morning,
Gibson, Dunn & Crutcher delivered to attorneys from Wilson Sonsini Goodrich &
Rosati, Quickturn's corporate legal counsel, draft forms of a merger agreement
and stock option agreement. Such forms were standard for a tax-free, stock-for-
stock acquisition that was intended to be accounted for as a pooling-of-
interests. Such forms did not, however, contain an exchange ratio or other
material terms, such as the structure and amount of any termination fees and
the financial terms of the stock option, of any proposal for
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a combination between Cadence and Quickturn. In fact, Cadence again stated its
intention not to propose an exchange ratio, nor these other terms until its
Board of Directors could meet with its advisors on December 7, 1998. Also on
December 5, 1998, representatives of Cadence, Gibson, Dunn & Crutcher,
PricewaterhouseCoopers and Goldman Sachs conducted due diligence investigations
of Quickturn at Quickturn's headquarters office in San Jose and at the Palo
Alto offices of Gibson, Dunn & Crutcher.
On December 6, 1998, the Quickturn Board of Directors held a meeting at the
offices of Wilson Sonsini Goodrich & Rosati to consider the discussions with
Cadence. Quickturn management reported to the Board on the status of
discussions with Cadence, and the Board directed management to continue with
these discussions.
Later on December 6, 1998, Messrs. Harding, Bingham and McKeithen and Ms.
McCarthy made a presentation about Cadence to Messrs. Antle, Lobo, Ostby, the
entire Quickturn Board of Directors, and representatives of Hambrecht & Quist
and Wilson Sonsini Goodrich & Rosati, at the Palo Alto offices of Gibson, Dunn
& Crutcher. Representatives of Goldman Sachs were also in attendance. At the
conclusion of this presentation, Messrs. Antle, Lobo and Ostby and the members
of the Quickturn Board of Directors departed, but representatives of Hambrecht
& Quist and Wilson Sonsini Goodrich & Rosati remained to continue discussions
with the Cadence representatives. Also on that day, Cadence's employees,
attorneys, accounting advisors and financial advisors continued their due
diligence of Quickturn, and representatives of Gibson, Dunn & Crutcher and
Wilson Sonsini Goodrich & Rosati met to discuss the draft forms of merger
agreement and stock option agreement delivered by Gibson, Dunn & Crutcher the
day before. There were no discussions between the parties regarding an exchange
ratio or the other missing terms.
On December 7, 1998, representatives of Cadence and Quickturn, and their
respective attorneys, accounting advisors and financial advisors, continued
their due diligence of each other. That evening, Messrs. Harding, Bingham,
McKeithen and Casey and Ms. McCarthy met with representatives of Gibson, Dunn &
Crutcher, PricewaterhouseCoopers and Goldman Sachs at Cadence's San Jose
offices to discuss and formulate a proposed exchange ratio and certain other
terms material to a combination of Quickturn and Cadence.
On December 8, 1998, representatives of Cadence and Quickturn, and their
attorneys, accounting advisors and financial advisors, continued their due
diligence of each other. That morning, the Cadence Board of Directors held a
special meeting to consider and approve the terms of a proposal to acquire all
the outstanding shares of Quickturn Common Stock. The Cadence Board of
Directors unanimously approved the proposal and authorized Cadence's officers
to convey the proposal to Quickturn's management and conclude an agreement
substantially on the terms of such proposal. Early in the evening of December
8, 1998, Messrs. Harding, Bingham, McKeithen and Casey and Ms. McCarthy
conveyed to Messrs. Antle, Lobo and Ostby and Quickturn's legal and financial
advisors Cadence's proposal for an exchange ratio and the other material terms
of a combination with Quickturn.
In the evening of December 8, 1998, the Quickturn Board of Directors held a
special meeting at which senior management of Quickturn, together with
Quickturn's legal and financial advisors, reviewed the terms of Cadence's
proposal, the status of the discussions with Cadence, the results of
Quickturn's due diligence of Cadence, the consistency of a merger with
Quickturn's business strategy and the Quickturn Board of Director's fiduciary
duties in connection with its consideration of the proposal. After extensive
discussion among the members of the Quickturn Board of Directors, and
consideration of the factors described under "--Recommendation of the Quickturn
Board of Directors and Quickturn's Reasons for the Merger," the Quickturn Board
of Directors concluded that a business combination with Cadence would be
advisable and in the best interests of Quickturn and its stockholders. The
Quickturn Board of Directors voted unanimously to approve the merger agreement
and the option agreement and the transactions contemplated thereby.
The merger agreement and the option agreement were entered into by Cadence,
its wholly-owned subsidiary, CDSI Acquisition, Inc., and Quickturn as of
December 8, 1998. Mr. Lobo, four other Quickturn officers and one other
Quickturn employee also entered into employment and non-competition agreements,
and proprietary information and inventions assignment agreements with Quickturn
and Cadence substantially
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concurrently with the execution and delivery of the merger agreement and option
agreement. Since then, another Quickturn officer has entered into similar
agreements.
Additional Lawsuits Filed Against Quickturn, the Quickturn Board and Cadence
by Mentor and Shapiro. On December 15, 1998, Mentor and MGZ filed suit against
Quickturn, the Quickturn Board of Directors and Cadence in the Delaware
Chancery Court alleging, among other things, that the Quickturn Board of
Directors violated its fiduciary duty to Quickturn stockholders in approving
the merger with Cadence and that Cadence aided and abetted this violation, and
that certain terms of the merger agreement and option agreement, including the
"no shop" and liquidated damages provisions, violate Delaware law. Mentor's
Delaware Chancery Court complaint is attached as Exhibit 59 to Quickturn's
14D-9. On January 7, 1999, Mentor amended this complaint.
On December 16, 1998, Howard Shapiro filed a purported class action suit on
behalf of individual plaintiffs against Quickturn, the Quickturn Board of
Directors and Cadence in the Delaware Chancery Court alleging among other
things, that the Quickturn Board of Directors violated its fiduciary duties by
entering into a merger agreement with preclusive "lock-up" and "no-shop"
clauses designed to entrench management to the detriment of Quickturn
stockholders, and that Cadence aided and abetted this violation. If Mr. Shapiro
prevails in his claim, there is a risk that the proposed merger with Cadence
will not be completed or will be delayed. A copy of this complaint is attached
as Exhibit 60 to Quickturn's 14D-9. As of the date of this proxy
statement/prospectus, the Chancery Court has not rendered a decision on this
complaint.
Mentor's Revised Offer and Quickturn's and Cadence's Responses. On December
28, 1998, Mentor announced that it was reducing the number of shares being
sought in its unsolicited tender offer from all outstanding shares of Quickturn
common stock to a maximum of 2,100,000 shares, representing 11.6% of
Quickturn's outstanding shares, and with shares already owned by Mentor, 14.9%
of Quickturn's outstanding shares. As part of this revised offer, Mentor
increased its offering price for this reduced number of shares to $14.00 cash
per share from $12.125 cash per share. Mentor's revised offer was to remain
open until January 11, 1999.
If Mentor purchased all of these shares, it would then have held about 14.9%
of the outstanding shares of Quickturn common stock, which is the maximum
amount that can be acquired without triggering Quickturn's rights plan.
In making its revised offer, Mentor dropped the conditions of Mentor's
original offer that a majority of the outstanding shares of Quickturn common
stock be tendered, that the Quickturn preferred stock rights be redeemed,
invalidated or found inapplicable to Mentor's offer, and that the Delaware
business combination statute not limit Mentor's ability to complete its
acquisition of Quickturn following consummation of its revised offer.
Mentor announced that its purpose in making the revised offer was to increase
its equity interest in Quickturn as the first step in completing an acquisition
of Quickturn. Mentor stated that if it were successful in invalidating all or a
portion of the $10,557,000 liquidated damages provision of the merger agreement
with Cadence and if Mentor were successful in acquiring Quickturn, then Mentor
intended to pay to all Quickturn stockholders an amount per share equal to
$14.00 plus the lesser of $0.60 and a pro rata portion of 75% of the
invalidated liquidated damages. Mentor also stated its readiness to consider
increasing the price which it would pay to acquire Quickturn if negotiations
and due diligence demonstrated greater value in Quickturn.
On December 28, 1998, the Quickturn Board of Directors met with its financial
and legal advisors to consider Mentor's revised offer.
On December 29, 1998, the Quickturn Board of Directors met again with its
financial and legal advisors to consider Mentor's revised offer and, at the
conclusion of this meeting, determined the revised offer not to be in the best
interests of Quickturn and its stockholders. Therefore, the Quickturn Board of
Directors unanimously recommended that the Quickturn stockholders reject
Mentor's revised offer.
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In determining that Mentor's revised offer was not in the best interests of
Quickturn and Quickturn stockholders, and in making its recommendation that
Quickturn stockholders reject this offer, the Quickturn Board of Directors
considered the following reasons and factors:
. The Board determined that Mentor's revised offer, which was limited to
an offer to purchase 2,100,000 shares, was intended to be followed by a
merger with Mentor. As expressed in its announcement of its revised
offer, Mentor's proposal for the merger was highly conditional in
nature. The Board noted that these conditions included, among others, a
legal ruling invalidating certain provisions of the merger agreement
between Quickturn and Cadence, the negotiation of a merger agreement
between Quickturn and Mentor, and completion of due diligence. The Board
believed that these conditions were highly unlikely to be satisfied.
. Mentor did not state that it had sufficient financing to complete its
proposed merger, and the Board believed it was not at all certain that
Mentor could finance a transaction to acquire all of Quickturn's
outstanding stock and fulfill other commitments required under the
Cadence merger agreement. Therefore, the Quickturn Board determined that
there was significant uncertainty concerning whether a merger with
Mentor could occur, as well as what the consideration in such a
transaction would be.
. The Board determined that Mentor's revised offer could interfere with or
threaten the merger with Cadence, which it determined again to be in the
best interests of Quickturn stockholders. The Board noted that Mentor's
revised offer purported to be a first step of a multi-step transaction
that conflicted with the merger with Cadence.
. Mentor's ownership of 14.9% of the outstanding shares of Quickturn
common stock, as well as its obtaining control of the Quickturn Board,
could raise serious concerns about Quickturn's ability to engage in any
pooling-of-interests transaction, including the merger with Cadence.
. The Board continued to believe that, even assuming Mentor could make a
firm offer to acquire all of Quickturn's shares at a price consistent
with its conditional proposal, the strategic combination of Quickturn
and Cadence provided substantial and superior short- and long-term value
for Quickturn, its stockholders, employees and customers. In particular,
the Quickturn Board continued to believe that the merger with Cadence
offered substantial strategic benefits to Quickturn which far exceeded
the consideration proposed by Mentor.
. The Board continued to believe that the merger with Cadence did not
raise significant antitrust issues.
. Given the litigation and competition between Quickturn and Mentor, the
Board considered the potential negative effect on Quickturn if Mentor
were to become a large stockholder of Quickturn.
. The strategic combination with Cadence provides substantial and superior
short- and long-term value for Quickturn, and its stockholders,
employees and customers.
The Quickturn Board of Directors unanimously recommended that Quickturn
stockholders reject Mentor's revised offer.
On January 4, 1999, following meetings and approvals by their respective
Boards of Directors, Cadence and Quickturn amended the merger agreement to
increase the value of the shares of Cadence common stock to be issued in
connection with the merger from $14.00 to $15.00 per share of Quickturn common
stock. No other changes in the merger agreement were made.
Mentor's Second Revised Offer and Quickturn's Response. On January 6, 1999,
Mentor announced an increase in its offering price for 2,100,000 shares of
Quickturn common stock from $14.00 to $15.00 cash per share. In revising its
offer again, Mentor announced that its purpose was to increase its equity
interest in Quickturn as the first step in completing an acquisition of
Quickturn. Mentor stated that completing an acquisition of Quickturn at the new
$15.00 price, however, was conditioned upon negotiation of a merger
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agreement with Quickturn, due diligence and securing necessary financing.
Mentor also stated that it no longer proposed to pay to Quickturn stockholders
a portion of any invalidated liquidated damages under the Cadence merger
agreement. Mentor again stated its readiness to consider increasing the price
which it would pay to acquire Quickturn if negotiations and due diligence
demonstrated greater value in Quickturn.
On January 6, 1999, the Quickturn Board of Directors met with its financial
and legal advisors to consider Mentor's second revised offer and, at the
conclusion of this meeting, determined the offer not to be in the best
interests of Quickturn and its stockholders. Therefore, the Quickturn Board of
Directors unanimously recommended that Quickturn stockholders reject Mentor's
second revised offer.
In determining that Mentor's second revised offer was not in the best
interests of Quickturn and its stockholders, and in making its recommendation
that Quickturn stockholders reject the offer, the Quickturn Board considered
the following reasons and factors:
. Except for the change in price, Mentor's second revised offer was
substantially similar to Mentor's first revised offer, which the Board
had already rejected.
. Mentor's second revised offer, which continued to be limited to an offer
to purchase 2,100,000 shares, again was intended to be part of a process
under which Mentor proposed to undertake a merger. The merger was now
subject to both new explicit conditions and additional unspecified
conditions. One condition was Mentor's obtaining necessary financing to
pay $15.00 per share for all outstanding Quickturn shares. As Mentor had
admitted, it had not yet been able to confirm that its existing bank
financing commitments and its other available funds were sufficient for
such a transaction. A merger was also conditioned on Mentor's conduct of
a due diligence investigation of Quickturn. For these reasons, the
Quickturn Board determined that the likelihood that such a merger would
actually occur was now less certain than under Mentor's first revised
offer.
. The Board determined that Mentor's second revised offer could interfere
with or threaten the merger with Cadence, which the Board determined
again to be in the best interests of Quickturn stockholders. The
Quickturn Board noted that Mentor's second revised offer purported to be
a first step of a multi-step transaction that conflicted with the merger
with Cadence.
. Mentor's ownership of 14.9% of the outstanding shares of Quickturn
common stock, as well as its obtaining control of the Quickturn Board of
Directors, could raise serious concerns about Quickturn's ability to
engage in any pooling-of-interests transaction, including the merger
with Cadence.
. The Quickturn Board of Directors continued to believe that, even
assuming Mentor could make a firm offer to acquire all Quickturn shares
at a price consistent with Mentor's second revised offer, the strategic
combination of the merger with Cadence provided substantial and superior
long-term value for Quickturn, and its stockholders, employees and
customers. In particular, the Board continued to believe that the merger
with Cadence offered substantial strategic benefits to Quickturn which
far exceeded the consideration proposed by Mentor.
. The Quickturn Board of Directors continued to believe that the merger
with Cadence does not raise significant antitrust issues.
. While Mentor's latest proposal was no longer conditioned on the
invalidation of any provision of the merger agreement with Cadence,
several of the conditions to the proposed merger could not have been
satisfied without invalidation, violation or termination of the merger
agreement. In addition, Mentor had stated its intention to continue to
challenge the merger agreement, which the Quickturn Board had determined
to be in the best interests of the Quickturn stockholders.
. Given the litigation and competition between Quickturn and Mentor, the
Quickturn Board considered the potential negative effect on Quickturn if
Mentor were to become a large stockholder.
. Mentor's latest proposal no longer included an intention to share with
Quickturn stockholders the monetary benefit that might be obtained from
Mentor's invalidation of the liquidated damages that might otherwise be
payable under the merger agreement with Cadence.
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For additional information about Mentor's second revised offer, see Amendment
No. 33 to Quickturn's 14D-9 filed with the Securities and Exchange Commission
on January 7, 1999.
Mentor Withdraws Its Request for a Special Meeting of Quickturn Stockholders
and All Offers for Quickturn. On January 7, 1999, Mentor disclosed in a filing
with the Securities and Exchange Commission that its lender had confirmed that
the financing Mentor had obtained for Mentor's original offer would be
available for its revised offer and the proposed merger to acquire the
remainder of Quickturn.
On January 7, 1999, Mentor sought a temporary restraining order of the
Chancery Court to postpone or adjourn the special meeting of Quickturn
stockholders initiated by Mentor. The Chancery Court denied Mentor's
application on that day. On the same day, Mentor filed its application for a
temporary restraining order to postpone or adjourn the special meeting with the
federal district court in Delaware. On January 8, 1999, the federal district
court denied Mentor's application.
On January 8, 1999, Mentor announced that, effective on that date, it had
withdrawn its call for a special meeting of Quickturn stockholders and was
withdrawing its offer for Quickturn shares and terminating its proxy
solicitation and proposal to acquire Quickturn. On the same date, Mentor filed
with the Securities and Exchange Commission an amendment to Mentor's 14D-1
withdrawing its offer.
On January 11, 1999, Cadence and Quickturn issued a joint press release
announcing the expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 without a request by the Federal Trade
Commission or Department of Justice for additional documents or information.
Recommendation of the Quickturn Board of Directors and Quickturn's Reasons for
the Merger
The Quickturn Board of Directors believes that the merger is advisable, fair
to and in the best interests of, Quickturn and Quickturn stockholders.
Accordingly, the Quickturn Board of Directors has unanimously approved the
merger agreement and unanimously recommends that Quickturn stockholders vote
for the adoption of the merger agreement and the transactions contemplated
thereby, including the merger.
The Quickturn Board of Directors has approved the merger because it believes
that the greater strength of the combined company, as compared to that of
Quickturn on its own, will provide significant benefits to Quickturn
stockholders. The Quickturn Board of Directors believes that the merger
presents a unique opportunity to combine two of the nation's strongest
electronics simulation and verification businesses with sufficient capital to
accelerate new product development and a powerful worldwide distribution
network for Quickturn's products. As the complexity of integrated circuit
design increases, the Quickturn Board of Directors believes that the complexity
of design verification will increase at an even greater rate. As a result of
the integration of Quickturn's hardware-based emulation approach with Cadence's
design and simulation systems, the Quickturn Board of Directors expects that
the combined company should significantly improve its ability to meet customer
demand for faster development of high-speed integrated circuits and "systems on
a chip."
The Quickturn Board of Directors also believes that the merger will increase
value for Quickturn stockholders, as well as Quickturn's employees and
customers, and should allow Quickturn to continue to pursue its business
strategy. In particular, the Quickturn Board of Directors believes that
Quickturn should be able to leverage Cadence's strong international sales
channels to make Quickturn's technology available to a larger customer base
than is currently the case. As a result, the Quickturn Board of Directors
believes that the merger will yield for Quickturn stockholders an attractive
price for their shares of Quickturn common stock, while enabling them to share
in Cadence's growth over the long term.
The discussion of reasons for the merger above includes forward-looking
statements about possible or assumed future results of operations of the
combined company and the performance of the combined company after the merger.
Future results and performance are subject to risks and uncertainties, which
could cause such results and performance to differ materially from those
expressed in these statements.
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In reaching its decision to approve the merger agreement and the option
agreement, the Quickturn Board of Directors consulted with Quickturn's
management, as well as with its financial and legal advisors, and considered a
number of factors.
The Quickturn Board of Directors reviewed a variety of historical information
concerning Quickturn's and Cadence's businesses, financial performances and
conditions, operations, technologies, managements and competitive positions.
The Board considered available information on Cadence including its public
reports for its most recently completed fiscal year and subsequent fiscal
quarters as filed with the Securities and Exchange Commission. The Board
concentrated particularly on the two companies' financial condition, results of
operations, business and prospects before and after giving effect to the
merger. In particular, the Quickturn Board noted that Cadence is the leading
company in the entire electronic design industry and that Cadence has a very
strong balance sheet. Based in part upon these factors, the Quickturn Board of
Directors believed that a combination with Cadence would be very attractive.
The Quickturn Board of Directors also examined current financial market
conditions and historical market prices, volatility and trading information
with respect to Quickturn common stock and Cadence common stock. The Quickturn
Board began by noting that the financial markets in general, and technology
stocks in particular, had experienced great price volatility and significant
turmoil in the preceding six months. The Quickturn Board noted that the recent
trading price of Quickturn common stock had been artificially stabilized by the
presence of the fixed price offer by Mentor. Nonetheless, these factors created
additional uncertainty as to the likely future trading prices of Quickturn as a
stand-alone entity in the absence of the Mentor offer. The Quickturn Board then
focused particularly on the trading price of Quickturn common stock in the
months prior to the announcement of Mentor's offer, and noted favorably that
the analysis of Hambrecht & Quist showed that the original $14.00 merger price
was substantially higher than the closing price of Quickturn common stock on
the day before that announcement and the average closing prices over the one
week, four weeks and three months preceding the announcement. Details of this
analysis are set forth below under "--Opinion of Quickturn's Financial
Advisor." Based on this analysis, the Quickturn Board concluded that the
original Cadence merger price provided Quickturn stockholders with a
substantial premium over historical trading prices during these periods.
The Quickturn Board of Directors then compared the consideration to be
received by Quickturn stockholders in the merger with the consideration
received in various comparable merger transactions. The details of this
comparison are set forth below under "Opinion of Quickturn's Financial
Advisor." Based on this comparison, the Quickturn Board of Directors believed
that $14.00 worth of Cadence common stock fell within the range of what is
reasonable for transactions of this type.
The Quickturn Board of Directors viewed the terms of the merger agreement and
option agreement, including the parties' representations, warranties and
covenants, and the conditions to their respective obligations, as reasonable in
light of the entire transaction. The Quickturn Board of Directors considered
that the provisions in these agreements for the benefit of Quickturn reasonably
protected the interests of Quickturn stockholders, and those for the benefit of
Cadence did not present impediments substantial enough to reject the
transaction.
The Quickturn Board also considered favorably the detailed financial analyses
and pro forma and other information relating to the two companies presented by
Hambrecht & Quist, including Hambrecht & Quist's opinion that the $14.00 worth
of Cadence common stock originally to be received by Quickturn stockholders in
the merger was fair to them from a financial point of view. The Quickturn Board
viewed the analyses and opinion of an independent, nationally recognized
financial advisor such as Hambrecht & Quist to be important factors in reaching
a determination that the transaction should be approved.
In addition, the Quickturn Board of Directors considered the anticipated
impact of the proposed transaction on the combined company's future
performance, financial and otherwise. In this regard, the Quickturn Board of
Directors expected that the combined companies might be able to realize
synergies in their
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combined operations, especially given that the two companies' businesses are
complementary in a number of ways. Such synergies could arise from the combined
entity's ability to offer customers a unified product line which addresses
multiple facets of their integrated circuit design and verification needs. The
Quickturn Board of Directors also speculated on the potential for any cost
savings. The Quickturn Board of Directors also noted favorably that the former
Quickturn stockholders, as stockholders of Cadence, would share the benefits of
any of these synergies. This would not be the case for the all-cash offer
proposed by Mentor, in which the Quickturn stockholders would have no
continuing interest in the combined entity and any resulting synergies would
benefit only Mentor.
The Quickturn Board also considered the merger's impact on Quickturn's
customers and employees. Generally, the Quickturn Board viewed the impact on
employees as positive, in that they would become part of the leading company in
the entire electronic design automation industry, one that had substantially
greater resources than Quickturn. The Quickturn Board also generally viewed the
impact on Quickturn's customers as positive, in that they would also have the
benefits of the industry leader standing behind Quickturn's product lines; they
would also have the ability to obtain a wider range of electronic design
automation products and services from one supplier. At the same time, however,
the Quickturn Board noted that the transaction could create some transitional
dislocation and uncertainty, although these problems already existed to some
extent as a result of Mentor's offer. In fact, both employees and customers
might view the relative certainty of a negotiated transaction with Cadence
favorably, as compared to the uncertainty and turmoil of an unsolicited
transaction with Mentor.
The Quickturn Board also received reports from Quickturn's management and
financial advisors as to the results of their due diligence investigation of
Cadence. Such reports indicated no significant issues that would preclude the
Quickturn Board's approval of the deal with Cadence.
The Quickturn Board of Directors also considered the terms of the proposed
merger agreement regarding Quickturn's rights to consider and negotiate other
acquisition proposals in certain circumstances, as well as the possible effects
of the option agreement and the provisions regarding liquidated damages. In
addition, the Quickturn Board of Directors noted that the merger is expected to
be accounted for as a pooling-of-interests and that no goodwill is expected to
be created on the books of the combined company as a result thereof. In this
regard, the Quickturn Board of Directors noted that pooling-of-interests
treatment is often viewed favorably by the market when considering the ongoing
financial outlook for the acquirer. If the market were to do so in this case,
the Quickturn stockholders could benefit once they become stockholders of
Cadence. In contrast, Mentor's offer could not be accounted for as a pooling-
of-interests because Mentor proposed to pay cash in exchange for the Quickturn
common stock.
The Quickturn Board of Directors also identified and considered a variety of
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
. the risk that the potential benefits sought in the merger might not be
fully realized;
. the possibility that the merger might not be consummated and the effect
of public announcement of the merger on:
(1) Quickturn's sales, operating results and stock price,
(2) Quickturn's ability to attract and retain key management, sales and
marketing and technical personnel and
(3) the progress of certain development projects;
. the possibility of substantial charges to be incurred in connection with
the merger, including costs of integrating the businesses and
transaction expenses arising from the merger;
. the risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed by the combined
company;
. risks associated with fluctuations in Cadence's stock price prior to
closing of the merger; and
. various other risks.
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The Quickturn Board also considered what alternatives existed to the merger,
including reviewing the prospects for Quickturn as an independent company. In
light of the factors described above, the Quickturn Board determined that the
value and benefits to Quickturn stockholders from the merger exceeded the
potential they might realize from Quickturn's continuing as an independent
company. At the same time, the Quickturn Board still believed that Mentor's
offer at $12.125 per share was not in the best interests of Quickturn
stockholders and would provide them even less long-term value than if Quickturn
were to remain independent. Yet, the Board recognized that it was not at all
certain that Mentor would not be successful in acquiring Quickturn. In such
case, in the absence of the merger with Cadence, Quickturn stockholders would
never have the opportunity to realize this greater independent value. The
Quickturn Board of Directors therefore viewed the merger with Cadence as a
different means to obtain higher value for the Quickturn stockholders, if
Quickturn were unable to continue as an independent entity.
The Quickturn Board also considered the potential that another third party
might be willing to enter into a strategic relationship with or acquire
Quickturn. The Quickturn Board did not, however, view this as likely, given
that there are a limited number of suitable candidates and, except for Cadence,
none had made any substantive proposal for a relationship or acquisition in the
four months since Mentor had announced its offer. In this light, the Quickturn
Board of Directors also considered that it was a condition of the merger with
Cadence that Quickturn agree to the provisions of the merger agreement limiting
Quickturn's rights to consider and negotiate acquisition proposals with others.
It appeared unlikely to the Quickturn Board that Quickturn would be able to
enter into a transaction with Cadence without these provisions. In such case,
the Quickturn stockholder would not realize any of the value or benefits offer
by the Cadence merger.
The Quickturn Board also considered the potential that Mentor would make a
revised proposal to acquire Quickturn. While the Quickturn Board could only
speculate on what the terms of a new Mentor proposal would be, the Quickturn
Board noted once again that Mentor's current offer was inadequate and inferior
to the Cadence merger.
In connection with the January 4, 1999 amendment of the merger agreement to
increase the value of the shares of Cadence common stock to be issued in the
merger from $14.00 to $15.00 per share of Quickturn common stock, the Quickturn
Board of Directors again considered each of the factors listed above and, in
addition, the fact that the amendment made no other changes in the merger
agreement or the transactions contemplated thereby other than the increase in
the value per share. The Quickturn Board of Directors also considered the
recent announcement by Mentor of its revised offer, which the Quickturn Board
of Directors had already rejected. Based on all such factors, the Quickturn
Board of Directors determined that the amendment to the merger agreement was in
the best interests of Quickturn stockholders.
The above discussion of the information and factors considered by the
Quickturn Board of Directors is not intended to be exhaustive but includes all
material factors considered by it. In reaching its determination to approve and
recommend the merger, the Quickturn Board of Directors did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to different factors. The Quickturn Board of
Directors is unanimous in its recommendation that Quickturn stockholders vote
for approval and adoption of the merger agreement. For a discussion of the
interests of the executive officers and directors of Quickturn in the merger,
see "--Interests of Quickturn's Management in the Merger."
Opinion of Quickturn's Financial Advisor
Quickturn engaged Hambrecht & Quist to act as its exclusive financial advisor
in connection with Mentor's offer and the evaluation of strategic alternatives,
including the merger and to render an opinion as to the fairness from a
financial point of view to the holders of the outstanding shares of Quickturn
common stock of the consideration to be received by said holders of Quickturn
common stock. Hambrecht & Quist was selected by the Quickturn Board of
Directors based on Hambrecht & Quist's qualifications, expertise and
reputation, as well as Hambrecht & Quist's prior investment banking
relationship and familiarity with Quickturn and the electronic design
automation industry.
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THE MERGER
<PAGE>
Hambrecht & Quist rendered its oral opinion, subsequently confirmed in
writing, on December 8, 1998 to the Quickturn Board of Directors that, as of
such date, the consideration to be received by the holders of Quickturn common
stock is fair from a financial point of view.
The full text of the opinion delivered by Hambrecht & Quist to the Quickturn
Board of Directors dated December 8, 1998, which sets forth the assumptions
made, general procedures followed, matters considered, and limitations on the
scope of review undertaken by Hambrecht & Quist in rendering its opinion, is
attached as Appendix C to this proxy statement/prospectus and is incorporated
herein by reference.
Hambrecht & Quist's opinion is directed only to the fairness, from a
financial point of view, of the consideration to be received by the holders of
Quickturn common stock and does not constitute a recommendation to any
Quickturn stockholder as to how any Quickturn stockholder should vote with
respect to the merger agreement. The summary of Hambrecht & Quist's fairness
opinion set forth below is qualified by reference to the full text of such
fairness opinion attached hereto as Appendix C. Quickturn stockholders are
urged to read the opinion carefully.
In its review of the merger, and in arriving at its opinion, Hambrecht &
Quist, among other things:
. reviewed the publicly available consolidated financial statements of
Cadence for recent years and interim periods to date and certain other
relevant financial and operating data of Cadence, including its capital
structure, made available to it from published sources;
. discussed the business, financial condition and prospects of Cadence
with certain members of senior management of Cadence;
. reviewed the publicly available consolidated financial statements of
Quickturn for recent years and interim periods to date and certain other
relevant financial and operating data of Quickturn made available to it
from published sources and from the internal records of Quickturn;
. reviewed certain internal financial and operating information relating
to Quickturn prepared by the senior management of Quickturn;
. discussed the business, financial condition and prospects of Quickturn
with certain members of senior management of Quickturn;
. reviewed the recent reported prices and trading activity for Cadence
common stock and Quickturn common stock and compared such information
and certain financial information for Cadence and Quickturn with similar
information for certain other companies engaged in businesses it
considers comparable;
. reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
. reviewed a draft of the merger agreement dated December 7, 1998; and
. performed such other analyses and examinations and considered such other
information, financial studies, analyses and investigations and
financial, economic and market data as Hambrecht & Quist deemed
relevant.
Hambrecht & Quist did not independently verify any of the information
concerning Quickturn or Cadence considered in connection with its review of the
merger and, for purposes of its opinion, Hambrecht & Quist assumed and relied
upon the accuracy and completeness of all such information. In connection with
its opinion, Hambrecht & Quist did not prepare or obtain any independent
valuation or appraisal of any of the assets or liabilities of Quickturn or
Cadence, nor did it conduct a physical inspection of the properties and
facilities of Quickturn or Cadence.
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<PAGE>
With respect to the financial forecasts and projections published by
securities research analysts or provided to it by Quickturn and used in its
analysis, Hambrecht & Quist assumed that these forecasts and projections
reflected the best currently available estimates and judgments of the expected
future financial performance of Cadence and Quickturn. For the purposes of its
opinion, Hambrecht & Quist also assumed that neither Quickturn nor Cadence was
a party to any pending transactions, including external financings other than
those contemplated that have been disclosed to Hambrecht & Quist,
recapitalizations or merger discussions, other than the merger and those
activities undertaken in the ordinary course of conducting their respective
businesses.
For purposes of its opinion, Hambrecht & Quist assumed that the merger will
qualify as a tax-free reorganization under the Code for the Quickturn
stockholders and that the merger will be accounted for as a pooling-of-
interests.
Hambrecht & Quist's opinion is necessarily based upon market, economic,
financial and other conditions as they existed and could be evaluated as of the
date of the opinion and any subsequent change in these conditions would require
a reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses set forth below does not purport to be a
complete description of the presentation by Hambrecht & Quist to the Quickturn
Board of Directors. In arriving at its opinion, Hambrecht & Quist did not
attribute any particular weight to any analyses or factors considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Hambrecht & Quist believes that its
analyses and the summary set forth below must be considered as a whole and that
selection of portions of its analyses, without considering all analyses, or of
the following summary, without considering all factors and analyses, could
create an incomplete view of the processes underlying the analyses set forth in
the Hambrecht & Quist presentation to the Quickturn Board of Directors and its
opinion.
In performing its analyses, Hambrecht & Quist made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Quickturn and Cadence.
The analyses performed by Hambrecht & Quist and summarized below are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses actually may be
acquired.
In performing its analyses, Hambrecht & Quist used published Wall Street
research estimates and selected financial and operating data made available to
it from the internal records of Quickturn for projections of Quickturn's
calendar years 1999 and 2000 financial performance, as well as unpublished
Hambrecht & Quist research estimates, for calendar year 2000. Hambrecht & Quist
used published Wall Street research estimates for projections of Cadences
calendar year 1999, as well as unpublished Hambrecht & Quist research estimates
for Cadence, for calendar year 2000.
All such analyses were performed using a $14.00 value per Quickturn share,
which was the value agreed upon by the parties as of the date of such opinion
and Quickturn Board of Directors approval. As the January 4, 1999 amendment
only increased the value per share of Quickturn common stock, no further
analysis was performed by Hambrecht & Quist.
The following is a brief summary of certain financial analyses performed by
Hambrecht & Quist in connection with providing its written opinion to the
Quickturn Board of Directors on December 8, 1998. Certain of the financial
analyses summarized below include information presented in tabular format. In
order to understand Hambrecht & Quist's financial analysis fully, the tables
must be read together with the text of each summary. Considering the data set
forth in the tables below without considering the full narrative description of
the financial analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of Hambrecht &
Quist's financial analysis.
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<PAGE>
Contribution Analysis. Hambrecht & Quist analyzed the contribution of each of
Quickturn and Cadence to a number of calendar year 1998, 1999 and 2000
financial statement categories of the pro forma combined company. The financial
statement categories included revenue, gross profit, earnings before interest
and taxes and net income. This contribution analysis was then compared to the
pro forma ownership percentage of Quickturn and Cadence stockholders in the pro
forma post-merger combined company. Hambrecht & Quist observed that, calculated
on a treasury share basis, and based upon an implied exchange ratio of 0.464
shares of Cadence common stock for each share of Quickturn common stock,
Quickturn stockholders are expected to own approximately 3.6% of the combined
company's equity at the close of the merger and Cadence stockholders are
expected to own approximately 96.4% of the combined company's equity at the
close of the merger.
<TABLE>
<CAPTION>
1998 1999 2000
----------------- ----------------- -----------------
Cadence Quickturn Cadence Quickturn Cadence Quickturn
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue.............. 92.4% 7.6% 91.8% 8.2% 91.9% 8.1%
Gross profit......... 93.1% 6.9% 92.3% 7.7% 92.0% 8.0%
Earnings before
interest and taxes.. 102.7% (2.7%) 96.7% 3.3% 95.0% 5.0%
Net income........... 100.7% (0.7%) 96.4% 3.6% 94.8% 5.2%
Ownership............ 96.4% 3.6% 96.4% 3.6% 96.4% 3.6%
</TABLE>
Pro Forma Merger Analysis. Hambrecht & Quist analyzed the pro forma impact of
the merger on the combined company's calendar year 1999 and 2000 earnings per
share using financial and operating data made available to it from the internal
records of Quickturn for projections of Quickturn's calendar year 1999 and 2000
financial performance and published Wall Street research estimates for
projections of Cadence's calendar year 1999 financial performance, as well as
unpublished Hambrecht & Quist research estimates for Cadence for calendar year
2000 financial performance. Hambrecht & Quist observed that this resulted in
lower earnings per share in calendar year 1999 for the combined company than
for Cadence on a stand-alone basis and higher earnings per share in calendar
year 2000 than for Cadence on a stand-alone basis. The foregoing analysis did
not assume any adjustments in revenues or costs resulting from the operating
synergies potentially realized from the merger. The actual results and savings
achieved by the combined company after the merger may vary from the projected
results and such variations may be material.
Analysis of Publicly Traded Comparable Companies. To provide contextual data
and comparative market information, Hambrecht & Quist compared selected
historical and projected financial information of Quickturn to publicly traded
electronic design automation companies that Hambrecht & Quist deemed to be
comparable to Quickturn. Electronic design automation companies deemed
comparable were Ansoft Corp., Avant! Corp., Cadence, Mentor Graphics
Corporation, Summit Design Inc., and Synopsys, Inc. This information included
the ratio of market value to projected net income as well as the ratio of the
enterprise value, which is market value plus debt less cash, to historical and
projected revenue. The foregoing multiples were applied to historical financial
results of Quickturn for the latest twelve-month period ended June 30, 1998 and
projected revenue and net income for calendar year 1998 and 1999 based on Wall
Street consensus estimates and selected financial and operating data made
available to Hambrecht & Quist from the internal records of Quickturn.
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<PAGE>
The following table summarizes the equity value ranges of Quickturn implied
by these comparable companies:
<TABLE>
<CAPTION>
Median Implied Quickturn
Multiple Per Share Value
-------- -----------------
<S> <C> <C>
Enterprise Value to:
Latest twelve-month Revenues.................. 2.2x $15.27
1998 Revenues (Wall Street Consensus
Estimates)................................... 2.0x $13.45
1999 Revenues (Quickturn Internal Data)....... 1.5x $13.74
Equity Value to:
1998 Earnings per share (Wall Street Consensus
Estimates)................................... 17.2x $ 6.38
1999 Earnings per share (Quickturn Internal
Data)........................................ 17.2x $10.33
Original Cadence Offer.......................... $14.00
</TABLE>
Analysis of Selected Merger and Acquisition Transactions. Hambrecht & Quist
compared the proposed merger with selected merger and acquisition transactions.
This analysis included 23 transactions involving companies in the electronic
design automation industry since 1991. These transactions were deemed to be
relevant and comparable because they reflect valuations paid in negotiated
transactions among companies, both public and private, that operate in the
electronic design automation market. In examining these transactions, Hambrecht
& Quist analyzed income statement parameters of the acquired company relative
to the consideration offered. The foregoing multiples were applied to the
latest twelve-month revenue of Quickturn for the twelve-month period ended
September 30, 1998. The median multiple offered in the selected comparable
merger and acquisition transactions was 6.4 times latest twelve-month revenues.
Based on the analysis of selected comparable merger and acquisition
transactions, Quickturn's implied equity value from applying multiples to
historical results was $38.74 per share. This implied equity value range
compared to an offer in the proposed merger as of December 8, 1998 of $14.00
per share.
Since Quickturn's last twelve-months of operations generated operating
losses, comparable merger and acquisition multiples could be applied only to
Quickturn's last twelve-month revenues. Because of this limited information,
Hambrecht & Quist considered this factor to be of limited significance.
No company or transaction used in the "Analysis of Publicly Traded Comparable
Companies" and "Analysis of Selected Merger and Acquisition Transactions" is
identical to Quickturn or the merger. Accordingly, an analysis of the results
of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading values of the companies or company to which they are compared.
Premium Analysis. Hambrecht & Quist compared the implied premium of the offer
as of December 8, 1998 to similar premiums for transactions in the electronic
design automation industry as well as to a broader range of 95 acquisitions of
public technology companies. The following table summarizes the premiums paid
in these two classes of transactions and compares them to the premium implied
by the original merger price of $14.00 per share.
<TABLE>
<CAPTION>
Period Prior
to Announcement
of Mentor Offer
-----------------
Four Implied Quickturn
One Day Weeks Per Share Value
------- -------- -----------------
<S> <C> <C> <C>
Electronic Design Automation
Transactions........................ 19.3% 31.8% $9.54-$9.89
Negotiated Technology Acquisitions... 25.9% 41.5% $10.07-$10.61
Original $14.00 Cadence Offer........ 75.0% 85.1%
</TABLE>
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<PAGE>
Hambrecht & Quist also analyzed the implied premiums to closing prices for
the one week and three months prior to August 12, 1998 using the original
merger offer price of $14.00 and found that the implied premiums were 89.8% and
41.8%, respectively.
Potential Future Market Valuation. Hambrecht & Quist compared the offer in
the proposed merger to a range of potential future market values based on
projected earnings and revenue and ranges of corresponding forward multiples.
Hambrecht & Quist applied multiples of earnings of 15.0, 17.5, and 20.0 times
forward earnings and multiples of revenue of 1.5, 2.0, and 2.5 times trailing
revenue to projected results for Quickturn based on Wall Street consensus
estimates and selected financial and operating data made available to it from
the internal records of Quickturn. By applying discount rates based on
Quickturn's expected cost of capital to the implied future market value,
Hambrecht & Quist was able to determine a present value of the implied future
market values. Hambrecht & Quist used a range of discount rates from 14% to 22%
for purposes of discounting Quickturn's projected market value.
The following table summarizes the values implied by this analysis and
compares them to the original offer of $14.00 per share.
<TABLE>
<CAPTION>
Implied
Quickturn Per
Share Value
-------------
<S> <C>
Wall Street Consensus Estimates
1999 Earnings Per Share.................................... $5.70-$7.60
2000 Earnings Per Share.................................... $8.36-$11.93
1999 Revenues.............................................. $9.28-$14.91
2000 Revenues.............................................. $8.36-$14.59
Quickturn Internal Data
1999 Earnings Per Share.................................... $8.99-$11.99
2000 Earnings Per Share.................................... $13.40-$19.13
1999 Revenues.............................................. $10.02-$16.24
2000 Revenues.............................................. $9.66-$17.06
Original Cadence Offer ...................................... $14.00
</TABLE>
The foregoing description of Hambrecht & Quist's opinion is qualified by
reference to the full text of the opinion which is attached as Appendix C to
this proxy statement/prospectus.
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, strategic transactions, corporate restructurings,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Hambrecht & Quist has acted as a financial advisor to the Quickturn Board of
Directors in connection with the merger, and it will receive a fee for its
services, which include the rendering of the fairness opinion.
In the past, Hambrecht & Quist has provided investment banking and other
financial advisory services to Quickturn and has received fees for rendering
these services. Hambrecht & Quist served as co-manager in Quickturn's December
1993 initial public offering, advised Quickturn in the January 1996 adoption of
its Shareholder Rights Plan, advised Quickturn in its February 1997 acquisition
of SpeedSim, Inc., and advised Quickturn in its June 1997 acquisition of the
assets of Arkos Design, Inc. from Synopsys, Inc. During the past two years,
Quickturn has paid Hambrecht & Quist aggregate fees of approximately $1.7
million, including $250,000 paid in connection with the merger, as described
below. In the ordinary course of business, Hambrecht & Quist acts as a market
maker and broker in the publicly traded securities of Quickturn and receives
customary compensation in connection therewith, and also provides research
coverage for Cadence and Quickturn. In the ordinary course of business,
Hambrecht & Quist actively trades in the equity and derivative securities of
Cadence and Quickturn for its own account and for the accounts of its customers
and, accordingly,
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THE MERGER
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may at any time hold a long or short position in such securities. Moreover,
Hambrecht & Quist and its affiliates own 40,000 shares of Quickturn common
stock. Hambrecht & Quist may in the future provide investment banking or other
financial advisory services to Cadence or Quickturn.
Pursuant to an engagement letter dated August 14, 1998, Quickturn has agreed
to pay Hambrecht & Quist a fee of $250,000 in connection with the delivery of
the fairness opinion rendered on December 8, 1998. Quickturn has agreed to pay
Hambrecht & Quist upon consummation of the merger, a fee of 1.0% of the
aggregate consideration paid in the transaction, less any fees previously
paid. This fee is expected to total approximately $3.16 million. Quickturn
also has agreed to reimburse Hambrecht & Quist for its reasonable out-of-
pocket expenses and to indemnify Hambrecht & Quist against certain
liabilities, including liabilities under the federal securities laws or
relating to or arising out of Hambrecht & Quist's engagement as financial
advisor.
The Merger
Once the conditions to completing the merger contained in the merger
agreement have been satisfied or waived, the merger will be completed in
accordance with Delaware law. Quickturn will become a wholly-owned subsidiary
of Cadence and you will become Cadence stockholders.
Conversion of Quickturn Stock; Treatment of Quickturn Stock Options and
Warrants
As a result of the merger, each outstanding share of Quickturn common stock
will be converted into $15 worth of Cadence common stock. Because the value of
Cadence common stock will be based on the average closing prices over a five
day period that ends two business days before the merger closes, the number of
shares of Cadence common stock that Quickturn stockholders will receive in the
merger cannot be determined in advance. Also, since the market price of
Cadence common stock fluctuates, the value of Cadence common stock that
Quickturn stockholders receive in the merger may increase or decrease in the
two day period after the valuation has been set but before the merger occurs.
Each stock option to acquire Quickturn common stock granted under
Quickturn's stock option and incentive plans, which we refer to as the
Quickturn stock plans, and each warrant to acquire Quickturn common stock
outstanding and unexercised immediately before the merger will be converted
automatically in the merger into a stock option and warrant, respectively, to
purchase Cadence common stock. In each case, the number of shares of Cadence
common stock subject to the new Cadence options and warrants will be equal to
the number of shares of Cadence common stock that the holder of the Quickturn
option or warrant would have been entitled to receive in the merger had the
holder exercised the option or warrant in full immediately before the merger
at a price per share equal to the pre-merger exercise price divided by the
number of shares of Cadence common stock to be issued in exchange for each
share of outstanding Quickturn common stock. For example, assuming that 0.5 of
a share of Cadence common stock will be issued for each Quickturn share, an
option for Quickturn common stock with an exercise price before the merger of
$10.00 per share would have a post-merger exercise price of $10.00 / 0.5, or
$20.00 per share. The terms of each new Cadence option and warrant will be
substantially the same as the corresponding Quickturn option and warrant. In
any event, options that are incentive stock options under the Internal Revenue
Code will be adjusted as provided by the Internal Revenue Code.
Soon after the merger occurs, Cadence will deliver to the holders of
Quickturn options and warrants notices that describe these holders' rights
under the Quickturn stock plans and warrants, as applicable, and confirmation
that the terms of the agreements evidencing the grants of the options or
warrants continue subject to adjustments giving effect to the merger.
Exchange of Certificates; Fractional Shares
At or before the merger, Cadence will deliver to its designated exchange
agent certificates representing the shares of Cadence common stock, and cash
instead of any fractional shares that would otherwise be issued to
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THE MERGER
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Quickturn stockholders under the merger agreement in exchange for the
outstanding shares of Quickturn common stock.
Soon after the merger occurs, the exchange agent will mail to Quickturn
stockholders a form of transmittal letter. The form of transmittal letter will
contain instructions for the surrender of certificates representing Quickturn
common stock.
Please do not return Quickturn common stock certificates with the enclosed
proxy and do not forward your certificates to the exchange agent unless and
until you receive a letter of transmittal following the merger.
Upon surrender of the certificates representing Quickturn common stock after
the merger, you will be paid cash instead of any fractional shares of Cadence
common stock you would otherwise receive. The amount of cash you receive
instead of a fractional share will be equal to:
. the fraction of a share you would otherwise receive multiplied by
. the average of the closing prices of Cadence common stock, as reported
on the New York Stock Exchange Composite Transactions reporting system,
for the five trading days immediately preceding the date that is two
business days before the merger.
Cadence will pay you dividends or other distributions declared on Cadence
common stock only after the merger has occurred.
If a certificate for Quickturn common stock has been lost, stolen or
destroyed, the exchange agent will issue your shares of Cadence common stock
and any cash instead of a fractional share only after you have delivered an
affidavit as to the loss, theft or destruction of the certificate and as to
your ownership of the certificate. Cadence or the exchange agent may require
you to post bond in such amount as Cadence or the exchange agent may determine
is necessary as indemnity against any claim that may be made against Cadence
with respect to the lost, stolen or destroyed certificate.
Closing
The closing date of the merger will be a date specified by Cadence and
Quickturn, but will be no later than two business days after the satisfaction
or waiver of the latest to occur of the conditions to the merger in the merger
agreement. Cadence and Quickturn anticipate that the merger will close no later
than May 25, 1999. However, a delay in obtaining any required governmental
approval may delay closing the merger. We cannot assure you if or when these
approvals will be obtained or that the merger will, in fact, be completed. If
the merger does not occur on or before June 30, 1999, the merger agreement may
be terminated by either Cadence or Quickturn, unless the failure to complete
the merger by that date is due to the failure of the party seeking to terminate
the merger agreement to perform or observe its covenants and agreements in the
merger agreement. See "--Conditions to Completing the Merger" and "--Regulatory
Approvals Required for the Merger."
Representations and Warranties
The merger agreement contains representations and warranties of Cadence and
Quickturn. These include:
. due organization, existence, good standing and qualification to do
business and, in the case of Quickturn, its subsidiaries.
. capitalization and, in the case of Quickturn, the capitalization of its
subsidiaries.
. corporate power and authority to enter into the merger agreement and
perform its obligations under the merger agreement.
. compliance of the merger agreement with each party's charter documents,
material agreements and applicable law.
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<PAGE>
. governmental and third-party approvals.
. filing required regulatory reports on time.
. each party's financial statements and filings with the Securities
Exchange Commission.
. broker's fees arising from the merger.
. absence of significant and negative changes in its business since
September 30, 1998.
. absence of material legal proceedings and injunctions.
. accuracy of the information about each party included in this proxy
statement/prospectus.
. each party's and Quickturn's subsidiaries' compliance with applicable
law.
. absence of undisclosed liabilities.
. absence of material environmental liabilities.
. qualification of the merger as a reorganization under 368(a) of the
Internal Revenue Code and for pooling-of-interests accounting treatment.
The merger agreement contains additional representations and warranties of
Quickturn. These include its:
. tax returns.
. employee benefit plans and related matters.
. insurance.
. lawful business practices.
. intellectual property.
. product warranties and guaranties.
. customers and suppliers.
. its rights plan not being triggered.
. ""Year 2000" compliance.
Conduct of Business Before the Merger
Each of Cadence and Quickturn has agreed to do several things before the
merger occurs. These include:
. conducting its business in the ordinary course.
. seeking to preserve intact its business organization and advantageous
business relationships.
. retaining the services of its current officers and employees.
Cadence and Quickturn have also agreed to:
. cooperate with each other and use all reasonable efforts to make all
filings, and to obtain consents and approvals of all third parties and
governmental authorities necessary to complete the merger, and to comply
with the terms and conditions of these consents and approvals.
. furnish to the other party all information about itself and its
subsidiaries as the other party reasonably requests.
. use all reasonable efforts to take all actions to comply promptly with
legal requirements imposed on it and to complete the merger.
Cadence has also agreed to use all reasonable efforts to list its shares to
be issued in the merger on the New York Stock Exchange. Subject to the merger
agreement, Cadence has agreed to use all reasonable efforts to cause the merger
to occur as soon as practicable after Quickturn stockholders approve the
merger.
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Quickturn has agreed:
. not to redeem any of the rights issued under its rights plan.
. not to amend its rights plan in any way that would make it easier for
someone other than Cadence to acquire a large number of shares of
Quickturn common stock, unless the merger agreement is first terminated
in accordance with its terms.
Unless the merger agreement permits, Quickturn has agreed for itself and its
subsidiaries not to:
. amend its charter documents.
. issue or agree to issue any stock of any class or any other securities,
except bank loans, or equity equivalents, except for shares of Quickturn
common stock issued under options or warrants granted before the date of
the merger agreement.
. split, combine or reclassify any shares of its capital stock.
. declare or pay any dividend or other payment of any kind in respect of
its capital stock.
. acquire any of its or its subsidiaries' securities.
. adopt a plan of complete or partial liquidation, dissolution, merger or
other reorganization other than the merger with Cadence.
. alter any subsidiary's corporate structure or ownership.
. incur or assume any debt, except under existing lines of credit in the
ordinary course of business.
. become responsible for the obligations of any other person except for
obligations of Quickturn's subsidiaries incurred in the ordinary course
of business.
. make any loans to or investments in any other person, except its
subsidiaries or for customary loans or advances to employees in the
ordinary course of business consistent with its past practices.
. encumber its capital stock.
. mortgage or pledge any of its material assets or create or permit any
material lien on these assets.
. except as required by law, enter into, adopt, modify or terminate any
employee compensation or benefit plan or increase any compensation or
fringe benefits except in the ordinary course of year-end compensation
reviews consistent with its past practices to the extent that these
compensation increases and bonus arrangements do not significantly
increase benefits or compensation expense to Quickturn or the applicable
Quickturn subsidiary.
. acquire or dispose of any assets in any single transaction or series of
related transactions having a fair market value in excess of $100,000 in
the aggregate, except for sales of its products in the ordinary course
of business consistent with its past practices.
. except as required as a result of a change in law or in generally
accepted accounting principles, change any of its accounting principles,
practices or methods.
. revalue in any material respect any of its assets other than in the
ordinary course of business.
. acquire any other business.
. enter into any material agreement other than in the ordinary course of
business consistent with its past practices.
. modify or waive any right under its important contracts.
. modify its standard product warranty terms or modify any existing
product warranties in any significant and negative manner.
. authorize any new capital expenditure(s) individually in excess of
$100,000 or all together in excess of $300,000, except as required by
existing customer contracts.
. make any material tax election or settle or compromise any material
income tax liability.
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. settle or compromise any legal proceeding that relates to the merger
agreement or has a significant and negative effect on Quickturn.
. begin or terminate any significant software development project, except
under the terms of existing contracts with customers or as contemplated
by Quickturn's project development budget.
. agree to take any of the actions described above.
Quickturn has also agreed to use all reasonable efforts not to do anything
that would make any of its representations or warranties contained in the
merger agreement untrue.
Cadence has agreed for itself and its subsidiaries not to:
. knowingly do anything that would prevent Cadence common stock from
trading on the New York Stock Exchange.
. acquire or agree to acquire any other business except in the ordinary
course of business consistent with its past practices, if doing so would
prevent or significantly delay completion of the merger.
. adopt or propose to adopt any amendments to its charter documents that
might prevent our completion of the merger.
. agree to take any of the actions described above or any other action
that would make any of Cadence's representations or warranties in the
merger agreement untrue.
The merger agreement restricts Quickturn's ability to discuss or negotiate
proposals for certain significant transactions with anyone other than Cadence.
These provisions require Quickturn not to have or continue discussions with
anyone else for any third party acquisition.
We use the term third party acquisition to mean any of the following:
. an acquisition of Quickturn.
. the acquisition of any significant portion of Quickturn's assets, other
than the sale of its products in the ordinary course of business
consistent with its past practices.
. an acquisition of 15% or more of the outstanding shares of Quickturn
common stock.
. Quickturn's adoption of a plan of liquidation or declaration or payment
of an extraordinary dividend.
. Quickturn's repurchase of more than 10% of its outstanding shares.
. Quickturn's acquisition of any interest or investment in any business
whose annual revenue, net income or assets is equal to or greater than
10% of the annual revenue, net income or assets of Quickturn.
Quickturn has agreed that it will:
. not encourage, solicit or participate in discussions with or provide any
non-public information to anyone except Cadence concerning any third
party acquisition. However, the merger agreement does not prohibit the
Quickturn Board of Directors from taking and disclosing to Quickturn
stockholders a position contemplated by Rules 14d-9 and 14e-2 under the
Securities Exchange Act of 1934 with regard to a tender or exchange
offer made by someone other than Cadence.
. notify Cadence if Quickturn receives any communication about a third
party acquisition.
. advise Cadence from time to time of the status and any significant
developments concerning any communication about a third party
acquisition.
The Quickturn Board of Directors may not withdraw its recommendation of the
merger with Cadence. It also may not approve or recommend or cause Quickturn to
enter into any agreement for any third party acquisition. However, if the
Quickturn Board determines in its good faith judgment, after consultation with
and based upon the advice of legal counsel, that its fiduciary duties require
it to do so, the Quickturn Board may
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withdraw its recommendation of the merger, or approve or recommend any bona
fide proposal to acquire more than 50% of the shares of Quickturn common stock
then outstanding, or all or substantially all of Quickturn's assets, on terms
that the Quickturn Board of Directors by a majority vote determines in good
faith, based on the written advice of Hambrecht & Quist or another well-known
financial advisor, to be more favorable to Quickturn stockholders than the
merger with Cadence. We sometimes refer to any proposal described in the prior
sentence as a superior proposal. The Quickturn Board of Directors may do so
only after providing written notice to Cadence advising Cadence that the
Quickturn Board of Directors has received this proposal. This notice must
specify the significant terms and conditions and identify the person making the
superior proposal. Cadence will then have five business days to make an offer
that the Quickturn Board of Directors by a majority vote determines in good
faith, based on the written advice of a financial advisor of nationally
recognized reputation, to be at least as favorable to Quickturn stockholders as
the superior proposal. If Cadence fails to make this response, Quickturn may
enter into an agreement with respect to the superior proposal only after the
merger agreement is terminated in accordance with its terms and Quickturn has
paid all of the $10,557,000 liquidated damages due to Cadence under the merger
agreement as described below under "--Termination of the Merger Agreement--
Effect of Termination". Any disclosure that the Quickturn Board of Directors
must make with respect to a proposed third party acquisition or otherwise in
order to comply with its fiduciary duties under Delaware law or Rule 14d-9 or
14e-2 under the Securities Exchange Act of 1934 will not be a violation of the
merger agreement, so long as the disclosure states that the Quickturn Board of
Directors won't take any action in violation of the provisions described above.
Conditions to Completing the Merger
Neither of us must complete the merger unless:
. Quickturn stockholders have approved the merger agreement.
. no law or order by any United States federal or state court or
governmental authority prohibits or restricts the merger.
. we have received all governmental approvals or other requirements
necessary to complete the merger and generally operate Quickturn's
business after the merger as it was operated prior to the merger.
. the registration statement containing this proxy statement/prospectus is
not subject to any stop order or proceedings seeking a stop order by the
Securities and Exchange Commission.
. Cadence's and Quickturn's independent accountants have agreed with the
companies' determination that the merger will be accounted for as a
pooling-of-interests.
Quickturn will not be required to complete the merger unless:
. except for insignificant defects, Cadence's representations and
warranties in the merger agreement and in the option agreement are true
on the closing date of the merger.
. Cadence has performed each of its agreements to be performed before the
merger.
. the Cadence common stock issuable to Quickturn stockholders in the
merger will be listed on the New York Stock Exchange.
. Quickturn has received an opinion from its tax counsel stating that
generally the merger will be tax-free to Quickturn, Cadence and
Quickturn stockholders for federal income tax purposes.
. Quickturn has received an opinion from Cadence's legal counsel relating
to Cadence's corporate status and the merger.
. Cadence has received any significant and necessary consents and
approvals for completing the merger.
. there has been no significant and negative event regarding Cadence.
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Cadence will not be required to complete the merger unless:
. except for insignificant defects, Quickturn's representations and
warranties contained in the merger agreement are true on the closing
date of the merger.
. Quickturn has performed each of its agreements to be performed before
the merger.
. there have been no significant and negative events regarding Quickturn.
. Cadence has received the opinion of its tax counsel stating that
generally the merger will be tax-free for federal income tax purposes.
. Cadence has received the opinion of legal counsel to Quickturn relating
to Quickturn's corporate status and the merger.
. Quickturn has received the consent or approval of each person required
to permit Quickturn to maintain any obligation, right or interest under
agreements listed on Quickturn's disclosure schedule to the merger
agreement.
. Keith R. Lobo has not challenged his employment agreement or continued
employment with Quickturn post-merger.
We cannot assure you that all of the conditions to completing the merger will
be satisfied or waived.
Regulatory Approvals Required for the Merger
General. Cadence and Quickturn have agreed to use all reasonable efforts to
do all things reasonably necessary under applicable laws to complete the
merger. These things include:
. obtaining consents of all third parties and governmental authorities
necessary to complete the merger.
. contesting any legal action designed to prevent the merger.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and the U.S. Federal Trade Commission's rules, we may not complete the merger
until we have filed the required notifications with the Federal Trade
Commission or the Antitrust Division of the U.S. Department of Justice, and
have waited a specified period of time. On December 11, 1998, Cadence and
Quickturn filed the notifications required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as well as certain information required to
be given to the Federal Trade Commission and the Justice Department. On
January 10, 1999, the Hart-Scott-Rodino waiting period expired without a
request for additional documents or information. However, at any time before or
after the merger, and even though the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 waiting period has expired, the Justice Department, the Federal
Trade Commission or any state or foreign governmental authority could take
action under the antitrust laws as it deems necessary in the public interest.
This action could include seeking to enjoin the merger or seeking Cadence's
divestiture of Quickturn or Cadence's divestiture of its or Quickturn's
businesses. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances.
Based on information available to them, Cadence and Quickturn believe that
the merger will comply with all significant federal, state and foreign
antitrust laws. However, we cannot assure you that there will not be a
challenge to the merger on antitrust grounds or that, if this kind of challenge
were made, we would prevail.
Cadence and Quickturn are not aware of any other regulatory approvals or
actions that are required for the merger. If any additional governmental
approvals or actions are required, we intend to try to get them. We cannot
assure you, however, that we will be able to obtain any additional approvals or
actions.
Material Federal Income Tax Consequences
The following discussion addresses the material federal income tax
considerations of the merger that are generally applicable to Quickturn
stockholders exchanging their Quickturn common stock for Cadence common
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stock. This discussion does not deal with all federal income tax considerations
that may be relevant to particular Quickturn stockholders in light of their
particular circumstances, such as stockholders who are dealers in securities,
who are banks, insurance companies or tax-exempt organizations, who are subject
to alternative minimum tax, who hold their shares as part of a hedge, straddle
or other risk reduction transaction, who are foreign persons or who acquired
their Quickturn common stock through stock option or stock purchase programs or
otherwise as compensation. In addition, it does not address the tax
consequences of the merger under foreign, state or local tax laws or the tax
consequences of transactions completed before or after the merger, such as the
exercise of options or rights to purchase Quickturn common stock in
anticipation of the merger.
Quickturn stockholders are urged to consult their own tax advisors regarding
the tax consequences to them of the merger based on their own circumstances,
including the applicable federal, state, local and foreign tax consequences to
them of the merger.
The following discussion is based on the Internal Revenue Code, applicable
Treasury Regulations, judicial decisions and administrative rulings and
practice, all as of the date of this proxy statement/prospectus, all of which
are subject to change. Any such changes could be applied retroactively and
could affect the accuracy of the statements and conclusions in this discussion
and the tax consequences of the merger to Cadence, Quickturn and/or their
stockholders.
Neither Cadence nor Quickturn has requested or will request a ruling from the
Internal Revenue Service with regard to any of the tax consequences of the
merger. Gibson, Dunn & Crutcher LLP, counsel to Cadence, has rendered its
opinion to Cadence and Wilson Sonsini Goodrich & Rosati, counsel to Quickturn,
has rendered an opinion to Quickturn that the following are the material U.S.
federal income tax consequences of the merger:
. the merger will constitute a reorganization under Section 368(a) of the
Internal Revenue Code.
. each of Cadence and Quickturn will be a party to the reorganization
within the meaning of Section 368(b) of the Internal Revenue Code.
. No gain or loss will be recognized by a Quickturn stockholder upon the
receipt of Cadence common stock solely in exchange for Quickturn common
stock in the merger, except for gain resulting from cash received in
lieu of fractional shares as discussed below.
. The aggregate tax basis of the Cadence common stock received by a
Quickturn stockholder in the merger, including any fractional share of
Cadence common stock for which cash is received, will be the same as the
aggregate tax basis of the Quickturn common stock exchanged for the
Cadence stock.
. The holding period of the Cadence common stock received by each
Quickturn stockholder in the merger will include the period for which
the Quickturn common stock exchanged therefor was considered to be held,
provided that the Quickturn common stock was held as a capital asset at
the time of the merger.
. A Quickturn stockholder receiving cash instead of a fractional share of
Cadence common stock will generally recognize gain or loss equal to the
difference between the amount of cash received and the stockholder's
basis in the fractional share.
. Neither Cadence nor Quickturn will recognize gain or loss solely as a
result of the merger.
As a condition to the merger, each counsel must reaffirm the foregoing opinions
at the closing of the merger. The opinions that have been rendered and to be
reaffirmed at the closing of the merger are and will be subject to the
limitations and qualifications referred to in this discussion, and will be
conditioned upon the following assumptions:
. the truth and accuracy of the statements, covenants, representations and
warranties in the merger agreement, in the representations received from
Cadence and Quickturn to support the opinions, and in other documents
related to Cadence and Quickturn relied upon by each counsel, for those
opinions.
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. the performance of all covenants contained in the merger agreement and
the tax representations without waiver or breach of any material
provision thereof.
. the accuracy of any representation or statement made "to the best of
knowledge" or qualified in a similar manner.
. the reporting of the merger as a reorganization under Section 368(a) of
the Internal Revenue Code by Cadence and Quickturn in their respective
federal income tax returns.
. other customary assumptions as to the accuracy and authenticity of
documents provided to each counsel.
Opinions of counsel are not binding on the Internal Revenue Service or the
courts. If the Internal Revenue Service determines successfully that the merger
is not a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, Quickturn stockholders must recognize gain or loss with respect
to each share of Quickturn common stock surrendered equal to the difference
between the tax basis in the share and the fair market value of the Cadence
common stock received in exchange for the Quickturn share. In this event, a
Quickturn stockholder's aggregate basis in the Cadence common stock received
would equal its fair market value, and the stockholder's holding period for the
stock would begin the day after the merger.
A recipient of shares of Cadence common stock will recognize gain to the
extent that the shares are received in exchange for services or property other
than solely Quickturn common stock. All or a portion of this gain may be
taxable as ordinary income. A Quickturn stockholder would also have to
recognize gain to the extent that he or she received consideration other than
Cadence common stock in exchange for Quickturn common stock.
Payments in respect of Quickturn common stock or a fractional share of
Cadence common stock may be subject to information reporting to the Internal
Revenue Service and to a 31% backup withholding tax. Backup withholding will
not apply to a payment to a stockholder who completes and signs the substitute
Form W-9 that will be included as part of the transmittal letter, or otherwise
proves to Cadence and its exchange agent that it is exempt from backup
withholding.
Accounting Treatment
We believe that the merger will be accounted for as a pooling-of-interests
transaction under generally accepted accounting principles. Under this method
of accounting, the book value of the assets, liabilities and stockholders'
equity of each of Cadence and Quickturn, as reported on its consolidated
balance sheet, will be carried over to the consolidated balance sheet of the
combined company, and no goodwill will be created. The combined company will be
able to include in its consolidated income the consolidated income of both
companies for the entire fiscal year in which the merger occurs.
The unaudited pro forma financial information in this proxy
statement/prospectus has been prepared using the pooling-of-interests
accounting method to account for the merger.
Termination of the Merger Agreement
Termination. The merger agreement may be terminated at any time prior to the
merger, before or after it has been approved by Quickturn stockholders. This
termination may occur in the following ways:
. Cadence and Quickturn both decide to terminate it.
. Cadence or Quickturn decides to terminate it because:
1. a United States court or other governmental authority has issued a
non-appealable, final ruling prohibiting the merger; or
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2. the merger is not completed by June 30, 1999, unless the failure
to close by that date is due to the failure of the party seeking to
terminate the merger agreement to perform its agreements in the merger
agreement.
. Quickturn decides to terminate it because:
1. Cadence's representations or warranties in the merger agreement
are untrue to the extent that the conditions to Quickturn's obligation
to complete the merger could not be satisfied by June 30, 1999, so long
as Quickturn has not seriously breached its own obligations under the
merger agreement;
2. Cadence failed to perform its agreements in the merger agreement,
and this failure substantially adversely affects Cadence or the merger,
so long as Quickturn has not seriously breached its own obligations in
the merger agreement;
3. Quickturn has failed to obtain its stockholders' approval of the
merger agreement; or
4. The Quickturn Board has received a superior proposal and responded
in a way that permits termination of the merger agreement.
. Cadence decides to terminate it because:
1. Quickturn's representations or warranties in the merger agreement
are untrue to the extent that the conditions to Cadence's obligation to
complete the merger could not be satisfied by June 30, 1999, so long as
Cadence has not seriously breached its own obligations in the merger
agreement;
2. Quickturn has failed to perform its agreements in the merger
agreement, and this failure substantially adversely affects Quickturn
or the merger, so long as Cadence has not seriously breached its own
obligations in the merger agreement;
3. the Quickturn Board has recommended to its stockholders a superior
proposal;
4. the Quickturn Board has withdrawn or negatively modified its
recommendation of the merger with Cadence;
5. Quickturn has stopped using all reasonable efforts to hold a
stockholders' meeting to vote on the merger with Cadence; or
6. Quickturn convened a meeting of the Quickturn stockholders to vote
on the merger but did not obtain their approval.
Effect of Termination. Even after the merger agreement has been terminated,
its confidentiality and fees and expenses provisions will remain in effect.
Also, termination will not relieve either party from liability for any breach
by it of the merger agreement before it was terminated.
Liquidated Damages and Expenses. Quickturn has agreed to pay Cadence
$10,557,000 as liquidated damages if the merger agreement is terminated as
follows:
. It is terminated by Quickturn because the Quickturn Board of Directors
received a superior proposal and responded in a way that permitted
termination.
. It is terminated by Cadence because the Quickturn Board recommended that
stockholders approve a Superior Proposal, the Quickturn Board is no
longer recommending the merger with Cadence or Quickturn stops trying to
convene a stockholders meeting to approve the merger with Cadence.
. It is terminated by Cadence because of a significant breach by Quickturn
and, within a year after termination, Quickturn enters into another
agreement for the sale of a substantial interest in Quickturn or its
business with someone it had contact with relating to this kind of
transaction before our merger agreement was terminated.
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In addition, Quickturn has agreed to pay Cadence $3,500,000 as reimbursement
of its fees and expenses if the merger agreement is terminated as follows:
. It is terminated by Quickturn because Quickturn held a stockholders
meeting to vote on the merger but did not obtain stockholder approval or
the Quickturn Board received a superior proposal and responded in a way
that permitted termination.
. It is terminated by Cadence for any of the following reasons:
1. Quickturn's representations or warranties in the merger agreement
are untrue to the extent that the conditions to Cadence's obligation to
complete the merger could not be satisfied by June 30, 1999.
2. Quickturn failed to perform its agreements in the merger
agreement, and this failure substantially adversely affects Quickturn
or delays the merger.
3. The Quickturn Board withdrew or negatively modified its
recommendation of the merger.
4. Quickturn stopped using all reasonable efforts to hold a
stockholders' meeting to vote on the merger.
5. Quickturn held a stockholders meeting to vote on the merger but
did not obtain stockholder approval.
Further, Cadence has agreed to pay Quickturn $3,500,000 as reimbursement of
its fees and expenses if the merger agreement is terminated by Quickturn
because:
. Cadence's representations or warranties in the merger agreement are
untrue to the extent that the conditions to Quickturn's obligation to
complete the merger could not be satisfied by June 30, 1999.
. Cadence failed to perform its agreements in the merger agreement, and
this failure adversely effects Cadence or the merger.
Except as described above, whether or not the merger occurs, we have agreed
to pay our own fees and expenses incurred in connection with the merger
agreement.
Extension, Waiver and Amendment of the Merger Agreement
Extension and Waiver. At any time prior to the merger, Cadence and Quickturn
may agree to:
. Extend the time for the performance of any of the obligations or other
acts of the other party.
. Waive any inaccuracies in the other's representations and warranties.
. Waive the other's compliance with any of the agreements or conditions in
the merger agreement.
Amendment. The merger agreement may be changed by us at any time before or
after Quickturn stockholders approve the merger. However, any change which by
law requires the approval of Quickturn stockholders will require their
subsequent approval to be effective.
Employee Benefits and Plans
After the merger, the employee or director benefit plans, arrangements and
agreements of Quickturn existing on the date of the merger agreement, will
remain in effect with respect to Quickturn employees covered by these plans
when the merger occurs until such time as Cadence modifies or terminates any of
these Quickturn benefit plans.
Interests of Quickturn's Management in the Merger
Certain members of Quickturn's management have interests in the merger that
are in addition to their interests as Quickturn stockholders generally. The
Quickturn Board was aware of these interests and considered them in approving
the merger agreement.
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The directors, officers and principal stockholders of Quickturn and their
associates may have had in the past, and may have in the future, transactions
in the ordinary course of business with Cadence. Any of these transactions
were, and are expected to be, on substantially the same terms as those between
Cadence and others for similar transactions.
Employment Agreements. At the time it entered into the merger agreement,
Cadence and Quickturn also entered into employment agreements with Keith Lobo,
K.C. Chu, Christopher Tice, Tung-Sun Tung, Kevin Ladd, Mikhail Bershteyn and
Ming Wang. Each employment agreement becomes effective when the merger occurs
and runs for a term of 18 months. During the employment period, Mr. Lobo and
each of these other employees will serve Quickturn in roughly the same
capacities as he serves in his current position with Quickturn. He will also be
entitled to a specified annual base salary and a bonus based on a percentage of
base salary. In addition to his cash compensation, each employee will be
entitled to receive options to purchase shares of Cadence common stock.
The employment agreements further provide that, upon termination of the
employee's employment with Quickturn at any time before the one year
anniversary of the merger, the employee's compensation will be determined
solely in accordance with the applicable Quickturn retention plan, as described
below. If, between the one year anniversary and the date which is 18 months
after we complete the merger, there occurs a:
. Termination without cause,
. Voluntarily termination as a result of a reduction in base pay,
. Reduction in title or a material change in job responsibilities,
. Relocation to more than 35 miles from his work location immediately
before the merger,
the employee will be entitled to a cash payment equal to his base salary for
the remainder of the 18-month employment period. Upon termination at any time
during the employment period, the Cadence stock options granted to the
terminated employee during the employment period will no longer vest and all
other employee medical, dental and other benefits will terminate, except as
otherwise required under the applicable Quickturn retention plan described
below.
Each employee has also agreed not to compete with Quickturn and Cadence
before the later of the 18 month anniversary of the merger and the employee's
termination of employment with Quickturn.
In addition, until one year after termination of his employment, the employee
may not:
. Solicit Cadence's or post-merger Quickturn's employees, clients or
customers.
. Use any Cadence or Quickturn trade secret or proprietary information.
. Interfere or attempt to interfere with post-merger Quickturn's or
Cadence's relationship with its customers or clients.
. Solicit the business of any client or customer of Cadence or post-merger
Quickturn.
Management Retention Plan. The Quickturn management retention plan provides
severance benefits to Quickturn management employees where their employment is
constructively terminated within the twelve-month period after a change of
control of Quickturn. The merger will be a change of control for purposes of
the Quickturn management retention plan. Constructive termination includes:
. A significant reduction of the employee's duties or responsibilities,
annual base salary, bonus or employee benefits.
. Relocation more than 35 miles from his work location immediately before
the merger.
. Cadence's failure to assume the Quickturn management retention plan
after the merger.
. Any constructive termination under applicable law.
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Upon constructive termination, each employee would be entitled to receive a
payment equal to between 150% and 250% of his base salary and the average of
his bonus over the prior three years, and, if not previously paid, an
additional pro-rated bonus for the year in which the employee is terminated.
Mr. Lobo would receive an amount representing 250% of his base salary plus
average annual bonus for the prior three years, and benefits for two and one-
half years after his termination date. Messrs. Tice and Tung would be entitled
to receive 200% of their base salaries plus average annual bonus, and benefits
for two years after their respective termination dates. Messrs. Chu, Ladd, and
Wang would be entitled to receive 150% of their base salaries plus average
annual bonus, and benefits for one and a half years after their respective
termination dates.
Under the Quickturn management retention plan, all benefits and payments are
reduced only to avoid triggering the golden parachute excise tax and non-
deductibility provisions of the Internal Revenue Code if doing so would
maximize the after-tax economic benefit to such officers.
Employee Retention Plan. The Quickturn employee retention plan provides
severance benefits for employees who are not participants in the Quickturn
management retention plan, including Mr. Bershteyn. If the participant is
involuntarily terminated without cause within 12 months after a change of
control, the Quickturn employee retention plan entitles the employee to a
severance payment equaling two weeks' base salary for each full year of
employment with Quickturn up to and including the date of the change of
control, with a minimum payment of three months, or six months for director-
level employees and employees designated as key contributors by the chief
executive officer, including Mr. Bershteyn. The merger will be a change of
control for purposes of the Quickturn employee retention plan.
If the golden parachute excise tax and non-deductibility provisions of the
Internal Revenue Code would be triggered by the payments and benefits under the
Quickturn employee retention plan, a participant's payments and benefits may be
reduced to the largest amount that would not trigger these tax provisions.
Indemnification; Directors' and Officers' Insurance. The merger agreement
provides that, after the merger, Cadence will, as permitted by law, indemnify
persons who were directors, officers or employees of Quickturn before the
merger who suffer liabilities or losses from any threatened or actual claim or
proceeding based on the merger agreement or on the fact that the person was a
director, officer or employee of Quickturn. The merger agreement further
provides that Cadence will cause the officers and directors of Quickturn
immediately before the merger to be covered for at least six years after the
merger by Quickturn's directors' and officers' liability insurance policy or a
similar policy. In addition, Cadence has agreed to honor Quickturn's agreements
and charter provisions to indemnify its officers and directors in effect on
December 8, 1998.
Option Agreement
In addition to executing the merger agreement, Cadence and Quickturn have
entered into an option agreement which granted Cadence an option to purchase
Quickturn common stock.
The option agreement permits Cadence to purchase up to 3,619,100 shares of
Quickturn common stock at a cash exercise price of $14 per share. This total
number of shares issuable upon exercise of the option represents 19.99% of the
Quickturn common stock outstanding on December 8, 1998, not including the
option shares.
Cadence may exercise the option, in whole or in part, if the merger agreement
is terminated in a manner obligating Quickturn to pay Cadence the $10,557,000
liquidated damages. Cadence may exercise the option until the 12 month
anniversary of the date on which the merger agreement has been terminated.
However, Cadence may not exercise the option if it has willfully and
significantly breached the merger agreement.
If before the option expires any third party acquires or agrees to acquire
30% or more of the outstanding shares of Quickturn common stock, or Quickturn
enters into an agreement with any person other than Cadence
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providing for an acquisition of Quickturn or any significant part of its
assets, then Cadence, instead of exercising the option, will have the right to
receive in cancellation of the option cash equal to:
1. the lesser of:
. a specified spread between the market value of a share of Quickturn
common stock, or equivalent if there has been a sale of Quickturn
assets, and the exercise price of the option and
. $3.8890884474
multiplied by
2. the number of Quickturn shares then covered by the option.
The economic benefit that Cadence may derive under the option agreement is
limited to $14,075,000 less the amount of liquidated damages Quickturn has paid
it under the merger agreement. The option may not be exercised for a number of
Quickturn shares as would, at exercise, result in Cadence's receiving a total
value exceeding this amount. Any amount Cadence receives in excess of
$14,075,000 must be paid to Quickturn.
As of the date of this proxy statement/prospectus, we do not believe any
event triggering Cadence's ability to exercise the option has occurred.
Quickturn is obligated to issue its shares upon exercise of the option only
if there is no legal or regulatory restriction on the exercise and Cadence's
representations and warranties in the option agreement are substantially
correct.
If Cadence has acquired Quickturn shares upon exercise of the option, then,
at any time during the period that begins 13 months after the exercise and ends
25 months after the exercise, Quickturn may require Cadence to sell to
Quickturn any of these shares still held by Cadence. The per share purchase
price will be the higher of:
. the exercise price of the option, less any dividends paid on the option
shares to be repurchased by Quickturn, plus an amount representing an
annual return of 15% of the exercise price of the option and
. the average of the high and low trading prices of Quickturn common stock
for the 30 trading day period ending one day before Quickturn delivers
notice to Cadence of Quickturn's intent to purchase the option shares.
Subject to any limitations imposed on Quickturn under any other registration
rights in effect, Quickturn will register under the Securities Act of 1933 the
offering and sale of the Quickturn shares that have been acquired by or are
issuable to Cadence upon exercise of the option, if requested by Cadence within
two years after an event triggering exercise of the option. Any registration
request must be for at least 20% of the option shares or, if for less than 20%
of the originally issuable option shares, all of Cadence's remaining option
shares. Cadence may demand up to two registrations. Cadence's registration
rights terminate when Cadence may sell all of its option shares under Rule
144(k) of the Securities Act of 1933. Quickturn may include any other
securities in any registration demanded by Cadence only with Cadence's consent.
Quickturn will use all reasonable efforts to cause each registration statement
to become effective and remain so for 90 days and to obtain all consents or
waivers required from third parties. Quickturn's obligation to file a
registration statement and to maintain its effectiveness may be suspended for
90 days if the Quickturn Board of Directors determines this registration would
seriously and negatively affect Quickturn, or if financial statements required
to be included in the registration statement are not yet available. If
Quickturn proposes to register the offering and sale of Quickturn common stock
for cash for itself or any other Quickturn stockholder in a firm underwriting,
it will generally allow Cadence to participate in the registration so long as
Cadence agrees to participate in the underwriting.
The expenses of preparing and filing any registration statement for these
Quickturn shares and any sale covered by it will generally be paid by
Quickturn, except for underwriting discounts or commissions or brokers' fees,
and the fees and disbursements of Cadence's counsel.
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For each registration of option shares, Quickturn and Cadence have agreed to
customary indemnification provisions for losses and liabilities under the
Securities Act of 1933 or otherwise. However, Cadence will not be required to
indemnify Quickturn beyond Cadence's proceeds from the offering of its option
shares.
Upon the issuance of option shares, Quickturn will promptly list the shares
on Nasdaq or on any other exchange on which Quickturn common stock is then
listed.
Restrictions on Resales by Affiliates
The shares of Cadence common stock issuable to Quickturn stockholders in the
merger and upon exercise of outstanding Quickturn stock options or warrants
after the merger have been registered under the Securities Act of 1933.
Therefore, these shares of Cadence common stock may be traded freely and
without restriction by those Quickturn stockholders and holders of Quickturn
stock options or warrants who are not affiliates of Quickturn as defined under
the Securities Act of 1933. An affiliate of Quickturn is a person who controls,
is controlled by, or is under common control with, Quickturn. Any subsequent
transfer of these shares by a person who is an affiliate of Quickturn at the
time the merger is voted on by the Quickturn stockholders will require one of
the following:
. further registration of these shares under the Securities Act of 1933.
. compliance with Rule 145 under the Securities Act of 1933.
. the availability of another exemption from registration.
These restrictions are expected to apply to Quickturn's directors and
executive officers and the holders of 10% or more of its outstanding shares of
common stock. Cadence will give stop transfer instructions to its transfer
agent and legend certificates representing the Cadence common stock to be
received by affiliated persons.
Securities and Exchange Commission guidelines for qualifying for the pooling-
of-interests method of accounting also limit sales of shares of the acquiring
and acquired company by affiliates of either company in a business combination.
Securities and Exchange Commission guidelines also indicate that the pooling-
of-interests method will generally not be challenged on the basis of sales by
affiliates of the acquiring or acquired company if the affiliates do not
transfer any of the shares of the company they own or shares of a company they
receive in a merger during the period beginning 30 days before the merger and
ending when financial results covering at least 30 days of post-merger
operations of the combined company have been published.
Quickturn and Cadence have agreed to use all reasonable efforts to cause each
of their affiliates to deliver to the other party a written agreement intended
to ensure compliance with the Securities Act of 1933 and preserve the
companies' ability to treat the merger as a pooling-of-interests.
65
THE MERGER
<PAGE>
MANAGEMENT AFTER THE MERGER
Boards of Directors
The Cadence Board of Directors will not change as a result of the merger.
Immediately after the merger, the Board of Directors of Quickturn will consist
of three directors selected by Cadence.
Management
The composition of Cadence's management will not change as a result of the
merger. It is expected that after the merger, Mr. Lobo and each of Messrs. Chu,
Tice, Tung, Ladd and Wang will remain with Quickturn post-merger with
responsibilities comparable to those of their current positions as specified in
their employment agreements with Cadence.
Other key staff positions within Quickturn post-merger have not been finally
determined. From time to time before the merger, decisions may be made with
respect to the management and operations of Quickturn post-merger, including
its other officers and managers.
Information about the current Cadence directors and executive officers can be
found in Cadence's Annual Report on Form 10-K for the year ended January 2,
1999 (as amended by Form 10-K/A). Information about the current Quickturn
directors and executive officers can be found in Quickturn's Annual Report on
Form 10-K/A for the year ended December 31, 1998. Cadence's and Quickturn's
Annual Reports on Forms 10-K and 10-K/A are incorporated by reference into this
proxy statement/prospectus. See "Where You Can Find More Information."
66
MANAGEMENT AFTER THE MERGER
<PAGE>
PRICE RANGE OF COMMON STOCK
Cadence. Cadence common stock is listed on the New York Stock Exchange under
the symbol "CDN." The following table shows, for the periods indicated, the
high and low reported closing sale prices per share of Cadence common stock on
the New York Stock Exchange Composite Transactions reporting system. Cadence
has never declared or paid any cash dividends on its common stock, and does not
plan on declaring any dividends in the near future.
<TABLE>
<CAPTION>
Price Range of
Common Stock
---------------
High Low
------- -------
<S> <C> <C>
1996
First Quarter............................................. $ 15.17 $ 11.50
Second Quarter............................................ 21.88 14.84
Third Quarter............................................. 18.94 11.50
Fourth Quarter............................................ 20.69 16.32
1997
First Quarter............................................. 21.94 15.69
Second Quarter............................................ 19.00 13.38
Third Quarter............................................. 27.50 16.75
Fourth Quarter............................................ 28.75 22.31
1998
First Quarter............................................. 37.44 22.75
Second Quarter............................................ 38.00 27.63
Third Quarter............................................. 31.13 20.69
Fourth Quarter............................................ 30.63 19.19
1999
First Quarter (through April 19, 1999).................... 33.50 21.00
</TABLE>
Quickturn. Quickturn common stock is listed on the Nasdaq National Market
System, or Nasdaq, under the symbol "QKTN." The following table shows the high
and low closing sales prices for Quickturn common stock for the periods
indicated, as reported on Nasdaq. Quickturn has never declared or paid any cash
dividends on its common stock, and does not plan on declaring any dividends in
the near future.
<TABLE>
<CAPTION>
Price Range of
Common Stock
---------------
High Low
------- -------
<S> <C> <C>
1996
First Quarter............................................. $ 11.50 $ 9.00
Second Quarter............................................ 16.50 11.13
Third Quarter............................................. 15.13 11.88
Fourth Quarter............................................ 21.63 11.75
1997
First Quarter............................................. 21.00 15.00
Second Quarter............................................ 15.88 6.69
Third Quarter............................................. 16.63 12.13
Fourth Quarter............................................ 16.31 10.69
1998
First Quarter............................................. 15.50 9.94
Second Quarter............................................ 10.63 6.50
Third Quarter............................................. 11.38 7.38
Fourth Quarter............................................ 14.67 9.50
1999
First Quarter (through April 19, 1999).................... 15.25 13.38
</TABLE>
The merger agreement prohibits Quickturn from paying cash dividends on
Quickturn common stock before the merger.
67
PRICE RANGE OF COMMON STOCK
<PAGE>
INFORMATION ABOUT CADENCE
General
Cadence provides software technology and comprehensive design and consulting
services and technology for the product development requirements of the world's
leading electronics companies. Cadence licenses its leading-edge electronic
design automation software technology and provides a range of professional
services to companies throughout the world ranging from consulting services to
help optimize performance of the customer's product, to design services to
create the actual design of the electronic system for the customer's product.
Cadence is a supplier of "design realization" solutions, which are used by
companies to design and develop complex chips and electronic systems including
semiconductors, computer systems and peripherals, telecommunications and
networking equipment, mobile and wireless devices, automotive electronics,
consumer products, and other advanced electronics.
Cadence serves the worldwide electronics industry, which is quickly evolving
from a business-to-business mode to more of a consumer electronics industry.
The shift of the electronics industry to the consumer electronics industry is
evidenced by the incorporation of electronic content in consumer items such as
home appliances, automotive products, entertainment products and games, and
personal communication and organization devices. The electronics industry
presents challenges for developers of electronic products, where time-to-
market, cost, performance, quality, reliability and the need for product
diversity become the focus in a fast-paced and volatile industry.
Cadence's product offerings include a variety of electronic design automation
tools, which enable electronic product engineers to increase the productivity
and quality of the electronic design process. These products include software
tools that enable engineers to design, optimize and verify electronic systems
and complex chips from architectural to physical design, and to design and
optimize printed circuit boards used in electronic systems.
Cadence offers developers of electronic products a broad range of design and
consulting services. Cadence provides a variety of services that help improve
design environments, from training classes and custom software coding, to flow
and methodology deployment, to complete design process re-engineering.
Cadence's Educational Services offer more than 50 training courses within many
areas of Cadence technology. Cadence's Applications Services help developers of
electronic products to maximize their productivity with Cadence software
applications by transferring knowledge from Cadence applications engineers to
customer design teams in new methodologies and technologies. In addition,
Cadence offers Design Process Service solutions including optimizing existing
product development processes, creating new design methodologies, migrating to
new methodologies based on significant upgrades of integrated circuit
technology, constructing high re-use product development systems, and
transferring technological competency. In addition, Cadence offers services to
perform design projects for electronic system components such as integrated
circuits or software.
As of December 31, 1998, Cadence employed approximately 4,400 persons,
including approximately 2,465 in services, sales, marketing and support
activities, approximately 1,287 in product development, and approximately 680
in management, administration, and finance.
Cadence was formed as a result of the merger of SDA Systems, Inc. into ECAD,
Inc. in May 1988. Cadence's executive offices are located at 2655 Seely Avenue,
Building 5, San Jose, California 95134, and its telephone number at that
location is (408) 943-1234.
Management and Additional Information
Information relating to executive compensation, various benefit plans,
including stock option plans, voting securities and the principal holders
thereof, relationships and related transactions between Cadence and its
management or major stockholders and other related matters as to Cadence is
incorporated by reference or set forth in Cadence's Annual Report on Form 10-K
for the year ended January 2, 1999 (as amended by Form 10-K/A), incorporated
into this proxy statement/prospectus by reference. Quickturn stockholders
desiring copies of such documents may contact Cadence at its address or
telephone number indicated under "Where You Can Find More Information."
68
INFORMATION ABOUT CADENCE
<PAGE>
INFORMATION ABOUT QUICKTURN
General
Quickturn is a leading provider of complex computer systems that emulate the
performance and operation of computer chips and electronic systems. Quickturn
products are used to verify that the customers' computer chips and electronic
systems perform in accordance with their desired specifications. Quickturn also
provides its SpeedSim brand of simulation software products that enable
engineers to simulate the performance and operation of individual computer
chips early in the design process in order to verify that each chip performs in
accordance with its desired specifications. Quickturn is also a leading
provider of engineering services that enable designers of electronic systems
and complex computer chips to reduce the time it takes from designing a product
to marketing it. Quickturn's system and software products serve the needs of
chip and electronic system designers in a variety of industries, including the
merchant semiconductor, computer, workstation, telecommunications, networking,
multimedia and graphic industries.
Quickturn's principal design verification products include the System
Realizer(TM), Mercury Design Verification System(TM) ("Mercury") and CoBALT(TM)
(Concurrent Broadcast Array Logic Technology) emulators, and SpeedSim(TM)
cycle-based simulation software.
An emulation system is comprised of a reprogrammable computer, which is sold
to the customer, along with Quickturn's Quest(TM) brand of software, which is
licensed to the customer. This combination of hardware and software enables the
customer to load a chip design into the reprogrammable computer and to verify
that the chip design functions as intended. Quickturn provides powerful related
software tools to help the customer identify computer chip errors, to correct
those errors and to re-load the corrected chip design into the reprogrammable
computer to continue testing the chip design. Quickturn's emulators are
designed to help customers identify and correct chip design errors much faster
than alternative methods, thereby enabling the customer to develop products
faster than otherwise. Quickturn's customers create computer chips by linking
together units referred to as logic gates. Quickturn's emulation systems are
sold in "modules" that are measured in logic gates. For example, Quickturn's
Mercury and CoBALT emulators are typically sold in modules of 1,000,000 logic
gates of capacity. The Mercury emulator has a total capacity of 10 modules or
10,000,000 logic gates. The CoBALT emulator has a total capacity of 20,000,000
logic gates. A chip designed by a typical Quickturn customer can comprise from
100,000 to more than 3,000,000 logic gates. As customers design chips of
greater complexity, they utilize more logic gates in their designs and may buy
additional modules of emulation capacity to verify increasingly complex
designs. As emulator capacity increases, with an increase in logic modules, the
selling price of the emulator increases correspondingly.
Quickturn was incorporated in California in July 1987 and reincorporated in
Delaware in December 1993. Quickturn began shipping its emulation products in
1989 and in January 1997, Quickturn commenced shipment of its CoBALT(TM)
emulation system which was co-developed with IBM. In February 1997, Quickturn
merged with SpeedSim, Inc., a provider of simulation software. In June 1997,
Quickturn purchased from Synopsys, Inc. certain assets relating to Synopsys
Inc.'s emulation business of Arkos Design, Inc. Also in June 1997, Quickturn
extended its relationship with IBM to develop the next generation of custom
processor-based emulation systems. In November 1997, Quickturn moved its
corporate headquarters to San Jose, California. Late in 1997, Quickturn
introduced release 5.1 of its Quest(TM) II emulation software, which is
designed to enable customers to more quickly and easily compile their computer
chip designs. In June 1998, Quickturn announced its new Mercury Design
Verification System, which is designed to replace Quickturn's System Realizer
emulation product.
Quickturn's principal executive offices are located at 55 W. Trimble Road,
San Jose, California, 95131, and its telephone number is (408) 914-6000.
(TM)System Realizer, CoBALT, Mercury Design Verification System, SpeedSim and
Quest are trademarks of Quickturn Design Systems, Inc.
69
INFORMATION ABOUT QUICKTURN
<PAGE>
Management and Additional Information
Information relating to executive compensation, various benefit plans,
including stock option plans, voting securities and the principal holders
thereof, relationships and related transactions between Quickturn and its
management or major stockholders and other related matters as to Quickturn is
incorporated by reference or set forth in Quickturn's Annual Report on Form 10-
K/A for the year ended December 31, 1998, incorporated herein by reference.
Quickturn stockholders desiring copies of such documents may contact Quickturn
at its address or telephone number indicated under "Where You Can Find More
Information."
70
INFORMATION ABOUT QUICKTURN
<PAGE>
CADENCE CAPITAL STOCK AND
COMPARISON OF STOCKHOLDER RIGHTS
When we complete the merger, Quickturn stockholders will become Cadence
stockholders.
The following is a description of the Cadence common stock to be issued in
the merger and a summary of the significant differences between the rights of
holders of Cadence common stock and Quickturn common stock.
Description of Cadence Capital Stock
The authorized capital stock of Cadence consists of 600,000,000 shares of
common stock, $0.01 par value, and 400,000 shares of preferred stock, $0.01 par
value.
Cadence Common Stock. At March 31, 1999, there were approximately 227,566,692
shares of Cadence common stock outstanding held of record by approximately
1,595 persons, not including those shares held in street or nominee name.
Cadence common stock is listed on the New York Stock Exchange under the symbol
"CDN." Holders of Cadence common stock are entitled to one vote per share on
all matters to be voted upon by Cadence stockholders. Cadence stockholders may
not cumulate votes for the election of directors. Cadence common stockholders
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Cadence Board of Directors out of funds legally available
for dividend payments. In the event of a liquidation, dissolution or winding up
of Cadence, Cadence common stockholders 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 nor do redemption
or sinking fund provisions apply 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 after the merger will be fully
paid and non-assessable. Harris Trust and Savings Bank, 311 West Monroe Street,
14th Floor, Chicago, Illinois, 60690 is the transfer agent and registrar for
the shares of Cadence common stock.
Cadence Preferred Stock. The Cadence Board of Directors may issue up to
400,000 shares of Cadence preferred stock in one or more series and, subject to
the Delaware General Corporation Law, may
. fix its rights, preferences, privileges and restrictions,
. fix the number of shares and designation of any series, and
. increase or decrease the number of shares of any series if not below the
number of outstanding shares.
At the date of this proxy statement/prospectus, no shares of Cadence
preferred stock were outstanding. Although Cadence presently does not intend to
do so, its Board may issue Cadence preferred stock with voting and conversion
rights which could negatively affect the voting power or other rights of the
Cadence common stockholders without stockholder approval. The issuance of
Cadence preferred stock may delay or prevent a change in control of Cadence.
Cadence's certificate of incorporation designates 400,000 shares of preferred
stock as Series A Junior Participating Preferred Stock in connection with
Cadence's rights plan, as described below. We refer to Cadence's Series A
Junior Participating Preferred Stock as the Series A preferred shares.
Cadence Rights Plan
General. On February 20, 1996, Cadence's Board of Directors paid a dividend
of one Cadence stockholder right for each outstanding share of Cadence common
stock in connection with its prior adoption of a rights plan. Each Cadence
stockholder right entitles the registered holder to purchase one one-thousandth
of a share of Cadence Series A preferred stock at a price of $240 each one-
thousandth. This plan is commonly known as a poison pill. The terms of the
Cadence stockholder rights are fully described in Cadence's rights plan.
71
CADENCE CAPITAL STOCK AND
COMPARISON OF STOCKHOLDER RIGHTS
<PAGE>
We use the term distribution date to mean the earlier to occur of the
following:
. ten days after a public announcement that a person or group of
affiliated or associated persons have acquired beneficial ownership of
15% or more of the outstanding shares of Cadence common stock or
. ten business days after the commencement or announcement of a tender
offer or exchange offer which would result in the beneficial ownership
by a person or group of 15% or more of the outstanding shares of Cadence
common stock,
or earlier redemption or expiration of Cadence stockholder rights, the Cadence
stockholder rights will be transferred only with the shares of Cadence common
stock and represented by the certificates for Cadence common stock. After the
distribution date, separate Cadence right certificates alone will evidence the
Cadence stockholder rights.
The Cadence stockholder rights are not exercisable until the distribution
date. The Cadence stockholder rights will expire on February 9, 2006 unless
this expiration date is extended or unless the Cadence stockholder rights are
earlier redeemed or exchanged by Cadence, as described below.
The number of outstanding Cadence stockholder rights is also subject to
adjustment in the event of a stock split, stock dividend, or subdivisions,
consolidations or combinations of the shares of Cadence common stock before the
distribution date.
Cadence Series A preferred shares are not redeemable but will be entitled,
when, as and if declared, to a minimum preferential quarterly dividend payment
of $1 per share and an aggregate dividend and minimum preferential liquidation
payment of 1,000 times any dividend or liquidation payment paid per share of
Cadence common stock. Each Cadence Series A preferred share will have 1,000
votes, voting together with the shares of Cadence common stock. Finally, in the
event of any transaction in which shares of Cadence common stock are exchanged,
each Cadence Series A preferred share will be entitled to receive 1,000 times
the amount received for each share of Cadence common stock. These rights and
the exercise price are protected by customary antidilution provisions.
The value of the one one-thousandth interest in a Cadence Series A preferred
share purchasable upon exercise of each Cadence stockholder right should
approximate the value of one share of Cadence common stock.
A Cadence stockholder's rights become void upon becoming a beneficial owner
of 15% or more of the outstanding shares of Cadence's common stock, and each
other right holder may receive for the exercise price of the right, that number
of shares of Cadence common stock with a market value of two times such
exercise price. In the event that, after a person or group, Cadence is acquired
in a change of control transaction or sale of 50% or more of its consolidated
assets or earning power, each holder of a Cadence stockholder right other than
a 15% beneficial owner will have the right to receive upon the exercise of the
right at its exercise price, that number of shares of common stock of the other
party to the transaction or its parent, with a market value of two times the
exercise price.
At any time after any person or group becomes a 15% beneficial owner before a
change of control transaction, the Cadence Board of Directors may exchange each
Cadence stockholder right not owned by a 15% beneficial owner for one share of
Cadence common stock, or one one-thousandth of a Cadence Series A preferred
share or other Cadence preferred stock with similar rights.
At any time before a person or group becomes a beneficial owner of 15% or
more of the outstanding shares of Cadence's common stock, the Cadence Board of
Directors may redeem the Cadence stockholder rights in whole, but not in part,
at a price of $.01 per Cadence stockholder right on conditions the Cadence
Board establishes. After redemption, the Cadence stockholder rights will
terminate and the only right of the holders of Cadence stockholder rights will
be to receive the redemption price of $.01 per Cadence stockholder right.
72
CADENCE CAPITAL STOCK AND
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<PAGE>
For so long as the Cadence stockholder rights are redeemable, Cadence may
amend them in any manner, except the redemption price of $.01 per Cadence
stockholder right. After the Cadence stockholder rights are not redeemable,
Cadence may amend the Cadence stockholder rights in any manner that does not
negatively affect the interests of holders of the Cadence stockholder rights,
except the redemption price of $.01 per Cadence stockholder right. Until a
Cadence stockholder right is exercised, its holder will have no rights as a
Cadence stockholder, including the right to vote or to receive dividends.
Cadence Stockholder Rights Have Certain Anti-Takeover Effects. The Cadence
stockholder rights will cause substantial dilution to a person or group that
attempts to acquire Cadence on terms not approved by the Cadence Board of
Directors, except for an offer conditioned on a substantial number of Cadence
stockholder rights being acquired. The Cadence stockholder rights should not
interfere with any merger or other business combination approved by the Cadence
Board of Directors since the Cadence stockholder rights may be redeemed by
Cadence at the $.01 redemption price before a person or group has become a
beneficial owner of 15% or more of the outstanding shares of Cadence's common
stock.
Cadence's rights plan will expire on February 9, 2006. Before then, Cadence
may renew its rights plan or enter into a similar successor rights agreement.
This description of the Cadence stockholder rights is qualified by reference
to Cadence's Rights Agreement, which is incorporated in this proxy
statement/prospectus by reference. See "Where You Can Find More Information."
Comparison of Rights of Cadence Stockholders and Quickturn Stockholders
The rights of holders of Cadence common stock are governed by the Delaware
General Corporation Law, the Cadence certificate of incorporation and Cadence
by-laws, while the rights of Quickturn stockholders are governed by the
Delaware General Corporation Law, the Quickturn certificate of incorporation
and Quickturn by-laws. In most respects, the rights of Quickturn stockholders
are similar to those of Cadence stockholders. The following discussion
summarizes the significant differences between the companies' charter
documents. This summary is not a complete discussion of, and is qualified by
reference to, the Cadence certificate of incorporation, the Cadence by-laws,
the Quickturn certificate of incorporation, the Quickturn by-laws and the
Delaware General Corporation Law.
Capital Stock. Cadence's charter provides that Cadence's authorized capital
stock consists of 600,000,000 shares of Cadence common stock and 400,000 shares
of Cadence preferred stock designated as "Series A Junior Participating
Preferred Stock."
Quickturn's charter provides that its authorized capital stock consists of
40,000,000 shares of Quickturn common stock and 2,000,000 shares of Quickturn
preferred stock.
As of April 9, 1999, there were 18,395,730 shares of Quickturn common stock
outstanding held by approximately 332 record holders in addition to
approximately 4,500 holders who do not hold shares in their own names.
Quickturn common stock is listed on Nasdaq under the symbol "QKTN."
The holders of Quickturn common stock are entitled to one vote for each share
held on all matters submitted to a stockholder vote. Subject to preferences
that may apply to any outstanding Quickturn preferred stock, the holders of
Quickturn common stock are entitled to receive ratably dividends, if any, as
the Quickturn Board of Directors may declare out of funds legally available for
the payment of dividends. In the event of a liquidation, dissolution or winding
up of Quickturn, the holders of Quickturn common stock are entitled to share
ratably in all assets remaining after payment of liabilities and liquidation
preferences of any outstanding Quickturn preferred stock. No shares of
Quickturn preferred stock are outstanding as of the date of this proxy
statement/prospectus. Holders of Quickturn common stock have no preemptive
rights, redemption rights, sinking fund provisions or rights to convert their
Quickturn common stock into any other securities. All outstanding shares of
Quickturn common stock are fully paid and non-assessable.
73
CADENCE CAPITAL STOCK AND
COMPARISON OF STOCKHOLDER RIGHTS
<PAGE>
Directors. Cadence's by-laws provide for the Cadence Board of Directors to
consist of five or more members, with the exact number to be designated by
board resolution. Board vacancies may be filled by the affirmative vote of a
majority of the remaining directors.
The Quickturn by-laws provide for the Quickturn Board of Directors to consist
of eight members, which number may be changed from time to time by a by-law
adopted by the Quickturn stockholders or by the Quickturn Board of Directors.
Quickturn Board vacancies may be filled by the affirmative vote of a majority
of the remaining directors.
Stockholder Proposals. The Cadence by-laws do not provide a procedure by
which a stockholder may bring business before any meeting of Cadence
stockholders. However, the Cadence by-laws provide that any stockholder of
record seeking to have the Cadence stockholders authorize or take corporate
action by written consent must, by written notice to the secretary of Cadence,
request that the Cadence Board of Directors fix a record date for determining
the stockholders entitled to consent to corporate action in writing without a
meeting. The request must include a brief description of the action proposed to
be taken. The Cadence Board of Directors must, within 10 days of receipt of the
request, adopt a resolution fixing a record date. The record date may not
precede the date on which the Cadence Board of Directors adopts the resolution
and may not be more than 10 days after the date upon which the resolution was
adopted. If the Cadence Board of Directors fails to adopt a record date within
the required 10 days, and no prior action by the Board is required by the
Delaware General Corporation Law, the record date shall be the first date a
signed written consent setting forth the action taken or proposed to be taken
is delivered to Cadence. If no record date is fixed and prior action is
required by the Cadence Board of Directors under the Delaware General
Corporation Law, the record date shall be the close of business when the
Cadence Board of Directors adopts the resolution taking such prior action.
The Quickturn by-laws provide that in order to properly bring nominations for
the election of directors or other business before a stockholder meeting, a
stockholder must give timely notice in proper form of his or her intent to
bring the business before the meeting. To be timely, the stockholder's notice
must be delivered to or mailed and received by the secretary of Quickturn not
less than 90 days before the meeting. However, if less than 100 days' notice or
prior public disclosure of the date of the meeting is given, notice must be
received not later than the close of business on the 10th day after the day
this notice was mailed or public disclosure was made. To be acknowledged by the
chairman of the meeting, the stockholder's notice to the secretary must set
forth:
. The name and address of the stockholder who seeks to bring the action
and the nature of the business to be proposed or the name and address of
the person(s) to be nominated.
. The stockholder's representation that he or she is a holder of record of
Quickturn stock entitled to vote at the meeting and that the stockholder
intends to appear at the meeting to present the nominee or matter of
business to be proposed.
. A description of all arrangements or understandings between the
stockholder and each nominee.
. Other information regarding the nominee or matter of business to be
proposed as would be required to be included in a proxy statement under
the proxy rules of the Securities and Exchange Commission had the
nominee or business been proposed by the Quickturn Board of Directors.
. If applicable, the consent of each nominee to serve as a director if
elected.
Right to Call Special Meetings of Stockholders. Cadence's by-laws provide
that special meetings of Cadence stockholders may be called by the Cadence
Board of Directors, the chairman, the chief executive officer or the president
of Cadence or by stockholders holding shares representing not less than 10% of
the votes entitled to vote at the meeting.
The Quickturn by-laws provide that special meetings of stockholders of
Quickturn may be called by the Quickturn Board of Directors, the chairman, the
president or the chief executive officer of Quickturn or one or more Quickturn
stockholders holding not less than 10% of the votes entitled to vote at the
meeting.
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CADENCE CAPITAL STOCK AND
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<PAGE>
A stockholder entitled to call a special meeting must submit a written
request by registered mail to Quickturn's president or chief executive officer.
The Quickturn Board of Directors determines the place and time for the meeting.
The time set for the special meeting will not be less than 90 nor more than 100
days after the receipt of the request for the special meeting and the
determination of its validity and the Quickturn Board of Directors will set a
record date to determine the stockholders entitled to vote at the special
meeting. Following the receipt of the request, the secretary of Quickturn must
give notice of the special meeting to the stockholders entitled to vote at the
meeting.
Quickturn Rights Plan. In January 1996, the Quickturn Board of Directors
approved a poison pill plan for Quickturn. The Board declared a dividend of one
Quickturn stockholder right for each outstanding share of Quickturn common
stock which are evidenced by and trade with the Quickturn common stock
certificates. Quickturn will mail rights certificates to Quickturn stockholders
and the Quickturn stockholder rights will become transferable apart from the
Quickturn common stock upon the earlier of:
. the tenth day or such later date as may be determined by a majority of
the Quickturn Board of Directors not affiliated with the acquiring
person or group after such person or group acquires beneficial ownership
of 15% or more of Quickturn's common stock or
. the tenth day or such later date as may be determined by the directors
not affiliated with the acquiring person or group after such person or
group announces a tender or exchange offer, the completion of which
would result in ownership by a person or group of 15% or more of
Quickturn's common stock.
After either event listed above occurs, Quickturn stockholder right holders
may purchase, for $50, a fraction of a share of Quickturn preferred stock with
economic terms similar to one share of Quickturn common stock. If an acquiror
obtains 15% or more of Quickturn's common stock other than from a tender offer
deemed adequate and in the best interests of Quickturn and its stockholders by
the Quickturn Board of Directors, thereby becoming an "acquiring person" under
the terms of the rights plan, then each Quickturn stockholder right other than
those owned by the acquiring person or its affiliates will entitle the holder
thereof to purchase, for the exercise price, a number of shares of Quickturn's
common stock having a then current market value of twice the exercise price,
which we refer to as a flip-in. If, after the first date of public announcement
that someone has become an acquiring person, Quickturn merges with or into
another entity or Quickturn sells more than 50% of its assets or earning power,
then each Quickturn stockholder right other than Quickturn stockholder rights
owned by the acquiring person or its affiliates will entitle the holder thereof
to purchase, for the exercise price, a number of shares of common stock of the
person engaging in the transaction with a then current market value of twice
the rights' exercise price in most circumstances unless the transaction is
consummated with a person who acquired shares pursuant to a tender offer deemed
adequate and in the best interests of Quickturn and its stockholders by the
Quickturn Board of Directors in which case the rights will expire, which we
refer to as a flip-over.
At any time after an event triggering flip-in or flip-over rights and before
the acquisition by the acquiring person of 50% or more of the outstanding
shares of Quickturn common stock, the Quickturn Board of Directors may exchange
the Quickturn stockholder rights, other than Quickturn stockholder rights owned
by the acquiring person or its affiliates, into one share of Quickturn common
stock per Quickturn stockholder right. Quickturn stockholder rights are
redeemable at Quickturn's option for $0.01 per Quickturn right at any time on
or before the date the rights separate from the Quickturn common stock.
The Quickturn stockholder rights expire on the earliest of January 10, 2006
or exchange, redemption or expiration of the Quickturn stockholder rights. The
terms of the Quickturn stockholder rights and Quickturn's rights plan may be
amended without Quickturn stockholder approval on or before the date on which
the rights separate from the Quickturn common stock, after which stockholder
approval is required except to cure any ambiguities or to make changes which do
not negatively affect the interests of Quickturn stockholder rights holders
other than the acquiring person. Quickturn stockholder rights do not have any
voting rights but have the benefit of certain customary anti-dilution
provisions.
75
CADENCE CAPITAL STOCK AND
COMPARISON OF STOCKHOLDER RIGHTS
<PAGE>
On December 8, 1998, in connection with the merger, the Quickturn Board of
Directors amended Quickturn's rights plan to provide that neither Cadence's
entering into the merger agreement, the option agreement or the merger, nor
Cadence's exercise of its option will cause the Quickturn stockholder rights to
become exercisable or cause Cadence to become a beneficial owner of 15% or more
of Quickturn common stock for purposes of its rights plan.
After the merger, Quickturn will be subject to Cadence's rights plan until
the rights plan's expiration, and may be covered thereafter by a renewal of the
rights plan or a successor rights agreement.
This summary of the principal terms of Quickturn's rights plan is qualified
by reference to the detailed terms of Quickturn's Rights Agreement dated as of
January 10, 1996, as amended.
76
CADENCE CAPITAL STOCK AND
COMPARISON OF STOCKHOLDER RIGHTS
<PAGE>
DISSENTERS' APPRAISAL RIGHTS
Quickturn stockholders will not be entitled to dissenters' appraisal rights
under the Delaware General Corporation Law or any other statute in connection
with the merger.
LEGAL MATTERS
The validity of the Cadence common stock to be issued in connection with the
merger has been passed upon by Gibson, Dunn & Crutcher LLP, San Francisco,
California.
EXPERTS
The consolidated audited financial statements and schedules of Cadence and
its subsidiaries incorporated by reference in this proxy statement/prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto and are incorporated in this
proxy statement/prospectus in reliance upon authority of said firm as experts
in giving said reports.
The consolidated financial statements of Quickturn and its subsidiaries
incorporated in this proxy statement/prospectus by reference to the Quickturn
Annual Report on Form 10-K/A for the year ended December 31, 1998 have been so
incorporated by reference in this proxy statement/prospectus in reliance on the
report with respect thereto of PricewaterhouseCoopers LLP, independent public
accountants, given upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Ambit Design Systems, Inc. and its
subsidiaries incorporated in this proxy statement/prospectus by reference to
the Cadence Form 8-K/A filed December 11, 1998, have been so incorporated by
reference in this proxy statement/prospectus in reliance on the report with
respect thereto of PricewaterhouseCoopers LLP, independent public accountants,
given upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Cooper & Chyan Technology, Inc. for
the year ended December 31, 1996 included in Cadence Design Systems, Inc.
Annual Report (Form 10-K) for the year ended January 2, 1999, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements referred to above are incorporated herein by reference in reliance
upon such reports given on the authority of such firm as experts in accounting
and auditing.
77
<PAGE>
STOCKHOLDER PROPOSALS
Quickturn will hold a 1999 annual meeting of stockholders only if the merger
does not occur before the time of the annual meeting. If the annual meeting is
held, any proposals of Quickturn stockholders intended to be presented at the
1999 annual meeting must be received by the secretary of Quickturn no later
than the close of business on the 10th day after the date Quickturn's notice of
the meeting is mailed or public disclosure of the date of the 1999 annual
meeting is made in order to be considered for inclusion in the Quickturn proxy
materials relating to the meeting. Any proposal submitted by a Quickturn
stockholder that fails to comply with Rule 14a-8 under the Exchange Act of 1934
will not be included in proxy materials to be sent to Quickturn stockholders by
Quickturn, but must be received by the secretary of Quickturn not earlier than
90 days before nor later than 120 days before the date of the meeting. However,
if less than 100 days' notice or prior public disclosure of the date of the
meeting is given or made to Quickturn stockholders, a stockholder proposal must
be received no later than the close of business on the 10th day after the date
on which Quickturn's notice was mailed or public disclosure was made with
respect to the meetings.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Quickturn Board of
Directors and the Cadence Board of Directors know of no matters that will be
presented for consideration at the Quickturn special meeting other than as
described in this proxy statement/prospectus. If any other matters shall
properly come before the Quickturn special meeting or any adjournment or
postponement of the special meeting and be voted upon, the enclosed proxies
will be deemed to confer discretionary authority on the individuals named as
proxies therein to vote the shares represented by such proxies as to any such
matters. The individuals named as proxies intend to vote or not to vote in
accordance with the recommendation of the management of Quickturn.
78
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Cadence has filed with the Securities and Exchange Commission a registration
statement under the Securities Act that registers the distribution to Quickturn
stockholders of the shares of Cadence common stock to be issued in connection
with the merger. The registration statement, including the attached exhibits
and schedules, contains additional relevant information about Cadence and
Cadence common stock. The rules and regulations of the Securities and Exchange
Commission allow us to omit certain information included in the registration
statement from this proxy statement/prospectus.
In addition, Cadence and Quickturn file reports, proxy statements and other
information with the Securities and Exchange Commission under the Exchange Act.
You may read and copy this information at the following locations of the
Securities and Exchange Commission:
Public Reference New York Regional Office Chicago Regional
Room 7 World Trade Center Office
450 Fifth Street, Suite 1300 Citicorp Center
N.W. New York, New York 10048 500 West Madison
Room 1024 Street
Washington, D.C. Suite 1400
20549 Chicago, Illinois
60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
The Securities and Exchange Commission also maintains an Internet world wide
web site that contains reports, proxy statements and other information about
issuers, like Cadence and Quickturn, who file electronically with the
Securities and Exchange Commission. The address of that site is
http://www.sec.gov.
The Securities and Exchange Commission allows Cadence and Quickturn to
"incorporate by reference" information into this proxy statement/prospectus.
This means that the companies can disclose important information to you by
referring you to another document filed separately with the Securities and
Exchange Commission. The information incorporated by reference is considered to
be a part of this proxy statement/prospectus, except for any information that
is superseded by information that is included directly in this document.
This proxy statement/prospectus incorporates by reference the documents
listed below that Cadence and Quickturn have previously filed with the
Securities and Exchange Commission. They contain important information about
our companies and their financial condition.
<TABLE>
<CAPTION>
Cadence SEC Filings Period
- ------------------- ------
<S> <C>
Annual Report on Form 10-K...................... Year ended January 2, 1999 (as
amended by Form 10-K/A filed April
19, 1999)
The description of Cadence common stock set
forth in the Registrant's Registration
Statement on Form 8-A.......................... Filed: August 29, 1990
The description of Cadence preferred stock
purchase rights set forth in Exhibit 1A, 1B and
1C to the Registrant's Current Report on Form
8-K....................................... Filed: February 16, 1996
Current Reports on Form 8-K..................... Filed: December 10, 1998 (as amended
by Forms 8-K/A filed December 22,
1998 and January 6, 1999)
</TABLE>
79
WHERE YOU CAN FIND
MORE INFORMATION
<PAGE>
<TABLE>
<CAPTION>
Quickturn SEC Filings Period
- --------------------- ------
<S> <C>
Annual Report on Form 10-K...................... Year ended December 31, 1998 (as
amended by Form 10-K/A
filed April 14, 1999)
The description of Quickturn common stock set
forth in Quickturn's Registration Statement on
Form 8-A....................................... Filed: October 29, 1993
The description of Quickturn preferred stock
purchase rights set forth in Quickturn's
Registration Statement on Form 8-A............. Filed: January 17, 1996
Amendment No. 1 to the preferred share purchase
rights set forth in Amendment No. 1 to
Quickturn's Registration Statement on Form 8-
A/A............................................ Filed: August 25, 1998
Amendment No. 2 to the preferred share purchase
rights set forth in Amendment No. 2 to
Quickturn's Registration Statement on Form 8-
A/A............................................ Filed: December 16, 1998
Current Reports on Form 8-K..................... Filed: December 16, 1998 (as amended
by Forms 8-K/A filed December
22, 1998 and January 6, 1999)
</TABLE>
Cadence and Quickturn incorporate by reference additional documents that
either company may file with the Securities and Exchange Commission between the
date of this proxy statement/prospectus and the date of the Quickturn special
meeting. These documents include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
Cadence has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to Cadence, as well as all pro
forma financial information, and Quickturn has supplied all such information
relating to Quickturn.
You can obtain any of the documents incorporated by reference in this
document through Cadence or Quickturn, as the case may be, or from the
Securities and Exchange Commission through the Securities and Exchange
Commission's web site at the address described above. Documents incorporated by
reference are available from the companies without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference as an exhibit in this proxy statement/prospectus. You can obtain
documents incorporated by reference in this proxy statement/prospectus by
requesting them in writing or by telephone from the appropriate company at the
following addresses:
Cadence Quickturn
Investor Relations Investor/Public Relations
Cadence Design Systems, Inc. Quickturn Design Systems, Inc.
2655 Seely Avenue 55 W. Trimble Road
San Jose, California 95134 San Jose, California 95131
Telephone: (408) 943-1234 Telephone: (408) 914-6000
If you would like to request documents, please do so by May 14, 1999 to
receive them before the Quickturn special meeting. If you request any
incorporated documents from us, we will mail them to you by first class mail,
or another equally prompt means, within one business day after we receive your
request.
80
WHERE YOU CAN FIND
MORE INFORMATION
<PAGE>
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this proxy statement/prospectus or in any of the
materials that we have incorporated into this document. Therefore, if anyone
does give you information of this sort, you should not rely on it. If you are
in a jurisdiction where offers to exchange or sell, or solicitations of offers
to exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
81
WHERE YOU CAN FIND
MORE INFORMATION
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the proposed merger and Cadence's acquisition of Ambit, which
closed in the quarter ended October 3, 1998, and should be read in conjunction
with the historical financial statements and accompanying notes incorporated by
reference. The merger is subject to approval by Quickturn's stockholders.
The unaudited pro forma condensed combined balance sheet has been prepared as
if the merger, which will be accounted for as a pooling-of-interests, had been
completed as of January 2, 1999. The acquisition of Ambit is reflected in the
historical condensed balance sheet of Cadence as of January 2, 1999. The
unaudited pro forma combined statements of operations for the fiscal year ended
January 2, 1999, gives effect to the proposed merger and the acquisition of
Ambit, which was accounted for as a purchase in the quarter ended October 3,
1998, as if these transactions had been completed at the beginning of the
period presented. The unaudited pro forma combined statements of operations for
the two fiscal years in the period ended January 3, 1998 give effect to the
proposed merger as if the merger had been completed at the beginning of the
period presented.
The pro forma information is presented for illustrative purposes only and
does not necessarily reflect what the operating results or financial position
of the companies if these transactions had occurred at the beginning of the
earliest period presented, nor does it necessarily predict or suggest future
operating results or financial position.
82
UNAUDITED PRO FORMA
CONDENSED COMBINED
FINANCIAL INFORMATION
<PAGE>
CADENCE AND QUICKTURN
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JANUARY 2, 1999
(In thousands)
<TABLE>
<CAPTION>
Cadence Quickturn Adjustments Total
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash investments...... $ 183,066 $ 26,552 $ 209,618
Short-term investments......... 26,686 13,717 40,403
Receivables, net............... 277,599 27,905 305,504
Inventories.................... -- 9,904 9,904
Prepaid expenses and other..... 92,359 8,726 101,085
---------- -------- ----------
Total current assets......... 579,710 86,804 666,514
Marketable securities............ -- 19,969 19,969
Property, plant and equipment,
net............................. 262,675 11,533 274,208
Software development costs, net.. 13,045 -- 13,045
Acquired intangibles, net........ 282,489 3,599 286,088
Installment contract
receivables..................... 100,529 -- 100,529
Other assets..................... 167,510 12,723 180,233
---------- -------- ----------
$1,405,958 $134,628 $1,540,586
========== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term
debt.......................... $ 1,273 $ -- $ $ 1,273
Accounts payable and accrued
liabilities................... 211,220 33,412 13,500 (1) 258,132
Income taxes payable........... 19,133 -- 19,133
Deferred revenue............... 96,286 10,861 107,147
---------- -------- ----------
Total current liabilities.... 327,912 44,273 385,685
---------- -------- ----------
Long-Term Liabilities:
Long-term debt................. 136,380 -- 136,380
Deferred income taxes.......... 58,927 -- 58,927
Minority interest liability.... 377 -- 377
Other long-term liabilities.... 24,883 -- 24,883
---------- -------- ----------
Total long-term liabilities.. 220,567 -- 220,567
---------- -------- ----------
Stockholders' Equity:
Common stock and capital in
excess of par value........... 725,325 94,464 819,789
Treasury stock at cost......... (219,417) (1,461) (220,878)
Deferred compensation.......... -- (346) (346)
Retained earnings (deficit).... 360,916 (2,594) (13,500)(1) 344,822
Accumulated other comprehensive
loss.......................... (9,345) 292 (9,053)
---------- -------- ----------
Total stockholders' equity... 857,479 90,355 934,334
---------- -------- ----------
$1,405,958 $134,628 $1,540,586
========== ======== ==========
</TABLE>
- --------
(1) Reflects anticipated expenses of the merger with Quickturn.
83
UNAUDITED PRO FORMA
CONDENSED COMBINED
FINANCIAL INFORMATION
<PAGE>
CADENCE, AMBIT AND QUICKTURN
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 2, 1999
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Cadence Ambit Adjustments Subtotal Quickturn Adjustments Total
---------- ------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Product............... $ 695,036 $ 8,562 $ 703,598 $ 65,405 $ 769,003
Services.............. 255,787 381 256,168 9,423 265,591
Maintenance........... 265,247 1,873 267,120 29,281 296,401
---------- ------- ---------- -------- ----------
Total revenue........ 1,216,070 10,816 1,226,886 104,109 1,330,995
---------- ------- ---------- -------- ----------
Costs and Expenses
Cost of product....... 51,539 189 51,728 25,974 77,702
Cost of services...... 185,683 1,363 187,046 3,110 190,156
Cost of maintenance... 43,453 -- 43,453 8,933 52,386
Amortization of
acquired
intangibles.......... 17,443 -- 21,662 (1) 39,105 1,028 40,133
Marketing and sales... 302,332 8,432 310,764 37,962 348,726
Research and
development.......... 179,394 4,519 183,913 23,416 207,329
General and
administrative....... 67,444 2,578 70,022 19,385 89,407
Unusual items......... 263,594 -- (106,500)(2) 157,094 -- 157,094
---------- ------- ---------- -------- ----------
Total costs and
expenses............ 1,110,882 17,081 1,043,125 119,808 1,162,933
---------- ------- ---------- -------- ----------
Income (loss) from
operations............. 105,188 (6,265) 183,761 (15,699) 168,062
Other income, net....... 7,479 435 7,914 3,079 10,993
---------- ------- ---------- -------- ----------
Income (loss) before
provision for income
taxes.................. 112,667 (5,830) 191,675 (12,620) 179,055
Provision (benefit) for
income taxes........... 80,685 25 (8,665)(3) 72,045 (5,762) 66,283
---------- ------- ---------- -------- ----------
Net income (loss)..... $ 31,982 $(5,855) $ 119,630 $ (6,858) $ 112,772
========== ======= ========== ======== ==========
Basic net income
(loss) per share..... $ 0.15 $ 0.56 $ (0.39) $ 0.51
========== ========== ======== ==========
Diluted net income
(loss) per share..... $ 0.14 $ 0.51 $ (0.39) $ 0.46
========== ========== ======== ==========
Weighted average
common shares
outstanding.......... 211,975 211,975 17,802 (6,533)(4) 223,244
========== ========== ======== ====== ==========
Weighted average
common and potential
common shares
outstanding--assuming
dilution............. 233,647 233,647 17,802 (5,744)(4) 245,705
========== ========== ======== ====== ==========
</TABLE>
- --------
(1) Reflects amortization of acquired intangibles from the Ambit acquisition as
if Cadence and Ambit had been combined at the beginning of the fiscal year
ended January 2, 1999 ($28.9 million per year for 7 years).
(2) Eliminates nonrecurring charge related to the write-off of acquired in-
process technology from the Ambit acquisition.
(3) Reflects the tax effect of the pro forma adjustment for amortization of
acquired intangibles.
(4) Converts Quickturn's weighted average common shares and potential common
shares outstanding to Cadence common stock based on an assumed exchange
ratio of 0.633 to 1.00.
84
UNAUDITED PRO FORMA
CONDENSED COMBINED
FINANCIAL INFORMATION
<PAGE>
CADENCE AND QUICKTURN
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 3, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Cadence Quickturn Adjustments Total
-------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue
Product........................... $537,490 $ 80,850 $ 618,340
Services.......................... 160,890 7,899 168,789
Maintenance....................... 227,989 21,655 249,644
-------- -------- ------ ----------
Total revenue................... 926,369 110,404 1,036,773
-------- -------- ------ ----------
Costs and Expenses
Cost of product................... 40,064 34,117 74,181
Cost of services.................. 114,711 2,696 117,407
Cost of maintenance............... 27,838 6,200 34,038
Amortization of acquired
intangibles...................... 1,946 514 2,460
Marketing and sales............... 263,054 36,775 299,829
Research and development.......... 143,746 23,499 167,245
General and administrative........ 58,412 11,485 69,897
Unusual items..................... 44,053 3,957 48,010
-------- -------- ------ ----------
Total costs and expenses........ 693,824 119,243 813,067
-------- -------- ------ ----------
Income (loss) from operations....... 232,545 (8,839) 223,706
Other income, net................... 26,215 2,175 28,390
-------- -------- ------ ----------
Income (loss) before provision for
income taxes....................... 258,760 (6,664) 252,096
Provision (benefit) for income
taxes.............................. 78,384 (3,686) 74,698
-------- -------- ------ ----------
Net income (loss) before
cumulative effect of change in
accounting method................ $180,376 $ (2,978) $ 177,398
======== ======== ====== ==========
Basic net income (loss) per share
before cumulative effect of
change in accounting method...... $ 0.93 $ (0.17) $ 0.86
======== ======== ====== ==========
Diluted net income (loss) per
share before cumulative effect of
change in accounting method...... $ 0.82 $ (0.17) $ 0.77
======== ======== ====== ==========
Weighted average common shares
outstanding...................... 194,900 17,110 (6,279)(1) 205,731
======== ======== ====== ==========
Weighted average common and
potential common shares
outstanding--assuming dilution... 219,552 17,110 (5,264)(1) 231,398
======== ======== ====== ==========
</TABLE>
- --------
(1) Converts Quickturn's weighted average common shares and potential common
shares outstanding to Cadence common stock based on an assumed exchange
ratio of 0.633 to 1.00.
85
UNAUDITED PRO FORMA
CONDENSED COMBINED
FINANCIAL INFORMATION
<PAGE>
CADENCE AND QUICKTURN
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 28, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Cadence Quickturn Adjustments Total
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenue
Product............................. $441,263 $88,090 $529,353
Services............................ 114,620 4,846 119,466
Maintenance......................... 223,181 16,642 239,823
-------- ------- --------
Total revenue..................... 779,064 109,578 888,642
-------- ------- --------
Costs and Expenses
Cost of product..................... 49,469 26,050 75,519
Cost of services.................... 80,963 1,575 82,538
Cost of maintenance................. 25,067 5,038 30,105
Amortization of acquired
intangibles........................ 929 -- 929
Marketing and sales................. 240,740 31,982 272,722
Research and development............ 123,065 19,706 142,771
General and administrative.......... 60,049 7,254 67,303
Unusual items....................... 100,543 -- 100,543
-------- ------- --------
Total costs and expenses.......... 680,825 91,605 772,430
-------- ------- --------
Income from operations................ 98,239 17,973 116,212
Other income, net..................... 226 1,879 2,105
-------- ------- --------
Income before provision for income
taxes................................ 98,465 19,852 118,317
Provision for income taxes............ 64,155 5,721 69,876
-------- ------- --------
Net income.......................... $ 34,310 $14,131 $ 48,441
======== ======= ========
Basic net income per share.......... $ 0.19 $ 0.87 $ 0.26
======== ======= ========
Diluted net income per share........ $ 0.16 $ 0.79 $ 0.22
======== ======= ========
Weighted average common shares
outstanding........................ 178,399 16,323 (5,991)(1) 188,731
======== ======= ========
Weighted average common and
potential common shares
outstanding--assuming dilution..... 208,444 17,912 (6,574)(1) 219,782
======== ======= ========
</TABLE>
- --------
(1) Converts Quickturn's weighted average common shares and potential common
shares outstanding to Cadence common stock based on an assumed exchange
ratio of 0.633 to 1.00.
86
UNAUDITED PRO FORMA
CONDENSED COMBINED
FINANCIAL INFORMATION
<PAGE>
CADENCE, AMBIT AND QUICKTURN
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF
CADENCE, QUICKTURN AND AMBIT
Basis of Presentation
The unaudited pro forma condensed combined financial statements combine the
historical financial statements of Cadence and Quickturn for all periods
presented following the pooling-of-interests method of accounting. No
adjustments were necessary to conform the accounting policies of Cadence and
Quickturn. The unaudited pro forma condensed combined statement of operations
for the year ended January 2, 1999 include Cadence's acquisition of Ambit which
has been accounted for under the purchase method of accounting.
The unaudited pro forma condensed combined financial statements included in
this proxy statement/prospectus have been prepared by Cadence and Quickturn,
without audit, following the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
complying with such rules and regulations. However, Cadence and Quickturn
believe that the disclosures are adequate to make the information presented not
misleading.
The preparation of unaudited pro forma condensed combined financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the unaudited pro forma condensed combined financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Pro Forma Net Income (Loss) Per Share
The net income (loss) per share is based on the combined weighted average
number of common and dilutive potential common shares of Cadence and Quickturn
based upon an assumed exchange ratio of 0.633 shares of Cadence common stock
for each share of Quickturn common stock and outstanding Quickturn stock
options and warrants.
Merger Related Expenses of Cadence and Quickturn
Cadence and Quickturn estimate that they will incur approximately $13.5
million of merger-related expenses, consisting mostly of transaction costs for
investment bankers, attorneys, accountants, financial printing, and other
related charges. This estimate is subject to change. These non-recurring
expenses will be charged to operations during the period in which the merger
occurs. The pro forma condensed combined balance sheet gives effect to these
expenses as if they had been incurred as of January 2, 1999, but the pro forma
condensed combined statements of operations do not give effect to these
expenses as these expenses are non-recurring.
Purchase Price
The purchase price for the acquisition of Ambit is computed as follows (in
thousands):
<TABLE>
<S> <C>
Cash payment to Ambit shareholders................................. $252,990
Cadence ownership prior to acquisition............................. 2,000
--------
Total purchase price............................................. $254,990
========
</TABLE>
87
UNAUDITED PRO FORMA
CONDENSED COMBINED
FINANCIAL INFORMATION
<PAGE>
CADENCE, AMBIT AND QUICKTURN
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF
CADENCE, QUICKTURN AND AMBIT
In-Process Technology
Cadence's acquisition of Ambit was accounted for as a purchase, allocating
the purchase price based upon the estimated fair value of the assets acquired
and the liabilities assumed. Cadence's management estimates that $106.5 million
of the purchased intangibles was purchased in-process technology that had not
yet reached technological feasibility and has no alternative future use. This
amount was charged to expense in the period ended October 3, 1998, but has been
excluded from the pro forma condensed combined statement of operations for that
period included in this proxy statement/prospectus because it is a non-
recurring expense. The value assigned to purchased in-process technology was
determined by identifying research projects in areas for which technological
feasibility has not been established. The remaining intangible assets of $144.4
million were assigned to purchased software and intangibles, net and will be
amortized on a straight-line basis over their estimated useful lives of seven
years. Cadence management believes that the unamortized balance is recoverable
through future operating results. If these projects are not successfully
developed, the business, operating results, and financial condition of Cadence
may be adversely affected. Additionally, the value of the other intangible
assets acquired may become impaired.
88
UNAUDITED PRO FORMA
CONDENSED COMBINED
FINANCIAL INFORMATION
<PAGE>
Appendix A
- --------------------------------------------------------------------------------
Agreement and Plan of Merger
Dated as of December 8, 1998
among
Cadence Design Systems, Inc.,
Quickturn Design Systems, Inc.,
and
CDSI Acquisition, Inc.
as amended
on December 16, 1998 and
January 4, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 THE MERGER....................................................... 1
Section 1.1. The Merger................................................. 1
Section 1.2. Effective Time............................................. 1
Section 1.3. Closing of the Merger...................................... 1
Section 1.4. Effects of the Merger...................................... 2
Section 1.5. Certificate of Incorporation and Bylaws.................... 2
Section 1.6. Directors.................................................. 2
Section 1.7. Officers................................................... 2
Section 1.8. Conversion of Shares....................................... 2
Section 1.9. Dissenters and Appraisal Rights............................ 2
Section 1.10. Exchange of Certificates................................... 3
Section 1.11. Stock Options.............................................. 4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... 5
Section 2.1. Organization and Qualification; Subsidiaries; Investments.. 5
Section 2.2. Capitalization of the Company and its Subsidiaries......... 6
Section 2.3. Authority Relative to this Agreement; Recommendation....... 7
Section 2.4. SEC Reports; Financial Statements.......................... 7
Section 2.5. Information Supplied....................................... 7
Section 2.6. Consents and Approvals; No Violations...................... 8
Section 2.7. No Default................................................. 8
Section 2.8. No Undisclosed Liabilities; Absence of Changes............. 8
Section 2.9. Litigation................................................. 9
Section 2.10. Compliance with Applicable Law............................. 10
Section 2.11. Employee Benefit Plans; Labor Matters...................... 10
Section 2.12. Environmental Laws and Regulations......................... 11
Section 2.13. Taxes...................................................... 11
Section 2.14. Intellectual Property...................................... 12
Section 2.15. Insurance.................................................. 16
Section 2.16. Certain Business Practices................................. 16
Section 2.17. Product Warranties......................................... 16
Section 2.18. Suppliers and Customers.................................... 16
Section 2.19. Vote Required.............................................. 16
Section 2.20. Tax Treatment; Pooling..................................... 16
Section 2.21. Affiliates................................................. 17
Section 2.22. Opinion of Financial Adviser............................... 17
Section 2.23. Brokers.................................................... 17
Section 2.24. Company Rights Agreement................................... 17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION......... 17
Section 3.1. Organization............................................... 17
Section 3.2. Capitalization of Parent and its Subsidiaries.............. 18
Section 3.3. Authority Relative to this Agreement....................... 18
Section 3.4. SEC Reports; Financial Statements.......................... 19
Section 3.5. Information Supplied....................................... 19
Section 3.6. Consents and Approvals; No Violations...................... 19
Section 3.7. No Default................................................. 20
Section 3.8. No Undisclosed Liabilities; Absence of Changes............. 20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 3.9. Litigation.................................................. 20
Section 3.10. Compliance with Applicable Law.............................. 20
Section 3.11. Tax Treatment; Pooling...................................... 20
Section 3.12. Opinion of Financial Adviser................................ 21
Section 3.13. Brokers..................................................... 21
Section 3.14. No Prior Activities......................................... 21
Section 3.15 Environmental Laws and Regulations........................... 21
ARTICLE 4 COVENANTS......................................................... 21
Section 4.1. Conduct of Business of the Company.......................... 21
Section 4.2. Conduct of Business of Parent............................... 23
Section 4.3. Preparation of S-4 and the Proxy Statement.................. 23
Section 4.4. Other Potential Acquirers................................... 24
Section 4.5. Comfort Letters............................................. 25
Section 4.6. Meeting of Stockholders..................................... 25
Section 4.7. Stock Exchange Listing...................................... 25
Section 4.8. Access to Information....................................... 25
Section 4.9. Certain Filings; Reasonable Efforts......................... 26
Section 4.10. Public Announcements........................................ 27
Section 4.11. Indemnification and Directors' and Officers' Insurance...... 27
Section 4.12. Notification of Certain Matters............................. 28
Section 4.13. Affiliates; Pooling; Tax-Free Reorganization................ 28
Section 4.14. Additions to and Modification of Company Disclosure
Schedule................................................................. 28
Section 4.15. Company Rights Agreement.................................... 29
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER.......................... 29
Section 5.1. Conditions to Each Party's Obligations to Effect the
Merger................................................................... 29
Section 5.2. Conditions to the Obligations of the Company................ 29
Section 5.3. Conditions to the Obligations of Parent and Acquisition..... 30
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER.................................... 31
Section 6.1. Termination................................................. 31
Section 6.2. Effect of Termination....................................... 32
Section 6.3. Fees and Expenses........................................... 32
Section 6.4. Amendment................................................... 33
Section 6.5. Extension; Waiver........................................... 33
ARTICLE 7 MISCELLANEOUS..................................................... 33
Section 7.1. Nonsurvival of Representations and Warranties............... 33
Section 7.2. Entire Agreement; Assignment................................ 33
Section 7.3. Validity.................................................... 33
Section 7.4. Notices..................................................... 33
Section 7.5. Governing Law............................................... 34
Section 7.6. Descriptive Headings........................................ 34
Section 7.7. Parties in Interest......................................... 34
Section 7.8. Certain Definitions......................................... 34
Section 7.9. Personal Liability.......................................... 35
Section 7.10. Specific Performance........................................ 35
Section 7.11. Counterparts................................................ 35
</TABLE>
ii
<PAGE>
TABLE OF EXHIBITS
<TABLE>
<C> <S>
Exhibit A-1.................... Form of Letter Agreement with Company
Affiliates
Exhibit A-2.................... Form of Letter Agreement with Parent
Affiliates
Exhibit B-1.................... Form of Representations related to Tax
Matters of the Company
Exhibit B-2.................... Form of Representations Related to Tax
Matters of Parent and Acquisition
Exhibit C ..................... Matters to be Covered by Opinion of Legal
Counsel to the Company
Exhibit D...................... Matters to be Covered by Opinion of Legal
Counsel to Parent and Acquisition
Exhibit E...................... Form of Certificate of Merger
</TABLE>
TABLE OF CONTENTS
TO
COMPANY DISCLOSURE SCHEDULE
<TABLE>
<S> <C>
Section 2.1(a)................... Subsidiaries
Section 2.1(c)................... Equity Investments
Section 2.6...................... Consents and Approval
Section 2.7...................... Defaults
Section 2.8...................... Undisclosed Liabilities; Absence of Changes
Section 2.9...................... Litigation
Section 2.11(a).................. Employee Plans
Section 2.11(b).................. Employment and Related Agreements
Section 2.11(c).................. Employee Benefits Affected by this Transaction
Section 2.11(d).................. Employee Benefits to Former Employees
Section 2.11(e).................. Employee Matters
Section 2.13(b).................. Delinquent or Inaccurate Tax Returns
Section 2.13(c).................. All Taxes Paid
Section 2.13(d).................. Tax Claims
Section 2.13(e).................. Excess Parachute Payments
Section 2.14(a).................. Intellectual Property
Section 2.14(e)(1)............... Inbound License Agreements
Section 2.14(e)(2)............... Outbound License Agreements
Section 2.14(i).................. Pending or Threatened Infringement Claims
Section 2.14(j).................. Infringement Matters
Section 2.14(k).................. Existing Software Products
Section 2.14(l).................. Non Company Intellectual Property Rights
Section 2.14(m).................. Existing and Currently Manufactured Software
Section 2.14(o).................. Year 2000 Compliance
Section 2.17..................... Product Warranties
Section 2.18..................... Suppliers and Customers
Section 2.21..................... Affiliates
Section 4.1...................... Conduct of Business
Section 5.3(i)................... Third Party Consents
</TABLE>
iii
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
Cross Reference
Term in Agreement Page
- ---- --------------- ----
<S> <C> <C>
Acquisition................................. Preamble.................... 1
affiliate................................... Section 7.8(a).............. 34
Agreement................................... Preamble.................... 1
business day................................ Section 7.8(b).............. 34
Business System............................. Section 2.14(o)(i).......... 15
capital stock............................... Section 7.8(c).............. 34
Certificate of Merger....................... Section 1.2................. 1
Certificates................................ Section 1.10(b)............. 3
Closing Date................................ Section 1.3................. 1
Closing..................................... Section 1.3................. 1
Code........................................ Preamble.................... 1
Company..................................... Preamble.................... 1
Company Acquisition......................... Section 7.8(d).............. 35
Company Affiliates.......................... Section 2.21................ 17
Company Board............................... Section 2.3(a).............. 7
Company Financial Adviser................... Section 2.22................ 17
Company Permits............................. Section 2.10................ 10
Company Plans............................... Section 1.11(a)............. 4
Company Rights Agreement.................... Section 2.2(a).............. 6
Company Rights.............................. Section 2.2(a).............. 6
Company SEC Reports......................... Section 2.4(a).............. 7
Company Securities.......................... Section 2.2(a).............. 6
Company Stock Option or Options............. Section 1.11(a)............. 4
DGCL........................................ Section 1.1................. 1
Effective Time.............................. Section 1.2................. 1
Employee Plans.............................. Section 2.11(a)............. 10
Environmental Claim......................... Section 2.12(a)............. 11
Environmental Laws.......................... Section 2.12(a)............. 11
ERISA Affiliate............................. Section 2.11(a)............. 10
ERISA....................................... Section 2.11(a)............. 10
Exchange Act................................ Section 2.2(c).............. 7
Exchange Agent.............................. Section 1.10(a)............. 3
Exchange Fund............................... Section 1.10(a)............. 3
Exchange Ratio.............................. Section 1.8(b).............. 2
Governmental Entity......................... Section 2.6................. 8
HSR Act..................................... Section 2.6................. 8
include..................................... Section 7.8(e).............. 35
Indemnified Liabilities..................... Section 4.11................ 27
Indemnified Persons......................... Section 4.11................ 27
Insurance Policies.......................... Section 2.15................ 16
IRS......................................... Section 2.11(a)............. 10
ISOs........................................ Section 1.11(a)............. 4
knowledge or known.......................... Section 7.8(d).............. 35
Lien........................................ Section 2.2(b).............. 6
Material Adverse Effect on Parent........... Section 3.1(b).............. 17
Material Adverse Effect on the Company...... Section 2.1(b).............. 5
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Cross Reference
Term in Agreement Page
- ---- --------------- ----
<S> <C> <C>
Merger Consideration......................... Section 1.8(a).............. 2
Merger....................................... Section 1.1................. 1
Notice of Superior Proposal.................. Section 4.4(b).............. 24
Other Interests.............................. Section 2.1(b).............. 5
Parent....................................... Preamble.................... 1
Parent Common Stock.......................... Section 1.8(a).............. 2
Parent Financial Adviser..................... Section 3.12................ 21
Parent Permits............................... Section 3.10................ 20
Parent Rights................................ Section 3.2(a).............. 18
Parent SEC Reports........................... Section 3.4(a).............. 19
Parent Securities............................ Section 3.2(a).............. 18
person....................................... Section 7.8(f).............. 35
Pooling Transaction.......................... Section 2.20................ 16
Proxy Statement.............................. Section 2.5................. 7
S-4.......................................... Section 2.5................. 7
SEC.......................................... Section 2.4(a).............. 7
Securities Act............................... Section 2.4(a).............. 7
Share........................................ Section 1.8(a).............. 2
Shares....................................... Section 1.8(a).............. 2
Stock Option Agreement....................... Section 5.2(a).............. 29
subsidiary or subsidiaries................... Section 7.8(g).............. 35
Superior Proposal............................ Section 4.4(c).............. 24
Surviving Corporation........................ Section 1.1................. 1
Tax or Taxes................................. Section 2.13(a)(i).......... 11
Tax Return................................... Section 2.13(a)(ii)......... 12
Third Party Acquisition...................... Section 4.4(c).............. 24
Third Party.................................. Section 4.4(c).............. 24
Year 2000 Compliant.......................... Section 2.14(o)(i).......... 15
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of December 8,
1998, is by and among Quickturn Design Systems, Inc., a Delaware corporation
(the "Company"), Cadence Design Systems, Inc., a Delaware corporation
("Parent"), and CDSI ACQUISITION, INC., a Delaware corporation and a wholly
owned subsidiary of Parent ("Acquisition").
WHEREAS, the Boards of Directors of the Company, Parent and Acquisition have
each (i) determined that the Merger (as defined below) is advisable and fair
and in the best interests of their respective stockholders and (ii) approved
the Merger upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, for Federal income tax purposes it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, certain officers and employees of the Company have entered into
employment and non-competition agreements, effective upon consummation of the
Merger, as an inducement to Parent to enter into this Agreement; and
WHEREAS, the Merger is intended to be treated as a "pooling of interests" for
financial accounting purposes.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Acquisition
hereby agree as follows:
ARTICLE 1
THE MERGER
Section 1.1. The Merger. At the Effective Time (as defined below) and upon
the terms and subject to the conditions of this Agreement and in accordance
with the Delaware General Corporation Law (the "DGCL"), Acquisition shall be
merged with and into the Company (the "Merger"). Following the Merger, the
Company shall continue as the surviving corporation (the "Surviving
Corporation") and the separate corporate existence of Acquisition shall cease.
At the election of the parties, the Merger may be structured so that the
Company shall be merged with and into Acquisition with the result that
Acquisition shall become the "Surviving Corporation." The Merger is intended to
qualify as a tax-free reorganization under Section 368(a) of the Code. Parent,
as the sole stockholder of Acquisition, hereby approves the Merger and this
Agreement.
Section 1.2. Effective Time. Subject to the terms and conditions set forth in
this Agreement, on the Closing Date (as defined in Section 1.3), a Certificate
of Merger substantially in the form of Exhibit E (the "Certificate of Merger")
shall be duly executed and acknowledged by Acquisition and the Company and
thereafter delivered to the Secretary of State of the State of Delaware for
filing pursuant to Section 251 of the DGCL. The Merger shall become effective
at such time as a properly executed copy of the Certificate of Merger is duly
filed with the Secretary of State of the State of Delaware in accordance with
Section 251 of the DGCL or such later time as Parent and the Company may agree
upon and as set forth in the Certificate of Merger (the time the Merger becomes
effective being referred to herein as the "Effective Time").
Section 1.3. Closing of the Merger. The closing of the Merger (the "Closing")
will take place at a time and on a date (the "Closing Date") to be specified by
the parties, which shall be no later than the second business day after
satisfaction of the latest to occur of the conditions set forth in Article 5,
at the offices of Gibson, Dunn & Crutcher LLP, One Montgomery Street, San
Francisco, California 94104, unless another time, date or place is agreed to in
writing by the parties hereto.
A-1
<PAGE>
Section 1.4. Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Acquisition shall vest in the Surviving
Corporation and all debts, liabilities and duties of the Company and
Acquisition shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.5. Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of Acquisition in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until amended in
accordance with applicable law. The bylaws of Acquisition in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended
in accordance with applicable law.
Section 1.6. Directors. The directors of Acquisition at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and bylaws of the
Surviving Corporation until such director's successor is duly elected or
appointed and qualified.
Section 1.7. Officers. The officers of Acquisition at the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified.
Section 1.8. Conversion of Shares.
(a) At the Effective Time, each share of common stock, $0.001 par value per
share, of the Company (individually a "Share" and collectively the "Shares")
issued and outstanding immediately prior to the Effective Time (other than (i)
Shares held in the Company's treasury or by any of the Company's subsidiaries
and (ii) Shares held by Parent, Acquisition or any other subsidiary of Parent)
shall, by virtue of the Merger and without any action on the part of
Acquisition, the Company or the holder thereof, be converted into and shall
become a number of fully paid and nonassessable shares of common stock, par
value $.01 per share, of Parent ("Parent Common Stock") equal to the Exchange
Ratio (as defined below) (the "Merger Consideration"). Unless the context
otherwise requires, each reference in this Agreement to shares of Parent Common
Stock and to the Shares shall include the associated Parent Rights (as such
term is defined in Section 3.2(a) hereof) and associated Company Rights (as
defined in Section 2.2(a)), respectively. Notwithstanding the foregoing, if,
between the date of this Agreement and the Effective Time, the outstanding
shares of Parent Common Stock or the Shares shall have been changed into a
different number of shares or a different class by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination
or exchange of shares then the Exchange Ratio shall be correspondingly adjusted
to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares.
(b) The "Exchange Ratio" shall be (i) $15.00 divided by (ii) the average
closing price of one share of Parent Common Stock (as reported on the NYSE
Composite Transactions reporting system) during the five trading days
immediately preceding the second business day prior to the Closing Date.
(c) At the Effective Time, each outstanding share of the common stock, $0.01
par value per share, of Acquisition shall be converted into one share of common
stock, $0.01 par value per share, of the Surviving Corporation.
(d) At the Effective Time, each Share held in the treasury of the Company and
each Share held by Parent, Acquisition or any subsidiary of Parent, Acquisition
or the Company immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of Acquisition, the Company or the
holder thereof, be canceled, retired and cease to exist and no shares of Parent
Common Stock shall be delivered with respect thereto.
Section 1.9. Dissenters and Appraisal Rights. The holders of the Shares will
not be entitled to dissenters and appraisal rights in accordance with Section
262 of the DGCL.
A-2
<PAGE>
Section 1.10. Exchange of Certificates.
(a) From time to time following the Effective Time, as required by
subsections (b) and (c) below, Parent shall deliver to its transfer agent, or a
depository or trust institution of recognized standing selected by Parent and
Acquisition (the "Exchange Agent") for the benefit of the holders of Shares for
exchange in accordance with this Article I: (i) certificates representing the
appropriate number of shares of Parent Common Stock issuable pursuant to
Section 1.8, and (ii) cash to be paid in lieu of fractional shares of Parent
Common Stock (such shares of Parent Common Stock and such cash are hereinafter
referred to as the "Exchange Fund"), in exchange for outstanding Shares.
(b) As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates that
immediately prior to the Effective Time represented outstanding Shares (the
"Certificates") and whose shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 1.8: (i) a letter of
transmittal (which shall specify that delivery shall be effected and risk of
loss and title to the Certificates shall pass only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such letter
of transmittal duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock and, if applicable, a check representing the cash
consideration to which such holder may be entitled on account of a fractional
share of Parent Common Stock that such holder has the right to receive pursuant
to the provisions of this Article I and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Shares that
is not registered in the transfer records of the Company, a certificate
representing the proper number of shares of Parent Common Stock may be issued
to a transferee if the Certificate representing such Shares is presented to the
Exchange Agent accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have
been paid. Until surrendered as contemplated by this Section 1.10, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the certificate representing
shares of Parent Common Stock and cash in lieu of any fractional shares of
Parent Common Stock as contemplated by this Section 1.10.
(c) No dividends or other distributions declared or made after the Effective
Time with respect to Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Parent Common Stock represented thereby, and no cash payment
in lieu of fractional shares shall be paid to any such holder pursuant to
Section 1.10(f), until the holder of record of such Certificate shall surrender
such Certificate. Subject to the effect of applicable laws, following surrender
of any such Certificate there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in
exchange therefor without interest (i) the amount of any cash payable in lieu
of a fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 1.10(f) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such number of whole shares of Parent Common Stock and (ii) at the appropriate
payment date the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent
to surrender payable with respect to such whole shares of Parent Common Stock.
(d) In the event that any Certificate for Shares shall have been lost, stolen
or destroyed, the Exchange Agent shall issue in exchange therefor upon the
making of an affidavit of that fact by the holder thereof such shares of Parent
Common Stock and cash in lieu of fractional shares, if any, as may be required
pursuant to this Agreement; provided, however, that Parent or the Exchange
Agent may, in its discretion, require the delivery of a suitable bond or
indemnity.
(e) All shares of Parent Common Stock issued upon the surrender for exchange
of Shares in accordance with the terms hereof (including any cash paid pursuant
to Section 1.10(c) or 1.10(f)) shall be deemed to have
A-3
<PAGE>
been issued in full satisfaction of all rights pertaining to such Shares;
subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to the date
hereof that remain unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the Shares that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
(f) No fractions of a share of Parent Common Stock shall be issued in the
Merger but in lieu thereof each holder of Shares otherwise entitled to a
fraction of a share of Parent Common Stock shall upon surrender of his or her
Certificate or Certificates be entitled to receive an amount of cash (without
interest) determined by multiplying the average closing price for Parent Common
Stock as reported on the NYSE Composite Transactions reporting system for the
five (5) business days prior to the Effective Time by the fractional share
interest to which such holder would otherwise be entitled. The parties
acknowledge that payment of the cash consideration in lieu of issuing
fractional shares was not separately bargained for consideration, but merely
represents a mechanical rounding off for purposes of simplifying the corporate
and accounting complexities that would otherwise be caused by the issuance of
fractional shares.
(g) Any portion of the Exchange Fund that remains undistributed to the
stockholders of the Company upon the expiration of twelve (12) months after the
Effective Time shall be delivered to Parent upon demand and any stockholders of
the Company who have not theretofore complied with this Article I shall
thereafter look only to Parent for payment of their claim for Parent Common
Stock and cash in lieu of fractional shares as the case may be and any
applicable dividends or distributions with respect to Parent Common Stock.
(h) Neither Parent nor the Company shall be liable to any holder of Shares or
Parent Common Stock as the case may be for such shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 1.11. Stock Options.
(a) At the Effective Time, each outstanding option or warrant to purchase
Shares (a "Company Stock Option" or collectively "Company Stock Options")
issued pursuant to the Company's 1988 Stock Option Plan, 1990 Stock Option
Plan, 1992 Key Executive Stock Option Plan, 1993 Employee Qualified Stock
Purchase Plan, 1996 Supplemental Stock Plan, as amended, 1997 Stock Option
Plan, as amended, 1994 Outside Director Stock Option Plan, Key Executive Stock
Option Plan, SpeedSim, Inc. 1995 Incentive and Nonqualified Stock Option Plan,
or other agreement or arrangement, whether vested or unvested, shall be
converted as of the Effective Time into options or warrants, as applicable, to
purchase shares of Parent Common Stock in accordance with the terms of this
Section 1.11. All plans or agreements described above pursuant to which any
Company Stock Option has been issued or may be issued other than outstanding
warrants are referred to collectively as the "Company Plans." Each Company
Stock Option shall be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such Company Stock Option, a
number of shares of Parent Common Stock equal to the number of shares of Parent
Common Stock that the holder of such Company Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
option or warrant in full immediately prior to the Effective Time at a price
per share equal to (x) the aggregate exercise price for the Shares otherwise
purchasable pursuant to such Company Stock Option divided by (y) the product of
(i) the number of Shares otherwise purchasable pursuant to such Company Stock
Option, multiplied by (ii) the Exchange Ratio; provided, however, that in the
case of any option to which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code ("incentive stock options" or
"ISOs") the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 424(a) of the Code.
(b) As soon as practicable after the Effective Time, Parent shall deliver to
the holders of Company Stock Options appropriate notices setting forth such
holders' rights pursuant to the Company Plan and that the agreements evidencing
the grants of such Options shall continue in effect on the same terms and
conditions
A-4
<PAGE>
(subject to the adjustments required by this Section 1.11 after giving effect
to the Merger). Parent shall comply with the terms of the Company Plans and
ensure, to the extent required by and subject to the provisions of such Plans,
that Company Stock Options that qualified as incentive stock options prior to
the Effective Time continue to qualify as incentive stock options of Parent
after the Effective Time.
(c) Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon exercise
of Company Stock Options assumed in accordance with this Section 1.11. As soon
as practicable after the Effective Time, Parent shall file a registration
statement on Form S-8 (or any successor or other appropriate forms) with
respect to the shares of Parent Common Stock subject to any Company Stock
Options held by persons who are directors, officers or employees of the Company
or its subsidiaries and shall use all reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding.
(d) At or before the Effective Time, the Company shall cause to be effected
any necessary amendments to the Company Plans to give effect to the foregoing
provisions of this Section 1.11.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and Acquisition,
subject to the exceptions set forth in the Disclosure Schedule (the "Company
Disclosure Schedule") delivered by the Company to Parent in accordance with
Section 4.15 (which exceptions shall specifically identify a Section,
Subsection or clause of a single Section or Subsection hereof, as applicable,
to which such exception relates) that:
Section 2.1. Organization and Qualification; Subsidiaries; Investments.
(a) Section 2.1(a) of the Company Disclosure Schedule sets forth, as of the
date of this Agreement, a true and complete list of all the Company's directly
or indirectly owned subsidiaries, together with the jurisdiction of
incorporation of each subsidiary and the percentage of each subsidiary's
outstanding capital stock or other equity interests owned by the Company or
another subsidiary of the Company. Each of the Company and its subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite power
and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted. The Company has heretofore delivered to
Acquisition or Parent accurate and complete copies of the Certificate of
Incorporation and bylaws (or similar governing documents), as currently in full
force and effect, of the Company and its subsidiaries. Section 2.1(a) of the
Company Disclosure Schedule identifies all the material subsidiaries of the
Company. The Company has no operating subsidiaries other than those
incorporated in a state of the United States.
(b) Each of the Company and its subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing
would not, individually or in the aggregate, have a Material Adverse Effect (as
defined below) on the Company. When used in connection with the Company or its
subsidiaries, the term "Material Adverse Effect on the Company" means any
circumstance, change in, or effect on (or circumstance, change in, or effect
involving a prospective change on) the Company and its subsidiaries, taken as a
whole, (a) that is, or is reasonably likely in the future to be, materially
adverse to the operations, assets or liabilities (including contingent
liabilities), earnings or results of operations, or the business (financial or
otherwise) of the Company and its subsidiaries, taken as a whole, excluding
from the foregoing the effect, if any, of (i) changes in general economic
conditions or changes affecting the industry in which the Company operates,
(ii) stockholder class action litigation arising from allegations of a breach
of fiduciary duty relating to this Agreement, (iii) of the public announcement
or pendency of the transactions contemplated hereby on
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current or prospective customers or revenues of the Company (provided that such
effect is direct and that the Company shall have the burden of proving such
direct effect), or (iv) any action or inaction required of the Company by
Parent under Section 4.1, or (b) that would reasonably be expected to prevent
or materially delay or impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
(c) Section 2.1(c) of the Company Disclosure Schedule sets forth a true and
complete list of each equity investment in an amount of One Hundred Thousand
Dollars ($100,000) or more or that represents a five percent (5%) or greater
ownership interest in the subject of such investment made by the Company or any
of its subsidiaries in any other person other than the Company's subsidiaries
("Other Interests"). The Other Interests are owned by the Company, by one or
more of the Company's subsidiaries or by the Company and one or more of its
subsidiaries, in each case free and clear of all Lien (as defined below),
except for Liens that may be created by any partnership or joint venture
agreements for Other Interests.
Section 2.2. Capitalization of the Company and its Subsidiaries.
(a) The authorized capital stock of the Company consists of Forty Million
(40,000,000) Shares, of which, as of November 30, 1998, 18,095,580 Shares were
issued and outstanding and Two Million (2,000,000) shares of preferred stock,
$0.001 par value per share, no shares of which are outstanding. All of the
outstanding Shares have been validly issued and are fully paid, nonassessable
and free of preemptive rights. As of November 30, 1998, approximately 4,396,556
Shares were reserved for issuance and, as of December 5, 1998, 3,597,768 were
issuable upon or otherwise deliverable in connection with the exercise of
outstanding Company Stock Options issued pursuant to the Company Plans. Between
December 5, 1998 and the date hereof, no shares of the Company's capital stock
have been issued other than pursuant to Company Stock Options already in
existence on such date, and between December 5, 1998 and the date hereof no
stock options have been granted. Except as set forth above and for the rights
(the "Company Rights") issued pursuant to the Company's Preferred Shares Rights
Agreement, dated as of January 10, 1996, as amended between the Company and
BankBoston, N.A. (the "Company Rights Agreement"), as of the date hereof, there
are outstanding (i) no shares of capital stock or other voting securities of
the Company, (ii) no securities of the Company or any of its subsidiaries
convertible into or exchangeable or exercisable for shares of capital stock or
voting securities of the Company, (iii) no options or other rights to acquire
from the Company or any of its subsidiaries, and, except as described in the
Company SEC Reports (as defined below), no obligations of the Company or any of
its subsidiaries to issue any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of the Company and (iv) no equity equivalent interests in the
ownership or earnings of the Company or its subsidiaries or other similar
rights (collectively "Company Securities"). As of the date hereof, there are no
outstanding rights or obligations of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any Company Securities. There are no
stockholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or by which it is bound relating to the voting or
registration of any shares of capital stock of the Company.
(b) All of the outstanding capital stock of the Company's subsidiaries is
owned by the Company, directly or indirectly, free and clear of any Lien or any
other limitation or restriction (including any restriction on the right to vote
or sell the same except as may be provided as a matter of law). There are no
(i) securities of the Company or any of its subsidiaries convertible into or
exchangeable or exercisable for, (ii) options or (iii) except for the Company
Rights, other rights to acquire from the Company or any of its subsidiaries any
capital stock or other ownership interests in or any other securities of any
subsidiary of the Company, and there exists no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the
issuance or sale, directly or indirectly, of any such capital stock. There are
no outstanding contractual obligations of the Company or its subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in any subsidiary of the Company. For purposes of
this Agreement, "Lien" means, with respect to any asset (including any
security), any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset; provided, however, that the term "Lien"
shall not include (i) statutory liens for Taxes, which are not yet due and
payable or are being contested in good faith by appropriate proceedings and
disclosed in Section 2.13(d) of the Company Disclosure Schedule
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or that are otherwise not material, (ii) statutory or common law liens to
secure landlords, lessors or renters under leases or rental agreements confined
to the premises rented, (iii) deposits or pledges made in connection with, or
to secure payment of, workers' compensation, unemployment insurance, old age
pension or other social security programs mandated under applicable laws, (iv)
statutory or common law liens in favor of carriers, warehousemen, mechanics and
materialmen, to secure claims for labor, materials or supplies and other like
liens, and (v) restrictions on transfer of securities imposed by applicable
state and federal securities laws.
(c) The Company Rights and the Shares constitute the only class of equity
securities of the Company or its subsidiaries registered or required to be
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
Section 2.3. Authority Relative to this Agreement; Recommendation.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations under this Agreement and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of the Company
(the "Company Board"), and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby except the approval and adoption of this
Agreement by the holders of a majority of the outstanding Shares. This
Agreement has been duly and validly executed and delivered by the Company and
constitutes, assuming the due authorization, execution and delivery hereof by
Parent and Acquisition, a valid, legal and binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject to any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to creditors' rights generally or to
general principles of equity.
(b) The Company Board has unanimously resolved to recommend that the
stockholders of the Company approve and adopt this Agreement.
Section 2.4. SEC Reports; Financial Statements.
(a) The Company has filed all required forms, reports and documents ("Company
SEC Reports") with the Securities and Exchange Commission (the "SEC") since
January 1, 1997, each of which complied at the time of filing in all material
respects with all applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act, each law as in effect on
the dates such forms, reports and documents were filed. None of such Company
SEC Reports, including, any financial statements or schedules included or
incorporated by reference therein, contained when filed any untrue statement of
a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein in light of the circumstances under which they were made not
misleading, except to the extent superseded by a Company SEC Report filed
subsequently and prior to the date hereof. The audited consolidated financial
statements of the Company included in the Company SEC Reports fairly present,
in conformity in all material respects with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and their consolidated
results of operations and changes in financial position for the periods then
ended.
(b) The Company has heretofore made available or promptly will make available
to Acquisition or Parent a complete and correct copy of any amendments or
modifications that are required to be filed with the SEC but have not yet been
filed with the SEC to agreements, documents or other instruments that
previously had been filed by the Company with the SEC pursuant to the Exchange
Act.
Section 2.5. Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger
(the "S-4") will, at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or
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omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or (ii) the proxy statement relating
to the meeting of the Company's stockholders to be held in connection with the
Merger (the "Proxy Statement") will, at the date mailed to stockholders of the
Company and at the time of the meeting of stockholders of the Company to be
held in connection with the Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they are made not misleading. The Proxy Statement insofar as it
relates to the meeting of the Company's stockholders to vote on the Merger will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder. Notwithstanding the foregoing,
the Company makes no representation, warranty or covenant with respect to any
information supplied or required to be supplied by Parent or Acquisition which
is contained in or omitted from any of the foregoing documents.
Section 2.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under
applicable requirements of the Securities Act, the Exchange Act, state
securities or blue sky laws, and the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), any filings under similar merger
notification laws or regulations of foreign Governmental Entities and the
filing and recordation of the Certificate of Merger as required by the DGCL, no
filing with or notice to and no permit, authorization, consent or approval of
any United States or foreign court or tribunal, or administrative, governmental
or regulatory body, agency or authority (a "Governmental Entity") is necessary
for the execution and delivery by the Company of this Agreement or the
consummation by the Company of the transactions contemplated hereby, except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings or give such notice would not, individually or in the
aggregate, materially and adversely affect the business operations of the
Company after the Merger or its ability to consummate the Merger. Neither the
execution, delivery and performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or bylaws (or similar governing documents) of the
Company or any of its subsidiaries, (ii) except as set forth in Section 2.6 of
the Company Disclosure Schedule, result in a violation or breach of or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which any of them or any of their respective properties or assets may be bound
or (iii) except as set forth in Section 2.6 of the Company Disclosure Schedule,
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets except, in the case of clause (ii) or (iii), for
violations, breaches or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
Section 2.7. No Default. Except as set forth in Section 2.7 of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries is in
breach, default or violation (and no event has occurred that with notice or the
lapse of time or both would constitute a breach, default or violation) of any
term, condition or provision of (i) its Certificate of Incorporation or bylaws
(or similar governing documents), (ii) any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of its subsidiaries is now a party or by which it or any of
its properties or assets may be bound or (iii) any order, writ, injunction,
decree, law, statute, rule or regulation applicable to the Company or any of
its subsidiaries or any of its properties or assets, except, in the case of
clause (ii) or (iii), for violations, breaches or defaults that would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
Section 2.8. No Undisclosed Liabilities; Absence of Changes. Except as and to
the extent publicly disclosed by the Company in the Company SEC Reports or as
set forth in Section 2.8 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries has any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise, that would be required
by generally accepted
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accounting principles to be reflected on a consolidated balance sheet of the
Company (including the notes thereto), other than liabilities and obligations
which, individually or in the aggregate, will not have a Material Adverse
Effect on the Company. Except as publicly disclosed by the Company in the
Company SEC Reports or as set forth in Section 2.8 of the Company Disclosure
Schedule, since September 30, 1998, there have been no events, changes or
effects with respect to the Company or its subsidiaries that have had or
reasonably would be expected to have a Material Adverse Effect on the Company.
Without limiting the generality of the foregoing, except as and to the extent
publicly disclosed by the Company in the Company SEC Reports or as set forth in
Section 2.8 of the Company Disclosure Schedule, since September 30, 1998, the
Company and its subsidiaries have conducted their respective businesses in all
material respects only in, and have not engaged in any material transaction
other than according to, the ordinary and usual course of such businesses
consistent with past practices, and there has not been any (i) change in the
financial condition, properties, business or results of operations of the
Company and its subsidiaries, except for those changes that, individually or in
the aggregate, have not had and are not reasonably likely to have a Material
Adverse Effect on the Company; (ii) material damage, destruction or other
casualty loss with respect to any material asset or property owned, leased or
otherwise used by the Company or any of its subsidiaries, not covered by
insurance; (iii) declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company or any of its
subsidiaries (other than wholly-owned subsidiaries) or any repurchase,
redemption or other acquisition by the Company or any of its subsidiaries of
any outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company or any of its subsidiaries; (iv) amendment
of any material term of any outstanding security of the Company or any of its
subsidiaries; (v) incurrence, assumption or guarantee by the Company or any of
its subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices; (vi) creation or assumption by the Company or any of its
subsidiaries of any Lien on any material asset other than in the ordinary
course of business consistent with past practices; (vii) loan, advance or
capital contributions made by the Company or any of its subsidiaries to, or
investment in, any person other than (x) loans or advances to employees in
connection with business-related travel, (y) loans made to employees consistent
with past practices that are not in the aggregate in excess of Fifty Thousand
Dollars ($50,000), and (z) loans, advances or capital contributions to or
investments in wholly-owned subsidiaries, and in each case made in the ordinary
course of business consistent with past practices; (viii) transaction or
commitment made, or any contract or agreement entered into, by the Company or
any of its subsidiaries relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by the Company
or any of its subsidiaries of any contract, agreement or other right, in either
case, material to the Company and its subsidiaries, taken as a whole, other
than transactions and commitments in the ordinary course of business consistent
with past practices and those contemplated by this Agreement; (ix) labor
dispute, other than routine individual grievances, or any activity or
proceeding by a labor union or representative thereof to organize any employees
of the Company or any of its subsidiaries, or any lockouts, strikes, slowdowns,
work stoppages or threats thereof by or with respect to such employees; or (x)
change by the Company or any of its subsidiaries in its accounting principles,
practices or methods. Since September 30, 1998, except as disclosed in the
Company SEC Reports filed prior to the date hereof or increases in the ordinary
course of business consistent with past practices, there has not been any
increase in the compensation payable or that could become payable by the
Company or any of its subsidiaries to (a) officers of the Company or any of its
subsidiaries or (b) any employee of the Company or any of its Subsidiaries
whose annual cash compensation is One Hundred Thousand Dollars ($100,000) or
more.
Section 2.9. Litigation. Except as publicly disclosed by the Company in the
Company SEC Reports or as set forth in Section 2.9 of the Company Disclosure
Schedule, there is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of the Company, threatened against the Company or any of
its subsidiaries or any of their respective properties or assets before any
Governmental Entity that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on the Company or would reasonably
be expected to prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as publicly disclosed by the Company in
the Company SEC Reports, neither the Company nor any of its subsidiaries is
subject to any outstanding order, writ, injunction or decree that, insofar as
can be reasonably foreseen in the future, would reasonably be expected to have
a Material Adverse Effect on the
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Company or could reasonably be expected to prevent or delay the consummation of
the transactions contemplated hereby.
Section 2.10. Compliance with Applicable Law. Except as publicly disclosed by
the Company in the Company SEC Reports, the Company and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Company Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals that would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company. Except as publicly disclosed by the Company in the Company SEC
Reports, the Company and its subsidiaries are in compliance with the terms of
the Company Permits, except where the failure so to comply would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company. Except as publicly disclosed by the Company in the Company SEC
Reports, the businesses of the Company and its subsidiaries are not being
conducted in violation of any law, ordinance or regulation of the United States
or any foreign country or any political subdivision thereof or of any
Governmental Entity, except (i) that no representation or warranty is made in
this Section 2.10 with respect to Environmental Laws (as defined in Section
2.12) and (ii) for violations or possible violations of any United States or
foreign laws, ordinances or regulations that do not and, insofar as reasonably
can be foreseen in the future, will not result in any charges, assessments,
levies, fines or other liabilities being imposed upon or incurred by the
Company that will equal or exceed Five Hundred Thousand Dollars ($500,000) for
any single violation or One Million Dollars ($1,000,000) in the aggregate.
Except as publicly disclosed by the Company in the Company SEC Reports, no
investigation or review by any Governmental Entity with respect to the Company
or any of its subsidiaries is pending or, to the knowledge of the Company,
threatened, nor, to the knowledge of the Company, has any Governmental Entity
indicated an intention to conduct the same, other than such investigations or
reviews as would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
Section 2.11. Employee Benefit Plans; Labor Matters.
(a) Section 2.11(a) of the Company Disclosure Schedule lists as of the date
hereof all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, health, life, or disability insurance, dependent care, severance
and other similar fringe or employee benefit plans, programs or arrangements
and any current or former employment or executive compensation or severance
agreements written or otherwise maintained or contributed to for the benefit of
or relating to any employee or former employee of the Company, any trade or
business (whether or not incorporated) that is a member of a controlled group
including the Company or that is under common control with the Company within
the meaning of Section 414 of the Code (an "ERISA Affiliate"), as well as each
plan with respect to which the Company or an ERISA Affiliate could incur
liability under Section 4069 (if such plan has been or were terminated) or
Section 4212(c) of ERISA (together the "Employee Plans"), excluding Employee
Plans under which the Company has no remaining obligations and any of the
foregoing that are required to be maintained by the Company under the laws of
any foreign jurisdiction. The Company has made available to Parent a copy of
(i) the most recent annual report on Form 5500 filed with the Internal Revenue
Service (the "IRS") for each disclosed Employee Plan where such report is
required and (ii) the documents and instruments governing each such Employee
Plan (other than those referred to in Section 4(b)(4) of ERISA). No event has
occurred and, to the knowledge of the Company, there currently exists no
condition or set of circumstances in connection with which the Company or any
of its subsidiaries could be subject to any liability under the terms of any
Employee Plans, ERISA, the Code or any other applicable law, including any
liability under Title IV of ERISA, that would have a Material Adverse Effect on
the Company.
(b) Section 2.11(b) of the Company Disclosure Schedule sets forth a list as
of the date hereof of (i) all employment agreements with officers of the
Company; (ii) all agreements with consultants who are individuals obligating
the Company to make annual cash payments in an amount exceeding Fifty Thousand
Dollars ($50,000); (iii) all severance agreements, programs and policies of the
Company with or relating to its employees except such programs and policies
required to be maintained by law; and (iv) all plans, programs,
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agreements and other arrangements of the Company with or relating to its
employees that contain change in control provisions whether or not listed in
other parts of the Company Disclosure Schedule. The Company has made available
to Parent copies (or descriptions in detail reasonably satisfactory to Parent)
of all such agreements, plans, programs and other arrangements.
(c) Except as disclosed in Section 2.11(c) of the Company Disclosure
Schedule, there will be no payment, accrual of additional benefits,
acceleration of payments or vesting of any benefit under any Employee Plan or
any agreement or arrangement disclosed under this Section 2.11 solely by reason
of entering into or in connection with the transactions contemplated by this
Agreement.
(d) No Employee Plan that is a welfare benefit plan within the meaning of
Section 3(1) of ERISA provides benefits to former employees of the Company or
its ERISA Affiliates other than pursuant to Section 4980B of the Code or
similar state laws.
(e) There are no controversies relating to any Employee Plan or other labor
matters pending or, to the knowledge of the Company, threatened between the
Company or any of its subsidiaries and any of their respective employees, which
controversies, individually or in the aggregate, have or would reasonably be
expected to have a Material Adverse Effect of the Company. Neither the Company
nor any of its subsidiaries is a party to any collective bargaining agreement
or other labor union contract applicable to persons employed by the Company or
any of its subsidiaries except as disclosed in Section 2.11(e) of the Company
Disclosure Schedule, nor does the Company know of any activities or proceedings
of any labor union to organize any such employees. The Company has no knowledge
of any strikes, slowdowns, work stoppages, lockouts or threats thereof by or
with respect to any employees of the Company or any of its subsidiaries.
Section 2.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by the Company in the Company SEC Reports,
(i) each of the Company and its subsidiaries is in material compliance with all
applicable federal, state, local and foreign laws and regulations relating to
pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata)
(collectively "Environmental Laws") except for non-compliances that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company, which compliance includes, but is not limited to, the possession
by the Company and its subsidiaries of all material permits and other
governmental authorizations required under applicable Environmental Laws and
compliance with the terms and conditions thereof; (ii) neither the Company nor
any of its subsidiaries has received written notice of or, to the knowledge of
the Company, is the subject of any action, cause of action, claim,
investigation, demand or notice by any person alleging liability under or non-
compliance with any Environmental Law (an "Environmental Claim"); and (iii) to
the knowledge of the Company, there are no existing facts that are reasonably
likely to prevent or interfere with such material compliance in the future.
(b) Except as disclosed in the Company SEC Reports, there are no
Environmental Claims that, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect on the Company that are pending
or, to the knowledge of the Company, threatened against the Company or any of
its subsidiaries or, to the knowledge of the Company, against any person whose
liability for any Environmental Claim the Company or any of its subsidiaries
has or may have retained or assumed either contractually or by operation of
law.
Section 2.13. Taxes.
(a) Definitions. For purposes of this Agreement:
(i) the term "Tax" (including "Taxes") means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments or charges of any kind
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whatsoever, together with any interest and any penalties, additions to tax
or additional amounts with respect thereto, (B) any liability for payment
of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or
unitary group for any period, or otherwise through operation of law, and
(C) any liability for the payment of amounts described in clauses (A) or
(B) as a result of any tax sharing, tax indemnity or tax allocation
agreement or any other express or implied agreement to indemnify any other
person; and
(ii) the term "Tax Return" means any return, declaration, report,
statement, information statement and other document required to be filed
with respect to Taxes.
(b) Except as set forth in Section 2.13(b) of the Company Disclosure
Schedule, the Company and its subsidiaries have timely filed all material Tax
Returns they are required to have filed; and such Tax Returns are accurate and
correct in all material respects and do not contain a disclosure statement
under Section 6662 of the Code (or any predecessor provision or comparable
provision of state, local or foreign law).
(c) The Company and its subsidiaries have paid or adequately provided in the
financial statements included in the SEC Reports for all Taxes (whether or not
shown on any Tax Return) they are required to have paid or to pay, which
amounts are not material either individually or in the aggregate.
(d) Except as set forth in Section 2.13(d) of the Company Disclosure
Schedule, no material claim for assessment or collection of Taxes is presently
being asserted against the Company or its subsidiaries and neither the Company
nor any of its subsidiaries is a party to any pending action, proceeding, or
investigation by any governmental taxing authority nor does the Company have
knowledge of any such threatened action, proceeding or investigation.
(e) Except as set forth in Section 2.13(e) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
individually or in the aggregate, in connection with this Agreement or any
change of control of the Company or any of its subsidiaries, in the payment of
any "excess parachute payments" within the meaning of Section 28OG of the Code.
Section 2.14. Intellectual Property.
(a) Section 2.14(a) of the Company Disclosure Schedule sets forth, for the
Intellectual Property owned, in whole or in part, including jointly with
others, by the Company or any of its subsidiaries, a complete and accurate list
of all United States and foreign (a) patents and patent applications; (b)
Trademark registrations and applications and material unregistered Trademarks;
and (c) copyright registrations and applications, indicating for each, the
applicable jurisdiction, registration number (or application number), and date
issued (or date filed). For purposes of this Agreement, "Intellectual Property"
means: trademarks and service marks (whether register or unregistered), trade
names, designs and general intangibles of like nature, together with all
goodwill related to the foregoing (collectively, "Trademarks"); patents
(including any continuations, continuations in part, renewals and applications
for any of the foregoing)(collectively "Patents"); copyrights (including any
registrations and applications therefor and whether registered or
unregistered)(collectively "Copyrights"); computer software; databases; works
of authorship; mask works; technology; trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models,
user interfaces, customer lists, inventions, discoveries, concepts, ideas,
techniques, methods, source codes, object codes, methodologies and, with
respect to all of the foregoing, related confidential data or information
(collectively, "Trade Secrets").
(b) Trademarks.
(i) All Trademark registrations are currently in compliance in all
material respects with all legal requirements (including the timely post-
registration filing of affidavits of use and incontestability and renewal
applications) other than any requirement that, if not satisfied, would not
result in a cancellation of
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any such registration or otherwise materially affect the priority and
enforceability of the Trademark in question.
(ii) No registered Trademark has been within the last three (3) years or
is now involved in any opposition or cancellation proceeding in the United
States Patent and Trademark Office. To the Company's knowledge, no such
action has been threatened in writing within the one (1)-year period prior
to the date of this Agreement.
(iii) To the knowledge of the Company and its subsidiaries, there has
been no prior use of any material Trademark by any third party which would
confer upon said third party superior rights in any such Trademark.
(iv) All material Trademarks registered in the United States have been in
continuous use by the Company or its subsidiaries.
(v) The Company and its subsidiaries have adequately policed the
Trademarks against third party infringement; and the material Trademarks
registered in the United States have been continuously used in the form
appearing in, and in connection with the goods and services listed in,
their respective registration certificates.
(c) Patents.
(i) All Patents are currently in compliance with legal requirements
(including payment of filing, examination, and maintenance fees and proofs
of working or use) other than any requirement that, if not satisfied, would
not result in a revocation or otherwise materially affect the
enforceability of the Patent in question.
(ii) No Patent has been or is now involved in any interference, reissue,
reexamination or opposing proceeding in the United States Patent and
Trademark Office. To the Company's knowledge, no such action has been
threatened in writing within the one (1)-year period prior to the date of
this Agreement.
(iii) To the Company's knowledge, there is no patent or patent
application of any person that conflicts in any material respect with any
Patent.
(d) Trade Secrets.
(i) The Company has taken reasonable steps in accordance with normal
industry practice to protect the Company's rights in confidential
information and Trade Secrets of the Company.
(ii) Without limiting the generality of Section 2.14(d)(i) and except as
would not be materially adverse to the Company or its business, the Company
enforces a policy of requiring each relevant employee, consultant and
contractor to execute proprietary information, confidentiality and
assignment agreements substantially in the Company's standard forms that
assign to the Company all rights to any Intellectual Property rights
relating to the Company's business and that otherwise appropriately protect
the Intellectual Property of the Company, and, except under confidentiality
obligations, there has been no disclosure by the Company or any subsidiary
of material confidential information or Trade Secrets.
(e) License Agreements.
Section 2.14(e)(1) of the Company Disclosure Schedule sets forth a
complete and accurate list of all license agreements granting to the
Company or any of its subsidiaries any material right to use or practice
any rights under any Intellectual Property other than office automation
software used generally in the Company's or any of its subsidiaries'
operations and other software that is not used in connection with the
design, development, use, maintenance and support, testing, assembly and
manufacture of the Company's or any such subsidiary's products and is
commercially available on reasonable terms to any person for a
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license fee of no more than $100,000 (collectively, the "Inbound License
Agreements"), indicating for each the title and the parties thereto and the
amount of any future royalty or license fee payable thereunder. Section
2.14(e)(2) of the Company Disclosure Schedule sets forth a complete and
accurate list of all license agreements under which the Company or any of
its subsidiaries licenses software or grants other rights in to use or
practice any rights under any Intellectual Property, excluding licenses
with customers that in the twelve-month period prior to the date hereof
have purchased or licensed products for which the total payments to the
Company and its subsidiaries did not exceed $100,000 (collectively, the
"Outbound License Agreements"), indicating for each the title and the
parties thereto. There is no material outstanding or, to the Company's
knowledge, threatened dispute or disagreement with respect to any Inbound
License Agreement or any Outbound License Agreement.
(f) Ownership; Sufficiency of IP Assets. The Company or one of its
subsidiaries owns or possesses adequate licenses or other rights to use, free
and clear of Liens, orders and arbitration awards, all of its Intellectual
Property used in its business. The Intellectual Property identified in Section
2.14(a) of the Company Disclosure Schedule, together with the Company's and its
subsidiaries' unregistered copyrights and the Company's and such subsidiaries'
rights under the licenses granted to the Company or any of its subsidiaries
under the Inbound License Agreements, constitute all the material Intellectual
Property rights used in the operation of the Company's and its subsidiaries'
businesses as they are currently conducted and are all the Intellectual
Property rights necessary to operate such businesses after the Effective Time
in substantially the same manner as such businesses have been operated by the
Company prior thereto.
(g) Protection of IP. The Company has taken reasonable steps to protect the
Intellectual Property of the Company and its subsidiaries.
(h) No Infringement by the Company. To the Company's knowledge, the products
used, manufactured, marketed, sold or licensed by the Company, and all
Intellectual Property used in the conduct of the Company's and its
subsidiaries' businesses as currently conducted, do not infringe upon, violate
or constitute the unauthorized use of any rights owned or controlled by any
third party, including without limitation, any Intellectual Property of any
third party.
(i) No Pending or Threatened Infringement Claims. Except and to the extent
publicly disclosed in the Company SEC Reports, no litigation is now or, within
the three (3) years prior to the date of this Agreement, was pending and, to
the Company's knowledge, no notice or other claim in writing has been received
by the Company within the one (1) year prior to the date of this Agreement, (A)
alleging that the Company any of its subsidiaries has engaged in any activity
or conduct that infringes upon, violates, or constitutes the unauthorized use
of the Intellectual Property rights of any third party or (B) challenging the
ownership, use, validity or enforceability of any Intellectual Property owned
or exclusively licensed by the Company. Except as specifically disclosed in one
or more Sections of the Company Disclosure Schedules pursuant to this Section
2.14, no Intellectual Property owned or licensed by the Company or any of its
subsidiaries is subject to any outstanding order, judgment, decree, stipulation
or agreement restricting the use thereof by the Company or any such subsidiary
or, in the case of any Intellectual Property licensed to others, restricting
the sale, transfer, assignment or licensing thereof by the Company or any of
its subsidiaries to any person.
(j) No Infringement by Third Parties. Except as and to the extent publicly
disclosed in the Company SEC Reports or as set forth in Section 2.14(j) of the
Company Disclosure Schedule, to the knowledge of the Company, no third party is
misappropriating, infringing, diluting, or violating any Intellectual Property
owned or exclusively licensed by the Company or any of its subsidiaries, and no
such claims have been brought against any third party by the Company or any of
its subsidiaries.
(k) Assignment; Change of Control. The execution, delivery and performance by
the Company of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in the loss or impairment of, or give rise
to any right of any third party to terminate, any of the Company's or any of
its subsidiaries' rights to own any of its Intellectual Property or their
respective rights under the License
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Agreements, nor require the consent of any Governmental Authority or third
party in respect of any such Intellectual Property.
(l) Software. The Software owned or purported to be owned by the Company or
any of its subsidiaries, was either (i) developed by employees of Company or
any of its subsidiaries within the scope of their employment; (ii) developed by
independent contractors who have assigned their rights to the Company or any of
its subsidiaries pursuant to written agreements; or (iii) otherwise acquired by
the Company or a subsidiary from a third party. Except as set forth in Section
2.14(l) of the Company Disclosure Schedule, the Software does not contain any
programming code, documentation or other materials or development environments
that embody Intellectual Property rights of any person other than the Company
or any of its subsidiaries, except for such materials or development
environments obtained by the Company or any of its subsidiaries from other
persons who make such materials or development environments generally available
to all interested purchasers or end-users on standard commercial terms. For
purposes of this Section 2.14(l), "Software" means any and all (i) computer
programs, including any and all software implementations of algorithms, models
and methodologies, whether in source code or object code, (ii) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, and
(iv) all documentation, including user manuals and training materials, relating
to any of the foregoing.
(m) Performance of Existing Software Products. The Company's and its
subsidiaries' existing and currently manufactured and marketed Software
products listed and described on Section 2.14(m) of the Company Disclosure
Schedule perform in all material respects, free of significant bugs or
programming errors, the functions described in any agreed specifications or end
user documentation or other information provided to customers of the Company on
which such customers relied when licensing or otherwise acquiring such
products.
(n) Documentation. The Company and its subsidiaries have taken all actions
customary in the software industry to document the Software and its operation,
such that the materials comprising the Software, including the source code and
documentation, have been written in a clear and professional manner so that
they may be understood, modified and maintained in an efficient manner by
reasonably competent programmers.
(o) Year 2000 Compliance.
(i) Except as set forth in Section 2.14(o) of the Company Disclosure
Schedule, all of the Company's and its subsidiaries' material products
(including products currently under development) will record, store,
process and calculate and present calendar dates falling on and after
December 31, 1998, and will calculate any information dependent on or
relating to such dates in the same manner and with the same functionality,
data integrity and performance as the products record, store, process,
calculate and present calendar dates on or before December 31, 1998, or
calculate any information dependent on or relating to such dates
(collectively "Year 2000 Compliant"). Except as set forth in Section
2.14(o) of the Company Disclosure Schedule, (A) all of the Company's and
its subsidiaries' material products will lose no significant functionality
with respect to the introduction of records containing dates falling on or
after December 31, 1998; (B) all of the Company's and its subsidiaries'
internal computer systems comprised of software, hardware, databases or
embedded control systems (microprocessor controlled, robotic or other
device) related to the Company's and its subsidiaries' businesses
(collectively, a "Business System"), that constitutes any material part of,
or is used in connection with the use, operation or enjoyment of, any
material tangible or intangible asset or real property of the Company and
its subsidiaries, including its accounting systems, are Year 2000
Compliant. Except as set forth on Section 2.14(o) of the Company Disclosure
Schedule, the current versions of the Company's and its subsidiaries'
software and all other Intellectual Property may be used prior to, during
and after December 31, 1998, such that such Software and Intellectual
Property will operate prior to, during and after such time period without
error caused by date data that represents or references different centuries
or more than one century.
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(ii) To the knowledge of the Company, all of the Company's products and
the conduct of the Company's business with customers and suppliers will not
be materially adversely affected by the advent of the year 2000, the advent
of the twenty-first century or the transition from the twentieth century
through the year 2000 and into the twenty-first century. To the knowledge
of the Company and except as set forth on Section 2.14(o) of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries is
reasonably likely to incur material expenses arising from or relating to
the failure of any of its Business Systems or any products (including all
products sold on or prior to the date hereof) as a result of the advent of
the year 2000, the advent of the twenty-first century or the transition
from the twentieth century through the year 2000.
Section 2.15. Insurance. Each of the Company and its subsidiaries maintains
insurance policies (the "Insurance Policies") against all risks of a character
and in such amounts as are usually insured against by similarly situated
companies in the same or similar businesses. Each Insurance Policy is in full
force and effect and is valid, outstanding and enforceable, and all premiums
due thereon have been paid in full. None of the Insurance Policies will
terminate or lapse (or be affected in any other materially adverse manner) by
reason of the transactions contemplated by this Agreement. Each of the Company
and its subsidiaries has complied in all material respects with the provisions
of each Insurance Policy under which it is the insured party. No insurer under
any Insurance Policy has canceled or generally disclaimed liability under any
such policy or, to the Company's knowledge, indicated any intent to do so or
not to renew any such policy. All material claims under the Insurance Policies
have been filed in a timely fashion.
Section 2.16. Certain Business Practices. None of the Company, any of its
subsidiaries or any directors, officers, agents or employees of the Company or
any of its subsidiaries has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related 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.
Section 2.17. Product Warranties. Section 2.17 of the Company Disclosure
Schedule sets forth complete and accurate copies of the written warranties and
guaranties by the Company or any of its subsidiaries currently in effect with
respect to its products. There have not been any material deviations from such
warranties and guaranties, and neither the Company, any of its subsidiaries nor
any of their respective salesmen, employees, distributors and agents is
authorized to undertake obligations to any customer or to other third parties
in excess of such warranties or guaranties. Neither the Company nor any of its
subsidiaries has made any oral warranty or guaranty with respect to its
products.
Section 2.18. Suppliers and Customers. The documents and information supplied
by the Company to Parent or any of its representatives in connection with this
Agreement with respect to relationships and volumes of business done with its
significant suppliers and customers are accurate in all material respects.
During the last twelve (12) months, the Company has received no notices of
termination or written threats of termination from any of the five (5) largest
suppliers or the five (5) largest customers of the Company and its
subsidiaries.
Section 2.19. Vote Required. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any class
or series of the Company's capital stock necessary to approve and adopt this
Agreement.
Section 2.20. Tax Treatment; Pooling. Neither the Company nor, to the
knowledge of the Company, any of its affiliates has taken or agreed to take
action that would prevent the Merger from (a) constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code or (b) being
treated for financial accounting purposes as a pooling of interests in
accordance with generally accepted accounting principles and the rules
regulations and interpretations of the SEC (a "Pooling Transaction").
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Section 2.21. Affiliates. Except for the directors and executive officers of
the Company, each of whom is listed in Section 2.21 of the Company Disclosure
Schedule, there are no persons who, to the knowledge of the Company, may be
deemed to be affiliates of the Company under Rule 145 of the Securities Act
("Company Affiliates").
Section 2.22. Opinion of Financial Adviser. Hambrecht & Quist LLC (the
"Company Financial Adviser") has delivered to the Company Board its written
opinion dated the date of this Agreement to the effect that as of such date the
Merger Consideration is fair, from a financial point of view, to the holders of
Shares.
Section 2.23. Brokers. No broker, finder or investment banker (other than the
Company Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to Acquisition or Parent) is entitled to any
brokerage finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
Section 2.24. Company Rights Agreement. The Company has taken all necessary
action to ensure that neither its entering into this Agreement or the Stock
Option Agreement, nor the consummation of the Merger, nor exercise of Parent's
rights under such Stock Option Agreement in accordance with its terms, will
cause the Company Rights to become exercisable, cause Parent or Acquisition to
become an "Acquiring Person" (each as defined in the Company Rights Agreement),
or cause there to occur a "Triggering Event" or a "Distribution Date" (each as
defined in the Company Rights Agreement).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
Section 3.1. Organization.
(a) Each of Parent and Acquisition is duly organized, validly existing and in
good standing under the laws of the State of Delaware, respectively, and has
all requisite power and authority to own, lease and operate its properties and
to carry on its businesses as now being conducted. Parent has heretofore made
available to the Company accurate and complete copies of the Certificate of
Incorporation and bylaws as currently in full force and effect, of Parent and
Acquisition.
(b) Each of Parent and Acquisition is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect on Parent. When used in connection with Parent
or Acquisition the term "Material Adverse Effect on Parent" means any
circumstance, change in, or effect on (or circumstance, change in, or effect
involving a prospective change on) Parent and its subsidiaries, taken as a
whole, (a) that is, or is reasonably likely in the future to be, materially
adverse to the operations, assets or liabilities (including contingent
liabilities), earnings or results of operations, or the business (financial or
otherwise) of Parent and its subsidiaries, taken as a whole, excluding from the
foregoing the effect, if any, of (i) changes in general economic conditions or
changes affecting the industry in which Parent operates, (ii) stockholder class
action litigation arising from allegations of a breach of fiduciary duty
relating to this Agreement, (iii) the public announcement or pendency of the
transactions contemplated hereby on current or prospective customers or
revenues of the Parent (provided that such effect is direct and that Parent
shall have the burden of proving such direct effect), or (iv) any action or
inaction required of Parent
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by the Company under this Agreement, or (b) that would reasonably be expected
to prevent or materially delay or impair the ability of Parent and Acquisition
to consummate the transactions contemplated by this Agreement.
Section 3.2. Capitalization of Parent and its Subsidiaries.
(a) The authorized capital stock of Parent consists of 600,000,000 shares of
Parent Common Stock, of which, as of December 7, 1998, 218,140,000 shares of
Parent Common Stock were issued and outstanding (each together with a Parent
Common Stock purchase right (the "Parent Rights") issued pursuant to the Rights
Agreement dated as of February 9, 1996 between Parent and Harris Trust and
Savings Bank) and 400,000 shares of preferred stock, $.01 par value per share,
none of which are outstanding. All of the outstanding shares of Parent Common
Stock have been validly issued and are fully paid, nonassessable and free of
preemptive rights. As of December 7, 1998, 58,185,625 shares of Parent Common
Stock were reserved for issuance and 39,311,061 were issuable upon or otherwise
deliverable in connection with the exercise of outstanding options and
warrants. Between December 7, 1998 and the date hereof, no shares of Parent's
capital stock have been issued other than pursuant to stock options and
warrants already in existence on such date and except for grants of stock
options to employees, officers and directors in the ordinary course of business
consistent with past practice. Between December 7, 1998 and the date hereof, no
stock options or warrants have been granted. Except as set forth above and
except for the Parent Rights, as of the date hereof, there are outstanding (i)
no shares of capital stock or other voting securities of Parent (ii) no
securities of Parent or its subsidiaries convertible into or exchangeable for
shares of capital stock, or voting securities of Parent (iii) no options or
other rights to acquire from Parent or its subsidiaries and no obligations of
Parent or its subsidiaries to issue any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of Parent and (iv) except for the Parent Rights, the Automated
Systems, Inc. 1983 Stock Option Plan, Cooper & Chyan Technology, Inc. 1989
Stock Option Plan, Cooper & Chyan Technology, Inc. 1993 Equity Incentive Plan,
Unicad, Inc. Stock Option Plan, Cadence Design Systems, Inc. 1997 Nonstatutory
Stock Option Plan, High Level Design Systems 1993 Stock Option Plan, High Level
Design Systems 1995 Special Nonstatutory Stock Option Plan, Ambit Design
Systems, Inc. 1994 Incentive Stock Option Plan, Ambit Design Systems, Inc. 1996
Incentive Stock Option Plan, Ambit OP (Shares Issued Outside Plans), Cadence
Design Systems, Inc. 1993 Non-Statutory Stock Option Plan, Cadence Design
Systems, Inc. 1993 Directors Stock Option Plan, Cadence Design Systems, Inc.
1995 Directors Stock Option Plan, Cadence Design Systems, Inc. 1997
Nonstatutory Stock Option Plan, OP Stock Option Plan (shares issued outside CDN
Directors Plan) and warrants issued to Comdisco and Goldman, Sachs & Co., no
equity equivalent interests in the ownership or earnings of Parent or its
subsidiaries or other similar rights (collectively, "Parent Securities"). As of
the date hereof, other than in connection with the Company's seasoned
authorized stock repurchase program, there are no outstanding obligations of
Parent or any of its subsidiaries to repurchase, redeem or otherwise acquire
any Parent Securities. There are no stockholder agreements, voting trusts or
other agreements or understandings to which Parent is a party or by which it is
bound relating to the voting of any shares of capital stock of Parent.
(b) The Parent Rights and Parent Common Stock constitute the only classes of
equity securities of Parent or any of its subsidiaries registered or required
to be registered under the Exchange Act.
Section 3.3. Authority Relative to this Agreement. Each of Parent and
Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the boards of directors of Parent and
Acquisition and by Parent as the sole stockholder of Acquisition and no other
corporate proceedings on the part of Parent or Acquisition are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by each of
Parent and Acquisition and constitutes, assuming the due authorization,
execution and delivery hereof by the Company, a valid, legal and binding
agreement of each of Parent and Acquisition enforceable against each of Parent
and Acquisition in accordance with its terms, subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally or to general
principles of equity.
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Section 3.4. SEC Reports; Financial Statements.
(a) Parent has filed all required forms, reports and documents ("Parent SEC
Reports) with the SEC since December 31, 1997, each of which, complied at the
time of filing in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, each law as in effect on the dates such
forms reports and documents were filed. None of such Parent SEC Reports,
including any financial statements or schedules included or incorporated by
reference therein, contained when filed any untrue statement of a material fact
or omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein in light
of the circumstances under which they were made not misleading, except to the
extent superseded by a Parent SEC Report filed subsequently and prior to the
date hereof. The audited consolidated financial statements of Parent included
in the Parent SEC Reports fairly present in conformity in all material respects
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated in the notes thereto) the consolidated financial
position of Parent and its consolidated subsidiaries as of the dates thereof
and their consolidated results of operations and changes in financial position
for the periods then ended.
(b) Parent has heretofore made available or promptly will make available to
the Company a complete and correct copy of any amendments or modifications that
are required to be filed with the SEC but have not yet been filed with the SEC
to agreements documents or other instruments that previously had been filed by
Parent with the SEC pursuant to the Exchange Act.
Section 3.5. Information Supplied. None of the information supplied or to be
supplied by Parent or Acquisition for inclusion or incorporation by reference
to (i) the S-4 will at the time the S-4 is filed with the SEC and at the time
it 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 to make the statements therein not misleading or (ii) the Proxy
Statement will at the date mailed to stockholders and at the times of the
meeting or meetings of stockholders of the Company to be held in connection
with the Merger contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein in light of the circumstances under which they are
made not misleading. The S-4 will comply as to form in all material respects
with the provisions of the Securities Act and the rules and regulations
thereunder. Notwithstanding the foregoing, Parent makes no representation,
warranty or covenant with respect to any information supplied or required to be
supplied by the Company which is contained in or omitted from any of the
foregoing documents.
Section 3.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents, and approvals as may be required under and
other applicable requirements of the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, and any filings under similar merger
notification laws or regulations of foreign Governmental Entities and the
filing and recordation of the Certificate of Merger as required by the DGCL, no
filing with or notice to, and no permit authorization consent or approval of
any Governmental Entity is necessary for the execution and delivery by Parent
or Acquisition of this Agreement or the consummation by Parent or Acquisition
of the transactions contemplated hereby, except where the failure to obtain
such permits, authorizations, consents or approvals or to make such filings or
give such notice would not, individually or in the aggregate, have a Material
Adverse Effect on Parent. Neither the execution, delivery and performance of
this Agreement by Parent or Acquisition nor the consummation by Parent or
Acquisition of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the respective Certificate or
Certificate of Incorporation or bylaws (or similar governing documents) of
Parent or Acquisition or any of Parent's other subsidiaries, (ii) result in a
violation or breach of or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Parent or Acquisition or
any of Parent's other subsidiaries is a party or by which any of them or any of
their respective properties or assets may be bound or (iii) violate any order,
writ, injunction, decree, law, statute, rule or regulation applicable to Parent
or Acquisition or any of Parent's other subsidiaries or any of their respective
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properties or assets except, in the case of (ii) or (iii), for violations,
breaches or defaults that would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
Section 3.7. No Default. Neither Parent nor any of its subsidiaries is in
breach, default or violation (and no event has occurred that with notice or the
lapse of time or both would constitute a breach, default or violation) of any
term, condition or provision of (i) its Certificate of Incorporation or bylaws
(or similar governing documents), (ii) any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Parent or any of its subsidiaries is now a party or by which any of them or any
of their respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to Parent or
any of its subsidiaries or any of their respective properties or assets,
except, in the case of clause (ii) or (iii), for violations, breaches or
defaults that would not, individually or in the aggregate, have a Material
Adverse Effect on Parent.
Section 3.8. No Undisclosed Liabilities; Absence of Changes. Except as and to
the extent publicly disclosed by Parent in the Parent SEC Reports, neither
Parent nor any of its subsidiaries has any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise that would be required
by generally accepted accounting principles to be reflected on a consolidated
balance sheet of Parent and its consolidated subsidiaries (including the notes
thereto), other than liabilities and obligations incurred in the ordinary
course of business since September 30, 1998, which, individually or in the
aggregate, will not have a Material Adverse Effect on Parent. Except as
publicly disclosed by Parent in the Parent SEC Reports, since September 30,
1998, there have been no events changes or effects with respect to Parent or
its subsidiaries having or that would reasonably be expected to have a Material
Adverse Effect on Parent.
Section 3.9. Litigation. Except as publicly disclosed by Parent in the Parent
SEC Reports, there is no suit, claim, action, proceeding or investigation
pending or, to the knowledge of Parent threatened, against Parent or any of its
subsidiaries or any of their respective properties or assets before any
Governmental Entity that, individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect or could reasonably be expected to
prevent or delay the consummation of the transactions contemplated by this
Agreement. Except as publicly disclosed by Parent in the Parent SEC Reports,
neither Parent nor any of its subsidiaries is subject to any outstanding order,
writ, injunction or decree that, insofar as can be reasonably foreseen in the
future would reasonably be expected to have a Material Adverse Effect on Parent
or could reasonably be expected to prevent or delay the consummation of the
transactions contemplated hereby.
Section 3.10. Compliance with Applicable Law. Except as publicly disclosed by
Parent in the Parent SEC Reports, Parent and its subsidiaries hold all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of their respective businesses (the
"Parent Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals that would not, individually or in
the aggregate, have a Material Adverse Effect on Parent. Except as publicly
disclosed by Parent in the Parent SEC Reports, Parent and its subsidiaries are
in compliance with the terms of the Parent Permits, except where the failure so
to comply would not, individually or in the aggregate, have a Material Adverse
Effect on Parent. Except as publicly disclosed by Parent in the Parent SEC
Reports, the businesses of Parent and its subsidiaries are not being conducted
in violation of any law ordinance or regulation of any Governmental Entity
except that no representation or warranty is made in this Section 3.10 with
respect to Environmental Laws and except for violations or possible violations
that do not and, insofar as reasonably can be foreseen in the future, will not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
Except as publicly disclosed by Parent in the Parent SEC Reports, no
investigation or review by any Governmental Entity with respect to Parent or
its subsidiaries is pending or, to the knowledge of Parent, threatened, nor, to
the knowledge of Parent, has any Governmental Entity indicated an intention to
conduct the same, other than in each case those that Parent reasonably believes
will not have a Material Adverse Effect on Parent.
Section 3.11. Tax Treatment; Pooling. Neither Parent, Acquisition nor, to the
knowledge of Parent, any of its affiliates has taken, proposes to take, or has
agreed to take any action that would prevent the Merger
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(a) from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code or (b) from being treated as a Pooling Transaction
for financial accounting purposes.
Section 3.12. Opinion of Financial Adviser. Goldman, Sachs & Co. (the "Parent
Financial Adviser") has delivered to the Board of Directors of Parent its
opinion to the effect that, as of the date hereof, the Merger Consideration is
fair, from a financial point of view, to Parent.
Section 3.13. Brokers. No broker finder or investment banker (other than the
Parent Financial Adviser) is entitled to any brokerage finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Acquisition.
Section 3.14. No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person.
Section 3.15 Environmental Laws and Regulations.
(a) Except as publicly disclosed by Parent in the Parent SEC Reports (i) each
of Parent and its subsidiaries is in material compliance with all Environmental
Laws, except for non-compliances that, individually or in the aggregate, would
not have a Material Adverse Effect on the Parent, which compliance includes,
but is not limited to, the possession by the Parent and its subsidiaries of all
material permits and other governmental authorizations required under
applicable Environmental Laws and compliance with the terms and conditions
thereof; (ii) neither Parent nor any of its subsidiaries has received written
notice of or, to the knowledge of Parent, is the subject of any Environmental
Claim, and (iii) to the knowledge of Parent, there are no existing facts that
are reasonably likely to prevent or interfere with such material compliance in
the future.
(b) Except as disclosed in the Parent SEC Reports, there are no Environmental
Claims that, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect on the Company that are pending or, to the
knowledge of Parent, threatened against Parent or any of its subsidiaries or,
to the knowledge of Parent, against any person whose liability for any
Environmental Claim the Parent or any of its subsidiaries has or may have
retained or assumed either contractually or by operation of law.
ARTICLE 4
COVENANTS
Section 4.1. Conduct of Business of the Company. Except as contemplated by
this Agreement or as described in Section 4.1 of the Company Disclosure
Schedule, during the period from the date hereof to the Effective Time, the
Company will and will cause each of its subsidiaries to conduct its operations
in the ordinary course of business consistent with past practice and, to the
extent consistent therewith, with no less diligence and effort than would be
applied in the absence of this Agreement seek, to preserve intact its current
business organizations, keep available the service of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it with the intention that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Without limiting
the generality of the foregoing, except as otherwise expressly provided in this
Agreement or as described in Section 4.1 of the Company Disclosure Schedule,
prior to the Effective Time, neither the Company nor any of its subsidiaries
will, without the prior written consent of Parent and Acquisition:
(a) amend its Certificate or Articles of Incorporation or bylaws (or other
similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to issue
sell or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any
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stock of any class or any other securities (except bank loans) or equity
equivalents (including any stock options or stock appreciation rights) except
for the issuance and sale of Shares pursuant to options granted under the
Company Plans prior to the date hereof;
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, make any
other actual, constructive or deemed distribution in respect of its capital
stock or otherwise make any payments to stockholders in their capacity as such,
or redeem or otherwise acquire any of its securities or any securities of any
of its subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its subsidiaries (other than the Merger);
(e) alter through merger, liquidation, reorganization, restructuring or any
other fashion the corporate structure of ownership of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any debt
securities except for borrowings under existing lines of credit in the ordinary
course of business; (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the
obligations of any other person except for obligations of subsidiaries of the
Company incurred in the ordinary course of business; (iii) make any loans,
advances or capital contributions to or investments in any other person (other
than to subsidiaries of the Company or customary loans or advances to employees
in each case in the ordinary course of business consistent with past practice);
(iv) pledge or otherwise encumber shares of capital stock of the Company or any
of its subsidiaries; or (v) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to exist any material Lien
thereupon;
(g) except as may be required by law, enter into, adopt or amend or terminate
any bonus, profit sharing, compensation, severance, termination, stock option,
stock appreciation right, restricted stock, performance unit, stock equivalent,
stock purchase agreement, pension, retirement, deferred compensation,
employment, health, life, or disability insurance, dependent care, severance or
other employee benefit plan agreement, trust, fund or other arrangement for the
benefit or welfare of any director, officer or employee in any manner or
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any plan and arrangement
as in effect as of the date hereof (including the granting of stock
appreciation rights or performance units); provided, however, that this
paragraph (g) shall not prevent the Company or its subsidiaries from increasing
annual compensation and/or providing for or amending bonus arrangements for
employees for fiscal 1998 in the ordinary course of year-end compensation
reviews consistent with past practice (to the extent that such compensation
increases and new or amended bonus arrangements do not result in a material
increase in benefits or compensation expense to the Company or any such
subsidiary);
(h) acquire, sell, lease or dispose of any assets in any single transaction
or series of related transactions having a fair market value in excess of One
Hundred Thousand Dollars ($100,000) in the aggregate, other than sales of its
products in the ordinary course of business consistent with past practices;
(i) except as may be required as a result of a change in law or in generally
accepted accounting principles, change any of the accounting principles,
practices or methods used by it;
(j) revalue in any material respect any of its assets, including writing down
the value of inventory or writing-off notes or accounts receivable, other than
in the ordinary course of business;
(k) (i) acquire (by merger, consolidation or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof
or any equity interest therein; (ii) enter into any contract or agreement other
than in the ordinary course of business consistent with past practice that
would be material to the Company and its subsidiaries, taken as a whole; (iii)
amend, modify or waive any right under any material
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contract of the Company or any of its subsidiaries; (iv) modify its standard
warranty terms for its products or amend or modify any product warranties in
effect as of the date hereof in any material manner that is adverse to the
Company or any of its subsidiaries; or (v) authorize any new capital
expenditure or expenditures that individually is in excess of One Hundred
Thousand Dollars ($100,000) or in the aggregate are in excess of Three Hundred
Thousand Dollars ($300,000); provided that nothing in the foregoing clause (v)
shall limit any capital expenditure required pursuant to existing customer
contracts;
(l) make any tax election or settle or compromise any income tax liability
material to the Company and its subsidiaries taken as a whole;
(m) settle or compromise any pending or threatened suit, action or claim that
(i) relates to the transactions contemplated hereby or (ii) the settlement or
compromise of which would have a Material Adverse Effect on the Company;
(n) commence any material software development project or terminate any
material software development project that is currently ongoing, in either case
except pursuant to the terms of existing contracts with customers or except as
contemplated by the Company's project development budget previously provided to
Parent; or
(o) take or agree in writing or otherwise to take any of the actions
described in Sections 4.1(a) through 4.1(n) (and it shall use all reasonable
efforts not to take any action that would make any of the representations or
warranties of the Company contained in this Agreement untrue or incorrect).
Section 4.2. Conduct of Business of Parent. Except as contemplated by this
Agreement, during the period from the date hereof to the Effective Time, Parent
will and will cause each of its subsidiaries to conduct their operations in the
ordinary course of business consistent with past practice and, to the extent
consistent therewith, with no less diligence and effort than would be applied
in the absence of this Agreement, seek to preserve intact its current business
organizations, keep available the service of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it to the end that goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Without limiting the generality of the
foregoing, except as otherwise expressly provided in this Agreement prior to
the Effective Time, neither Parent nor any of its subsidiaries will, without
the prior written consent of the Company:
(a) knowingly take any action that would result in a failure to maintain the
trading of the Parent Common Stock on the New York Stock Exchange ("NYSE");
(b) acquire or agree to acquire by merging or consolidating with by
purchasing an equity interest in or the assets of or by any other manner any
business or any corporation, partnership or other business organization or
division thereof or otherwise acquire or agree to acquire any assets of any
other entity (other than the purchase of assets from suppliers, clients or
vendors in the ordinary course of business and consistent with past practice)
if such transaction would prevent or materially delay the consummation of the
transactions contemplated by this Agreement;
(c) adopt or propose to adopt any amendments to its charter documents that
would have an adverse impact on the consummation of the transactions
contemplated by this Agreement; or
(d) take or agree in writing or otherwise to take any of the actions
described in Sections 4.2(a) through 4.2(c) or any action that would make any
of the representations or warranties of Parent contained in this Agreement
untrue or incorrect.
Section 4.3. Preparation of S-4 and the Proxy Statement. The Company shall
promptly prepare and file with the SEC the Proxy Statement and Parent shall
promptly prepare and file with the SEC the S-4 in which the Proxy Statement
will be included as a prospectus. Each of Parent and the Company shall use all
reasonable efforts to have the S-4 declared effective under the Securities Act
as promptly as practicable after
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such filing. Parent shall also take any action (other than qualifying to do
business in any jurisdiction in which it is now not so qualified) required to
be taken under any applicable state securities laws in connection with the
issuance of Parent Common Stock in the Merger and upon the exercise of Company
Stock Options and the Company shall furnish all information concerning the
Company and the holders of Shares as may be reasonably requested in connection
with any such action.
Section 4.4. Other Potential Acquirers.
(a) The Company, its affiliates (as reasonably determined by the Company) and
their respective officers and other employees with managerial responsibilities,
directors, representatives and agents shall immediately cease any discussions
or negotiations with any parties with respect to any Third Party Acquisition
(as defined below). Neither the Company nor any of its affiliates (as
reasonably determined by the Company) shall, nor shall the Company authorize or
permit any of its or their respective officers, directors, employees
representatives or agents to, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with or provide any non-
public information to any person or group (other than Parent and Acquisition or
any designees of Parent and Acquisition) concerning any Third Party
Acquisition; provided, however, that nothing herein shall prevent the Company
Board from taking and disclosing to the Company's stockholders a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
regard to any tender or exchange offer. The Company shall promptly notify the
Parent in the event it receives any proposal or inquiry concerning a Third
Party Acquisition, including the terms and conditions thereof and the identity
of the party submitting such proposal, and shall advise Parent from time to
time of the status and any material developments concerning the same.
(b) Except as set forth in this Section 4.4(b), the Company Board shall not
withdraw its recommendation of the transactions contemplated hereby or approve
or recommend, or cause the Company to enter into any agreement with respect to,
any Third Party Acquisition. Notwithstanding the foregoing, if the Company
Board by a majority vote determines in its good faith judgment, after
consultation with and based upon the advice of legal counsel, that it is
required to do so in order to comply with its fiduciary duties, the Company
Board may withdraw its recommendation of the transactions contemplated hereby
or approve or recommend a Superior Proposal (as defined in subsection (c)
below), but in each case only (i) after providing written notice to Parent (a
"Notice of Superior Proposal") advising Parent that the Company Board has
received a Superior Proposal, specifying the material terms and conditions of
such Superior Proposal and identifying the person making such Superior Proposal
and (ii) if Parent does not, within five (5) business days of Parent's receipt
of the Notice of Superior Proposal, make an offer that the Company Board by a
majority vote determines in its good faith judgment (based on the written
advice of a financial adviser of nationally recognized reputation) to be at
least as favorable to the Company's stockholders as such Superior Proposal;
provided, however, that the Company shall not be entitled to enter into any
agreement with respect to a Superior Proposal unless and until this Agreement
is terminated by its terms pursuant to Section 6.1 and the Company has paid all
amounts due to Parent pursuant to Section 6.3. Any disclosure that the Company
Board may be compelled to make with respect to the receipt of a proposal for a
Third Party Acquisition or otherwise in order to comply with its fiduciary
duties or Rule 14d-9 or 14e-2 will not constitute a violation of this
Agreement, provided that such disclosure states that no action will be taken by
the Company Board in violation of this Section 4.4(b).
(c) For the purposes of this Agreement, "Third Party Acquisition" means the
occurrence of any of the following events: (i) the acquisition of the Company
by merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than Parent, Acquisition
or any affiliate thereof (a "Third Party"); (ii) the acquisition by a Third
Party of any material portion of the assets of the Company and its subsidiaries
taken as a whole, other than the sale of its products in the ordinary course of
business consistent with past practices; (iii) the acquisition by a Third Party
of fifteen percent (15%) or more of the outstanding Shares; (iv) the adoption
by the Company of a plan of liquidation or the declaration or payment of an
extraordinary dividend; (v) the repurchase by the Company or any of its
subsidiaries of more than ten percent (10%) of the outstanding Shares; or (vi)
the acquisition by the Company or any of its subsidiaries by merger, purchase
of stock or assets, joint venture or otherwise of a direct or indirect
ownership
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interest or investment in any business whose annual revenues, net income or
assets is equal or greater than ten percent (10%) of the annual revenues, net
income or assets of the Company. For purposes of this Agreement, a "Superior
Proposal" means any bona fide proposal to acquire directly or indirectly for
consideration consisting of cash and/or securities more than 50% of the Shares
then outstanding or all or substantially all the assets of the Company and
otherwise on terms that the Company Board by a majority vote determines in its
good faith judgment (based on the written advice of Hambrecht & Quist LLC or
another financial advisor of nationally recognized reputation) to be more
favorable to the Company's stockholders than the Merger.
Section 4.5. Comfort Letters.
(a) The Company shall use all reasonable efforts to cause
PricewaterhouseCoopers LLP to deliver a letter dated not more than five days
prior to the date on which the S-4 shall become effective and addressed to
itself and Parent and their respective Boards of Directors in form and
substance reasonably satisfactory to Parent and customary in scope and
substance for agreed-upon procedures letters delivered by independent public
accountants in connection with registration statements and proxy statements
similar to the S-4 and the Proxy Statement.
(b) Parent shall use all reasonable efforts to cause Arthur Andersen LLP to
deliver a letter dated not more than five (5) days prior to the date of the S-4
shall become effective and addressed to itself and the Company and their
respective Boards of Directors in form and substance reasonably satisfactory to
the Company and customary in scope and substance for agreed-upon procedures
letters delivered by independent accountants in connection with registration
statements and proxy statements similar to the S-4 and the Proxy Statement.
Section 4.6. Meeting of Stockholders. The Company shall take all actions
necessary in accordance with the DGCL and its Certificate of Incorporation and
bylaws to duly call, give notice of, convene and hold a meeting of its
stockholders as promptly as practicable to consider and vote upon the adoption
and approval of this Agreement and the transactions contemplated hereby. The
stockholder vote required for the adoption and approval of the transactions
contemplated by this Agreement shall be the vote required by the DGCL and the
Company's Certificate of Incorporation and bylaws. The Company will, through
the Company Board, recommend to its stockholders approval of such matters
subject to the provisions of Section 4.4(b). The Company shall promptly prepare
and file with the SEC the Proxy Statement for the solicitation of a vote of the
holders of Shares approving the Merger, which, subject to the provisions of
Section 4.4(b), shall include the recommendation of the Company Board that
stockholders of the Company vote in favor of the approval and adoption of this
Agreement and the written opinion of the Financial Advisor that the
consideration to be received by the stockholders of the Company pursuant to the
Merger is fair to such stockholders from a financial point of view. The Company
shall use all reasonable efforts to have the Proxy Statement cleared by the SEC
as promptly as practicable after such filing, and promptly thereafter mail the
Proxy Statement to the stockholders of the Company. Parent shall use all
reasonable efforts to obtain all necessary state securities law or "blue sky"
permits and approvals required in connection with the Merger and to consummate
the other transactions contemplated by this Agreement and will pay all expenses
incident thereto, provided that the Company shall cooperate with Parent in
obtaining such permits and approvals as reasonably requested.
Section 4.7. Stock Exchange Listing. Parent shall use all reasonable efforts
to cause the shares of Parent Common Stock to be issued in the Merger and the
shares of Parent Common Stock to be reserved for issuance upon exercise of
Company Stock Options to be approved for listing on the NYSE, subject to
official notice of issuance, prior to the Effective Time.
Section 4.8. Access to Information.
(a) Between the date hereof and the Effective Time, the Company will give
Parent and its authorized representatives reasonable access to all employees,
plants, offices, warehouses and other facilities and to all books and records
of the Company and its subsidiaries as Parent may reasonably require, and will
cause its officers and those of its subsidiaries to furnish Parent with such
financial and operating data and other information with respect to the business
and properties of the Company and its subsidiaries as Parent may from
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time to time reasonably request. Between the date hereof and the Effective
Time, Parent shall make available to the Company, as reasonably requested by
the Company, a designated officer of Parent to answer questions and make
available such information regarding Parent and its subsidiaries as is
reasonably requested by the Company taking into account the nature of the
transactions contemplated by this Agreement.
(b) Between the date hereof and the Effective Time, the Company shall furnish
to Parent (1) within two (2) business days following preparation thereof (and
in any event within twenty (20) business days after the end of each calendar
month, commencing with December 1998), an unaudited balance sheet as of the end
of such month and the related statements of earnings, stockholders' equity
(deficit) and cash flows, (2) within two (2) business days following
preparation thereof (and in any event within twenty (20) business days after
the end of each fiscal quarter) an unaudited balance sheet as of the end of
such quarter and the related statements of earnings, stockholders' equity
(deficit) and cash flows for the quarter then ended, and (3) within two (2)
business days following preparation thereof (and in any event within ninety
(90) calendar days after the end of each fiscal year, an audited balance sheet
as of the end of such year and the related statements of earnings,
stockholders' equity (deficit) and cash flows, all of such financial statements
referred to in clauses (1), (2) and (3) to prepared in accordance with
generally accepted accounting principles in conformity with the practices
consistently applied by the Company with respect to such financial statements.
All the foregoing shall be in accordance with the books and records of the
Company and shall fairly present its financial position (taking into account
the differences between the monthly, quarterly and annual financial statements
prepared by the Company in conformity with its past practices) as of the last
day of the period then ended.
(c) Each of the parties hereto will hold, and will cause its consultants and
advisers to hold, in confidence all documents and information furnished to it
by or on behalf of another party to this Agreement in connection with the
transactions contemplated by this Agreement pursuant to the terms of that
certain Confidentiality Agreement entered into between the Company and Parent
dated December 4, 1998.
Section 4.9. Certain Filings; Reasonable Efforts.
(a) Subject to the terms and conditions herein provided, including, without
limitation, Section 4.4(b), each of the parties hereto agrees to use all
reasonable efforts to take or cause to be taken all action and to do or cause
to be done all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using all reasonable
efforts to do the following, (i) cooperate in the preparation and filing of the
Proxy Statement and the S-4 and any amendments thereto, any filings that may be
required under the HSR Act and any filings under similar merger notification
laws or regulations of foreign Governmental Entities; (ii) obtain consents of
all third parties and Governmental Entities necessary, proper or advisable for
the consummation of the transactions contemplated by this Agreement; (iii)
contest any legal proceeding relating to the Merger; and (iv) execute any
additional instruments necessary to consummate the transactions contemplated
hereby. Subject to the terms and conditions of this Agreement, Parent and
Acquisition agree to use all reasonable efforts to cause the Effective Time to
occur as soon as practicable after the Company stockholder vote with respect to
the Merger. The Company agrees to use all reasonable efforts to encourage its
employees to accept any offers of employment extended by Parent. If at any time
after the Effective Time any further action is necessary to carry out the
purposes of this Agreement the proper officers and directors of each party
hereto shall take all such necessary action.
(b) Parent and the Company will consult and cooperate with one another, and
consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, letters, white papers, memoranda, briefs,
arguments, opinions or proposals made or submitted by or on behalf of any party
hereto in connection with proceedings under or relating to the HSR Act or any
other foreign, federal, or state antitrust, competition, or fair trade law. In
this regard but without limitation, each party hereto shall promptly inform the
other of any material communication between such party and the Federal Trade
Commission, the Antitrust Division of the United States Department of Justice,
or any other federal, foreign or state antitrust or competition Governmental
Entity regarding the transactions contemplated herein.
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Section 4.10. Public Announcements. Parent, Acquisition and the Company, as
the case may be, will consult with one another before issuing any press release
or otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation
except (i) as may be required by applicable law, or by the rules and
regulations of, or pursuant to any listing agreement with, the NYSE or the
Nasdaq National Market, as determined by Parent, Acquisition or the Company, as
the case may be, or (ii) following a change, if any, of the Company Board's
recommendation of the Merger (in accordance with Section 4.4(b)), after which
event no such consultation shall be required. Notwithstanding the preceding
sentence, the first public announcement of this Agreement and the Merger shall
be a joint press agreed upon by Parent and the Company.
Section 4.11. Indemnification and Directors' and Officers' Insurance.
(a) After the Effective Time, Parent shall cause the Surviving Corporation to
indemnify and hold harmless (and shall also advance expenses as incurred to the
fullest extent permitted under applicable law to), to the extent not covered by
insurance, each person who is now or has been prior to the date hereof or who
becomes prior to the Effective Time an officer or director of the Company or
any of the Company's subsidiaries (the "Indemnified Persons") against (i) all
losses, claims, damages, costs, expenses (including counsel fees and expenses),
settlement, payments or liabilities arising out of or in connection with any
claim, demand, action, suit, proceeding or investigation based in whole or in
part on or arising in whole or in part out of the fact that such person is or
was an officer or director of the Company or any of its subsidiaries, whether
or not pertaining to any matter existing or occurring at or prior to the
Effective Time and whether or not asserted or claimed prior to or at or after
the Effective Time ("Indemnified Liabilities"); and (ii) all Indemnified
Liabilities based in whole or in part on or arising in whole or in part out of
or pertaining to this Agreement or the transactions contemplated hereby, in
each case to the fullest extent required or permitted under applicable law.
Nothing contained herein shall make Parent, Acquisition, the Company or the
Surviving Corporation, an insurer, a co-insurer or an excess insurer in respect
of any insurance policies which may provide coverage for Indemnified
Liabilities, nor shall this Section 4.11 relieve the obligations of any insurer
in respect thereto. The parties hereto intend, to the extent not prohibited by
applicable law, that the indemnification provided for in this Section 4.11
shall apply without limitation to negligent acts or omissions by an Indemnified
Person. Parent hereby guarantees the payment and performance of the Surviving
Corporation's obligations in this Section 4.11. Each Indemnified Person is
intended to be a third party beneficiary of this Section 4.11 and may
specifically enforce its terms. This Section 4.11 shall not limit or otherwise
adversely affect any rights any Indemnified Person may have under any agreement
with the Company or under the Company's Certificate of Incorporation or bylaws
as presently in effect.
(b) From and after the Effective Time, Parent will fulfill and honor and will
cause the Surviving Corporation to fulfill and honor in all respects the
obligations of the Company pursuant to any indemnification agreements between
the Company and its directors and officers as of or prior to the date hereof
(or indemnification agreements in the Company's customary form for directors
joining the Company's Board of Directors prior to the Effective Time) and any
indemnification provisions under the Company's certificate of incorporation or
bylaws as in effect immediately prior to the Effective Time.
(c) For a period of six years after the Effective Time, Parent will maintain
or cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who, as of
immediately prior to the Effective Time, are covered by the Company's
directors' and officers' liability insurance policy (the "Insured Parties") on
terms no less favorable to the Insured Parties than those of the Company's
present directors' and officers' liability insurance policy; provided, however,
that in no event will Parent or the Surviving Corporation be required to expend
in excess of 150% of the annual premium currently paid by the Company for such
coverage (or such coverage as is available for 150% of such annual premium);
provided further, that, in lieu of maintaining such existing insurance as
provided above, Parent may cause coverage to be provided under any policy
maintained for the benefit of Parent or any of its subsidiaries,
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so long as the terms are not materially less advantageous to the intended
beneficiaries thereof than such existing insurance.
(d) The provisions of this Section 4.11 are intended to be for the benefit
of, and will be enforceable by, each person entitled to indemnification
hereunder and the heirs and representatives of such person. Parent will not
permit the Surviving Corporation to merge or consolidate with any other Person
unless the Surviving Corporation will ensure that the surviving or resulting
entity assumes the obligations imposed by this Section 4.11.
Section 4.12. Notification of Certain Matters. The Company shall give prompt
notice to Parent and Acquisition, and Parent and Acquisition shall give prompt
notice to the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which has caused or would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time and (ii)
any material failure of the Company, Parent or Acquisition, as the case may be,
to comply with or satisfy in any material respect any covenant condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 4.12 shall not cure
such breach or non-compliance or limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
Section 4.13. Affiliates; Pooling; Tax-Free Reorganization.
(a) The Company shall use all reasonable efforts to obtain from all Company
Affiliates and from any person who may be deemed to have become a Company
Affiliate, after the date of this Agreement and on or prior to the Effective
Time, a letter agreement substantially in the form of Exhibit A-1 hereto as
soon as practicable.
(b) Parent shall use all reasonable efforts to obtain from each of its
directors, officers and any other person who may be deemed to be an affiliate
of Parent pursuant to Rule 145 under the Securities Act, as soon as practicable
after the date of this Agreement and on or prior to the Effective Time, a
letter agreement substantially in the form of Exhibit A-2 hereto.
(c) Parent shall not be required to maintain the effectiveness of the S-4 for
the purpose of resale of shares of Parent Common Stock by stockholders of the
Company who may be affiliates of the Company or Parent pursuant to Rule 145
under the Securities Act.
(d) Each party hereto shall use all reasonable efforts to cause the Merger to
be treated for financial accounting purposes as a Pooling Transaction and shall
not take and shall use all reasonable efforts to prevent any affiliate of such
party from taking any actions that could prevent the Merger from being treated
for financial accounting purposes as a Pooling Transaction, and shall take all
reasonable actions to remedy the effects of any prior actions so as to permit
such treatment.
(e) The Company, on the one hand, and Parent and Acquisition, on the other
hand, shall execute and deliver to legal counsel to the Company and Parent
certificates substantially in the form attached hereto as Exhibits B-1 and B-2,
respectively, at such time or times as reasonably requested by such legal
counsel in connection with its delivery of an opinion with respect to the
transactions contemplated hereby and the Company and Parent shall each provide
a copy thereof to the other parties hereto. Prior to the Effective Time, none
of the Company, Parent or Acquisition shall take or cause to be taken any
action that would cause to be untrue (or fail to take or cause not to be taken
any action that would cause to be untrue) any of the representations in
Exhibits B-1 or B-2.
Section 4.14. Additions to and Modification of Company Disclosure
Schedule. Concurrently with the execution and delivery of this Agreement, the
Company has delivered a Company Disclosure Schedule that includes all of the
information required by the relevant provisions of this Agreement. In addition,
the Company shall deliver to Parent and Acquisition such additions to or
modifications of any Sections of the Company
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Disclosure Schedule necessary to make the information set forth therein true,
accurate and complete in all material respects as soon as practicable after
such information is available to the Company after the date of execution and
delivery of this Agreement; provided, however, that such disclosure shall not
be deemed to constitute an exception to its representations and warranties
under Article 2, nor limit the rights and remedies of Parent and Acquisition
under this Agreement for any breach by the Company of such representation and
warranties.
Section 4.15. Company Rights Agreement. The Company shall not redeem any of
the Company Rights issued pursuant to the Company Rights Agreement nor will the
Company take any action to amend the Company Rights Agreement to facilitate the
acquisition of Shares by any person other than Parent or Acquisition unless
this Agreement is first terminated in accordance with Article 6 of this
Agreement.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1. Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party hereto to effect the Merger are subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) this Agreement shall have been approved and adopted by the requisite vote
of the stockholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States federal or state court or United States federal or state
Governmental Entity that prohibits, restrains, enjoins or restricts the
consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act shall have
terminated or expired;
(d) any governmental or regulatory notices, approvals or other requirements
necessary to consummate the transactions contemplated hereby and to operate the
Business after the Effective Time in all material respects as it was operated
prior thereto (other than under the HSR Act) shall have been given, obtained or
complied with, as applicable;
(e) the S-4 shall have become effective under the Securities Act and shall
not be the subject of any stop order or proceedings seeking a stop order and
Parent shall have received all state securities laws or "blue sky" permits and
authorizations necessary to issue shares of Parent Common Stock in exchange for
Shares in the Merger; and
(f) The Company shall have received from PricewaterhouseCoopers LLP and
Parent shall have received from Arthur Andersen LLP, independent accountants
for the Company and Parent, respectively, a copy of a letter addressed to the
Company and Parent, respectively, each dated the Closing Date, in substance
reasonably satisfactory to Parent and the Company (and which may contain
customary qualifications and assumptions), to the effect that such independent
accountants concur with the Company's and Parent's managements' conclusions
that no conditions exist related to the Company or Parent, respectively, that
would preclude Parent from accounting for the Merger as a "pooling of
interests."
Section 5.2. Conditions to the Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction at or prior to
the Effective Time of the following conditions:
(a) the representations and warranties of Parent and Acquisition contained in
this Agreement or in the Stock Option Agreement of even date herewith between
Parent and the Company (the "Stock Option Agreement") shall be true and correct
(except to the extent that the aggregate of all breaches thereof would not have
a Material Adverse Effect on Parent) at and as of the Effective Time with the
same effect as if made at
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and as of the Effective Time (except to the extent such representations
specifically related to an earlier date, in which case such representations
shall be true and correct as of such earlier date, and in any event, subject to
the foregoing Material Adverse Effect qualification) and, at the Closing,
Parent and Acquisition shall have delivered to the Company a certificate to
that effect, executed by two (2) executive officers of Parent and Acquisition;
(b) each of the covenants and obligations of Parent and Acquisition to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and, at the Closing, Parent and Acquisition shall have
delivered to the Company a certificate to that effect, executed by two (2)
executive officers of Parent and Acquisition;
(c) the shares of Parent Common Stock issuable to the Company's stockholders
pursuant to this Agreement and such other shares required to be reserved for
issuance in connection with the Merger shall have been authorized for listing
on the NYSE upon official notice of issuance;
(d) the Company shall have received the opinion of tax counsel to the Company
to the effect that (i) the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and (ii) each of Parent, Acquisition and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code, which opinion
may rely on the representations set forth in Exhibits B-1 and B-2 and such
other representations as such counsel reasonably deems appropriate and such
opinion shall not have been withdrawn or modified in any material respect;
(e) the Company shall have received the opinion of legal counsel to Parent as
to the matters set forth in Exhibit C;
(f) Parent shall have obtained the consent or approval of each person whose
consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease, or other agreement or instrument, except those for which
failure to obtain such consents and approvals would not, in the reasonable
opinion of the Company, individually or in the aggregate, have a Material
Adverse Effect on Parent; and
(g) there shall have been no events, changes or effects with respect to
Parent or its subsidiaries having or that would reasonably be expected to have
a Material Adverse Effect on Parent,
Section 5.3. Conditions to the Obligations of Parent and Acquisition. The
respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations and warranties of the Company contained in this
Agreement (other than those contained in Section 2.24) and in the Stock Option
Agreement shall be true and correct (except to the extent that the aggregate of
all breaches thereof would not have a Material Adverse Effect on the Company)
at and as of the Effective Time with the same effect as if made at and as of
the Effective Time (except to the extent such representations specifically
related to an earlier date, in which case such representations shall be true
and correct as of such earlier date, and in any event, subject to the foregoing
Material Adverse Effect qualification) and the representations and warranties
of the Company contained in Section 2.24 shall be true and correct in all
respects at and as of the Effective Time, and, at the Closing, the Company
shall have delivered to Parent and Acquisition a certificate to that effect,
executed by two (2) executive officers of the Company;
(b) each of the covenants and obligations of the Company to be performed at
or before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time
and, at the Closing, the Company shall have delivered to Parent and Acquisition
a certificate to that effect, executed by two (2) executive officers of the
Company;
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(c) Parent shall have received from each affiliate of the Company referred to
in Sections 2.21 and 4.13(a) an executed copy of the letter attached hereto as
Exhibit A-1;
(d) there shall have been no events, changes or effects with respect to the
Company or its subsidiaries having or that, individually or in the aggregate,
would reasonably be expected to have, a Material Adverse Effect on the Company;
(e) Parent shall have received the opinion of tax counsel to Parent to the
effect that (i) the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and (ii) each
of Parent, Acquisition and the Company will be a party to the reorganization
within the meaning of Section 368(b) of the Code, which opinion may rely on the
representations set forth in Exhibits B-1 and B-2 and such other
representations as such counsel reasonably deems appropriate, and such opinion
shall not have been withdrawn or modified in any material respect;
(f) Parent shall have received the opinion of legal counsel to the Company as
to the matters set forth in Exhibit D;
(g) the Company shall have obtained the consent or approval of each person
whose consent or approval shall be required in order to permit the succession
by the Surviving Corporation pursuant to the Merger to any obligation right or
interest of the Company or any subsidiary of the Company the agreements and
instruments, set forth in Section 5.3(g) of the Company Disclosure Schedule;
and
(h) Keith R. Lobo shall not have questioned the validity or enforceability of
the employment or non-competition agreement dated the date hereof with Parent
or otherwise expressed his intent not to continue his employment with the
Surviving Corporation.
ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
Section 6.1. Termination. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time whether before or after
approval and adoption of this Agreement by the Company's stockholders:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if (i) any court of competent
jurisdiction in the United States or other United States federal or state
Governmental Entity shall have issued a final order, decree or ruling, or taken
any other final action, restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action is or shall have become
nonappealable or (ii) the Merger has not been consummated by June 30, 1999 (the
"Final Date"); provided that no party may terminate this Agreement pursuant to
this clause (ii) if such party's failure to fulfill any of its obligations
under this Agreement shall have been the reason that the Effective Time shall
not have occurred on or before said date;
(c) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Acquisition set forth in
this Agreement or if any representation or warranty of Parent or Acquisition
shall have become untrue such that the conditions set forth in Section 5.2(a)
would be incapable of being satisfied by the Final Date, provided that the
Company has not breached any of its obligations hereunder in any material
respect; (ii) there shall have been a breach by Parent or Acquisition of any of
their respective covenants or agreements hereunder having a Material Adverse
Effect on Parent or materially adversely affecting (or materially delaying) the
consummation of the Merger, and Parent or Acquisition, as the case may be, has
not cured such breach within twenty (20) business days after notice by the
Company thereof, provided that the Company has not breached any of its
obligations hereunder in any material respect; (iii) the Company
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<PAGE>
shall have convened a meeting of its stockholders to vote upon the Merger and
shall have failed to obtain the requisite vote of its stockholders at such
meeting (including any adjournments thereof); or (iv) the Company Board has
received a Superior Proposal, has complied with the provisions of Section
4.4(b), and has made the payment called for by Section 6.3(a); or
(d) by Parent and Acquisition if (i) there shall have been a breach of any
representation or warranty on the part of the Company set forth in this
Agreement or if any representation or warranty of the Company shall have become
untrue such that the conditions set forth in Section 5.3(a) would be incapable
of being satisfied by the Final Date, provided that neither Parent nor
Acquisition has breached any of their respective obligations hereunder in any
material respect; (ii) there shall have been a breach by the Company of its
covenants or agreements hereunder having a Material Adverse Effect on the
Company or materially adversely affecting (or materially delaying) the
consummation of the Merger, and the Company has not cured such breach within
twenty (20) business days after notice by Parent or Acquisition thereof,
provided that neither Parent nor Acquisition has breached any of their
respective obligations hereunder in any material respect; (iii) the Company
Board shall have recommended to the Company's stockholders a Superior Proposal;
(iv) the Company Board shall have withdrawn or adversely modified its approval
or recommendation of this Agreement or the Merger; (v) the Company shall have
ceased using all reasonable efforts to call, give notice of, or convene or hold
a stockholders' meeting to vote on the Merger as promptly as practicable after
the date hereof or shall have adopted a resolution not to effect any of the
foregoing; or (vi) the Company shall have convened a meeting of its
stockholders to vote upon the Merger and shall have failed to obtain the
requisite vote of its stockholders at such meeting (including any adjournments
thereof).
Section 6.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders other
than the provisions of this Section 6.2 and Sections 4.8(c) and 6.3 hereof.
Nothing contained in this Section 6.2 shall relieve any party from liability
for any breach of this Agreement prior to such termination.
Section 6.3. Fees and Expenses.
(a) In the event that this Agreement shall be terminated pursuant to:
(i) Section 6.1(c)(iv) or 6.1(d)(iii), (iv) or (v);
(ii) Section 6.1(d)(i) or (ii) and within twelve (12) months thereafter
the Company enters into an agreement with respect to a Company Acquisition
or a Company Acquisition occurs involving any party (or any affiliate
thereof) (x) with whom the Company (or its agents) had negotiations with a
view to a Company Acquisition, (y) to whom the Company (or its agents)
furnished information with a view to a Company Acquisition or (z) who had
submitted a proposal or expressed an interest in a Company Acquisition, in
the case of each of clauses (x), (y) and (z), prior to such termination; or
(iii) Section 6.1(c)(iii) or 6.1(d)(vi) and at the time of the Company
stockholders' meeting at which the Company failed to obtain the requisite
vote there shall be outstanding at that time an offer by a Third Party to
consummate, or a third party shall have publicly announced (and not
withdrawn) a plan or proposal with respect to, a Company Acquisition;
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate
Parent and Acquisition for such damages the Company shall pay to Parent the
amount of $10,557,000 as liquidated damages immediately upon the occurrence
of the event described in this Section 6.3(a) giving rise to such damages.
It is specifically agreed that the amount to be paid pursuant to this
Section 6.3(a) represents liquidated damages and not a penalty. The Company
hereby waives any right to set-off or counterclaim against such amount.
(b) Upon the termination of this Agreement pursuant to Section 6.1(c)(iii),
(iv) or 6.1(d)(i), (ii), (iv), (v) or (vi), in addition to any other remedies
that Parent, Acquisition or their affiliates may have as a result of such
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termination, the Company shall pay to Parent the amount of $3,500,000 as
reimbursement for the costs, fees and expenses incurred by any of them or on
their behalf in connection with this Agreement, the Merger and the consummation
of all transactions contemplated by this Agreement (including fees payable to
investment bankers, counsel to any of the foregoing and accountants).
(c) Upon the termination of this Agreement pursuant to Section 6.1(c)(i) or
(ii), in addition to any other remedies that the Company or its affiliates may
have as a result of such termination, Parent shall pay to the Company the
amount of $3,500,000 as reimbursement for the costs, fees and expenses incurred
by any of them or on their behalf in connection with this Agreement, the Merger
and the consummation of all transactions contemplated by this Agreement
(including fees payable to investment bankers, counsel to any of the foregoing
and accountants).
(d) Except as specifically provided in this Section 6.3, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
Section 6.4. Amendment. This Agreement may be amended by action taken by the
Company, Parent and Acquisition at any time before or after approval of the
Merger by the stockholders of the Company but after any such approval no
amendment shall be made that requires the approval of such stockholders under
applicable law without such approval. This Agreement (including, subject to
Section 4.15, the Company Disclosure Schedule) may be amended only by an
instrument in writing signed on behalf of the parties hereto.
Section 6.5. Extension; Waiver. At any time prior to the Effective Time, each
party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in
the representations and warranties of the other party contained herein or in
any document certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions
contained herein. Any agreement on the part of any party hereto to any such
extension or waiver shall be valid only if set forth in an instrument, in
writing, signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of such
rights.
ARTICLE 7
MISCELLANEOUS
Section 7.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall not
limit any covenant or agreement of the parties hereto that by its terms
requires performance after the Effective Time.
Section 7.2. Entire Agreement; Assignment. This Agreement (including the
Company Disclosure Schedule) (a) constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings both written and oral between the
parties with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise; provided, however, that Acquisition may
assign any or all of its rights and obligations under this Agreement to any
wholly owned subsidiary of Parent, but no such assignment shall relieve
Acquisition of its obligations hereunder if such assignee does not perform such
obligations.
Section 7.3. Validity. If any provision of this Agreement or the application
thereof to any person or circumstance is held invalid or unenforceable, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected thereby and to such end the
provisions of this Agreement are agreed to be severable.
Section 7.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in
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person, by facsimile or by registered or certified mail (postage prepaid,
return receipt requested) to each other party as follows:
<TABLE>
<C> <S>
if to Parent or Acquisition: Cadence Design Systems, Inc.
2655 Seely Road
San Jose, California 95134
Telecopier: (408) 944-6855
Attention: General Counsel
with a copy to: Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, CA 94104
Telecopier: (415) 986-5309
Attention: Kenneth R. Lamb
if to the Company to: Quickturn Design Systems, Inc.
55 West Trimble Road
San Jose, California 95131
Telecopier: (408) 914-6001
Attention: President
with a copy to: Wilson, Sonsini, Rosati & Goodrich LLP
650 Page Mill Road
Palo Alto, CA 94304
Telecopier: (650) 493-6811
Attention: Larry Sonsini
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 7.5. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to the
principles of conflicts of law thereof.
Section 7.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Section 7.7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided herein, including in
Sections 4.12 and 7.2, nothing in this Agreement is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 7.8. Certain Definitions. For the purposes of this Agreement the
term:
(a) "affiliate" means (except as otherwise provided in Sections 2.21 and
4.14) a person that, directly or indirectly, through one or more intermediaries
controls, is controlled by or is under common control with the first-mentioned
person;
(b) "business day" means any day other than a day on which the NYSE is
closed;
(c) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
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(d) "Company Acquisition" means the occurrence of any of the following
events: (i) the acquisition of the Company by merger or otherwise by any Third
Party; (ii) the acquisition by a Third Party of any material portion of the
assets of the Company and its subsidiaries taken as a whole; or (iii) the
acquisition by a Third Party of thirty percent (30%) or more of the outstanding
Shares or any securities convertible into or exchangeable for such number of
Shares;
(e) "knowledge" or "known" means, with respect to any matter in question, the
actual knowledge of such matter of any executive officer of the Company or
Parent, as the case may be;
(f) "include" or "including" means "include, without limitation" or
"including, without limitation," as the case may be, and the language following
"include" or "including" shall not be deemed to set forth an exhaustive list.
(g) "person" means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization or other legal entity
including any Governmental Entity; and
(h) "subsidiary" or "subsidiaries" of the Company, Parent, the Surviving
Corporation or any other person means any corporation, partnership, limited
liability company, association, trust, unincorporated association or other
legal entity of which the Company, Parent, the Surviving Corporation or any
such other person, as the case may be (either alone or through or together with
any other subsidiary), owns, directly or indirectly, 50% or more of the capital
stock the holders of which are generally entitled to vote for the election of
the board of directors or other governing body of such corporation or other
legal entity.
Section 7.9. Personal Liability. This Agreement shall not create or be deemed
to create or permit any personal liability or obligation on the part of any
direct or indirect stockholder of the Company or Parent or Acquisition or any
officer, director, employee, agent, representative or investor of any party
hereto.
Section 7.10. Specific Performance. The parties hereby acknowledge and agree
that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties, for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder; provided, however, that if a party
hereto is entitled to receive any payment or reimbursement of expenses pursuant
to Section 6.3(a), (b) or (c) it shall not be entitled to specific performance
to compel the consummation of the Merger.
Section 7.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
(Remainder of page intentionally left blank)
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
CADENCE DESIGN SYSTEMS, INC.
By:/s/ H. Raymond Bingham
-----------------------------------
Name: H. Raymond Bingham Title:
Executive Vice President andChief
Financial Officer
QUICKTURN DESIGN SYSTEMS, INC.
By:/s/ Keith R. Lobo
-----------------------------------
Name: Keith R. Lobo Title:
President and Chief Executive
Officer
CDSI ACQUISITION, INC.
By:/s/ H. Raymond Bingham
-----------------------------------
Name: H. Raymond Bingham Title:
Executive Vice President andChief
Financial Officer
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Appendix B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is dated as of December 8, 1998, between Cadence
Design Systems, Inc., a Delaware corporation ("Grantee"), and Quickturn Design
Systems, Inc., a Delaware corporation ("Issuer").
RECITALS
A. Grantee, CDSI Acquisition, Inc. ("Acquisition") and Issuer are
simultaneously entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides, among other things, that, upon the terms and
subject to the conditions thereof, Acquisition will be merged with and into
Issuer (the "Merger").
B. As a condition to its willingness to enter into the Merger Agreement,
Grantee has required that Issuer agree, and Issuer has agreed, to enter into
this Stock Option Agreement, which provides, among other things, that Issuer
grant to Grantee an option to purchase shares of Issuer's Common Stock, $.001
par value per share ("Issuer Common Stock"), upon the terms and subject to the
conditions provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained in this Stock Option Agreement and the Merger Agreement,
the parties agree as follows:
1. Grant of Option. Subject to the terms and conditions of this Stock Option
Agreement, Issuer hereby grants to Grantee an irrevocable option (the "Option")
to purchase 3,619,100 shares of Issuer Common Stock (the "Option Shares"), in
the manner set forth below, at an exercise price of $14.00 per share of Issuer
Common Stock, subject to adjustment as provided below (the "Option Price").
Capitalized terms used herein but not defined herein shall have the meanings
set forth in the Merger Agreement.
2. Exercise of Option.
(a) Subject to the satisfaction or waiver of the conditions set forth in
Section 9 of this Stock Option Agreement, prior to the termination of this
Stock Option Agreement in accordance with its terms, Grantee may exercise
the Option, in whole or in part, at any time or from time to time on or
after the occurrence of a Triggering Event. The Option shall terminate and
not be exercisable at any time following the Expiration Date (as defined in
Section 11). The term "Triggering Event" shall mean the time immediately
prior to the occurrence of any of the events (or series of events)
specified in Section 6.3(a) of the Merger Agreement giving rise to the
obligation of the Company to pay the fee specified in Section 6.3(a). The
Option will not be exercisable if Grantee willfully and materially breached
the Merger Agreement.
(b) In the event Grantee wishes to exercise the Option at such time as
the Option is exercisable and has not terminated, Grantee shall deliver
written notice (the "Exercise Notice") to Issuer specifying its intention
to exercise the Option, the total number of Option Shares it wishes to
purchase and a date and time for the closing of such purchase (a "Closing")
not less than one (1) nor more than thirty (30) business days after the
later of (i) the date such Exercise Notice is given and (ii) the expiration
or termination of any applicable waiting period under the HSR Act. If prior
to the Expiration Date (as defined in Section 11 below) any person or Group
(other than Grantee and its affiliates) shall have acquired thirty percent
(30%) or more of the then outstanding shares of Issuer Common Stock (a
"Share Acquisition"), or Issuer shall have entered into a written
definitive agreement with any person or group (other than Grantee and its
affiliates) providing for a Company Acquisition, then Grantee, in lieu of
exercising the Option, shall have the right at any time thereafter (for so
long as the Option is exercisable under Section 2(a) hereof) to request in
writing that Issuer pay, and promptly (but in any event not more than five
(5) business days) after the giving by Grantee of such request, Issuer
shall pay to Grantee, in cancellation of the Option, an amount in cash (the
"Cancellation Amount") equal to (i) the lesser of
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(x) the excess over the Option Price of the greater of (A) the last
sale price of a share of Issuer Common Stock as reported on the
Nasdaq National Market System on the last trading day prior to the
date of the Exercise Notice, and (B) (1) the highest price per
share of Issuer Common Stock offered to be paid or paid by any such
person or Group pursuant to or in connection with such Share
Acquisition or Company Acquisition or (2) if such Company
Acquisition consists of a purchase and sale of assets, the
aggregate consideration offered to be paid or paid in any
transaction or proposed transaction in connection with a Company
Acquisition, divided by the number of shares of Issuer Common Stock
then outstanding, and
(y) $3.8890884474
multiplied by (ii) the number of Option Shares then covered by the Option.
If all or a portion of the price per share of Issuer Common Stock offered,
paid or payable or the aggregate consideration offered, paid or payable for
the stock or assets of Issuer, each as contemplated by the preceding
sentence, consists of noncash consideration, such price or aggregate
consideration shall be the cash consideration, if any, plus the fair market
value of the non-cash consideration as determined by the investment bankers
of Issuer and the investment bankers of Grantee.
(c) Notwithstanding anything to the contrary contained herein, the
economic benefit, if any, which Grantee may derive hereunder shall be
limited as follows: (1) in no event shall Grantee's Total Payment (as
defined below) exceed $14,075,000, and Grantee shall pay any excess over
such amount to Issuer, and (2) the Option may not be exercised for a number
of Option Shares as would, as of the date of exercise, result in a Notional
Total Payment (as defined below), together with the actual Total Payment
immediately preceding such exercise, exceeding $14,075,000. As used herein,
(1) "Total Payment" shall mean the sum (before taxes) of the following: (i)
any Cancellation Amount received by Grantee pursuant to Section 2(b)
hereof, (ii)(x) the net cash amounts received by Grantee pursuant to the
sale of Option Shares (or any other securities into which such Option
Shares shall be converted or exchanged) pursuant to Section 12 or otherwise
to any unaffiliated party, less (y) the aggregate Option Price for such
shares, (iii) any amounts received by Grantee upon transfer of the Option
(or any portion thereof) to any unaffiliated party, and (iv) the amount
actually received by Grantee pursuant to Section 6.3(a) of the Merger
Agreement; and (2) "Notional Total Payment" with respect to any number of
Option Shares as to which Grantee may propose to exercise the Option shall
be the Total Payment determined as of the date of such proposed exercise
assuming that the Option were exercised on such date for such number of
shares and assuming further that such shares, together with all other
Option Shares held by Grantee as of such date, were sold for cash at the
closing market price for the Issuer Common Stock as of the close of
business on the preceding trading day (less customary brokerage
commissions). For purposes of this Section 2, references to Grantee shall
be deemed to include references to any affiliate of Grantee.
3. Payment of Option Price and Delivery of Certificate. Any Closings under
Section 2 of this Stock Option Agreement shall be held at the principal
executive offices of Issuer, or at such other place as Issuer and Grantee may
agree. At any Closing hereunder, (a) Grantee or its designee will make payment
to Issuer of the aggregate price for the Option Shares being so purchased by
delivery of a certified check, official bank check or wire transfer of funds
pursuant to Issuer's instructions payable to Issuer in an amount equal to the
product obtained by multiplying the Option Price by the number of Option Shares
to be purchased, and (b) upon receipt of such payment Issuer will deliver to
Grantee or its designee a certificate or certificates representing the number
of validly issued, fully paid and non-assessable Option Shares so purchased, in
the denominations and registered in such names designated to Issuer in writing
by Grantee.
4. Registration and Listing of Option Shares.
(a) Issuer will, if requested by Grantee at any time or from time to time
within two (2) years following a Triggering Event (the "Registration
Period"), in order to permit the sale or other disposition of the Option
Shares that have been acquired by or are issuable to Grantee upon exercise
of the Option ("Registrable Securities"), register under the Securities Act
of 1933, as amended (the "Act"), the
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offering, sale and delivery, or other disposition, of the Registrable
Securities. In connection with any such sale or other disposition, Grantee
shall use all reasonable efforts to prevent any person or group from
purchasing through such offering shares of Issuer Common Stock representing
more than five percent (5%) of the outstanding Common Stock of Issuer on a
fully diluted basis at the time of such request. Any such Registration
Notice must relate to a number of Registrable Securities equal to at least
twenty percent (20%) of the Option Shares, unless the remaining number of
Registrable Securities is less than such amount, in which case Grantee
shall be entitled to exercise its rights hereunder but only for all of the
remaining Registrable Securities (a "Permitted Offering"). Grantee's rights
hereunder shall terminate at such time as Grantee shall be entitled to sell
all of the remaining Registrable Securities pursuant to Rule 144(k) under
the Act. Issuer will use all reasonable efforts to qualify any Registrable
Securities Grantee desires to sell or otherwise dispose of under applicable
state securities or "blue sky" laws; provided, however, that Issuer shall
not be required to qualify to do business, or consent to general service of
process, in any jurisdiction by reason of this provision. Without Grantee's
prior written consent, no other securities may be included in any such
registration. Issuer will use all reasonable efforts to cause each such
registration statement to become effective, to obtain all consents or
waivers of other parties that are required therefor and to keep such
registration statement effective for a period of ninety (90) days from the
day such registration statement first becomes effective. The obligations of
Issuer hereunder to file a registration statement and to maintain its
effectiveness may be suspended for one or more periods not exceeding ninety
(90) days in the aggregate if the Board of Directors of Issuer shall have
determined in good faith that the filing of such registration statement or
the maintenance of its effectiveness would require disclosure of nonpublic
information that would materially and adversely affect Issuer, or Issuer is
required under the Act to include audited financial statements for any
period in such registration statement and such financial statements are not
yet available for inclusion in such registration statement. Grantee shall
be entitled to make up to two (2) requests under this Section 4(a). For
purposes of determining whether the two (2) requests have been made under
this Section 4(a), only requests relating to a registration statement that
has become effective under the Act will be counted.
(b) If, during the Registration Period, Issuer shall propose to register
under the Act the offering, sale and delivery of Issuer's Common Stock for
cash for its own account or for any other stockholder of Issuer pursuant to
a firm underwriting, it will, in addition to Issuer's other obligations
under this Section 4, allow Grantee the right to participate in such
registration provided that Grantee participates in such underwriting;
provided, however, that, if the managing underwriter of such offering
advises Issuer in writing that in its opinion the number of shares of
Issuer's Common Stock requested to be included in such registration exceeds
the number that it would be in the best interests of Issuer to sell in such
offering, Issuer will, after fully including therein all shares of Issuer
Common Stock to be sold by Issuer, include the shares of Issuer Common
Stock requested to be included therein by Grantee pro rata (based on the
number of shares of Issuer Common Stock requested to be included therein)
with the shares of Issuer Common Stock requested to be included therein by
persons other than Issuer and persons to whom Issuer owes a contractual
obligation (other than any director, officer or employee of Issuer to the
extent any such person is not currently owed such contractual obligation).
(c) The expenses associated with the preparation and filing of any
registration statement pursuant to this Section 4 and any sale covered
thereby (including any fees related to blue sky qualifications and filing
fees in respect of SEC or the National Association of Securities Dealers,
Inc.) ("Registration Expenses") will be paid by Issuer, except for
underwriting discounts or commissions or brokers' fees in respect of shares
of Issuer's Common Stock to be sold by Grantee and the fees and
disbursements of Grantee's counsel; provided, however, that Issuer will not
be required to pay for any Registration Expenses with respect to such
registration if the registration request is subsequently withdrawn at the
request of Grantee unless Grantee agrees to forfeit its right to request
one registration; provided further, however, that, if at the time of such
withdrawal Grantee has learned of a material adverse change in the results
of operations, condition, business or prospects of Issuer not known to
Grantee at the time of the request and has withdrawn the request within a
reasonable period of time following disclosure by Issuer to Grantee of
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such material adverse change, then Grantee shall not be required to pay any
of such expenses and will retain all remaining rights to request
registration. Grantee will provide all information reasonably requested by
Issuer for inclusion in any registration statement to filed hereunder.
(d) The registration rights granted under this Section 4 are subject to
and are limited by any registration rights previously granted by Issuer,
and Grantee acknowledges that the registration rights granted under this
Section 4 shall be subject to any such limitations.
(e) In connection with each registration under this Section 4, Issuer
shall indemnify and hold each holder of Option or Option Shares
participating in such offering (a "Holder"), its underwriters and each of
their respective affiliates harmless against any and all losses, claims,
damage, liabilities and expenses (including, without limitation,
investigation expenses and fees and disbursements of counsel and
accountants), joint or several, to which such Holder, its underwriters and
each of their respective affiliates may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
registration statement (including any prospectus therein), or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, other
than such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) which arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in written
information furnished by a Holder to Issuer expressly for use in such
registration statement.
(f) In connection with any registration statement pursuant to this
Section 4, each Holder agrees to furnish Issuer with such information
concerning itself and the proposed sale or distribution as shall reasonably
be required in order to ensure compliance with the requirements of the Act
and shall provide representations and warranties customary for selling
shareholders who are unaffiliated with the issuer. In addition, Grantee and
each Holder shall indemnify and hold Issuer, its underwriters and each of
their respective affiliates harmless against any and all losses, claims,
damages, liabilities and expenses (including, without limitation,
investigation expenses and fees and disbursement of counsel and
accountants), joint or several, to which Issuer, its underwriters and each
of their respective affiliates may become subject under the Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in
written information furnished by any Holder to Issuer expressly for use in
such registration statement; provided, however, that in no event shall any
indemnification amount contributed by a Holder hereunder exceed the
proceeds of the offering received by such Holder.
(g) Upon the issuance of Option Shares hereunder, Issuer will promptly
list such Option Shares with the Nasdaq National Market System or on such
national or other exchange on which the shares of Issuer Common Stock are
at the time listed.
5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has requisite power
and authority to enter into and perform its obligations under this Stock
Option Agreement.
(b) The execution and delivery of this Stock Option Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorized
this Stock Option Agreement or to consummate the transactions contemplated
hereby. The Board of Directors of Issuer has duly approved the issuance and
sale of the Option Shares, upon the terms and subject to the
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conditions contained in this Stock Option Agreement, and the consummation
of the transactions contemplated hereby. This Stock Option Agreement has
been duly and validly executed and delivered by Issuer and, assuming this
Stock Option Agreement has been duly and validly authorized, executed and
delivered by Grantee, constitutes a valid and binding obligation of Issuer
enforceable against Issuer in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to creditors' rights generally; the availability of
injunctive relief and other equitable remedies; and limitations imposed by
law on indemnification for liability under federal securities laws.
(c) Issuer has taken all necessary action to authorize and reserve for
issuance and to permit it to issue, and at all times from the date of this
Stock Option Agreement through the date of expiration of the Option will
have reserved for issuance upon exercise of the Option, a sufficient number
of authorized shares of Issuer Common Stock for issuance upon exercise of
the Option, each of which, upon issuance pursuant to this Stock Option
Agreement and when paid for as provided herein, will be validly issued,
fully paid and nonassessable, and shall be delivered free and clear of all
claims, liens, charges, encumbrances and security interests (other than
those imposed by Grantee, its affiliate or by applicable law).
(d) The execution, delivery and performance of this Stock Option
Agreement by Issuer and the consummation by it of the transactions
contemplated hereby except as required by the HSR Act and any material
foreign competition authorities (if applicable), and, with respect to
Section 4 hereof, compliance with the provisions of the Act and any
applicable state securities laws, do not require the consent, waiver,
approval, license or authorization of or result in the acceleration of any
obligation under, or constitute a default under, any term, condition or
provision of any charter or bylaw, or any indenture, mortgage, lien, lease,
agreement, contract, instrument, order, judgment, ordinance, regulation or
decree or any restriction to which Issuer or any property of Issuer or its
subsidiaries is bound, except where failure to obtain such consents,
waivers, approvals, licenses or authorizations or where such acceleration
or defaults could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Issuer.
6. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Grantee is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has requisite power
and authority to enter into and perform its obligations under this Stock
Option Agreement.
(b) The execution and delivery of this Stock Option Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Grantee and no other
corporate proceedings on the part of Grantee are necessary to authorize
this Stock Option Agreement or to consummate the transactions contemplated
hereby. This Stock Option Agreement has been duly and validly executed and
delivered by Grantee and, assuming this Stock Option Agreement has been
duly executed and delivered by Issuer, constitutes a valid and binding
obligation of Grantee enforceable against Grantee in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to creditors' rights generally;
the availability of injunctive relief and other equitable remedies; and
limitations imposed by law on indemnification for liability under federal
securities laws.
(c) Grantee is acquiring the Option and it will acquire the Option Shares
issuable upon the exercise thereof for its own account and not with a view
to the distribution or resale thereof in any manner not in accordance with
applicable law.
7. Covenants of Grantee. Grantee agrees not to transfer or otherwise dispose
of the Option or the Option Shares, or any interest therein, except that
Grantee may transfer or dispose of the Option Shares so long as such
transaction is in compliance with the Act and any applicable state securities
law. Grantee further agrees
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to the placement of the following legend on the certificates) representing the
Option Shares (in addition to any legend required under applicable state
securities laws) and any legend referring to the provisions of Section 12
hereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE LAW GOVERNING THE OFFER AND SALE OF SECURITIES. NO
TRANSFER OR OTHER DISPOSITION OF THESE SHARES, OR OF ANY INTEREST THEREIN,
MAY BE MADE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND SUCH OTHER STATE LAWS OR PURSUANT TO EXEMPTIONS FROM
REGISTRATION UNDER THE ACT, SUCH OTHER STATE LAWS, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER."
8. HSR Compliance Efforts. Grantee and Issuer shall take, or cause to be
taken, all reasonable action to consummate and make effective the transactions
contemplated by this Stock Option Agreement, including, without limitation,
reasonable efforts to obtain any necessary consents of third parties and
governmental agencies and the filing by Grantee and Issuer promptly after the
date hereof of any required HSR Act notification forms and the documents
required to comply with the HSR Act.
9. Certain Conditions. The obligation of Issuer to issue Option Shares under
this Stock Option Agreement upon exercise of the Option shall be subject to the
satisfaction or waiver of the following conditions:
(a) any waiting periods applicable to the acquisition of the Option
Shares by Grantee pursuant to this Stock Option Agreement under the HSR Act
and any material foreign competition laws shall have expired or been
terminated;
(b) the representations and warranties of Grantee made in Section 6 of
this Stock Option Agreement shall be true and correct in all material
respects as of the date of the Closing for the issuance of such Option
Shares; and
(c) no statute, rule or regulation shall be in effect, and no order,
decree or injunction entered by any court of competent jurisdiction or
governmental, regulatory or administrative agency or commission in the
United States shall be in effect which prohibits the exercise of the Option
or acquisition or issuance of Option Shares pursuant to this Stock Option
Agreement.
10. Adjustments Upon Changes in Capitalization. In the event of any change in
the number of issued and outstanding shares of Issuer Common Stock by reason of
any stock dividend, stock split, recapitalization, merger, rights offering,
share exchange or other change in the corporate or capital structure of Issuer,
Grantee shall receive, upon exercise of the Option, the stock or other
securities, cash or property to which Grantee would have been entitled if
Grantee had exercised the Option and had been a holder of record of shares of
Issuer Common Stock on the record date fixed for determination of holders of
shares of Issuer Common Stock entitled to receive such stock or other
securities, cash or property at the same aggregate price as the aggregate
Option Price of the Option Shares.
11. Expiration. The Option shall expire at the earlier of (y) the Effective
Time (as defined in the Merger Agreement) and (z) 5:00 p.m., California time,
on the day that is the twelve (12) month anniversary of the date on which the
Merger Agreement has been terminated in accordance with the terms thereof (such
expiration date is referred to as the "Expiration Date").
12. Issuer Call. If Grantee has acquired Option Shares pursuant to exercise
of the Option (the date of any closing relating to any such exercise herein
referred to as an "Exercise Date"), then, at any time after the date thirteen
(13) months following such Exercise Date and prior to the date twenty-five (25)
months following such Exercise Date (the "Purchase Period"), Issuer may require
Grantee, upon delivery to Grantee of written
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notice, to sell to Issuer any Option Shares held by Grantee as of the date that
is ten (10) business days after the date of such notice, up to a number of
shares equal to the number of Option Shares acquired by Grantee pursuant to
exercise of the Option in connection with such Exercise Date. The per share
purchase price for such sale (the "Issuer Call Price") shall be equal to the
higher of (i) the Option Price, less any dividends paid on the Option Shares to
be purchased by the Issuer pursuant to this Section 12, plus an amount equal to
a return at the rate of fifteen percent (15%) of the Option Price per year from
the Exercise Date and (b) an amount equal to the average of the high and low
trading prices per share of Issuer Common Stock for the thirty (30) trading day
period ending one day prior to the delivery of Issuer's notice exercising its
call rights pursuant to this Section 12. The closing of any sale of Option
Shares pursuant to this Section 12 shall take place at the principal offices of
Issuer at a time and on a date designated by Issuer in the aforementioned
notice to Grantee, which date shall be no more than thirty (30) and no less
than twelve (12) business days from the date of such notice. The Issuer Call
Price shall be paid in immediately available funds.
13. General Provisions.
(a) Survival. All of the representations, warranties and covenants
contained herein shall survive a Closing and shall be deemed to have been
made as of the date hereof and as of the date of each Closing, except for
the representations and warranties in Section 5(d) hereof which shall be
deemed to have been made only as of the date hereof.
(b) Further Assurances. If Grantee exercises the Option, or any portion
thereof, in accordance with the terms of this Stock Option Agreement,
Issuer and Grantee will execute and deliver all such further documents and
instruments and use all reasonable efforts to take all such further action
as may be necessary in order to consummate the transactions contemplated
thereby.
(c) Severability. It is the desire and intent of the parties that the
provisions of this Stock Option Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction
in which enforcement is sought. Accordingly, in the event that any
provision of this Stock Option Agreement would be held in any jurisdiction
to be invalid, prohibited or unenforceable for any reason, such provision,
as to such jurisdiction, shall be ineffective, without invalidating the
remaining provisions of this Stock Option Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly
drawn so as not be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn,
without invalidating the remaining provisions of this Stock Option
Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction.
(d) Assignment; Transfer of Stock Option. This Stock Option Agreement
shall be binding on and inure to the benefit of the parties hereto and
their respective successors and permitted assigns; provided, however, that
Issuer and Grantee, without the prior written consent of the other party,
shall not be entitled to assign or otherwise transfer any of its rights or
obligations hereunder and any such attempted assignment or transfer shall
be void; provided, further, that Grantee shall be entitled to assign or
transfer this Stock Option Agreement or any rights hereunder to any wholly-
owned subsidiary of Grantee so long as such wholly-owned subsidiary agrees
in writing to be bound by the terms and provisions hereof.
(e) Specific Performance. The parties agree and acknowledge that in the
event of a breach of any provision of this Stock Option Agreement, the
aggrieved party would be without an adequate remedy at law. The parties
therefore agree that in the event of a breach of any provision of this
Stock Option Agreement, the aggrieved party may elect to institute and
prosecute proceedings in any court of competent jurisdiction to enforce
specific performance or to enjoin the continuing breach of such provisions,
as well as to obtain damages for breach of this Stock Option Agreement. By
seeking or obtaining any such relief, the aggrieved party will not be
precluded from seeking or obtaining any other relief to which it may be
entitled.
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(f) Amendments. This Stock Option Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by Grantee and Issuer.
(g) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to be
sufficient if contained in a written instrument and shall be deemed given
if delivered personally, telecopied, sent by nationally-recognized,
overnight courier or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the other party at the following addresses
(or such other address for a party as shall be specified by like notice):
If to Grantee:
Cadence Design Systems, Inc.
2655 Seely Road
San Jose, California 95134
Telecopier: (408) 944-6855
Attention: General Counsel
with a copy to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, California 94104
Telecopier: (415) 986-5309
Attention: Kenneth R. Lamb
If to Issuer:
Quickturn Design Systems, Inc.
55 West Trimble Road
San Jose, California 95131
Telecopier: (408) 914-6001
Attention: President
with a copy to:
Wilson, Sonsini, Rosati & Goodrich LLP
650 Page Mill Road
Palo Alto, CA 94304
Telecopier: (650) 493-6811
Attention: Larry Sonsini
(h) Headings. The headings contained in this Stock Option Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Stock Option Agreement.
(i) Counterparts. This Stock Option Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(j) Governing Law. This Stock Option Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard
to the principles of conflicts of law thereof.
(k) Jurisdiction and Venue. Each of Issuer and Grantee hereby agrees that any
proceeding relating to this Stock Option Agreement shall be brought solely in a
court in the State of Delaware. Each of Issuer and Grantee hereby consents to
personal jurisdiction in any such action brought in any such Delaware court,
consents to service of process by registered mail made upon such party and such
party's agent and waives any objection to venue in any such Delaware court or
to any claim that any such Delaware court is an inconvenient forum.
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(l) Entire Agreement. This Stock Option Agreement and the Merger Agreement,
and any documents and instruments referred to herein and therein, constitute
the entire agreement between the parties hereto and thereto with respect to the
subject matter hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. Nothing in this Stock Option Agreement shall
be construed to give any person other than the parties to this Stock Option
Agreement or their respective successors or permitted assigns any legal or
equitable right, remedy or claim under or in respect of this Stock Option
Agreement or any provision contained herein.
(m) Expenses. Except as otherwise provided in this Stock Option Agreement,
each party shall pay its own expenses incurred in connection with this Stock
Option Agreement and the transactions contemplated hereby.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have caused this Stock Option Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
CADENCE DESIGN SYSTEMS, INC.
/s/ H. Raymond Bingham
By:
----------------------------------
Name: H. Raymond Bingham
Title: Executive Vice President and
Chief Financial Officer
QUICKTURN DESIGN SYSTEMS, INC.
/s/ Keith R. Lobo
By:
----------------------------------
Name: Keith R. Lobo
Title: President and Chief Executive
Officer
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Appendix C
Hambrecht & Quist llc
One Bush Street
San Francisco, CA
94104
(415) 439-3000
December 8, 1998
Confidential
The Board of Directors
Quickturn Design Systems, Inc.
55 West Trimble Rd.
San Jose, CA 95131
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock (the "Common
Stock") of Quickturn Design Systems Inc. ("Quickturn" or the "Company") of the
consideration to be received by such shareholders in connection with the
proposed merger of CDSI Acquisition, Inc. ("Merger Sub"), a wholly owned
subsidiary of Cadence Design Systems, Inc. ("Cadence"), with and into Quickturn
(the "Proposed Transaction") pursuant to the Agreement and Plan of Merger to be
dated as of December 8, 1998, among Cadence, Merger Sub, and Quickturn (the
"Agreement").
We understand that the terms of the Agreement provide, among other things,
that each issued and outstanding share of Common Stock shall be converted into
the right to receive a number of shares of common stock of Cadence equal to
$14.00 per share, as more fully set forth in the Agreement. For purposes of
this opinion, we have assumed that the Proposed Transaction will qualify as a
tax-free reorganization under the United States Internal Revenue Code for the
shareholders of the Company and that the Proposed Transaction will be accounted
for as a pooling of interests.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of Quickturn in connection with the Proposed Transaction, and we will
receive a fee for our services, which include the rendering of this opinion.
In the past, we have provided investment banking and other financial advisory
services Quickturn and have received fees for rendering these services.
Hambrecht & Quist served as co-manager in the Company's December 15, 1993
initial public offering, advised the Company in the January 10, 1996 adoption
of its Shareholder Rights Plan, advised the Company in its February 1997 merger
with SpeedSim, Inc., and advised the Company in its June 1997 acquisition of
the assets of Arkos Design, Inc. In the ordinary course of business, Hambrecht
& Quist acts as a market maker and broker in the publicly traded securities of
Quickturn and receives customary compensation in connection therewith, and also
provides research coverage for Cadence and Quickturn. In the ordinary course of
business, Hambrecht & Quist actively trades in the equity and derivative
securities of Cadence and Quickturn for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position
in such securities. Moreover, Hambrecht & Quist and its affiliates own 40,000
shares of Common Stock of the Company. Hambrecht & Quist may in the future
provide investment banking or other financial advisory services to Cadence or
Quickturn.
C-1
<PAGE>
In connection with our review of the Proposed Transaction, and in arriving at
our opinion, we have, among other things:
<TABLE>
<C> <S>
(i) reviewed the publicly available consolidated financial statements of
Cadence for recent years and interim periods to date and certain
other relevant financial and operating data of Cadence (including
its capital structure) made available to us from published sources;
(ii) discussed the business, financial condition and prospects of Cadence
with certain members of senior management;
(iii) reviewed the publicly available consolidated financial statements of
Quickturn for recent years and interim periods to date and certain
other relevant financial and operating data of Quickturn made
available to us from published sources and from the internal records
of Quickturn;
(iv) reviewed certain internal financial and operating information,
relating to Quickturn prepared by the senior management of
Quickturn;
(v) discussed the business, financial condition and prospects of
Quickturn with certain members of senior management;
(vi) reviewed the recent reported prices and trading activity for the
common stocks of Cadence and Quickturn and compared such information
and certain financial information for Cadence and Quickturn with
similar information for certain other companies engaged in
businesses we consider comparable;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(viii) reviewed a draft of the Agreement dated December 7, 1998; and
(ix) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations
and financial, economic and market data as we deemed relevant.
</TABLE>
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning Cadence or Quickturn
considered in connection with our review of the Proposed Transaction, and we
have not assumed any responsibility for independent verification of such
information. We have not prepared any independent valuation or appraisal of any
of the assets or liabilities of Cadence or Quickturn, nor have we conducted a
physical inspection of the properties and facilities of either company. With
respect to the financial forecasts made available to us and used in our
analysis, we have assumed that they reflect the best currently available
estimates and judgments of the expected future financial performance of
Quickturn. For purposes of this opinion, we have assumed that neither Cadence
nor Quickturn is a party to any pending transactions, including external
financings, recapitalizations or material merger discussions, other than the
Proposed Transaction and those activities undertaken in the ordinary course of
conducting their respective businesses. Our opinion is necessarily based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of the date of this letter and any change in such conditions would
require a reevaluation of this opinion. We express no opinion as to the price
at which Cadence common stock will trade subsequent to the Effective Time (as
defined in the Agreement). In rendering our opinion, we have assumed that the
proposed merger will be consummated substantially on the terms described in the
Agreement, without any waiver of any material terms or conditions by any party
thereto. We were not requested to, and did not, solicit indications of interest
from any other parties in connection with a possible acquisition of, or
business combination with, Quickturn.
It is understood that this letter is for the information of the Board of
Directors only and may not be used for any other purpose without our prior
written consent; provided, however, that this letter may be reproduced in full
in the Proxy Statement/Prospectus. This letter does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Proposed Transaction.
C-2
<PAGE>
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received by the holders of the Common Stock in the
Proposed Transaction is fair to such holders from a financial point of view.
Very truly yours,
Hambrecht & Quist llc
/s/ Paul B. Cleveland
By-----------------------------------
Paul B. Cleveland
Managing Director
C-3
<PAGE>
1254-PS-99
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify any of its directors or officers who was or is a party or is
threatened to be made a party to any third party proceeding by reason of the
fact that such person is or was a director or officer of the corporation,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding, if such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that such person's conduct was
unlawful. In a derivative action, i.e., one by or in the right of a
corporation, the corporation is permitted to indemnify any of its directors or
officers against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such
action or suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that such person is fairly and reasonably entitled to indemnity for
such expenses despite such adjudication of liability.
Article VII of the Registrant's currently effective certificate of
incorporation eliminates the personal liability of its directors for monetary
damages for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit. In addition, as permitted by
Section 145 of the Delaware General Corporation Law, the bylaws of the
Registrant provide that: (a) 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; (b) 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); (c) 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; (d) the Registrant is required to maintain director and officer
liability insurance to the extent reasonably available; and (e) the Registrant
may not retroactively amend the bylaws indemnification 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. The
Registrant also maintains a limited amount of director and officer insurance.
The indemnification provision in the bylaws, and the indemnity agreements
entered into between the Registrant and its officers or directors, may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liability arising under the Securities Act.
II-1
<PAGE>
Item 21. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
2.01 Agreement and Plan of Merger dated as of December 8, 1998 among
Cadence Design Systems, Inc., Quickturn Design Systems, Inc. and CDSI
Acquisition, Inc., as amended on December 16, 1998 and January 4, 1999
(included as Appendix A to the prospectus/proxy statement included as
a part of this Registration Statement. The Disclosure Schedules
relating to the Merger Agreement have been omitted but will be
provided to the Commission upon its request pursuant to Item 601(b)(2)
of Regulation S-K.)
3.01 Restated certificate of incorporation of Registrant dated May 13, 1998
(incorporated by reference to Exhibit 3.01(h) of the Registrant's Form
10-Q for the quarter ended July 4, 1998).
3.02 Bylaws of Registrant as currently in effect (incorporated by reference
to Exhibit 3.02 to the Registrant's Registration Statement on Form S-1
(No. 33-13845) and Exhibit 3-b to the Registrant's Current Report on
Form 8-K filed June 12, 1989).
4.01 Specimen Certificate of the Registrant's Common Stock (incorporated by
reference to Exhibit 4.01 to the Registrant's Registration Statement
on Form S-4 (No. 33-43400)).
4.02 Rights Agreement dated as of February 9, 1996 between the Registrant
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 Rights Certificate and the Summary of
Rights to Purchase Preferred Shares (incorporated by reference to
Exhibits 1A, 1B and 1C to the Registrant's Current Report on Form 8-K
filed February 16, 1996).
5.01** Opinion of Gibson, Dunn & Crutcher LLP
8.01 Opinion of Gibson, Dunn & Crutcher LLP as to tax matters (incorporated
by reference to Exhibit 8.01 to the Registrant's Registration
Statement on Form S-4 (No. 333-69589) (the "Original S-4")).
8.02 Opinion of Wilson Sonsini Goodrich & Rosati Professional Corporation
as to tax matters (incorporated by reference to Exhibit 8.02 to the
Original S-4).
10.01 1987 Stock Option Plan as amended and restated on February 23, 1998
(incorporated by reference to the Registrant's Preliminary Proxy
Statement filed on March 16, 1998 (the "1998 Preliminary Proxy
Statement")).
10.02 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 Registration Statement on Form S-8 (No. 33-22652)).
10.03 1988 Directors Stock Option Plan as amended to date including the
Stock Option Grant and Form of Stock Option Exercise Notice and
Agreement (the first document is incorporated by reference to Exhibit
4.02 to the Registrant's Registration Statement on Form S-8 (No. 33-
53913) (the "1994 Form S-8") and the latter two documents are
incorporated by reference to Exhibits 10.08--10.10 to the Registrant's
Registration Statement on Form S-1 (No. 33-23107)).
10.04 1993 Directors Stock Option Plan including the Form of Stock Option
Grant (incorporated by reference to Exhibit 10.04 to the 1994 Form S-
8).
10.05 1995 Directors Stock Option Plan including the Form of Stock Option
Grant (incorporated by reference to Exhibit 10.05 to the Registrant's
Form 10-K for the fiscal year ended December 30, 1995 (the "1995 Form
10-K")).
10.06 1990 Employee Stock Purchase Plan as amended on March 4, 1997
(incorporated by reference to Exhibit 10.07 to the Registrant's Form
10-K for the fiscal year ended December 28, 1996).
10.07 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")).
10.08 Senior Executive Bonus Plan for 1996 (incorporated by reference to
Exhibit 10.08 to the 1995 Form 10-K).
10.09 Senior Executive Bonus Plan (previously the Chief Executive Officer
Bonus Plan for 1996) as amended January 1, 1998 (incorporated by
reference to the 1998 Preliminary Proxy Statement).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.10 Deferred Compensation Plan for 1994 (incorporated by reference to
Exhibit 10.09 to the 1994 Form 10-K).
10.11 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 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 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 December 19, 1988 by and among the Richard T. Peery and
John Arrillaga Separate Trusts and Valid Logic Systems Incorporated
(Valid) (which merged into the Registrant) for the Registrant's
offices at 2835 North First Street, San Jose, California (incorporated
by reference to Exhibit 10.18 to Valid's Form 10-K for the fiscal year
ended December 30, 1990).
10.16 Form of Executive Compensation Agreement dated May 1989 between the
Registrant and Mr. Joseph B. Costello (incorporated by reference to
Exhibit 10.20 to the Registrant's Registration Statement on Form S-4
(No. 33-31673)).
10.17 Offer letter to H. Raymond Bingham dated May 12, 1993 (incorporated by
reference to Exhibit 10.24 to the Registrant's Form 10-K for the year
ended December 31, 1993 (the "1993 Form 10-K")).
10.18 Offer letter to M. Robert Leach dated May 17, 1993 (incorporated by
reference to Exhibit 10.25 to the 1993 Form 10-K).
10.19 The 1993 Non-Statutory Stock Option Plan (incorporated by reference to
Exhibit 4.05 to the 1994 Form S-8).
10.20 Consulting Agreement dated October 26, 1993 with Alberto Sangiovanni-
Vincentelli (incorporated by reference to Exhibit 10.29 to the
Registrant's Form 10-Q for the second quarter ended June 30, 1994).
10.21 Amended and restated 401(k) Plan (incorporated by reference to Exhibit
10.29 of the Registrant's Form 10-Q for the first quarter ended March
30, 1996 (the "1996 First Quarter Form 10-Q")).
10.22 Amendment dated May 3, 1996 to the Registrant's 1993 Non-Statutory
Stock Option Plan (incorporated by reference to Exhibit 10.30 to the
1996 First Quarter Form 10-Q).
10.23 Revolving Credit Agreement dated April 11, 1996 by and between the
Registrant and Credit Lyonnais (incorporated by reference to Exhibit
10.31 to the 1996 First Quarter Form 10-Q).
10.24 Term Loan Agreement 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 Exhibit
10.32 to the Registrant's Form 10-Q for the second quarter ended June
29, 1996 (the "1996 Second Quarter Form 10-Q")).
10.25 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 Exhibit 10.33 to the 1996
Second Quarter Form 10-Q).
10.26 Assignment of Leases and Rents dated May 31, 1996 Schedule to Term
Loan (incorporated by reference to Exhibit 10.34 to the 1996 Second
Quarter Form 10-Q).
10.27 Assignment of Partnership Interests by Seeley Properties Inc. dated
May 31, 1996 Schedule to Term Loan (incorporated by reference to
Exhibit 10.35 to the 1996 Second Quarter Form 10-Q).
10.28 Assignment of Partnership Interests by the Registrant dated May 31,
1996 Schedule to Term Loan (incorporated by reference to Exhibit 10.36
to the 1996 Second Quarter Form 10-Q).
10.29 Environmental Indemnity dated May 31, 1996 Schedule to Term Loan
(incorporated by reference to Exhibit 10.37 to the 1996 Second Quarter
Form 10-Q).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.30 Amendment dated August 2, 1996 to the Registrant's 1993 Non-Statutory
Stock Option Plan (incorporated by reference to Exhibit 10.39 to the
1996 Second Quarter Form 10-Q).
10.31 Amendment Number 1 dated May 31, 1996 to Lease Agreement for the
Registrant's offices at 555 River Oaks Parkway, San Jose, California,
by and between ROPA and the Registrant (incorporated by reference to
Exhibit 10.40 to the 1996 Second Quarter Form 10-Q and Exhibit 10.14
to the 1990 Form 10-K).
10.32 Amendment Number 2 dated May 31,1996 to Lease Agreement for the
Registrant's offices at 555 River Oaks Parkway, San Jose, California,
by and between ROPA and the Registrant (incorporated by reference to
Exhibit 10.41 to the 1996 Second Quarter Form 10-Q and Exhibit 10.14
to the 1990 Form 10-K).
10.33 Amendment Number 1 dated May 31, 1996 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 10.42 to the 1996 Second Quarter Form 10-Q and Exhibit 10.16
to the 1990 Form 10-K).
10.34 Amendment Number 2 dated May 31, 1996 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 10.43 to the 1996 Second Quarter Form 10-Q and Exhibit 10.16
to the 1990 Form 10-K).
10.35 Amendment Number 1 dated May 31, 1996 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 10.44 to the 1996 Second Quarter Form 10-Q and
Exhibit 10.17 to the 1990 Form 10-K).
10.36 Amendment Number 2 dated May 31, 1996 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 10.45 to the 1996 Second Quarter Form 10-Q and
Exhibit 10.17 to the 1990 Form 10-K).
10.37 Agreement and Plan of Merger and Reorganization dated as of October 3,
1996 among the Registrant, High Level Design Systems Inc., a Delaware
corporation, and Harbor Acquisition Sub Inc., a Delaware corporation,
(incorporated by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K filed November 7, 1996 (the "November 7, 1996 Form
8-K")).
10.38 Distribution Agreement dated April 28, 1997 among Cadence Design
Systems (Ireland) Ltd., Cadence Design Systems K.K. and Cadence Design
Systems (Japan) B.V. (incorporated by reference to Exhibit 10.48 to
the Registrant's Form 10-Q for the second quarter ended June 28,
1997).
10.39 Agreement and Plan of Merger and Reorganization dated as of October
28, 1996 among Registrant, Cooper & Chyan Technology Inc. ("CCT") and
Wyoming Acquisition Sub, Inc. (incorporated by reference to Exhibit
2.2 to the November 7, 1996 Form 8-K).
10.40 CCT 1993 Equity Incentive Plan, Form of Equity Incentive Plan Stock
Option Agreement, Form of Exercise of Equity Incentive Plan Stock
Option and Form of Equity Incentive Plan Stock Option Exercise
Agreement (incorporated by reference to Exhibit 10.49 to the
Registrant's Form S-4 Registration Statement (No. 333-16779)).
10.41 Employment Agreement dated October, 19, 1997 between the Registrant
and John R. Harding (incorporated by reference to Exhibit 10.41 to the
Registrant's Form 10-K for the year ending January 3, 1998 (the
"January 3, 1998 Form 10-K")).
10.42 Letter Agreement dated December 5, 1997 between the Registrant and
Joseph B. Costello (incorporated by reference to Exhibit 10.42 to the
Registrant's 1997 Form 10-K).
10.43 Form of Executive Severance Agreement (incorporated by reference to
Exhibit 10.43 to the Registrant's January 3, 1998 Form 10-K).
10.44 Indemnity Agreement dated October, 19, 1997 by and between the
Registrant and John R. Harding (incorporated by reference to Exhibit
10.44 to the Registrant's January 3, 1998 Form 10-K).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.45 Revolving Credit Agreement dated September 30, 1998 by and between
ABN-AMRO Bank and the Registrant (incorporated by reference to Exhibit
10.45 to the Registrant's Form 10-Q for the third quarter ended
October 3, 1998 ("1998 Third Quarter 10-Q")).
10.46 Amendment dated October 16, 1998 to the Revolving Credit Agreement by
and between ABN-AMRO Bank and the Registrant (incorporated by
reference to Exhibit 10.46 to the Registrant's 1998 Third Quarter Form
10-Q).
10.47 Agreement and Plan of Reorganization dated September 3, 1998 by and
among the Registrant, Ambit Design Systems Inc. and Adirondack
Transaction Corp. (incorporated by reference to Exhibit 2.01 to the
Registrant's Form 8-K filed September 30, 1998).
10.48 Stock Option Agreement between the Registrant and Quickturn dated
December 8, 1998 (included as Appendix B to the prospectus/proxy
statement included as a part of this Registration Statement).
10.49 Keith R. Lobo Employment Agreement dated December 9, 1998
(incorporated by reference to Exhibit 10.49 to the Original S-4).
21.01 Subsidiaries of the Registrant (incorporated by reference to the
Registrant's Form 10-K for the year ending January 2, 1999).
23.01** Consent of Arthur Andersen LLP.
23.02** Consent of PricewaterhouseCoopers LLP.
23.03** Consent of Hambrecht & Quist LLC.
23.04 Consent of Gibson, Dunn & Crutcher LLP (included in its opinion filed
herewith as Exhibit 5.01 to this Registration Statement).
23.05 Consent of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation (included in its opinion incorporated by reference to
Exhibit 8.02 to the Original S-4).
23.06** Consent of Ernst & Young LLP.
24.01** Power of Attorney (see signature page of this Registration Statement).
99.01 Form of proxy for holders of Quickturn Design Systems, Inc. common
stock (included as Appendix D to the proxy statement/prospectus
included as part of this Registration Statement).
</TABLE>
- --------
** Filed herewith.
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-5
<PAGE>
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(d) (1) That for purposes of determining any liability under the Securities
Act of 1933 each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and where applicable
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(2) 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) 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.
(3) That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415 will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective and that for purposes of determining any
liability under the Securities Act of 1933 each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the proxy
statement/prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form 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.
(f) The undersigned 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.
(g) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the City of San Jose,
State of California on May 5, 1999.
CADENCE DESIGN SYSTEMS, INC.
/s/ H. Raymond Bingham
By___________________________________
H. Raymond Bingham
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
Each person whose individual signature appears below hereby constitutes and
appoints H. Raymond Bingham and R.L. Smith McKeithen and each of them severally
as his or her true and lawful attorney-in-fact with full power of substitution
to execute in the name and on behalf of such person, individually and in each
capacity stated below and to file any and all amendments to this Registration
Statement including any and all post-effective amendments.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated below on the 5th day of May 1999.
Signatures Title
/s/ H. Raymond Bingham President, Chief Executive Officer and
- ------------------------------------- Director (Principal Executive Officer)
H. Raymond Bingham
/s/ William Porter Vice President, Corporate Controller,
- ------------------------------------- Assistant Secretary and Acting Chief
William Porter Financial Officer (Principal Financial
Officer and Principal Accounting
Officer)
/s/ Carol A. Bartz Director
- -------------------------------------
Carol A. Bartz
/s/ Dr. Leonard Y.W. Liu Director
- -------------------------------------
Dr. Leonard Y.W. Liu
II-7
<PAGE>
Signatures Title
/s/ Donald L. Lucas Director
- -------------------------------------
Donald L. Lucas
/s/ Dr. Alberto Sangiovanni- Director
Vincentelli
- -------------------------------------
Dr. Alberto Sangiovanni-Vincentelli
/s/ George M. Scalise Director
- -------------------------------------
George M. Scalise
/s/ Dr. John B. Shoven Director
- -------------------------------------
Dr. John B. Shoven
/s/ Roger Siboni Director
- -------------------------------------
Roger Siboni
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
2.01 Agreement and Plan of Merger dated as of December 8, 1998 among
Cadence Design Systems, Inc., Quickturn Design Systems, Inc. and CDSI
Acquisition, Inc., as amended on December 16, 1998 and January 4, 1999
(included as Appendix A to the prospectus/proxy statement included as
a part of this Registration Statement. The Disclosure Schedules
relating to the Merger Agreement have been omitted but will be
provided to the Commission upon its request pursuant to Item 601(b)(2)
of Regulation S-K.)
3.01 Restated certificate of incorporation of Registrant dated May 13, 1998
(incorporated by reference to Exhibit 3.01(h) of the Registrant's Form
10-Q for the quarter ended July 4, 1998).
3.02 Bylaws of Registrant as currently in effect (incorporated by reference
to Exhibit 3.02 to the Registrant's Registration Statement on Form S-1
(No. 33-13845) and Exhibit 3-b to the Registrant's Current Report on
Form 8-K filed June 12, 1989).
4.01 Specimen Certificate of the Registrant's Common Stock (incorporated by
reference to Exhibit 4.01 to the Registrant's Registration Statement
on Form S-4 (No. 33-43400)).
4.02 Rights Agreement dated as of February 9, 1996 between the Registrant
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 Rights Certificate and the Summary of
Rights to Purchase Preferred Shares (incorporated by reference to
Exhibits 1A, 1B and 1C to the Registrant's Current Report on Form 8-K
filed February 16, 1996).
5.01** Opinion of Gibson, Dunn & Crutcher LLP.
8.01 Opinion of Gibson, Dunn & Crutcher LLP as to tax matters (incorporated
by reference to Exhibit 8.01 to the Registrant's Registration
Statement on Form S-4 (No. 333-69589) (the "Original S-4")).
8.02 Opinion of Wilson Sonsini Goodrich & Rosati Professional Corporation
as to tax matters (incorporated by reference to Exhibit 8.02 to the
Original S-4).
10.01 1987 Stock Option Plan as amended and restated on February 23, 1998
(incorporated by reference to the Registrant's Preliminary Proxy
Statement filed on March 16, 1998 (the "1998 Preliminary Proxy
Statement")).
10.02 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 Registration Statement on Form S-8 (No. 33-22652)).
10.03 1988 Directors Stock Option Plan as amended to date including the
Stock Option Grant and Form of Stock Option Exercise Notice and
Agreement (the first document is incorporated by reference to Exhibit
4.02 to the Registrant's Registration Statement on Form S-8 (No. 33-
53913) (the "1994 Form S-8") and the latter two documents are
incorporated by reference to Exhibits 10.08--10.10 to the Registrant's
Registration Statement on Form S-1 (No. 33-23107)).
10.04 1993 Directors Stock Option Plan including the Form of Stock Option
Grant (incorporated by reference to Exhibit 10.04 to the 1994 Form S-
8).
10.05 1995 Directors Stock Option Plan including the Form of Stock Option
Grant (incorporated by reference to Exhibit 10.05 to the Registrant's
Form 10-K for the fiscal year ended December 30, 1995 (the "1995 Form
10-K")).
10.06 1990 Employee Stock Purchase Plan as amended on March 4, 1997
(incorporated by reference to Exhibit 10.07 to the Registrant's Form
10-K for the fiscal year ended December 28, 1996).
10.07 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")).
10.08 Senior Executive Bonus Plan for 1996 (incorporated by reference to
Exhibit 10.08 to the 1995 Form 10-K).
10.09 Senior Executive Bonus Plan (previously the Chief Executive Officer
Bonus Plan for 1996) as amended January 1, 1998 (incorporated by
reference to the 1998 Preliminary Proxy Statement).
10.10 Deferred Compensation Plan for 1994 (incorporated by reference to
Exhibit 10.09 to the 1994 Form 10-K).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.11 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 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 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 December 19, 1988 by and among the Richard T. Peery and
John Arrillaga Separate Trusts and Valid Logic Systems Incorporated
(Valid) (which merged into the Registrant) for the Registrant's
offices at 2835 North First Street, San Jose, California (incorporated
by reference to Exhibit 10.18 to Valid's Form 10-K for the fiscal year
ended December 30, 1990).
10.16 Form of Executive Compensation Agreement dated May 1989 between the
Registrant and Mr. Joseph B. Costello (incorporated by reference to
Exhibit 10.20 to the Registrant's Registration Statement on Form S-4
(No. 33-31673)).
10.17 Offer letter to H. Raymond Bingham dated May 12, 1993 (incorporated by
reference to Exhibit 10.24 to the Registrant's Form 10-K for the year
ended December 31, 1993 (the "1993 Form 10-K")).
10.18 Offer letter to M. Robert Leach dated May 17, 1993 (incorporated by
reference to Exhibit 10.25 to the 1993 Form 10-K).
10.19 The 1993 Non-Statutory Stock Option Plan (incorporated by reference to
Exhibit 4.05 to the 1994 Form S-8).
10.20 Consulting Agreement dated October 26, 1993 with Alberto Sangiovanni-
Vincentelli (incorporated by reference to Exhibit 10.29 to the
Registrant's Form 10-Q for the second quarter ended June 30, 1994).
10.21 Amended and restated 401(k) Plan (incorporated by reference to Exhibit
10.29 of the Registrant's Form 10-Q for the first quarter ended March
30, 1996 (the "1996 First Quarter Form 10-Q")).
10.22 Amendment dated May 3, 1996 to the Registrant's 1993 Non-Statutory
Stock Option Plan (incorporated by reference to Exhibit 10.30 to the
1996 First Quarter Form 10-Q).
10.23 Revolving Credit Agreement dated April 11, 1996 by and between the
Registrant and Credit Lyonnais (incorporated by reference to Exhibit
10.31 to the 1996 First Quarter Form 10-Q).
10.24 Term Loan Agreement 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 Exhibit
10.32 to the Registrant's Form 10-Q for the second quarter ended June
29, 1996 (the "1996 Second Quarter Form 10-Q")).
10.25 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 Exhibit 10.33 to the 1996
Second Quarter Form 10-Q).
10.26 Assignment of Leases and Rents dated May 31, 1996 Schedule to Term
Loan (incorporated by reference to Exhibit 10.34 to the 1996 Second
Quarter Form 10-Q).
10.27 Assignment of Partnership Interests by Seeley Properties Inc. dated
May 31, 1996 Schedule to Term Loan (incorporated by reference to
Exhibit 10.35 to the 1996 Second Quarter Form 10-Q).
10.28 Assignment of Partnership Interests by the Registrant dated May 31,
1996 Schedule to Term Loan (incorporated by reference to Exhibit 10.36
to the 1996 Second Quarter Form 10-Q).
10.29 Environmental Indemnity dated May 31, 1996 Schedule to Term Loan
(incorporated by reference to Exhibit 10.37 to the 1996 Second Quarter
Form 10-Q).
10.30 Amendment dated August 2, 1996 to the Registrant's 1993 Non-Statutory
Stock Option Plan (incorporated by reference to Exhibit 10.39 to the
1996 Second Quarter Form 10-Q).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.31 Amendment Number 1 dated May 31, 1996 to Lease Agreement for the
Registrant's offices at 555 River Oaks Parkway, San Jose, California,
by and between ROPA and the Registrant (incorporated by reference to
Exhibit 10.40 to the 1996 Second Quarter Form 10-Q and Exhibit 10.14
to the 1990 Form 10-K).
10.32 Amendment Number 2 dated May 31,1996 to Lease Agreement for the
Registrant's offices at 555 River Oaks Parkway, San Jose, California,
by and between ROPA and the Registrant (incorporated by reference to
Exhibit 10.41 to the 1996 Second Quarter Form 10-Q and Exhibit 10.14
to the 1990 Form 10-K).
10.33 Amendment Number 1 dated May 31, 1996 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 10.42 to the 1996 Second Quarter Form 10-Q and Exhibit 10.16
to the 1990 Form 10-K).
10.34 Amendment Number 2 dated May 31, 1996 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 10.43 to the 1996 Second Quarter Form 10-Q and Exhibit 10.16
to the 1990 Form 10-K).
10.35 Amendment Number 1 dated May 31, 1996 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 10.44 to the 1996 Second Quarter Form 10-Q and
Exhibit 10.17 to the 1990 Form 10-K).
10.36 Amendment Number 2 dated May 31, 1996 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 10.45 to the 1996 Second Quarter Form 10-Q and
Exhibit 10.17 to the 1990 Form 10-K).
10.37 Agreement and Plan of Merger and Reorganization dated as of October 3,
1996 among the Registrant, High Level Design Systems Inc., a Delaware
corporation, and Harbor Acquisition Sub Inc., a Delaware corporation,
(incorporated by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K filed November 7, 1996 (the "November 7, 1996 Form
8-K")).
10.38 Distribution Agreement dated April 28, 1997 among Cadence Design
Systems (Ireland) Ltd., Cadence Design Systems K.K. and Cadence Design
Systems (Japan) B.V. (incorporated by reference to Exhibit 10.48 to
the Registrant's Form 10-Q for the second quarter ended June 28,
1997).
10.39 Agreement and Plan of Merger and Reorganization dated as of October
28, 1996 among Registrant, Cooper & Chyan Technology Inc. ("CCT") and
Wyoming Acquisition Sub, Inc. (incorporated by reference to Exhibit
2.2 to the November 7, 1996 Form 8-K).
10.40 CCT 1993 Equity Incentive Plan, Form of Equity Incentive Plan Stock
Option Agreement, Form of Exercise of Equity Incentive Plan Stock
Option and Form of Equity Incentive Plan Stock Option Exercise
Agreement (incorporated by reference to Exhibit 10.49 to the
Registrant's Form S-4 Registration Statement (No. 333-16779)).
10.41 Employment Agreement dated October, 19, 1997 between the Registrant
and John R. Harding (incorporated by reference to Exhibit 10.41 to the
Registrant's Form 10-K for the year ending January 3, 1998 (the
"January 3, 1998 Form 10-K")).
10.42 Letter Agreement dated December 5, 1997 between the Registrant and
Joseph B. Costello (incorporated by reference to Exhibit 10.42 to the
Registrant's 1997 Form 10-K).
10.43 Form of Executive Severance Agreement (incorporated by reference to
Exhibit 10.43 to the Registrant's January 3, 1998 Form 10-K).
10.44 Indemnity Agreement dated October, 19, 1997 by and between the
Registrant and John R. Harding (incorporated by reference to Exhibit
10.44 to the Registrant's January 3, 1998 Form 10-K).
10.45 Revolving Credit Agreement dated September 30, 1998 by and between
ABN-AMRO Bank and the Registrant (incorporated by reference to Exhibit
10.45 to the Registrant's Form 10-Q for the third quarter ended
October 3, 1998 ("1998 Third Quarter 10-Q")).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.46 Amendment dated October 16, 1998 to the Revolving Credit Agreement by
and between ABN-AMRO Bank and the Registrant (incorporated by
reference to Exhibit 10.46 to the Registrant's 1998 Third Quarter Form
10-Q).
10.47 Agreement and Plan of Reorganization dated September 3, 1998 by and
among the Registrant, Ambit Design Systems Inc. and Adirondack
Transaction Corp. (incorporated by reference to Exhibit 2.01 to the
Registrant's Form 8-K filed September 30, 1998).
10.48 Stock Option Agreement between the Registrant and Quickturn dated
December 8, 1998 (included as Appendix B to the prospectus/proxy
statement included as a part of this Registration Statement).
10.49 Keith R. Lobo Employment Agreement dated December 9, 1998
(incorporated by reference to Exhibit 10.49 to the Original S-4).
21.01 Subsidiaries of the Registrant (incorporated by reference to the
Registrant's Form 10-K for the year ending January 2, 1999).
23.01** Consent of Arthur Andersen LLP.
23.02** Consent of PricewaterhouseCoopers LLP.
23.03** Consent of Hambrecht & Quist LLC.
23.04 Consent of Gibson, Dunn & Crutcher LLP (included in its opinion filed
herewith as Exhibit 5.01 to this Registration Statement).
23.05 Consent of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation (included in its opinion incorporated by reference to
Exhibit 8.02 to the Original S-4).
23.06** Consent of Ernst & Young LLP.
24.01** Power of Attorney (see signature page of this Registration Statement).
99.01 Form of proxy for holders of Quickturn Design Systems, Inc. common
stock (included as Appendix D to the proxy statement/prospectus
included as part of this Registration Statement).
</TABLE>
- --------
** Filed herewith.
<PAGE>
EXHIBIT 5.01
[Letterhead of Gibson, Dunn & Crutcher LLP]
May 7, 1999
(415) 393-8200 18861-00007
Cadence Design Systems, Inc.
2655 Seely Avenue
San Jose, California 95134
Re: Registration Statements on Form S-4 of Cadence Design Systems, Inc.
Ladies and Gentlemen:
We refer to the registration statement on Form S-4 filed on the date
hereof, including amendments and exhibits thereto (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"), filed by Cadence Design Systems, Inc., a Delaware corporation (the
"Corporation"), with respect to the issuance by the Corporation of up to an
aggregate of 23,604,575 shares (the "Shares") of its common stock, par value
$.01 per share ("Common Stock"), and associated preferred stock purchase
rights (the "Rights"), upon consummation of the proposed merger of CDSI
Acquisition, Inc., a wholly-owned subsidiary of the Corporation, with
Quickturn Design Systems, Inc. (the "Merger").
We have examined the originals or certified copies of such corporate
records, certificates of officers of the Corporation and/or public officials and
such other documents, and have made such other factual and legal investigations,
as we have deemed relevant and necessary as the basis for the opinions set forth
below. In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as conformed or
photostatic copies and the authenticity of the originals of such copies.
Based on our examination described above, subject to the assumptions stated
above and relying on the statements of fact contained in the documents that we
have examined, we are of
<PAGE>
Cadence Design Systems, Inc.
May 7, 1999
Page 2
the opinion that (i) the issuance by the Corporation of the Shares and the
Rights in connection with the Merger has been duly authorized and (ii) when
issued as described in the Registration Statement, the Shares and Rights will
be legally and validly issued, fully paid and non-assessable shares of Common
Stock and Rights, respectively.
This opinion is limited to the laws of the State of California and United
States federal law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the captions
"Background of the Merger," "Material Federal Income Tax Consequences," and
"Legal Matters" in the Proxy Statement/Prospectus which forms a part of the
Registration Statement filed on the date hereof. In giving this consent, we do
not admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act or the General Rules and Regulations of
the Securities and Exchange Commission.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
GIBSON, DUNN & CRUTCHER LLP
KRL/GJC/LAF
<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 23, 1998
included in Cadence Design Systems, Inc.'s Form 10-K for the year ended January
2, 1999 (as amended by Form 10-K/A) and to all references to our Firm included
in this Registration Statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
San Jose, California
May 5, 1999
<PAGE>
Exhibit 23.02
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement of
Cadence Design Systems, Inc. on Form S-4 (File No. 333- ) of our reports
dated January 15, 1999, on our audits of the consolidated financial statements
which includes an explanatory paragraph in relation to a restatement related to
goodwill for 1997, and financial statement schedule of Quickturn Design
Systems, Inc. ("Quickturn") as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998, which reports are
incorporated by reference from the Quickturn Annual Report on Form 10-K/A for
the year ended December 31, 1998. We also consent to the references to our firm
under the Captions "Experts" and "Selected Financial Data." However, it should
be noted that PricewaterhouseCoopers LLP has not prepared or certified such
Selected Financial Statement Data.
We consent to the incorporation by reference in the Registration Statement of
Cadence Design Systems, Inc. on Form S-4 (File No. 333- ) of our report
dated August 7, 1998, on our audits of the consolidated financial statements of
Ambit Design Systems, Inc. as of June 30, 1997 and 1998 and for the years then
ended, which report is incorporated by reference from the Form 8-K/A filed by
Cadence Design Systems, Inc. on December 11, 1998.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
May 5, 1999
<PAGE>
EXHIBIT 23.03
CONSENT OF HAMBRECHT & QUIST LLC
We hereby consent to the use of our opinion letter dated December 8, 1998 to
the Board of Directors of Quickturn Design Systems, Inc. ("Quickturn"),
included as Appendix C to the Proxy Statement/Prospectus of Quickturn which
forms a part of the Registration Statement on Form S-4, relating to the
proposed merger of CDSI Acquisition, Inc., a wholly-owned subsidiary of Cadence
Design Systems, Inc. with and into Quickturn, and to the references therein to
such opinion under the captions "Summary--Opinion of Quickturn's Financial
Advisor" and "The Merger--Opinion of Quickturn's Financial Advisor."
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Hambrecht & Quist LLC
/s/ David Golden
By: _________________________________
Name: David Golden
Title: Managing Director
May 5, 1999
<PAGE>
EXHIBIT 23.06
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 No. 333- ) and related Prospectus of
Cadence Design Systems, Inc. and to the incorporation by reference therein of
our report dated January 21, 1997, with respect to the year ended December 31,
1996 consolidated financial statements of Cooper & Chyan Technology, Inc.
included in Cadence Design Systems, Inc. Annual Report (Form 10-K) for the year
ended January 2, 1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
May 5, 1999
