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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 1-10606
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CADENCE DESIGN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 77-0148231
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
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2655 SEELY AVENUE, BUILDING 5, SAN JOSE, CALIFORNIA 95134
(Address of Principal Executive Offices, including Zip Code)
(408)943-1234
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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COMMON STOCK, $.01 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
(Title of Each Class) (Names of Each Exchange on which Registered)
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
Aggregate market value of the voting stock held on March 3, 2000 by
non-affiliates of the registrant: $5,014,367,568
Number of shares of common stock outstanding at March 3, 2000: 244,603,296
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2000 Annual Meeting to be
held on May 24, 2000, are incorporated by reference into Part III hereof.
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CADENCE DESIGN SYSTEMS, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 17
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 18
Item 6 Selected Financial Data..................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 41
Item 8. Financial Statements and Supplementary Data................. 41
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure...................................... 41
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 42
Item 11. Executive Compensation...................................... 43
Item 12 Security Ownership of Certain Beneficial Owners and
Management................................................ 43
Item 13. Certain Relationships and Related Transactions.............. 43
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on
Form 8-K.................................................. 44
Signatures.................................................. 88
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PART I.
ITEM 1. BUSINESS
Certain statements contained in this Annual Report on Form 10-K, including,
without limitation, statements containing the words "believes," "anticipate,"
"estimates," "expects," "intends," and words of similar import, constitute
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995. Actual results could vary materially from those expressed in these
statements. Readers are referred to "Marketing and Sales," "Research and
Development," "Competition," "Proprietary Technology," "Manufacturing," and
"Factors That May Affect Future Results" sections contained herein, which
identify important risk factors that could cause actual results to differ from
those contained in the forward-looking statements.
OVERVIEW
Cadence Design Systems, Inc., or Cadence, provides comprehensive software
and other technology and offers design and methodology services for the product
development requirements of the world's leading electronics companies. Cadence
licenses its leading-edge electronic design automation, or EDA, software and
hardware technology and provides a range of services to companies throughout the
world to help its customers optimize their product development processes.
Cadence is a supplier of end-to-end products and services, 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 was formed as a Delaware corporation 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.
ELECTRONIC DESIGN AUTOMATION
The worldwide electronics industry is experiencing rapid growth in both the
business-to-business and consumer products segments. The cost of producing
complex chips have decreased, and these lower prices have accelerated growth of
the consumer products segment due to the increased use in consumer products,
such as home appliances and personal computers, automotive products,
entertainment products and games, and personal communication and organization
devices, which include complex chips and electronics components, once only
contained in business-to-business products. This industry development presents
challenges for developers of electronic products, where time-to-market, cost,
performance, quality, reliability, size, and the need for product diversity
become critical in a fast-paced and volatile industry.
The electronics industry is faced with a continuing escalation in complexity
of electronic devices. The major trends responsible for the increasing
complexity of designing and manufacturing electronic devices are as follows:
- The size of features such as wires, transistors, and contacts on chips is
shrinking due to advances in semiconductor manufacturing processes.
Process feature sizes refer to the width of the transistors and the width
and spacing of the interconnect on the chip. Feature size is normally
identified by the headline transistor length, which is shrinking from 0.35
microns to 0.18 microns and below. This is commonly referred to in the
semiconductor industry as the migration to deep submicron and represents a
major challenge for all levels of the semiconductor industry from design
and design automation to design of manufacturing equipment and the
manufacturing process itself. Shrinkage of transistor length to such
infinitesimal proportions (for reference, the diameter of the period at
the end of this sentence is approximately 400 microns) is challenging
fundamental laws of physics and chemistry.
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- The ability to design very large chips, in particular integration of
entire electronic systems onto a single chip instead of a circuit board (a
process that is referred to in the industry as system-on-a-chip, or SOC),
increases the complexity of managing a design that at the lowest level is
represented by billions of shapes on the fabrication mask. In addition,
systems typically incorporate microprocessors and digital signal
processors that are programmed with software, requiring simultaneous
design of the silicon chip and the related embedded software on the chip.
These trends are posing major new challenges for electronics designers. The
shift to deep sub-micron means that many physical effects that could previously
be ignored by designers must now be considered during the design process. The
challenge of formulating extremely large chip designs means that new approaches
to managing complexity and abstraction are required. These challenges are being
addressed in a number of ways, including revamping old design methodologies,
introducing new EDA tools and technologies to design environments, and adopting
a SOC style of design to take advantage of silicon manufacturing capabilities.
THE COMPLEX CHIP AND ELECTRONICS SYSTEM DESIGN AND DEVELOPMENT PROCESS
The electronic design process involves describing the behavioral,
architectural, functional, and structural attributes of an integrated circuit or
electronic system. The process commences with the designer describing the
product's overall system architecture on a very general level. This general
description is then refined into a series of increasingly detailed descriptions
to meet predetermined design specifications, simulating the design at each level
to identify defects. The refinements are generally made using automated tools
that read one description represented by a computer file and write another more
detailed computer file, guided by input from the designer. The lowest level of
description provides the manufacturing data required by the semiconductor
foundry to create the masks and test programs needed to build functioning chips.
In practice, problems may be found at one level that can only be resolved by
revising a higher level description. This process, often referred to as
iteration, slows the overall design process.
BEHAVIORAL AND ARCHITECTURAL DEFINITION--THE SYSTEM LEVEL
A natural evolution of EDA is a top-down design approach known as electronic
systems design automation. The highest level of description of the electronic
system is referred to as the system level. Increasingly the complexity of the
system design and the need to start embedded software development before the
chip design is complete. This level consists of two components, the behavioral
definition and the architectural definition. The behavioral definition is a
description of what the system should do, without any determination as to how it
is to be implemented. The architectural definition is a detailed description of
the particular implementation of the behavior for the chip that is being
designed.
THE DESIGN DESCRIPTION--THE RTL LEVEL
Based on overall system architecture, the designer creates a design
description using a variety of techniques, including block diagrams, equations
and special design description languages referred to as hardware description
languages. The key description of a chip in current methodology is the register-
transfer level, known as the RTL level. RTL level designs are described in
hardware description languages, almost always VHDL or
Verilog-Registered Trademark- languages. If the system design is done
informally, then this is the level at which the designer first enters the design
manually. If the system design is done more formally then some or all of the RTL
may be automatically generated by a design tool from the system level
description.
The RTL level is verified for correctness by reading the RTL description
into a simulation program and making changes to the inputs to the system. The
simulator then automatically calculates the effect of those input changes on the
entire system and writes out the output changes from the system. The designer
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can then manually inspect these output changes, or use more automated
approaches, to verify that the system behaves as intended. This process is known
as functional verification.
STRUCTURAL DESIGN AND SIMULATION--GATE LEVEL
The next lower level of electronics system design has historically been the
gate level. Before an integrated circuit or printed circuit board can be
manufactured, general design descriptions must be reduced to detailed structural
plans in which the engineer specifically defines components, their
interconnections, and associated physical properties. At this stage in the
process, the design is further described as a network of interconnected standard
cells, the small building blocks of silicon from a library, along with larger
cells such as memories and microprocessors. Structural designs may be created
manually or generated from the RTL level description using an automated process
called logic synthesis. A database containing the design's electrical
characteristics, interconnections, and specific design rules is automatically
created and used as the foundation for subsequent design steps.
In order to identify design errors before manufacturing, the gate level is
verified to match the RTL level description either using simulation, or
increasingly by static techniques such as equivalence checking and static timing
analysis used in large designs, that prove that the various circuits in the
design are adequately fast. Simulation enables electronic product designers to
quickly explore design alternatives, which can be performed at different levels
of design abstraction. A designer is then able to verify the conceptual,
structural, and performance aspects of the design.
PHYSICAL DESIGN AND VERIFICATION--LAYOUT LEVEL
When the design is determined to be functionally correct, the designer
generates a non-graphical description, called a netlist, that details the design
components and interconnections. This netlist becomes the blueprint for the
physical design of the electronic system or chip. After development of the
netlist, the physical design team determines the layout of the system or chip.
At this stage of the process, the design is further described in terms of where
each standard cell or larger cell is to be placed on the chip, along with the
patterns of metal interconnect to be used on the chip to join them together
electrically. The process by which this description is created from the netlist
is known as place and route. The ideal layout will yield the optimum combination
of performance, size, and cost.
Once this process is completed, physical verification tools are used to
provide a final check of the design implementation before products are released
to manufacturing. Accuracy in this process is essential for avoiding costly
production runs of faulty parts. This step-by-step process has now evolved into
a concurrent process as the next generation of physical design and verification
products have entered the EDA market. In the latest design flows, synthesis,
where the RTL description is transformed into a netlist, and place and route,
where the netlist is transformed into layout, are done at the same time,
reflecting an evolution of EDA into a more concurrent process.
CADENCE'S ELECTRONIC DESIGN AUTOMATION TOOLS
Cadence offers a broad spectrum of EDA software tools and hardware that
apply to one or more steps in the complex chip and electronics system design
process described above. These tools provide a variety of functions, including
system-level design; logic design, simulation, emulation, and verification;
physical implementation, verification, and analysis; and printed circuit board
design.
SYSTEM-LEVEL DESIGN--BEHAVIORAL AND ARCHITECTURAL DEFINITION
System-level design allows the system architect to design at the highest
levels of abstraction, allows customers to test their designs early in the
design process, and enables customers to automate interactions between the
architect and the chip designer. Cadence's Cierto-TM- virtual component
co-design toolset, or
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VCC, analyzes behavioral and architectural definitions. Specifically, VCC
analyzes a particular architecture for implementation of a behavioral
definition, such as desired electronic functions, and provides feedback on
design performance. Once a particular architecture is chosen, VCC output can be
used to create or verify the RTL level of the design, and the embedded software
within it. The Cadence Cierto signal processing worksystem toolset provides
system-level design for a number of specific application areas, including wired
and wireless communications and multimedia. Virtual component co-design and
signal processing worksystem are part of the Cadence Cierto product line.
PHYSICAL IMPLEMENTATION, VERIFICATION, AND ANALYSIS
LAYOUT LEVEL
The Envisia Silicon Ensemble-TM- ultra place and route tools are one of
Cadence's most successful product lines. During 1999, Cadence released Envisia
Silicon Ensemble tools with signal integrity, a tool designed to eliminate
signal and reliability problems as process feature sizes get smaller. These chip
components get smaller as the electronics industry evolves from .25 micron to
.18 micron geometries.
Cadence's custom layout portfolio is anchored by the
Virtuoso-Registered Trademark- product family, which includes tools for basic
layout editing, design compaction, layout synthesis, and device-level editing.
The Virtuoso automated custom physical design flow significantly increases
customer productivity of custom design layout by automating some of the process.
Cadence's analog and mixed-signal design solutions consist of the
Spectre-Registered Trademark- circuit simulation family and the Affirma-TM-
analog circuit design environment. These products are used for creating the
complex transistor interconnect structures required for mixed-signal design and
verifying through simulation that the structures provide the correct behavior
and performance.
The Cadence Dracula-Registered Trademark-, Diva-Registered Trademark-, and
Vampire-Registered Trademark- verification tools, which comprise the Cadence
Assura-TM- product line, provide integral solutions for automated and
interactive physical and batch verification, meaning the running of a program
over a period of time. This product line enables electronic product designers to
perform a final check of their designs before products are released to
manufacturing.
DEEP SUBMICRON IMPLEMENTATION
The Cadence Envisia product line provides a broad solution for design
planning, synthesis and placement and routing of deep submicron design. The
Envisia product line includes specialized technology to deal with complex
challenges such as timing convergence, crosstalk, and signal integrity. Envisia
Silicon Ensemble is a place and route tool that takes gate-level descriptions,
or gate-level descriptions plus placement information, and produces the layout
level description. The latest version of Envisia, Silicon Ensemble signal
integrity, takes account of various problems with deep submicron process
technology by altering the description to avoid potential signal integrity
issues.
PRINTED CIRCUIT BOARD DESIGN AND PACKAGING
The Cadence Allegro-Registered Trademark- and SPECCTRA-Registered Trademark-
product lines offer broad capability for the layout of standard printed circuit
boards and advanced component packaging. In 1999, Cadence acquired OrCAD, Inc.,
a printed circuit board designer that focused on the shrink-wrap segment of the
market.
LOGIC DESIGN, SIMULATION, AND VERIFICATION
RTL LEVEL DESIGN
Some of Cadence's most successful products are its simulation tools.
NC-simulator, NC-Verilog, and NC-VHDL comprise Cadence's family of digital
simulators that are used for the functional verification of designs described in
Verilog, VHDL or both. They can operate at the behavioral level, RTL level, and
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gate-level. The older Verilog-XL product is still available. The Cadence
Spectre-Registered Trademark- circuit simulator is used to verify designs at the
transistor level, particularly for analog design. The Affirma analog circuit
design environment is often used in conjunction with the Spectre products. These
simulators provide customers with the high simulation performance needed for
functional verification of today's most complex designs.
In 1999, Cadence acquired Quickturn Design Systems, Inc. Cadence's product
line obtained with the Quickturn acquisition consists of CoBALT-TM- and
Mercury-TM- products, which provide high-performance hardware-emulation, and
SpeedSim-TM- simulator, which provides high-performance cycle-based simulation
compatible with the CoBALT design-style. Through custom hardware
implementations, these products provided extremely high-performance emulation of
a design.
GATE LEVEL
Cadence's products for formally verifying correctness of circuits include
the Affirma equivalence checker and Affirma Formalcheck for model-checking. The
equivalence checker can verify representations of the same design at different
levels, in particular the RTL level versus gate level. The Cadence Affirma
design and verification product line include logic, analog, and mixed-signal
design analysis and verification. Affirma products can predict the behavior of
designs in a short cycle time. Affirma products are used by numerous
application-specific integrated circuit, or ASIC, vendors and support more than
185 ASIC libraries.
In 1999, Cadence acquired Design Acceleration Inc., or DAI. DAI's
transaction-based verification and debugging environment is integrated with
Affirma simulators and offered as Cadence's verification cockpit suite of tools.
The Cadence Envisia Ambit-Registered Trademark- synthesis tool is a
high-performance high-capacity synthesis tool that enables users to synthesize
an RTL-level description to a netlist that produces lower level gate-level
descriptions optimized to meet the timing required by the designer. The
physically knowledgeable synthesis, or PKS, feature to Envisia synthesis
concurrently performs synthesis, placement, and estimated routing, enabling
one-pass timing closure. One-pass timing closure refers to the ability of the
product not to require a loop back between the place and route tool, such as the
Silicon Ensemble tools, and the synthesis tool, such as Envisia Ambit synthesis,
once the timing is determined to be accurate. Envisia synthesis tools also
include a high-performance static timing analyzer.
ALANZA GROUP
Cadence partners with other design automation vendors to deliver technology
to Cadence's customers. Through the Alanza Group programs, customers, including
other EDA companies, can more easily integrate their products and technologies
with those of other EDA vendors. This enables customers to mix and match
third-party and proprietary tools to specifically meet a customer's EDA needs.
Today, more than 125 companies have integrated their tools with Cadence
software.
SERVICES
Cadence offers to electronic product developers a portfolio of services
within the categories of Methodology Services, which are consulting services,
and Design Services.
METHODOLOGY SERVICES
The Cadence Methodology Services group offers a variety of services to help
customers solve their electronic design challenges. The Methodology Services
group assists customers in developing and deploying world-class design
methodologies. The Methodology Services team works to improve a customer's
overall design productivity by leveraging Cadence's cumulative experience and
knowledge of industry "best practices." This is accomplished in a variety of
ways, from training customers on the full range of features available in each
software tool to custom methodology implementations that ensure that
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customers have optimized the deployment of Cadence tools within their unique
environments. Additionally, Methodology Services provides more comprehensive
services, such as complete design process re-engineering services and the
creation, maintenance, and management of a customer's complete design
environment.
DESIGN SERVICES
Through its Design Services group, Cadence designs for its customers
complete electronic devices, or assists its customers in their design of
electronic system components, such as chips, or complete electronic systems.
When developers of electronic content lack the resources, desire, or experience
to do all of their own design work, where time to market is critical and they
lack the capability to meet their timelines or when they need to keep their
internal engineers focused on other higher-priority design activities, the
Cadence Design Services group helps customers by doing design work for them.
Cadence offers a variety of design services for projects across all aspects
of analog/mixed signal integrated circuit and block design realization,
including foundry/process selection and testing from prototype to production.
Design Services focuses on four major high growth areas: wireless
communications, wired communications, information appliances, and industrial
electronics.
SUPPORT SERVICES
Cadence's Maintenance group offers standard product support services,
including product updates, telephone, and Internet-based support. Cadence also
offers custom support services, which may include one or more of its standard
support services plus account technical management, application and educational
services, and metrics reporting. Through the metrics reporting service purchased
by customers, Cadence measures how well Cadence is responding to, and resolving,
customer inquiries and problems associated with the use of Cadence products.
MARKETING AND SALES
Cadence generally uses a direct sales force consisting of sales people and
applications engineers to license its products and market its consulting and
design services to prospective customers. Applications engineers provide
technical pre-sales as well as post-sales support for the software products.
Cadence's Methodology Services group provides on-site capabilities to assist
customers in improving their productivity with Cadence's and other EDA
suppliers' products, and Cadence's Design Services team performs actual design
work on behalf of or in conjunction with customers. Due to the complexity of EDA
products and the electronic design process in general, the selling cycle is
generally long, with three to six months or longer being typical. During the
sales cycle, Cadence's direct sales force generally provides technical
presentations, product demonstrations, and on-site customer evaluations of
Cadence software. Cadence also uses traditional marketing approaches to promote
its products and services, including advertising, direct mail, telemarketing,
trade shows, public relations, and the Internet.
Cadence markets and supports its products and services internationally
(except in Japan) primarily through its subsidiaries and various distributors.
Following a reorganization of Cadence's distribution channel in Japan in 1997,
Cadence licenses its products through Innotech Corporation, in which Cadence is
approximately a 16% stockholder as of March 1, 2000. Cadence markets its
consulting and design services in Japan through a wholly-owned subsidiary.
Revenue from international sources, including Japan, was $566.5 million for
1999, $643.6 million for 1998, and $527.2 million for 1997, or approximately
52%, 49%, and 51%, respectively, of total revenue. See "Notes to Consolidated
Financial Statements" for a summary of revenue by geographic area. Prices for
international customers are quoted from a local currency international price
list. The list is prepared based on the U.S. dollar price list but reflects the
higher cost of doing business outside the U.S. International customers are
invoiced in the local currency or U.S. dollars using current exchange rates.
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Recent economic uncertainty and the weakening of foreign currencies in
certain parts of the Asia-Pacific region has had, and may continue to have, a
seriously harmful effect on Cadence's revenue and operating results.
Fluctuations in the rate of exchange between the U.S. dollar 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. 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 and
purchases foreign currency put options to help protect against currency exchange
risks. These forward contracts and put options allow Cadence to buy or sell
specific foreign currencies at specific prices on specific dates. Increases or
decreases in the value of Cadence's foreign currency transactions are partially
offset by gains and losses on these forward contracts and put options. 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 reflected losses of $2.5 million
in 1999, $1.4 million in 1998, and $6 million in 1997.
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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
Cadence 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 harm 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 harm 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.
RESEARCH AND DEVELOPMENT
Cadence's investment in research and development was $244.9 million in 1999,
$224.5 million in 1998, and $182.3 million in 1997, prior to capitalizing
software development costs of $25.7 million, $21.7 million, and $15.1 million,
respectively. See "Notes to Consolidated Financial Statements" for a more
complete description of Cadence's capitalization of certain software development
costs.
Among the primary areas that Cadence's research addresses are SOC design,
the design of silicon devices in the deep submicron range, high-speed board
design, architectural-level design, high-performance logic verification
technology, and hardware/software co-design. The industries in which Cadence
competes experience rapid technology developments, changes in industry
standards, changes in customer requirements, and frequent new product
introductions and improvements. 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 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's advanced research and development group, Cadence Laboratories, is
committed to new technological development. This group is chartered with
identifying and developing prototype technologies in emerging design areas that
will offer substantially improved alternatives to current EDA solutions.
COMPETITION
The electronic design automation product market and the commercial
electronic design and methodology 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 EDA products and market them in a timely manner. It must also
gain industry acceptance for its design and methodology services and offer
better strategic concepts, technical solutions, prices and response time, or a
combination of these benefits, 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
that could affect Cadence's ability to succeed include:
- The development of competitive EDA products and design and methodology
services could result in a shift of customer preferences away from
Cadence's products and services and significantly decrease revenue;
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- The electronics design and methodology services industries are relatively
new and electronics design companies and manufacturers are only beginning
to purchase these services from outside vendors;
- The pace of technology change demands continuous technological development
to meet the requirements of next-generation design challenges; and
- There are a significant number of current and potential competitors in the
EDA industry and the cost of entry is low.
In the electronic design automation products 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 EDA products. Many
manufacturers of electronic devices may be reluctant to purchase services from
independent vendors such as Cadence because they wish to promote their own
internal design departments. In the electronics design and methodology 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 electronics design and methodology services industries.
PROPRIETARY TECHNOLOGY
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 the 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 U.S.
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. There are numerous patents in the EDA 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.
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<PAGE>
MANUFACTURING
Cadence's software production operations consist of configuring the proper
version of a product, outsourcing the recording of the product on magnetic tape
or CD-ROM, and producing customer-unique access keys allowing customers to use
licensed products. User manuals and other documentation are generally available
on CD-ROM, but are occasionally supplied in hard copy format.
Cadence performs final assembly and test of its emulation products in San
Jose, California. Subcontractors manufacture all major subassemblies, including
all individual printed circuit boards and custom integrated circuits, and supply
them to Cadence for qualification and testing prior to their incorporation into
the assembled product.
Cadence has generally been able to obtain adequate manufacturing supplies in
a timely manner from existing sources or, where necessary, from alternative
sources of supply. However, a reduction or interruption in supply or a
significant increase in the price of one or more components would adversely
affect Cadence's business, operating results, and financial condition and could
damage customer relationships.
EMPLOYEES
As of February 29, 2000, Cadence employed approximately 5,000 persons, with
approximately 2,850 in sales, services, marketing, support and manufacturing
activities, 1,400 in product development and 750 in management, administration
and finance. None of Cadence's employees is represented by a labor union, and
Cadence has experienced no work stoppages. Cadence believes that its employee
relations are good.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The following risk factors and other information included in this Annual
Report on Form 10-K should be carefully considered. The risks and uncertainties
described below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations. If any of the following risks actually
occur, our business, operating results, and financial condition could be
materially negatively affected.
CADENCE LACKS LONG-TERM EXPERIENCE IN ITS ELECTRONICS DESIGN AND METHODOLOGY
SERVICES BUSINESS
Cadence has no long-term experience in offering electronics design and
methodology 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 METHODOLOGY SERVICES
BUSINESSES DEPENDS ON MANY FACTORS THAT ARE BEYOND ITS CONTROL
In order to be successful with its electronics design and methodology
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 methodology 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.
- CADENCE'S COST OF SERVICE PERSONNEL IS HIGH AND REDUCES GROSS MARGIN.
Gross margin represents 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 a lower gross margin than the
gross margin in Cadence's software
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<PAGE>
business. In addition, the high cost of training new services personnel or
not fully utilizing these personnel can significantly lower gross margin.
Additionally, a substantial portion of these service contracts are
fixed-price contracts. This means that the customer pays a fixed price that 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 OBTAINS KEY COMPONENTS FOR ITS HARDWARE PRODUCTS FROM A LIMITED
NUMBER OF SUPPLIERS
Cadence depends on several suppliers for certain key components and board
assemblies used in its hardware-based emulation products. Cadence'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, Cadence currently relies on Xilinx, Inc. and Taiwan
Semiconductor Manufacturing Corporation for the supply of key integrated
circuits and on IBM for the hardware components for both Cadence's CoBALT-TM-
product and Mercury Design Verification System-TM-. With regard to the Mercury
Design Verification System-TM-, IBM recently replaced Cadence's previous
supplier. IBM is currently providing the assembly services for several Mercury
components on a contractual basis. Other disruptions in supply may also occur.
If there were such a reduction or interruption, Cadence's results of operations
would be seriously harmed. Even if Cadence can eventually obtain these
components from alternative sources, a significant delay would result in
Cadence's ability to deliver products.
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, the mix of licenses used to sell products 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 hardware and software products and
products and services. For example, based on a three-year average in 1998
Cadence had realized gross margins on software product sales of approximately
90% but realized gross margins of approximately 60% on hardware product sales
and 30% on its performance of services. In 1999, realized gross margins
decreased to approximately 87% for software products and increased to
approximately 72% for hardware products and to 35% for services. In addition,
Cadence's quarterly operating results are affected by the mix of licenses
entered into in connection with the sale of software products. Cadence has three
basic licensing models: perpetual, fixed-term, and subscription. Perpetual and
fixed-term licenses recognize a larger portion of the revenue at the beginning
of the license period and subscription licenses recognize revenue ratably over
each quarter of the term of the license. If Cadence customers purchase more
software products pursuant to a subscription agreement in any one quarter, the
operating results for that quarter may be lower than that of comparable quarters
in which perpetual and fixed-term licenses were used for more software product
transactions. Finally, 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 harm its quarterly operating results.
Cadence's hardware products typically have a lengthy sales cycle, during
which Cadence may expend substantial funds and management effort without any
assurance that a sale will result. Sales of Cadence's hardware 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 commitments of time and capital.
Cadence's hardware sales may be delayed if customers delay commencement of
projects. Lengthy hardware sales cycles subject Cadence to a number
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of significant risks over which Cadence has little or no control, including
inventory obsolescence and fluctuations in 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 stock could decline
dramatically. Also, because of the timing of large orders 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 has no long-term experience providing services, it believes
that quarter-to-quarter comparisons of its results of operations may not be
meaningful. Therefore, 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 OR THE COMPANIES IT RECENTLY ACQUIRED
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 then 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;
- The failure to retain key personnel of the acquired business; and
- Difficulties related to assimilating the products of an acquired business
in, for example, distribution, engineering, and customer support areas;
FAILURE TO OBTAIN EXPORT LICENSES COULD HARM CADENCE'S BUSINESS
Cadence must comply with U.S. Department of Commerce regulations in shipping
its software products and other technologies outside the U.S. 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.
CADENCE'S FAILURE TO ATTRACT, TRAIN, MOTIVATE, AND RETAIN KEY EMPLOYEES MAY
HARM ITS BUSINESS
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 methodology services and the
management of its businesses. This would seriously harm Cadence's business,
operating results, and financial condition.
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<PAGE>
ANTI-TAKEOVER DEFENSES IN CADENCE'S CHARTER, BY LAWS, 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 its voting stock, or who is affiliated with
the corporation and owned 15% or more of its voting stock at any time
within three 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 Cadence's Board of Directors
to issue, at any time and without stockholder approval, preferred stock
with such terms as it may determine. No shares of 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 its 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.
All or any one 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 Cadence's Board of Directors to resist an acquisition of
Cadence, even if the proposed transaction was favored by a majority of Cadence's
independent stockholders.
ITEM 2. PROPERTIES
Cadence's headquarters are located in San Jose, California, and Cadence owns
the related land and buildings. Additionally, Cadence owns buildings and land in
India and Scotland. The total square footage of Cadence's owned buildings is
approximately 984,000 square feet.
Cadence leases additional facilities for its sales offices in the U.S. and
various foreign countries, and its research and development and design services
facilities in California and other states and in foreign countries including
Scotland, India, Canada, the United Kingdom, and Japan.
Cadence believes that these facilities and the undeveloped land it owns
adjacent to its current headquarters are adequate for its current needs and that
suitable additional or substitute space will be available as needed to
accommodate any expansion of Cadence's operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time Cadence is involved in various disputes and litigation
matters that arise in the ordinary course of business. These include disputes
and lawsuits related to intellectual property, licensing, contract law,
distribution arrangements, and employee relations matters.
Cadence filed a complaint in the U.S. District Court for the Northern
District of California on December 6, 1995 against Avant! Corporation and
certain of its employees for misappropriation of trade secrets, copyright
infringement, conspiracy, and other illegal acts.
On January 16, 1996, Avant! filed various counterclaims against Cadence and
Joseph B. Costello, Cadence's former President and Chief Executive Officer, and
with leave of the court, on January 29, 1998, filed a second amended
counterclaim. The second amended counterclaim alleges, INTER ALIA, that Cadence
and Mr. Costello had cooperated with the Santa Clara County, California,
District Attorney and initiated and pursued its complaint against Avant! for
anticompetitive reasons, engaged in wrongful activity in an attempt to
manipulate Avant!'s stock price, and utilized certain pricing policies and other
acts to unfairly
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compete against Avant! in the marketplace. The second amended counterclaim also
alleges that certain Cadence insiders engaged in illegal insider trading with
respect to Avant!'s stock. Cadence and Mr. Costello believe that they have
meritorious defenses to Avant!'s claims, and each intends to defend such action
vigorously. By an order dated July 13, 1996, the court bifurcated Avant!'s
counterclaim from Cadence's complaint and stayed the counterclaim pending
resolution of Cadence's complaint. The counterclaim remains stayed.
In an order issued on December 19, 1997, as modified on January 26, 1998,
the District Court entered a preliminary injunction barring Avant! from any
further infringement of Cadence's copyrights in Design Framework II software, or
selling, licensing or copying such product derived from Design Framework II,
including, but not limited to, Avant!'s ArcCell products. On December 7, 1998,
the District Court issued a further preliminary injunction, which enjoined
Avant! from selling its Aquarius product line. Cadence posted a $10 million bond
in connection with the issuance of the preliminary injunction. On July 30, 1999,
the U.S. Court of Appeals for the Ninth Circuit affirmed the preliminary
injunction.
By an order dated July 22, 1997, the District Court stayed most activity in
the case pending in that court and ordered Avant! to post a $5 million bond in
light of related criminal proceedings pending against Avant! and several of its
executives.
On September 7, 1999, the District Court ruled on the parties' Motions for
Summary Adjudication, and granted in part, and denied in part, each party's
motion regarding the scope of a June 6, 1994 Release Agreement between the
parties. The Court held that Cadence's copyright infringement claim against
Avant! is not barred by the release and that Cadence may proceed on that claim.
The Court also held that Cadence's trade secret claim based on Avant!'s use of
Cadence's Design Framework II source code is barred by the release. The Ninth
Circuit has agreed to hear both parties' appeal from the District Court's order.
The trial date has been vacated pending a decision on the appeal. Cadence
intends to pursue its claims against Avant! vigorously.
On April 30, 1999, Cadence and several of its officers and directors were
named as defendants in a lawsuit filed in the U.S. District Court for the
Northern District of California, entitled Spett v. Cadence Design Systems, et
al., civil action no. C 99-2082. The action was brought on behalf of a class of
stockholders who purchased Cadence common stock between November 4, 1998 and
April 20, 1999, and alleges violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. The lawsuit arises out of Cadence's
announcement of its first quarter 1999 financial results. Management intends to
vigorously defend these claims.
In February 1998, Aptix Corporation and Meta Systems, Inc. filed a lawsuit
against Quickturn Design Systems, Inc. in the U.S. District Court for the
Northern District of California. In this lawsuit, entitled Aptix Corporation and
Meta Systems, Inc. v. Quickturn Design Systems, Aptix and Meta Systems allege
infringement by Quickturn of a U.S. patent owned by Aptix and licensed to Meta.
Quickturn named Mentor Graphics Corporation as a party to this suit and filed a
counterclaim requesting the District Court to declare the Aptix patent to be
unenforceable based on inequitable conduct during the prosecution of the patent.
The case is set for trial in late 2000.
On July 21, 1999, Mentor filed suit against Quickturn in the U.S. District
Court for the District of Delaware, alleging patent infringement involving
Quickturn's Mercury hardware emulation systems. The complaint seeks a permanent
injunction and unspecified damages. Cadence intends to vigorously defend these
claims. On July 22, 1999, Quickturn and Cadence filed a complaint against Mentor
and Meta asking for declaratory relief in the U.S. District Court for the
Northern District of California. The action brought by Mentor in Delaware has
been transferred to California for consolidation with Quickturn's declaratory
judgment action.
On February 25, 2000, Cadence and several of its officers were named as
defendants in a lawsuit filed in the U.S. District Court for the Northern
District of California, entitled Maxick v. Cadence Design
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Systems, Inc. File No. C 00 0658PJH. The action was brought on behalf of a class
of shareholders of OrCAD, Inc., and alleges violations of Section 14(d)(7) of
the Securities Exchange Act of 1934, as amended, and Rule 14d-10 thereunder. The
lawsuit arises out of Cadence's acquisition of OrCAD, which was completed in
August 1999. Management believes the action is without merit and intends to
vigorously defend it.
Management believes that the ultimate resolution of the disputes and
litigation matters discussed above will not have a material adverse effect on
Cadence's business, operating results, or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF CADENCE DESIGN SYSTEMS, INC.
The executive officers of Cadence are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES
- ---- -------- ----------------------------------------------------
<S> <C> <C>
H. Raymond Bingham............. 54 President, Chief Executive Officer, and Director
Adriaan Ligtenberg............. 44 Senior Vice President, Methodology Services
R.L. Smith McKeithen........... 56 Senior Vice President, General Counsel, and
Secretary
William Porter................. 45 Senior Vice President and Chief Financial Officer
Matthew Thompson............... 41 Senior Vice President, Worldwide Strategic Sales
Robert Wiederhold.............. 40 Senior Vice President, Worldwide Design Services
Group
Robert A. Promm................ 48 Vice President and Corporate Controller
</TABLE>
Executive officers are appointed by the Board of Directors and serve at the
discretion of the Board.
H. RAYMOND BINGHAM has served as President and Chief Executive Officer of
Cadence since April 1999. Mr. Bingham has been a director of Cadence since
November 1997. From 1993 to April 1999, Mr. Bingham served as Executive Vice
President and Chief Financial Officer of Cadence. Prior to joining Cadence,
Mr. Bingham was Executive Vice President and Chief Financial Officer of Red Lion
Hotels and Inns, an owner operator of a chain of hotels, for eight years.
Mr. Bingham is a director of Legato Systems, Inc., Onyx Software Corporation,
TenFold Corporation, and Chairman of Integrated Measurement Systems, Inc.
ADRIAAN LIGTENBERG joined Cadence in September 1999 as Senior Vice
President, Methodology Services. He was the CEO of A3Ventures, a strategic
consulting and investment company from 1997 to 1999. Prior to that, he was at
AT&T Bell Laboratories from 1984 to 1989 where he led the image system group.
From 1990 to 1997, he was the founder of Storm Technology Limited, a software
company specializing in the client/server and inter/intranet development
environments. From 1989 to 1990, he was a co-founder of C-Cube
Microsystems, Inc. He was also an associate professor of Electrical Engineering
at Princeton University and was the holder of the Computer Architecture Chair of
the University of Amsterdam.
R.L. SMITH MCKEITHEN joined Cadence in 1996 as Vice President, General
Counsel, and Secretary and became Senior Vice President, General Counsel, and
Secretary in 1998. From 1994 to 1996, he served as Vice President, General
Counsel, and Secretary of Strategic Mapping, Inc. From 1988 to 1994, he served
as Vice President, General Counsel, and Secretary of Silicon Graphics, Inc.
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WILLIAM PORTER joined Cadence in 1994 as Vice President, Corporate
Controller, and Assistant Secretary and became Senior Vice President and Chief
Financial Officer in May 1999. From 1988 to 1994, Mr. Porter served as Technical
Accounting and Reporting Manager and most recently as Controller of Cupertino
Operations with Apple Computer, Inc., a personal computer company.
MATTHEW THOMPSON joined Cadence in 1994 as Vice President, Strategic Sales
and became Senior Vice President, Worldwide Strategic Sales in 1998.
Mr. Thompson has more than 10 years of sales and management experience. Prior to
joining Cadence in 1994, he held various positions with Electronic Data Systems
Corporation, most recently as Vice President of Sales for the EDS High Tech
Business Unit.
ROBERT WIEDERHOLD joined Cadence in 1996 as Vice President and General
Manager of the Deep Submicron Business Unit and became Senior Vice President of
Cadence Worldwide Design Services Group in July 1998. From 1994 to 1996, he
served as Executive Vice President, Chief Operating Officer, and Director of
High Level Design Systems, Inc. From 1985 to 1994, he held various positions
with Cadence, most recently as Vice President, Marketing for the Systems
Divisions.
ROBERT A. PROMM joined Cadence in December 1999 as Vice President, Corporate
Controller. From November 1997 to December 1999, Mr. Promm served as Vice
President, Corporate Controller of Kaiser Foundation Health Plan, Inc. Prior to
November 1997, Mr. Promm held several positions with Apple Computer, Inc., most
recently as Vice President, Financial Controller.
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PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Cadence common stock is traded on the New York Stock Exchange under the
symbol CDN. Cadence has never declared or paid any cash dividends on its common
stock in the past, and does not plan to pay cash dividends in the foreseeable
future. As of March 14, 2000, Cadence had approximately 1,990 registered
stockholders and estimates that it had approximately 43,466 beneficial owners of
its common stock.
The following table sets forth the high and low sales price for Cadence
common stock for each calendar quarter in the two-year period ended January 1,
2000:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1999:
First Quarter............................................. $34.13 $21.63
Second Quarter............................................ $26.63 $10.63
Third Quarter............................................. $16.75 $ 9.19
Fourth Quarter............................................ $24.06 $13.31
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
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE FISCAL YEARS ENDED JANUARY 1, 2000
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue............................... $1,093,303 $1,320,180 $1,036,773 $888,642 $654,302
Unusual items(1)...................... $ 59,301 $ 263,595 $ 48,010 $100,543 $ --
Income (loss) from operations......... $ (12,750) $ 89,488 $ 223,706 $116,212 $130,765
Income (loss) before cumulative effect
of change in accounting method(2)... $ (14,075) $ 25,124 $ 177,398 $ 48,441 $111,077
Net income (loss)(3).................. $ (14,075) $ 25,124 $ 165,122 $ 48,441 $111,077
Net income (loss) per share--assuming
dilution............................ $ (0.06) $ 0.10 $ 0.68 $ 0.21 $ 0.48
Total assets.......................... $1,459,659 $1,481,916 $1,153,247 $875,754 $505,738
Long-term obligations................. $ 25,024 $ 136,380 $ 1,599 $ 20,292 $ 4,240
</TABLE>
- ------------------------
(1) Unusual items are as follows for each of the fiscal years 1999, 1998, 1997,
and 1996. There were no unusual items in 1995:
<TABLE>
<CAPTION>
1999 1998 1997 1996
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Write-off of acquired in-process
technology.......................... $20,700 $194,100 $ 9,328 $ 95,700
Asset impairment...................... 19,891 -- 3,065 2,724
Restructuring charges................. 13,274 69,495 24,128 2,119
Merger costs.......................... 8,436 -- 11,489 --
Litigation settlement................. (3,000) -- -- --
------- -------- ------- --------
$59,301 $263,595 $48,010 $100,543
======= ======== ======= ========
</TABLE>
(2) Income (loss) before cumulative effect of change in accounting method in
1997 excluded a $12.3 million charge, net of taxes of $5.3 million, for
reengineering project costs that had been previously capitalized by Cadence
associated with its implementation of enterprise-wide information systems.
(3) Net income (loss) included a $9.2 million and $13.6 million after tax gain
on the sale of stock of a subsidiary in 1997 and 1995, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the five-year
summary of selected financial data and the Consolidated Financial Statements and
notes thereto included elsewhere herein. All references to years represent
fiscal years unless otherwise noted. Except for the historical information
contained herein, the following discussion contains forward-looking statements
based on current expectations that involve certain risks and uncertainties.
Cadence's actual results could differ materially from those discussed herein.
Factors that could cause actual results or performance to differ materially or
contribute to such differences include, but are not limited to, those discussed
below in "Disclosures about Market Risk", and "Liquidity and Capital Resources".
OVERVIEW
Cadence Design Systems, Inc., or Cadence, provides comprehensive software
and other technology and offers design and methodology services for the product
development requirements of the world's leading electronics companies. Cadence
licenses its leading-edge electronic design automation, or EDA, software and
hardware technology and provides a range of services to companies throughout the
world to
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help its customers optimize their product development processes. Cadence is a
supplier of end-to-end products and services, 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.
In December 1999, Cadence acquired all of the outstanding stock of Diablo
Research Company LLC for cash and assumed all outstanding stock options of
Diablo. Diablo was a high-technology engineering services firm with expertise in
wireless communication, global positioning satellite solutions, and data
transfer and home automation markets. The total purchase price was
$39.9 million and the acquisition was accounted for as a purchase.
In August 1999, Cadence acquired OrCAD, Inc., a supplier of computer-aided
engineering and computer-aided design software and services for the printed
circuit board industry, for cash. Cadence acquired all of the outstanding stock
of OrCAD and assumed all outstanding stock options. The purchase price was
$131.4 million and the acquisition was accounted for as a purchase.
In May 1999, Cadence completed its merger with Quickturn Design
Systems, Inc. Quickturn designed, manufactured, sold, and supported hardware and
software products that verify the design of computer chips and electronic
systems. Cadence acquired all of the outstanding shares of Quickturn common
stock in a tax-free, stock-for-stock transaction for approximately 24.6 million
shares of Cadence common stock. The acquisition was accounted for as a
pooling-of-interests. In addition, Cadence assumed all outstanding stock options
and warrants of Quickturn. All prior period consolidated financial statements
were restated as if the merger took place at the beginning of such periods, in
accordance with required pooling of interests accounting and disclosures.
In January 1999, Cadence acquired Design Acceleration, Inc., or DAI, a
supplier of design verification technology used in system-on-a-chip, or SOC,
design. Cadence acquired all of the outstanding stock of DAI for approximately
0.6 million shares of Cadence common stock and $2.9 million of cash. The total
purchase price was $25.7 million and the acquisition was accounted for as a
purchase.
In September 1998, Cadence acquired all of the outstanding stock of Ambit
Design Systems, Inc. for cash. Ambit was a leading developer of design
automation technology used in SOC design. The total purchase price was
$255 million and the acquisition was accounted for as a purchase.
In September 1998, Cadence acquired the Bell Labs' Integrated Circuit Design
Automation Group of Lucent Technologies Inc., or BLDA, for cash. BLDA was a
design automation development organization that focused on the complex
verification challenges companies face when designing integrated circuits and
next-generation SOC. The total purchase price was $58 million and the
acquisition was accounted for as a purchase.
In March 1998, Cadence acquired all of the outstanding stock of Excellent
Design, Inc., or EXD, for cash. EXD provided application-specific integrated
circuit, or ASIC, and SOC design and library development. The total purchase
price was $40.9 million and the acquisition was accounted for as a purchase.
In February 1998, Cadence acquired all of the outstanding stock of
Symbionics Group Limited for approximately 1 million shares of Cadence common
stock and $21.3 million of cash. Symbionics provided product development design
services to leading electronics manufacturers. The total purchase price was
$46.1 million and the acquisition was accounted for as a purchase.
In June 1997, pursuant to an asset purchase agreement among Quickturn,
Synopsys, Inc., and Arkos Design, Inc., Quickturn acquired from Synopsys certain
assets relating to Synopsys emulation business, including all the outstanding
common stock of Arkos, for approximately 0.5 million shares of Quickturn common
stock and $5 million of cash. The total purchase price was $16.7 million and the
acquisition was accounted for as a purchase.
21
<PAGE>
In May 1997, Cadence merged with Cooper & Chyan Technology, Inc., or CCT,
whose software products were used to design sophisticated integrated circuits
and high-speed printed circuit boards. In connection therewith, Cadence issued
approximately 22.8 million shares of common stock. The merger was accounted for
as a pooling of interests. All prior period consolidated financial statements
were restated as if the merger took place at the beginning of such periods, in
accordance with required pooling of interests accounting and disclosures.
In February 1997, Quickturn merged with SpeedSim, Inc., a provider of
simulation software for the verification of digital logic designs. Quickturn
acquired all of the outstanding shares of SpeedSim common stock in a tax-free,
stock-for-stock transaction for approximately 2.8 million shares of Quickturn
common stock. The acquisition was accounted for as a pooling of interests. In
addition, Quickturn assumed all outstanding stock options of SpeedSim. All prior
period consolidated financial statements were restated as if the merger took
place at the beginning of such periods, in accordance with required pooling of
interests accounting and disclosures.
In February 1997, Cadence and its subsidiary, Integrated Measurement
Systems, Inc., or IMS, sold to the public 1.7 million shares of IMS common
stock, of which approximately 1 million shares were sold by Cadence, netting
Cadence approximately $18.6 million in cash. As a result of the offering and
sale of shares by Cadence, Cadence's ownership interest in IMS decreased to
approximately 37% in 1997 from approximately 55% in 1996. Accordingly, Cadence
changed the accounting for its investments in IMS from consolidation to the
equity method of accounting in fiscal 1997. The likelihood of such transactions
in the future is dependent upon the state of the financial markets as well as
liquidity and other considerations of each of Cadence and IMS. IMS manufactures
and markets verification systems used in testing prototype ASICs.
RESULTS OF OPERATIONS
REVENUE
<TABLE>
<CAPTION>
% CHANGE
-------------------
1999 1998 1997 99/98 98/97
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Product............................ $ 505.4 $ 760.5 $ 618.4 (34)% 23%
Services........................... 294.9 265.2 168.8 11% 57%
Maintenance........................ 293.0 294.5 249.6 (1)% 18%
-------- -------- --------
Total revenue.................... $1,093.3 $1,320.2 $1,036.8 (17)% 27%
======== ======== ========
</TABLE>
SOURCES OF REVENUE AS A PERCENT OF TOTAL REVENUE
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Product............................ 46% 58% 60%
Services........................... 27% 20% 16%
Maintenance........................ 27% 22% 24%
</TABLE>
Product revenue decreased $255.1 million in 1999, when compared to 1998,
primarily due to the implementation of Cadence's new software subscription
licensing model during the third quarter of 1999 and to a lesser extent a
decrease in sales volume of Cadence's software products. These decreases were
partially offset by an increase in emulation hardware product revenue in the
same periods and the favorable impact of foreign currency exchange rate
differences, primarily the Japanese yen. Revenue associated with software
products under subscription licenses is recognized ratably over the license
period because the agreements allow customers to exchange licensed products for
unspecified future technology.
22
<PAGE>
The decrease in sales volume of products was attributable primarily to lower
sales of integrated circuit implementation products, which include place and
route and physical design and verification tools.
Product revenue increased $142.1 million in 1998, when compared to 1997,
primarily due to increased customer sales volume of place and route and physical
design product tools used to design deep submicron integrated circuits. This
increase was partially offset by a decrease in emulation hardware product
revenue in the same period. Total product revenue in 2000 is expected to
increase from 1999 and return to year-over-year growth in the second quarter of
2000. However, there can be no assurance that this expectation will prove
accurate and actual results may differ materially.
Services revenue increased $29.7 million in 1999 and $96.4 million in 1998,
when compared to each prior year, which were primarily attributable to an
increase in Cadence's design and methodology services engagements. Increases in
design services revenue were due to general increases in each of the four major
areas, with the most significant increase in the wireless communications area.
Maintenance revenue remained relatively flat in 1999 compared to 1998.
Maintenance revenue increased $44.9 million in 1998, when compared to 1997,
primarily due to continued growth of the installed customer base and the renewal
of maintenance and support contracts.
REVENUE BY GEOGRAPHY
<TABLE>
<CAPTION>
% CHANGE
-------------------
1999 1998 1997 99/98 98/97
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Domestic........................... $ 526.8 $ 676.6 $ 509.6 (22)% 33%
International...................... 566.5 643.6 527.2 (12)% 22%
-------- -------- --------
Total revenue.................... $1,093.3 $1,320.2 $1,036.8 (17)% 27%
======== ======== ========
</TABLE>
REVENUE BY GEOGRAPHY AS A PERCENT OF TOTAL REVENUE
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Domestic........................... 48% 51% 49%
International...................... 52% 49% 51%
</TABLE>
International revenue decreased $77.1 million in 1999, when compared to
1998, primarily due to decreases in product revenue in all international regions
resulting from the implementation of Cadence's new subscription licensing model
during the third quarter of 1999. The decrease in international product revenue
was partially offset by an increase in services revenue in all international
regions, except Asia.
The increase in international revenue in 1998 of $116.4 million, when
compared to 1997, was primarily due to increased sales volume of Cadence's
products and services in Europe and of Cadence's services in Japan, partially
offset by a decrease in product sales volume in Japan. To a lesser extent,
revenue growth in 1998 was also due to additional maintenance and support
contracts in Asia and Canada.
Other differences in the rate of revenue growth over the years presented and
as compared geographically are primarily due to fluctuations in sales and
resulting sales volume of place and route and physical design products and for
Cadence's design and methodology services offerings.
Foreign currency exchange rates positively affected reported revenue by
$16.2 million in 1999, primarily due to the strengthening of the Japanese yen in
relation to the U.S. dollar. Foreign currency exchange rates negatively affected
reported revenue by $15.4 million in 1998 primarily due to the weakening of the
Japanese yen in relation to the U.S. dollar. Additional information about
revenue by geographic areas can be found under "Segment Reporting" in the Notes
to Consolidated Financial Statements.
23
<PAGE>
COST OF REVENUE
<TABLE>
<CAPTION>
% CHANGE
-------------------
1999 1998 1997 99/98 98/97
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Product................................. $ 79.5 $ 77.5 $ 74.2 3% 4%
Services................................ $191.8 $188.8 $117.4 2% 61%
Maintenance............................. $ 53.6 $ 52.4 $ 34.0 2% 54%
</TABLE>
COST OF REVENUE AS A PERCENT OF RELATED REVENUE
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Product................................. 16% 10% 12%
Services................................ 65% 71% 70%
Maintenance............................. 18% 18% 14%
</TABLE>
Cost of product revenue includes costs of production personnel, packaging
and documentation, royalties, and amortization of capitalized software
development costs for software products. Manufacturing costs associated with
hardware emulation system products include materials, labor, and overhead.
Cost of product revenue increased $2 million or 3% in 1999 when compared to
1998. The increase was primarily due to increases in manufacturing expenses
associated with emulation system products, the acquisition of OrCAD in 1999, and
amortization of capitalized software development costs. These costs were offset
partially by inventory obsolescence charges of $5.7 million associated with the
introduction of the Mercury Design Verification System recorded in 1998,
reductions in purchased software amortization, and third-party royalty expenses.
Cost of product revenue increased $3.3 million or 4% in 1998 compared to 1997.
The increase was primarily due to increases in amortization of capitalized
software development costs and third-party royalty expenses, partially offset by
manufacturing cost savings for hardware emulation systems due to the
availability of less expensive and more efficient components. The manufacturing
cost savings exclude the impact of $2.6 million for the write-off of Arkos
purchased inventory and a $2 million inventory obsolescence charge caused by an
anticipated shorter product life cycle for the System Realizer emulation product
replaced by Arkos product technology.
Because the majority of Cadence's cost of software product revenue does not
vary significantly with changes in revenue, product gross margin decreased in
1999 when compared to 1998, due primarily to lower sales of software products
and the introduction of the new subscription licensing model during the third
quarter of 1999. Product gross margin in 1999 also declined due to a higher
proportion of hardware revenue with lower gross margins than software product
revenue.
Cost of services revenue includes costs associated with providing services
to customers, primarily salaries and costs to recruit, develop and retain
personnel, and costs to maintain the infrastructure necessary to manage a
services organization. Cost of services revenue increased $3 million or 2% in
1999, when compared to 1998, due primarily to increases in amortization of
purchased software and Japan methodology services outside commission costs,
offset partially by a decrease in employee related costs, including incentive
pay, associated primarily with Cadence's 1998 restructuring plans and lower
revenues. Cost of services revenue increased $71.4 million or 61% in 1998,
compared to 1997. This increase was due to investments made to increase services
capacity, primarily due to the addition of services professionals.
The increase in services gross margins to 35% in 1999 as compared to 29% in
1998, was due primarily to increased utilization of services capacity and the
management of expenses. Services gross margins decreased to 29% in 1998 as
compared to 30% in 1997, primarily due to increased services capacity that was
not fully utilized. Services gross margins have been and may continue to be
adversely affected by the cost of integrating new services professionals as well
as Cadence's inability to fully utilize these resources.
24
<PAGE>
In addition, services gross margins may continue to be adversely affected by
Cadence's inability to achieve operating efficiencies with its resources when
implementing a growing number of services offerings.
Cost of maintenance revenue includes the cost of customer services, such as
hot-line and on-site support, production personnel, packaging, and documentation
of maintenance updates. Cost of maintenance revenue in absolute dollars and as a
percent of related revenue remained relatively flat in 1999 when compared to
1998. Cost of maintenance revenue increased $18.4 million or 54% in 1998, when
compared to 1997, primarily due to the investment in a new centralized customer
response center and increased support levels on a per customer basis.
AMORTIZATION OF ACQUIRED INTANGIBLES
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Amortization of acquired intangibles.................... $61.8 $18.5 $2.5
</TABLE>
AMORTIZATION OF ACQUIRED INTANGIBLES AS A PERCENT OF TOTAL REVENUE
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Amortization of acquired intangibles.................... 6% 1% 0%
</TABLE>
Amortization of acquired intangibles increased $43.3 million in 1999, when
compared to 1998, primarily due to the 1999 acquisitions of OrCAD and DAI, and a
full year's amortization related to Cadence's 1998 acquisitions of Ambit, BLDA,
EXD, and Symbionics. Amortization of acquired intangibles increased $16 million
in 1998, when compared to 1997, primarily due to Cadence's 1998 acquisitions.
For additional information regarding these acquisitions see below under
"In-Process Technology."
OPERATING EXPENSES
<TABLE>
<CAPTION>
% CHANGE
-------------------
1999 1998 1997 99/98 98/97
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Marketing and sales..................... $354.2 $340.3 $299.8 4% 14%
Research and development................ $219.2 $202.8 $167.2 8% 21%
General and administrative.............. $ 86.7 $ 86.8 $ 69.9 0% 24%
</TABLE>
OPERATING EXPENSES AS A PERCENT OF TOTAL REVENUE
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Marketing and sales..................... 32% 26% 29%
Research and development................ 20% 15% 16%
General and administrative.............. 8% 7% 7%
</TABLE>
MARKETING AND SALES
The increase in marketing and sales expenses of $13.9 million for 1999, when
compared to 1998, was primarily due to an increase in sales support costs, the
acquisition of OrCAD, and marketing program costs, partially offset by lower
employee-related costs, resulting from Cadence's 1998 restructuring plans, lower
employee training and education costs, and travel costs. Foreign currency
exchange rates negatively affected marketing and sales expenses by $4.6 million
in 1999, when compared to 1998, primarily due to the strengthening of the
Japanese yen in relation to the U.S. dollar. The increase in marketing and sales
expenses of $40.5 million in 1998, when compared to 1997, was primarily
attributable to an increase in employee-related expenses resulting from
increased headcount and commissions, a higher level of pre-sale
25
<PAGE>
activities, and an increase in consulting and outside services costs. These
increases were partially offset by the weakening of certain foreign currencies,
primarily the Japanese yen, in relation to the U.S. dollar which favorably
affected marketing and sales expenses by approximately $6.4 million in 1998 when
compared to 1997.
RESEARCH AND DEVELOPMENT
Cadence's expenses in research and development, prior to the reduction for
capitalization of software development costs, was $244.9 million for 1999,
$224.5 million for 1998, and $182.3 million for 1997, representing 22% of total
revenue for 1999, 17% for 1998, and 18% for 1997. Cadence capitalized software
development costs of approximately $25.7 million for 1999, $21.7 million for
1998, and $15.1 million for 1997, which represented approximately 10% of total
research and development expenditures for 1999, 10% for 1998, and 8% for 1997.
The increase in capitalized software development costs in each of these three
years resulted primarily from general increases in new product development.
The increase in net research and development expenses of $16.4 million for
1999, when compared to 1998, was primarily attributable to higher
employee-related costs due to increases in headcount from Cadence's acquisitions
of OrCAD in 1999 and the acquisitions of Ambit and BLDA in the third quarter of
1998, partially offset by increased capitalization of software development
expenses. The increase of $35.6 million in 1998, when compared to 1997, was
primarily attributable to higher employee-related costs due to increases in
headcount, facility-related costs, consulting and other services, and management
information systems costs. The amount of capitalized software development costs
in any given period may vary depending on the exact nature of the development
performed.
GENERAL AND ADMINISTRATIVE
General and administrative expenses remained relatively flat in 1999 when
compared to 1998. General and administrative expenses increased $16.9 million in
1998, when compared to 1997, primarily as a result of increases in bad debt
expense, and legal and advisory fees incurred in connection with the unsolicited
tender offer by Mentor Graphics Corporation, and increases in consulting and
outside services costs.
UNUSUAL ITEMS
Described below are unusual item charges in 1999, 1998, and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Write-off of acquired in-process technology........... $20.7 $194.1 $ 9.3
Asset impairment...................................... 19.9 -- 3.1
Restructuring charges................................. 13.3 69.5 24.1
Merger costs.......................................... 8.4 -- 11.5
Litigation settlement................................. (3.0) -- --
----- ------ -----
$59.3 $263.6 $48.0
===== ====== =====
</TABLE>
IN-PROCESS TECHNOLOGY
In August 1999, Cadence acquired OrCAD, Inc., a supplier of computer-aided
engineering and computer-aided design software and services for the printed
circuit board industry, for cash. Cadence acquired all of the outstanding stock
of OrCAD and assumed all outstanding OrCAD stock options. The purchase price was
$131.4 million and the acquisition was accounted for as a purchase.
Upon consummation of the OrCAD acquisition, Cadence immediately charged to
expense $11.8 million representing acquired in-process technology that had not
yet reached technological feasibility and had
26
<PAGE>
no alternative future use. See "Notes to Consolidated Financial Statements." The
value assigned to acquired in-process technology was determined by identifying
research projects in areas for which technological feasibility has not been
established. The value was determined by estimating the costs to develop the
acquired in-process technology into commercially viable products, estimating the
resulting net cash flows from such projects, and discounting the net cash flows
back to their present value. The discount rate included a factor that took into
account the uncertainty surrounding the successful development of the acquired
in-process technology. Certain acquired in-process technology was commercially
viable in 1999 and other acquired in-process technology is expected to become
commercially viable in 2000. Expenditures to complete this acquired in-process
technology are expected to total approximately $2.3 million. These estimates are
subject to change, given the uncertainties of the development process, and no
assurance can be given that deviations from these estimates will not occur.
Additionally, these projects will require maintenance research and development
after they have reached a state of technological and commercial feasibility.
At the time of its acquisition by Cadence, OrCAD's in-process research and
development projects in the schematic entry area were related to the development
of an online component catalog and a new schematic design entry interface.
In-process research and development projects in the simulation area were related
to a rearchitecture of the simulation engine and replacement of the simulation
engine. Additional features under development included randomized expressions
and no selection limits. The nature of the efforts to complete these projects
relate, in varying degrees, to the completion of all planning, designing,
prototyping, verification, and testing activities that are necessary to
establish that the proposed technologies meet their design specifications
including functional, technical, and economic performance requirements.
The net cash flows resulting from the projects underway at OrCAD used to
value the purchased research and development were based on management's
estimates of revenue, cost of revenue, research and development costs, selling,
general and administrative costs, and income taxes from such projects. The
revenue projections were based on the potential market size that the projects
address, Cadence's ability to gain market acceptance in these segments, and the
life cycle of this in-process technology.
Estimated total revenue from the acquired in-process technology is expected
to peak in 2001 and decline rapidly thereafter as other new products are
expected to enter the market. In addition, a portion of the anticipated revenue
had been attributed to enhancements of the base technology under development,
and had been excluded from net cash flow calculations. Existing technology was
valued at $10.8 million. The net cash flows generated from the acquired
in-process technology are expected to reflect earnings before interest, taxes,
and depreciation of approximately 32% of the sales generated from in-process
technology. However, there can be no assurance that these assumptions will prove
accurate, or that Cadence will realize the anticipated benefit of the
acquisition.
The discount of the net cash flows to their present value was based on the
weighted average cost of capital, or WACC. The WACC calculation produces the
average required rate of return of an investment in an operating enterprise,
based on the required rates of return from investments in various areas of the
enterprise. The rate used to discount the net cash flows from purchased
in-process technology was 22%. The discount rate is sometimes higher than the
WACC due to the inherent uncertainties in the estimates, including the
uncertainty surrounding the successful development of the acquired in-process
technology, the useful life of such technology, the profitability levels of such
technology, if any, and the uncertainty of technological advances, all of which
are unknown at this time.
As evidenced by its continued support for these projects, management
believes that Cadence will successfully complete each of the major OrCAD
research and development programs. However, there is risk associated with the
completion of these projects and there is no assurance that any of them will be
either technologically or commercially successful. If these projects are not
successfully developed, future
27
<PAGE>
revenue, and profitability of Cadence may be materially adversely affected.
Additionally, the value of other intangible assets acquired may become impaired.
To date, OrCAD's results have not differed significantly from the forecast
assumptions. In addition, Cadence's research and development expenditures since
the acquisition have not differed materially from expectations. Revenue
contribution from the acquired technology falls within an acceptable range of
plans in its role in Cadence's suite of design systems and tools. The risks
associated with this research and development are still considered high and no
assurance can be made that these products will meet market expectations.
In January 1999, Cadence acquired DAI, a supplier of design verification
technology used in SOC design. Cadence acquired all of the outstanding stock of
DAI for approximately 0.6 million shares of Cadence common stock and
$2.9 million of cash. The total purchase price was $25.7 million and the
acquisition was accounted for as a purchase.
Upon consummation of the DAI acquisition, Cadence immediately charged to
expense $8.9 million representing acquired in-process technology that had not
yet reached technological feasibility and had no alternative future use. See
"Notes to Consolidated Financial Statements." The value assigned to acquired
in-process technology was determined by identifying research projects in areas
for which technological feasibility has not been established. The value was
determined by estimating the costs to develop the acquired in-process technology
into commercially viable products, estimating the resulting net cash flows from
such projects, and discounting the net cash flows back to their present value.
The discount rate included a factor that took into account the uncertainty
surrounding the successful development of the acquired in-process technology.
Certain acquired in-process technology under development at the time of
acquisition was initially expected to become commercially viable in 1999, but
has since been delayed to 2000 and 2001. Expenditures to complete this
in-process technology are expected to total approximately $1.5 million. These
estimates are subject to change, given the uncertainties of the development
process, and no assurance can be given that deviations from these estimates will
not occur. Additionally, these projects will require expenditures for additional
research and development after they have reached a state of technological and
commercial feasibility.
At the time of its acquisition by Cadence, DAI had several significant
research and development projects in process that were intended to provide a
next generation environment for design verification and analysis. These efforts
included the development of a highly automated approach for high-level test
bench creation and analysis, which Cadence expects to become commercially viable
in 2000, a waveform viewer capable of supporting analog and mixed signal
designs, which Cadence expects to become commercially viable in 2001, and a tool
designed to analyze verification code coverage at the transactional level which
was commercially viable in 1999. The nature of the efforts to complete these
in-process research and development projects relate, in varying degrees, to the
completion of all planning, designing, prototyping, verification, and testing
activities that are necessary to establish that the proposed in-process
technologies meet their design specifications, which include functional,
technical, and economic performance requirements.
The net cash flows generated by the projects underway at DAI used to value
the acquired in-process technology, were based on management's estimates of
revenue, cost of revenue, research and development costs, selling, general and
administrative costs, and income taxes from such projects. The revenue
projections were based on the potential market size for which these projects
address, Cadence's ability to gain market acceptance for these projects, and the
life cycle of this in-process technology.
Estimated total revenue from the acquired in-process technology is expected
to peak in 2001 through 2002 and decline rapidly thereafter as other new
products are expected to enter the market. In addition, a portion of the
anticipated revenue has been attributed to enhancements of the base technology
under development, and has been excluded from net cash flow calculations.
Existing technology was valued at $11.4 million. The net cash flows generated
from the acquired in-process technology are expected to reflect
28
<PAGE>
earnings before interest, taxes, and depreciation of approximately 60% of the
sales generated from in-process technology. However, there can be no assurance
that these assumptions will prove accurate, or that Cadence will realize the
anticipated benefits of this acquisition.
The discount applied to the net cash flows to calculate the present value of
such net cash flows was based on the WACC. The rate used to discount the net
cash flows from purchased in-process technology was 22%.
As evidenced by its continued support for these projects, management
believes Cadence will successfully complete each of these DAI projects. However,
there is risk associated with the completion of these projects and there is no
assurance that any of them will be either technologically or commercially
successful. If these projects are not successfully developed, Cadence's
business, operating results, and financial condition may be harmed. In addition,
the value of other intangible assets acquired may become impaired.
To date, DAI's results have not differed significantly from the forecasted
assumptions. In addition, Cadence's research and development expenditures since
the acquisition have not differed materially from expectations. Revenue
contribution from the acquired technology falls within an acceptable range of
plans in its role in Cadence's suite of design systems and tools. The risks
associated with the research and development are still considered high and no
assurance can be made that these future products will meet market expectations.
In September 1998, Cadence acquired all of the outstanding stock of Ambit
for cash. Ambit was a leading developer of design automation technology used in
SOC design. The total purchase price was $255 million and the acquisition was
accounted for as a purchase.
Upon consummation of the Ambit acquisition, Cadence immediately charged to
expense $106.5 million representing acquired in-process technology that had not
yet reached technological feasibility and had no alternative future use. See
"Notes to Consolidated Financial Statements." The value was determined by
estimating the costs to develop the acquired in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects, and discounting the net cash flows back to their present value. The
discount rate included a factor that took into account the uncertainty
surrounding the successful development of the acquired in-process technology.
The acquired in-process technology was commercially viable in 1999, with the
exception of one module, called Datapath Compiler, which is expected to become
commercially viable by early 2001. BuildGates 3.0 and Physically Knowledgeable
Synthesis were commercially viable in 1999. Expenditures to complete all
in-process technology are expected to total approximately $15 million.
Additionally, these projects will require maintenance research and development
after they have reached a state of technological and commercial feasibility.
At the time of its acquisition by Cadence, Ambit was working on several
significant research and development projects that were intended to provide the
next generation version of its existing product, BuildGates 2.2. The nature of
the efforts to complete the next generation version of BuildGates relate to the
completion of all planning, designing, prototyping, verification, and testing
activities that are necessary to establish that the proposed technologies meet
their design specifications, including functional, technical, and economic
performance requirements.
Cadence expects Ambit's creation of a fundamentally new approach to
synthesis in deep submicron and in SOC to create the opportunity for additional
consulting services revenue through the creation of an integrated, next
generation version of BuildGates.
In September 1998, Cadence acquired BLDA for cash. BLDA was a design
automation development organization that focused on the complex verification
challenges companies face when designing integrated circuits and next-generation
SOC. The total purchase price was $58 million and the acquisition was accounted
for as a purchase.
29
<PAGE>
Upon consummation of the BLDA acquisition, Cadence immediately charged to
expense $30.3 million representing acquired in-process technology that had not
yet reached technological feasibility and had no alternative future use. See
"Notes to Consolidated Financial Statements." The value was determined by
estimating the costs to develop the acquired in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects, and discounting the net cash flows back to their present value. The
discount rate includes a factor that takes into account the uncertainty
surrounding the successful development of the acquired in-process technology.
The acquired in-process technology is expected to become commercially viable in
2000. Expenditures to complete this in-process technology are expected to total
approximately $5 million. These estimates are subject to change, given the
uncertainties of the development process, and deviations from these estimates
may occur. Additionally, these projects will require maintenance research and
development after they have reached a state of technological and commercial
feasibility.
BLDA's in-process research and development projects were related to its
Formalcheck and Clover technologies. BLDA had two major enhancements underway
for Formalcheck. This effort was expected to yield a revenue-generating product
in 2000. BLDA's research and development related to Clover involved the design
and development of new Design Rule Checking and Parasitic Extraction tools,
which were expected to substantially improve the performance and functionality
of the technology. This effort was completed in 1999. The nature of the efforts
to complete the next generation version of Formalcheck and Clover relate to the
completion of all planning, designing, prototyping, verification, and testing
activities that are necessary to establish that the proposed technologies meet
their design specifications, including functional, technical, and economic
performance requirements.
As evidenced by its continued support for these projects, management
believes Cadence is well positioned to successfully complete each of the major
research and development programs. However, there is risk associated with the
completion of these projects and there is no assurance that any of them will be
either technologically or commercially successful.
The net cash flows resulting from the projects underway at Ambit and BLDA
used to value the purchased research and development were based on management's
estimates of revenue, cost of revenue, research and development costs, selling,
general and administrative costs, and income taxes from such projects. The
revenue projections are based on the potential market size that the projects
address, Cadence's ability to gain market acceptance for these projects, and the
life cycle of this in-process technology.
Estimated total revenue from the acquired in-process technology is expected
to peak in 2003 through 2004 and decline rapidly in 2005 and 2006 as other new
products enter the market. In addition, a portion of the anticipated revenue has
been attributed to enhancements of the base technology under development, and
has been excluded from net cash flow calculations. Existing technology was
valued at $50.3 million in connection with the Ambit acquisition and
$23.2 million in connection with the BLDA acquisition. There can be no assurance
that these assumptions will prove accurate, or that Cadence will realize the
anticipated benefit of the acquisitions. The net cash flows generated from the
acquired in-process technology are expected to reflect earnings before interest,
taxes, and depreciation of approximately 38% to 49% of the sales generated from
this in-process technology.
The discount of the net cash flows to their present value was based on the
WACC. The discount rates used to discount the net cash flows from acquired
in-process technology were 28% for Ambit and 25% for BLDA. These discount rates
reflect the uncertainty surrounding the successful development of the acquired
in-process technology, the useful life of such technology, the profitability
levels of such technology, if any, and the uncertainty of technological
advances, all of which are unknown at this time.
If these projects are not successfully developed, Cadence's business,
operating results, and financial condition may be negatively affected. In
addition, the value of other intangible assets acquired may become impaired.
30
<PAGE>
To date, Ambit's and BLDA's results have not differed significantly from the
forecasted assumptions. Cadence's research and development expenditures since
the acquisitions have not differed materially from expectations. The risks
associated with the research and development are still considered high and no
assurance can be made that upcoming products will meet market expectations.
In March 1998, Cadence acquired all of the outstanding stock of EXD. EXD
provided application-specific integrated circuit, or ASIC, and SOC design and
library development. The total purchase price was $40.9 million in cash and the
acquisition was accounted for as a purchase.
Upon consummation of the EXD acquisition, Cadence immediately charged to
expense $28.4 million representing acquired in-process technology that had not
yet reached technological feasibility and had no alternative future use. See
"Notes to Consolidated Financial Statements." The value was determined by
estimating the costs to develop the acquired in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects and discounting the net cash flows back to their present value. The
discount rate included a factor that took into account the uncertainty
surrounding the successful development of the acquired in-process technology.
The in-process projects were expected to be commercially viable on dates ranging
from the end of 1998 through 2000. However, the progression of these projects
became impaired in the fourth quarter of 1999 as discussed further below.
At the time of its acquisition by Cadence, EXD had several significant
research and development projects in process that, if successful, would have
represented the introduction of new products and technologies to meet future
market needs. These efforts included the development of new tools for library
generation, delay calculation, memory compilation, and semiconductor
intellectual property technology. These new technologies were intended to be
fully supportive of deep submicron design functions, which are a critical market
requirement. The nature of the efforts required to complete these research and
development projects relate, to varying degrees, to the completion of all
planning, designing, prototyping, verification, and testing activities that are
necessary to establish that the proposed technologies meet their design
specifications, including functional, technical, and economic performance
requirements.
The successful completion of the EXD acquired in-process projects has been
impaired and as a result differed significantly from the forecasted assumptions.
In the fourth quarter of 1999, Cadence recorded a $13.3 million asset impairment
charge. This asset impairment charge resulted from reduced Japanese market
opportunities and the loss of key EXD employees resulting in diminished cash
flow projections. Cadence entered into certain support agreements with external
parties to provide support for EXD software tools previously sold to Cadence
customers. The fair value of the EXD acquired intangibles was based on an
evaluation of the present value of their estimated expected future cash flows,
discounted at 16%.
In February 1998, Cadence acquired all of the outstanding stock of
Symbionics for approximately 1 million shares of Cadence common stock and
$21.3 million of cash. Symbionics provided product development design services
to leading electronics manufacturers. The total purchase price was
$46.1 million and the acquisition was accounted for as a purchase.
Upon consummation of the Symbionics acquisition, Cadence immediately charged
to expense $28.5 million representing acquired in-process technology that had
not yet reached technological feasibility and had no alternative future use. See
"Notes to Consolidated Financial Statements." The value was determined by
estimating the costs to develop the acquired in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects and discounting the net cash flows back to their present value. The
discount rate included a factor that took into account the uncertainty
surrounding the successful development of the acquired in-process technology.
The in-process projects were commercially viable by the end of 1999.
Expenditures to complete these projects did not exceed $6 million.
31
<PAGE>
At the time of its acquisition by Cadence, Symbionics was working on several
significant research and development projects that, if successful, would meet
future market needs. These efforts involve digital television, wireless home
networking, cellular roaming and digital voice technologies, which were intended
to ensure the long-term success and survival of the organization. The nature of
the efforts required to complete the research and development projects relate,
to varying degrees, to the completion of all planning, designing, prototyping,
verification, and testing activities that are necessary to establish that the
proposed technologies meet their design specifications, including functional,
technical, and economic performance requirements.
The net cash flows resulting from the projects which were underway at
Symbionics used to value the acquired in-process technology at the time of
acquisition were based on management's estimates of revenue, cost of revenue,
research and development costs, selling, general and administrative costs, and
income taxes from such projects. The revenue projections are based on the
potential market size that the projects address, Cadence's ability to gain
market acceptance in these segments and the life cycle of this in-process
technology.
Estimated total revenue at the time of acquisition from the acquired
in-process technology is expected to peak in 2001 and 2002 and decline rapidly
thereafter as other new products enter the market. In addition, a portion of the
anticipated revenue has been attributed to enhancements of the base technology
under development, and has been excluded from net cash flow calculations.
Existing technology was valued at $6 million. There can be no assurance that
these assumptions will prove accurate, or that Cadence will realize the
anticipated benefit of the acquisition. The net cash flows generated from the
acquired in-process technology are expected to reflect earnings before interest
and taxes are estimated to be approximately 39% for the sales generated from
Symbionics' in-process technology.
The discount applied to the net cash flows to calculate their present value
was based on the WACC at the time of acquisition. The discount rates used to
discount the net cash flows from the acquired in-process technology range from
22.5% to 27.5%. The discount rates are sometimes higher than the WACC due to the
inherent uncertainties in the estimates, including the uncertainty surrounding
the successful development of the acquired in-process technology, the useful
life of such technology, the profitability levels of such technology, if any,
and the uncertainty of technological advances, all of which are unknown at this
time.
In 1997, Cadence wrote off $9.3 million of acquired in-process technology
associated with its acquisitions of Synthesia AB, Advanced Microelectronics, and
Arkos. These costs reflected in-process technology that had not reached
technological feasibility and, in management's opinion, had no probable
alternative future use.
ASSET IMPAIRMENT
In 1999, Cadence incurred charges totaling $19.9 million in asset impairment
charges. Of this amount, $13.3 million represented asset impairment of acquired
intangibles from the EXD acquisition. This asset impairment charge resulted from
reduced Japanese market opportunities and the loss of key EXD employees
resulting in diminished cash flow projections. Cadence entered into certain
support agreements with external parties to provide support for EXD software
tools previously sold to Cadence customers. The fair value of the EXD acquired
intangibles was based on an evaluation of the present value of the estimated
expected future cash flows, discounted at 16%. The remaining $6.6 million in
asset impairment charges were incurred in connection with the cancellation of an
information technology services contract with a third-party, the abandonment of
capitalized software development costs associated with certain Cadence products
that will no longer be sold, and the abandonment of certain third-party software
licenses that will no longer be used by Cadence's design services business.
In 1997, Cadence wrote-off capitalized software development costs of
$3.1 million for products developed by Cadence that were replaced by CCT
products or by license of replacement technology.
32
<PAGE>
The impairment losses recorded were the amounts by which the carrying
amounts of the intangible assets exceeded their fair market values.
RESTRUCTURING
In 1999, Cadence recorded $13.3 million of restructuring charges which
consisted of $11.3 million to terminate approximately 100 employees and
$2 million to downsize and close excess facilities. Cadence's restructuring
plans were primarily aimed at reducing costs after Cadence merged with
Quickturn, further restructuring of Cadence's services business in Japan, and
severance resulting from the resignation of Cadence's former Chief Executive
Officer. Severance costs include severance benefits, notice pay, and
outplacement services. All terminations and termination benefits were
communicated to the affected employees prior to year-end and all remaining
severance benefits are expected to be paid in 2000.
Facilities consolidation charges of $2 million were incurred in connection
with the closure of 15 Quickturn facilities, including $1 million to close
duplicate and excess facilities and $1 million of abandonment costs for the
related leasehold improvements. Closure and exit costs include payments required
under lease contracts, less any applicable sublease income, after the properties
were abandoned, lease buyout costs, restoration costs associated with certain
lease arrangements, and costs to maintain facilities during the period after
abandonment. Asset related costs written-off consist of leasehold improvements
of facilities that were abandoned and whose estimated fair market value is zero.
As of January 1, 2000, approximately 80% of the 15 Quickturn sites had been
vacated. Noncancelable lease payments on vacated facilities will be paid out
through 2003.
In 1998, Cadence recorded $69.5 million of restructuring charges primarily
associated with Cadence's worldwide restructuring plan announced in the second
half of 1998. Cadence's restructuring plans and associated costs consisted of
$36.9 million to terminate approximately 700 employees, $29.9 million to
downsize and close excess facilities, and $2.7 million of other restructuring
expenses. Cadence's restructuring plan was primarily aimed at reducing the cost
of excess personnel and capacity in its services business. A discussion about
Cadence's gross margin trends for its services business can be found under "Cost
of Revenue" within this section. Severance costs included severance benefits,
notice pay, and outplacement services. In 1998, approximately $10.1 million of
these costs resulted from the acceleration of stock options vesting under
employment agreements. All terminations and termination benefits were
communicated to the affected employees prior to year-end and all remaining
severance benefits were substantially paid in 1999.
Facilities consolidation charges of $29.9 million were incurred in
connection with the closure of 58 sales and engineering facilities, including
$16.7 million to downsize and close facilities and $13.2 million in abandonment
costs for the related leasehold improvements. Closure and exit costs included
payments required under lease contracts, less any applicable sublease income,
after the properties were abandoned, lease buyout costs, restoration costs
associated with certain lease arrangements, and costs to maintain facilities
during the period after abandonment. Asset related costs written-off consist of
leasehold improvements of facilities that were abandoned and whose estimated
fair market value is zero. As of January 1, 2000, substantially all of the 58
sites had been vacated. Noncancelable lease payments on vacated facilities will
be paid out through 2008.
Cadence also recorded $2.7 million of other restructuring charges consisting
primarily of cancellation fees associated with certain vendor and conference
arrangements and abandoned software.
In 1997, Cadence recorded restructuring charges of $24.1 million. These
charges relate to restructuring plans primarily aimed at reducing costs after
Cadence merged with CCT and acquired HLDS. Cadence's restructuring plans and
associated costs consisted of $11.9 million to terminate approximately 230
employees, $4.4 million to close duplicate and excess facilities, and
$3.7 million of other expenses associated with the business combinations. Also
included in the restructuring costs were professional fees of $4.1 million for
financial advisors, attorneys, and accountants related to the international
restructuring
33
<PAGE>
program. The remaining severance balances were paid out in 1998 and all
facilities were vacated. Noncancelable lease payments on vacated facilities will
be paid out through 2000.
Liabilities for excess facilities and other restructuring charges are
included in accrued and other long-term liabilities while severance and benefits
liabilities are included in payroll and payroll related accruals. Actual amounts
of termination benefits, facilities and other restructuring related payments can
be found in Notes to Consolidated Financial Statements under "Restructuring."
MERGER COSTS
In connection with acquisitions in 1999 and 1997, Cadence charged to expense
Quickturn merger costs of $8.4 million and CCT and SpeedSim merger costs of
$11.5 million, representing professional fees for financial advisors, attorneys,
and accountants.
LITIGATION SETTLEMENT
In 1999, Cadence and Mentor announced the settlement of a patent
infringement action pending in the U.S. District Court for the District of
Oregon. As a result, the Court entered a judgment declaring that certain
Quickturn patents are valid, enforceable, and were infringed by Mentor's sale of
SimExpress products in the U.S. Mentor is permanently enjoined from producing,
marketing, or selling SimExpress emulation systems in the U.S. In connection
with the settlement, Mentor paid Cadence $3 million.
OTHER INCOME, NET
Other income, net for 1999, 1998, and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Interest income....................................... $ 5.4 $13.5 $20.9
Minority interest income (expense).................... 0.1 (0.2) (0.3)
Equity income (loss) from investments................. 0.1 (0.9) 1.9
Gain on sale of stock of subsidiary................... -- -- 13.1
Other expense, net.................................... (0.3) (0.9) (3.3)
Gain (loss) on foreign exchange....................... (0.6) 2.8 (1.1)
Interest expense...................................... (3.3) (3.7) (2.8)
----- ----- -----
Total other income, net............................. $ 1.4 $10.6 $28.4
===== ===== =====
</TABLE>
Other income, net decreased $9.2 million and $17.8 million in 1999 and 1998,
respectively, when compared to each prior year. The reductions were primarily
attributable to interest income reductions in 1999 and 1998 of $8.1 million and
$7.4 million, respectively, when compared to each prior year, which were
primarily due to lower average cash and investment balances due in part to the
payments made for acquisitions. Additionally, in February 1997, Cadence and IMS
sold to the public 1.7 million shares of IMS common stock at $20.75 per share,
of which 1 million shares were sold by Cadence, netting Cadence $18.6 million in
cash. In connection with this transaction, Cadence recorded a pre-tax realized
gain of $13.1 million, which is included in other income, net in the
consolidated statements of operations which further reduced other income, net in
1998. Cadence also recorded in 1998 a $2.3 million unrealized gain, net of
deferred taxes, which represented Cadence's proportionate share of IMS' equity
as a result of IMS' sale of stock. This unrealized gain is reflected in the
consolidated statements of stockholders' equity. The likelihood of such
transactions in the future is dependent upon the state of the financial markets,
as well as liquidity and other considerations of each of Cadence and IMS.
The loss on foreign exchange increased in 1999, when compared to 1998, due
to the expense of option premiums in relation to Cadence's hedging program. The
gain on foreign exchange increased in 1998,
34
<PAGE>
when compared to 1997, due to favorable exchange rate movements for Asian
currencies, primarily the Japanese yen. Other expense in 1999, 1998, and 1997
was due primarily to investment losses from a venture capital partnership.
INCOME TAXES
The provision for income taxes and the effective tax rates for 1999, 1998,
and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Provision for income taxes(1)........................ $ 2.7 $74.9 $69.4
Effective tax rate................................... (23.7)% 74.9% 29.6%
</TABLE>
- ------------------------
(1) Includes tax benefit in 1997 of $5.3 million on cumulative effect of change
in accounting method.
At January 1, 2000, Cadence had total net deferred tax assets of
approximately $53.6 million. Realization of the deferred tax assets will be
dependent on generating sufficient taxable income prior to the expiration of
certain net operating loss and tax credit carryforwards. The net valuation
allowance increased by $11.4 million in 2000 due to the uncertainty of certain
foreign subsidiaries generating sufficient taxable income to realize certain
foreign deferred tax assets. Although realization is not assured, management
believes that it is more likely than not that the net deferred tax assets will
be realized. The amount of the net deferred tax assets, however, could be
reduced or increased in the near term if actual facts, including the estimate of
future taxable income, differ from those estimated.
The effective tax rate includes the write-off of acquired in-process
technology of approximately $20.7 million for 1999, $194.1 million for 1998, and
$9.3 million for 1997. The effective tax rates, excluding the write-off of
acquired in-process technology, were 28.9% for 1999, 28.4% for 1998, and 28.5%
for 1997.
CHANGE IN ACCOUNTING METHOD
In November 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued Ruling 97-13 "Accounting for Costs Incurred in Connection
with a Consulting Contract or an Internal Project That Combines Business Process
Reengineering and Information Technology Transformation," which requires
companies to expense costs incurred for business process reengineering projects.
As a result, Cadence recorded a $12.3 million charge in 1997, net of taxes of
$5.3 million, as a cumulative effect of change in accounting method for
reengineering project costs that had been previously capitalized by Cadence
associated with its implementation of enterprise-wide information systems.
DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Cadence's exposure to market risk for changes in interest rates relates
primarily to its investment portfolio and long-term debt obligations. While
Cadence is exposed with respect to interest rate fluctuations in many of the
world's leading industrialized countries, Cadence's interest income and expense
is most sensitive to fluctuations in the general level of U.S. interest rates.
In this regard, changes in U.S. interest rates affect the interest earned on
Cadence's cash and cash equivalents, short-term and long-term investments, and
interest paid on its long-term debt obligations as well as costs associated with
foreign currency hedges.
Cadence invests in high quality credit issuers and, by policy, limits the
amount of its credit exposure to any one issuer. As stated in its policy,
Cadence's first priority is to reduce the risk of principal loss. Consequently,
Cadence seeks to preserve its invested funds by limiting default risk, market
risk, and reinvestment risk. Cadence mitigates default risk by investing in only
high quality credit securities that it believes to be low risk and by
positioning its portfolio to respond appropriately to a significant reduction in
35
<PAGE>
a credit rating of any investment issuer or guarantor. The portfolio includes
only marketable securities with active secondary or resale markets to ensure
portfolio liquidity.
In October 1998, Cadence entered into a senior unsecured credit facility,
referred to as the 1998 Facility, with a syndicate of banks that allows Cadence
to borrow up to $355 million. As amended in September and November of 1999, the
1998 Facility is divided between a $177.5 million two year revolving credit
facility, or the Two Year Facility, and a $177.5 million 364-day revolving
credit facility convertible into a one year term loan, or the 364-Day Facility.
The Two Year Facility expires on September 29, 2001. The 364-Day Facility will
either expire on September 27, 2000, be converted to a one year term loan with a
maturity date of September 27, 2001, or, at the request of Cadence and with the
agreement of the bank group, be renewed for an additional one year. Cadence has
the option to pay interest based on LIBOR plus a spread of between 1.25% and
1.50%, based on a pricing grid tied to a financial covenant, or the higher of
the Federal Funds Rate plus 0.50% or the prime rate. As a result, Cadence's
interest rate expenses associated with this borrowing will vary with market
rates. In addition, commitment fees are payable on the unutilized portions of
the Two Year Facility at rates between 0.23% and 0.30% based on a pricing grid
tied to a financial covenant and on the unutilized portion of the 364-Day
Facility at a fixed rate of 0.18%. The 1998 Facility contains certain financial
and other covenants.
The table below presents the carrying value and related weighted average
interest rates for Cadence's investment portfolio and its long-term debt
obligations. All highly liquid investments with an original maturity of three
months or less at the date of purchase are considered to be cash equivalents;
investments with original maturities between three and 12 months are considered
to be short-term investments. Investments with original maturities greater than
12 months are considered non-current assets. As of January 1, 2000,
substantially all of Cadence's investments have maturities less than 12 months.
The carrying value approximated fair value at January 1, 2000.
<TABLE>
<CAPTION>
AVERAGE
CARRYING INTEREST
VALUE RATE
------------- --------
(IN MILLIONS)
<S> <C> <C>
Investment Securities:
Short-term investments--fixed rate..................... $ 7.4 5.48%
Long-term investments--fixed rate...................... 2.0 6.63%
-----
Total short-term and long-term securities............ 9.4 5.72%
Cash equivalents--fixed rate........................... 9.6 4.84%
Cash equivalents--variable rate........................ 50.3 5.29%
-----
Total interest bearing instruments................... $69.3 5.29%
=====
Long-term Debt:
Revolving credit facility.............................. $20.0 8.11%
=====
</TABLE>
INTEREST RATE SWAP RISK
Cadence entered into a 4.8% fixed interest rate-swap in connection with its
accounts receivable financing program to modify the interest rate
characteristics of the receivables sold to a financing institution on a
non-recourse basis. At January 1, 2000, the notional amount payable was
$17.3 million which will be amortized in quarterly installments of approximately
$2.2 million through October 2001. The estimated fair value at January 1, 2000
was $0.3 million.
FOREIGN CURRENCY RISK
Cadence's operations include transactions in foreign currencies and, as
such, Cadence benefits from a weaker dollar and is adversely affected by a
stronger dollar relative to major currencies worldwide.
36
<PAGE>
Accordingly, the primary effect of foreign currency transactions on Cadence's
results of operations is a reduction in revenue from a strengthening U.S.
dollar, offset by a smaller reduction in expenses.
Cadence enters into foreign currency forward exchange contracts and
purchases foreign currency put options with financial institutions primarily to
protect against currency exchange risks associated with existing assets and
liabilities and probable but not firmly committed transactions, respectively.
Forward contracts are not accounted for as hedges and, therefore, the unrealized
gains and losses are recognized in other income, net in advance of the actual
foreign currency cash flows with the fair value of these forward contracts being
recorded as accrued liabilities.
Cadence purchases put options to hedge the currency exchange risks
associated with probable but not firmly committed transactions. Probable but not
firmly committed transactions consist of revenue from Cadence's products and
maintenance contracts in a currency other than the functional currency. These
transactions are made through Cadence's subsidiaries in Ireland and Japan. The
premium costs of the put options are recorded in other current assets while the
gains and losses are deferred and recognized in income in the same period as the
hedged transaction. Gains and losses on accounting hedges realized before the
settlement date of the related hedged transaction are also generally deferred
and recognized in income in the same period as the hedged transaction. Cadence
does not use forward contracts and put options for trading purposes. Cadence's
ultimate realized gain or loss with respect to currency fluctuations will depend
on the currency exchange rates and other factors in effect as the forward
contracts and put options mature.
The table below provides information as of January 1, 2000 about Cadence's
forward contracts and put options. The information is provided in U.S. dollar
equivalent amounts. The table presents the notional amounts, at contract
exchange rates, and the weighted average contractual foreign currency exchange
rates. These forward contracts matured prior to January 15, 2000. The put
options mature prior to September 30, 2000.
<TABLE>
<CAPTION>
AVERAGE
NOTIONAL CONTRACT
AMOUNT RATE
------------- --------
(IN MILLIONS)
<S> <C> <C>
Forward Contracts:
Japanese yen........................................ $ 80.1 104.71
British pound sterling.............................. 54.5 1.65
Euro................................................ 29.5 1.08
Canadian dollars.................................... 8.3 1.47
Swedish krona....................................... 2.9 8.09
Hong Kong dollars................................... 2.8 7.78
Singapore dollars................................... 1.6 1.66
------
$179.7
======
Estimated fair value................................ $ (2.5)
======
Put Options:
Japanese yen........................................ $ 27.8 107.99
======
Estimated fair value................................ $ 0.3
======
</TABLE>
While Cadence actively manages its foreign currency risks on an ongoing
basis, there can be no assurance that Cadence's foreign currency hedging
activities will substantially offset the impact of fluctuations in currency
exchange rates on its results of operations, cash flows, and financial position.
On a net basis, foreign currency fluctuations did have a material impact on
Cadence's results of operations and financial position during the year ended
January 1, 2000. The realized gain (loss) on the forward contracts as they
matured was not material to the consolidated operations of Cadence.
37
<PAGE>
EQUITY PRICE RISK
As part of its authorized repurchase program, Cadence has sold put warrants
and purchased call options through private placements. The put warrants, if
exercised, would entitle the holder to sell shares of Cadence common stock to
Cadence at a specified price. Similarly, the call options entitle Cadence to buy
shares of Cadence common stock at a specified price.
Cadence repurchases shares of its common stock under stock repurchase
programs for issuance under its Employee Stock Purchase Plan, or ESPP, and its
1997 Stock Option Plan, referred to as the 1997 Plan and its 2000 Stock Option
Plan adopted in January 2000. As part of these repurchase programs, Cadence has
purchased and will purchase call options or has sold and will sell put warrants.
These transactions may result in sales of a large number of shares and
consequent decline in the market price of Cadence common stock. Cadence's stock
repurchase program includes the following characteristics:
- Call options allow Cadence to buy shares of its common 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 its stock. If the market price
of the common 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 warrants 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 warrants and the market price
of Cadence common stock at the time of exercise, settlement of the put
warrants with Cadence common 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 open market, which could cause the price of
Cadence common stock to fall.
- Put warrant holders may accumulate a substantial number of shares of
Cadence common 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.
The table below provides information at January 1, 2000 about Cadence's
outstanding put warrants and call options. The table presents the contract
amounts and the weighted average strike prices. The put warrants and call
options expired in February 2000 and Cadence had the contractual ability to
settle the options prior to their maturity.
<TABLE>
<CAPTION>
2000 ESTIMATED
MATURITY FAIR VALUE
--------- ----------
(SHARES AND CONTRACT
AMOUNTS IN MILLIONS)
<S> <C> <C>
Put Warrants:
Shares............................................. 1.6
Weighted average strike price...................... $13.08
Contract amount.................................... $ 21.1 $ 0.1
Call Options:
Shares............................................. 1.3
Weighted average strike price...................... $13.33
Contract amount.................................... $ 16.7 $13.6
</TABLE>
38
<PAGE>
YEAR 2000 UPDATE
Cadence has completed all of its Year 2000 projects as scheduled
significantly reducing the uncertainty of significant Year 2000 interruptions.
To date, Cadence's products, business systems, and operations have not
experienced any significant Year 2000 related problems. Cadence is not aware
that any of its major customers or third-party suppliers have experienced
significant Year 2000 related problems.
To address Year 2000 issues, Cadence initiated a program designed to address
the most critical Year 2000 items that would affect Cadence's products, its
business systems, and the operations of its research and development, finance,
sales, manufacturing, and human resources functions. Cadence also worked with
critical suppliers and customers to determine that such suppliers' and
customers' operations and the products and services are Year 2000 capable or to
monitor their progress towards Year 2000 capability.
Cadence's Year 2000 efforts included a program to inventory, assess,
remediate, and test the Year 2000 capability of its products. As a result of
those efforts, Cadence verified that the most current release of Cadence's
software products, as set forth in the Year 2000 Software Compliance List, which
is available on Cadence's web site, were Year 2000 Compliant. Cadence uses the
term Year 2000 Compliant to mean that the software will not: (A) cease to
perform due solely to a change in date to or after January 1, 2000, or
(B) generate incorrect or ambiguous data or results with respect to same-century
and/or multi-century formulas, functions, date values, and date data interfaces.
Cadence does not believe that customers are using a significant amount of
products that are not determined to be Year 2000 Compliant.
Year 2000 related costs to resolve the readiness issues are not expected to
exceed $13 million throughout the term of the project. Cadence expects this
project to be completed in 2000.
Although Cadence has successfully modified its products and business
systems, there may still be undetected failures or defects associated with Year
2000 functions. The failure to correct a material Year 2000 problem could result
in an interruption in, or a failure of, certain normal business activities or
operations of Cadence. The reasonably likely worst case scenario associated with
Cadence products for a Year 2000 problem is that a customer project could be
delayed for a short period of time before the problem can be identified and
remediated by Cadence's support process.
LIQUIDITY AND CAPITAL RESOURCES
At January 1, 2000, Cadence's principal sources of liquidity consisted of
$118.8 million of cash and cash equivalents and short-term investments, as
compared with $249.5 million at January 2, 1999, and $336.4 million at
January 3, 1998, and the 1998 Facility. As of January 1, 2000, Cadence had
outstanding borrowings of $20 million under the Two Year Facility. Cadence had
no outstanding borrowings under the 364-Day Facility.
Cash provided by operating activities decreased $100 million to
$127 million in the year ended January 1, 2000 as compared to the year ended
January 2, 1999, primarily due to a decrease in net income before unusual items,
decreases in accounts payable and accrued liabilities, and income taxes payable,
partially offset by increases in depreciation and amortization, receivables,
installment contract receivables, and deferred revenue. Cash provided by
operating activities increased $32.5 million to $227 million for the year ended
January 2, 1999 as compared to the year ended January 3, 1998. The increase was
primarily due to increases in net income before unusual items, depreciation and
amortization, deferred income taxes, and prepaid expenses and other, partially
offset by decreases in receivables, installment contract receivables, and
accounts payable and accrued liabilities.
At January 1, 2000, Cadence had net working capital of $58.4 million, as
compared with $294.3 million at January 2, 1999. The primary reasons for the
decrease were decreases in short-term investments of $33 million, cash and cash
equivalents of $97.7 million, accounts receivable of $57.1 million, increases in
accounts payable and accrued liabilities of $23 million, and a deferred revenue
increase of $45.3 million, partially offset by a decrease in income taxes
payable of $21.2 million. The increase in accounts payable
39
<PAGE>
and accrued liabilities was primarily attributable to bonus and commissions
payments to be paid in early 2000, accounts payable to vendor accruals and
accrued consulting services, offset partially by reductions in restructure
related accruals.
In addition to its short-term investments, Cadence's primary investing
activities consisted of acquisitions and the related acquired intangibles,
purchases of property, plant, and equipment, capitalization of software
development costs, and venture capital partnership investments, which combined
represented $306.8 million at January 1, 2000, $591.3 million at January 2,
1999, and $132.7 million at January 3, 1998 of cash used for investing
activities.
In connection with the consummation of the merger with Quickturn, Cadence
rescinded its stock repurchase program, with the exception of continued
systematic stock repurchases under its seasoned stock repurchase programs for
Cadence's 1997 Plan and ESPP. In 1999, the Board of Directors approved a
10,000,000 share expansion of Cadence's existing seasoned systematic repurchase
program to meet the share issuance requirements of Cadence's 1997 Plan. In
February 2000, the Board of Directors approved a 15,000,000 share increase for
stock repurchases. This increase included authorization to repurchase 5,000,000
shares on a systematic basis to meet share issuance requirements of Cadence's
newly adopted 2000 Non-Statutory Stock Option Plan and authorization to
repurchase 10,000,000 shares on a non-systematic basis to be used for general
corporate purposes. Cadence is now authorized to repurchase an aggregate of
13,000,000 shares for the 1997 Plan, 5,000,000 for its 2000 Plan, 13,400,000
shares for the ESPP, and 10,000,000 shares for general corporate purposes.
Cadence sells put warrants and purchased call options through private
placements. See "Notes to Consolidated Financial Statements." At January 1,
2000, Cadence had a maximum potential obligation related to put warrants to buy
back 1.6 million shares of its common stock at an aggregate price of
approximately $21.1 million. These put warrants expired in February 2000.
Subsequently, Cadence has sold put warrants entitling the holder to sell to
Cadence 7.6 million shares of its common stock at an aggregate price of
approximately $159.8 million and purchased call options entitling Cadence to
purchase 5.8 million shares of its common stock at an aggregate price of
approximately $121.6 million. The put warrants and call options expire at
various dates through November 2000 and Cadence has the contractual ability to
settle the put warrants and call options prior to their maturity. Cadence has
the ability to settle these put warrants with stock and, therefore, no amount
was classified out of stockholders' equity in Cadence's consolidated balance
sheets.
As part of its overall investment strategy, Cadence has become a limited
partner in a venture capital fund and is committed to invest up to
$100 million. As of January 1, 2000, Cadence had contributed approximately
$33.2 million to this partnership for venture funding, which is reflected in
other assets in the accompanying consolidated balance sheets, net of operating
losses.
In October 1998, Cadence entered into a senior unsecured credit facility,
referred to as the 1998 Facility, with a syndicate of banks that allows Cadence
to borrow up to $355 million. As amended in September and November of 1999, the
1998 Facility is divided between a $177.5 million two year revolving credit
facility, or the Two Year Facility, and a $177.5 million 364-day revolving
credit facility convertible into a one year term loan, or the 364-Day Facility.
The Two Year Facility expires on September 29, 2001. The 364-Day Facility will
either expire on September 27, 2000, be converted to a one year term loan with a
maturity date of September 27, 2001, or, at the request of Cadence and with the
agreement of the bank group, be renewed for an additional one year. Cadence has
the option to pay interest based on LIBOR plus a spread of between 1.25% and
1.50%, based on a pricing grid tied to a financial covenant, or the higher of
the Federal Funds Rate plus 0.50% or the prime rate. As a result, Cadence's
interest rate expenses associated with this borrowing will vary with market
rates. In addition, commitment fees are payable on the unutilized portions of
the Two Year Facility at rates between 0.23% and 0.30% based on a pricing grid
tied to a financial covenant and on the unutilized portion of the 364-Day
Facility at a fixed rate of 0.18%. The 1998 Facility contains certain financial
and other covenants.
40
<PAGE>
Cadence anticipates that current cash and short-term investment balances,
cash flow from operations, and the remaining amounts available under the 1998
Facility will be sufficient to meet its working capital and capital requirements
on a short-and long-term basis.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value. It
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met and that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. In June 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," was issued. The statement defers the effective date of
SFAS No. 133 until the first quarter of fiscal 2001. Cadence has not yet
determined the effect SFAS No. 133 will have on its financial position, results
of operations, or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or SAB, No. 101, "Revenue Recognition." SAB 101 provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements and is effective for the first quarter of Fiscal 2000.
Cadence has not yet determined the effect SAB 101 will have on its financial
position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A is incorporated by reference from the
section entitled "Disclosures About Market Risk" found in Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 are submitted as a separate
section of this Annual Report on Form 10-K. See Item 14.
SUMMARY QUARTERLY DATA--UNAUDITED
<TABLE>
<CAPTION>
1999 1998
----------------------------------------- -----------------------------------------
4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................................... $268,022 $225,897 $264,193 $335,191 $376,472 $334,184 $315,736 $293,788
Cost of revenue........................... $ 82,734 $ 81,577 $ 81,838 $ 78,694 $ 81,521 $ 83,991 $ 83,288 $ 69,892
Amortization of acquired intangibles...... $ 19,385 $ 16,833 $ 12,856 $ 12,714 $ 11,671 $ 3,114 $ 2,884 $ 803
Income (loss) from operations(1).......... $(32,020) $(53,783) $ (4,347) $ 77,400 $ 64,210 $(70,195) $ 78,924 $ 16,549
Net income (loss)......................... $(22,484) $(41,446) $ (3,007) $ 52,862 $ 47,569 $(80,453) $ 59,962 $ (1,954)
Net income (loss) per share--diluted...... $ (0.09) $ (0.17) $ (0.01) $ 0.20 $ 0.19 $ (0.34) $ 0.23 $ (0.01)
</TABLE>
- ------------------------------
(1) Income (loss) from operations for 1999 and 1998 included certain unusual
item charges of $59.3 million and $263.6 million, respectively, which
follow:
<TABLE>
<CAPTION>
4TH 3RD 2ND 1ST
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1999:
Write-off of acquired in-process technology................ $ -- $ 11,800 $ -- $ 8,900
Asset impairment........................................... 13,290 -- 3,510 3,091
Restructuring charges...................................... -- 371 10,703 2,200
Merger costs............................................... -- -- 8,436 --
Litigation settlement...................................... -- -- (3,000) --
------- -------- ------- -------
$13,290 $ 12,171 $19,649 $14,191
======= ======== ======= =======
1998:
Write-off of acquired in-process technology................ $ -- $137,200 $ -- $56,900
Restructuring charges...................................... 44,705 20,833 -- 3,957
------- -------- ------- -------
$44,705 $158,033 $ -- $60,857
======= ======== ======= =======
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
41
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 as to directors is incorporated by
reference from the sections entitled "Election of Directors" and "Compliance
with the Reporting Requirements of Section 16(a)" in Cadence's definitive Proxy
Statement for its 2000 annual stockholders' meeting to be held on May 24, 2000.
The executive officers of Cadence are listed at the end of Part I of this
Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
section entitled "Director and Executive Compensation" in Cadence's definitive
Proxy Statement for its 2000 annual stockholders' meeting to be held on May 24,
2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in Cadence's definitive Proxy Statement for its 2000 annual
stockholders' meeting to be held on May 24, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
section entitled "Certain Transactions" in Cadence's definitive Proxy Statement
for its 2000 annual stockholders' meeting to be held on May 24, 2000.
42
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
(a) 1. Financial Statements:
- Report of Independent Public Accountants.................. 49
- Report of PricewaterhouseCoopers LLP, Independent
Accountants................................................. 50
- Consolidated Balance Sheets at January 1, 2000 and January
2, 1999..................................................... 51
- Consolidated Statements of Operations for the three fiscal
years ended
January 1, 2000............................................. 52
- Consolidated Statements of Stockholders' Equity for the
three fiscal years ended
January 1, 2000............................................. 53
- Consolidated Statements of Cash Flows for the three fiscal
years ended
January 1, 2000............................................. 54
- Notes to Consolidated Financial Statements................ 55
(a) 2. Financial Statement Schedules:
II. Valuation and Qualifying Accounts and Reserves......... 86
All other schedules are omitted because they are not
required or the required information is shown in the
financial statements or notes thereto.
(a) 3. Exhibits:
The following exhibits are filed with this Annual Report on
Form 10-K:
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------- -------------
<S> <C>
2.01 Agreement and Plan of Merger, dated as of December 8, 1998
among the Registrant, Quickturn Design Systems, Inc. and
CDSI Acquisition, Inc. as amended on December 16, 1998 and
January 4, 1999 (incorporated by reference to Exhibit 2.01
to the Registrant's Form 8-K filed on 12/10/98, as amended
by Forms 8-K/A filed on 12/22/98, 1/6/99, and 5/20/99. The
Disclosure Schedules related 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 (the
1999 Form S-4).
3.01 (a) The Registrant's Certificate of Ownership and Merger as
filed with the Secretary of State of the State of Delaware
on June 1, 1988 (incorporated by reference to
Exhibit 3.02(c) to the Registrant's Form S-1 Registration
Statement (No. 33-23107) filed on July 18, 1988 (the 1988
Form S-1)).
(b) The Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock, as amended on
February 1, 2000, as filed with the Secretary of State of
the State of Delaware on June 8, 1989 (incorporated by
reference to Exhibit 3A to the Registrant's Current Report
on Form 8-K (No. 0-15867) filed on June 12, 1989 (the 1989
Form 8-K) and amended by Exhibit 4.01 to this Form 10-K).
(c) The Registrant's Certificate of Designation of Series A
Convertible Preferred Stock as filed with the Secretary of
State of the State of Delaware on December 30, 1991
(incorporated by reference to Exhibit 3.01(f) from the
Registrant's Form 10-K for the year ended December 31,
1991).
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------- -------------
<S> <C>
(d) The Registrant's Certificate of Amendment of Certificate
of Incorporation as filed with the Secretary of State of the
State of Delaware on May 13, 1998 (incorporated by reference
to Exhibit 3.01(i) to the Registrant's Form 10-Q for the
quarter ended July 4, 1998 (the 1998 Second Quarter
Form 10-Q)).
(e) The Registrant's Restated Certificate of Incorporation
as filed with the Secretary of State of the State of
Delaware on May 13, 1998 (incorporated by reference to
Exhibit 3.01(j) to the 1998 Second Quarter Form 10-Q).
3.02 The Registrant's Bylaws, as currently in effect
(incorporated by reference to Exhibit 3.02 to the 1987
Form S-1 and as amended by Exhibit 3-b to the 1989 Form 8-K
and Exhibit 3.01 to the Registrant's Form 10-Q for the
quarter ended April 3, 1999).
4.01 Specimen Certificate of the Registrant's Common Stock
(incorporated by reference to Exhibit 4.01 to the
Registrant's Form S-4 Registration Statement (No. 33-43400)
filed October 17, 1991).
4.02 Amended and Restated Rights Agreement, dated as of
February 1, 2000, between the Registrant and ChaseMellon
Shareholder Services, L.L.C. 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.
10.01 The Registrant's 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 Form S-8
Registration Statement (No. 33-22652) filed on June 20,
1988).
10.03 The Registrant's 1988 Directors Stock Option Plan, as
amended, 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 Form S-8 Registration Statement (No. 33-53913)
filed on May 31, 1994 (the 1994 Form S-8) and the latter two
documents are incorporated by reference to
Exhibit 10.08-10.10 to the 1988 Form S-1).
10.04 The Registrant's 1993 Directors Stock Option Plan including
the Form of Stock Option Grant (incorporated by reference to
Exhibit 10.04 of the 1994 Form S-8).
10.05 The Registrant's 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 The Registrant's 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 The Registrant's Senior Executive Bonus Plan for 1995
(incorporated by reference to Exhibit 10.08 of the
Registrant's Form 10-K for the fiscal year ended
December 31, 1994 (the 1994 Form 10-K)).
10.08 The Registrant's Senior Executive Bonus Plan for 1996
(incorporated by reference to Exhibit 10.08 to the 1995
Form 10-K).
10.09 The Registrant's 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>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------- -------------
<S> <C>
10.10 The Registrant's Deferred Compensation Plan for 1994
(incorporated by reference to Exhibit 10.09 to the 1994
Form 10-K).
10.11 The Registrant's 1996 Deferred Compensation Venture
Investment Plan (incorporated by reference to Exhibit 10.11
to the 1995 Form 10-K).
10.12 Amended and Restated Lease, dated June 29, 1989, by and
between River Oaks Place Associates (ROPA), a California
limited partnership, and the Registrant, for the
Registrant's offices at 555 River Oaks Parkway, San Jose,
California (incorporated by reference to Exhibit 10.14 to
the Registrant's Form 10-K (No. 1-10606) 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 the Form 10-K (No. 0-11974) for Valid for
the fiscal year ended December 30, 1990).
10.16 The 1993 Non-Statutory Stock Option Plan (incorporated by
reference to Exhibit 4.05 to the 1994 Form S-8).
10.17 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).
10.18 The Registrant's 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)).
10.19 Amendment, dated May 3, 1996 to Registrant's 1993
Non-Statutory Stock Option Plan (incorporated by reference
to Exhibit 10.30 to the 1996 First Quarter Form 10-Q).
10.20 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).
10.21 Amendment Number 1, dated May 31, 1996, (incorporated by
reference to Exhibit 10.40 to the 1996 Second Quarter
Form 10-Q), 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 10.14 to the 1990 Form 10-K).
10.22 Amendment Number 2, dated May 31,1996, (incorporated by
reference to Exhibit 10.41 to the 1996 Second Quarter
Form 10-Q), 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 10.14 to the 1990 Form 10-K).
10.23 Amendment Number 1, dated May 31, 1996, (incorporated by
reference to Exhibit 10.42 to the 1996 Second Quarter
Form 10-Q), to Lease Agreement for the Registrant's offices
at 575 River Oaks Parkway, San Jose, California, by and
between ROPA and the Registrant (incorporated by reference
to Exhibit 10.16 to the 1990 Form 10-K).
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------- -------------
<S> <C>
10.24 Amendment Number 2, dated May 31, 1996, (incorporated by
reference to Exhibit 10.43 to the 1996 Second Quarter
Form 10-Q), to Lease Agreement for the Registrant's offices
at 575 River Oaks Parkway, San Jose, California, by and
between ROPA and the Registrant (incorporated by reference
to Exhibit 10.16 to the 1990 Form 10-K).
10.25 Amendment Number 1, dated May 31, 1996, (incorporated by
reference to Exhibit 10.44 to the 1996 Second Quarter
Form 10-Q), to Lease Agreement for the Registrant's offices
at 535 and 545 River Oaks Parkway, San Jose, California, by
and between ROPA and the Registrant (incorporated by
reference to Exhibit 10.17 to the 1990 Form 10-K).
10.26 Amendment Number 2, dated May 31, 1996, (incorporated by
reference to Exhibit 10.45 to the 1996 Second Quarter
Form 10-Q), to Lease Agreement for the Registrant's offices
at 535 and 545 River Oaks Parkway, San Jose, California, by
and between ROPA and the Registrant (incorporated by
reference to Exhibit 10.17 to the 1990 Form 10-K).
10.27 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).
10.28 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) filed on
November 27, 1996).
10.29 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 Fiscal
year ended January 3, 1998 (the 1997 Form 10-K)).
10.30 Indemnity Agreement, dated October 19, 1997, by and between
the Registrant and John R. Harding (incorporated by
reference to Exhibit 10.44 to the 1997 Form 10-K).
10.31 Letter Agreement, dated December 5, 1997, between the
Registrant and Joseph B. Costello (incorporated by reference
to Exhibit 10.42 to the 1997 Form 10-K).
10.32 Form of Executive Severance Agreement (incorporated by
reference to Exhibit 10.43 to the 1997 Form 10-K).
10.33 Revolving Credit Agreement, dated September 30, 1998, by and
between ABN-AMRO Bank and the Registrant (incorporated by
reference to Exhibit 10.45 from the Registrant's Form 10-Q
for the third quarter ended October 3, 1998 (the 1998 Third
Quarter Form 10-Q)).
10.34 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 from the 1998
Third Quarter Form 10-Q).
10.35 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 Current Report
on Form 8-K originally filed on September 30, 1998).
10.36 Consulting Agreement, dated March 8, 1999, between the
Registrant and George M. Scalise.
10.37 Executive Termination and Release Agreement dated May 24,
1999, between Cadence and John R. Harding (incorporated by
reference to Exhibit 10.48 from the Registrant's Form 10-Q
for the second quarter ended July 3, 1999 (the 1999 Second
Quarter Form 10-Q)).
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------- -------------
<S> <C>
10.38 The Registrant's 1995 Directors Stock Option Plan, as
amended May 5, 1999 (incorporated by reference to
Exhibit 10.49 from the 1999 Second Quarter Form 10-Q).
10.39 The Registrant's 1990 Employee Stock Purchase Plan, as
amended May 5, 1999 (incorporated by reference to
Exhibit 10.50 from the 1999 Second Quarter Form 10-Q).
10.40 Employment Agreement, dated September 16, 1999, between the
Registrant and H. Raymond Bingham (incorporated by reference
to Exhibit 10.51 from the Registrant's Form 10-Q for the
third quarter ended October 2, 1999 (the 1999 Third Quarter
Form 10-Q)).
10.41 Consulting Agreement, dated July 1999, between the
Registrant and Alberto Sangiovanni-Vincentelli (incorporated
by reference to Exhibit 10.52 from the 1999 Third Quarter
Form 10-Q).
10.42 Amendment, dated September 27, 1999, to the Revolving Credit
Agreement, by and between ABN-AMRO Bank and the Registrant
(incorporated by reference to Exhibit 10.53 from the 1999
Third Quarter Form 10-Q).
10.43 Amendment, dated November 3, 1999, to the Revolving Credit
Agreement, by and between ABN-AMRO Bank and the Registrant
(incorporated by reference to Exhibit 10.54 from the 1999
Third Quarter Form 10-Q).
10.44 Design Acceleration, Inc. 1994 Stock Option Plan
(incorporated by reference to Exhibit 99 to the Registrant's
Form S-8 Registration Statement (No. 333-71717) originally
filed on February 3, 1999).
10.45 Quickturn Design Systems, Inc. 1988 Stock Option Plan, as
amended, (incorporated by reference to Exhibit 99.1 to the
Registrant's Form S-8 Registration Statement
(No. 333-69589) filed on June 7, 1999).
10.46 Pi Design Systems, Inc. 1990 Stock Option Plan, as amended,
(incorporated by reference to Exhibit 99.2 to the
Registrant's Form S-8 Registration Statement
(No. 333-69589) filed on June 7, 1999).
10.47 Quickturn Design Systems, Inc. 1992 Key Executive Stock
Option Plan, as amended, (incorporated by reference to
Exhibit 99.3 to the Registrant's Form S-8 Registration
Statement (No. 333-69589) filed on June 7, 1999).
10.48 Quickturn Design Systems, Inc. 1993 Employee Qualified Stock
Purchase Plan, as amended, (incorporated by reference to
Exhibit 99.4 to the Registrant's Form S-8 Registration
Statement (No. 333-69589) filed on June 7, 1999).
10.49 Quickturn Design Systems, Inc. 1994 Outside Director Stock
Option Plan (incorporated by reference to Exhibit 99.7 to
the Registrant's Form S-8 Registration Statement
(No. 333-69589) filed on June 7, 1999).
10.50 Quickturn Design Systems, Inc. 1996 Supplemental Stock Plan,
as amended, (incorporated by reference to Exhibit 99.5 to
the Registrant's Form S-8 Registration Statement
(No. 333-69589) filed on June 7, 1999).
10.51 Quickturn Design Systems, Inc. 1997 Stock Option Plan, as
amended, (incorporated by reference to Exhibit 99.6 to the
Registrant's Form S-8 Registration Statement
(No. 333-69589) filed on June 7, 1999).
10.52 SpeedSim, Inc. 1995 Incentive and Nonqualified Stock Option
Plan (incorporated by reference to Exhibit 99.8 to the
Registrant's Form S-8 Registration Statement
(No. 333-69589) filed on June 7, 1999).
10.53 OrCAD, Inc. 1991 Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 99.1 to the
Registrant's Form S-8 Registration Statement
(No. 333-85591) filed on August 19, 1999).
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------- -------------
<S> <C>
10.54 OrCAD, Inc. 1995 Stock Option Plan (incorporated by
reference to Exhibit 99.2 to the Registrant's Form S-8
Registration Statement (No. 333-85591) filed on August 19,
1999).
10.55 OrCAD, Inc. Amended 1995 Stock Incentive Plan (incorporated
by reference to Exhibit 99.3 to the Registrant's Form S-8
Registration Statement (No. 333-85591) filed on August 19,
1999).
10.56 Form of Indemnity Agreement between the Registrant and Key
Executives and Board of Directors of the Registrant.
10.57 Form of Executive Retention Agreement between the Registrant
and Key Executives of the Registrant.
10.58 Diablo Research Company LLC 1997 Stock Option Plan
(incorporated by reference to Exhibit 99.1 to the
Registrant's Form S-8 Registration Statement
(No. 333-93609) filed on December 24, 1999).
10.59 Diablo Research Company LLC 1999 Stock Option Plan
(incorporated by reference to Exhibit 99.2 to the
Registrant's Form S-8 Registration Statement
(No. 333-93609) filed on December 24, 1999).
10.60 The Registrant's 2000 Non-Statutory Equity Incentive Plan
(incorporated by reference to Exhibit 99.1 to the
Registrant's Form S-8 Registration Statement filed on
March 27, 2000).
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen LLP.
23.02 Consent of PricewaterhouseCoopers LLP.
27.01 Financial data schedule for the year ended January 1, 2000.
27.02 Financial data schedule for the periods ended January 3,
1998, January 2, 1999, April 4, 1998, July 4, 1998, and
October 3, 1998.
27.03 Financial data schedule for the period ended April 3, 1999.
</TABLE>
(b) REPORTS ON FORM 8-K:
On December 10, 1998 and as amended on December 22, 1998, January 6, 1999,
May 20, 1999, and June 15, 1999, the Registrant filed a Current Report on
Form 8-K reporting Cadence's agreement to acquire Quickturn Design
Systems, Inc., a Delaware corporation, and amendments to this agreement.
On May 6, 1999, the Registrant filed a Current Report on Form 8-K reporting
Cadence's press release announcing its first quarter 1999 results and announcing
the appointment of H. Raymond Bingham to the position of President and Chief
Executive Officer.
On May 26, 1999 and as amended on June 15, 1999, the Registrant filed a
Current Report on Form 8-K reporting the completion of Cadence's agreement to
acquire Quickturn Design Systems, Inc., a Delaware corporation.
(c) EXHIBITS:
Cadence hereby files as part of this Form 10-K the Exhibits listed in
Item 14. (a) 3 above.
(d) FINANCIAL STATEMENT SCHEDULE:
See Item 14. (a) 2 of this Form 10-K.
48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Cadence Design Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Cadence
Design Systems, Inc. (a Delaware corporation) and subsidiaries as of January 1,
2000 and January 2, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended January 1, 2000. These financial statements and the schedule referred to
below are the responsibility of Cadence's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits. We did not audit the financial statements of Quickturn Design
Systems, Inc., for the years ended December 31, 1998 and 1997, a company
acquired during 1999 in a transaction accounted for as a pooling of interests,
as discussed in Acquisitions in the Notes to the Consolidated Financial
Statements. Such statements are included in the consolidated financial
statements of Cadence Design Systems, Inc. and reflect total revenues of eight
percent and eleven percent of the related consolidated totals for the years
ended January 2, 1999 and January 3, 1998. These statements were audited by
other auditors whose report has been furnished to us and our opinion, insofar as
it relates to amounts included for Quickturn Design Systems, Inc., is based
solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Cadence Design Systems, Inc. and
subsidiaries as of January 1, 2000 and January 2, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 1, 2000, in conformity with generally accepted accounting principles.
As explained in Cumulative Change in Accounting Method in the Notes to
Consolidated Financial Statements, effective November 1997, Cadence changed its
method of accounting for costs incurred for business process reengineering
projects.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14. (a) 2. is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Jose, California
January 21, 2000
(Except for the matters discussed in
Subsequent Events, as to which the
date is February 25, 2000)
49
<PAGE>
REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Quickturn Design Systems, Inc.:
In our opinion, the consolidated balance sheet as of December 31, 1998 and
the related consolidated statements of operations, comprehensive income (loss),
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1998 of Quickturn Design Systems, Inc. and its subsidiaries
(not presented separately herein) present fairly, in all material respects, the
financial position, results of operations and cash flows of Quickturn Design
Systems, Inc. and its subsidiaries at December 31, 1998 and for each of the two
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Quickturn Design Systems, Inc.
for any period subsequent to December 31, 1998.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 15, 1999
50
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2000 AND JANUARY 2, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 111,401 $ 209,074
Short-term investments.................................... 7,357 40,403
Receivables, net.......................................... 248,034 305,143
Inventories, net.......................................... 19,872 9,903
Prepaid expenses and other................................ 93,248 101,629
---------- ----------
Total current assets.................................... 479,912 666,152
Property, plant, and equipment, net......................... 330,409 274,208
Software development costs, net............................. 10,692 13,045
Acquired intangibles, net................................... 402,154 286,088
Installment contract receivables............................ 84,160 100,529
Other assets................................................ 152,332 141,894
---------- ----------
$1,459,659 $1,481,916
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of capital leases....... $ 3,924 $ 1,273
Accounts payable and accrued liabilities.................. 265,518 242,524
Income taxes payable...................................... -- 21,241
Deferred revenue.......................................... 152,116 106,786
---------- ----------
Total current liabilities............................... 421,558 371,824
---------- ----------
Long-Term Liabilities:
Long-term debt and capital leases......................... 25,024 136,380
Minority interest liability............................... 41 377
Other long-term liabilities............................... 26,887 25,505
---------- ----------
Total long-term liabilities............................. 51,952 162,262
---------- ----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock--$0.01 par value; authorized 400 shares in
1999 and 1998, none issued or outstanding............... -- --
Common stock and capital in excess of $0.01 par value
Authorized: 600,000 shares
Issued: 253,768 shares in 1999 and 247,371 in 1998
Outstanding: 243,328 shares in 1999 and 237,212 in
1998.................................................... 857,960 817,978
Treasury stock at cost: 10,440 shares in 1999 and 10,159
in 1998................................................. (240,748) (219,417)
Retained earnings......................................... 344,247 358,322
Accumulated other comprehensive income (loss)............. 24,690 (9,053)
---------- ----------
Total stockholders' equity.............................. 986,149 947,830
---------- ----------
$1,459,659 $1,481,916
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
51
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE FISCAL YEARS ENDED JANUARY 1, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Product................................................ $ 505,459 $ 760,441 $ 618,340
Services............................................... 294,916 265,211 168,789
Maintenance............................................ 292,928 294,528 249,644
---------- ---------- ----------
Total revenue........................................ 1,093,303 1,320,180 1,036,773
---------- ---------- ----------
Costs and Expenses:
Cost of product........................................ 79,504 77,513 74,181
Cost of services....................................... 191,760 188,793 117,407
Cost of maintenance.................................... 53,579 52,386 34,038
Amortization of acquired intangibles................... 61,788 18,472 2,460
Marketing and sales.................................... 354,205 340,295 299,829
Research and development............................... 219,181 202,810 167,245
General and administrative............................. 86,735 86,828 69,897
Unusual items.......................................... 59,301 263,595 48,010
---------- ---------- ----------
Total costs and expenses............................. 1,106,053 1,230,692 813,067
---------- ---------- ----------
Income (loss) from operations............................ (12,750) 89,488 223,706
Other income, net...................................... 1,370 10,558 28,390
---------- ---------- ----------
Income (loss) before provision for income taxes and
cumulative effect of change in accounting method....... (11,380) 100,046 252,096
Provision for income taxes............................. 2,695 74,922 74,698
---------- ---------- ----------
Income (loss) before cumulative effect of change in
accounting method...................................... (14,075) 25,124 177,398
Cumulative effect of change in accounting method, net
of taxes of $5,261 in 1997........................... -- -- 12,276
---------- ---------- ----------
Net income (loss)........................................ $ (14,075) $ 25,124 $ 165,122
========== ========== ==========
Basic net income (loss) per share:
Net income (loss) before cumulative effect of change in
accounting method.................................... $ (0.06) $ 0.11 $ 0.82
========== ========== ==========
Net income (loss)...................................... $ (0.06) $ 0.11 $ 0.76
========== ========== ==========
Diluted net income (loss) per share:
Net income (loss) before cumulative effect of change in
accounting method.................................... $ (0.06) $ 0.10 $ 0.73
========== ========== ==========
Net income (loss)...................................... $ (0.06) $ 0.10 $ 0.68
========== ========== ==========
Weighted average common shares outstanding............... 242,037 234,605 216,650
========== ========== ==========
Weighted average common shares outstanding--assuming full
dilution............................................... 242,037 257,862 243,341
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
52
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE FISCAL YEARS ENDED JANUARY 1, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ACCUMULATED
PAR VALUE OTHER
COMPRE- AND CAPITAL TREASURY STOCK COMPRE-
HENSIVE IN EXCESS -------------------- RETAINED HENSIVE
INCOME (LOSS) SHARES OF PAR SHARES AMOUNT EARNINGS INCOME (LOSS)
------------- -------- ----------- -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 28, 1996............ 279,464 $711,469 (62,945) $(325,637) $168,076 $(1,825)
Purchase of treasury stock.......... -- (720) (4,592) (104,526) -- --
Issuance of common and treasury
stock............................. 16,188 70,414 1,167 7,308 -- --
Tax benefits from employee stock
transactions...................... -- 124,040 -- -- -- --
Retirement of treasury stock in
connection with the CCT
acquisition....................... (22,778) (32,429) 22,778 32,429 -- --
Common stock and warrants issued in
connection with an acquisition.... 636 9,500 -- -- -- --
Treasury stock issued in connection
with acquisitions................. -- -- 128 1,755 -- --
Unrealized gain on investment in
subsidiary........................ -- 2,304 -- -- -- --
Use of treasury stock for common
stock dividend.................... (36,725) (291,636) 36,725 291,386 -- --
Amortization of deferred
compensation...................... -- 227 -- -- -- --
Net income.......................... $165,122 -- -- -- -- 165,122 --
Unrealized holding gain on
marketable securities............. 78 -- -- -- -- -- 78
Translation loss.................... (5,972) -- -- -- -- -- (5,972)
-------- ------- -------- -------- --------- -------- -------
$159,228
========
BALANCE, JANUARY 3, 1998.............. 236,785 593,169 (6,739) (97,285) 333,198 (7,719)
Purchase of treasury stock.......... -- -- (6,479) (172,171) -- --
Issuance of common and treasury
stock............................. 10,586 85,147 1,804 30,400 -- --
Tax benefits from employee stock
transactions...................... -- 109,713 -- -- -- --
Treasury stock issued in connection
with acquisitions................. -- 26,957 1,155 19,639 -- --
Treasury stock issued in connection
with warrants exercised........... -- 322 100 -- -- --
Amortization of deferred
compensation...................... -- 176 -- -- -- --
Equity adjustments related to
acquisitions...................... -- 2,494
Net income.......................... $ 25,124 -- -- -- -- 25,124 --
Unrealized holding gain on
marketable securities............. 37 -- -- -- -- -- 37
Translation loss.................... (1,371) -- -- -- -- -- (1,371)
-------- ------- -------- -------- --------- -------- -------
$ 23,790
========
BALANCE, JANUARY 2, 1999.............. 247,371 817,978 (10,159) (219,417) 358,322 (9,053)
Purchase of treasury stock.......... -- (2) (4,585) (115,832) -- --
Issuance of common and treasury
stock............................. 5,126 (2,562) 3,654 80,466 -- --
Issuance of common stock in
connection with warrants
exercised......................... 1,271 13,340 -- -- -- --
Tax benefits from employee stock
transactions...................... -- 10,305 -- -- -- --
Treasury stock issued in connection
with acquisitions................. -- 2,089 650 14,035 -- --
Amortization of deferred
compensation...................... 130
Equity adjustments related to
acquisitions...................... -- 16,682 -- -- -- --
Net loss............................ $(14,075) -- -- -- -- (14,075) --
Unrealized holding gain on
marketable securities............. 36,249 -- -- -- -- -- 36,249
Translation loss.................... (2,506) -- -- -- -- -- (2,506)
-------- ------- -------- -------- --------- -------- -------
$ 19,668
========
BALANCE, JANUARY 1, 2000.............. 253,768 $857,960 (10,440) $(240,748) $344,247 $24,690
======= ======== ======== ========= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
53
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED JANUARY 1, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash and Cash Equivalents at Beginning of Year.............. $209,074 $221,030 $314,422
-------- -------- --------
Cash Flows from Operating Activities:
Net income (loss)......................................... (14,075) 25,124 165,122
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization........................... 163,896 109,105 65,646
Asset impairment and write-off of equipment and
non-current assets.................................... 20,973 357 3,065
Write-off of acquired in-process technology and charges
related to Arkos acquisition.......................... 20,700 194,100 14,859
Provisions for losses on trade accounts receivable...... 9,070 7,687 12,428
Non-cash restructuring charges.......................... 5,556 13,321 2,347
Write-down of venture capital partnership investments... 5,500 2,000 2,000
Changes in other long-term liabilities and minority
interest.............................................. 1,201 (1,076) 2,691
Gain on sale of stock of subsidiary..................... -- -- (13,061)
Write-off of business process re-engineering costs...... -- -- 17,537
Write-down of inventories............................... -- 3,435 6,153
Equity (income) loss from investments................... (124) 889 (1,934)
Deferred income taxes................................... (1,431) 24,725 (73,584)
Changes in operating assets and liabilities, net of
effect of acquired and disposed businesses:
Receivables........................................... (153,662) (191,641) (43,180)
Inventories........................................... (9,969) (2,439) (6,481)
Prepaid expenses and other............................ 12,462 21,410 (31,130)
Installment contract receivables...................... 57,008 (127,284) (105,711)
Accounts payable and accrued liabilities.............. (4,139) 34,913 55,102
Income taxes payable.................................. (23,438) 123,452 126,559
Deferred revenue...................................... 37,694 (10,925) (3,804)
-------- -------- --------
Net cash provided by operating activities........... 127,222 227,153 194,624
-------- -------- --------
Cash Flows from Investing Activities:
Maturities of short-term investments--held-to-maturity.... 25,990 60,367 37,039
Purchases of short-term investments--held-to-maturity..... (43) (35,872) (82,204)
Maturities and sales of short-term
investments--available-for-sale......................... 26,349 564,136 144,343
Purchases of short-term investments--available-for-sale... (15) (513,241) (211,745)
Purchases of property, plant, and equipment............... (110,444) (121,395) (99,957)
Capitalization of software development costs.............. (25,684) (21,695) (15,011)
Increase in acquired intangibles and other assets......... (28,490) (82,856) (2,971)
Net proceeds from sale of subsidiary stock................ -- -- 18,582
Investment in venture capital partnership and equity
investments............................................. (9,144) (13,037) (11,887)
Cash effect of business acquisitions and dispositions..... (133,055) (352,326) (2,891)
Sale of put warrants...................................... 3,609 14,812 19,016
Purchases of call options................................. (3,609) (14,812) (19,016)
-------- -------- --------
Net cash used for investing activities.............. (254,536) (515,919) (226,702)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from long-term debt.............................. 267,069 150,000 53
Principal payments on long-term debt and capital leases... (378,320) (17,757) (25,328)
Proceeds from issuance of common stock.................... 91,244 104,763 76,957
Purchases of treasury stock............................... (115,832) (170,830) (105,118)
Proceeds from transfer of financial assets in exchange for
cash.................................................... 167,680 211,919 --
-------- -------- --------
Net cash provided by (used for) financing
activities....................................... 31,841 278,095 (53,436)
-------- -------- --------
Effect of exchange rate changes on cash..................... (2,200) (1,285) (7,878)
-------- -------- --------
Decrease in cash and cash equivalents....................... (97,673) (11,956) (93,392)
-------- -------- --------
Cash and Cash Equivalents at End of Year.................... $111,401 $209,074 $221,030
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
54
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 2000
CADENCE
Cadence Design Systems, Inc., or Cadence, provides comprehensive software
and other technology and offers design and methodology services for the product
development requirements of the world's leading electronics companies. Cadence
licenses its leading-edge electronic design automation, or EDA, software and
hardware technology and provides a range of services to companies throughout the
world to help its customers optimize their product development processes.
Cadence is a supplier of end-to-end products and services, 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Cadence and
its subsidiaries after elimination of intercompany accounts and transactions.
Investments in companies in which ownership interests range from 20% to 50% are
accounted for using the equity method of accounting. Cadence has one investment
with ownership interest less than 20% which is accounted for using the equity
method of accounting.
Cadence's fiscal year end is the Saturday closest to December 31. Certain
prior year consolidated financial statement balances have been reclassified to
conform to the 1999 presentation.
USE OF ESTIMATES
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries, where the functional
currency is the local currency, are translated using exchange rates in effect at
the end of the period and revenue and costs are translated using average
exchange rates for the period. Gains and losses on the translation into U.S.
dollars of amounts denominated in foreign currencies are included in net income
for those operations whose functional currency is the U.S. dollar, and as a
separate component of stockholders' equity for those operations whose functional
currency is the local currency.
DERIVATIVE FINANCIAL INSTRUMENTS
Cadence enters into foreign currency forward exchange contracts and
purchases foreign currency put options with financial institutions primarily to
protect against currency exchange risks associated with existing assets and
liabilities and probable but not firmly committed transactions, respectively.
Forward contracts are not accounted for as hedges and, therefore, the unrealized
gains and losses are recognized in other income, net, in advance of the actual
foreign currency cash flows with the fair value of these forward contracts being
recorded in accrued liabilities.
55
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cadence purchases put options to hedge the currency exchange risks
associated with probable but not firmly committed transactions. Probable but not
firmly committed transactions consist of revenue from Cadence's products and
maintenance contracts in a currency other than the functional currency. These
transactions are made through Cadence's subsidiaries in Ireland and Japan. The
premium costs of the put options are recorded in prepaid expenses and other
current assets while the gains and losses are deferred and recognized in income
in the same period as the hedged transaction. Gains and losses on accounting
hedges realized before the settlement date of the related hedged transaction are
also generally deferred and recognized in income in the same period as the
hedged transaction. Cadence does not use forward contracts and put options for
trading purposes. Cadence's ultimate realized gain or loss with respect to
currency fluctuations will depend on the currency exchange rates and other
factors in effect as the forward contracts and put options mature.
REVENUE RECOGNITION
Product revenue consists principally of revenue earned under software
license agreements and is generally recognized upon shipment of the software if
collection of the resulting receivable is probable, the fee is fixed or
determinable, and vendor-specific objective evidence exists to allocate the
total fee to all delivered and undelivered elements of the arrangement. Revenue
associated with software products under subscription licenses is recognized
ratably over the license period because the agreements allow customers to
exchange licensed products for unspecified future technology. Installment
contract receivables result from customer contracts with Cadence's top-rated
credit customers. Cadence uses installment contracts as a standard business
practice and has a history of successfully collecting under the original payment
terms without making concessions on payments, products, or services. Emulation
hardware product revenue is recognized upon shipment.
Services revenue consists primarily of revenue received for performing
methodology and design services. Fixed-price methodology and design service
contracts are accounted for using contract accounting, which is generally the
percentage-of-completion method versus the completed-contract method, and time
and materials contracts are accounted for on a monthly basis as work is
performed. In addition, for small fixed-price-projects, such as training classes
and small, standard methodology service engagements of approximately $10,000 in
size, revenue is recognized when the work is completed.
Maintenance revenue consists of fees for providing technical support for
software products and software product updates and is recognized ratably over
the term of the support agreement.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes foreign currency translation gains and
losses and other unrealized gains and losses that have been previously excluded
from net income (loss) and reflected instead in equity. Cadence has reported the
components of comprehensive income (loss) on its consolidated statements of
stockholders' equity.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is calculated by dividing net income
(loss) by the weighted average shares of common stock outstanding during the
year, and for diluted net income per share, net income is divided by the
weighted average shares of common stock outstanding and potential common shares
outstanding during the year. Potential common shares outstanding included in the
dilution calculation consist of dilutive shares issuable upon the exercise of
outstanding common stock options, warrants, contingent issuances of common
stock, and put warrants computed using the treasury stock method. For
56
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CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the year in which Cadence had a loss, potential common shares outstanding are
excluded from the computation of diluted net loss per share as their effects are
anti-dilutive.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cadence considers all highly liquid debt instruments, including commercial
paper, Euro time deposits, repurchase agreements, and certificates of deposit
with an original maturity of three months or less to be cash equivalents.
Investments with original maturities greater than three months and less than one
year are classified as short-term investments. Investments with original
maturities greater than one year are classified as long-term investments.
Management determines the appropriate classification of its investments in
debt and marketable equity securities at the time of purchase. Debt securities
classified as held-to-maturity are stated at amortized cost based on Cadence's
positive intent to hold such securities until maturity. The cost of securities
sold is determined using the specific identification method when computing
realized gains and losses. Securities classified as available-for-sale are
stated at fair value, with the unrealized gains and losses reported as a
component of stockholders' equity until realized. The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization and accretion is included in other income, net.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Cadence's inventories include high technology parts and components for
complex computer systems that emulate the performance and operation of computer
chips and electronic systems. These parts and components may be specialized in
nature or subject to rapid technological obsolescence. While Cadence has
programs to minimize the required inventories on hand and considers
technological obsolescence when estimating required reserves to reduce recorded
amounts to market values, it is reasonably possible that such estimates could
change in the near term.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost. Depreciation and
amortization are provided over the estimated useful lives, using the
straight-line method, as follows:
<TABLE>
<S> <C>
Computer equipment and related software........... 3-8 years
Buildings......................................... 10-32 years
Leasehold and building improvements............... Shorter of the lease term
or the estimated useful life
Furniture and fixtures............................ 3-5 years
Equipment......................................... 3-5 years
</TABLE>
SOFTWARE DEVELOPMENT COSTS AND ACQUIRED INTANGIBLES
Cadence capitalizes software development costs in compliance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Capitalization of software development costs begins upon
the establishment of technological feasibility of the product. Technological
feasibility is established at the completion of detail program design and
testing. The establishment of technological feasibility and the ongoing
assessment of the recoverability of these costs requires considerable judgment
by management with respect to certain external factors including, but not
limited to,
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CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
anticipated future gross product revenue, estimated economic life, and changes
in software and hardware technology. Amortization of capitalized software
development costs begins when the products are available for general release to
customers and is computed on a straight-line basis over the remaining estimated
economic life of the product, which is generally three years.
Acquired intangibles represent purchase price in excess of acquired tangible
assets and in-process technology in connection with business combinations
accounted for as purchases and are amortized on a straight-line basis over the
remaining estimated economic life of the underlying products and technologies
(original lives assigned are one to seven years).
It is reasonably possible that the estimates of anticipated future gross
revenue, the remaining estimated economic life of the products and technologies,
or both, could differ from those used to assess the recoverability of these
costs and result in a write-down of the carrying amount or a shortened life of
both the software development costs and acquired intangibles in the near term.
LONG-LIVED ASSETS
Cadence reviews long-lived assets, certain identifiable intangibles, and
goodwill related to these assets for impairment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-lived Assets and For Long-lived
Assets to be Disposed Of."
For assets to be held and used, including acquired intangibles, Cadence
initiates its review whenever events or changes in circumstances indicate that
the carrying amount of a long-lived asset may not be recoverable. Recoverability
of an asset is measured by comparison of its carrying amount to the future
undiscounted cash flows that the asset is expected to generate. Any impairment
to be recognized is measured by the amount by which the carrying amount of the
asset exceeds its fair market value.
Assets to be disposed of and for which management has committed to a plan to
dispose of the assets, whether through sale or abandonment, are reported at the
lower of carrying amount or fair value less cost to sell.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, including derivative financial instruments, that may
potentially subject Cadence to concentrations of credit risk, consist
principally of cash investments, short-term investments, long-term investments,
accounts receivable, forward contracts and put options, and call options
purchased in conjunction with Cadence's stock repurchase program. Cadence's
investment policy primarily limits investments to short-term, low-risk
instruments. Concentration of credit risk related to accounts receivable is
limited, due to the varied customers comprising Cadence's customer base and
their dispersion across geographies. Credit exposure related to the forward
contracts and the call options is limited to the realized and unrealized gains
on these contracts. All financial instruments are executed with financial
institutions with strong credit ratings, which minimizes risk of loss due to
nonpayment. Cadence has not experienced any losses due to credit impairment
related to its financial instruments.
ACCRUED WARRANTY
Cadence provides an accrual for future warranty costs based on the
historical relationship of revenue to warranty costs incurred.
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CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value. It
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met and that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. In June 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," was issued. The statement defers the effective date of
SFAS No. 133 until the first quarter of fiscal 2001. Cadence has not yet
determined the effect SFAS No. 133 will have on its financial position, results
of operations, or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or SAB, No. 101, "Revenue Recognition." SAB 101 provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements and is effective for the first quarter of Fiscal 2000.
Cadence has not yet determined the effect SAB 101 will have on its financial
position or results of operations.
59
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BALANCE SHEET COMPONENTS
A summary of balance sheet components follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Receivables:
Accounts receivables...................................... $ 201,951 $ 196,822
Installment contract receivables--current................. 90,671 131,310
--------- ---------
Total receivables....................................... 292,622 328,132
Less: Allowances.......................................... (44,588) (22,989)
--------- ---------
Receivables, net........................................ $ 248,034 $ 305,143
========= =========
Inventories:
Raw materials............................................. $ 19,033 $ 8,798
Work in process........................................... 839 1,105
--------- ---------
Inventories, net........................................ $ 19,872 $ 9,903
========= =========
Prepaid Expenses and Other:
Prepaid expenses and other................................ $ 61,779 $ 69,933
Deferred income taxes..................................... 31,469 31,696
--------- ---------
Prepaid expenses and other.............................. $ 93,248 $ 101,629
========= =========
Property, Plant, and Equipment:
Computer equipment and related software................... $ 261,696 $ 223,639
Buildings................................................. 96,735 46,672
Land...................................................... 64,745 48,485
Leasehold and building improvements....................... 61,552 56,516
Furniture and fixtures.................................... 57,488 48,689
Equipment................................................. 43,978 41,290
Construction in progress.................................. 16,761 22,264
--------- ---------
Total cost.............................................. 602,955 487,555
Less: Accumulated depreciation and amortization........... (272,546) (213,347)
--------- ---------
Property, plant, and equipment, net..................... $ 330,409 $ 274,208
========= =========
Software Development Costs:
Cost...................................................... $ 49,298 $ 39,254
Less: Accumulated amortization............................ (38,606) (26,209)
--------- ---------
Software development costs, net......................... $ 10,692 $ 13,045
========= =========
Acquired Intangibles:
Goodwill and other intangibles............................ $ 454,805 $ 283,287
Purchased software........................................ 58,199 35,483
Less: Accumulated amortization............................ (110,850) (32,682)
--------- ---------
Acquired intangibles, net............................... $ 402,154 $ 286,088
========= =========
Accounts Payable and Accrued Liabilities:
Payroll and payroll related accruals...................... $ 129,174 $ 125,303
Other accrued liabilities................................. 97,902 86,479
Accounts payable.......................................... 38,442 30,742
--------- ---------
Accounts payable and accrued liabilities................ $ 265,518 $ 242,524
========= =========
</TABLE>
60
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CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FINANCIAL INSTRUMENTS
INVESTMENTS
A summary of Cadence's held-to-maturity and available-for-sale investment
portfolios follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Held-to-maturity:
Foreign debt securities............................... $ 998 $ 10,080
Corporate debt securities............................. -- 11,607
Repurchase agreements................................. -- 8,000
Commercial paper...................................... -- 7,992
U.S. Government notes................................. -- 4,999
-------- --------
Total held-to-maturity.............................. 998 42,678
-------- --------
Available-for-sale:
Marketable equity securities.......................... 40,504 --
Corporate debt securities............................. 7,163 24,441
Auction rate securities............................... 6,000 --
Repurchase agreements................................. 5,000 --
Foreign debt securities............................... 194 --
U.S. Government notes................................. 997 997
State and local municipality notes.................... -- 8,248
-------- --------
Total available-for-sale............................ 59,858 33,686
-------- --------
Total investment securities....................... 60,856 76,364
Less: Cash equivalents.................................. (11,000) (15,992)
-------- --------
Total short-term and long-term investments...... $ 49,856 $ 60,372
======== ========
</TABLE>
The contractual maturities of these investments, excluding marketable equity
securities, as of January 1, 2000, were as follows (in thousands):
<TABLE>
<S> <C>
Due in less than 1 year..................................... $7,357
Due in 1 to 3 years......................................... 1,995
------
$9,352
======
</TABLE>
Excluding marketable equity securities, the carrying value of cash and cash
equivalents, short-term investments, and long-term investments approximate fair
value (based on quoted market prices) of such investments. Accordingly, the
gross realized and unrealized gains and losses were immaterial for each of the
two years. As of January 1, 2000, the unrealized gain on marketable equity
securities was $36.2 million.
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<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FINANCING
Cadence has entered into agreements whereby it may transfer qualifying
accounts receivables, for which Cadence has recognized the related revenue, to
certain financing institutions on a non-recourse basis. These transfers are
recorded as sales and accounted for in accordance with SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." During the year ended January 1, 2000, Cadence transferred
accounts receivable totaling $167.7 million, which approximated fair value, to
financing institutions on a non-recourse basis. Transfers of accounts receivable
for cash are reported in Cadence's consolidated statements of cash flows as a
financing activity.
DERIVATIVE FINANCIAL INSTRUMENTS
The following table shows the notional principal and fair value of Cadence's
derivative financial instruments as of January 1, 2000 and January 2, 1999:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
NOTIONAL FAIR NOTIONAL FAIR
PRINCIPAL VALUE PRINCIPAL VALUE
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Forward contracts........................ $73,135 $(2,530) $44,886 $(2,296)
Put options.............................. $27,779 $ 323 $ -- $ --
</TABLE>
The estimates of fair value are based on applicable and commonly used
pricing models using prevailing financial market information as of January 1,
2000, and January 2, 1999. As of January 1, 2000, and January 2, 1999, the
credit risk associated with the forward contracts and put options was
negligible. Although the table above reflects the notional principal and fair
value amounts of Cadence's foreign exchange instruments, it does not reflect the
gains or losses associated with the underlying exposures and underlying
transactions. The amounts ultimately realized upon settlement of these financial
instruments, together with the gains and losses on the underlying exposures,
will depend on actual market conditions during the remaining life of the
instruments.
ACQUISITIONS
DIABLO RESEARCH COMPANY LLC
In December 1999, Cadence acquired all of the outstanding stock of Diablo
Research Company LLC and assumed all outstanding stock options. Diablo was a
high-technology engineering services firm with expertise in wireless
communication, global positioning satellite solutions, and data transfer and
home automation markets. The total purchase price was $39.9 million in cash, and
the acquisition was accounted for as a purchase. In connection with the
acquisition, Cadence acquired net intangibles of $40.9 million. The results of
operations of Diablo and the estimated fair value of the assets acquired and
liabilities assumed are included in Cadence's consolidated financial statements
from the date of acquisition. Intangibles arising from the Diablo acquisition
are being amortized on a straight-line basis over five years.
ORCAD, INC.
In August 1999, Cadence acquired OrCAD, Inc., a supplier of computer-aided
engineering and computer-aided design software and services for the printed
circuit board industry, for cash. Cadence acquired all of the outstanding stock
of OrCAD and assumed all outstanding stock options. The purchase price was
$131.4 million and the acquisition was accounted for as a purchase. In
connection with the acquisition, Cadence acquired net intangibles of
$94 million. The results of operations of OrCAD and the
62
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
estimated fair value of the assets acquired and liabilities assumed are included
in Cadence's consolidated financial statements from the date of acquisition.
Intangibles arising from the OrCAD acquisition are being amortized on a
straight-line basis over five years.
Management estimated that $11.8 million of the purchase price for OrCAD
represented acquired in-process technology that had not yet reached
technological feasibility and had no alternative future use. Accordingly, this
amount was immediately charged to expense in the consolidated statements of
operations upon consummation of the acquisition. The value assigned to acquired
in-process technology was determined by identifying research projects in areas
for which technological feasibility had not been established. The value was
determined by estimating the costs to develop the acquired in-process technology
into commercially viable products, estimating the resulting net cash flows from
such projects, and discounting the net cash flows back to their present value.
The discount rate included a factor that took into account the uncertainty
surrounding the successful development of the acquired in-process technology. If
these projects are not successfully developed, future revenue and profitability
of Cadence may be adversely affected. Additionally, the value of other
intangible assets acquired may become impaired.
Comparative pro forma financial information has not been presented because
the results of operations of Diablo and OrCAD were not material to Cadence's
consolidated financial statements, either individually or in the aggregate.
QUICKTURN DESIGN SYSTEMS, INC.
In May 1999, Cadence completed its merger with Quickturn Design
Systems, Inc. Quickturn designed, manufactured, sold, and supported hardware and
software products that verified the design of computer chips and electronic
systems. Cadence acquired all of the outstanding shares of Quickturn common
stock in a tax-free, stock-for-stock transaction for approximately 24.6 million
shares of Cadence common stock. The acquisition was accounted for as a pooling
of interests. In addition, Cadence assumed all outstanding stock options and
warrants of Quickturn. All prior period consolidated financial statements were
restated as if the merger took place at the beginning of such periods, in
accordance with required pooling of interests accounting and disclosures.
Revenue and net income (loss) of the separate companies for the period and
fiscal years preceding the acquisition were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED YEAR ENDED
APRIL 3, 1999 JANUARY 2, 1999 JANUARY 3, 1998
------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Cadence, as previously reported..... $305,234 $1,216,070 $ 926,369
Quickturn........................... 29,957 104,110 110,404
-------- ---------- ----------
Combined.......................... $335,191 $1,320,180 $1,036,773
======== ========== ==========
NET INCOME (LOSS):
Cadence, as previously reported..... $ 51,778 $ 31,982 $ 168,100
Quickturn........................... 1,084 (6,858) (2,978)
-------- ---------- ----------
Combined.......................... $ 52,862 $ 25,124 $ 165,122
======== ========== ==========
</TABLE>
DESIGN ACCELERATION, INC.
In January 1999, Cadence acquired Design Acceleration, Inc., or DAI. DAI was
a supplier of design verification technology used in system-on-a-chip design.
Cadence acquired all of the outstanding stock of
63
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CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DAI for approximately 0.6 million shares of Cadence common stock and
$2.9 million of cash. The total purchase price was $25.7 million and the
acquisition was accounted for as a purchase. In connection with the acquisition,
Cadence acquired net intangibles of $24.1 million. The results of operations of
DAI and the estimated fair value of the assets acquired and liabilities assumed
are included in Cadence's consolidated financial statements from the date of
acquisition. Intangibles arising from the acquisition are being amortized on a
straight-line basis over five years.
Management estimated that $8.9 million of the purchase price for DAI
represented acquired in-process technology that had not yet reached
technological feasibility and had no alternative future use. Accordingly, this
amount was immediately charged to expense in the consolidated statements of
operations upon consummation of the acquisition. The value assigned to acquired
in-process technology was determined by identifying research projects in areas
for which technological feasibility had not been established. The value was
determined by estimating the costs to develop the acquired in-process technology
into commercially viable products, estimating the resulting net cash flows from
such projects, and discounting the net cash flows back to their present value.
The discount rate included a factor that took into account the uncertainty
surrounding the successful development of the purchased in-process technology.
If these projects are not successfully developed, future revenue, and
profitability of Cadence may be adversely affected. Additionally, the value of
other intangible assets acquired may become impaired. Comparative pro forma
financial information has not been presented because the results of operations
of DAI were not material to Cadence's consolidated financial statements.
AMBIT DESIGN SYSTEMS, INC.
In September 1998, Cadence acquired all of the outstanding stock of Ambit
Design Systems, Inc. for cash. The total purchase price was $255 million and the
acquisition was accounted for as a purchase. The results of operations of Ambit
and the estimated fair value of the assets acquired and liabilities assumed are
included in Cadence's consolidated financial statements from the date of
acquisition. Intangibles arising from the acquisition are being amortized on a
straight-line basis over seven years.
Management estimated that $106.5 million of the purchase price represented
acquired in-process technology that had not yet reached technological
feasibility and had no alternative future use. Accordingly, this amount was
immediately charged to expense in the consolidated statement of operations upon
consummation of the acquisition. The value assigned to acquired in-process
technology was determined by identifying research projects in areas for which
technological feasibility had not been established. The value was determined by
estimating the costs to develop the acquired in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects, and discounting the net cash flows back to their present value. The
discount rate included a factor that took into account the uncertainty
surrounding the successful development of the acquired in-process technology. If
these projects are not successfully developed, future revenue and profitability
of Cadence may be adversely affected. Additionally, the value of other
intangible assets acquired may become impaired.
64
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the acquisition, net assets acquired were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Acquired intangibles, including in-process technology....... $308,678
Property, plant, and equipment, net and other non-currrent
assets.................................................... 9,333
Cash, receivables, and other current assets................. 8,349
Current liabilities assumed................................. (13,605)
Deferred income taxes....................................... (57,765)
--------
Net assets acquired....................................... $254,990
========
</TABLE>
The following table represents unaudited consolidated pro forma financial
information as if Cadence and Ambit had been combined as of the beginning of the
periods presented. The pro forma data are presented for illustrative purposes
only and are not necessarily indicative of the combined financial position or
results of operations of future periods or the results that actually would have
resulted had Cadence and Ambit been a combined company during the specified
periods. The pro forma results include the effects of the amortization of
acquired intangible assets and adjustments to the income tax provision. The pro
forma combined results exclude acquisition-related charges for acquired
in-process technology related to Ambit.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------
JANUARY 2, JANUARY 3,
1999 1998
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Revenue.............................................. $1,330,996 $1,039,686
========== ==========
Net income........................................... $ 112,772 $ 140,610
========== ==========
Net income per share:
Basic.............................................. $ 0.48 $ 0.65
========== ==========
Diluted............................................ $ 0.44 $ 0.58
========== ==========
</TABLE>
BELL LABS' INTEGRATED CIRCUIT DESIGN AUTOMATION GROUP
In September 1998, Cadence acquired Bell Labs' Integrated Circuit Design
Automation Group of Lucent Technologies Inc., BLDA, for cash. The total purchase
price was $58.0 million and the acquisition was accounted for as a purchase. The
results of operations of BLDA and the estimated fair value of the assets
acquired and liabilities assumed are included in Cadence's consolidated
financial statements from the date of acquisition. Intangibles arising from the
acquisition are being amortized on a straight-line basis over five years.
Management estimated that $30.3 million of the purchase price represented
acquired in-process technology that had not yet reached technological
feasibility and had no alternative future use. Accordingly, this amount was
immediately charged to expense in the consolidated statements of operations upon
consummation of the acquisition. The value assigned to acquired in-process
technology was determined by identifying research projects in areas for which
technological feasibility had not been established. The value was determined by
estimating the costs to develop the acquired in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects and discounting the net cash flows back to their present value. The
discount rate included a factor that took into account the
65
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
uncertainty surrounding the successful development of the acquired in-process
technology. If these projects are not successfully developed, future revenue,
and profitability of Cadence may be adversely affected. Additionally, the value
of other intangible assets acquired may become impaired.
EXCELLENT DESIGN, INC.
In March 1998, Cadence acquired all of the outstanding stock of Excellent
Design, Inc., EXD, for cash. The total purchase price was $40.9 million and the
acquisition was accounted for as a purchase. The results of operations of EXD
and the estimated fair value of the assets acquired and liabilities assumed are
included in Cadence's consolidated financial statements from the date of
acquisition. Intangibles arising from the acquisition are being amortized on a
straight-line basis over five years.
Management estimated that $28.4 million of the purchase price represented
acquired in-process technology that had not yet reached technological
feasibility and had no alternative future use. Accordingly, this amount was
immediately charged to expense in the consolidated statements of operations upon
consummation of the acquisition. The value assigned to acquired in-process
technology was determined by identifying research projects in areas for which
technological feasibility had not been established. The value was determined by
estimating the costs to develop the acquired in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects and discounting the net cash flows back to their present value. The
discount rate included a factor that took into account the uncertainty
surrounding the successful development of the acquired in-process technology. If
these projects are not successfully developed, future revenue, and profitability
of Cadence may be adversely affected. Additionally, the value of other
intangible assets acquired may become impaired. In the fourth quarter of 1999,
Cadence recorded asset impairment charges of $13.3 million. See further
discussion at "Asset Impairment."
SYMBIONICS GROUP LIMITED
In February 1998, Cadence acquired all of the outstanding stock of
Symbionics Group Limited for approximately 1 million shares of Cadence common
stock and $21.3 million of cash. The total purchase price was $46.1 million and
the acquisition was accounted for as a purchase. The results of operations of
Symbionics and the estimated fair value of the assets acquired and liabilities
assumed are included in Cadence's consolidated financial statements from the
date of acquisition. Intangibles arising from the acquisition are being
amortized on a straight-line basis over five years.
Management estimated that $28.5 million of the purchase price represented
acquired in-process technology that had not yet reached technological
feasibility and had no alternative future use. Accordingly, this amount was
immediately charged to expense in the consolidated statements of operations upon
consummation of the acquisition. The value assigned to acquired in-process
technology was determined by identifying research projects in areas for which
technological feasibility had not been established. The value was determined by
estimating the costs to develop the acquired in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects and discounting the net cash flows back to their present value. The
discount rate included a factor that took into account the uncertainty
surrounding the successful development of the acquired in-process technology. If
these projects are not successfully developed, future revenue, and profitability
of Cadence may be adversely affected. Additionally, the value of other
intangible assets acquired may become impaired.
Comparative pro forma financial information has not been presented as the
results of operations of BLDA, EXD, and Symbionics were not material to
Cadence's consolidated financial statements, either individually or in the
aggregate.
66
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ADVANCED MICROELECTRONICS
In October 1997, Cadence acquired certain assets and related business from
the Advanced Microelectronics division of the Institute for Technology
Development, referred to as Advanced Microelectronics, a non-profit corporation
organized to conduct and transfer scientific research into usable high
technology for commercial application. This division provided contract
engineering services on a time-and-materials basis for the design and
development of integrated circuits. The total purchase price was $2.4 million
and the acquisition was accounted for as a purchase. Accordingly, the results of
operations of Advanced Microelectronics and the estimated fair value of the
assets acquired and liabilities assumed are included in Cadence's consolidated
financial statements from the date of acquisition. The excess of purchase price
over net assets acquired was $2.1 million, of which $1.7 million related to the
write-off of in-process technology that had not reached technological
feasibility and, in management's opinion, had no probable alternative future
use. Comparative pro forma financial information has not been presented as the
results of operations of Advanced Microelectronics were not material to
Cadence's consolidated financial statements.
ARKOS DESIGN, INC.
In June 1997, pursuant to an asset purchase agreement among Quickturn,
Synopsys, Inc., and Arkos Design, Inc., Quickturn acquired from Synopsys certain
assets relating to Synopsys' emulation business, including all the outstanding
common stock of Arkos, for approximately 0.5 million shares of Quickturn common
stock and $5 million of cash. The total purchase price was $16.7 million and the
acquisition was accounted for as a purchase. Accordingly, the results of
operations of Arkos and the estimated fair value of the assets acquired and
liabilities assumed are included in the consolidated financial statements from
the date of acquisition. Intangibles arising from the acquisition are being
amortized on a straight-line basis over five years. The excess of purchase price
over net assets acquired was $7.9 million, of which $2.8 million related to the
write-off of in-process technology that had not reached technological
feasibility and, in management's opinion, had no probable alternative future
use. Comparative pro forma financial information has not been presented as the
results of operations of Arkos were not material to Quickturn's consolidated
financial statements.
COOPER & CHYAN TECHNOLOGY, INC.
In May 1997, Cadence merged with Cooper & Chyan Technology, Inc., or CCT,
whose software products were used to design sophisticated integrated circuits
and high-speed printed circuit boards. In connection therewith, Cadence issued
approximately 22.8 million shares of common stock. The merger was accounted for
using the pooling of interests method of accounting. Cadence had restated all
prior period consolidated financial statements as if the merger took place at
the beginning of such periods, in accordance with required pooling of interests
accounting and disclosures. Reconciliation of the current
67
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
consolidated financial statements with previously reported separate company
information is presented below:
<TABLE>
<CAPTION>
1997
--------------
(IN THOUSANDS)
<S> <C>
REVENUE
Cadence..................................................... $1,026,297
CCT......................................................... 10,476
----------
Combined and restated..................................... $1,036,773
==========
NET INCOME (LOSS)
Cadence..................................................... $ 166,488
CCT......................................................... (1,366)
----------
Combined and restated..................................... $ 165,122
==========
</TABLE>
SYNTHESIA AB
In February 1997, Cadence acquired all of the outstanding stock of Synthesia
AB for 115,166 shares of Cadence common stock and cash. The total purchase price
was $4.7 million and the acquisition was accounted for as a purchase. The
results of operations of Synthesia and the estimated fair value of the assets
acquired and liabilities assumed were included in Cadence's consolidated
financial statements from the date of acquisition. In connection with the
acquisition, net intangibles of $5.6 million were acquired, of which
$4.9 million related to the write-off of in-process technology that had not
reached technological feasibility and, in management's opinion, had no probable
alternative future use. Comparative pro forma financial information has not been
presented as the results of operations of Synthesia were not material to
Cadence's consolidated financial statements.
SPEEDSIM, INC.
In February 1997, Quickturn merged with SpeedSim, Inc., a provider of
simulation software for the verification of digital logic designs. Quickturn
acquired all of the outstanding shares of SpeedSim common stock in a tax-free,
stock-for-stock transaction for approximately 2.8 million shares of Quickturn
common stock. The acquisition was accounted for as a pooling of interests. In
addition, Quickturn assumed all outstanding stock options of SpeedSim. All prior
period consolidated financial statements were restated as if the merger took
place at the beginning of such periods, in accordance with required pooling of
interests accounting and disclosures.
CREDIT FACILITY AND LONG-TERM DEBT
In October 1998, Cadence entered into a senior unsecured credit facility,
referred to as the 1998 Facility with a syndicate of banks that allows Cadence
to borrow up to $355 million. As amended in September and November of 1999, the
1998 Facility is divided between a $177.5 million two year revolving credit
facility, or the Two Year Facility, and a $177.5 million 364-day revolving
credit facility convertible into a one year term loan, or the 364-Day Facility.
The Two Year Facility expires on September 29, 2001. The 364-Day Facility will
either expire on September 27, 2000, be converted to a one year term loan with a
maturity date of September 27, 2001, or, at the request of Cadence and with the
agreement of the bank group, be renewed for an additional one year. Cadence has
the option to pay interest based on LIBOR plus a spread of between 1.25% and
1.50%, based on a pricing grid tied to a financial covenant, or the
68
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
higher of the Federal Funds Rate plus 0.50% or the prime rate. As a result,
Cadence's interest rate expenses associated with this borrowing will vary with
market rates. In addition, commitment fees are payable on the unutilized
portions of the Two Year Facility at rates between 0.23% and 0.30% based on a
pricing grid tied to a financial covenant and on the unutilized portion of the
364-Day Facility at a fixed rate of 0.18%. The 1998 Facility contains certain
financial and other covenants. As of January 1, 2000, Cadence had $20 million
outstanding under the Two Year Facility at a weighted average interest rate of
8.11%.
A summary of long-term debt and capital leases follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility................................ $20,000 $135,000
Capital lease obligations................................ 8,948 2,653
------- --------
Total.................................................. 28,948 137,653
Less: Current portion of capital leases.................. 3,924 1,273
------- --------
Long-term debt and capital leases...................... $25,024 $136,380
======= ========
</TABLE>
COMMITMENTS
Equipment and facilities are leased under various capital and operating
leases expiring at various dates through the year 2017. Certain of these leases
contain renewal options. Rental expense was $25 million, $25.1 million, and
$18.6 million for 1999, 1998, and 1997, respectively.
At January 1, 2000, future minimum lease payments under capital and
operating leases and the present value of the capital lease payments were as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
For the years:
2000.................................................... $4,198 $ 39,797
2001.................................................... 2,318 28,867
2002.................................................... 1,678 25,133
2003.................................................... 962 19,739
2004.................................................... 411 13,752
Thereafter.............................................. -- 64,851
------ --------
Total lease payments.................................. 9,567 $192,139
========
Less: amount representing interest
(average interest rate of 5.42%)........................ 619
------
Present value of lease payments......................... 8,948
Less: current portion..................................... 3,924
------
Long-term portion....................................... $5,024
======
</TABLE>
The cost of equipment under capital leases included in the consolidated
balance sheets as property, plant, and equipment at January 1, 2000 and
January 2, 1999 was approximately $14 million and $6 million, respectively.
Accumulated amortization of the leased equipment at January 1, 2000 and
January 2, 1999 was approximately $5.5 million and $3.5 million, respectively.
69
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONTINGENCIES
From time to time Cadence is involved in various disputes and litigation
matters that arise in the ordinary course of business. These include disputes
and lawsuits related to intellectual property, licensing, contract law,
distribution arrangements, and employee relations matters.
Cadence filed a complaint in the U.S. District Court for the Northern
District of California on December 6, 1995 against Avant! Corporation and
certain of its employees for misappropriation of trade secrets, copyright
infringement, conspiracy, and other illegal acts.
On January 16, 1996, Avant! filed various counterclaims against Cadence and
Joseph B. Costello, Cadence's former President and Chief Executive Officer, and
with leave of the court, on January 29, 1998, filed a second amended
counterclaim. The second amended counterclaim alleges, INTER ALIA, that Cadence
and Mr. Costello had cooperated with the Santa Clara County, California,
District Attorney and initiated and pursued its complaint against Avant! for
anticompetitive reasons, engaged in wrongful activity in an attempt to
manipulate Avant!'s stock price, and utilized certain pricing policies and other
acts to unfairly compete against Avant! in the marketplace. The second amended
counterclaim also alleges that certain Cadence insiders engaged in illegal
insider trading with respect to Avant!'s stock. Cadence and Mr. Costello believe
that they have meritorious defenses to Avant!'s claims, and each intends to
defend such action vigorously. By an order dated July 13, 1996, the court
bifurcated Avant!'s counterclaim from Cadence's complaint and stayed the
counterclaim pending resolution of Cadence's complaint. The counterclaim remains
stayed.
In an order issued on December 19, 1997, as modified on January 26, 1998,
the District Court entered a preliminary injunction barring Avant! from any
further infringement of Cadence's copyrights in Design Framework II software, or
selling, licensing or copying such product derived from Design Framework II,
including, but not limited to, Avant!'s ArcCell products. On December 7, 1998,
the District Court issued a further preliminary injunction, which enjoined
Avant! from selling its Aquarius product line. Cadence posted a $10 million bond
in connection with the issuance of the preliminary injunction. On July 30, 1999,
the U.S. Court of Appeals for the Ninth Circuit affirmed the preliminary
injunction.
By an order dated July 22, 1997, the District Court stayed most activity in
the case pending in that court and ordered Avant! to post a $5 million bond in
light of related criminal proceedings pending against Avant! and several of its
executives.
On September 7, 1999, the District Court ruled on the parties' Motions for
Summary Adjudication, and granted in part, and denied in part, each party's
motion regarding the scope of a June 6, 1994 Release Agreement between the
parties. The Court held that Cadence's copyright infringement claim against
Avant! is not barred by the release and that Cadence may proceed on that claim.
The Court also held that Cadence's trade secret claim based on Avant!'s use of
Cadence's Design Framework II source code is barred by the release. The Ninth
Circuit has agreed to hear both parties' appeal from the District Court's order.
The trial date has been vacated pending a decision on the appeal. Cadence
intends to pursue its claims against Avant! vigorously.
On April 30, 1999, Cadence and several of its officers and directors were
named as defendants in a lawsuit filed in the U.S. District Court for the
Northern District of California, entitled Spett v. Cadence Design Systems, et
al., civil action no. C 99-2082. The action was brought on behalf of a class of
stockholders who purchased Cadence common stock between November 4, 1998 and
April 20, 1999, and alleges violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. The lawsuit arises out of Cadence's
announcement of its first quarter 1999 financial results. Management intends to
vigorously defend these claims.
70
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In February 1998, Aptix Corporation and Meta Systems, Inc. filed a lawsuit
against Quickturn Design Systems, Inc. in the U.S. District Court for the
Northern District of California. In this lawsuit, entitled Aptix Corporation and
Meta Systems, Inc. v. Quickturn Design Systems, Aptix and Meta Systems allege
infringement by Quickturn of a U.S. patent owned by Aptix and licensed to Meta.
Quickturn named Mentor Graphics Corporation as a party to this suit and filed a
counterclaim requesting the District Court to declare the Aptix patent to be
unenforceable based on inequitable conduct during the prosecution of the patent.
The case is set for trial in late 2000.
On July 21, 1999, Mentor filed suit against Quickturn in the U.S. District
Court for the District of Delaware, alleging patent infringement involving
Quickturn's Mercury hardware emulation systems. The complaint seeks a permanent
injunction and unspecified damages. Cadence intends to vigorously defend these
claims. On July 22, 1999, Quickturn and Cadence filed a complaint against Mentor
and Meta asking for declaratory relief in the U.S. District Court for the
Northern District of California. The action brought by Mentor in Delaware has
been transferred to California for consolidation with Quickturn's declaratory
judgment action.
Management believes that the ultimate resolution of the disputes and
litigation matters discussed above will not have a material adverse effect on
Cadence's business, operating results, or financial condition.
STOCKHOLDERS' EQUITY
NET INCOME (LOSS) PER SHARE
The following is a reconciliation of the weighted average common shares used
to calculate basic net income (loss) per share to the weighted average common
and potential common shares used to calculate diluted net income (loss) per
share for the years 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Weighted average common shares used to calculate basic net
income (loss) per share................................... 242,037 234,605 216,650
Options................................................... -- 22,778 26,304
Puts...................................................... -- 257 58
Warrants and other contingent common shares............... -- 222 329
------- ------- -------
Weighted average common and potential common shares used to
calculate diluted net income (loss) per share............. 242,037 257,862 243,341
======= ======= =======
</TABLE>
Options to purchase 56,181,714 shares of common stock at the weighted
average price of $14.29 per share were outstanding at January 1, 2000, but were
not included in the computation of diluted net loss per share because their
effect would be antidilutive. These options, expire at various dates through
2009. Warrants to purchase 394,237 shares of common stock at the weighted
average prices of $3.22 and $23.60 were outstanding at January 1, 2000, but were
not included in the computation of diluted loss per share because their effect
would be antidilutive. The warrants outstanding expire in February 2000 and
June 2003. Put warrants to purchase 1,615,175 shares of common stock at the
weighted average price of $13.08 per share were outstanding at January 1, 2000,
but were not included in the computation of diluted loss per share because their
effect would be antidilutive. The put warrants outstanding expired in
February 2000.
71
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK COMPENSATION PLANS
STOCK OPTION PLANS
Cadence's 1997 Non-Statutory Stock Option Plan, referred to as the 1997
Plan, provides for the issuance of non-qualified options to its employees to
purchase up to 30,000,000 shares of common stock at an exercise price not less
than the fair market value of the stock on the date of grant. Options granted
under the 1997 Plan become exercisable over periods up to five years, with,
generally, one-fifth of the shares vesting one year from the vesting
commencement date with respect to initial grants, and the remaining shares
vesting in 48 equal monthly installments. Options under the 1997 Plan generally
expire ten years from the date of grant.
Cadence's Employee Stock Option Plan, referred to as the 1987 Plan, provides
for the issuance of either incentive or non-qualified options to its employees
to purchase up to 71,370,100 shares of common stock at an exercise price not
less than fair market value of the stock on the date of grant. Options granted
under the 1987 Plan become exercisable over periods of up to five years and
generally expire five to ten years from the date of grant.
Cadence's Non-Statutory Stock Option Plan, referred to as the 1993
Non-Statutory Plan, provides for the issuance of non-qualified options to its
employees to purchase up to 24,750,000 shares of common stock at an exercise
price not less than the fair market value of the stock on the date of grant.
Options granted under the 1993 Non-Statutory Plan become exercisable over a four
year period, with one-fourth of the shares vesting one year from the vesting
commencement date, and the remaining shares vesting in 36 equal monthly
installments. Options under the 1993 Non-Statutory Plan generally expire ten
years from the date of grant.
Under the Directors' Stock Option Plans, referred to as the Directors'
Plans, Cadence may grant non-qualified options to its non-employee directors for
up to 2,032,502 shares of common stock at an exercise price not less than the
fair market value of the stock on the date of grant. Options granted under the
Directors' Plans have terms of up to ten years. Certain of the option grants
vest one year from the date of grant, and other option grants vest one-third on
the date which is one year from the date of grant and two-thirds ratably over
the subsequent two years.
Cadence has assumed certain options granted to former employees of acquired
companies, referred to as Acquired Options. The Acquired Options were assumed by
Cadence outside of its stock option plans, and all are administered as if issued
under their original plans. All of the Acquired Options have been adjusted to
effectuate the price conversion under the terms of the Agreements and Plans of
Reorganization between Cadence and the companies acquired. The Acquired Options
generally become exercisable over a four or five year period and generally
expire either five or ten years from the date of grant. No additional options
will be granted under any of the acquired companies' plans.
72
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of all of Cadence's stock option plans as of and
during the years ended January 1, 2000, January 2, 1999, and January 3, 1998
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 42,678,756 $14.07 46,733,239 $11.28 46,775,913 $ 6.49
Assumption of acquired companies
options....................... 2,649,553 $ 5.78 816,334 $ 2.83 -- --
Granted......................... 25,205,953 $14.48 13,510,326 $18.64 18,479,244 $16.88
Exercised....................... (6,658,815) $ 7.64 (11,136,992) $ 7.11 (15,698,160) $ 3.45
Forfeited....................... (7,693,733) $16.50 (7,244,151) $14.04 (2,823,758) $12.14
----------- ------------ ------------
Outstanding at end of year........ 56,181,714 $14.29 42,678,756 $14.07 46,733,239 $11.28
=========== ============ ============
Options exercisable at end of
year............................ 21,226,714 17,493,945 17,971,289
Options available for future
grant........................... 11,541,925 19,261,461 14,853,922
Weighted average fair value of
options granted during the
year............................ $ 9.19 $ 13.52 $ 7.51
</TABLE>
A summary of the status of all of Cadence's stock option plans at
January 1, 2000 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 1/1/2000 LIFE PRICE AT 1/1/2000 PRICE
- ----------------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.02-$ 5.00................ 4,059,235 3.86 $ 2.11 3,940,431 $ 2.12
$ 5.01-$10.00................ 9,383,995 7.13 $ 7.07 6,326,329 $ 6.97
$10.01-$15.00................ 23,695,229 8.90 $13.10 4,890,156 $13.79
$15.01-$20.00................ 8,632,087 8.22 $18.13 3,048,771 $17.61
$20.01-$25.00................ 7,048,881 8.28 $22.74 2,036,380 $22.70
$25.01-$30.00................ 3,059,877 8.58 $27.07 793,965 $26.19
$30.01-$35.00................ 271,610 8.53 $33.18 180,389 $34.06
$35.01-$40.00................ 30,800 8.27 $35.07 10,293 $35.07
---------- ----------
Total........................ 56,181,714 21,226,714
========== ==========
</TABLE>
STOCK REPURCHASE PLAN
Cadence has authorized two seasoned systematic stock repurchase programs
under which it repurchases common stock to satisfy estimated requirements for
shares to be issued under its Employee Stock Purchase Plan, or ESPP, and the
1997 Plan. Such repurchases are intended to cover Cadence's expected reissuances
under the ESPP and the 1997 Plan for the next 12 months and 24 months,
respectively.
As part of its authorized repurchase program, Cadence has sold put warrants
through private placements. At January 1, 2000, there were 1.6 million put
warrants outstanding that entitle the holder to sell one share of common stock
to Cadence on a specified date and at a specified price of $13.08 per share.
Additionally, during this same period, Cadence purchased call options that
entitle Cadence to buy one
73
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
share of common stock at a specified price to satisfy anticipated stock
repurchase requirements under Cadence's systematic repurchase programs. At
January 1, 2000, Cadence had 1.3 million call options outstanding at a price of
$13.33 per share. The put warrants and call options outstanding at January 1,
2000 are exercisable in February 2000 and Cadence has the contractual ability to
settle the options prior to their maturity. At January 1, 2000, the fair value
of the call options was approximately $13.6 million and the fair value of the
put warrants was approximately $0.1 million. The fair value of put warrants and
call options was estimated by Cadence's investment bankers.
If exercised, Cadence has the right to settle the put warrants with common
stock equal to the difference between the exercise price and the fair value at
the date of exercise. Settlement of the put warrants with common stock could
cause Cadence to issue a substantial number of shares, depending on the exercise
price of the put warrants and the per share fair value of Cadence common stock
at the time of exercise. In addition, settlement of put warrants in common stock
could lead to the disposition by put warrant holders of shares of Cadence common
stock that such holders may have accumulated in anticipation of the exercise of
the put warrants or call options, which may adversely affect the price of
Cadence common stock. At January 1, 2000, Cadence had the ability to settle
these put warrants with common stock and, therefore, no amount was classified
out of stockholders' equity in the consolidated balance sheets. The effect of
the exercise of these put warrants and call options is reported in the line
titled "Purchase of treasury stock" within the consolidated statements of
stockholders' equity.
EMPLOYEE STOCK PURCHASE PLAN
Under the ESPP, Cadence is authorized to issue up to 23,500,000 shares of
common stock to its employees. Under the terms of the ESPP, employees can choose
to have up to 12% of their annual base earnings plus bonuses withheld to
purchase Cadence common stock. The purchase price of the stock is 85% of the
lesser of the fair market value as of the beginning or the end of the offering
periods. Under the ESPP, Cadence issued 2,110,222, 1,252,855 and 1,392,136
shares to employees in 1999, 1998, and 1997, respectively. The weighted average
purchase price and the weighted average fair value of shares issued in 1999 was
$12.56 and $16.59, respectively.
In November 1998, Cadence amended its ESPP providing for concurrent
24 month offering periods with a new 24 month offering period starting every six
months. Each offering period will be divided into four consecutive six month
purchase periods, commencing in February 1999.
PRO FORMA INFORMATION
This information is required to illustrate the financial results of
operations as if Cadence had accounted for its grants of employee stock options
under the fair value method of SFAS No. 123. The fair value of Cadence's options
granted and shares purchased under the ESPP program for years ended January 1,
2000, January 2, 1999, and January 3, 1998 reported below was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions assuming a dividend yield of zero for all periods:
<TABLE>
<CAPTION>
STOCK OPTIONS
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate.......................... 5.90% 5.22% 6.20%
Volatility factors of the expected market price
of Cadence common stock........................ 62% 59% 44%
Weighted average expected life of an option...... 5 Years 4 Years 4 Years
</TABLE>
74
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate, based on weighted
average.................................... 4.95% 5.21% 5.33%
Volatility factors of the expected market
price of Cadence common stock.............. 62% 59% 44%
Weighted average expected life of ESPP
shares..................................... 0.5 Years 0.5 Years 0.5 Years
</TABLE>
The Black-Scholes option valuation model was developed by the financial
markets for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Cadence's options have characteristics
significantly different from those of exchange traded options and changes in the
subjective input assumptions can materially affect the fair value estimate. In
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options granted to its employees.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. Cadence applies
Accounting Principles Board Opinion No. 25 and related Interpretations in
accounting for its plans. Had Cadence's fixed stock option and employee stock
purchase plans been accounted for under SFAS No. 123, net income (loss) and net
income (loss) per share would have been adjusted to the following pro forma
amounts:
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss):
As reported............................. $ (14,075) $ 25,124 $165,122
========= ======== ========
Pro forma............................... $(127,954) $(57,569) $120,977
========= ======== ========
Basic net income (loss) per share:
As reported............................. $ (0.06) $ 0.11 $ 0.76
========= ======== ========
Pro forma............................... $ (0.53) $ (0.25) $ 0.56
========= ======== ========
Diluted net income (loss) per share:
As reported............................. $ (0.06) $ 0.10 $ 0.68
========= ======== ========
Pro forma............................... $ (0.53) $ (0.25) $ 0.50
========= ======== ========
</TABLE>
The effects of applying SFAS No. 123 on pro forma disclosures of net income
(loss) and net income (loss) per share for 1999, 1998, and 1997 are not likely
to be representative of the pro forma effects on net income (loss) and net
income (loss) per share in future years.
WARRANTS
At January 1, 2000, Cadence had warrants outstanding to purchase 254,237 and
140,000 shares of Cadence common stock at $23.60 and $3.22 per share,
respectively. The warrants for 254,237 shares expired in February 2000. The
warrant for 140,000 shares expires in June 2003 and can be exercised at any time
in increments of not less than 50,000 shares.
75
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RESERVED FOR FUTURE ISSUANCE
At January 1, 2000, Cadence had reserved the following shares of authorized
but unissued common stock for future issuance:
<TABLE>
<CAPTION>
SHARES
----------
<S> <C>
Employee stock option plans................................. 66,073,969
ESPP........................................................ 7,058,788
Director stock option plans................................. 1,642,170
Put warrants................................................ 1,615,175
Warrants.................................................... 394,237
Other option agreements..................................... 7,500
----------
76,791,839
==========
</TABLE>
STOCKHOLDER RIGHTS PLAN
In February 1996, Cadence adopted a new stockholder rights plan to protect
its stockholders' rights in the event of a proposed or actual acquisition of 15%
or more of the outstanding shares of Cadence common stock. As part of this plan,
each share of Cadence common stock carries a right to purchase one
one-thousandth (1/1000) of a share of Series A Junior Participating Preferred
Stock, referred to as a Right, par value $0.01 per share, of Cadence at a price
of $240 per one one-thousandth of a share, subject to adjustment. The Rights are
subject to redemption at the option of the Board of Directors at a price of
$0.01 per Right until the occurrence of certain events. The Rights expire on
February 20, 2006. As of February 1, 2000, Cadence has changed its Rights agent.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD
In November 1997, the FASB Emerging Issues Task Force issued Ruling 97-13
"Accounting for Costs Incurred in Connection with a Consulting Contract or an
Internal Project That Combines Business Process Reengineering and Information
Technology Transformation," which requires companies to expense costs incurred
for business process reengineering projects. As a result, Cadence recorded a
$12.3 million charge in 1997, net of income taxes of $5.3 million, as a
cumulative effect of change in accounting method for reengineering project costs
that had been previously capitalized by Cadence associated with its
implementation of enterprise-wide information systems. This change in accounting
method reduced basic net income per share and diluted net income per share for
1997 by $0.06 and $0.05, respectively.
76
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
The provision for income taxes consisted of the following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................... $ 16,391 $ 68,854 $107,251
State....................................... 1,771 14,925 16,137
Foreign..................................... 10,376 27,979 19,633
-------- -------- --------
Total current............................. 28,538 111,758 143,021
-------- -------- --------
Deferred (prepaid):
Federal..................................... (22,074) (37,257) (68,633)
State....................................... (5,486) (6,958) (3,667)
Foreign..................................... 1,717 7,379 (1,284)
-------- -------- --------
Total deferred (prepaid):................. (25,843) (36,836) (73,584)
-------- -------- --------
Total provision for income taxes.............. $ 2,695 $ 74,922 $ 69,437
======== ======== ========
</TABLE>
Income (loss) before income taxes included income of approximately
$11.5 million for 1999, $1.6 million for 1998, and $144.8 million for 1997, from
Cadence's foreign subsidiaries. The provision for income taxes is net of the
benefit of operating loss carryforwards totaling $28.3 million for 1999,
$3.9 million for 1998, and $3.6 million for 1997.
The provision for income taxes differs from the amount estimated by applying
the statutory federal income tax rate to income (loss) before income taxes as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision computed at the federal statutory
rate........................................ $ (3,983) $ 35,017 $ 82,401
State income tax, net of federal tax effect... (539) 7,125 9,498
Amortization of acquired intangibles.......... (11,429) 1,020 706
Write-off of in-process technology............ 7,245 46,615 --
Foreign income tax at a higher (lower) rate... 3,014 (21,604) (25,501)
Acquisition costs............................. 2,952 (2,679) 6,005
Foreign withholding taxes..................... -- 1,110 5,049
Foreign tax credit............................ -- (1,110) (5,049)
Research and development tax credit........... (5,219) (6,891) (4,925)
Change in valuation allowance................. 11,429 15,371 (1,714)
Other......................................... (775) 948 2,967
-------- -------- --------
Provision for income taxes.................. $ 2,695 $ 74,922 $ 69,437
======== ======== ========
Effective tax rate............................ (23.7)% 74.9% 29.6%
======== ======== ========
</TABLE>
The provision for income taxes in 1997 includes a tax benefit of
$5.3 million on cumulative effect of change in accounting method.
77
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of deferred tax assets and liabilities consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Intangibles.......................................... $ 53,625 $ 30,290
Accruals and reserves................................ 34,939 22,027
Accrued intercompany royalty......................... 33,685 37,430
Tax credits.......................................... 24,238 22,827
Sales returns and allowances......................... 20,865 19,890
Net operating losses................................. 12,241 16,631
Depreciation and amortization........................ 10,293 15,521
Restructure reserves................................. 10,069 12,920
Other................................................ 15,294 9,110
--------- --------
Total deferred tax assets.......................... 215,249 186,646
Valuation allowance--provision for income taxes........ (21,105) (9,676)
Valuation allowance--equity and intangibles............ (19,853) (5,695)
--------- --------
Net deferred tax assets............................ 174,291 171,275
--------- --------
Deferred Tax Liabilities:
Intangibles.......................................... (85,856) (58,928)
Other................................................ (17,577) (9,744)
Accrued intercompany royalty......................... (9,624) (10,694)
Capitalized software................................. (7,570) (7,483)
--------- --------
Total deferred tax liabilities..................... (120,627) (86,849)
--------- --------
Total net deferred tax assets.................... $ 53,664 $ 84,426
========= ========
</TABLE>
Cadence provides for U.S. income taxes on the earnings of foreign
subsidiaries unless they are considered permanently invested outside of the U.S.
At January 1, 2000, the cumulative amount of earnings upon which U.S. income
taxes have not been provided are approximately $127.3 million. At January 1,
2000, the unrecognized deferred tax liability for these earnings was
approximately $45.1 million.
The net valuation allowance increased by $25.6 million in 1999. The increase
in valuation allowance--provision for income taxes of $11.4 million is due to
the uncertainty of certain foreign subsidiaries generating sufficient taxable
income to realize certain foreign deferred tax assets. The increase in valuation
allowance-equity and intangibles of $14.2 million is due to the uncertainty of
domestic entities generating sufficient taxable income, including the deduction
for stock options to realize certain domestic deferred tax assets. This portion
of the valuation allowance, identified in the above table as "valuation
allowance--equity and intangibles", if realizable, may reduce other intangibles
and may not be available to offset future provision for income taxes.
The remaining net operating loss carryforwards will expire at various dates
from 2000 through 2019 and federal tax credit carryforwards will expire at
various dates from 2000 through 2014.
78
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A dispute between Cadence and the Internal Revenue Service regarding
$15.6 million in tax credits for the tax years 1989 through 1991 was settled
during 1999 with no material adjustments to the returns as originally filed.
EMPLOYEE BENEFIT PLAN
Cadence maintains 401(k) savings plans to provide retirement benefits
through tax deferred salary deductions for all its domestic employees. Cadence
may make discretionary contributions, as determined by the Board of Directors,
which cannot exceed a percentage of the annual aggregate salaries of those
employees eligible to participate. Cadence made total contributions to the plans
of $3.9 million, $4.2 million, and $3.8 million for 1999, 1998, and 1997,
respectively.
In January 2000, Cadence amended its 401(k) plan to provide that Cadence
will match contributions with 50% of every dollar contributed, up to a
contribution level of 6% of the salaries of those employees who participate in
the 401(k) plan.
STATEMENT OF CASH FLOWS
The supplemental cash flow information for 1999, 1998, and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Paid During the Year for:
Interest.................................................. $ 2,975 $ 3,181 $ 1,507
======= ======== ========
Income taxes (including foreign withholding tax).......... $25,330 $ 12,091 $ 16,391
======= ======== ========
Non-Cash Investing and Financing Activities:
Capital lease obligations incurred for equipment.......... $ 7,727 $ 1,505 $ 2,570
======= ======== ========
Common and treasury stock issued for acquisitions......... $21,201 $ 28,971 $ 9,500
======= ======== ========
Unrealized holding gain on marketable securities.......... $36,249 $ 37 $ 78
======= ======== ========
Write-off of unearned deferred compensation............... $ -- $ 83 $ --
======= ======== ========
Tax benefits from employee stock transactions............... $10,305 $109,713 $124,040
======= ======== ========
</TABLE>
INTEGRATED MEASUREMENT SYSTEMS, INC.
In February 1997, Cadence and its subsidiary, Integrated Measurement
Systems, Inc., or IMS, sold to the public 1.7 million shares of IMS common
stock, of which approximately 1 million shares were sold by Cadence, netting
Cadence approximately $18.6 million in cash. As a result of the offering and
sale of shares by Cadence, Cadence's ownership interest in IMS decreased to
approximately 37% from approximately 55%. Accordingly, Cadence changed the
accounting for its investment in IMS from consolidation to the equity method of
accounting in fiscal 1997. The likelihood of such transactions in the future is
dependent upon the state of the financial markets as well as liquidity and other
considerations of each of Cadence and IMS. IMS manufactures and markets
verification systems used in testing prototype ASICs.
79
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNUSUAL ITEMS AND RESTRUCTURING
Described below are unusual items and restructuring charges in 1999, 1998,
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Write-off of acquired in-process technology..... $20,700 $194,100 $ 9,328
Asset impairment................................ 19,891 -- 3,065
Restructuring charges........................... 13,274 69,495 24,128
Merger costs.................................... 8,436 -- 11,489
Litigation settlement........................... (3,000) -- --
------- -------- -------
Total unusual items........................... $59,301 $263,595 $48,010
======= ======== =======
</TABLE>
IN-PROCESS TECHNOLOGY
Described below are the write-offs of acquired in-process technology charges
in 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OrCAD............................................ $11,800 $ -- $ --
DAI.............................................. 8,900 -- --
Ambit............................................ -- 106,500 --
BLDA............................................. -- 30,300 --
Symbionics....................................... -- 28,500 --
EXD.............................................. -- 28,400 --
Other............................................ -- 400 --
Synthesia AB..................................... -- -- 4,900
Arkos............................................ -- -- 2,728
Advanced Microelectronics........................ -- -- 1,700
------- -------- ------
Total write-offs of acquired in-process
technology................................... $20,700 $194,100 $9,328
======= ======== ======
</TABLE>
These acquired in-process technology charges represent in-process technology
that had not reached technological feasibility and had no probable alternative
future use. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations--In-Process Technology."
ASSET IMPAIRMENT
In 1999, Cadence incurred charges totaling $19.9 million in asset impairment
charges. Of this amount, $13.3 million represented asset impairment of acquired
intangibles from the EXD acquisition. This asset impairment charge resulted from
reduced Japanese market opportunities and the loss of key EXD employees
resulting in diminished cash flow projections. Cadence entered into certain
support agreements with external parties to provide support for EXD software
tools previously sold to Cadence customers. The fair value of the EXD acquired
intangibles was based on an evaluation of the present value of the estimated
expected future cash flows, discounted at 16%. The remaining $6.6 million in
asset impairment charges were incurred in connection with the cancellation of an
information technology services contract with a third-party, the abandonment of
capitalized software development costs associated with certain Cadence products
that will no longer be sold, and the abandonment of certain third-party software
licenses that will no longer be used by Cadence's design services business.
80
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1997, Cadence wrote-off capitalized software development costs of
$3.1 million for products developed by Cadence that were replaced by CCT
products or by license of replacement technology.
The impairment losses recorded were the amounts by which the carrying
amounts of the intangible assets exceeded their fair market values.
RESTRUCTURING
In 1999, Cadence recorded $13.3 million of restructuring charges which
consisted of $11.3 million to terminate approximately 100 employees and
$2 million to downsize and close excess facilities. Cadence's restructuring
plans were primarily aimed at reducing costs after Cadence merged with
Quickturn, further restructuring of Cadence's services business in Japan, and
severance resulting from the resignation of Cadence's former Chief Executive
Officer. Severance costs include severance benefits, notice pay, and
outplacement services. All terminations and termination benefits were
communicated to the affected employees prior to year-end and all remaining
severance benefits are expected to paid in 2000.
Facilities consolidation charges of $2 million were incurred in connection
with the closure of 15 Quickturn facilities, including $1 million to close
duplicate and excess facilities and $1 million of abandonment costs for the
related leasehold improvements. Closure and exit costs include payments required
under lease contracts, less any applicable sublease income after the properties
were abandoned, lease buyout costs, restoration costs associated with certain
lease arrangements, and costs to maintain facilities during the period after
abandonment. Asset related costs written off consist of leasehold improvements
of facilities that were abandoned and whose estimated fair market value is zero.
As of January 1, 2000, approximately 80% of the 15 Quickturn sites had been
vacated. Noncancelable lease payments on vacated facilities will be paid out
through 2003.
In 1998, Cadence recorded $69.5 million of restructuring charges primarily
associated with Cadence's worldwide restructuring plan in the second half of
1998. Cadence's restructuring plans and associated costs consisted of
$36.9 million to terminate approximately 700 employees, $29.9 million to
downsize and close excess facilities, and $2.7 million of other restructuring
expenses. Cadence's restructuring plan was primarily aimed at reducing the cost
of excess personnel and capacity in its services business. Severance costs
included severance benefits, notice pay, and outplacement services. In 1998,
approximately $10.1 million of these costs resulted from the acceleration of
stock options vesting under employment agreements. All terminations and
termination benefits were communicated to the affected employees prior to
year-end and all remaining severance benefits were substantially paid in 1999.
Facilities consolidation charges of $29.9 million were incurred in
connection with the closure of 58 sales and engineering facilities, including
$16.7 million to downsize and close facilities and $13.2 million in abandonment
costs for the related leasehold improvements. Closure and exit costs included
payments required under lease contracts, less any applicable sublease income
after the properties were abandoned, lease buyout costs, restoration costs
associated with certain lease arrangements, and costs to maintain facilities
during the period after abandonment. Asset related costs written-off consist of
leasehold improvements of facilities that were abandoned and whose estimated
fair market value is zero. As of January 1, 2000, substantially all of the 58
sites had been vacated. Noncancelable lease payments on vacated facilities will
be paid out through 2008.
Cadence also recorded $2.7 million of other restructuring charges consisting
primarily of cancellation fees associated with certain vendor and conference
arrangements and abandoned software.
In 1997, Cadence recorded restructuring charges of $24.1 million. These
charges relate to restructuring plans primarily aimed at reducing costs after
Cadence merged with CCT and acquired HLDS.
81
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cadence's restructuring plans and associated costs consisted of $11.9 million to
terminate approximately 230 employees, $4.4 million to close duplicate and
excess facilities, and $3.7 million of other expenses associated with the
business combinations. Also included in the restructuring costs were
professional fees of $4.1 million for financial advisors, attorneys, and
accountants related to the international restructuring program. The remaining
severance balances were paid out in 1998 and all facilities were vacated.
Noncancelable lease payments on vacated facilities will be paid out through
2000.
Liabilities for excess facilities and other restructuring charges are
included in accrued and other long-term liabilities, while severance and
benefits liabilities are included in payroll and payroll related accruals. The
following table summarizes the Company's restructuring activity during fiscal
years 1999, 1998, and 1997:
<TABLE>
<CAPTION>
SEVERANCE
AND EXCESS OTHER
BENEFITS FACILITIES RESTRUCTURING ASSETS TOTAL
--------- ---------- ------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 28, 1996................. $ 655 $ 1,072 $ -- $ -- $ 1,727
1997 restructuring charges 11,895 2,102 7,784 2,347 24,128
Non-cash charges......................... -- -- -- (2,347) (2,347)
Cash charges............................. (10,263) (536) (5,273) -- (16,072)
-------- ------- ------- ------- --------
Balance, January 3, 1998................... 2,287 2,638 2,511 -- 7,436
1998 restructuring charges 36,860 16,749 2,718 13,168 69,495
Non-cash charges......................... (10,095) (1,364) -- (1,862) (13,321)
Cash charges............................. (15,937) (3,527) (3,016) (2) (22,482)
-------- ------- ------- ------- --------
Balance, January 2, 1999................... 13,115 14,496 2,213 11,304 41,128
1999 restructuring charges 11,271 978 -- 1,025 13,274
Reclassifications........................ (515) 179 501 (165) --
Non-cash charges......................... (356) (813) (241) (4,543) (5,953)
Cash charges............................. (15,502) (8,376) (2,047) (1,760) (27,685)
-------- ------- ------- ------- --------
Balance, January 1, 2000................... $ 8,013 $ 6,464 $ 426 $ 5,861 $ 20,764
======== ======= ======= ======= ========
</TABLE>
MERGER COSTS
In connection with the acquisitions in 1999 and 1997, Cadence charged to
expense Quickturn merger costs of $8.4 million and CCT and SpeedSim merger costs
of $11.5 million, respectively, representing professional fees for financial
advisors, attorneys, and accountants.
LITIGATION SETTLEMENT
In 1999, Cadence and Mentor announced the settlement of a patent
infringement action pending in the U.S. District Court for the District of
Oregon. As a result, the Court entered a judgment declaring that certain
Quickturn patents are valid, enforceable, and were infringed by Mentor's sale of
SimExpress products in the U.S. Mentor is permanently enjoined from producing,
marketing or selling SimExpress emulation systems in the U.S. In connection with
the settlement, Mentor paid Cadence $3 million.
82
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER INCOME, NET
Other income, net components for 1999, 1998, and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income.................................. $ 5,406 $13,501 $20,922
Minority interest income (expense)............... 125 (256) (353)
Equity income (loss) from investments............ 124 (889) 1,934
Gain on sale of stock of subsidiary.............. -- -- 13,061
Other expense, net............................... (389) (872) (3,239)
Gain (loss) on foreign exchange.................. (600) 2,809 (1,155)
Interest expense................................. (3,296) (3,735) (2,780)
------- ------- -------
Total other income, net........................ $ 1,370 $10,558 $28,390
======= ======= =======
</TABLE>
SEGMENT REPORTING
In 1998, Cadence adopted Statement of Financial Accounting Standards, or
SFAS, No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Under SFAS No. 131, operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker when deciding how to
allocate resources and when assessing performance. Cadence currently has three
operating segments: Products, Services, and Maintenance. Cadence's chief
operating decision making group is the Executive Staff, which includes Cadence's
President and Chief Executive Officer and his senior staff.
Cadence's business activities are organized on the basis of three operating
segments. The Products segment designs and licenses to customers a variety of
electronic design automation products. The Services segment offers methodology
and design services either to assist companies in developing electronic designs
or to assume responsibility for the design effort when customers wish to
outsource this work. The Maintenance segment is primarily a technical support
organization, and maintenance agreements are offered to customers either as part
of our product license agreements or separately. Cadence's organizational
structure reflects this segmentation and segments have not been aggregated for
purposes of this disclosure.
Segment income from operations is defined as gross margin under generally
accepted accounting principles and excludes operating expenses (marketing and
sales, research and development, and general and administrative), unusual items,
other income, net, and income taxes. Profitability information about Cadence's
segments is available only to the extent of gross margin by segment, and
operating expenses and other income and expense items are managed on a
functional basis. There are no differences between the accounting policies used
to measure profit and loss for segments and those used on a consolidated basis.
Revenue is defined as revenue from external customers with no intersegment
revenue or expenses.
Cadence's management does not identify or allocate its assets, including
capital expenditures, by operating segment. Accordingly, assets are not being
reported by segment because the information is not available by segment and is
not reviewed by Cadence's Executive Staff to make decisions about resources to
be allocated among the segments or to assess their performance. Depreciation and
amortization is allocated among the segments in order to determine each
segments' gross margin.
83
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables present information about reported segments for the
years ended January 1, 2000, January 2, 1999, and January 3, 1998:
<TABLE>
<CAPTION>
PRODUCT SERVICES MAINTENANCE OTHER TOTAL
-------- -------- ------------ --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999:
Revenue............................................... $505,459 $294,916 $292,928 $ -- $1,093,303
Cost of revenue....................................... 79,504 191,760 53,579 -- 324,843
Amortization of acquired intangibles.................. 55,962 5,826 -- -- 61,788
-------- -------- -------- --------- ----------
Gross margin........................................ 369,993 97,330 239,349 -- 706,672
Marketing and sales................................... -- -- -- (354,205) (354,205)
Research and development.............................. -- -- -- (219,181) (219,181)
General and administrative............................ -- -- -- (86,735) (86,735)
Unusual items......................................... -- -- -- (59,301) (59,301)
Other income, net..................................... -- -- -- 1,370 1,370
-------- -------- -------- --------- ----------
Income (loss) before provision for income taxes and
cumulative effect of change in accounting method.... $369,993 $ 97,330 $239,349 $(718,052) $ (11,380)
======== ======== ======== ========= ==========
Depreciation and amortization......................... $ 85,919 $ 21,987 $ 2,280 $ 53,710 $ 163,896
======== ======== ======== ========= ==========
1998:
Revenue............................................... $760,441 $265,211 $294,528 $ -- $1,320,180
Cost of revenue....................................... 77,513 188,793 52,386 -- 318,692
Amortization of acquired intangibles.................. 14,800 3,672 -- -- 18,472
-------- -------- -------- --------- ----------
Gross margin........................................ 668,128 72,746 242,142 -- 983,016
Marketing and sales................................... -- -- -- (340,295) (340,295)
Research and development.............................. -- -- -- (202,810) (202,810)
General and administrative............................ -- -- -- (86,828) (86,828)
Unusual items......................................... -- -- -- (263,595) (263,595)
Other income, net..................................... -- -- -- 10,558 10,558
-------- -------- -------- --------- ----------
Income (loss) before provision for income taxes and
cumulative effect of change in accounting method.... $668,128 $ 72,746 $242,142 $(882,970) $ 100,046
======== ======== ======== ========= ==========
Depreciation and amortization......................... $ 40,537 $ 16,297 $ 2,307 $ 49,964 $ 109,105
======== ======== ======== ========= ==========
1997:
Revenue............................................... $618,340 $168,789 $249,644 $ -- $1,036,773
Cost of revenue....................................... 74,181 117,407 34,038 -- 225,626
Amortization of acquired intangibles.................. 2,424 36 -- -- 2,460
-------- -------- -------- --------- ----------
Gross margin........................................ 541,735 51,346 215,606 -- 808,687
Marketing and sales................................... -- -- -- (299,829) (299,829)
Research and development.............................. -- -- -- (167,245) (167,245)
General and administrative............................ -- -- -- (69,897) (69,897)
Unusual items......................................... -- -- -- (48,010) (48,010)
Other income, net..................................... -- -- -- 28,390 28,390
-------- -------- -------- --------- ----------
Income (loss) before provision for income taxes and
cumulative effect of change in accounting method.... $541,735 $ 51,346 $215,606 $(556,591) $ 252,096
======== ======== ======== ========= ==========
Depreciation and amortization......................... $ 22,184 $ 8,411 $ 1,880 $ 33,171 $ 65,646
======== ======== ======== ========= ==========
</TABLE>
Internationally, excluding Japan, Cadence markets and supports its products
and services primarily through its subsidiaries and various distributors.
Following a reorganization of Cadence's distribution channel in Japan in 1997,
Cadence licenses its products through Innotech Corporation, in which Cadence is
an approximately 18% stockholder. Cadence markets its methodology and design
services in Japan through a wholly-owned subsidiary.
84
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenues are attributed to geographic areas based on the country in which
the customer is domiciled. In 1999, 1998, and 1997, no one customer accounted
for more than 10% of total revenues. Long-lived assets are attributed to
geographic areas based on the country where the assets are located.
The following table presents a summary of revenues and long-lived assets by
geographic region for years ended January 1, 2000, January 2, 1999, and
January 3, 1998:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
LONG-LIVED LONG-LIVED LONG-LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
North America:
United States................... $ 526,824 $273,542 $ 676,567 $233,050 $ 509,557 $191,720
Other........................... 25,853 3,843 36,710 3,995 17,977 2,164
---------- -------- ---------- -------- ---------- --------
Total North America........... 552,677 277,385 713,277 237,045 527,534 193,884
---------- -------- ---------- -------- ---------- --------
Europe:
United Kingdom.................. 94,037 37,250 85,010 21,349 40,988 2,644
Germany......................... 38,839 860 54,953 1,328 53,449 1,357
Other........................... 122,736 3,231 130,630 4,180 100,666 3,111
---------- -------- ---------- -------- ---------- --------
Total Europe.................. 255,612 41,341 270,593 26,857 195,103 7,112
---------- -------- ---------- -------- ---------- --------
Japan and Asia:
Japan........................... 223,425 5,079 261,239 2,381 253,511 2,083
Asia............................ 61,589 6,604 75,071 7,925 60,625 5,460
---------- -------- ---------- -------- ---------- --------
Total Japan and Asia.......... 285,014 11,683 336,310 10,306 314,136 7,543
---------- -------- ---------- -------- ---------- --------
$1,093,303 $330,409 $1,320,180 $274,208 $1,036,773 $208,539
========== ======== ========== ======== ========== ========
</TABLE>
SUBSEQUENT EVENTS
In January 2000, Cadence's Board of Directors approved the 2000
Non-Statutory Stock Option Plan, referred to as the 2000 Plan which provides for
the issuance of non-qualified options to its employees to purchase up to
10,000,000 shares of Cadence common stock at an exercise price not less than the
fair market value of the common stock on the date of grant. Options granted
under the 2000 Plan become exercisable over periods up to four years, with,
generally, one-fourth of the shares vesting one year from the vesting
commencement date with respect to initial grants, and the remaining shares
vesting in 36 equal monthly installments. Options under the 2000 Plan generally
expire ten years from the date of grant.
In February 2000, the Board of Directors approved a 15,000,000 share
increase for stock repurchases. This increase included authorization to
repurchase 5,000,000 shares on a systematic basis to meet share issuance
requirements of Cadence's newly adopted 2000 Plan and authorization to
repurchase 10,000,000 shares on a non-systematic basis to be used for general
corporate purposes. Cadence is now authorized to repurchase an aggregate of
13,000,000 shares for the 1997 Plan, 5,000,000 for the 2000 Plan, 13,400,000
shares for the ESPP, and 10,000,000 shares for general corporate purposes.
On February 25, 2000, Cadence and several of its officers were named as
defendants in a lawsuit filed in the U.S. District Court for the Northern
District of California, entitled Maxick v. Cadence Design Systems, Inc. File
No. C 00 0658PJH. The action was brought on behalf of a class of shareholders of
OrCAD, Inc., and alleges violations of Section 14(d)(7) of the Securities
Exchange Act of 1934, as amended, and Rule 14d-10 thereunder. The lawsuit arises
out of Cadence's acquisition of OrCAD, which was completed in August 1999.
Management believes the action is without merit and intends to vigorously defend
it.
85
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
SCHEDULE II
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DEDUCTIONS(1) PERIOD
- ----------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Deducted from asset accounts:
Provisions for losses on trade accounts
receivable and sales returns:
Year Ended January 1, 2000........... $22,989 $9,070 $33,963 $(21,434) $44,588
Year Ended January 2, 1999........... $26,080 $7,687 $ 3,314 $(14,092) $22,989
Year Ended January 3, 1998........... $13,695 $ 438 $27,467 $(15,520) $26,080
</TABLE>
- ------------------------
(1) Uncollectible accounts written-off, net of recoveries, and sales returns
allowance offset against revenues.
(2) Sales returns allowance offset against revenue.
86
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Cadence Design Systems, Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
CADENCE DESIGN SYSTEMS, INC.
/S/ H. RAYMOND BINGHAM
------------------------------------
H. Raymond Bingham
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dated: March 24, 2000
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME/TITLE DATE
---------- ----
<S> <C> <C>
/s/ H. RAYMOND BINGHAM March 24, 2000
- -------------------------------------------
H. Raymond Bingham
PRESIDENT, CHIEF EXECUTIVE OFFICER, AND DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
/s/ WILLIAM PORTER March 24, 2000
- -------------------------------------------
William Porter
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING
OFFICER)
</TABLE>
87
<PAGE>
ADDITIONAL DIRECTORS
<TABLE>
<CAPTION>
NAME/TITLE DATE
---------- ----
<S> <C> <C>
/s/ DONALD L. LUCAS
- ------------------------------------------- March 24, 2000
Donald L. Lucas
/s/ CAROL BARTZ
- ------------------------------------------- March 24, 2000
Carol Bartz
/s/ DR. LEONARD Y. W. LIU
- ------------------------------------------- March 24, 2000
Dr. Leonard Y. W. Liu
/s/ DR. ALBERTO SANGIOVANNI-VINCENTELLI
- ------------------------------------------- March 24, 2000
Dr. Alberto Sangiovanni-Vincentelli
/s/ GEORGE M. SCALISE
- ------------------------------------------- March 24, 2000
George M. Scalise
/s/ DR. JOHN B. SHOVEN
- ------------------------------------------- March 24, 2000
Dr. John B. Shoven
/s/ ROGER SIBONI
- ------------------------------------------- March 24, 2000
Roger Siboni
</TABLE>
88
<PAGE>
EXHIBIT 4.02
AMENDED AND RESTATED
RIGHTS AGREEMENT
Amended and Restated Rights Agreement, dated as of February 1, 2000,
between Cadence Design Systems, Inc., a Delaware corporation (the "Company"),
and ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability
company (the "Rights Agent").
The Board of Directors of the Company authorized and declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding as of the close
of business (as defined below) on February 20, 1996 (the "Record Date"), each
Right representing the right to purchase one one-thousandth (subject to
adjustment) of a share of Preferred Stock (as hereinafter defined), upon the
terms and subject to the conditions herein set forth, and has further authorized
and directed the issuance of one Right (subject to adjustment as provided
herein) with respect to each share of Common Stock that shall become outstanding
between the Record Date and the earliest of the Distribution Date, the
Redemption Date and the Final Expiration Date (as such terms are hereinafter
defined); provided, however, that Rights may be issued with respect to shares of
Common Stock that shall become outstanding after the Distribution Date and prior
to the Redemption Date and the Final Expiration Date in accordance with Section
22.
The Company entered into that certain Rights Agreement, dated as of
February 9, 1996, between Cadence Design Systems, Inc., a Delaware corporation
(the "Company"), and Harris Trust and Savings Bank, a national banking
association ("Harris Trust").
The Company has appointed ChaseMellon Shareholder Services, L.L.C. as
its transfer agent and desires that it replace Harris Trust as rights agent
pursuant to this Agreement and amend the Agreement solely to change the rights
agent.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement,
the following terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which shall be the Beneficial Owner
(as such term is hereinafter defined) of 15% or more of the shares of
Common Stock then outstanding, but shall not include an Exempt Person
(as such term is hereinafter defined); provided, however, that if the
Board of Directors of the Company determines in good faith that a
Person who would otherwise
<PAGE>
be an "Acquiring Person" has become such inadvertently (including,
without limitation, because (i) such Person was unaware that it
beneficially owned a percentage of Common Stock that would otherwise
cause such Person to be an "Acquiring Person" or (ii) such Person
was aware of the extent of its Beneficial Ownership of Common Stock
but had no actual knowledge of the consequences of such Beneficial
Ownership under this Rights Agreement) and without any intention of
changing or influencing control of the Company, and such Person, as
promptly as practicable divested or divests himself or itself of
Beneficial Ownership of a sufficient number of shares of Common
Stock so that such Person would no longer be an Acquiring Person,
then such Person shall not be deemed to be or to have become an
"Acquiring Person" for any purposes of this Agreement.
Notwithstanding the foregoing, (i) if a Person would be deemed an
Acquiring Person upon the adoption of this Agreement because of
Beneficial Ownership of between 15% and 20% of the shares of stock
on such date, such Person will not be deemed an Acquiring Person for
any purposes of this Agreement unless and until such Person acquires
Beneficial Ownership of any additional shares of Common Stock after
the adoption of this Agreement unless upon the consummation of the
acquisition of such additional shares of Common Stock such Person
does not beneficially own 15% or more of the shares of Common Stock
then outstanding and (ii) no Person shall become an "Acquiring
Person" as the result of an acquisition of shares of Common Stock by
the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by
such Person to 15% or more of the shares of Common Stock then
outstanding, provided, however, that if a Person shall become the
Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding by reason of such share acquisitions by the Company and
thereafter become the Beneficial Owner of any additional shares of
Common Stock, then such Person shall be deemed to be an "Acquiring
Person" unless upon the consummation of the acquisition of such
additional shares of Common Stock such Person does not own 15% or
more of the shares of Common Stock then outstanding. The phrase
"then outstanding", when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with
the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially
hereunder.
(b) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as in effect on the date of
this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of,
shall be deemed to have "Beneficial Ownership" of and shall be deemed
to "beneficially own" any securities: (i) which such Person or any of
such Person's Affiliates or Associates is deemed to beneficially own,
directly or indirectly within the meaning of Rule 13d-3 of the General
Rules and Regulations under the Exchange Act as in effect on the date
of this Agreement; (ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a
<PAGE>
bona fide public offering of securities), or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, (x) securities tendered
pursuant to a tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase, (y) securities which
such Person has a right to acquire on the exercise of Rights at any
time prior to the time a Person becomes an Acquiring Person or (z)
securities issuable upon exercise of Rights from and after the time
a Person becomes an Acquiring Person if such Rights were acquired by
such Person or any of such Person's Affiliates or Associates prior
to the Distribution Date or pursuant to Section 3(a) or Section 22
hereof ("original Rights") or pursuant to Section 11(i) or Section
11(n) with respect to an adjustment to original Rights; or (B) the
right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed
the Beneficial Owner of, or to beneficially own, any security by
reason of such agreement, arrangement or understanding if the
agreement, arrangement or understanding to vote such security (1)
arises solely from a revocable proxy or consent given to such Person
in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or any comparable
or successor report); or (iii) which are beneficially owned,
directly or indirectly, by any other Person with which such Person
or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (other than customary agreements with
and between underwriters and selling group members with respect to a
bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the
proviso to Section 1(c)(ii)(B)) or disposing of any securities of
the Company.
(d) "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the State
of New York, or the State in which the principal office of the Rights
Agent is located, are authorized or obligated by law or executive order
to close.
(e) "Close of Business" on any given date shall mean 5:00
P.M., New York City time, on such date; provided, however, that if such
date is not a Business Day it shall mean 5:00 P.M., New York City time,
on the next succeeding Business Day.
(f) "Common Stock" when used with reference to the
Company shall mean the common stock, presently par value $.01 per
share, of the Company. "Common Stock" when used with reference to any
Person other than the Company shall mean the capital stock (or, in the
case of an unincorporated entity, the equivalent equity interest) with
the greatest voting power of such other Person or, if such other Person
is a subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth
in Section 3 hereof.
<PAGE>
(h) "Exempt Person" shall mean the Company, any
Subsidiary (as such term is hereinafter defined) of the Company, any
employee benefit plan of the Company or of any Subsidiary of the
Company, or any entity or trustee holding Common Stock for or pursuant
to the terms of any such plan or for the purpose of funding any such
plan or funding other employee benefits for employees of the Company or
of any Subsidiary of the Company.
(i) "Final Expiration Date" shall have the meaning set
forth in Section 7 hereof.
(j) "New York Stock Exchange" shall mean the stock market
operated by the New York Stock Exchange, Inc.
(k) "Person" shall mean any individual, firm,
corporation, limited liability company, trust, partnership or other
entity, and shall include any successor (by merger or otherwise) of
such entity.
(l) "Preferred Stock" shall mean the Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company
having the rights and preferences set forth in the Form of Amended
Certificate of Designations attached to this Agreement as Exhibit A.
(m) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(n) "Securities Act" shall mean the Securities Act of
1933, as amended.
(o) "Stock Acquisition Date" shall mean the first date of
public announcement (which for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d)
of the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such or such earlier date as a majority of
the Board of Directors shall become aware of the existence of an
Acquiring Person.
(p) "Subsidiary" of any Person shall mean any corporation
or other entity of which securities or other ownership interests having
ordinary voting power sufficient to elect a majority of the board of
directors or other persons performing similar functions are
beneficially owned, directly or indirectly, by such Person, and any
corporation or other entity that is otherwise controlled by such
Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i)
the tenth day after the Stock Acquisition Date or (ii) the tenth business day
(or such later date as may be determined by action of the Board of Directors
prior to such time as any Person becomes an Acquiring Person) after the date of
the commencement by any Person (other than an Exempt Person) of, or of the first
public announcement of the intention of such Person (other than an Exempt
Person) to
<PAGE>
commence, a tender or exchange offer the consummation of which would
result in any Person becoming the Beneficial Owner of shares of
Common Stock aggregating 15% or more of the Common Stock then
outstanding (including any such date which is after the date of this
Agreement and prior to the issuance of the Rights; the earlier of
such dates being herein referred to as the "Distribution Date"), (x)
the Rights will be evidenced (subject to the provisions of Section
3(b) hereof) by the certificates for Common Stock registered in the
names of the holders thereof and not by separate Right Certificates,
and (y) the Rights will be transferable only in connection with the
transfer of Common Stock. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights
Agent will countersign, and the Company will send or cause to be
sent (and the Rights Agent will, if requested, send) by first-class,
insured, postage-prepaid mail, to each record holder of Common Stock
as of the Close of Business on the Distribution Date (other than any
Acquiring Person or any Associate or Affiliate of an Acquiring
Person), at the address of such holder shown on the records of the
Company, a Right Certificate, in substantially the form of Exhibit B
hereto (a "Right Certificate"), evidencing one Right (subject to
adjustment as provided herein) for each share of Common Stock so
held. As of the Distribution Date, the Rights will be evidenced
solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable
thereafter, the Company will send a copy of a Summary of Rights to
Purchase Shares of Preferred Stock, in substantially the form of
Exhibit C hereto (the "Summary of Rights"), by first-class,
postage-prepaid mail, to each record holder of Common Stock as of the
Close of Business on the Record Date (other than any Acquiring Person
or any Associate or Affiliate of any Acquiring Person), at the address
of such holder shown on the records of the Company. With respect to
certificates for Common Stock outstanding as of the Record Date, until
the Distribution Date, the Rights will be evidenced by such
certificates registered in the names of the holders thereof together
with the Summary of Rights. Until the Distribution Date (or the earlier
of the Redemption Date or the Final Expiration Date), the surrender for
transfer of any certificate for Common Stock outstanding on the Record
Date, with or without a copy of the Summary of Rights, shall also
constitute the transfer of the Rights associated with the Common Stock
represented thereby.
(c) Certificates issued for Common Stock (including,
without limitation, upon transfer of outstanding Common Stock,
disposition of Common Stock out of treasury stock or issuance or
reissuance of Common Stock out of authorized but unissued shares) after
the Record Date but prior to the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date shall have impressed on,
printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Cadence Design
Systems, Inc. and ChaseMellon Shareholder Services, L.L.C., dated as of February
1, 2000, as the same may be amended from time to time (the "Rights Agreement"),
the terms of which are hereby incorporated herein by reference and a copy of
which is on file at the principal executive offices of Cadence Design Systems,
Inc. Under certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. Cadence Design Systems, Inc. will mail to the
holder of this certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain circumstances, as set forth
in the
<PAGE>
Rights Agreement, Rights owned by or transferred to any Person who becomes an
Acquiring Person (as defined in the Rights Agreement) and certain transferees
thereof will become null and void and will no longer be transferable. With
respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby. In the event that the Company purchases or
otherwise acquires any Common Stock after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Stock shall be
deemed cancelled and retired so that the Company shall not be entitled to
exercise any Rights associated with the Common Stock which are no longer
outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
Section 4. Form of Right Certificates. The Right Certificates (and
the forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate which do not affect the duties and responsibilities of the Rights
Agent, and as are not inconsistent with the provisions of this Agreement, or as
may be required to comply with any applicable law or with any rule or regulation
made pursuant thereto or with any rule or regulation of the New York Stock
Exchange or of any other stock exchange or automated quotation system on which
the Rights may from time to time be listed, or to conform to usage. Subject to
the provisions of Sections 11, 13 and 22 hereof, the Right Certificates shall
entitle the holders thereof to purchase such number of one one-thousandths of a
share of Preferred Stock as shall be set forth therein at the price per one
one-thousandth of a share of Preferred Stock set forth therein (the "Purchase
Price"), but the number of such one one-thousandths of a share of Preferred
Stock and the Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. (a) The Right
Certificates shall be executed on behalf of the Company by the Chairman of the
Board of Directors, the President, any of the Vice Presidents, the Treasurer or
the Controller of the Company, either manually or by facsimile signature, shall
have affixed thereto the Company's seal or a facsimile thereof, and shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Agreement any such
Person was not such an officer.
<PAGE>
(b) Following the Distribution Date, and receipt by the
Rights Agent of written notice and a list of record holders of the
Rights referred to in Section 3(a) hereof, the Rights Agent will keep
or cause to be kept, at an office or agency designated pursuant to
Section 26 hereof for such purpose, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the
Right Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a)
Subject to the provisions of Sections 7(e), 11(a)(ii) and 14 hereof, at any time
after the Close of Business on the Distribution Date, and prior to the Close of
Business on the earlier of the Redemption Date or the Final Expiration Date, any
Right Certificate or Right Certificates may be transferred, split up, combined
or exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a share of
Preferred Stock as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the office or agency of the Rights Agent designated for
such purpose. Thereupon the Rights Agent shall countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates. The Rights
Agent shall not be required to process any transaction unless and until it
receives written evidence that all taxes and governmental charges have been paid
in full.
(b) Subject to the provisions of Section 11(a)(ii)
hereof, at any time after the Distribution Date and prior to the Close
of Business on the earlier of the Redemption Date or the Final
Expiration Date, upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Right Certificate, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory
to them, and, at the Company's request, reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Right
Certificate if mutilated, the Company will make and deliver a new Right
Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered holder in lieu of the Right Certificate so
lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights, Purchase Price; Expiration Date of
Rights. (a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or agency of the Rights Agent designated for such purpose, together with
payment of the Purchase Price for each one one-thousandth of a share of
Preferred Stock as to which the Rights are exercised, at any time which
<PAGE>
is both after the Distribution Date and prior to the earliest of (i) the
Close of Business on February 9, 2006 (the "Final Expiration Date"), (ii) the
time at which the Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date") or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.
(b) The Purchase Price shall be initially $240 for each
one one-thousandth of a share of Preferred Stock purchasable upon the
exercise of a Right. The Purchase Price and the number of one
one-thousandths of a share of Preferred Stock or other securities or
property to be acquired upon exercise of a Right shall be subject to
adjustment from time to time as provided in Sections 11 and 13 hereof
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) of this Section 7.
(c) Except as otherwise provided herein, upon receipt of
a Right Certificate representing exercisable Rights, with the form of
election to purchase duly executed, accompanied by payment of the
aggregate Purchase Price for the shares of Preferred Stock to be
purchased and an amount equal to any applicable tax or governmental
charge required to be paid by the holder of such Right Certificate in
accordance with Section 9 hereof, in cash or by certified check,
cashier's check or money order payable to the order of the Company, the
Rights Agent shall thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Stock certificates for the number of
shares of Preferred Stock to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such
requests, or (B) requisition from the depositary agent depositary
receipts representing interests in such number of one one-thousandths
of a share of Preferred Stock as are to be purchased (in which case
certificates for the Preferred Stock represented by such receipts shall
be deposited by the transfer agent with the depositary agent) and the
Company hereby directs the depositary agent to comply with such
request, (ii) when necessary to comply with this Agreement, requisition
from the Company the amount of cash to be paid in lieu of issuance of
fractional shares in accordance with Section 14 hereof, (iii) promptly
after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of
such Right Certificate, registered in such name or names as may be
designated by such holder and (iv) when necessary to comply with this
Agreement, after receipt, promptly deliver such cash to or upon the
order of the registered holder of such Right Certificate.
(d) Except as otherwise provided herein, in case the
registered holder of any Right Certificate shall exercise less than all
the Rights evidenced thereby, a new Right Certificate evidencing Rights
equivalent to the exercisable Rights remaining unexercised shall be
issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated
to undertake any action with respect to a registered holder of Rights
upon the occurrence of any purported transfer or exercise of Rights
pursuant to Section 6 hereof or this Section 7 unless such registered
holder shall have (i) properly completed and signed the certificate
contained in the form of assignment or election to purchase set forth
on the reverse side of the Rights Certificate
<PAGE>
surrendered for such transfer or exercise and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) thereof as the Company or the Rights Agents
shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such cancelled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Shares of Preferred Stock. (a) The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued shares of Preferred Stock or any shares of Preferred
Stock held in its treasury, the number of shares of Preferred Stock that will be
sufficient to permit the exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and,
following the time that a Person becomes an Acquiring Person, shares of
Common Stock and other securities) issuable upon the exercise of Rights
may be listed or admitted to trading on the New York Stock Exchange or
listed on any other national securities exchange or quotation system,
the Company shall use its best efforts to cause, from and after such
time as the Rights become exercisable, all shares reserved for such
issuance to be listed or admitted to trading on the New York Stock
Exchange or listed on any other exchange or quotation system upon
official notice of issuance upon such exercise.
(c) From and after such time as the Rights become
exercisable, the Company shall use its best efforts, if then necessary
to permit the issuance of shares of Preferred Stock (and following the
time that a Person first becomes an Acquiring Person, shares of Common
Stock and other securities) upon the exercise of Rights, to register
and qualify such shares of Preferred Stock (and following the time that
a Person first becomes an Acquiring Person, shares of Common Stock and
other securities) under the Securities Act and any applicable state
securities or "Blue Sky" laws (to the extent exemptions therefrom are
not available), cause such registration statement and qualifications to
become effective as soon as possible after such filing and keep such
registration and qualifications effective until the earlier of the date
as of which the Rights are no longer exercisable for such securities
and the Final Expiration Date. The Company may temporarily suspend, for
a period of time not to exceed 90 days, the exercisability of the
Rights in order to prepare and file a registration statement under the
Securities Act and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no
longer
<PAGE>
in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction
unless the requisite qualification in such jurisdiction shall have
been obtained and until a registration statement under the
Securities Act (if required) shall have been declared effective.
(d) The Company covenants and agrees that it will take
all such action as may be necessary to ensure that all shares of
Preferred Stock (and, following the time that a Person becomes an
Acquiring Person, shares of Common Stock and other securities)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates therefor (subject to payment of the Purchase Price), be
duly and validly authorized and issued and fully paid and nonassessable
shares.
(e) The Company further covenants and agrees that it will
pay when due and payable any and all taxes and governmental charges
which may be payable in respect of the issuance or delivery of the
Right Certificates or of any shares of Preferred Stock (or shares of
Common Stock or other securities) upon the exercise of Rights. The
Company shall not, however, be required to pay any tax which may be
payable in respect of any transfer or delivery of Right Certificates to
a Person other than, or the issuance or delivery of certificates or
depositary receipts for the Preferred Stock (or shares of Common Stock
or other securities) in a name other than that of, the registered
holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or deliver any certificates or depositary receipts
for Preferred Stock (or shares of Common Stock or other securities)
upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by that holder of such Right Certificate at
the time of surrender) or until it has been established to the
Company's reasonable satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name
any certificate for Preferred Stock is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable taxes) was
made; provided, however, that if the date of such surrender and payment is a
date upon which the Preferred Stock transfer books of the Company are closed,
such Person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the Preferred Stock transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares and Number
of Rights. The Purchase Price, the number of shares of Preferred Stock or other
securities or property purchasable upon exercise of each Right and the number of
Rights outstanding are subject to adjustment from time to time as provided in
this Section 11.
<PAGE>
(a)(i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide the outstanding
Preferred Stock, (C) combine the outstanding Preferred Stock into a
smaller number of Preferred Stock or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock (including
any such reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price
in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification,
and the number and kind of shares of capital stock issuable on such
date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the aggregate
number and kind of shares of capital stock which, if such Right had
been exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, the holder
would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification;
provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of
one Right. (ii) Subject to Section 24 of this Agreement and except as
otherwise provided in this Section 11(a)(ii), in the event any Person
becomes an Acquiring Person, each holder of a Right shall thereafter
have the right to receive, upon exercise thereof at a price equal to
the then current Purchase Price multiplied by the number of one
one-thousandths of a share of Preferred Stock for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu
of shares of Preferred Stock, such number of shares of Common Stock (or
at the option of the Company, such number of one one- thousandths of
shares of Preferred Stock) as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right is then
exercisable and dividing that product by (y) 50% of the then current
per share market price of the Company's Common Stock (determined
pursuant to Section 11(d) hereof) on the date of the occurrence of such
event; provided, however, that the Purchase Price and the number of
shares of Common Stock so receivable upon exercise of a Right shall
thereafter be subject to further adjustment as appropriate in
accordance with Section 11(f) hereof. Notwithstanding anything in this
Agreement to the contrary, however, from and after the time (the
"invalidation time") when any Person first becomes an Acquiring Person,
any Rights that are beneficially owned by (x) any Acquiring Person (or
any Affiliate or Associate of any Acquiring Person), (y) a transferee
of any Acquiring Person (or any such Affiliate or Associate) who
becomes a transferee after the invalidation time or (z) a transferee of
any Acquiring Person (or any such Affiliate or Associate) who became a
transferee prior to or concurrently with the invalidation time pursuant
to either (I) a transfer from the Acquiring Person to holders of its
equity securities or to any Person with whom it has any continuing
agreement, arrangement or understanding regarding the transferred
Rights or (II) a transfer which the Board of Directors has determined
is part of an agreement, arrangement or understanding which has the
purpose or effect of avoiding the provisions of this paragraph, and
subsequent transferees of such Persons, shall be void without any
further action and any holder of such Rights shall thereafter have no
rights whatsoever with respect to such Rights under
<PAGE>
any provision of this Agreement. The Company shall use all
reasonable efforts to ensure that the provisions of this Section
11(a)(ii) are complied with, but shall have no liability to any
holder of Right Certificates or other Person as a result of its
failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder. From
and after the invalidation time, no Right Certificate shall be
issued pursuant to Section 3 or Section 6 hereof that represents
Rights that are or have become void pursuant to the provisions of
this paragraph, and any Right Certificate delivered to the Rights
Agent that represents Rights that are or have become void pursuant
to the provisions of this paragraph shall be cancelled. From and
after the occurrence of an event specified in Section 13(a) hereof,
any Rights that theretofore have not been exercised pursuant to this
Section 11(a)(ii) shall thereafter be exercisable only in accordance
with Section 13 and not pursuant to this Section 11(a)(ii). (iii)
The Company may at its option substitute for a share of Common Stock
issuable upon the exercise of Rights in accordance with the
foregoing subparagraph (ii) such number or fractions of shares of
Preferred Stock having an aggregate current market value equal to
the current per share market price of a share of Common Stock. In
the event that there shall not be sufficient shares of Common Stock
issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with the foregoing
subparagraph (ii), the Board of Directors shall, to the extent
permitted by applicable law and any material agreements then in
effect to which the Company is a party (A) determine the excess of
(1) the value of the shares of Common Stock issuable upon the
exercise of a Right in accordance with the foregoing subparagraph
(ii) (the "Current Value") over (2) the then current Purchase Price
multiplied by the number of one one-thousandths of shares of
Preferred Stock for which a Right was exercisable immediately prior
to the time that the Acquiring Person became such (such excess, the
"Spread"), and (B) with respect to each Right (other than Rights
which have become void pursuant to Section 11(a)(ii)), make adequate
provision to substitute for the shares of Common Stock issuable in
accordance with subparagraph (ii) upon exercise of the Right and
payment of the applicable Purchase Price, (1) cash, (2) a reduction
in the Purchase Price, (3) shares of Preferred Stock or other equity
securities of the Company (including, without limitation, shares or
fractions of shares of preferred stock which, by virtue of having
dividend, voting and liquidation rights substantially comparable to
those of the shares of Common Stock, are deemed in good faith by the
Board of Directors to have substantially the same value as the
shares of Common Stock (such shares of Preferred Stock and shares or
fractions of shares of preferred stock are hereinafter referred to
as "Common Stock equivalents"), (4) debt securities of the Company,
(5) other assets, or (6) any combination of the foregoing, having a
value which, when added to the value of the shares of Common Stock
actually issued upon exercise of such Right, shall have an aggregate
value equal to the Current Value (less the amount of any reduction
in the Purchase Price), where such aggregate value has been
determined by the Board of Directors upon the advice of a nationally
recognized investment banking firm selected in good faith by the
Board of Directors; provided, however, if the Company shall not make
adequate provision to deliver value pursuant to clause (B) above
within thirty (30) days following the date that the Acquiring Person
became such (the "Section 11(a)(ii) Trigger Date"), then the Company
shall be obligated to deliver, to the extent permitted by applicable
law and any material agreements then in effect to which the Company
is a party, upon the
<PAGE>
surrender for exercise of a Right and without requiring payment of
the Purchase Price, shares of Common Stock (to the extent
available), and then, if necessary, such number or fractions of
shares of Preferred Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value
equal to the Spread. If, upon the date any Person becomes an
Acquiring Person, the Board of Directors shall determine in good
faith that it is likely that sufficient additional shares of Common
Stock could be authorized for issuance upon exercise in full of the
Rights, then, if the Board of Directors so elects, the thirty (30)
day period set forth above may be extended to the extent necessary,
but not more than ninety (90) days after the Section 11(a)(ii)
Trigger Date, in order that the Company may seek stockholder
approval for the authorization of such additional shares (such
thirty (30) day period, as it may be extended, is herein called the
"Substitution Period"). To the extent that the Company determines
that some action need be taken pursuant to the second and/or third
sentence of this Section 11(a)(iii), the Company (x) shall provide,
subject to Section 11(a)(ii) hereof and the last sentence of this
Section 11(a)(iii) hereof, that such action shall apply uniformly to
all outstanding Rights and (y) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to
seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such second
sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of the shares of Common Stock shall be the
current per share market price (as determined pursuant to Section
11(d)(i)) on the Section 11(a)(ii) Trigger Date and the per share or
fractional value of any "Common Stock equivalent" shall be deemed to
equal the current per share market price of the Common Stock. The
Board of Directors of the Company may, but shall not be required to,
establish procedures to allocate the right to receive shares of
Common Stock upon the exercise of the Rights among holders of Rights
pursuant to this Section 11(a)(iii).
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred
Stock entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Stock
(or shares having the same rights, privileges and preferences as the
Preferred Stock ("equivalent preferred shares")) or securities
convertible into Preferred Stock or equivalent preferred shares at a
price per share of Preferred Stock or equivalent preferred shares (or
having a conversion price per share, if a security convertible into
shares of Preferred Stock or equivalent preferred shares) less than the
then current per share market price of the Preferred Stock (determined
pursuant to Section 11(d) hereof) on such record date, the Purchase
Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number
of shares of Preferred Stock and equivalent preferred shares
outstanding on such record date plus the number of shares of Preferred
Stock and equivalent preferred shares which the aggregate offering
price of the total number of shares of Preferred Stock and/or
equivalent preferred shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be
offered) would purchase at such current market price, and the
denominator of which shall
<PAGE>
be the number of shares of Preferred Stock and equivalent preferred
shares outstanding on such record date plus the number of additional
shares of Preferred Stock and/or equivalent preferred shares to be
offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided,
however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of
one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good
faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent.
Shares of Preferred Stock and equivalent preferred shares owned by
or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and
in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase
Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for the
making of a distribution to all holders of the Preferred Stock
(including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation) of evidences of indebtedness or assets (other
than a regular quarterly cash dividend or a dividend payable in
Preferred Stock) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in
effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share
market price of the Preferred Stock (determined pursuant to Section
11(d) hereof) on such record date, less the fair market value (as
determined in good faith by the Board of Directors of the Company whose
determination shall be described in a statement filed with the Rights
Agent) of the portion of the assets or evidences of indebtedness so to
be distributed or of such subscription rights or warrants applicable to
one share of Preferred Stock, and the denominator of which shall be
such current per share market price (determined pursuant to Section
11(d) hereof) of the Preferred Stock; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right
be less than the aggregate par value of the shares of capital stock of
the Company to be issued upon exercise of one Right. Such adjustments
shall be made successively whenever such a record date is fixed; and in
the event that such distribution is not so made, the Purchase Price
shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) (i) Except as otherwise provided herein, for the
purpose of any computation hereunder, the "current per share market
price" of any security (a "Security" for the purpose of this Section
11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive
Trading Days (as such term is hereinafter defined) immediately prior to
such date; provided, however, that in the event that the current per
share market price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a
dividend or distribution on such Security payable in shares of such
Security or securities
<PAGE>
convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security, and prior to the expiration of 30
Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, regular way, in either case as
reported by the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New
York Stock Exchange or, if the Security is not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the
Security is listed or admitted to trading or, if the Security is not
listed or admitted to trading on any national securities exchange,
the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported
by NASDAQ or such other system then in use, or, if on any such date
the Security is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board
of Directors of the Company. The term "Trading Day" shall mean a day
on which the principal national securities exchange on which the
Security is listed or admitted to trading is open for the
transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business
Day.
(ii) For the purpose of any computation
hereunder, if the Preferred Stock is publicly traded, the "current per
share market price" of the Preferred Stock shall be determined in
accordance with the method set forth in Section 11(d)(i). If the
Preferred Stock is not publicly traded but the Common Stock is publicly
traded, the "current per share market price" of the Preferred Stock
shall be conclusively deemed to be the current per share market price
of the Common Stock as determined pursuant to Section 11(d)(i)
multiplied by one thousand (appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date
hereof). If neither the Common Stock nor the Preferred Stock is
publicly traded, "current per share market price" shall mean the fair
value per share as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement
filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in the Purchase Price; provided, however, that any adjustments
which by reason of this Section 11(e) are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one ten-thousandth of a share of Preferred Stock
or share of Common Stock or other share or security as the case may be.
Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the date of the expiration of the
right to exercise any Rights.
<PAGE>
(f) If as a result of an adjustment made pursuant to
Section 11(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock of the
Company other than the Preferred Stock, thereafter the Purchase Price
and the number of such other shares so receivable upon exercise of a
Right shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in Sections 11(a), 11(b),
11(c), 11(e), 11(h), 11(i) and 11(m), and the provisions of Sections 7,
9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply
on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall
evidence the right to purchase, at the adjusted Purchase Price, the
number of one one-thousandths of a share of Preferred Stock purchasable
from time to time hereunder upon exercise of the Rights, all subject to
further adjustment as provided herein.
(h) Unless the Company shall have exercised its election
as provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Sections 11(b) and (c),
each Right outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-thousandths of a share
of Preferred Stock (calculated to the nearest one ten-thousandth of a
share of Preferred Stock) obtained by (i) multiplying (x) the number of
one one-thousandths of a share covered by a Right immediately prior to
such adjustment by (y) the Purchase Price in effect immediately prior
to such adjustment of the Purchase Price and (ii) dividing the product
so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in
substitution for any adjustment in the number of one one-thousandths of
a share of Preferred Stock purchasable upon the exercise of a Right.
Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one one-thousandths of a
share of Preferred Stock for which a Right was exercisable immediately
prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after
adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights and provide
a copy of such public announcement to the Rights Agent, indicating the
record date for the adjustment, and, if known at the time, the amount
of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the
date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company may, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record
date Right Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result
of such
<PAGE>
adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to
the date of adjustment, and upon surrender thereof, if required by
the Company, new Right Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment. Right
Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-thousandths of a share of
Preferred Stock issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express
the Purchase Price and the number of one one-thousandths of a share of
Preferred Stock which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then par value, if
any, of the Preferred Stock or other shares of capital stock issuable
upon exercise of the Rights, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and
nonassessable shares of Preferred Stock or other such shares at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until
the occurrence of such event the issuing to the holder of any Right
exercised after such record date of the Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such
exercise over and above the Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event
requiring such adjustment. The Company shall notify the Rights Agent in
writing of any adjustment in the Purchase Price and/or its election of
deferment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions
in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any
consolidation or subdivision of the Preferred Stock, issuance wholly
for cash of any shares of Preferred Stock at less than the current
market price, issuance wholly for cash or Preferred Stock or securities
which by their terms are convertible into or exchangeable for Preferred
Stock, dividends on Preferred Stock payable in shares of Preferred
Stock or issuance of rights, options or warrants referred to
hereinabove in Section 11(b), hereafter made by the Company to holders
of its Preferred Stock shall not be taxable to such stockholders.
<PAGE>
(n) Anything in this Agreement to the contrary
notwithstanding, in the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i)
declare or pay any dividend on the Common Stock payable in Common Stock
or (ii) effect a subdivision, combination or consolidation of the
Common Stock (by reclassification or otherwise than by payment of a
dividend payable in Common Stock) into a greater or lesser number of
Common Stock, then in any such case, the number of Rights associated
with each share of Common Stock then outstanding, or issued or
delivered thereafter, shall be proportionately adjusted so that the
number of Rights thereafter associated with each share of Common Stock
following any such event shall equal the result obtained by multiplying
the number of Rights associated with each share of Common Stock
immediately prior to such event by a fraction the numerator of which
shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately following the occurrence of such event.
(o) The Company agrees that, after the earlier of the
Distribution Date or the Stock Acquisition Date, it will not, except as
permitted by Sections 23, 24 or 27 hereof, take (or permit any
Subsidiary to take) any action if at the time such action is taken it
is reasonably foreseeable that such action will diminish substantially
or eliminate the benefits intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief, reasonably detailed statement of the facts,
computations and methodology of accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Stock or the
Preferred Stock a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof (if
so required under Section 25 hereof). The Rights Agent shall be fully protected
in relying on any such certificate and on any adjustment therein contained and
shall not be deemed to have knowledge of any such adjustment unless and until it
shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earnings Power. (a) In the event, directly or indirectly, at any time after any
Person has become an Acquiring Person, (i) the Company shall merge with and into
any other Person, (ii) any Person shall consolidate with the Company, or any
Person shall merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Stock shall be changed into or exchanged for
stock or other securities of any other Person (or of the Company) or cash or any
other property, or (iii) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person (other than the Company or one or more of its wholly-owned
Subsidiaries), then upon the first occurrence of such event, proper provision
shall be made so that: (A) each holder of record of a Right (other than Rights
which have become void pursuant to Section 11(a)(ii)) shall thereafter have the
right to receive, upon the exercise thereof at a price equal to
<PAGE>
the then current Purchase Price multiplied by the number of one
one-thousandths of a share of Preferred Stock for which a Right was
exercisable (whether or not such Right was then exercisable) immediately
prior to the time that any Person first became an Acquiring Person (each as
subsequently adjusted thereafter pursuant to Sections 11(a)(i), 11(b), 11(c),
11(h), 11(i) and 11(m)), in accordance with the terms of this Agreement and
in lieu of Preferred Stock, such number of validly issued, fully paid and
non-assessable and freely tradeable shares of Common Stock of the Principal
Party (as defined herein) not subject to any liens, encumbrances, rights of
first refusal or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then current Purchase Price by the number of
one one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to the time that any Person first became an
Acquiring Person (as subsequently adjusted thereafter pursuant to Sections
11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m)) and (2) dividing that product
by 50% of the then current per share market price of the Common Stock of such
Principal Party (determined pursuant to Section 11(d)(i) hereof) on the date
of consummation of such consolidation, merger, sale or transfer; provided
that the Purchase Price and the number of shares of Common Stock of such
Principal Party issuable upon exercise of each Right shall be further
adjusted as provided in Section 11(f) of this Agreement to reflect any events
occurring in respect of such Principal Party after the date of the such
consolidation, merger, sale or transfer; (B) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company
pursuant to this Agreement; (C) the term "Company" shall thereafter be deemed
to refer to such Principal Party; and (D) such Principal Party shall take
such steps (including, but not limited to, the reservation of a sufficient
number of its shares of Common Stock in accordance with Section 9 hereof) in
connection with such consummation of any such transaction as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as
nearly as reasonably may be, in relation to the shares of its Common Stock
thereafter deliverable upon the exercise of the Rights; provided that, upon
the subsequent occurrence of any consolidation, merger, sale or transfer of
assets or other extraordinary transaction in respect of such Principal Party,
each holder of a Right shall thereupon be entitled to receive, upon exercise
of a Right and payment of the Purchase Price as provided in this Section
13(a), such cash, shares, rights, warrants and other property which such
holder would have been entitled to receive had such holder, at the time of
such transaction, owned the Common Stock of the Principal Party receivable
upon the exercise of a Right pursuant to this Section 13(a), and such
Principal Party shall take such steps (including, but not limited to,
reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property.
(b) "Principal Party" shall mean (i) in the case of any
transaction described in (i) or (ii) of the first sentence of Section
13(a) hereof: (A) the Person that is the issuer of the securities into
which the shares of Common Stock are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer
the shares of Common Stock of which have the greatest aggregate market
value of shares outstanding, or (B) if no securities are so issued, (x)
the Person that is the other party to the merger, if such Person
survives said merger, or, if there is more than one such Person, the
Person the shares of Common Stock of which have the greatest aggregate
market value of shares outstanding or (y) if the Person that is the
other party to the merger does not survive the
<PAGE>
merger, the Person that does survive the merger (including the Company
if it survives) or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in
(iii) of the first sentence in Section 13(a) hereof, the
Person that is the party receiving the greatest portion of the
assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a
party to such transaction or transactions receives the same
portion of the assets or earning power so transferred or if
the Person receiving the greatest portion of the assets or
earning power cannot be determined, whichever of such Persons
as is the issuer of Common Stock having the greatest aggregate
market value of shares outstanding; provided, however, that in
any such case described in the foregoing clause (b)(i) or
(b)(ii), if the Common Stock of such Person is not at such
time or has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, then
(1) if such Person is a direct or indirect Subsidiary of
another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such
other Person, or (2) if such Person is a Subsidiary, directly
or indirectly, of more than one Person, the Common Stock of
all of which is and has been so registered, the term
"Principal Party" shall refer to whichever of such Persons is
the issuer of Common Stock having the greatest aggregate
market value of shares outstanding, or (3) if such Person is
owned, directly or indirectly, by a joint venture formed by
two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in clauses
(1) and (2) above shall apply to each of the owners having an
interest in the venture as if the Person owned by the joint
venture was a Subsidiary of both or all of such joint
venturers, and the Principal Party in each such case shall
bear the obligations set forth in this Section 13 in the same
ratio as its interest in such Person bears to the total of
such interests.
(c) The Company shall not consummate any consolidation,
merger, sale or transfer referred to in Section 13(a) hereof unless
prior thereto the Company and the Principal Party involved therein
shall have executed and delivered to the Rights Agent an agreement
confirming that the requirements of Sections 13(a) and (b) hereof shall
promptly be performed in accordance with their terms and that such
consolidation, merger, sale or transfer of assets shall not result in a
default by the Principal Party under this Agreement as the same shall
have been assumed by the Principal Party pursuant to Sections 13(a) and
(b) hereof and providing that, as soon as practicable after executing
such agreement pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement
under the Securities Act, if necessary, with respect to the
Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, use its best efforts to cause
such registration statement to become effective as soon as
practicable after such filing and use its best efforts to
cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the
Securities Act) until the Final Expiration Date, and similarly
comply with applicable state securities laws;
<PAGE>
(ii) use its best efforts, if the Common Stock of
the Principal Party shall be listed or admitted to trading on
the New York Stock Exchange or on a national securities
exchange, to list or admit to trading (or continue the listing
of) the Rights and the securities purchasable upon exercise of
the Rights on the New York Stock Exchange or such securities
exchange, or, if the Common Stock of the Principal Party shall
not be listed or admitted to trading on the New York Stock
Exchange or a national securities exchange, to cause the
Rights and the securities receivable upon exercise of the
Rights to be reported by such other system then in use;
(iii) deliver to holders of the Rights historical
financial statements for the Principal Party which comply in
all respects with the requirements for registration on Form 10
(or any successor form) under the Exchange Act; and
(iv) obtain waivers of any rights of first
refusal or preemptive rights in respect of the Common Stock of
the Principal Party subject to purchase upon exercise of
outstanding Rights.
(d) In case the Principal Party has provision in any of
its authorized securities or in its certificate of incorporation or
by-laws or other instrument governing its corporate affairs, which
provision would have the effect of (i) causing such Principal Party to
issue (other than to holders of Rights pursuant to this Section 13), in
connection with, or as a consequence of, the consummation of a
transaction referred to in this Section 13, shares of Common Stock of
such Principal Party at less than the then current market price per
share thereof (determined pursuant to Section 11(d) hereof) or
securities exercisable for, or convertible into, Common Stock of such
Principal Party at less than such then current market price, or (ii)
providing for any special payment, tax or similar provision in
connection with the issuance of the Common Stock of such Principal
Party pursuant to the provisions of Section 13, then, in such event,
the Company hereby agrees with each holder of Rights that it shall not
consummate any such transaction unless prior thereto the Company and
such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been cancelled, waived or amended,
or that the authorized securities shall be redeemed, so that the
applicable provision will have no effect in connection with, or as a
consequence of, the consummation of the proposed transaction.
(e) The Company covenants and agrees that it shall not,
at any time after a Person first becomes an Acquiring Person, enter
into any transaction of the type contemplated by (i) - (iii) of Section
13(a) hereof if (x) at the time of or immediately after such
consolidation, merger, sale, transfer or other transaction there are
any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise
eliminate the benefits intended to be afforded by the Rights, (y) prior
to, simultaneously with or immediately after such consolidation,
merger, sale, transfer of other transaction, the stockholders of the
Person who constitutes, or would constitute, the Principal Party for
purposes of Section 13(a) hereof shall have received a distribution of
Rights previously owned by such Person or any of its Affiliates
<PAGE>
or Associates or (z) the form or nature of organization of the
Principal Party would preclude or limit the exercisability of the
Rights.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions
of Preferred Stock (other than fractions which are integral multiples
of one one-thousandth of a share of Preferred Stock) upon exercise of
the Rights or to distribute certificates which evidence fractional
shares of Preferred Stock (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock).
Interests in fractions of Preferred Stock in integral multiples of one
one-thousandth of a share of Preferred Stock may, at the election of
the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by
it; provided, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the
Preferred Stock represented by such depositary receipts. In lieu of
fractional shares of Preferred Stock that are not integral multiples of
one one-thousandth of a share of Preferred Stock, the Company shall pay
to the registered holders of Right Certificates at the time such Rights
are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one share of Preferred Stock.
For the purposes of this Section 14(b), the current market value of a
share of Preferred Stock shall be the closing price of a share of
Preferred Stock (as determined pursuant to Section 11(d)(i) hereof) for
the Trading Day immediately prior to the date of such exercise.
<PAGE>
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), on his own behalf and for his own
benefit, may enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates
are transferable only on the registry books of the Rights Agent if
surrendered at the office or agency of the Rights Agent designated for
such purpose, duly endorsed or accompanied by a proper instrument of
transfer; and
(c) the Company and the Rights Agent may deem and treat
the Person in whose name the Right Certificate (or, prior to the
Distribution Date, the Common Stock certificate) is registered as the
absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right
Certificates or the Common Stock certificate made by anyone other than
the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any
notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Stock or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or
<PAGE>
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in this Agreement),
or to receive dividends or subscription rights, or otherwise, until the
Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
preparation, delivery, amendment, and execution of this Agreement and the
exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or
expense, incurred without gross negligence, bad faith or willful misconduct on
the part of the Rights Agent, for any action taken, suffered or omitted by the
Rights Agent in connection with the execution, acceptance and administration of
this Agreement and the exercise and performance hereunder of its duties,
including without limitation the costs and expenses of defending against any
claim of liability arising therefrom, directly or indirectly. The indemnity
provided herein shall survive termination of this Agreement and the termination
and expiration of the Rights. The costs and expenses incurred in enforcing this
right of indemnification shall be paid by the Company. Anything to the contrary
notwithstanding, in no event shall the Rights Agent be liable for special,
punitive, indirect, consequential or incidental loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Rights Agent
has been advised of the possibility of such loss or damage, any liability of the
Rights Agent under this Agreement will be limited to the amount of fees paid by
the Company to the Rights Agent hereunder.
(b) The Rights Agent shall be authorized and protected
and shall incur no liability for, or in respect of any action taken,
suffered or omitted by it in connection with, it's the acceptance and
administration of this Agreement in reliance upon any Right Certificate
or certificate for the Preferred Stock or Common Stock or for other
securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by
it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper Person or Persons, or otherwise
upon the advice of counsel as set forth in Section 20 hereof. The
Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained. The Rights Agent
shall not be deemed to have any duty or notice unless and until the
Company has provided the Rights Agent with written consent.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent. (a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust powers of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof.
<PAGE>
(b) In case at any time the name of the Rights Agent
shall be changed and at such time any of the Right Certificates shall
have been countersigned but not delivered the Rights Agent may adopt
the countersignature under its prior name and deliver Right
Certificates so countersigned; and in case at that time any of the
Right Certificates shall not have been countersigned, the Rights Agent
may countersign such Right Certificates either in its prior name or in
its changed name and in all such cases such Right Certificates shall
have the full force provided in the Right Certificates and in this
Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations expressly imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights
Agent and the Rights Agent shall incur no liability for or in respect
of any action taken, suffered or omitted by it in good faith and in
accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board of
Directors, the President, any Vice President, the Treasurer, the
Controller or the Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization and protection
to the Rights Agent and the Rights Agent shall incur no liability for
or in respect of any action taken, suffered or omitted in good faith by
it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the
Company and any other Person only for its own negligence, bad faith or
willful misconduct.
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this
Agreement or in the Right Certificates (except its countersignature
thereof) or be required to verify the same, but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the
Rights Agent) or in respect of the validity or execution of any Right
Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition
contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii)
hereof) or any
<PAGE>
adjustment in the terms of the Rights (including the manner, method
or amount thereof) provided for in Sections 3, 11, 13, 23 and 24, or
the ascertaining of the existence of facts that would require any
such change or adjustment (except with respect to the exercise of
Rights evidenced by Right Certificates after receipt of a
certificate furnished pursuant to Section 12, describing such change
or adjustment); nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or
reservation of any shares of Preferred Stock or other securities to
be issued pursuant to this Agreement or any Right Certificate or as
to whether any shares of Preferred Stock or other securities will,
when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments
and assurances as may reasonably be required by the Rights Agent for
the carrying out or performing by the Rights Agent of the provisions of
this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from any person reasonably believed by the Rights Agent to be
one of the Chairman of the Board of Directors, the President, the Chief
Financial Officer or the Secretary of the Company, and to apply to such
officers for advice or instructions in connection with its duties, and
such instructions shall be full authorization and protection to the
Rights Agent and the Rights Agent shall incur no liability for or in
respect of any action taken, suffered or omitted by it in good faith in
accordance with written instructions of any such officer or for any
delay in acting while waiting for those instructions. The Rights Agent
may conclusively rely on the most recent instructions given by any such
officer. Any application by the Rights Agent for written instructions
from the Company may, at the option of the Rights Agent, set forth in
writing any action proposed to be taken, suffered or omitted by the
Rights Agent under this Agreement and the date on and/or after which
such action shall be taken or such omission shall be effective. The
Rights Agent shall not be liable for any action taken, suffered or
omitted by the Rights Agent in accordance with a proposal included in
any such application on or after the date specified in such application
(which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application, unless
any such officer shall have consented in writing to an earlier date)
unless, prior to taking any such action (or the effective date in the
case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to
be taken, suffered or omitted.
(h) The Rights Agent and any stockholder, affiliate,
director, officer or employee of the Rights Agent may buy, sell or deal
in any of the Rights or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise
act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
<PAGE>
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss
to the Company resulting from any such act, default, neglect or
misconduct, absent gross negligence, bad faith or willful misconduct in
the selection and continued employment thereof.
(j) If, with respect to any Rights Certificate
surrendered to the Rights Agent for exercise or transfer, the
certificate contained in the form of assignment or the form of election
to purchase set forth on the reverse thereof, as the case may be, has
not been completed to certify the holder is not an Acquiring Person (or
an Affiliate or Associate thereof), a Rights Agent shall not take any
further action with respect to such requested exercise or transfer
without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Stock or Preferred Stock by registered or certified mail, and,
following the Distribution Date, to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock or Preferred Stock by registered or certified mail, and, following
the Distribution Date, to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then the registered holder of
any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a Person organized and doing
business under the laws of the United States or any State thereof, which is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock or Preferred Stock, and, following the Distribution Date, mail
a notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not
<PAGE>
delivered, any such successor Rights Agent may adopt the countersignature of
the predecessor Rights Agent and deliver such Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall
not have been countersigned, any successor Rights Agent may countersign such
Right Certificates either in the name of the predecessor Rights Agent or in
the name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and
in this Agreement.
Section 22. Issuance of New Right Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such forms as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of Common Stock following the Distribution
Date and prior to the earlier of the Redemption Date and the Final Expiration
Date, the Company may with respect to shares of Common Stock so issued or sold
pursuant to (i) the exercise of stock options, (ii) under any employee plan or
arrangement, (iii) upon the exercise, conversion or exchange of securities notes
or debentures issued by the Company or (iv) a contractual obligation of the
Company in each case existing prior to the Distribution Date, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale.
Section 23. Redemption. (a) The Board of Directors of the Company
may, at any time prior to such time as any Person first becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(the redemption price being hereinafter referred to as the "Redemption Price").
The redemption of the Rights may be made effective at such time, on such basis
and with such conditions as the Board of Directors in its sole discretion may
establish.
(b) Immediately upon the action of the Board of Directors
ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23 (or at such later time as the Board of Directors may
establish for the effectiveness of such redemption), and without any
further action and without any notice, the right to exercise the Rights
will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the
validity of such redemption. Within 10 days after such action of the
Board of Directors ordering the redemption of the Rights (or such later
time as the Board of Directors may establish for the effectiveness of
such redemption), the Company shall mail a notice of redemption to all
the holders of the then outstanding Rights at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to
the Distribution Date, on the registry books of the transfer agent for
the Common Stock. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption shall state the method by which
the payment of the Redemption Price will be made.
<PAGE>
Section 24. Exchange. (a) The Board of Directors of the Company may,
at its option, at any time after any Person first becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become null and void pursuant to the provisions of
Section 11(a)(ii) hereof) for shares of Common Stock at an exchange ratio of one
share of Common Stock per Right, (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after (1)
any Person (other than an Exempt Person), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of shares of Common
Stock aggregating 50% or more of the shares of Common Stock then outstanding or
(2) the occurrence of an event specified in Section 13(a) hereof.
(b) Immediately upon the action of the Board of Directors
of the Company ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and
without any notice, the right to exercise such Rights shall terminate
and the only right thereafter of the holders of such Rights shall be to
receive that number of shares of Common Stock equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company
shall promptly mail a notice of any such exchange to all of the holders
of the Rights so exchanged at their last addresses as they appear upon
the registry books of the Rights Agent and to the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the shares
of Common Stock for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of
Rights (other than Rights which have become void pursuant to the
provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient
shares of Common Stock issued but not outstanding or authorized but
unissued to permit any exchange of Rights as contemplated in accordance
with this Section 24, the Company may, in its discretion, take such
action as may be necessary to authorize additional shares of Common
Stock for issuance upon exchange of the Rights. In the event that the
Company shall determine not to take such action or shall, after good
faith effort, be unable to take such action as may be necessary to
authorize such additional shares of Common Stock, the Company shall
substitute, to the extent of such insufficiency, for each share of
Common Stock that would otherwise be issuable upon exchange of a Right,
a number of shares of Preferred Stock or fractions thereof (or
equivalent preferred shares as such term is defined in Section 11(b))
having an aggregate current per share market price (determined pursuant
to Section 11(d) hereof) equal to the current per share market price of
one share of Common Stock (determined pursuant to Section 11(d) hereof)
as of the date of issuance of such shares of Preferred Stock or
fractions thereof (or equivalent preferred shares).
(d) The Company shall not, in connection with any
exchange pursuant to this Section 24, be required to issue fractions of
shares of Common Stock or to distribute
<PAGE>
certificates which evidence fractional shares of Common Stock. In
lieu of such fractional shares of Common Stock, the Company shall
pay to the registered holders of the Right Certificates with regard
to which such fractional shares of Common Stock would otherwise be
issuable an amount in cash equal to the same fraction of the current
market value of a whole share of Common Stock. For the purposes of
this paragraph (d), the current market value of a whole share of
Common Stock shall be the closing price of a share of Common Stock
(as determined pursuant to the second sentence of Section 11(d)(i)
hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company shall
at any time after the earlier of the Distribution Date or the Stock Acquisition
Date propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Stock or to make any other distribution to the holders
of its Preferred Stock (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Stock rights or warrants to subscribe for
or to purchase any additional shares of Preferred Stock or shares of stock of
any class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification involving
only the subdivision of outstanding Preferred Stock), (iv) to effect the
liquidation, dissolution or winding up of the Company, or (v) to declare or pay
any dividend on the Common Stock payable in Common Stock or to effect a
subdivision, combination or consolidation of the Common Stock (by
reclassification or otherwise than by payment of dividends in Common Stock),
then, in each such case, the Company shall give to the Rights Agent and to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
such proposed action, which shall specify the record date for the purposes of
such stock dividend, or distribution of rights or warrants, or the date on which
such liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of the Common Stock and/or Preferred Stock,
if any such date is to be fixed, and such notice shall be so given in the case
of any action covered by clause (i) or (ii) above at least 10 days prior to the
record date for determining holders of the Preferred Stock for purposes of such
action, and in the case of any such other action, at least 10 days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the Common Stock and/or Preferred Stock, whichever shall be
the earlier.
(b) In case any event described in Section 11(a)(ii) or
Section 13 shall occur then the Company shall as soon as practicable
thereafter give to each holder of a Right Certificate (or if occurring
prior to the Distribution Date, the holders of the Common Stock) in
accordance with Section 26 hereof, a notice of the occurrence of such
event, which notice shall describe such event and the consequences of
such event to holders of Rights under Section 11(a)(ii) and Section 13
hereof.
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Cadence Design Systems, Inc.
555 River Oaks Parkway
<PAGE>
San Jose, California 95134
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Right Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
235 Montgomery Street, 23rd Floor
San Francisco, CA 94104
Tel: 415-743-1429
Attention: Daniel W. Spengel, Asst. Vice President
Notices or demands authorized by this Agreement to be given or made by
the Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Except as provided in the
penultimate sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of this
Agreement in any respect without the approval of any holders of the Rights. At
any time when the Rights are no longer redeemable, except as provided in the
penultimate sentence of this Section 27, the Company may, and the Rights Agent
shall, if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights Certificates in order to (i) cure any
ambiguity, (ii) correct or supplement any provision contained herein which may
be defective or inconsistent with any other provisions herein, (iii) shorten or
lengthen any time period hereunder, or (iv) change or supplement the provisions
hereunder in any manner which the Company may deem necessary or desirable;
provided that no such supplement or amendment shall adversely affect the
interests of the holders of Rights as such (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person), and no such amendment may cause
the rights again to become redeemable or cause the Agreement again to become
amendable other than in accordance with this sentence. Notwithstanding anything
contained in this Agreement to the contrary, no supplement or amendment shall be
made which changes the Redemption Price. Anything to the contrary
notwithstanding the Rights Agent cannot be required to change or increase its
duties and obligations hereunder unless expressly consented to in writing by the
Rights Agent. Upon the delivery of a certificate from an appropriate officer of
the Company which states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
<PAGE>
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Stock).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement or applicable to this Agreement is held by a court
of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
Attest: CADENCE DESIGN SYSTEMS, INC.
By By
Name: Name:
Title: Title:
Attest: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By By
Name: Name:
Title: Title:
<PAGE>
FORM
OF
AMENDED
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
CADENCE DESIGN SYSTEMS, INC.
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
-------------------
Cadence Design Systems, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Company"), hereby certifies that the following resolution was duly adopted
by the Board of Directors of the Company as required by Section 151 of the
General Corporation Law of the State of Delaware at a meeting duly called and
held on February 9, 1996:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Company (hereinafter called the "Board of Directors"
or the "Board") in accordance with the provisions of the Company's Certificate
of Incorporation, (hereinafter called the "Certificate of Incorporation"), the
Board of Directors on May 26, 1989 adopted a resolution creating a series of
shares of Preferred Stock, $.01 par value, designated as Series A Junior
Participating Preferred Stock and filed such designation with the Secretary of
State of Delaware on June 8, 1989, no shares of which have been issued as of
February 9, 1996; and the Board of Directors on February 9, 1996 adopted the
following resolution to amend and restate the terms of such Preferred Stock; and
be it further
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the Delaware
General Corporation Law and the Certificate of Incorporation, the Series A
Junior Participating Preferred Stock of the Corporation heretofore created be,
and that the designation thereof and the powers, designations, preferences and
relative, participating, optional or other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof are hereby
amended and restated as follows:
<PAGE>
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 400,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock of the Company (the "Preferred Stock") (or any similar
stock) ranking prior and superior to the Series A Preferred Stock with respect
to dividends, the holders of shares of Series A Preferred Stock, in preference
to the holders of Common Stock, par value $.01 per share of the Company (the
"Common Stock") and of any other stock of the Company ranking junior to the
Series A Preferred Stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the last day of January, April, July, and
October in each year (each such date being referred to herein as a "Dividend
Payment Date"), commencing on the first Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or
(b) subject to the provision for adjustment hereinafter set forth, 1000 times
the aggregate per share amount of all cash dividends, and 1000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock, declared
on the Common Stock since the immediately preceding Dividend Payment Date or,
with respect to the first Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Company shall at any time after February 9, 1996, declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Dividend Payment Date and the next subsequent
Dividend Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable, when, as and if declared, on such
subsequent Dividend Payment Date.
2
<PAGE>
(C) Dividends shall begin to accrue and be cumulative, whether or
not earned or declared, on outstanding shares of Series A Preferred Stock from
the Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for the
first Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of issue is
a Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive a quarterly
dividend and before such Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights;
(A) Subject to the provision for adjustment hereinafter set forth
and except as otherwise provided in the Certificate of Incorporation or required
by law, each share of Series A Preferred Stock shall entitle the holder thereof
to 1000 votes on all matters upon which the holders of the Common Stock of the
Company are entitled to vote. In the event the Company shall at any time after
February 9, 1996, declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number by
a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock, and except as otherwise required by law,
the holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Company having general voting
rights shall vote together as one class on all matters submitted to a vote of
stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
3
<PAGE>
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not earned or declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Company shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (as to dividends)
to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (as to
dividends) with the Series A Preferred Stock, except dividends paid
ratably on the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Preferred Stock, provided that the Company may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Company ranking junior (as to
dividends and upon dissolution, liquidation or winding up) to the
Series A Preferred Stock or rights, warrants or options to acquire such
junior stock;
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of the Common Stock or of shares of any other stock of
the Company ranking junior, upon liquidation, dissolution or winding up, to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $1000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not earned or
declared, to the
4
<PAGE>
date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1000
times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (B) to the holders of shares of stock ranking on a parity
upon liquidation, dissolution or winding up with the Series A Preferred
Stock, except distributions made ratably on the Series A Preferred Stock and
all such parity stock in proportion to the total amounts to which the holders
of all such shares are entitled upon such liquidation, dissolution or winding
up. In the event the Company shall at any time after February 9, 1996 declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the aggregate amount to which holders
of shares of Series A Preferred Stock were entitled immediately prior to such
event under the proviso in clause (A) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Company shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are converted into, exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case each
share of Series A Preferred Stock shall at the same time be similarly converted
into, exchanged for or changed into an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 1000 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is converted, exchanged or converted. In the event the Company shall at any time
after February 9, 1996 declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the conversion,
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable from any holder.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up of the Company, junior to all other series of
Preferred Stock and senior to the Common Stock.
Section 10. Amendment. If any proposed amendment to the Certificate of
Incorporation (including this Certificate of Designations) would alter, change
or repeal any of the preferences, powers or special rights given to the Series A
Preferred Stock so as to affect the Series A
5
<PAGE>
Preferred Stock adversely, then the holders of the Series A Preferred Stock
shall be entitled to vote separately as a class upon such amendment, and the
affirmative vote of two-thirds of the outstanding shares of the Series A
Preferred Stock, voting separately as a class, shall be necessary for the
adoption thereof, in addition to such other vote as may be required by the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Amended Certificate of Designations is
executed on behalf of the Company by its Executive Vice President and Chief
Financial Officer and attested by its Secretary this 9th day of February, 1996.
/s/ H. Raymond Bingham
Executive Vice President and
Chief Financial Officer
6
<PAGE>
EXHIBIT B
FORM OF RIGHT CERTIFICATE
Certificate No. R-___ ___ Rights
NOT EXERCISABLE AFTER FEBRUARY 9, 2006 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO
EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR
TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE
RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND
WILL NO LONGER BE TRANSFERABLE.
7
<PAGE>
RIGHT CERTIFICATE
Cadence Design Systems, Inc.
This certifies that ___________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of February 9, 1996 and amended and restated as of
January __, 2000, as the same may be amended from time to time (the "Rights
Agreement"), between Cadence Design Systems, Inc., a Delaware corporation (the
"Company"), and ChaseMellon Shareholder Services, L.L.C., a New Jersey limited
liability company (the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., New York City time, on February 9, 2006 at the office or
agency of the Rights Agent designated for such purpose, or of its successor as
Rights Agent, one one-thousandth of a fully paid non-assessable share of Series
A Junior Participating Preferred Stock, par value $.01 per share (the "Preferred
Stock"), of the Company, at a purchase price of $240 per one one-thousandth of a
share of Preferred Stock (the "Purchase Price"), upon presentation and surrender
of this Right Certificate with the Form of Election to Purchase duly executed.
The number of Rights evidenced by this Rights Certificate (and the number of one
one-thousandths of a share of Preferred Stock which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of February 9, 1996, based on the Preferred
Stock as constituted at such date. As provided in the Rights Agreement, the
Purchase Price, the number of one one-thousandths of a share of Preferred Stock
(or other securities or property) which may be purchased upon the exercise of
the Rights and the number of Rights evidenced by this Right Certificate are
subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, covenants and
restrictions of the Rights Agreement, which terms, covenants and restrictions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned office or agency of the Rights Agent. The
Company will mail to the holder of this Right Certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
8
<PAGE>
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for shares of
Preferred Stock or shares of the Company's Common Stock, par value $.01 per
share.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-thousandth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _____________.
ATTEST: CADENCE DESIGN SYSTEMS, INC.
By: By:
----------------------------------- --------------------------------
Countersigned:
----------------------------------
as Rights Agent
By:
--------------------------------
Authorized Signature
Form of Reverse Side of Right Certificate
9
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Right Certificate)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfer unto ___________________________________________________________
___________________________________________________________________________
(Please print name and address of transferee)
___________________________________________________________________________
Rights represented by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
___________________ Attorney, to transfer said Rights on the books of the
within-named Company, with full power of substitution.
Dated:
-----------------
---------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- --------------------------------------
(To be completed)
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by, were not acquired by the
undersigned from, and are not being assigned to, an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
---------------------------
Signature
Form of Reverse Side of Right Certificate - continued
10
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by the
Rights Certificate)
To Cadence Design Systems, Inc.:
The undersigned hereby irrevocably elects to exercise _________________
Rights represented by this Right Certificate to purchase the shares of Preferred
Stock (or other securities or property) issuable upon the exercise of such
Rights and requests that certificates for such shares of Preferred Stock (or
such other securities) be issued in the name of:
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivery to: Please insert social
security or other identifying number
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
Dated:
-----------------
------------------------------
Signature
(Signature must conform to holder specified on Right Certificate)
Signature Guaranteed:
Signature must be guaranteed by a member of firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
Form of Reverse Side of Right Certificate - continued
11
<PAGE>
- -----------------------------------------
(To be completed)
The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement)
--------------------------
Signature
12
<PAGE>
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever. In the event the certification set forth above in the
Form of Assignment or the Form of Election to Purchase, as the case may be, is
not completed, such Assignment or Election to Purchase will not be honored.
13
<PAGE>
Exhibit C
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT,
RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS
DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME
NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE
Shares of Preferred Stock
On February 9, 1996, the Board of Directors of Cadence Design Systems,
Inc. (the "Company") declared a dividend of one preferred share purchase right
(a "Right") for each outstanding share of common stock, par value $.01 per
share, of the Company (the "Common Stock"). The dividend is payable on February
20, 1996 (the "Record Date") to the stockholders of record on that date. Each
Right entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series A Junior Participating Preferred Stock, par
value $.01 per share (the "Preferred Stock") of the Company at a price of $240
per one one-thousandth of a share of Preferred Stock (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement dated as of February 9, 1996, as amended and restated as of
January __, 2000, as the same may be amended from time to time (the "Rights
Agreement"), between the Company and ChaseMellon Shareholders Services, L.L.C.
(the "Rights Agent"). The rights issued under the old amended and restated
rights agreement, dated as of June 20, 1989, between the Company and the Rights
agent expired on February 9, 1996.
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 15% or more of the
outstanding shares of Common Stock or (ii) 10 business days (or such later date
as may be determined by action of the Board of Directors prior to such time as
any person or group of affiliated persons becomes an Acquiring Person) following
the commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding shares of
Common Stock (the earlier of such dates being called the "Distribution Date"),
the Rights will be evidenced, with respect to any of the Common Stock
certificates outstanding as of the Record Date, by such Common Stock certificate
together with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Stock certificates issued
after the Record Date upon transfer or new issuances of Common Stock will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for shares of Common Stock
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights, will also constitute the transfer of the Rights associated
with the shares of Common Stock represented by such certificate. As soon as
14
<PAGE>
practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of
record of the Common Stock as of the close of business on the Distribution
Date and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on February 9, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of shares of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of
certain rights or warrants to subscribe for or purchase Preferred Stock at a
price, or securities convertible into Preferred Stock with a conversion price,
less than the then-current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
The number of outstanding Rights are also subject to adjustment in the
event of a stock split of the Common Stock or a stock dividend on the Common
Stock payable in shares of Common Stock or subdivisions, consolidations or
combinations of the Common Stock occurring, in any such case, prior to the
Distribution Date.
Shares of Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Each share of Preferred Stock will be entitled, when, as and
if declared, to a minimum preferential quarterly dividend payment of $1 per
share but will be entitled to an aggregate dividend of 1000 times the dividend
declared per share of Common Stock. In the event of liquidation, the holders of
the Preferred Stock will be entitled to a minimum preferential liquidation
payment of $1000 per share (plus any accrued but unpaid dividends) but will be
entitled to an aggregate payment of 1000 times the payment made per share of
Common Stock. Each share of Preferred Stock will have 1000 votes, voting
together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock are converted
or exchanged, each share of Preferred Stock will be entitled to receive 1000
times the amount received per share of Common Stock. These rights are protected
by customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation
and voting rights, the value of the one one-thousandth interest in a share of
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon
15
<PAGE>
exercise of a Right at the then current exercise price of the Right, that
number of shares of Common Stock having a market value of two times the
exercise price of the Right.
In the event that, after a person or group has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold,
proper provision will be made so that each holder of a Right (other than Rights
beneficially owned by an Acquiring Person which will have become void) will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the person with whom the Company has engaged in the foregoing transaction (or
its parent), which number of shares at the time of such transaction will have a
market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Common Stock or the occurrence of an event described in
the prior paragraph, the Board of Directors of the Company may exchange the
Rights (other than Rights owned by such person or group which will have become
void), in whole or in part, at an exchange ratio of one share of Common Stock,
or one one-thousandth of a share of Preferred Stock (or of a share of a class or
series of the Company's preferred stock having equivalent rights, preferences
and privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock will be issued
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Stock on the last
trading day prior to the date of exercise.
At any time prior to the time an Acquiring Person becomes such, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
For so long as the Rights are then redeemable, the Company may, except
with respect to the redemption price, amend the Rights in any manner. After the
Rights are no longer redeemable, the Company may, except with respect to the
redemption price, amend the Rights in any manner that does not adversely affect
the interests of holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
16
<PAGE>
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, as the same may
be amended from time to time, which is hereby incorporated herein by reference.
The Rights have been issued in place of the Company's previous common
share purchase rights issued in 1989. The principal differences between the old
rights and the new Rights are (1) the new Rights are exercisable for shares of
Preferred Stock instead of Common Stock, (2) an increase in the exercise price
from $66.67 (as adjusted to reflect the Company's stock split) to $240 per
share; (3) the reduction in the threshold percentage from 20% to 15%; and (4)
the elimination of a provision in the old rights plan permitting redemption of
the rights during the 10 days after a person or group becomes an Acquiring
Person.
17
<PAGE>
[LETTERHEAD]
EXHIBIT 10.36
AGREEMENT NO:EX92302
- --------------------------------------------------------------------------------
NECESSARY CADENCE SIGNATURES REQUIRED FOR ANY PAYMENTS TO BE MADE UNDER EACH
SEPARATE CONSULTING SCHEDULE.
REQUESTER'S MANAGER - REQUIRED
=================================================
Name: H. Raymond Bingham
-------------------------------------------
(Print)
Signature: /S/ H. Raymond Bingham
--------------------------------------
Date: February 26, 1999
-------------------------------------------
FINANCIAL ANALYST - REQUIRED
=================================================
Name: Christine Matthews
-------------------------------------------
(Print)
Signature: /S/ Christine Matthews
--------------------------------------
Date: March 30, 1999
-------------------------------------------
VP OF FINANCE - IN EXCESS OF $50K OR 6 MONTHS TOTAL
=================================================
Name: Mark White
-------------------------------------------
(Print)
Signature: /S/ Mark White
--------------------------------------
Date: March 30, 1999
-------------------------------------------
- -------------------------------------------------------------------------------
THE FINAL SIGNATURE PAGE (AND THE ACCOMPANYING SCHEDULE) MUST BE FILED WITH THE
SIGNED MASTER AGREEMENT. RETURN TO TERRI MEIER, MS5B1
<PAGE>
[LETTERHEAD]
AGREEMENT NO:EX92302
MASTER INDIVIDUAL
CONSULTING AGREEMENT
WITH
CADENCE DESIGN SYSTEMS, INC.
- --------------------------------------------------------------------------------
THIS AGREEMENT IS A MASTER AGREEMENT. AS SUCH, IT IS INTENDED TO BE PUT INTO
PLACE ONCE WITH A CONSULTING PARTY. THEREAFTER, AS MORE CONSULTING ACTIVITY IS
DESIRED BY CADENCE WITH THE CONSULTING PARTY, ADDITIONAL SCHEDULES ARE WRITTEN
UP, SIGNED BY THE PARTIES, AND FILED WITH THE MASTER AGREEMENT. PLEASE NOTE THAT
THE CADENCE INTERNAL SIGNATURE SHEET IS REQUIRED TO BE ATTACHED TO AND ROUTED
WITH EACH NEW ADDITIONAL SCHEDULE HEREAFTER PUT INTO PLACE UNDER THE SIGNED
MASTER AGREEMENT.
- -------------------------------------------------------------------------------
2
<PAGE>
===============================================================================
THIS CONSULTING AGREEMENT, ("AGREEMENT"), is entered into this 23 day of
February, 1999, ("EFFECTIVE DATE"), between Cadence Design Systems, Inc., at
555 River Oaks Parkway, San Jose, CA 95134, ("CADENCE"), and George Scalise,
("CONSULTANT").
NOW THEREFORE, the parties hereby agree as follows:
[LETTERHEAD]
1. CONSULTANCY.
1.1 CONSULTING PERIOD.
Consultant shall serve as a consultant to Cadence for a period commencing on
the date of this Agreement and concluding on the date set forth in Section 3.0
of the applicable Schedule attached hereto, subject to the termination of
this Agreement ("CONSULTING PERIOD"). This Consulting Agreement may be
terminated at will by Cadence for any reason or no reason upon fifteen (15)
days prior written notice to Consultant. However, if this Agreement is
terminated pursuant to paragraph 1.3, no notice shall be required. Consultant
may terminate this Agreement at will, upon fifteen (15) days prior written
notice to Cadence, for no reason only at a time that no Schedule is in effect
and no Work is being performed by Consultant. If a Schedule is in effect or
Work is being performed, Consultant may only terminate this Agreement for
material breach by Cadence that remains uncured for thirty (30) days
following written notice thereof to Cadence. Termination of this Agreement
shall terminate all Schedule(s) then in effect. Upon termination, each party
shall, within ten (10) days, return or destroy all copies of the other
party's materials in its possession or control and certify the same in
writing.
1.2 ADDITIONAL SCHEDULES.
Additional Schedules may be attached to include other work projects or
services which the parties agree Consultant shall provide to Cadence. The
Schedule(s) may be amended from time to time by mutual written consent of the
parties.
1.3 In order to serve as a Consultant to Cadence, Consultant must pass a
background investigation conducted by Cadence. The investigation will consist
of Cadence obtaining a report from a consumer reporting agency named
Professional Resource Screening, Inc. for the purpose of evaluating
Consultant's eligibility to consult with Cadence. The report may include
information regarding Consultant's DMV records, educational verification,
employment history, verification of social security number, criminal record
(if any), credit and reference, and civil litigation records. Consultants
failure to authorize this investigation or failure to pass the background
investigation will result in immediate termination of this agreement.
2. DUTIES OF CONSULTANT.
2.1 SCOPE OF WORK.
Consultant shall perform the services and deliver the deliverables, if any,
set forth in Section 4 of the applicable Schedule (together the "Work").
Consultant shall perform the Work under the general direction of Cadence and
in accordance with the provisions of this Agreement and the applicable
Schedule. If there is no deliverable under a Schedule, the provisions of
Sections 4.3, 4.4 and 4.5 shall not apply to the Work under such Schedule.
Consultant shall determine the manner and means by which the Work is
accomplished.
2.2 COMPLIANCE WITH LAWS.
Consultant shall comply with all applicable federal, state and local laws and
regulations, including, without limitation, immigration laws, in the
performance of the Work hereunder.
3. WORK RULES.
Consultant shall abide by the working hours, rules, and policies of Cadence
while working on Cadence's premises.
4. PROJECT MANAGEMENT.
4.1 CADENCE PROJECT MANAGER
Cadence shall designate a Project Manager for each of the projects set forth
in Section 6 of the applicable Schedule, (the "PROJECT MANAGER"). Such person
shall act as a liaison between Cadence and Consultant and have primary
responsibility for managing Consultant's activities.
4.2 PROGRESS REPORTS AND MEETINGS.
Consultant shall submit a detailed Progress Report to the Project Manager on
an agreed upon period during the term of each applicable Schedule. Progress
reports will detail Work performed to date and estimated time to complete. If
Cadence so requests, Consultant shall participate in status meetings with the
Project Manager to review the status and progress of the Work.
4.3 CRITERIA FOR ACCEPTING DELIVERABLES.
Each deliverable, if any, shall be subject to acceptance by Cadence. When
possible, but in no event later than thirty (30) days in advance of the date
identified in the applicable Schedule for production of the deliverable
involved, a set of Acceptance Criteria for each shall be jointly developed
and mutually agreed to in writing ("ACCEPTANCE CRITERIA"). If the parties in
good faith cannot agree to any of Acceptance Criteria, Cadence may terminate
this Agreement, effective immediately, without incurring any further
liability. If there is no required Acceptance Criteria then the applicable
Schedule MUST SO STATE.
4.4 ACCEPTANCE TESTING.
3
<PAGE>
[LETTERHEAD]
If acceptance testing for a deliverable is required, such testing shall
commence within five (5) working days of the date on which Consultant
notifies the Project Manager, in writing, that the deliverable has been
satisfactorily completed, in Consultant's opinion, and is ready for
acceptance testing by Cadence. Cadence will verify that the deliverable
satisfies the mutually agreed upon Acceptance Criteria. Acceptance testing
shall continue for the period of time specified in the Acceptance Criteria
("ACCEPTANCE PERIOD"). If no such time period has been agreed upon by the
parties then the Acceptance Period shall be thirty (30) calendar days.
4.5 NON-CONFORMITY OF DELIVERABLES.
If any deliverable does not conform to the required Acceptance Criteria
within the Acceptance Period, Cadence shall give Consultant notice thereof.
Cadence shall cooperate with Consultant in identifying in what respects the
deliverable has failed to conform to the Acceptance Criteria. Consultant
shall, at no cost to Cadence, promptly correct any deficiencies which prevent
such deliverable from conforming to the Acceptance Criteria. Upon completion
of the corrective action by Consultant, and at no additional cost to Cadence,
the acceptance test will be repeated until the deliverable has successfully
conformed to the Acceptance Criteria. If the deliverable is not made to
conform within thirty (30) calendar days after the end of the Acceptance
Period, Cadence may terminate this Agreement, effective immediately, without
any further obligation or liability. Cadence may require Consultant to
continue to attempt to correct the deficiencies while reserving the right to
terminate this Agreement at any time. When the deliverable has successfully
conformed to or satisfied the Acceptance Criteria, Cadence shall give
Consultant written notice thereof.
5. OTHER AFFILIATIONS.
5.1 EMPLOYMENT.
Consultant represents that Consultant is not prevented by any existing
agreement or in any other way from entering into this Agreement and
performing in accordance with this Agreement and the applicable Schedule.
5.2 CONFLICT OF INTEREST.
Consultant warrants that Consultant is not obligated under any other
agreement which would adversely conflict with or affect Cadence's rights or
Consultant's duties under this Agreement or applicable Schedule, other than
those expressly identified in Section 5 of the applicable Schedule. Cadence
understands and agrees that during the Consulting Period, Consultant may be
retained by other companies, corporations, and/or commercial enterprises
which are not engaged in the design, development, manufacture or marketing of
products similar to those of Cadence.
5.3 SEGREGATION OF WORK.
Consultant shall not use, disclose or deliver any proprietary or confidential
information of any third party in dealings with Cadence or in performing the
Work hereunder. Consultant agrees to use best efforts to segregate Work done
under this Agreement from all work done at, or for, any such other person,
company, corporation, and/or other commercial enterprise. In any dealings
with any such person, company, corporation, and/or commercial enterprise,
Consultant shall protect and guard Cadence's Confidential Information (as
defined herein) in accordance with the terms of this Agreement.
6. COMPENSATION.
6.1 PAYMENT BY CADENCE.
Cadence agrees to pay Consultant and Consultant agrees to accept for all Work
hereunder consulting fees (the "CONSULTING FEES") as set forth in Section 9 of
the applicable Schedule. Cadence will pay the Consulting Fees within thirty
(30) days after the receipt of Consultant's correct invoice.
6.2 REIMBURSEMENT FOR COSTS/EXPENSES.
Cadence agrees to reimburse Consultant for reasonable and necessary
out-of-pocket costs and expenses actually incurred by Consultant in
performance of the Work that have been pre-approved by the Project Manager in
writing. Travel, lodging and related expenses must conform to Cadence's
travel policy to be reimbursed. Consultant shall submit his or her expenses
on expense report forms acceptable to Cadence. If requested by Cadence,
Consultant shall submit supporting documentation in addition to the invoice
and the expense report forms. No reimbursement will be made for any expenses
submitted more than thirty (30) days after completion of Consultant's Work
under the applicable Schedule. Reimbursement shall be made within thirty (30)
days after submission to Cadence of the last of adequate and appropriate
documentation of such costs and expenses, the expense report forms and a
correct invoice.
6.3 PAYMENT FOR SERVICES.
Invoicing by Consultant shall include all services rendered and expenses
incurred by Consultant during the period invoiced for payment. Consultant shall
submit the invoice and the applicable time reports and expense reports to the
Project Manager
4
<PAGE>
[LETTERHEAD]
for review and approval prior to actually invoicing Cadence for payment.
6.4. MAXIMUM DOLLAR AMOUNT.
Notwithstanding anything to the contrary, Cadence shall not be liable for any
charges or expenses under any applicable Schedule for Work done on a time and
materials basis in excess of the maximum dollar amount specified in Section 10
of the applicable Schedule.
6.5 TAXES AND OTHER BENEFITS.
Consultant acknowledges and agrees that it shall be only Consultant's
obligation to formally report as its income all compensation received by
Consultant from Cadence for Consultant's services. Consultant agrees to
indemnify Cadence and hold it harmless to the extent Cadence is alleged or
determined to be obligated or liable to pay any tax, including but not
limited to payroll, FICA and social security withholding, and unemployment,
disability and/or worker's compensation insurance or similar item in
connection with any payment made to Consultant. Consultant shall not be
entitled to compensation from Cadence except as set forth in this Agreement
and in no event shall Consultant be entitled to any fringe benefits available
to employees of Cadence. Consultant waives any rights Consultant may now or
in the future have in such fringe benefits even if Consultant is later deemed
a "common law employee."
6.6 ACCOUNTING RECORDS.
Consultant shall maintain complete and accurate accounting records, in a form
in accordance with generally accepted accounting principles, consistently
applied, to substantiate Consultant's charges and expenses and shall retain
such records for a period of at least one (1) year from the date of final
payment made under the applicable Schedule.
7. CONFIDENTIALITY.
Consultant's work for Cadence creates a relationship of trust and confidence
between Cadence and Consultant.
7.1 CONFIDENTIAL INFORMATION.
"CONFIDENTIAL INFORMATION" as used herein and in the attached Exhibit NDA
includes marketing plans, product plans, business strategies, financial
information, forecasts, personnel information, customer lists, trade secrets,
Innovations (as defined in Section 8), other non-public technical or business
information, third party information made available to Consultant, joint
research agreements or agreements entered into by Cadence or any of its
affiliates, whether in writing or given to Consultant orally, which
Consultant knows or has reason to know Cadence would like to treat as
confidential for any purpose, such as maintaining a competitive advantage or
avoiding undesirable publicity.
7.2 ATTACHED NON-DISCLOSURE AGREEMENT.
Consultant's obligations with respect to maintaining the confidentiality of
Cadence's Confidential Information disclosed to Consultant during the
"Disclosing Period" (Section 7.3) shall be governed by the terms of the
Non-Disclosure Agreement attached hereto as the "Exhibit NDA" which
supersedes all prior agreements governing the exchange of such Confidential
Information. In addition, if the Work is performed ultimately for a third
party customer, Consultant agrees to comply with all use and disclosure
restrictions and procedures imposed by such third party customer on its
confidential information, and to execute all related documents requested by
Cadence to implement such restrictions.
7.3 DISCLOSING PERIOD.
The provisions of the attached Exhibit NDA govern only that Confidential
Information disclosed by Cadence to Consultant during the "Disclosing Period"
"starting on the earlier of the commencement of the Work or the signing of
this Agreement, and ending on the conclusion of the Consulting Period as
defined in Section 1 above.
7.4 CONTINUING OBLIGATION.
After the Disclosing Period, Consultant has a continuing obligation to
maintain the confidentiality of Cadence's Confidential Information and the
Confidential Information of any third party for an indefinite period of time,
except as and to the extent otherwise provided in the Exhibit NDA. In
addition, Sections 6.5, 6.6, 7 (and the Exhibit NDA), 8, 9, 10, 13, 16 and 19
shall survive the termination of the Consulting Period.
8. INNOVATIONS AND DELIVERABLES.
8.1 DISCLOSURE OF INNOVATIONS.
Consultant shall disclose in writing to Cadence all inventions, discoveries,
concepts, works of authorship, ideas, improvements and other innovations of
any kind that Consultant may make, conceive, develop or reduce to practice,
alone or jointly with others, in the course of performing Work for Cadence
under this Agreement or as a result of that Work, whether or not they are
eligible for patent, copyright, trademark, trade secret or other legal
protection (collectively, "INNOVATIONS").
8.2 ASSIGNMENT OF INNOVATIONS.
5
<PAGE>
[LETTERHEAD]
Consultant agrees that all deliverables and Innovations will be the sole and
exclusive property of Cadence and Consultant hereby assigns to Cadence, and
agrees to assign, all rights in the deliverables and Innovations and in all
related patents, patent applications, copyrights, mask work rights,
trademarks, trade secrets, rights of priority and other proprietary rights.
At Cadence's request and expense and at Consultant's reasonable billing rates
for such additional services, during and after the period during which
Consultant acts as a consultant to Cadence, Consultant will assist and
cooperate with Cadence in all respects and will execute documents, and
subject to reasonable availability, give testimony and take further acts
requested by Cadence to acquire, transfer, maintain and enforce patent,
copyright, trademark, mask work, trade secret and other legal protections for
such Innovation(s) and deliverables. Consultant hereby appoints an Officer of
Cadence as Consultant's attorney-in-fact to execute such documents on
Consultant's behalf for this specific purpose. It is understood that nothing
contained therein shall affect the rights or obligations of Consultant with
respect to any Innovations which would be protected by Section 2870 of the
California Labor Code, if Consultant were an employee of Cadence instead of
an independent contractor.
8.3 RIGHT TO CHANGE INNOVATIONS.
Consultant hereby agrees that Cadence (or a third party, as applicable) shall
have the unlimited right to modify, alter or destroy any Innovation (but only
if such act would not hinder or prevent Consultant from performing its
obligations hereunder and under the applicable Schedule), and that any such
act does not and will not violate any right of Consultant, if any exists, to
keep such work intact. Consultant hereby irrevocably assigns and transfers to
Cadence any right Consultant may have to object to such modification,
alteration or destruction, or to claim authorship, or any other "moral"
right, and if such right is not assignable, Consultant hereby forever waives
and agrees never to assert any such right.
8.4 LICENSE TO CADENCE.
To the extent that Cadence's use or exploitation of any deliverables or
Innovations made or contributed by Consultant hereunder may require a license
from Consultant under any other proprietary rights held by Consultant,
Consultant hereby grants Cadence a fully-paid, royalty-free, perpetual,
worldwide license, with right to sublicense, to make, use, sell, copy,
modify, distribute, perform, display and otherwise exploit such deliverables
and Innovations.
8.5 NON-INFRINGEMENT.
Consultant represents and warrants that to the best of its knowledge the Work
performed under this Agreement and the Innovations made or contributed by
Consultant hereunder will not infringe on any rights of any third party.
8.6 INDEMNITY.
Consultant agrees to defend at its own cost and expense any claim or action
against Cadence, its directors, officers and/or employees, for actual or
alleged infringement of any patent, copyright or other property right
(including, but not limited to, misappropriation of trade secrets) based on
any software, program, service and/or other materials delivered or furnished
to Cadence by Consultant. Consultant further agrees to indemnify and hold
Cadence, its subsidiaries and/or affiliated companies, and their respective
directors, officers and/or employees, harmless from and against any and all
liabilities, damages, losses, and expenses associated with such claims or
action.
9. INSURANCE AND INDEMNITY.
9.1 INSURANCE COVERAGES.
Consultant shall procure and maintain for itself and its employees all
insurance coverages as required by Federal and/or State law, including
workers' compensation and disability insurance, and automobile liability
coverage. Upon request by Cadence, Consultant shall furnish to Cadence a
certificate of insurance evidencing such coverage.
9.2 INDEMNITY.
Consultant agrees to indemnify Cadence, its subsidiaries and/or affiliated
companies for any liability or expenses due to claims for personal injury or
to property arising out of the performance of the Work or the use by
Consultant of Cadence's materials, machines, or facilities.
10. NON-SOLICITATION.
Consultant agrees that, during the Consulting Period and for a period of two
(2) years after the expiration or earlier termination thereof, Consultant
will not solicit or recruit Cadence employees for any other employers outside
Cadence or employ any of the employees of Cadence without Cadence's prior
written consent.
11. INDEPENDENT CONTRACTOR.
Consultant shall be an independent contractor with respect to Cadence and
shall not be a representative or agent of Cadence. In addition, Consultant
shall not be deemed for any purpose to be an employee of Cadence.
6
<PAGE>
[LETTERHEAD]
12. NOTICE.
Any notice to be delivered pursuant to this Agreement shall be in writing and
shall be deemed delivered upon service, if served personally, or three days
after deposit in the United States Mail, if mailed by first class mail,
postage prepaid, registered or certified with return receipt requested, and
addressed to the other party at the following address, or such address as may
be designated in accordance herewith:
To Cadence at:
CADENCE DESIGN SYSTEMS, INC.
Human Resources Department
2655 Seely Rd., Bldg. 5
San Jose, CA 95134
To Consultant at:
As set forth in the applicable Schedule.
13. INJUNCTIVE RELIEF.
Consultant acknowledges that disclosure or unauthorized use of any
Confidential Information by Consultant will give rise to irreparable injury
to Cadence, its subsidiaries and/or affiliated companies. Accordingly,
Cadence or such other party may seek and obtain injunctive relief against the
breach or threatened breach of the foregoing undertakings, in addition to any
other legal remedies which may be available. Consultant acknowledges and
agrees that the covenants contained herein are necessary for the protection
of legitimate interests of Cadence.
14. SEVERABILITY.
If a court finds any provision of this Agreement invalid or unenforceable as
applied to any circumstance, that provision shall be enforced to the maximum
extent permitted by law, and the other provisions will remain in full force
and effect.
15. BINDING EFFECT; NO ASSIGNMENT; AMENDMENT.
This Agreement shall be binding upon Consultant, and except as regards to
personal services, upon Consultant's successors and assigns, and shall inure
to the benefit of Cadence, its successors and assigns. This Agreement may not
be assigned by Consultant and any attempted assignment by Consultant shall be
void. This Agreement may only be modified or amended by mutual written
consent of the parties.
16. GOVERNING LAW.
This Agreement shall be governed and enforced in accordance with the laws of
the State of California, excluding that body of law known as conflicts of law.
17. WAIVER.
A failure of either party to exercise any right provided for herein shall not
be deemed to be a waiver of any other right existing hereunder.
18. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
Agreement.
19. CONDUCT BUSINESS FAIRLY.
Consultant agrees to conduct business in a manner that at all times reflects
favorably upon the products and the good name, goodwill and reputation of
Cadence.
20. ENTIRE AGREEMENT.
This instrument and the attached Schedule(s) and Exhibits contain the entire
agreement of the parties relating to the subject matter hereof, and supersede
all prior and contemporaneous negotiations, correspondence, understanding and
agreements of the parties relating to the subject matter hereof.
----- END OF TERMS ----
- -------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
<TABLE>
<S> <C>
CONSULTANT: CADENCE DESIGN SYSTEMS, INC.
Signature: /S/ George M. Scalise Signature: /S/ H. Raymond Bingham
------------------------------ ------------------------------
(Requester)
Name: George M. Scalise Name: H. Raymond Bingham
----------------------------------- -----------------------------------
(Print) (Print)
Title: Executive Vice President
----------------------------------
7
<PAGE>
[LETTERHEAD]
Date: March 22, 1999 Date: February 26, 1999
----------------------------------- -----------------------------------
Social Security No. or Federal Tax I.D.# ###-##-####
---------------------
</TABLE>
8
<PAGE>
[LETTERHEAD]
AGREEMENT NO:EX92302
SCHEDULE
ALL ITEMS BELOW MUST BE COMPLETELY FILLED IN.
DO NOT LEAVE ANY BLANK.
1. NAMES AND ADDRESS OF CONSULTANT:
George Scalise
181 Metro Drive, Ste. 450
San Jose, CA 95110 408 436-6600 phone 408 436-6646 Fax
2. NAME AND ADDRESS OF CONSULTANT FOR NOTICE PURPOSES
(IF DIFFERENT FROM ABOVE): Same
3. TERM OF CONSULTING PERIOD FOR THIS SCHEDULE: START DATE END DATE
---------- --------
1/1/99 12/31/99
4. DUTIES OF CONSULTANT, (SEE Section 2.1): Advise on government relations
issues as required.
5. IDENTIFY ALL CONFLICTING OR POTENTIALLY CONFLICTING AGREEMENTS OR
OBLIGATIONS OF CONSULTANT AND THE NATURE OF THE CONFLICT INVOLVED: None
6. PROJECT MANAGER TO WHOM CONSULTANT REPORTS, (SEE Section 4.1): Ray Bingham
7. EXPECTED DAYS OF CONSULTING TO BE PERFORMED PER MONTH: as needed
8. DEPARTMENT/ACCOUNT NUMBER TO BE CHARGED: 41000
9. CONSULTING FEES, (SEE Section 6.1): $ 20,000/year (TO BE STATED AS DOLLARS
PER HOUR OR DAY, OR OTHER AGREED UPON TERMS):
10. THE DOLLAR VALUE OF THIS CONSULTING SCHEDULE IS NOT TO EXCEED $20,000
11. IS THIS A RENEWAL SCHEDULE FROM A PREVIOUS AGREEMENT? YES ______ NO _XX_
IF SO, WHAT WAS THE START DATE OF THE PREVIOUS SCHEDULE? _________________
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CONSULTANT: CADENCE DESIGN SYSTEMS, INC.
-----------------------------
SIGNATURE: /S/ George M. Scalise SIGNATURE: /S/ H. Raymond Bingham
------------------------------ ------------------------------
(Requester)
NAME: George M. Scalise NAME: H. Raymond Bingham
----------------------------------- -----------------------------------
(Please Print) (Please Print)
TITLE: Executive Vice President
----------------------------------
DATE: March 8, 1999 DATE: February 26, 1999
----------------------------------- -----------------------------------
</TABLE>
MISSING INFORMATION COULD CAUSE A DELAY IN THE PROCESSING OF THIS CONSULTING
AGREEMENT AND/OR PAYMENT TO THE CONSULTANT.
9
<PAGE>
[LETTERHEAD]
EXHIBIT NDA
1. "CONFIDENTIAL INFORMATION" shall have the same meaning as defined Section
7 of the Master Consulting Agreement.
2. "DISCLOSING PERIOD" shall have the same meaning as defined in Section 7 of
the Master Consulting Agreement.
3. OTHER SOURCES EXEMPTIONS: Consultant's obligations hereunder will not
apply, or shall cease to apply, to that Confidential Information which
Consultant can establish: (i) was not identified as confidential when
disclosed or within thirty (30) days thereafter; or (ii) was in the public
domain by acts not attributable to Consultant or otherwise available to the
public other than by breach of this NDA; or (iii) was rightfully in
possession of Consultant prior to receiving it from Cadence; or (iv) becomes
available to Consultant from a source other than Cadence who is in rightful
possession with the lawful right to provide it to Consultant; or (v) is
independently developed by Consultant without use of or reference to the
Confidential Information; or (vi) is otherwise agreed in writing to be no
longer considered otherwise restricted by Cadence.
4. LIMITATIONS ON DUTY: Consultant's duty to maintain the confidentiality
extends only to that disclosed Information which: (i) is identified as being
Confidential at the time of disclosure by Cadence or within 30 days
thereafter; or (ii) is marked Confidential, or with a similar legend, at the
time of disclosure; or (iii) is summarized and designated as Confidential by
Cadence in a written memorandum delivered to Consultant within thirty (30)
days after the disclosure.
5. STANDARD OF CARE: Consultant shall protect the disclosed Confidential
Information by using the same degree of care, but no less than a reasonable
degree of care, as it uses to safeguard its own confidential or proprietary
information of a like nature from unauthorized use, disclosure, or
dissemination. Consultant shall not copy, distribute, or disseminate any of
the Confidential Information to any unauthorized persons or entities without
the Cadence's express prior written consent and Consultant shall limit access
to the Confidential Information to only those authorized employees or agents
having a need to know.
6. RETURN OF MATERIALS: Upon the earlier of fifteen (15) calendar days
after: (i) Consultant's receipt of Cadence's written request for same, or
(ii) Consultant's completion of those stated purposes for which Cadence
provided Consultant its Confidential Information; or (iii) the end of the
Disclosing Period; all of Cadence's Confidential Information and all copies
thereof in Consultant's possession or control shall be returned to Cadence or
destroyed by Consultant at Cadence's instruction. At Cadence's request,
Consultant shall then certify the same in writing and that no copies have
been retained by Consultant, its employees or agents.
7. MANDATORY DISCLOSURE EXEMPTIONS: Nothing herein shall restrict
Consultant's right to disclose the Confidential Information where such
disclosure is required by written order of a judicial, legislative, or
administrative authority of competent jurisdiction provided, however that, in
each case, Consultant will first notify Cadence of such need or requirement
and cooperate with Cadence in limiting the scope of the proposed disclosure.
Consultant will assist Cadence in taking all reasonable steps for obtaining
further appropriate means of limiting the scope of the required disclosure of
Cadence's Confidential Information.
8. EQUITABLE RELIEF AVAILABILITY: Consultant acknowledges that an
unauthorized disclosure of the Confidential Information may cause irreparable
harm to Cadence for which no adequate remedy at law exists and that, in
addition to any other remedies which may be available, Cadence shall be
entitled to seek injunctive relief to enforce the terms of this NDA.
9. NO RIGHTS OR LICENSES EXTENDED: No rights or licenses whatsoever, either
express or implied, are granted hereunder by one to the other as to any
patents or patent applications, copyrights, trade marks, trade secrets, or
other intellectual property now or hereafter acquired, developed, or
controlled. Cadence retains all rights and remedies afforded under all U.S.
and foreign patent, copyright, trade secret, and other applicable laws for
protecting confidential, proprietary, or trade secret information.
10. NO WAIVER OF RIGHTS: If one Party breaches this Agreement then the
failure of the other Party to enforce any rights under this NDA shall not be
deemed a waiver of any such rights.
11. TRANSFER RESTRICTIONS: Consultant will not transfer any disclosed
information received hereunder to any country prohibited from obtaining such
data according to any national export regulation, (e.g., U.S. Department of
Commerce Export Administration Regulations), without first obtaining all
valid export licenses and authorizations.
10
<PAGE>
EXHIBIT 10.56
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of _______________, is made by and between
Cadence Design Systems, Inc., a Delaware corporation (the "COMPANY"), and
___________________ an _____________________ of the Company (the "INDEMNITEE").
RECITALS
A. The Company is aware that competent and experienced persons
are increasingly reluctant to serve as directors or officers of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. Plaintiffs often seek damages in such large amounts and the
costs of litigation may be so substantial (whether or not the case is
meritorious), that the defense and/or settlement of such litigation is often
beyond the personal resources of officers and directors;
D. The Company believes that it is unfair for its directors and
officers and the directors and officers of its subsidiaries to assume the risk
of large judgments and other expenses that may be incurred in cases in which the
director or officer received no personal profit and in cases where the director
or officer was not culpable;
E. The Company recognizes that the issues in controversy in
litigation against a director or officer of a corporation such as the Company or
a subsidiary of the Company are often related to the knowledge, motives and
intent of such director or officer, that he is usually the only witness with
knowledge of the essential facts and exculpating circumstances regarding such
matters and that the long period of time which usually elapses before the trial
or other disposition of such litigation often extends beyond the time that the
director or officer can reasonably recall such matters; and may extend beyond
the normal time for retirement for such director or officer with the result that
he, after retirement or in the event of his death, his spouse, heirs, executors
or administrators, may be faced with limited ability and undue hardship in
maintaining an adequate defense, which may discourage such a director or officer
from serving in that position;
<PAGE>
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "BOARD") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company and its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company and its subsidiaries, it
is necessary for the Company to contractually indemnify its officers and
directors and the officers and directors of its subsidiaries, and to assume for
itself maximum liability for expenses and damages in connection with claims
against such officers and directors in connection with their service to the
Company and its subsidiaries, and has further concluded that the failure to
provide such contractual indemnification could result in great harm to the
Company and its subsidiaries and the Company's shareholders;
G. Section 145 of the General Corporation Law of Delaware, under
which the Company is organized ("SECTION 145"), empowers the Company to
indemnify by agreement its officers, directors, employees and agents, and
persons who serve, at the request of the Company, as directors, officers,
employees or agents of other corporations or enterprises, and expressly provides
that the indemnification provided by Section 145 is not exclusive;
H. The Company, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Company and its subsidiaries as of the date hereof is inadequate and/or
unreasonably expensive. The Company believes, therefore, that the interests of
the Company's shareholders would best be served by a combination of such
insurance as the Company may obtain, or request a subsidiary to obtain, pursuant
to the Company's obligations hereunder, and the indemnification by the Company
of the directors and officers of the Company and its subsidiaries.
I. The Company desires and has requested the Indemnitee to serve
or continue to serve as a director or officer of the Company and/or the
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or the
subsidiaries of the Company; and
J. The Indemnitee is willing to serve, or to continue to serve,
the Company and/or the subsidiaries of the Company, provided that he is
furnished the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
(a) AGENT. For the purposes of this Agreement, "agent" of
the Company means any person who is or was a director, officer, employee or
other agent of the Company or a subsidiary of the Company; or is or was serving
at the request of, for the convenience of, or to represent the interest of the
Company or a subsidiary of the Company as a director, officer,
<PAGE>
employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise; or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the Company or a subsidiary of the Company, or was
a director, officer, employee or agent of another enterprise at the request
of, for the convenience of, or to represent the interests of such predecessor
corporation.
(b) EXPENSES. For purposes of this Agreement, "expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements
and other out-of-pocket costs) actually and reasonably incurred by the
Indemnitee in connection with either the investigation, defense or appeal of a
proceeding or establishing or enforcing a right to indemnification under this
Agreement, Section 145 or otherwise; provided, however, that expenses shall not
include any judgments, fines, ERISA excise taxes or penalties or amounts paid in
settlement of a proceeding.
(c) PROCEEDING. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, investigative or any other
type whatsoever.
(d) SUBSIDIARY. For the purposes of this Agreement,
"subsidiary" means any corporation of which more than 50% of the outstanding
voting securities is owned directly or indirectly by the Company, by the Company
and one or more other subsidiaries, or by one or more other subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or
continue to serve as an agent of the Company, at its will (or under separate
agreement, if such agreement exists), in the capacity Indemnitee currently
serves as an agent of the Company, so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the Bylaws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing, provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment by Indemnitee.
3. MAINTENANCE OF LIABILITY INSURANCE.
(a) The Company hereby covenants and agrees that, so long
as the Indemnitee shall continue to serve as an agent of the Company and
thereafter so long as the Indemnitee shall be subject to any possible proceeding
by reason of the fact that the Indemnitee was an agent of the Company, the
Company, subject to Section 3(b), shall use reasonable efforts to obtain and
maintain in full force and effect director's and officer's liability ("D&O
INSURANCE") in reasonable amounts from established and reputable insurers.
(b) Notwithstanding the foregoing, the Company shall have
no obligation to obtain or maintain D&O Insurance if the Company determines in
good faith that such insurance is not reasonably available, the premium costs
for such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions
<PAGE>
so as to provide an insufficient benefit, or the Indemnitee is covered by
similar insurance maintained by a subsidiary of the Company.
<PAGE>
4. MANDATORY INDEMNIFICATION. The Company shall indemnify the
Indemnitee:
(a) THIRD PARTY ACTIONS. If the Indemnitee is a person
who was or is a party or is threatened to be made a party to any proceeding
(other than an action by or in the right of the company) by reason of the fact
that he is or was an agent of the Company, or by reason of anything done or not
done by him in any such capacity, against any and all expenses and liabilities
of any type whatsoever (including, but not limited to, judgments, fines, ERISA
excise taxes or penalties, and amounts paid in settlement) actually and
reasonably incurred by him in connection with the investigation, defense,
settlement or appeal of such proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; and
(b) DERIVATIVE ACTIONS. If the Indemnitee is a person who
was or is a party or is threatened to be made a party to any proceeding by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that he is or was an agent of the Company, or by reason of anything done or
not done by him in any such capacity, against any amounts paid in settlement of
any such proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement, or appeal of such
proceeding if he acted in good faith and in manner he reasonably believed to be
in or not opposed to the best interests of the Company; except that no
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and
(c) ACTIONS WHERE INDEMNITEE IS DECEASED. If the
Indemnitee is a person who was or is a party or is threatened to be made a party
to any proceeding by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
against any and all expenses and liabilities of any type whatsoever (including,
but not limited to, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, and, prior to, during
the pendency or after completion of such proceeding Indemnitee is deceased,
except that in a proceeding by or in the right of the Company no indemnification
shall be due under the provisions of this subsection in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company, by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in
<PAGE>
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such amounts which the Court of Chancery or such other
court shall deem proper; and
(d) EXCEPTION FOR AMOUNTS COVERED BY INSURANCE.
Notwithstanding the foregoing, the Company shall not be obligated to indemnify
the Indemnitee for expenses or liabilities of any type whatsoever (including,
but not limited to, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) which have been paid directly to Indemnitee by D&O
Insurance.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but not entitled, however, to indemnification for all of
the total amount thereof, the Company shall nevertheless indemnify the
Indemnitee for such total amount except as the portion thereof to which the
Indemnitee is not entitled.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Section 10
below, the Company shall advance all expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an agent of the
Company or by reason of anything done or not done by him in any such capacity.
Indemnitee hereby undertakes to repay such amounts advanced only if, and to the
extent that, it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Company as authorized hereby. The advances to
be made hereunder shall be paid by the Company to the Indemnitee within twenty
(20) days following delivery of a written request therefore by the Indemnitee to
the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by the Indemnitee of notice of
the commencement of or the threat of commencement of any proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with respect
thereto may be sought from the Company under this Agreement, notify the Company
of the commencement or threat of commencement thereof.
(b) If, at the time of receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to
advance the expenses for any proceeding against the Indemnitee, the Company, if
appropriate, shall be entitled to assume
<PAGE>
the defense of such proceeding, with counsel approved by the Indemnitee, upon
the delivery to the Indemnitee of written notice of its election so to do.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable
to the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided that
(i) the Indemnitee shall have the right to employ his counsel in any such
proceeding at the Indemnitee's expense; and (ii) if (A) the employment of
counsel by the Indemnitee has been previously authorized by the Company, (B)
the Indemnitee shall have reasonably concluded that there may be a conflict
of interest between the company and the Indemnitee in the conduct of any such
defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) To the extent the Indemnitee has been successful on
the merits or otherwise in defense of any proceeding referred to in Section
4(a), 4(b), or 4(c) of this Agreement or in the defense of any claim, issue or
matter described therein, the Company shall indemnify the Indemnitee against
expenses actually and reasonably incurred by him in connection with the
investigation, defense or appeal of such proceeding.
(b) In the event that Section 8(a) is inapplicable, the
Company shall also indemnify the Indemnitee unless, and only to the extent that,
the Company shall prove by clear and convincing evidence to a forum listed in
Section 8(c) below that the Indemnitee has not met the applicable standard of
conduct required to entitle the Indemnitee to such indemnification.
(c) The Indemnitee shall be entitled to select the forum
in which the validity of the Company's claim under Section 8(b) hereof that the
Indemnitee is not entitled to indemnification will be heard from among the
following:
(1) A quorum of the Board consisting of
directors who are not parties to the proceeding for which indemnification is
being sought;
(2) The stockholders of the Company;
(3) Legal counsel selected by the Indemnitee,
and reasonably approved by the Board, which counsel shall make such
determination in a written opinion.
(4) A panel of three arbitrators, one of whom is
selected by the Company, another of whom is selected by the Indemnitee and the
last of whom is selected by the first two arbitrators so selected.
(d) As soon as practicable, and in no event later than 30
days after written notice of the Indemnitee's choice of forum pursuant to
Section 8(c) above, the Company shall, at its own expense, submit to the
selected forum in such manner as the Indemnitee or the
<PAGE>
Indemnitee's counsel may reasonably request, its claim that the Indemnitee is
not entitled to indemnification; and the Company shall act in the utmost good
faith to assure the Indemnitee a complete opportunity to defend against such
claim.
(e) If the forum listed in Section 8(c) hereof selected
by Indemnitee determines that Indemnitee is entitled to indemnification with
respect to a specific proceeding, such determination shall be final and binding
on the Company. If the forum listed in Section 8(c) hereof selected by
Indemnitee determines that Indemnitee is not entitled to indemnification with
respect to a specific proceeding, the Indemnitee shall have the right to apply
to the Court of Chancery of Delaware, the court in which that proceeding is or
was pending or any other court of competent jurisdiction, for the purpose of
enforcing the Indemnitee's right to indemnification pursuant to the Agreement.
(f) Notwithstanding any other provision in this Agreement
to the contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the material claims and/or defenses of the Indemnitee in any such
proceeding was frivolous or not made in good faith.
9. LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No proceeding
shall be brought and no cause of action shall be asserted by or on behalf of the
Company or any subsidiary against the Indemnitee, his spouse, heirs, estate,
executors or administrators after the expiration of one year from the act or
omission of the Indemnitee upon which such proceeding is based; however, in a
case where the Indemnitee fraudulently conceals the facts underlying such cause
of action, no proceeding shall be brought and no cause of action shall be
asserted after the expiration of one year from the earlier of (i) the date the
Company or any subsidiary of the Company discovers such facts, or (ii) the date
the Company or any subsidiary of the Company could have discovered such facts by
the exercise of reasonable diligence. Any claim or cause of action of the
Company or any subsidiary of the Company, including claims predicated upon the
negligent act or omission of the Indemnitee, shall be extinguished and deemed
released unless asserted by filing of a legal action within such period. This
Section 9 shall not apply to any cause of action which has accrued on the date
hereof and of which the Indemnitee is aware on the date hereof, but as to which
the Company has no actual knowledge apart from the Indemnitee's knowledge.
10. EXPECTATIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or
advance expenses to the Indemnitee with respect to proceedings or claims
initiated or brought voluntarily by the Indemnitee and not by way of defense,
except with respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise
<PAGE>
as required under Section 145, but such indemnification or advancement of
expenses may be provided by the Company in specific cases if the Board of
Directors finds it to be appropriate; or
(b) LACK OF GOOD FAITH. To indemnify the Indemnitee for
any expenses incurred by the Indemnitee with respect to any proceeding
instituted by the Indemnitee to enforce or interpret this Agreement, if a court
of competent jurisdiction determines that each of the material assertions made
by the Indemnitee in such proceeding was not made in good faith or was
frivolous; or
(c) UNAUTHORIZED SETTLEMENTS. To Indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of a proceeding unless
the Company consents to such settlement; or
(d) CLAIMS BY THE COMPANY FOR WILLFUL MISCONDUCT. To
indemnify or advance expenses to the Indemnitee under this Agreement for any
expenses incurred by the Indemnitee with respect to any proceeding or claim
brought by the Company against Indemnitee for willful misconduct, unless a court
of competent jurisdiction determines that each of such claims was not made in
good faith or was frivolous; or
(e) 16(b) ACTIONS. To indemnify the Indemnitee on account
of any suit in which judgment is rendered against Indemnitee for an accounting
of profits made from the purchase or sale by Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) of the Securities and
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law; or
(f) WILLFUL MISCONDUCT. To indemnify the Indemnitee on
account of Indemnitee's conduct which is finally adjudged to have been knowingly
fraudulent or deliberately dishonest, or to constitute willful misconduct; or
(g) UNLAWFUL INDEMNIFICATION. To indemnify the Indemnitee
if a final decision by a court having jurisdiction in the matter shall determine
that such indemnification is not lawful.
11. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's shareholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
12. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
<PAGE>
13. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 12 hereof.
14. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
15. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.
16. NOTICE. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressee or (ii)
if mailed by certified or registered mail with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are as
shown on the signature page of this Agreement, or as subsequently modified by
written notice.
17. GOVERNING LAW. This Agreement shall be governed exclusively by
and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
with Delaware.
18. CONSENT TO JURISDICTION. The Company and the Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
<PAGE>
Address: Cadence Design Systems, Inc.
2655 Seely Rd.
San Jose, CA 95134
By
-----------------------------
Its
-----------------------------
INDEMNITEE:
--------------------------------
Address:
--------------------------------
--------------------------------
<PAGE>
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EXHIBIT 10.57
CADENCE DESIGN SYSTEMS, INC.
EXECUTIVE RETENTION AGREEMENT
This Executive Retention Agreement ("Agreement") is entered into by and
between _______________________, an individual (the "Executive") and Cadence
Design Systems, Inc., a corporation (the "Company," and together with the
Executive, the "Parties").
RECITALS
A. WHEREAS, the Executive is currently _________________________
of the Company;
B. WHEREAS, the Parties recognize that from time to time the
Company may consider the possibility of a merger, acquisition by another
company, strategic alliance or some other form of Change of Control (as defined
below);
C. WHEREAS, the Company's Board of Directors (the "Board")
recognizes that because of the uncertainty which can result upon the occurrence
of a Change of Control, it is in the best interests of the Company and its
stockholders to provide certain key employees, including the Executive, with an
incentive to continue their employment with the Company and to motivate them to
maximize the value of the Company for the benefit of stockholders;
D. WHEREAS, the Company has determined that it will provide
certain key employees, including the Executive, with severance compensation and
benefits upon termination of employment following a Change of Control, should
such an event occur;
NOW, THEREFORE, in consideration of the foregoing premises and for the
purposes hereinafter set forth and for other good and valuable consideration,
the adequacy of which is specifically acknowledged, the Parties hereto agrees as
follows:
AGREEMENT
ARTICLE I
1. PURPOSE. The purpose of this Agreement is to provide the
Executive with specified compensation and benefits in the event of a Termination
upon a Change of Control (as defined below).
2. NO EMPLOYMENT AGREEMENT. This Agreement does not constitute a
contract of employment or impose upon the Executive or the Company any
obligation to retain the Executive as an Employee, to change the status of the
Executive's employment, or to change the
<PAGE>
Company's policies regarding termination of employment. The Executive's
employment is and shall continue to be at-will. Subject to the terms of any
applicable written employment agreement between the Company and the Executive
prior to the Change of Control, the Company may assign the Executive to other
duties, or to another geographic location. If the Executive's employment with
the Company or a Successor (as defined below) terminates as a result of a
Termination Upon Change of Control (as defined below), the Executive shall
not be entitled to any payments, benefits, damages, awards or compensation
other than as provided by this Agreement.
3. CONTRACTUAL RIGHTS TO BENEFITS. Subject to the terms of this
Agreement, this Agreement establishes and vests in the Executive a contractual
right to the benefits to which he is entitled pursuant to the terms hereof,
enforceable by the Executive against the Company.
4. TAXATION OF PAYMENTS. All amounts paid pursuant to this
Agreement shall be subject to regular payroll and withholding taxes.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
1. DEFINITIONS. Capitalized terms used in this Agreement shall
have the meanings set forth in this Article II or elsewhere in this Agreement,
unless the context clearly requires a different meaning.
(a) BASE SALARY. "Base Salary" shall mean an amount equal
to the sum of (i) 100% of the Executive's annual base salary as in effect
immediately preceding a Change of Control.
(b) TARGET BONUS. "Target Bonus" shall mean the targeted
annual cash bonus which the Executive is eligible to receive assuming the
Company meets its Earnings Per Share target and assuming Executive's performance
is satisfactory, pursuant to the applicable bonus plan as in effect immediately
preceding the Change of Control.
(c) CAUSE. "Cause" shall mean:
(i) theft; a material act of dishonesty or
fraud; intentional falsification of any employment or Company records; or the
commission of any criminal act which impairs the Executive's ability to perform
appropriate employment duties for the Company;
(ii) improper disclosure or use of the Company's
confidential, business or proprietary information by the Executive;
(iii) The Executive's conviction, including any
plea of guilty or NOLO CONTENDERE, for a crime involving moral turpitude causing
material harm to the reputation and standing of the Company, as determined by
the Company in good faith; or
<PAGE>
(iv) gross negligence or willful misconduct in
the performance of the Executive's assigned duties (but not mere unsatisfactory
performance).
(d) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events:
(i) Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) becomes the "beneficial owner" (as defined in Rule 13d-3 under
Exchange Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the total voting power represented by the
Company's then outstanding voting securities; or
(ii) A change in the composition of the Board
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors (as defined below);
(iii) The consummation of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(iv) The consummation of the sale or disposition
by the Company of all or substantially all the Company's assets.
(e) CODE. "Code" shall mean the Internal Revenue Code of
1986, as amended.
(f) COMPANY. "Company" shall mean Cadence Design Systems,
Inc., and, following a Change of Control, any Successor (as defined below).
(g) COMPENSATION COMMITTEE. "Compensation Committee"
shall mean the compensation committee of the Board.
(h) DISABILITY. "Disability" shall mean that the
Executive has been unable to perform his or her duties as an Employee as the
result of incapacity due to physical or mental illness, and such inability, at
least 26 weeks after its commencement, is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be unreasonably withheld). Termination resulting from
Disability may only be effected after at least 30 days' written notice by the
Company of its intention to terminate the Executive's employment. In the event
that the Executive resumes the performance of substantially all of his or her
duties hereunder before the termination of his or her employment becomes
effective, at notice of intent to terminate shall automatically be deemed to
have been revoked.
<PAGE>
(i) EFFECTIVE DATE. "Effective Date" shall mean the date
this Agreement is executed by both the Parties.
(j) EMPLOYEE. "Employee" shall mean an individual
employed by the Company.
(k) GOOD REASON. "Good Reason" shall mean the occurrence
of any of the following conditions following a Change of Control, without the
Executive's informed written consent, which condition(s) remain(s) in effect
thirty (30) days after written notice to the Company from the Executive of such
condition(s):
(i) a 10% or more decrease in the Executive's
Base Salary and Target Bonus.
(ii) the relocation of the Executive's primary
work place for the Company to a location more than fifty (50) miles from the
location of the work place prior to the Change of Control;
(iii) a material reduction of the Executive's
duties or responsibilities relative to the Executive's duties or
responsibilities in effect immediately prior to such reduction. For purposes of
this subparagraph, a material reduction of duties and responsibilities would
include a change in assignment from one substantive area of competence to
another (such as, from accounting to marketing), or assignment to a new position
which connotes a materially lesser rank or status, or involves diminished
managerial responsibilities;
(iv) a material reduction by the Company in the
kind or level of employee benefits to which the Executive is entitled
immediately prior to such reduction with the result that the Executive's overall
benefits package is significantly reduced;
(v) the failure of the Company to obtain the
assumption of this Agreement by any Successor (as defined below);
(vi) In the event the Executive, prior to the
Change of Control, is identified as an executive officer of the Company for
purposes of the rules promulgated under Section 16 of the Exchange Act and
following a Change of Control in which the Company or any Successor remains a
publicly-traded entity, the Executive is not identified as an executive officer
for purposes of Section 16 of the Exchange Act.
(l) INCUMBENT DIRECTORS. "Incumbent Directors" shall mean
directors who either (i) are directors of the Company as of the date hereof, or
(ii) are elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the Incumbent Directors at the time of such
election or nomination, provided, however, that no individual shall be
considered an Incumbent Director if the individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of
<PAGE>
a person other than the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest.
(m) EXECUTIVE. "Executive" shall mean ___________________
so long as he meets the eligibility requirements of Article III.
(n) SUCCESSOR. "Successor" means the Company as defined
above, and any successor or assign, whether direct or indirect, by purchase of
assets or stock, merger, consolidation or otherwise, to all or substantially all
of the business and/or assets of the Company or a majority of the voting
securities of the Company.
(o) TERMINATION UPON CHANGE OF CONTROL. "Termination Upon
Change of Control" means:
(i) the termination of the employment of the
Executive by the Company without Cause during the period commencing thirty (30)
days prior to the earlier of (A) the date that the Company first publicly
announces it is conducting negotiations leading to a Change of Control, or (B)
the date that the Company enters into a definitive agreement that would result
in a Change of Control (even those still subject to approval by the Company's
stockholders and other conditions and contingencies); and ending on the date
which is thirteen (13) months after the Change of Control; or
(ii) any resignation by the Executive for Good
Reason, as defined in this Agreement, within thirteen (13) months after the
occurrence of any Change of Control. In the event of a resignation by the
Executive for Good Reason during the thirteen (13) month period following the
occurrence of a Change of Control, the Executive shall give written notice of
the occurrence of the event or events upon which he relies to resign for Good
Reason within ninety (90) days following the date of such occurrence, shall
indicate the specific provision(s) of this Agreement upon which the Executive
relied to make such determination, and shall state in reasonable detail the
facts and circumstances claimed to provide the basis for such determination. As
set forth above, upon receipt of written notice from the Executive, the Company
shall have thirty (30) days to cure the condition(s) giving rise to Executive's
claimed right to resign for "Good Reason." Failure to comply with the notice
requirement set forth herein shall preclude Executive from receiving the
severance compensation and benefits described in this Agreement; but
(iii) "Termination Upon Change of Control" shall
not include any termination of the employment of the Executive (A) by the
Company for Cause; (B) by the Company as a result of the Disability of the
Executive; (C) as a result of the death of the Executive; or (D) as a result of
the voluntary termination of the employment of the Executive for reasons other
than Good Reason (I.E., resignation).
<PAGE>
ARTICLE III
ELIGIBILITY
The Executive remains eligible to receive the benefits provided under
this Agreement so long as he remains an employee of the Company. Notwithstanding
the foregoing, in the event the Executive tenders his resignation prior to the
Change of Control, or is subject to a written performance improvement plan with
the Company immediately prior to a Change of Control, the Executive is not
eligible to receive the benefits under this Agreement.
ARTICLE IV
SEVERANCE COMPENSATION AND BENEFITS
1. BASIC COMPENSATION AT TIME OF TERMINATION. In the event of the
Executive's Termination Upon Change of Control, the Executive shall be entitled
to the basic severance compensation described below:
(a) SALARY. All salary and accrued vacation earned
through the date of the Executive's termination of employment shall be paid to
the Executive.
(b) EXPENSE REIMBURSEMENT. Within thirty (30) days of
submission of proper expense reports, the Company shall reimburse the Executive
for all expenses reasonably and necessarily incurred by the Executive in
connection with the business of the Company prior to the Executive's termination
of employment.
(c) EMPLOYEE BENEFITS. The Executive shall receive the
benefits, if any, under all Company benefit plans to which the Executive may be
entitled pursuant to the terms of such plans.
2. ADDITIONAL CASH SEVERANCE BENEFIT. In the event of the
Executive's Termination Upon Change of Control, the Executive shall be entitled
to the additional severance benefit described below.
(a) CASH SEVERANCE PAYMENT. A lump sum cash severance
payment shall be made to the Executive equal to the sum of 100% of the
Executive's Base Salary and Target Bonus. The Target Bonus shall be paid in
full, regardless of whether the Company actually met its Earnings Per Share
target and regardless of whether Executive's performance was satisfactory.
The cash severance payments described herein shall be reduced by
applicable federal and state withholding, and paid within thirty (30) days of
termination of employment, unless determination of the amount due is not fixed
or is in dispute on the date of termination of employment in which case it shall
be paid within ten (10) days of the Company's receipt of Executive's written
election of the amount due (as described in Article V, Paragraph 1) but, in
<PAGE>
any event, not prior to the eighth day following the Executive's
execution of the release of claims described in Article VI, paragraph 3.
3. STOCK OPTION ACCELERATION. The Executive shall receive
stock option acceleration as described below.
(a) 100% STOCK ACCELERATION. In the event of the
Executive's Termination Upon Change of Control, all outstanding stock options
granted and restricted stock issued by the Company to the Executive prior to the
Change of Control shall have their vesting fully accelerated so as to be 100%
vested as of the date of such Termination Upon Change of Control, or ten (10)
days following the Company's receipt of the Executive's written election
(described in Article V, Paragraph 1), whichever occurs last, but in either
event not prior to the eighth day following the Executive's execution of the
release of claims described in Article VI, paragraph 3.
(b) ACCELERATION UPON NON-ASSUMPTION IN A CHANGE OF
CONTROL. If there is a Change of Control transaction in which the outstanding
stock options granted and restricted stock issued by the Company prior to the
transaction are not fully assumed by the Successor, or replaced by fully
equivalent substitute options or restricted stock, then all options and
restricted stock shall have their vesting fully accelerated to be 100% vested
immediately prior to the effective date of the Change of Control. The date such
unexercised options will terminate and the period during which the Executive may
exercise the fully vested options shall be governed by the applicable stock
option plan under which the options were granted. Alternatively, the Company and
the Executive may elect, with the consent of both, that the Company will deliver
to the Executive on the effective date of the Change of Control a cash payment
equal to the difference between (i) the aggregate exercise price of the
Executive's unexercised options or restricted stock, and (ii) the value of the
consideration deliverable for an equivalent number of shares as a result of the
Change of Control transaction.
4. MEDICAL AND DENTAL BENEFITS PURSUANT TO COBRA. In the event of
the Executive's Termination Upon Change of Control, the Executive shall be
eligible for continued employee medical and dental insurance coverage to the
extent provided by and subject to the terms of the Consolidated Budget
Reconciliation Act of 1985 ("COBRA").
5. VOLUNTARY RESIGNATION; TERMINATION FOR CAUSE. If the
Executive's employment terminates by reason of the Executive's voluntary
resignation and is not a termination for Good Reason, or if the Executive is
terminated involuntarily for Cause, then the Executive shall not be entitled to
receive benefits except for those (if any) as may then be established under the
Company's then existing severance and benefits plans and policies at the time of
such termination other than under this Agreement or as specified in any
individual written agreements by and between the Company and the Executive.
6. DISABILITY OR DEATH. If the Company terminates the Executive's
employment as a result of the Executive's Disability, or the Executive's
employment is terminated due to the death of the Executive, then the Executive
shall not be entitled to receive severance or other benefits except for those
(if any) as may then be established under the Company's then existing severance
<PAGE>
and benefits plans and policies or as specified in any individual written
agreements by and between the Company and the Executive at the time of such
Disability or death.
7. TERMINATION APART FROM CHANGE OF CONTROL. In the event that
the Executive's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the thirteen-month period following a
Change of Control, then the Executive shall be entitled to receive severance
benefits only as may then be established under the Company's existing severance
and benefit plans and policies at the time of such termination other than this
Agreement or as is specified in any individual written agreements by and between
the Company and the Executive.
ARTICLE V
FEDERAL EXCISE TAX UNDER SECTION 280G OF THE CODE
1. ADJUSTMENT OF EXCESS PAYMENTS PAYABLE TO THE EXECUTIVE. If (a)
any amounts payable to the Executive under this Agreement are characterized as
excess parachute payments pursuant to Section 4999 of the Code, and (b) the
Executive thereby would be subject to any United States Federal excise tax due
to that characterization, then (c) the Executive may elect, in the Executive's
sole discretion, to reduce the amounts payable under this Agreement or to have
any portion of the applicable options or restricted stock not vest in order to
avoid any "excess parachute payment" under Section 280G(b)(1) of the Code. If
the Executive does not make an election within thirty (30) days of his
termination upon Change of Control or within (5) days following the
determination by Independent Public Accountants described in Article V, Section
2 below, whichever occurs latest, then the entire amount shall be paid to him
and he will be responsible for payment of any excise taxes.
2. DETERMINATION BY INDEPENDENT PUBLIC ACCOUNTANTS. Unless the
Company and the Executive otherwise agree in writing, any determination required
under this Article V shall be made in writing by independent public accountants
agreed to by the Company and the Executive (the "Accountants"), whose
determination shall be conclusive and binding upon the Executive and the Company
for all purposes. For purposes of making the calculations required by this
Article V, the Accountants may rely on reasonable, good faith interpretations
concerning the applications of Sections 280G and 4999 of the Code. The Company
and the Executive shall furnish to the Accountant such information and documents
as the Accountants may reasonably request in order to make the required
determination. The Company shall bear all fees and expenses the Accountants may
reasonably charge in connection with the services contemplated by this Article
V.
ARTICLE VI
EXCLUSIVE REMEDIES
<PAGE>
1. SOLE REMEDY FOR TERMINATION UPON CHANGE OF CONTROL. The
severance payments and benefits described in Article IV shall constitute the
Executive's sole and exclusive remedy for any alleged injury or other damages
arising out of the cessation of the employment relationship between the
Executive and the Company in the event of the Executive's Termination Upon
Change of Control.
2. NO OTHER BENEFITS PAYABLE. The Executive shall be entitled to
no other compensation, benefits or other payments from the Company as a result
of any termination of employment with respect to which the payments and/or
benefits described in Article IV have been provided to the Executive, except as
expressly set forth in a written agreement or in a duly executed employment
agreement between the Company and the Executive.
3. RELEASE OF CLAIMS. The Executive acknowledges that the right
to receive the cash severance compensation, stock option acceleration, and other
benefits described in Article IV is expressly conditioned on the Executive
executing, at the time of termination, a release and waiver of claims which is
substantially similar to the one attached hereto as Exhibit A.
ARTICLE VII
PROPRIETARY AND CONFIDENTIAL INFORMATION
1. CONTINUED COMPLIANCE. The Executive agrees to continue to
abide by the terms and conditions of the Company's Employee Invention and
Confidential Information Agreement executed by the Executive on or about
________________ and attached hereto as Exhibit B.
2. RETURN OF COMPANY PROPERTY. The Executive agrees to return all
Company property in his possession and under his control within ten (10) days of
his employment termination.
3. NONSOLICITATION. If the Company has performed its obligations
to deliver the severance benefits described in Article IV of the Agreement, then
for a period of one (1) year after the Executive's Termination Upon Change of
Control, the Executive will not, directly or indirectly, solicit the services or
business of or in any other manner persuade any employee, distributor, vendor,
representative or customer of the Company to discontinue that person's or
entity's relationship with or to the Company.
4. OTHER AGREEMENTS NOT SUPERSEDED. This Article VII shall not
supersede or limit the terms, including more restrictive terms, of any other
agreement by the Executive to refrain from competition with or from soliciting
the employees or customers of the Company.
ARTICLE VIII
DISPUTE RESOLUTION
1. DISPUTES SUBJECT TO ARBITRATION. Any claim, dispute or
controversy arising in any way out of this Agreement, or the interpretation,
validity, enforceability or breach thereof, shall
<PAGE>
be submitted by the Executive and Company to confidential, final and binding
arbitration conducted by JAMS/Endispute under the then-existing
JAMS/Endispute rules, rather than by litigation in court, trial by jury,
administrative proceeding, or any other forum; provided, however, that (a)
the arbitrator shall have no authority to make any ruling or judgment that
would confer any rights with respect to the trade secrets, confidential and
proprietary information or other intellectual property of the Company upon
the Executive or any third party; and (b) this arbitration provision shall
not preclude the Company from seeking legal and equitable relief from any
court having jurisdiction with respect to any disputes or claims relating to
or arising out of the misuse or misappropriation of the Company's
intellectual property. Judgment may be entered on the award of the arbitrator
in any court having jurisdiction.
2. SITE OF ARBITRATION; EXPENSES AND FEES. The site of the
arbitration proceeding shall be in Santa Clara County, California. The costs and
expenses relating to the arbitration proceeding itself, including the fees of
the arbitrator, shall be borne by the Company. The Executive and Company shall
each be responsible for its own attorneys' fees, including any expert witness
fees, incurred in connection with the arbitration proceeding.
ARTICLE IX
TERM, AMENDMENT
1. TERM. This Agreement shall continue for two years from the
Effective Date, and shall be automatically renewed for successive one-year
periods, unless, prior to a Change of Control and prior to the applicable
automatic renewal date, action is taken by the Board to terminate this
Agreement.
2. AMENDMENT. This Agreement may not be amended, modified,
altered, or supplemented other than by means of a written instrument duly
executed by the Company and the Executive.
ARTICLE X
MISCELLANEOUS PROVISIONS
1. NO DUTY TO MITIGATE. Other than offsets specifically provided
for herein, the Executive shall not be required to mitigate the amount of any
payment contemplated by this Agreement, nor shall any such payment be reduced by
any earnings that the Executive may receive from any other source.
2. NO LIMITATION OF REGULAR BENEFIT PLANS. This Agreement is not
intended to and shall not affect, limit or terminate any plans, programs or
arrangements of the Company that are regularly made available to a significant
number of employees, officers or executives of the Company, including without
limitation, the Company's stock option plans.
3. NONACCUMULATION OF BENEFITS. The Executive may not accumulate
cash severance payments and/or stock option acceleration under both this
Agreement and another agreement. If
<PAGE>
the Executive has another binding written agreement with the Company which
provides that upon a Change of Control or termination of employment, the
Executive shall receive one or more of the benefits described in Article IV
of this Agreement (I.E., the payment of cash compensation or acceleration of
vesting of stock options or restricted stock rights), then with respect to
those benefits the aggregate amounts payable under this Agreement shall be
reduced by the amounts paid or payable under such other and separate
agreements.
4. SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
5. SUCCESSORS OF THE COMPANY. The Company will require any
Successor expressly and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession or assignment had taken place.
6. HEIRS OF THE EXECUTIVE. Rights and benefits under this
Agreement shall inure to the benefit of and be enforceable by the Executive's
personal and legal representatives, executors, administrators, successors,
heirs, distributees and legatees.
7. NOTICES. For purposes of this Agreement, notices and all other
communications permitted or provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Cadence Design Systems, Inc.
Attn: General Counsel
2655 Seely Road, MS/5B1
San Jose, CA 95134
If to the Executive: At the most recent address recorded in
the records of the Company. Either party may provide the other
with notices of changes of address, which shall be effective
upon receipt.
8. NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection shall be
void.
9. GOVERNING LAW. The Agreement shall be interpreted in
accordance with and governed by the laws of the State of California as applied
to contracts entered into and entirely to be performed within the State of
California.
<PAGE>
10. COOPERATION OF THE EXECUTIVE AFTER TERMINATION OF EMPLOYMENT.
In the event the Executive's employment is terminated, as the result of a Change
of Control or otherwise, the
<PAGE>
Executive agrees to cooperate with the Company with respect to all
matters relating to the completion of any pending work and the orderly transfer
of such work to other Employees.
Dated:
---------------------
- ---------------------------
CADENCE DESIGN SYSTEMS, INC.
By:
-----------------------
H. Raymond Bingham
Title: President and Chief Executive Officer
Dated:
--------------------
<PAGE>
EXHIBIT 21.01
CADENCE DESIGN SYSTEMS, INC.
SUBSIDIARIES OF THE REGISTRANT
The Registrant's subsidiaries and the state or country in which each is
incorporated or organized, are as follows:
<TABLE>
<S> <C>
Accent S.r.l.(1).......................................................Italy
Ambit Design Systems, Inc. ............................................U.S.A.
Ambit Design Systems Limited ..........................................United Kingdom
Cadence (Barbados) FSC Inc. ...........................................Barbados
Cadence China Ltd. ....................................................Hong Kong
Cadence Credit Corporation, Inc. ......................................U.S.A.
Cadence Design Systems (Canada) Limited ...............................Canada
Cadence Design Systems (India) Private Ltd. ...........................India
Cadence Design Systems (Ireland) Limited ..............................Ireland
Cadence Design Systems (Israel) Limited ...............................Israel
Cadence Design Systems (Japan) B.V. ...................................Netherlands
Cadence Design Systems (S) Pte Ltd. ...................................Singapore
Cadence Design Systems I B.V. .........................................Netherlands
Cadence Design Systems (Taiwan) B.V. ..................................Netherlands
Cadence Design Systems AB .............................................Sweden
Cadence Design Systems Asia Ltd. ......................................Hong Kong
Cadence Design Systems B.V. ...........................................Netherlands
Cadence Design Systems GmbH ...........................................Germany
Cadence Design Service Y.K. ..........................................Japan
Cadence Design Systems, Ltd ...........................................United Kingdom
Cadence Design Systems S.A.S. .........................................France
Cadence Design Systems S.r.l. .........................................Italy
Cadence International Sales Corporation................................U.S. Virgin Islands
Cadence Korea Ltd. ....................................................Korea
Cadence Receivables Corporation .......................................U.S.A.
Cadence Receivables Consolidation Corporation .........................U.S.A.
Cadence Taiwan, Inc. ..................................................Taiwan
Castlewilder ..........................................................Ireland
Cooper & Chyan Technology GmbH.........................................Germany
Cooper & Chyan Technology, Inc. .......................................U.S.A.
Cooper & Chyan Technology, Ltd. .......................................United Kingdom
Detente Technology, Inc. ..............................................U.S.A.
</TABLE>
- ---------
(1) Change in ownership from 51% to 49% on March 1, 1999.
<PAGE>
EXHIBIT 21.01 (CONTINUED)
CADENCE DESIGN SYSTEMS, INC.
SUBSIDIARIES OF THE REGISTRANT
The Registrant's subsidiaries and the state or country in which each is
incorporated or organized, are as follows:
<TABLE>
<S> <C>
Esperan Limited .......................................................United Kingdom
Esperan (US) Limited ..................................................United Kingdom
High Level Design Systems, Ltd. .......................................United Kingdom
Innotech Company ......................................................Japan
Integrated Measurement Systems, Inc. ..................................U.S.A.
River Oaks Place Association ..........................................U.S.A.
Seeley Properties, Inc. ...............................................U.S.A.
Simon Software, Inc. ..................................................U.S.A.
Symbionics Group Limited ..............................................United Kingdom
Symbionics Limited ....................................................United Kingdom
Synthesia AB ..........................................................Sweden
Telos Venture Partners ................................................U.S.A.
Unicad, Inc. ..........................................................U.S.A.
UVW Ltd ...............................................................United Kingdom
Valid Europe BVBA .....................................................Belgium
3005353 Nova Scotia ...................................................Nova Scotia
Quickturn Design Systems, Inc..........................................U.S.A.
Quickturn Design Systems International, Inc. ..........................U.S.A.
Quickturn Design Systems Belgium S.A. .................................Belgium
Quickturn Design Systems Israel Ltd. ..................................Israel
Quickturn Design Systems AB Sweden ....................................Sweden
Quickturn Design Systems (UK) Ltd. ....................................United Kingdom
Quickturn Design Systems S.A.R.L. .....................................France
Quickturn Design Systems GmbH .........................................Germany
Quickturn Design Systems, Asia, Inc. ..................................U.S.A.
Quickturn Design Systems KK............................................Japan
PiE S.A.R.L. ..........................................................France
Quickturn Design Systems FSC Limited...................................Barbados
Speedsim, Inc. ........................................................U.S.A.
Orcad, Inc. ...........................................................U.S.A.
Microsim Corporation ..................................................U.S.A.
Orcad Japan K.K. ......................................................Japan
Orcad UK Limited ......................................................United Kingdom
Orcad Foreign Sales Corporation .......................................Guam
Design Acceleration, Inc. .............................................U.S.A.
1Chip Silicon Systems, Inc.............................................U.S.A.
RO Seely Corporation ..................................................U.S.A.
Daffodil Acquisition, Inc. ............................................U.S.A.
Daffodil Acquisition II, Inc. .........................................U.S.A.
<PAGE>
Daffodil Acquisition LLC ..............................................U.S.A.
Diablo Research Company LLC............................................U.S.A.
Diablo Lighting, Inc. .................................................U.S.A.
Sibford Limited .......................................................Ireland
Cadence China Technologies PTE Limited(2)..............................Singapore
</TABLE>
- --------
(2) Cadence Design Systems (Ireland) Limited owns 19% of this entity.
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements (File Nos. 33-43025, 33-48371, 33-53913, 333-18963,
333-27109, 333-34599, 333-40047, 333-61029, 333-65529, 333-71717, 333-85591,
333-93609, and 333-69589) on Form S-8.
/S/ ARTHUR ANDERSEN LLP
-------------------------
Arthur Andersen LLP
San Jose, California
March 27, 2000
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-43025, 44-48371, 33-53913, 333-18963, 333-27109,
333-34599, 333-40047, 333-61029, 333-65529, 333-71717, 333-85591, 333-93609 and
333-69589) of Cadence Design Systems, Inc. of our report dated January 15, 1999
relating to the financial statements, which appears in this Form 10-K.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CADENCE
DESIGN SYSTEMS, INC.'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
JANUARY 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JAN-01-2000
<CASH> 111,401
<SECURITIES> 7,357
<RECEIVABLES> 248,034
<ALLOWANCES> 44,588
<INVENTORY> 19,872
<CURRENT-ASSETS> 479,912
<PP&E> 602,955
<DEPRECIATION> 272,546
<TOTAL-ASSETS> 1,459,659
<CURRENT-LIABILITIES> 421,558
<BONDS> 0
0
0
<COMMON> 617,212
<OTHER-SE> 368,937
<TOTAL-LIABILITY-AND-EQUITY> 1,459,659
<SALES> 0
<TOTAL-REVENUES> 1,093,303
<CGS> 0
<TOTAL-COSTS> 386,631
<OTHER-EXPENSES> 719,422
<LOSS-PROVISION> 9,070
<INTEREST-EXPENSE> 3,296
<INCOME-PRETAX> (11,380)
<INCOME-TAX> 2,695
<INCOME-CONTINUING> (14,075)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,075)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CADENCE
DESIGN SYSTEMS, INC.'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
JANUARY 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> JAN-03-1998 JAN-02-1999 JAN-02-1999 JAN-02-1999
JAN-02-1999
<PERIOD-START> DEC-29-1996 JAN-04-1998 JAN-04-1998 JAN-04-1998
JAN-04-1998
<PERIOD-END> JAN-03-1998 JAN-02-1999 APR-04-1998 JUL-04-1998
OCT-03-1998
<CASH> 221,030 209,074 195,929 152,135
232,326
<SECURITIES> 115,399 40,403 136,225 144,820
50,840
<RECEIVABLES> 236,601 305,143 221,038 247,426
254,030
<ALLOWANCES> 26,080 22,989 20,420 13,328
15,564
<INVENTORY> 10,899 9,903 11,244 5,008
6,932
<CURRENT-ASSETS> 695,333 666,152 652,163 640,273
641,982
<PP&E> 365,486 487,689 405,488 432,272
460,835
<DEPRECIATION> 156,947 213,481 173,988 187,817
199,979
<TOTAL-ASSETS> 1,153,247 1,481,916 1,183,614 1,229,574
1,499,664
<CURRENT-LIABILITIES> 303,926 371,824 278,306 290,148
591,423
<BONDS> 0 0 0 0
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 495,884 598,561 546,958 520,234
512,745
<OTHER-SE> 325,479 349,269 322,038 380,813
302,363
<TOTAL-LIABILITY-AND-EQUITY> 1,153,247 1,481,916 1,183,614 1,229,574
1,499,664
<SALES> 0 0 0 0
0
<TOTAL-REVENUES> 1,036,773 1,320,180 293,788 609,524
943,708
<CGS> 0 0 0 0
0
<TOTAL-COSTS> 228,086 337,164 70,695 156,867
243,972
<OTHER-EXPENSES> 584,981 893,528 206,544 357,184
674,458
<LOSS-PROVISION> 438 7,687 0 2,010
3,724
<INTEREST-EXPENSE> 2,780 3,735 443 734
1,699
<INCOME-PRETAX> 252,096 100,046 19,867 102,156
34,023
<INCOME-TAX> 74,698 74,922 21,821 44,148
56,468
<INCOME-CONTINUING> 177,398 25,124 (1,954) 58,008
(22,445)
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 12,276 0 0 0
0
<NET-INCOME> 165,122 25,124 (1,954) 58,008
(22,445)
<EPS-BASIC> 0.76 0.11 (0.01) 0.25
(0.10)
<EPS-DILUTED> 0.68 0.10 (0.01) 0.22
(0.10)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CADENCE
DESIGN SYSTEMS, INC.'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
JANUARY 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 238,177
<SECURITIES> 22,303
<RECEIVABLES> 278,161
<ALLOWANCES> 28,479
<INVENTORY> 8,111
<CURRENT-ASSETS> 655,005
<PP&E> 514,513
<DEPRECIATION> 225,322
<TOTAL-ASSETS> 1,549,544
<CURRENT-LIABILITIES> 308,148
<BONDS> 0
0
0
<COMMON> 658,652
<OTHER-SE> 403,018
<TOTAL-LIABILITY-AND-EQUITY> 1,549,544
<SALES> 0
<TOTAL-REVENUES> 335,191
<CGS> 0
<TOTAL-COSTS> 91,408
<OTHER-EXPENSES> 166,383
<LOSS-PROVISION> 2,019
<INTEREST-EXPENSE> 1,222
<INCOME-PRETAX> 77,534
<INCOME-TAX> 24,672
<INCOME-CONTINUING> 52,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,862
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.20
</TABLE>
